<PAGE>
As filed with the Securities and Exchange Commission on March 14, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------
HOB Entertainment, Inc.
(Exact name of registrant as specified in its charter)
---------------
<TABLE>
<S> <C> <C>
Delaware 7922 75-2423081
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
6255 Sunset Boulevard, 16th Floor
Hollywood, California 90028
(323) 769-4600
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Gregory A. Trojan
Chief Executive Officer
HOB Entertainment, Inc.
6255 Sunset Boulevard, 16th Floor
Hollywood, California 90028
(323) 769-4600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
James P. Beaubien, Esq. Gary I. Horowitz, Esq.
Latham & Watkins Simpson Thacher & Bartlett
633 W. Fifth Street, Suite 4000 425 Lexington Avenue
Los Angeles, CA 90071 New York, New York 10017
(213) 485-1234 (212) 455-2000
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement is declared
effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Proposed maximum
Title of each class of aggregate offering Amount of
Securities to be registered price(1)(2) Registration Fee
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.0001 par value................. $100,000,000 $26,400
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(a) promulgated under the
Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 14, 2000.
Shares
[LOGO OF HOUSE OF BLUES]
HOB Entertainment, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of HOB
Entertainment, Inc. All of the shares of common stock are being
sold by HOB Entertainment, Inc.
Prior to this offering, there has been no public market for the common stock.
We estimate that the initial public offering price will be between $ and
$ per share. We have applied for quotation of the common stock on the
Nasdaq National Market under the symbol "HOBE."
See "Risk Factors" on page 7 to read about factors you should consider before
buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to HOB Entertainment, Inc. ...... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from HOB Entertainment, Inc. at the initial public offering price less
the underwriting discount.
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000
Goldman, Sachs & Co. Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Prudential Securities
-----------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
The following summary is intended to highlight information found in greater
detail elsewhere in this prospectus. You should read this entire prospectus
carefully, especially the risks of investing in our common stock discussed
under "Risk Factors." As used in this prospectus, the terms "HOB
Entertainment," "we," "us," and "our" refer to HOB Entertainment, Inc.
HOB Entertainment, Inc.
Our Business
We are a leading live music entertainment company with a network of premier
clubs and concert venues, a strong brand name and an integrated Internet and
digital strategy. We own, operate or exclusively book 27 live music venues
including:
. seven widely known House of Blues(R) clubs and
. 20 premier amphitheatre, theatre and arena concert venues.
We believe that we are the second largest operator of amphitheatre, theatre and
arena concert venues, and the second largest promoter of live concerts in the
United States. We believe that we are also the largest promoter of live
concerts in Canada through a joint venture we operate. The live concert
performances that we promote and distribute reflect a diverse array of music
genres, including pop, rock, hard rock, Latin, hip hop, rap, blues, R&B, jazz,
soul, funk, swing, country & western, gospel and contemporary, and appeal to an
equally diverse demographic base. We promote more than 3,500 live music
performances annually and are able to attract high-quality talent by offering a
state-of-the-art live performance environment, venues of varying types and
sizes and unique multimedia promotional opportunities for artists.
We are uniquely positioned to capitalize on the live performances we
present at our venues by digitally capturing a wide array of audio and visual
live music content and distributing it through a variety of media, including
our web site, www.hob.com, other forms of digital media, television and radio.
We began distributing live music entertainment over the Internet in 1995. We
believe we were the first to offer both free and pay-per-view streaming of live
music entertainment on the Internet. We believe that we are well-positioned to
be a leader in the distribution of high-quality live music entertainment
through the Internet and other digital media because of our fully integrated
operations and the strength of our widely recognized House of Blues brand name.
We believe that consumers and artists identify our House of Blues brand with a
high-quality live music experience and we seek to continually reinforce our
brand as "The Home of Live Music" SM and "The Home of Live Music on the
Internet." SM
Our Unique Business Model
We believe that there is a large, unmet demand for live music entertainment
worldwide. We believe that the live music entertainment business has
historically fulfilled only a limited portion of consumer demand because of
inherent constraints of time, geography, availability and cost of live music
performances. We believe there are numerous economically and demographically
advantageous markets which are under-served by existing live music venues.
Additionally, we believe that the high costs of producing, marketing and
distributing a single live music event have limited the selection of live music
content currently available to consumers. We believe that the continued
development of new digital distribution media will result in significant
opportunities to efficiently and effectively meet consumer demand for live
music entertainment.
1
<PAGE>
Our business provides consumers with the opportunity to experience high-
quality live music both at our premier clubs and concert venues and through the
Internet and other forms of digital and traditional media. Key components of
our unique business model include:
. our wide array of concert venue types and sizes;
. our widely recognized and powerful House of Blues brand name;
. our talent buyers' and promoters' strong relationships with both
emerging and established artists, their representatives and record
labels;
. our direct access to high-quality live music content created at our
clubs and concert venues;
. our technical expertise and unique ability to digitally capture,
repurpose and distribute live music content at little incremental cost,
thus creating new, innovative, revenue-generating products;
. our "first-mover" advantage and experience in creating an online source
for high-quality live music, which enables us to cultivate hob.com as
"The Home of Live Music on the Internet;" and
. our strategic relationships with leading music content, Internet,
digital distribution and technology companies.
Our Strategy
Our objective is to be the leading source for high-quality, diverse live
music entertainment through a powerful multimedia distribution platform. Our
key strategies to fulfill this objective include:
. Positioning our House of Blues brand as the source for the highest-
quality live music entertainment across a variety of music genres. We
believe that House of Blues is one of the most widely recognized
consumer brands for live music in North America. We intend to continue
to develop House of Blues as an internationally recognized brand
synonymous with high-quality live music entertainment.
. Expanding and capitalizing on long-term relationships with artists,
their representatives and record labels to maximize our access to high-
quality live music content. We intend to nurture our strong industry
relationships and enhance artists' attraction to our state-of-the-art
live concert facilities and multimedia promotional opportunities in
order to expand our access to a wide array of high-quality live music
content.
. Growing our position as a leading live music venue operator and
promoter. We intend to develop additional House of Blues clubs and
larger capacity concert venues in targeted markets. We also intend to
continue to expand our promotions businesses to further increase our
access to artists and our penetration of important geographical markets.
. Leveraging the opportunities created by our fully integrated operations
to become the leading multimedia producer and distributor of live music
entertainment products. We intend to capitalize on our position as a
leading live music venue operator and promoter, as well as our
multimedia capabilities, to continue booking and showcasing high-quality
artists. We intend to continue to use our existing, cost-effective
production infrastructure to digitally capture and distribute high-
quality live music content which will generate new sources of revenue
for ourselves, artists, their representatives and record labels.
2
<PAGE>
. Continuing to pursue strategic alliances and relationships to enhance
our access to live music entertainment content and expand our
distribution network. We intend to continue to enter into strategic
relationships with leading content providers in order to gain greater
access to live music content. Furthermore, we intend to continue to
enter into strategic relationships with leading telecommunications
companies, Internet service providers, online portals and other music-
related web site operators in order to enhance our Internet and other
digital distribution capabilities, generate new Internet traffic for our
hob.com web site and broaden our interaction with web users.
Corporate Information
We were incorporated in Texas in June 1992 under the name House of Blues,
Inc. and reincorporated in Delaware in December 1992 under the same name. On
June 18, 1993, House of Blues, Inc. changed its name to HOB Entertainment, Inc.
Our executive offices are located at 6255 Sunset Boulevard, 16th Floor,
Hollywood, California 90028, our telephone number is (323) 769-4600 and our fax
number is (323) 769-4601. We maintain a web site at www.hob.com. Information
contained on our web site does not constitute a part of this prospectus.
The Offering
<TABLE>
<C> <S>
Common stock offered.......................... shares
Common stock outstanding after this offering.. shares
Use of proceeds............................... We intend to use the net
proceeds of this offering
. to redeem outstanding shares
of our 12% senior redeemable
preferred stock and our 10%
senior convertible preferred
stock;
. to repay a portion of our
outstanding indebtedness
under our senior credit
facility; and
. for working capital and
other general corporate
purposes.
Proposed Nasdaq National Market symbol........ HOBE
</TABLE>
----------------
The shares of common stock outstanding after this offering is
based on the shares of common stock outstanding at ,
2000 and includes the conversion of outstanding shares of our convertible
preferred stock into shares of common stock upon the closing of
this offering.
The number of shares of common stock outstanding after this offering
excludes the following:
. shares of common stock issuable upon exercise of outstanding warrants to
purchase common stock with a weighted average exercise price of $
per share;
. shares of common stock issuable upon exercise of outstanding stock
options under our 1993 Amended and Restated Stock Option Plan with a
weighted average exercise price of $ per share, of which are
immediately exercisable as of , 2000; and
3
<PAGE>
. shares of common stock issuable upon exercise of stock options granted
outside our employee plans with a weighted average exercise price of
$ per share.
Please see "Management--Employee Benefit Plans" and "Description of Capital
Stock" for more information.
Conventions Which Apply to this Prospectus
Unless we indicate otherwise, all information in this prospectus reflects
the following:
. the completion of a one-for- reverse stock split that will occur
upon the closing of this offering;
. the conversion of outstanding shares of our convertible preferred stock
into shares of common stock upon the closing of this offering;
and
. no exercise of the underwriters' over-allotment option to purchase up to
additional shares of common stock.
References in this prospectus to the offering refer to the initial public
offering of our common stock being made by this prospectus.
4
<PAGE>
Summary Historical and Pro Forma Consolidated Financial Data
The following table sets forth summary historical and pro forma consolidated
financial data about us. On September 10, 1999, we acquired Universal Concerts,
Inc., which we renamed House of Blues Concerts, Inc., and its affiliates that
comprised the Universal Concerts business from Universal Studios, Inc. and its
Canadian affiliate, both subsidiaries of The Seagram Company Ltd. The pro forma
consolidated statement of operations data gives effect to our acquisition of
Universal Concerts, Inc. and its affiliates as if we completed the acquisition
on December 29, 1997. You should read this information together with our
historical and pro forma financial statements and the notes to those statements
appearing elsewhere in this prospectus and the information under "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended Six Months Ended
-------------------------------------- -----------------------------------
December 29, December 28, December 27, December 27, June 27, December 26,
1996 1997 1998 1998 1999 1999(a)
------------ ------------ ------------ ------------ -------- ------------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Historical
Revenues................ $ 36,108 $ 69,548 $ 87,783 $ 45,074 $ 52,003 $107,263
Operating loss.......... (27,085) (18,184) (7,394) (3,904) (4,910) (4,888)
Net loss................ (26,814) (18,890) (8,526)(b) (4,340) (8,945) (6,880)
Basic and diluted loss
per share.............. (8.20) (6.66) (3.89)(c) (2.12) (3.57) (4.55)
Pro Forma(d)
Revenues.......................................... $203,872 $125,793 $120,499 $163,426
Operating loss.................................... (10,131) (515) (11,129) (1,851)
Net income (loss)................................. (13,272) 315 (18,790) (2,219)
Basic and diluted loss per share.................. (9.63) (2.08) (8.99) (3.99)
</TABLE>
<TABLE>
<CAPTION>
As of December 26, 1999
-------------------------
Pro Forma
Actual(a) As Adjusted(e)
--------- --------------
(unaudited)
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................ $ 35,993 $
Working capital...................................... 4,412
Total assets......................................... 323,274
Total long-term debt, including current portion...... 72,570
Total preferred stock................................ 287,986
Total stockholders' equity (deficit)................. (102,029)
</TABLE>
<TABLE>
<CAPTION>
Years Ended Six Months Ended
-------------------------------------- -----------------------------------
December 29, December 28, December 27, December 27, June 27, December 26,
1996 1997 1998 1998 1999 1999(a)
------------ ------------ ------------ ------------ -------- ------------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Operating Data:
EBITDA(f)............... $ (24,649) $ (10,789) $ (1,989) $ (1,083) $ (1,345) $ 1,044
Operating cash flow..... (13,813) (18,009) (10,452) (4,410) 920 (3,215)
Investing cash flow..... (35,336) (14,422) (4,340) (2,318) (5,713) (162,132)
Financing cash flow..... 31,708 22,910 18,373 9,122 2,567 199,914
Pro Forma EBITDA(d)(f).. 9,128 11,764 (3,521) 8,988
</TABLE>
- -------
Notes:
(a) Includes results of Universal Concerts after the September 10, 1999
acquisition date.
(b) Net loss is from continuing operations before cumulative effect of change
in accounting principle.
(c) Basic and diluted loss per share is before cumulative effect of change in
accounting principle.
5
<PAGE>
(d) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements and the pro forma segment data provided in the notes to the pro
forma consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
------------ -----------------------------------
December 27, December 27, June 27, December 26,
1998 1998 1999 1999
------------ ------------ -------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Attributed revenues(g)
Clubs.................. $ 83,679 $ 41,879 $ 51,712 $ 57,374
Concerts............... 178,105 122,840 87,580 144,556
Digital................ 274 159 141 302
Other.................. 3,830 3,036 150 82
-------- -------- -------- --------
Total attributed
revenues .............. 265,888 167,914 139,583 202,314
Less attributed
revenues from managed
unconsolidated joint
ventures.............. (62,016) (42,121) (19,084) (38,888)
-------- -------- -------- --------
Total revenues as
reported............... 203,872 125,793 120,499 163,426
Operating income (loss)
Clubs.................. (3,805) (2,319) (1,072) (975)
Concerts............... (2,737) 3,389 (6,219) 5,327
Digital................ (3,390) (1,752) (3,023) (4,824)
Other.................. (199) 167 (815) (1,379)
-------- -------- -------- --------
Total operating loss.... (10,131) (515) (11,129) (1,851)
EBITDA(f)
Clubs.................. 1,136 171 2,261 1,643
Concerts............... 11,117 12,847 (2,176) 13,227
Digital................ (3,218) (1,644) (2,863) (4,599)
Other.................. 93 390 (743) (1,283)
-------- -------- -------- --------
Total EBITDA............ 9,128 11,764 (3,521) 8,988
</TABLE>
(e) Reflects the impacts of issuances of warrants and preferred stock
consummated subsequent to December 26, 1999, the conversion of shares of
our convertible preferred stock into shares of our common stock and
this offering.
(f) We define EBITDA as operating income plus depreciation and amortization,
plus venue pre-opening costs, plus our attributed share of the EBITDA from
joint ventures which we manage and account for under the equity method. You
should not consider EBITDA in isolation or as a substitute for operating
income, net income, net cash provided by operating activities or any other
measure for determining our operating performance or liquidity that is
calculated in accordance with GAAP. EBITDA, as we calculate it, may not be
comparable to calculations of similarly titled measures presented by other
companies.
(g) We define attributed revenue as total consolidated revenues plus our share
of the revenues from joint ventures which we manage and account for under
the equity method.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks and uncertainties described below and
the other information in this prospectus before deciding whether to invest in
shares of our common stock. If any of the following risks actually occur, our
business, financial condition or operating results could be materially and
adversely affected. In such case, the trading price of our common stock could
decline and you may lose part or all of your investment.
Financial Risks
We have a history of losses and negative cash flows and anticipate continued
losses because we intend to continue to invest in developing our business.
To date, we have not been profitable on an annual basis. We incurred a net
loss of $6.9 million for the six months ended December 26, 1999, approximately
$8.9 million for the six months ended June 27, 1999, $10.4 million in fiscal
1998 and $18.9 million in fiscal 1997. As of December 26, 1999, we had an
accumulated deficit of approximately $124.0 million. We expect our losses to
continue for the foreseeable future and we expect to experience negative cash
flows primarily as a result of our plans to incur substantial expenditures for
marketing, advertising, content development, and infrastructure development to
enhance our hob.com and other digital media businesses and to expand our clubs
and concert venues. As a result of these increased expenses, we will need to
generate significant additional revenues to achieve profitability. Furthermore,
it is possible that we may never achieve profitability, and even if we do
achieve profitability, we may not sustain or increase profitability on a
quarterly or annual basis in the future. If we do not achieve or sustain
profitability in the future, our operations could be materially and adversely
affected.
We may be unable to meet our existing and future capital requirements.
The amount of capital required to develop our business is substantial and
includes amounts that will be required to develop new clubs and concert venues
as well as our digital media business. As a result of these requirements, we
expect that we will have negative cash flows for at least the next two years.
We expect that the net proceeds of this offering, existing cash, available
capital from our existing or a new or amended bank credit facility, and
positive cash flow from operations from our existing clubs and concert venues
will be sufficient to fund our operating activities, capital expenditures and
development activities for at least the next 12 months. However, our ability to
execute our current business plan, including development of additional venues
and our digital media business, is dependent upon our ability to obtain
additional debt and equity financing.
The timing and amount of our future capital requirements cannot be
accurately predicted and we cannot assure you that we will be able to raise
additional financing on terms satisfactory to us, or at all. If we are unable
to obtain additional financing as needed, we may be required to reduce the
scope of our operations or proposed development of our clubs, concerts and
digital businesses, which could materially and adversely affect our business,
financial condition or results of operations. Please see the sections entitled
"Use of Proceeds" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for additional information concerning our
business and its financial requirements. Please see also "--Our senior credit
facility restricts our operations" for limitations on our ability to raise
capital.
7
<PAGE>
Risks Related to our Club and Concert Venue Businesses
We may be unable to successfully manage the expansion of our club and concert
venue businesses.
As part of our business plan, we anticipate increasing our revenues,
expanding potential sources of content and enhancing awareness of our brand
name by expanding our network of clubs and concert venues. We cannot assure you
that our club and concert venue development plan, as well as our overall site
selection strategy, will be successful. Furthermore, adding clubs and concert
venues will require additional experienced personnel who may not be available.
In addition, if we abandon a project during development, or if a venue is not
profitable, we may have incurred substantial costs which may not be
recoverable.
We could encounter difficulties in the development and construction of new
clubs and concert venues which could impede the growth of our club and concert
venue businesses.
Because the design of each of our clubs and concert venues is distinct,
each location presents its own development and construction risks. The
construction costs of many of our existing clubs and concert venues
significantly exceeded our original estimates and, in some instances, resulted
in disputes with contractors. Many factors may affect the time and costs
associated with the development and construction of our future venues,
including:
. availability and cost of capital;
. labor disputes and shortages of material and skilled labor;
. weather interference;
. unforeseen engineering problems;
. modifications in design after construction is commenced;
. environmental issues;
. resistance from local governments and neighboring property owners; and
. new or changing zoning or other regulations.
Although our last two clubs were developed within their respective budgets,
we cannot assure you that we will be able to develop additional clubs within
budget estimates or anticipated time periods. Our failure to develop new clubs
and concert venues within budget estimates and on anticipated time schedules
could materially and adversely affect the growth of our venue business, which
could, in turn, materially and adversely affect the availability of live music
content for our hob.com and other digital and traditional media businesses.
If we do not have sufficient access to concert venues, our business would
suffer.
We require access to concert venues to generate revenues from live music
events. A significant number of the venues we utilize in our business are
operated by us under leasing or exclusive booking agreements. Our long-term
success will depend in part on our ability to renew these agreements. If we are
unable to renew these agreements on acceptable terms or at all, and are unable
to obtain favorable agreements with new venues, our business would be
materially and adversely affected. In addition, our exclusive booking
arrangements with two concert venues, Chateau St. Michelle and The Joint, are
not documented in a written agreement.
8
<PAGE>
We may be subject to potential environmental liabilities and use restrictions
relating to the venues we operate.
We may be subject to significant environmental liabilities. We own or
lease, or have other contractual interests in, numerous parcels of real
property, many of which we acquired only recently with our acquisition of
Universal Concerts. Our properties are subject to environmental laws and
regulations relating to the use, storage, disposal, emission and release of
hazardous and non-hazardous substances or materials. Our properties may also be
subject to noise level restrictions, which may affect, among other things, the
operation of our venues. Additionally, certain laws and regulations could hold
us strictly, jointly and severally responsible for the remediation of hazardous
substance contamination at our facilities or at third-party waste disposal
sites, and could hold us responsible for any personal or property damage
related to any contamination.
Risks Related to hob.com and our Other Digital Media Businesses
hob.com and our other digital media businesses are relatively new and may not
gain the consumer acceptance or result in the profits we anticipate.
The market for distributing music content over the Internet is evolving and
subject to a high degree of uncertainty with respect to its revenue and income
potential. We are attempting to capitalize on the increasing use of the
Internet and other forms of digital media by individual consumers by offering
live music entertainment and music-related products over the Internet and
through other forms of digital media, such as satellite radio and television,
wireless and digital video discs, or DVDs. However, we cannot assure you that
consumer demand for listening to, viewing and buying live music and music-
related products over the Internet will grow as anticipated. To date, we have
generated minimal revenues from our digital business, and if consumer interest
fails to meet our expectations, our digital media business will be materially
and adversely affected.
If we are unable to offer a competitive content selection, hob.com and our
other digital media businesses would suffer.
hob.com and our other digital media businesses depend on our ability to
provide an attractive content selection to consumers. We cannot assure you that
our current relationships with artists and their representatives, record
labels, production companies, publishers and performing rights societies will
continue to result in sufficient access to high-quality live music content for
digital capture and distribution in the form of various products. Content
owners may be unwilling to provide their content to us for digital capture and
distribution, or we may be unable to obtain, on favorable terms or at all, the
licenses necessary to repurpose that content into the various digital products
we offer. We cannot assure you that we will be able to obtain sufficient
distribution licenses from third party content providers to implement our
business plan. In that event, hob.com and our other digital media businesses
will be materially and adversely affected.
We may be found to infringe the intellectual property rights of third parties,
which may subject us to significant liability, and we may be vulnerable to
changes in or unanticipated interpretations of intellectual property laws,
which could restrict the way we operate hob.com and our other digital media
businesses.
Third parties may assert trademark, copyright, patent and other types of
infringement or unfair competition claims against us. An adverse determination
in any future litigation related to our intellectual property rights or our use
of third parties' intellectual property could result in the loss or a reduction
in value of our rights or could subject us to liability. Furthermore, if we are
forced to defend against any of these claims, regardless of their outcome, we
may incur significant costs and our management resources may be diverted. We
may have to develop non-infringing intellectual property or enter into royalty
or licensing agreements to obtain intellectual property. These royalty or
licensing agreements, if required, may be unavailable on terms acceptable to
us, or at all.
9
<PAGE>
We license the content utilized in our digital media business from third
parties and we may become subject to infringement actions based upon this
licensed content. We also may be liable for content we include on our web site
and content uploaded or posted by our users on our web site, such as digitally
distributed music files, postings on our message boards, chat room discussions
and copyrightable works, if that content is deemed obscene or defamatory or
violates third parties' copyrights. In addition, we could be liable to some of
our content licensors for claims made against them in connection with content
available on our web site. We also could be exposed to those types of claims
for content that may be accessed from our web site, or from other web sites via
links from hob.com to those sites, such as links maintained under our various
affiliate marketing arrangements with Internet service providers. Any of these
claims or disputes, regardless of their outcome, could result in the diversion
of our financial, technical and management resources. Please see the section
entitled "Business--hob.com and Other Digital and Traditional Media Businesses"
for additional information.
We enter into agreements with artists that allow us to cybercast their live
performances over our hob.com web site. However, we currently do not first
obtain a cybercast license from third party content providers because we
believe that such a license is not required under existing law. This area of
law is uncertain and may not be clarified for a number of years. If this issue
is resolved contrary to our interpretation of the law, we may be required to
obtain and pay for licenses from third party content providers to broadcast
live music content, or to alter or remove substantial content from our web
site.
If the Internet and digital media infrastructures are not continuously expanded
and improved, or these improvements are not adopted by consumers, hob.com and
our other digital media businesses would be materially harmed.
The success of our digital media businesses will depend on the continued
improvement and proliferation of the Internet and other forms of digital media
as a reliable, safe and convenient means of consumer interaction and commerce,
as well as an efficient medium for the delivery and distribution of live music
products in high-quality audio and visual formats. In particular, our
penetration of a broader consumer market for our digital media business will
depend, to a significant degree, on the continued proliferation of high-speed
Internet access to enable us to broadcast live music content in a desirable
format and quality. By high-speed or broadband access, we mean access to cable
modems, digital subscriber line, or DSL, and similar technologies that provide
much higher bandwidth than the conventional dial-up telephone line access which
presently is the predominant form of consumer Internet access.
According to Jupiter Communications, there are only approximately two
million households in the United States that currently subscribe to high-speed
Internet access out of the 38 million homes with Internet access in January
1999. It is unclear how quickly high-speed access will proliferate and whether
it will be affordable to consumers. If the infrastructure and complementary
products or services necessary to make the Internet and other digital media
viable commercial marketplaces for the long-term, especially the wide
availability of high-speed Internet access, are not developed successfully, in
a timely manner or at an acceptable cost to the consumer or businesses, our
ability to generate revenues from our digital media businesses will be
materially and adversely affected.
The Internet has experienced, and is likely to continue to experience,
significant growth in the number of users and amount of traffic. As the
Internet continues to experience increased numbers of users, frequency of use
and bandwidth requirements, the Internet infrastructure may be unable to
support the demands placed on it. In addition, increased usage or bandwidth
requirements may harm the performance of the Internet. The Internet has
experienced a variety of outages and other delays and it could face outages and
delays in the future. These outages and delays could reduce the level of
Internet usage as well as the level of traffic, and could result in the
Internet becoming an
10
<PAGE>
inconvenient or uneconomical source of live music entertainment and related
products, which would materially and adversely affect revenues and
profitability of our digital media business.
We might not be able to scale our hob.com technology infrastructure to meet
demand for our products and services or upgrade our web site in a timely manner
or without service disruptions, which may negatively impact our operating
results.
An essential element of our strategy to increase revenues and attain
profitability is based on generating a high volume of traffic on our web site.
Our present systems may not be adequate to expand our infrastructure on a
timely basis to accommodate rapid growth in user demand. Despite redundancy in
our systems, there is a possibility that a system error or failure, or a sudden
increase in traffic, may result in the unavailability of our web site or a
significant delay in our response times. Our success will depend on our ability
to scale our technology infrastructure to meet the demand for products and
services offered on hob.com. Our inability to do so successfully may cause
decreased levels of customer service and satisfaction. Failure to integrate
existing systems or implement new systems effectively or within a reasonable
period of time could result in a loss of existing or potential users and
strategic partners.
We may not be able to maintain and expand our digital media businesses if we
are not able to hire, integrate and retain sufficient qualified personnel.
The future success of hob.com and our other digital media businesses
depends partly on the contribution of our key executive, technical, sales and
marketing personnel. Recruiting and retaining skilled personnel, especially
software and hardware engineers, is highly competitive and compensation
packages for these employees often include a significant equity component. We
may not be able to offer a compensation package that is sufficiently attractive
to qualified candidates. If we fail to hire, integrate and retain qualified
employees and independent contractors and maintain sufficient staffing levels,
we will not be able to maintain or expand hob.com and our other digital media
businesses.
If we fail to successfully adapt to technological changes, our digital media
business could be materially and adversely affected.
The market for Internet and other digital media products and services is
characterized by rapid change, evolving industry standards and frequent
introductions of new technologies. These new standards and technologies could
make our existing or future products or services obsolete. Keeping pace with
the introduction of new standards and technological developments could result
in significant additional costs or prove difficult or impossible for us. The
failure to keep pace with these changes and to continue to enhance and improve
the responsiveness, functionality and features of hob.com could harm our
ability to attract and retain consumers.
Increased government regulation and changes in current or future laws or
regulations could restrict the way we operate hob.com and our other digital
media businesses.
There are currently few laws or regulations that specifically regulate
communications or commerce on the Internet and through other digital media
channels. The extent to which existing laws relating to issues such as property
ownership, libel and privacy are applicable to the Internet and other digital
media channels is currently uncertain. In the future, laws and regulations may
be adopted to address issues such as user privacy, pricing, taxation, content,
copyrights, distribution, security, and the quality of products and services.
If government entities were to impose access fees on Internet companies, our
cost of transmitting data over the Internet would increase significantly. In
addition, the growth and development of the market for online commerce may lead
to more stringent consumer protection laws, both in the United States and
abroad, which may impose an additional
11
<PAGE>
burden on us. Restriction of Internet content and commerce could reduce
Internet use and decrease consumer acceptance of the Internet as a
communications and commercial medium. Furthermore, restrictions on distribution
of content and commerce through other digital multimedia channels could
similarly reduce consumer use and acceptance of these channels. Any of these
outcomes could materially and adversely affect our business, results of
operations and financial condition. Please see the section entitled "Business--
Regulations Related to Our Digital Media Businesses."
If our systems are disrupted, hob.com and our other digital media businesses
and our reputation could be significantly harmed.
Our operations depend on our ability to protect our computer systems
against damage, disruption and delay due to:
. fire, floods, earthquakes and other natural disasters;
. power loss and telecommunications and computer systems failures; and
. computer viruses and electronic break-ins.
System disruptions could result in the unavailability or slower response times
of our web site, which would reduce the quality of the user's experience. There
have recently been a number of significant disruptions of prominent web sites
previously thought to have been secure from these problems. Sustained service
disruptions could seriously harm our business and reputation. Furthermore, our
business interruption insurance may not adequately protect us against serious
or prolonged system failures.
If we are unable to safeguard the confidentiality of our consumers' information
and the proprietary nature of third party music content, our digital media
businesses could be harmed.
If the market perceives that there is a lack of security of confidential
data, such as credit card numbers, Internet use for e-commerce purposes may
slow or fail to grow as expected and our revenues could decline. We may also be
liable to our consumers if third parties circumvent our security measures and
misappropriate personal consumer information. We cannot assure you that
adequate protection against security breaches will be available at a reasonable
price, or at all.
In addition, if our third party content providers are not satisfied that
the digital delivery of their product over the Internet and other digital
multimedia channels will not result in unauthorized copying and distribution,
they will be reluctant to provide their content to us. As a result, we may not
be able to offer a sufficiently attractive content selection to remain
competitive which could cause our digital media businesses to suffer.
If we do not maintain and establish strategic alliances in order to increase
our audience base and enhance our live music entertainment content, our digital
media businesses could suffer.
In order to enhance our live music entertainment content, build brand
recognition and expand distribution and commerce opportunities, we have entered
into strategic alliances with various media and Internet-related companies and
are in active discussions regarding possible additional arrangements. Our
failure to maintain or renew our existing strategic alliances, or to establish
and capitalize on new strategic alliances, could materially and adversely
affect our digital media businesses. Occasionally, we enter into agreements
with strategic partners that may prohibit us from entering into similar
arrangements with competitors of our strategic partners, which may limit our
growth. We cannot assure you that we will achieve the strategic objectives of
these alliances, that any party to a strategic alliance agreement with our
company will perform its obligations as agreed
12
<PAGE>
upon or that these agreements will be enforceable by us. In addition, some of
our strategic alliances are short-term in nature and may be terminated by
either party on short notice.
Risks Related to our Operations
Our success depends on our retention of our senior management and other key
personnel and our ability to hire additional key personnel.
Our success depends to a significant extent on our ability to attract,
retain and motivate key personnel. Qualified personnel in the entertainment and
Internet industries is in high demand. We cannot assure you that we will
continue to be able to offer compensation packages that are sufficiently
competitive in our market to attract top-level candidates and to retain key
executives.
Our business operations, our development and other activities have
depended, and will continue to depend, on the efforts of our senior management,
particularly:
. Gregory Trojan, President, Chief Executive Officer, who is in charge of
our day-to-day operations;
. Joseph Kaczorowski, Chief Financial Officer, who is in charge of our
financial affairs;
. Jay Marciano, President of House of Blues Concerts, Inc., who is in
charge of our concert venue business; and
. Lou Mann, President of Media Properties, who is in charge of our
digital and traditional media businesses.
The loss of the services of Mr. Trojan, Mr. Kaczorowski, Mr. Marciano or
Mr. Mann could materially and adversely affect our business, financial
condition and results of operations.
Our growth strategy requires that we hire a significant number of
additional candidates. If new personnel fail to properly integrate into our
management team, our operations could be disrupted.
If we fail to successfully manage our various strategic growth initiatives, our
operations may suffer.
We are currently experiencing a period of rapid expansion in all of our
businesses. We believe that, in order to achieve profitability and the
successful implementation of our business plan, continued significant expansion
will be required, which will place considerable demands on our management,
operational and financial resources. Additionally, we will require continued
growth of our work force through the recruitment, development and retention of
qualified personnel. If we fail to manage our growth properly, our operations
may be disrupted and we may not be able to generate the revenues we expect.
Future acquisitions or strategic partnerships may disrupt or otherwise have a
negative impact on our business.
A key element of our operating strategy is to acquire or invest in
complementary businesses, technologies, services or products, and to enter into
strategic partnerships with parties who can provide access to those assets.
This strategy may involve a series of risks, including:
. difficulty in finding suitable acquisitions or partnerships on
acceptable terms;
. the distraction of our management's attention from ongoing business
matters;
. our entry into business areas where we have limited or no experience;
. significant costs associated with abandoned transactions;
13
<PAGE>
. difficulty in assimilating the acquired company's personnel,
operations, technology, products or services;
. the potential loss of key employees or customers of the acquired
business; and
. the need to incur additional indebtedness, or to issue equity
securities, which would dilute the ownership interests of the holders
of our common stock.
Our senior credit facility restricts our operations.
Our senior credit facility contains customary covenants restricting our
ability to, among other things:
. make acquisitions or certain investments;
. incur additional debt or liens;
. engage in certain transactions with subsidiaries and affiliates;
. engage in mergers or other business combinations;
. sell or transfer assets;
. repurchase or redeem capital stock; and
. pay dividends.
The terms of our senior credit facility also require us to maintain specified
financial ratios and to make certain prepayments upon the occurrence of
specified events, including the issuance of equity interests, the incurrence of
certain indebtedness and the sale of assets, which may interfere with our
ability to obtain additional financing or to engage in other business
activities. Please see the discussion under "Management's Discussion and
Analysis of Financial Condition--Liquidity and Capital Resources." In addition,
our senior credit facility is secured by liens on substantially all of our
assets. Although we intend to renegotiate this facility or enter into a new
facility, we expect the amended or new facility to have restrictive covenants
similar to the current facility.
If we cannot comply with the requirements in our senior credit facility,
our lenders may require us to repay immediately all of our outstanding debt
under our senior credit facility. If our debt payments were accelerated, our
assets might not be sufficient to fully repay our debt. These lenders may also
require us to use all of our available cash to repay our debt, may prevent us
from making payments to other creditors on certain portions of our outstanding
debt or may seek to exercise remedies against and foreclose on the assets
securing our debt. We may not be able to obtain a waiver of these provisions or
refinance our debt, if needed. In such a case, our business, results of
operations and financial condition would suffer.
Our concert venue business is subject to fluctuations in quarterly operating
results.
The operations and revenues of our concert venue business have been highly
seasonal in nature, with generally higher revenue generated during the summer
months. Our outdoor venues are primarily used in the summer months and do not
generate substantial revenue in the late fall, winter and early spring. In the
12 months ended December 26, 1999, approximately 70% of the revenues from our
concerts business were generated in the second and third calendar quarters. The
seasonality of our concert venue business may cause a significant variation in
our quarterly operating results. Please see the section entitled "Management's
Discussion and Analysis--Concerts." We may also experience variation in our
quarterly results as a result of the development of new clubs and concert
venues, the availability of artists to perform at our clubs and concert venues
and adverse weather conditions. As a result, you should not rely on quarter-to-
quarter comparisons of our operating results as an indication of future
performance.
14
<PAGE>
Our insurance may not be adequate to cover liabilities resulting from accidents
or injuries.
Our presentation of live music events at our clubs and concert venues
exposes our performers and our patrons to the risk of event-related accidents,
the consequences of which may not be fully covered by insurance. Although we
have general liability insurance and umbrella insurance policies, and although
our performers are responsible for obtaining their own health, disability and
life insurance, we cannot assure you that the consequences of any accident
involving performers or patrons will be fully covered by insurance. Our
liability for damages resulting from any accident or injury not covered by our
insurance could have a material adverse effect on our business, results of
operations and financial condition.
If we are unable to adequately protect our trademarks and other proprietary
rights, our business would be seriously harmed.
We believe that our success depends to a significant extent on the strength
of our trademarks, trade dress, copyrights and other proprietary rights. We
cannot assure you that our efforts to protect our intellectual property are
adequate. In particular, although we have sought to secure our trademark rights
through domestic and foreign registration, we cannot assure you that any
trademark application will mature into a registration, or that any issued
registration will not be subject to limitation, cancellation or invalidation.
We have secured registrations for our principal House of Blues trademark in the
United States and such commercially important countries as the United Kingdom,
Germany, Japan and France. However, we cannot assure you that we will be
successful in our endeavors to obtain registration of our trademarks in other
countries or that our ability to use our trademarks, whether registered or not,
will not be subject to the rights of prior users or registrants of the same or
similar trademarks. In addition, the laws of certain foreign countries do not
protect proprietary rights to the same extent as the laws of the United States.
Our inability to protect our intellectual property adequately could materially
and adversely affect our business, results of operations and financial
condition.
If we are unable to maintain and expand favorable relationships with artists
and third party content providers, the success of our business would be
jeopardized.
The success of our clubs, concert venues, promotions and touring businesses
and our digital and traditional media businesses depends heavily on our
favorable relationships with artists and third party content providers. We rely
on our relationships with artists and their representatives, record labels,
production companies, publishers and performing rights societies to gain access
to, distribute and publicly present high-quality live music content. We
frequently either do not have written contracts or have only short-term
contracts with these third party content providers and, therefore, remain
vulnerable to changes in our relationships with them. If they were to demand
higher fees or to discontinue their relationships with us, our ability to offer
a high-quality and diverse selection of music content could be materially
limited and our business would suffer.
We may be unable to compete successfully against current and future
competitors.
The venue operations, live music promotions, Internet-based and other
digital live music media markets are highly competitive. We face intense
competition:
. for discretionary consumer spending from other entertainment venue
operators and concert tour promoters, record companies, providers of
entertainment over the Internet and providers of other forms of
entertainment such as film and video; and
. for relationships with artists and access to content from other
entertainment venue operators, live music promoters and tour producers
and other providers of digital live music products.
15
<PAGE>
Some of our current and potential competitors have greater financial,
marketing and other resources, longer operating histories, larger customer
bases, greater brand awareness, a more established Internet presence and access
to more content than we do. In addition, the position of some of our
competitors may be further strengthened by consolidating activities. For
example, SFX Entertainment, Inc., our largest competitor in the live music
venue operations, promotions and tour production businesses, has acquired
several regional promotion businesses. In addition, SFX Entertainment has
recently announced its merger with Clear Channel Entertainment, Inc., which is
expected to allow for added promotional opportunities between the two
companies. Moreover, the large number of national tours recently acquired by
our competitors may allow them to negotiate more favorable terms of engagement
with local promoters or venue operators, such as ourselves. We cannot assure
you that other companies will not be more successful in operating live music
entertainment venues, promoting live music events and national tours and
establishing digital live music businesses than we are.
Unexpected material changes in consumer tastes and demographic trends or a
downturn in national, regional and local economic conditions may adversely
affect our business.
The live music entertainment industry is affected by changes in consumer
tastes and by national, regional and local economic conditions and demographic
trends. As an industry participant, our ability to generate revenues is highly
sensitive to public tastes, which are unpredictable. We may not be able to
offer a selection of live music events and Internet-based and other digital
products that will attract consumers to our venues or our web site. In
addition, a general economic downturn may result in a change of discretionary
spending patterns and a decrease in our revenues.
Risks Related to Litigation
Pending or threatened litigation may strain our resources and negatively affect
our results of operations.
On January 26, 2000, Nederlander-Greek, Inc. filed a lawsuit against us
alleging principally that we interfered with Nederlander's economic
relationship with the City of Los Angeles to operate the City-owned Greek
Theatre. Nederlander claims monetary damages of not less than $5 million.
A limited partner in our joint venture engaged in the development of an
urban entertainment center including a House of Blues hotel in Chicago's Marina
City riverfront complex has alleged that we are in default under the
partnership agreement for failing to use reasonable efforts to carry out the
business of the partnership. The limited partner claims damages for the
potential diminution in value of its partnership interest.
The outcome of the litigation that Nederlander has brought against us and
the outcome of any litigation that might be commenced against us by the limited
partner are uncertain. If Nederlander or the limited partner were able to
prevail in its claims against us, our business, financial condition and results
of operations could be materially and adversely affected. Please see the
section entitled "Business--Legal Proceedings."
Risks Related to this Offering
Our stock price may be volatile.
An active trading market for our common stock may not develop or be
sustained after this offering. We and the underwriters of this offering will
determine the initial public offering price. The price at which our common
stock will trade after this offering may be volatile and may fluctuate
substantially due to factors such as:
. our quarterly and annual operating results and variations between our
actual results and analyst and investor expectations;
16
<PAGE>
. the execution of our strategic growth initiatives;
. the seasonality of our concert venue business;
. new developments affecting our businesses;
. investor perceptions of our company and comparable public companies;
and
. general conditions and trends in the live music entertainment and
Internet-related industries.
In particular, the stock market has from time to time experienced
significant price and volume fluctuations, and the market prices of Internet-
related companies have been, and continue to be, subject to a very high level
of price and volume volatility. In the past, following periods of volatility in
the market price of a public company's securities, securities class action
litigation has often been instituted against that company. Securities class
action litigation, regardless of the outcome, could result in substantial costs
and a diversion of our management's attention and resources.
Our management will have broad discretion in using the proceeds from this
offering.
We intend to use the net proceeds of this offering to redeem outstanding
shares of our 12% senior redeemable preferred stock, to redeem outstanding
shares of our 10% senior convertible preferred stock, to repay a portion of the
outstanding indebtedness under our senior credit facility and for working
capital and other general corporate purposes. The amounts and timing of these
expenditures will vary significantly depending upon a number of factors,
including the amount of cash generated by our operations, the progress of our
development activities and the market response to the introduction of any new
products. In addition, we may use a portion of the net proceeds from this
offering to acquire or invest in businesses, products, services or technologies
complementary to our current business through mergers, acquisitions, strategic
alliances or otherwise. However, we have no specific agreements or commitments
with respect to these transactions or activities. Accordingly, our management
will retain broad discretion with respect to the expenditure of the proceeds of
this offering, and investors will be relying on the judgment of our management
in that regard. If we fail to utilize the proceeds of this offering
beneficially, our business would be materially and adversely affected.
Investors in this offering will incur immediate and substantial dilution.
We expect the initial public offering price of our common stock to be
substantially higher than the net tangible book value per share of the common
stock. Accordingly, investors purchasing our common stock in this offering will
experience immediate dilution in net tangible book value of $ per share,
assuming an initial public offering price of $ per share. Additionally, we
seek to attract and retain officers, directors, employees, and other key
individuals, in part by offering them stock options and other rights to
purchase shares of common stock. As of March 13, 2000, there were outstanding
options to purchase 31,568,000 shares of common stock under our 1993 Stock
Option Plan. We have reserved a total of 31,798,000 shares for grants under the
1993 Stock Option Plan. Additionally, as of March 13, 2000, options for
2,921,296 shares of our common stock had been granted and were outstanding
outside our stock option plans and warrants to purchase 18,808,475 shares of
our common stock were outstanding. Please see the section entitled "Description
of Capital Stock--Warrants."
In addition, we have adopted a 2000 Equity Participation Plan and a 2000
Employee Stock Purchase Plan under which and shares, respectively, are
reserved for issuance. As of March 13, 2000, no awards have been granted or
shares been issued under these two plans. The exercise of stock options or
awards granted under any of these plans will result in further dilution to
investors in this offering. To the extent we fund future acquisitions with
common stock or raise
17
<PAGE>
additional capital by issuing common stock or other dilutive securities, the
investors in this offering may be further diluted. Please see the section
entitled "Management--Employee Benefit Plans."
We do not anticipate paying any cash dividends in the foreseeable future.
We do not anticipate paying any cash dividends on our shares of common
stock in the foreseeable future and investors who desire cash dividends should
not buy our stock. Furthermore, our senior credit facility prohibits the
payment of dividends except in specified limited circumstances. For more
information, please see the section entitled "Dividend Policy."
Our executive officers, directors and 5% stockholders will be able to exercise
significant influence over our operations.
Our executive officers, directors and 5% stockholders together will
beneficially own approximately % of our common stock after completion of
this offering. These stockholders, if they vote together, will be able to
exercise significant influence over all matters requiring stockholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may also delay or prevent a
change in control of our company. Please see the section entitled "Principal
Stockholders" for information about the ownership of common stock by our
executive officers, directors and 5% stockholders.
The large number of shares eligible for public sale after this offering could
cause our stock price to decline.
The market price of our common stock could decline as a result of sales of
a large number of shares after this offering or the perception that sales could
occur. The large number of shares eligible for sale might make it more
difficult for us to sell our common stock in the future at a time and at a
price that we deem appropriate. After this offering, we will have an aggregate
of shares outstanding. Of the outstanding shares, the shares
sold in this offering will be freely tradeable, other than shares purchased by
our affiliates. The remaining shares may be sold only pursuant to a
registration statement under the Securities Act or an exemption from the
registration requirements of the Securities Act. After the closing of this
offering, holders of shares of common stock will be entitled to
demand and piggyback registration rights with respect to the registration of
their shares under the Securities Act. For additional information regarding
these registration rights, please see the sections entitled "Description of
Capital Stock--Registration Rights" and "Shares Eligible for Future Sale." Each
of our executive officers and directors and principal stockholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of our common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of Goldman, Sachs & Co. The lock-up agreements by persons other than us
cover an aggregate of approximately shares. For additional information
regarding possible future sales of our securities, please see the sections
entitled "Underwriting" and "Shares Eligible for Future Sale."
A third party's ability to acquire us might be more difficult because of anti-
takeover provisions in our certificate of incorporation and bylaws.
We are authorized to issue shares of undesignated preferred stock. Our
board of directors has the authority to issue the preferred stock in one or
more series and to fix the price, rights, preferences, privileges and
restrictions of our preferred stock, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting a series or the
designation of any series, without any further vote or action by our
stockholders. The issuance of preferred stock, while providing
18
<PAGE>
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of delaying, deferring or preventing
a change in control of our company without further action by our stockholders
and may adversely affect the market price of our common stock and the voting
and other rights of our stockholders. The issuance of preferred stock with
voting and conversion rights may adversely affect the voting power of the
holders of our common stock, including the loss of voting control to others. We
have no current plans to issue any additional shares of preferred stock.
Provisions of our certificate of incorporation and bylaws eliminate the
right of stockholders to act by written consent without a meeting, eliminate
the right of stockholders to call a special meeting of stockholders and specify
procedures for nominating directors and submitting proposals for consideration
at stockholder meetings. These provisions are intended to enhance the
likelihood of continuity and stability in the composition of our board of
directors and in the policies formulated by our board of directors and to
discourage some transactions which may involve an actual or threatened change
of control of our company. Please see the section entitled "Description of
Capital Stock--Anti-Takeover Effects of Delaware Law and Our Certificate of
Incorporation and Bylaws."
19
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various statements under the sections entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business," and elsewhere in this
prospectus are "forward-looking statements." These forward-looking statements
include, but are not limited to, statements about our plans, objectives,
expectations, intentions and assumptions and other statements contained in the
prospectus that are not historical facts. When used in this prospectus, the
words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate"
and similar expressions are generally intended to identify forward-looking
statements. Because these forward-looking statements involve risks and
uncertainties, including those described in the section entitled "Risk
Factors," actual results may differ materially from those expressed or implied
by these forward-looking statements. We do not intend to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
20
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of the shares offered by this
prospectus, after deducting underwriting discounts and the estimated offering
expenses, are estimated to be approximately $ million ($ million
if the underwriters' over-allotment option is exercised in full), at the
initial public offering price of $ per share. We currently intend to use
the net proceeds of this offering as follows:
. approximately $ million to redeem outstanding shares of our 12%
senior redeemable preferred stock and outstanding shares of our 10%
senior convertible preferred stock;
. approximately $ million to repay a portion of our indebtedness
outstanding under our senior credit facility used to finance the
acquisition of Universal Concerts. Our senior credit facility currently
bears a weighted average interest rate of 9.8% and has sub-facilities
that will mature on September 10, 2003, June 30, 2005 and June 30,
2006; and
. the balance of the proceeds of this offering for working capital and
other general corporate purposes.
In addition, we may use a portion of the net proceeds from this offering to
acquire or invest in businesses, products, services or technologies
complementary to our current business through mergers, acquisitions, joint
ventures or otherwise. The outstanding indebtedness under our senior credit
facility was incurred by us in connection with our acquisition of Universal
Concerts. We intend to enter into a new or amended senior credit facility at
the time of the closing of this offering.
We have not yet finalized the amount of net proceeds to be used
specifically for each of the foregoing purposes. Accordingly, our management
will have significant flexibility in applying the net proceeds of this
offering. Pending any use, as described above, we intend to invest the net
proceeds in high quality, interest-bearing securities. Please see the section
entitled "Risk Factors--Our management will have broad discretion in using the
proceeds from this offering."
DIVIDEND POLICY
We have not declared or paid any cash dividends on our capital stock since
inception and do not expect to pay any cash dividends for the foreseeable
future. We currently intend to retain future earnings, if any, to finance the
expansion of our business. In addition, we expect that certain covenants in our
financing arrangements will prohibit or limit our ability to declare or pay
cash dividends. Please see the section entitled "Risk Factors--We do not
anticipate paying any cash dividends in the foreseeable future." You should not
purchase our common stock with the expectation of receiving cash dividends.
21
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of December 26, 1999.
Our capitalization is presented:
(A) on an actual basis;
(B) on a pro forma basis to give effect to the issuance subsequent to
December 26, 1999 of:
. 8,694 shares of common stock;
. 4,724,908 shares of Class D-2 preferred stock;
. 2,910 shares of 12% senior redeemable preferred stock; and
. warrants to purchase 3,972,755 shares of common stock; and
(C) on a pro forma as adjusted basis to reflect the following:
. our expected use of the estimated net proceeds from this offering;
. the conversion of outstanding shares of our convertible preferred
stock into shares of our common stock upon the closing of this
offering; and
. the completion of a one-for- reverse stock split that will occur
upon the closing of this offering.
22
<PAGE>
You should read this table in conjunction with our consolidated financial
statements and the related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
(A) (B) (C)
------------ --------- -----------
December 26,
1999 Pro forma
Actual Pro forma as adjusted
------------ --------- -----------
($ in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................... $ 35,993 $ 37,757
======== ========
Long-term debt:
Bank credit facilities.................... $ 60,000 $ 60,000
Other long-term debt, including current
portion.................................. 12,570 12,570
-------- -------- ----
Total debt............................... 72,570 72,570
Minority interest........................... 8,532 4,266
Redeemable preferred stock:
12% senior redeemable preferred stock,
$.01 par value, 81,125 shares authorized,
and 49,375 shares issued and outstanding
(A) actual; 52,285 shares issued and
outstanding (B) pro forma; shares
issued and outstanding (C) as adjusted... 41,734 44,180
Convertible preferred stock:
10% senior convertible preferred stock,
$.01 par value, 22,000 shares authorized,
and 20,000 shares issued and outstanding
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted... 15,767 15,767
Class D-3 preferred stock, $.01 par value,
10,904,872 shares authorized, and
7,577,712 shares issued and outstanding
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted .. 12,203 12,203
Class D-2 preferred stock, $.01 par value,
73,397,630 shares authorized, and
42,190,807 shares issued and outstanding
(A) actual; 74,305,556 shares authorized
and 46,915,715 shares issued and
outstanding (B) pro forma; no shares
issued and outstanding (C) as adjusted... 67,944 75,598
Class D-1 preferred stock, $.01 par value,
29,166,667 shares authorized, and
16,892,148 shares issued and outstanding
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted... 22,403 22,403
Class C preferred stock, $.01 par value,
15,069,588 shares authorized, and
10,836,356 shares issued and outstanding;
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted... 41,348 41,348
Class B preferred stock, $.01 par value,
21,700,404 shares authorized, and
20,491,329 shares issued and outstanding
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted... 60,901 60,901
Class A preferred stock, $.01 par value,
15,488,672 shares authorized, and
13,683,596 shares issued and outstanding;
(A) actual and (B) pro forma; no shares
issued and outstanding (C) as adjusted... 25,686 25,686
-------- -------- ----
Total preferred stock.................... 287,986 298,086
Stockholders' equity (deficit):
Common stock, $.0001 par value,
200,000,000 shares authorized, and
3,383,500 shares issued and outstanding
(A) actual; 3,394,194 shares issued and
outstanding (B) pro forma; shares
authorized and shares issued and
outstanding (C) as adjusted.............. 1 1
Additional paid in capital................ 21,956 22,420
Accumulated deficit....................... (123,986) (123,986)
-------- -------- ----
Total stockholders' equity (deficit)..... (102,029) (101,565)
-------- -------- ----
Total capitalization..................... $267,059 $273,357
======== ======== ====
</TABLE>
23
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 26, 1999 was
$ million, or $ per share of common stock. Pro forma net tangible book
value per share is equal to the amount of our total tangible assets (total
assets less intangible assets) less total liabilities, divided by the pro forma
number of shares of common stock outstanding as of December 26, 1999. Assuming
the sale by us of the shares offered by this prospectus at an assumed initial
public offering price of $ per share and after deducting underwriting
discounts and the estimated offering expenses payable by us, our pro forma net
tangible book value as of December 26, 1999 would have been $ million, or $
per share of common stock. This represents an immediate increase in pro forma
net tangible book value of $ per share to existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per
share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .....................
Pro forma net tangible book value per share as of December 26,
1999..............................................................
----
Pro forma increase per share attributable to new investors.........
Pro forma net tangible book value per share after this offering......
----
Pro forma dilution per share to new investors........................
====
</TABLE>
The following table summarizes, on a pro forma basis as of December 26,
1999, the difference between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid at an assumed initial
public offering price of $ per share (before deducting estimated
underwriting discounts and commissions and offering expenses payable by us):
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration Average
-------------- --------------------- Price Per
Number Percent Amount Percent Share
------ ------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % $ % $
New investors....................
--- ---- --------- ---------
Total.......................... 100% 100%
</TABLE>
The foregoing table assumes no exercise of stock options or other
derivative securities. As of , 2000, there were options and warrants
outstanding to purchase shares of our common stock at a weighted
average exercise price of $ per share. To the extent outstanding
options and warrants are exercised, there will be further dilution to new
investors.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data should be read in conjunction with
our consolidated historical financial statements and the notes to our financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and pro forma consolidated financial statements included
elsewhere in this prospectus. The statement of operations data for the fiscal
years ended December 29, 1996, December 28, 1997, December 27, 1998 and the six
months ended June 27, 1999 and the balance sheet data as of December 28, 1997,
December 27, 1998 and June 27, 1999, are derived from our audited financial
statements included elsewhere in this prospectus. The statement of operations
data for the fiscal years ended January 1, 1995 and December 31, 1995 and the
balance sheet data as of January 1, 1995, December 31, 1995 and December 29,
1996 are derived from audited financial statements not included in this
prospectus. The statement of operations data for the six month periods ended
June 28, 1998, December 27, 1998 and December 26, 1999, and the balance sheet
data as of December 26, 1999 are derived from our unaudited interim financial
statements included elsewhere in this prospectus. In management's opinion, the
unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial statements for these periods. Historical results
are not indicative of the results to be expected in the future.
25
<PAGE>
Selected Consolidated Financial Data
<TABLE>
<CAPTION>
Years Ended Six Months Ended
-------------------------------------------------------------- ---------------------------------------------
January 1, December 31, December 29, December 28, December 27, June 28, June 27, December 27, December 26,
1995 1995 1996 1997 1998 1998 1999 1998 1999(a)
---------- ------------ ------------ ------------ ------------ -------- -------- ------------ ------------
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Statement of
Operations Data:
Historical
Revenues......... $ 25,807 $ 33,248 $ 36,108 $ 69,548 $ 87,783 $ 42,709 $ 52,003 $ 45,074 $107,263
Expenses:
Operating
expenses....... 23,783 30,024 32,565 63,610 79,420 38,777 47,824 40,643 99,554
General and
administrative.. 8,065 7,268 14,519 13,091 9,403 4,774 5,130 4,629 6,958
Depreciation and
amortization... 3,921 2,976 2,436 7,395 5,073 2,584 2,751 2,489 5,166
Venue pre-
opening costs.. -- -- -- -- 332 -- 814 332 --
Other expenses,
net............ -- -- 13,673 3,636 949 64 394 885 473
-------- -------- -------- -------- --------- -------- -------- -------- --------
Operating loss... (9,962) (7,020) (27,085) (18,184) (7,394) (3,490) (4,910) (3,904) (4,888)
Other (loss)
income.......... 102 126 271 (706) (1,132) (696) (4,035) (436) (1,992)
-------- -------- -------- -------- --------- -------- -------- -------- --------
Loss before
cumulative
effect of change
in accounting... (9,860) (6,894) (26,814) (18,890) (8,526) (4,186) (8,945) (4,340) (6,880)
Cumulative
write-off of
unamortized
venue
pre-opening
costs.......... -- -- -- -- (1,839) (1,839) -- -- --
-------- -------- -------- -------- --------- -------- -------- -------- --------
Net Loss......... $ (9,860) $ (6,894) $(26,814) $(18,890) $ (10,365) $ (6,025) $ (8,945) $ (4,340) $ (6,880)
======== ======== ======== ======== ========= ======== ======== ======== ========
Net Loss
applicable to
common
shareholders.... $(13,190) $(11,544) $(27,455) $(22,322) $ (14,982) $ (7,797) $(12,064) $ (7,185) $(15,384)
======== ======== ======== ======== ========= ======== ======== ======== ========
Basic and diluted
loss per
share(b)........ $ (4.17) $ (3.62) $ (8.20) $ (6.66) $ (3.89) $ (1.76) $ (3.57) $ (2.12) $ (4.55)
Pro Forma(c)
Revenues......... $ 203,872 $120,499 $125,793 $163,426
Operating loss .. (10,131) (11,129) (515) (1,851)
Net income
(loss).......... (13,272) (18,790) 315 (2,219)
Basic and diluted
loss per share.. (9.63) (8.99) (2.08) (3.99)
</TABLE>
<TABLE>
<CAPTION>
Actual as of
-----------------------------------------------------------------------------------------------------
January 1, December 31, December 29, December 28, December 27, June 27, December 26, Pro Forma
1995 1995 1996 1997 1998 1999 1999(a) As Adjusted(d)
---------- ------------ ------------ ------------ ------------ --------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated
Balance Sheet
Data:
Cash and cash
equivalents....... $ 53 $ 27,033 $ 9,592 $ 71 $ 3,652 $ 1,426 $ 35,993
Working capital.... (8,775) 23,231 (5,406) (9,503) (2,588) (11,464) 4,412
Total assets....... 28,887 60,449 83,333 83,956 89,529 85,537 323,274
Total long-term
debt, including
current portion... 1,826 1,771 1,916 11,456 10,878 13,845 72,570
Total preferred
stock............. 183 83,246 84,823 120,566 144,134 147,253 287,986
Total stockholder's
equity (deficit).. (14,615) (31,008) (54,968) (73,689) (88,599) (100,663) (102,029)
</TABLE>
<TABLE>
<CAPTION>
Years Ended Six Months Ended
-------------------------------------------------------------- ---------------------------------------------
January 1, December 31, December 29, December 28, December 27, June 28, June 27, December 27, December 26,
1995 1995 1996 1997 1998 1998 1999 1998(a) 1999
---------- ------------ ------------ ------------ ------------ -------- -------- ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Other Operating
Data:
EBITDA(e)....... $ (6,041) $(4,044) $(24,649) $(10,789) $ (1,989) $ (906) $(1,345) $(1,083) $ 1,044
Operating cash
flow........... (6,226) (4,298) (13,813) (18,009) (10,452) (6,042) 920 (4,410) (3,215)
Investing cash
flow........... (11,991) (6,915) (35,336) (14,422) (4,340) (2,022) (5,713) (2,318) (162,132)
Financing cash
flow........... 11,868 38,193 31,708 22,910 18,373 9,251 2,567 9,122 199,914
Pro Forma EBITDA (c)(e)........................................... 9,128 (3,521) 11,764 8,988
</TABLE>
26
<PAGE>
Notes:
(a) Includes results of Universal Concerts after the September 10, 1999
acquisition date.
(b) Basic and diluted loss per share is before cumulative effect of change in
accounting principle.
(c) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements and the pro forma segment data provided in the notes to the pro
forma consolidated statements of operations.
<TABLE>
<CAPTION>
Year Ended Six Months Ended
------------ -----------------------------------
December 27, December 27, June 27, December 26,
1998 1998 1999 1999
------------ ------------ -------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Attributed revenues(f)
Clubs.................. $ 83,679 $ 41,879 $ 51,712 $ 57,374
Concerts............... 178,105 122,840 87,580 144,556
Digital................ 274 159 141 302
Other.................. 3,830 3,036 150 82
-------- -------- -------- --------
Total attributed
revenues .............. 265,888 167,914 139,583 202,314
Less attributed
revenues from managed
unconsolidated joint
ventures.............. (62,016) (42,121) (19,084) (38,888)
-------- -------- -------- --------
Total revenues as
reported............... 203,872 125,793 120,499 163,426
Operating income (loss)
Clubs.................. (3,805) (2,319) (1,072) (975)
Concerts............... (2,737) 3,389 (6,219) 5,327
Digital................ (3,390) (1,752) (3,023) (4,824)
Other.................. (199) 167 (815) (1,379)
-------- -------- -------- --------
Total operating loss.... (10,131) (515) (11,129) (1,851)
EBITDA(e)
Clubs.................. 1,136 171 2,261 1,643
Concerts............... 11,117 12,847 (2,176) 13,227
Digital................ (3,218) (1,644) (2,863) (4,599)
Other.................. 93 390 (743) (1,283)
-------- -------- -------- --------
Total EBITDA............ 9,128 11,764 (3,521) 8,988
</TABLE>
(d) Reflects the impacts of issuances of warrants and preferred stock
consummated subsequent to December 26, 1999, the conversion of shares of
our convertible preferred stock into share of our common stock and this
offering.
(e) We define EBITDA as operating income plus depreciation and amortization,
plus venue pre-opening costs, plus our attributed share of the EBITDA from
joint ventures which we manage and account for under the equity method. You
should not consider EBITDA in isolation or as a substitute for operating
income, net income, net cash provided by operating activities or any other
measure for determining our operating performance or liquidity that is
calculated in accordance with GAAP. EBITDA, as we calculate it, may not be
comparable to calculations of similarly titled measures presented by other
companies.
(f) We define attributed revenue as total consolidated revenues plus our share
of the revenues from joint ventures which we manage and account for under
the equity method.
27
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Our unaudited pro forma statements of operations illustrate the estimated
effects of the acquisition of Universal Concerts, Inc. on September 10, 1999.
Our unaudited pro forma statements of operations for the six month periods
ended December 26, 1999, June 27, 1998 and December 27, 1998 and the year ended
December 27, 1998 give effect to the acquisition of Universal Concerts by
applying the purchase method of accounting and certain adjustments that are
directly attributable to the acquisition as if the transaction was consummated
as of December 29, 1997.
Our unaudited consolidated pro forma balance sheet illustrates the
estimated effects of equity transactions consummated after December 26, 1999
and on a pro forma, as adjusted basis, to give effect to these equity
transactions as if they had occurred as of December 26, 1999.
Our unaudited pro forma consolidated financial statements are based upon
the historical statements of operations of HOB Entertainment and Universal
Concerts included elsewhere in this prospectus, and should be read in
connection with those statements and related notes. Certain reclassifications
have been made to the historical expenses of Universal Concerts to conform to
the HOB Entertainment financial presentation. There is no pro forma adjustment
to reflect any expense savings which we expect to achieve after the acquisition
as the estimated benefits are based on projections and assumptions, not actual
experiences.
Our pro forma consolidated financial statements do not purport to represent
what our results of operations would have been if the Universal Concerts
acquisition had in fact been consummated as of December 29, 1997 or to project
the results of operations for any future date or period. The pro forma
adjustments are based upon available information and upon certain assumptions
that our management believes are reasonable. In the opinion of our management
all adjustments necessary to present fairly the unaudited pro forma
consolidated financial statements have been made.
For the purposes of preparing our consolidated financial statements, our
management will finalize a study to establish and finalize the fair value of
the acquired assets and liabilities of Universal Concerts. The allocation of
the purchase price to the assets and liabilities acquired and the resultant
depreciation and amortization is preliminary. Accordingly, our actual results
of operations may differ from these pro forma consolidated financial
statements.
28
<PAGE>
HOB ENTERTAINMENT, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
As of December 26, 1999
<TABLE>
<CAPTION>
Equity
Transactions
Consummated
After
December 26, HOB IPO HOB as
HOB Historical 1999(a) pro forma adjustments adjusted
-------------- ------------ --------- ----------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents.......... $ 35,993 $ 1,764 $ 37,757 $ (b) $
Other current assets.. 15,639 1,500 17,139
Property and
equipment, net....... 106,701 3,034 109,735
Goodwill, net......... 112,348 -- 112,348
Other assets.......... 52,593 -- 52,593
--------- ------- --------- --- ------
Total Assets........ $ 323,274 $ 6,298 $ 329,572 $ $
========= ======= ========= === ======
Liabilities and
Stockholders' Deficit:
Current liabilities... $ 47,220 $ -- $ 47,220 $ $
Long-term debt, net... 71,976 -- 71,976 (b)
Other long-term
liabilities.......... 9,589 -- 9,589
Minority interest..... 8,532 (4,266) 4,266
Preferred stock....... 287,986 10,100 298,086 (c)
Common stock.......... 1 -- 1 (b)(c)
Additional paid in
capital.............. 21,956 464 22,420 (b)
Accumulated deficit... (123,986) -- (123,986)
--------- ------- --------- --- ------
Total Liabilities
and Stockholders'
deficit............ $ 323,274 $ 6,298 $ 329,572 $ $
========= ======= ========= === ======
</TABLE>
Notes:
(a) Pro forma adjustment to reflect the issuances subsequent to December 26,
1999 of (i) 8,694 shares of common stock (ii) 4,724,908 shares of Class D-2
preferred stock, (iii) 2,910 shares of 12% senior redeemable preferred
stock and (iv) warrants to purchase 3,972,747 shares of common stock.
(b) Pro forma adjustment to reflect the additions to common stock and
additional paid in capital of the net proceeds from the initial public
offering of $ and the use of such proceeds of $ to redeem
outstanding shares of 12% senior redeemable preferred stock and outstanding
shares of 10% Senior Convertible preferred stock, $ to repay long-
term debt and $ to add to cash and equivalents as noted elsewhere
herein. Please see the section entitled "Use of Proceeds" for more
information.
(c) Pro forma adjustment to reflect the conversion of outstanding shares of our
convertible preferred stock into shares of our common stock upon the
closing of this offering.
29
<PAGE>
HOB ENTERTAINMENT, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(a)
Six month period ended December 26, 1999
<TABLE>
<CAPTION>
UCI
Historical
July 1, 1999
through UCI Pro
HOB September 10, Forma HOB
Historical 1999 Adjustments Pro Forma
---------- ------------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues.................. $107,263 $ 56,163 $ -- $ 163,426
Operating expenses........ (99,554) (50,461) -- (150,015)
General and
administrative........... (6,958) (986) -- (7,944)
Depreciation and
amortization............. (5,166) (552) (1,127)(b) (6,845)
Other expenses, net....... (473) -- (473)
-------- -------- ------- ---------
Operating (loss) income.. (4,888) 4,164 (1,127) (1,851)
Interest expense.......... (3,111) (135) (1,141)(c) (4,387)
Equity in income (loss) of
unconsolidated
partnerships............. 633 3,131 (231)(b) 3,533
Other income.............. 486 -- -- 486
-------- -------- ------- ---------
(Loss) income before
provision for income
tax...................... (6,880) 7,160 (2,499) (2,219)
Provision for income tax.. -- (2,784) 2,784 (d) --
-------- -------- ------- ---------
Net (loss) income......... $ (6,880) $ 4,376 $ 285 $ (2,219)
======== ======== ======= =========
Basic and diluted loss per
share.................... $ (4.55) $ (3.99)(e)
======== =========
Basic and diluted weighted
average number of shares
outstanding.............. 3,384 3,384
======== =========
</TABLE>
Notes:
(a) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements. The Concerts segment data is calculated from our historical
financial data, plus historical financial data of Universal Concerts from
July 1, 1999 through September 10, 1999 column and the pro forma
adjustments noted under (b) below which relate entirely to the Concerts
segment. No other pro forma adjustments impact segment data.
<TABLE>
<CAPTION>
Clubs Concerts Digital Other Total
------- -------- ------- ------- --------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total attributed revenues... $57,374 $144,556 $ 302 $ 82 $202,314
Less attributed revenues
from managed
unconsolidated joint
ventures................. -- (38,888) -- -- (38,888)
------- -------- ------- ------- --------
Total revenues as reported.. 57,374 105,668 302 82 163,426
------- -------- ------- ------- --------
EBITDA...................... 1,643 13,227 (4,599) (1,283) 8,988
Less: Depreciation and
amortization............. (2,618) (3,906) (225) (96) (6,845)
Venue pre-opening costs... -- -- -- -- --
Attributed EBITDA from
managed
unconsolidated joint
ventures............. -- (3,994) -- -- (3,994)
------- -------- ------- ------- --------
Operating (loss) income..... (975) 5,327 (4,824) (1,379) (1,851)
------- -------- ------- ------- --------
</TABLE>
(b) Pro forma adjustment to reflect the increase in depreciation and
amortization resulting from the preliminary purchase price allocation from
the beginning of the period presented to the acquisition date of September
10, 1999. Goodwill and step up of equity in unconsolidated partnerships are
amortized over 20 years. Fixed assets revalued to fair value are
depreciated over 7 to 15 years.
(c) Pro forma adjustment to reflect the incremental interest expense associated
with additional variable rate borrowings of $60 million which is related to
the acquisition from the beginning of the period presented to the
acquisition date of September 10, 1999. Interest expense would change by
$75,000 per year and $37,500 per six month period for every 1/8th percent
variance in interest rates.
(d) Pro forma adjustment to reflect the tax effect of pro forma adjustments to
depreciation and amortization expense and interest expense and the use of
our tax losses and net operating loss carryforwards.
(e) Pro forma basic and diluted loss per share is computed by dividing pro
forma net loss available to common stockholders (pro forma net loss less
historical accretion and accretion related to preferred stock issued to
acquire Universal Concerts assuming the preferred stock was issued on the
first day of the period) by the weighted average number of common shares
outstanding for the period.
30
<PAGE>
HOB ENTERTAINMENT, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(a)
Six month period ended June 27, 1999
<TABLE>
<CAPTION>
UCI Pro
HOB UCI Forma HOB
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
(amounts in thousands, except per share
data)
<S> <C> <C> <C> <C>
Revenues..................... $ 52,003 $ 68,496 $ -- $ 120,499
Operating expenses........... (47,824) (65,220) 83(b) (112,961)
General and administrative... (5,130) (5,613) -- (10,743)
Depreciation and
amortization................ (2,751) (1,275) (2,690)(c) (6,716)
Venue pre-opening costs...... (814) -- -- (814)
Other expenses, net.......... (394) -- -- (394)
-------- -------- ------- ---------
Operating loss.............. (4,910) (3,612) (2,607) (11,129)
Interest expense............. (666) (202) (2,937)(d) (3,805)
Equity in loss of
unconsolidated
partnerships................ (3,614) (110) (557)(c) (4,281)
Other income................. 245 -- -- 245
-------- -------- ------- ---------
Loss before provision for
income tax.................. (8,945) (3,924) (6,101) (18,790)
Provision for income tax..... -- 1,491 (1,491)(e) --
-------- -------- ------- ---------
Net loss..................... $ (8,945) $ (2,433) $(7,592) $ (18,790)
======== ======== ======= =========
Basic and diluted loss per
share....................... $ (3.57) $ (8.99)(f)
======== =========
Basic and diluted weighted
average number of shares
outstanding................. 3,384 3,384
======== =========
</TABLE>
Notes:
(a) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements. The Concert segment data is calculated from the UCI Historical
column and the pro forma adjustments noted under (b) and (c) below which
relate entirely to the Concerts segment. No other pro forma adjustments
impact segment data.
<TABLE>
<CAPTION>
Clubs Concerts Digital Other Total
------- -------- ------- ----- --------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total attributed revenues.... $51,712 $87,580 $ 141 $ 150 $139,583
Less attributed revenues
from managed unconsolidated
joint ventures............. -- (19,084) -- -- (19,084)
------- ------- ------- ----- --------
Total revenues as reported... 51,712 68,496 141 150 120,499
------- ------- ------- ----- --------
EBITDA....................... 2,261 (2,176) (2,863) (743) (3,521)
Less: Depreciation and
amortization............... (2,519) (3,965) (160) (72) (6,716)
Venue pre-opening costs..... (814) -- -- -- (814)
Attributed EBITDA from
managed unconsolidated
joint ventures......... -- (78) -- -- (78)
------- ------- ------- ----- --------
Operating loss............... (1,072) (6,219) (3,023) (815) (11,129)
------- ------- ------- ----- --------
</TABLE>
(b) The only significant adjustment required to the historical financial data
of Universal Concerts to conform to our accounting policies is to adjust
accounting for pre-opening costs to expense them as incurred pursuant to
SOP 98-5 which we adopted on December 29, 1997 and Universal Concerts
adopted on July 1, 1999. This adjustment is the net impact of no
pre-opening costs incurred in the period offset by $83,000 of the pre-
opening cost amortization.
(c) Pro forma adjustment to reflect the increase in depreciation and
amortization resulting from the preliminary purchase price allocation.
Goodwill and step up of equity in unconsolidated partnerships are amortized
over 20 years. Fixed assets revalued to fair value are depreciated over 7
to 15 years.
(d) Pro forma adjustment to reflect the incremental interest expense associated
with additional variable rate borrowings of $60 million related to the
acquisition. Interest expense would change by $75,000 per year and $37,500
per six month period for every 1/8th percent variance in interest rates.
(e) Pro forma adjustment to reflect the tax effect of pro forma adjustments to
depreciation and amortization expense and interest expense and the use of
our tax losses and net operating loss carryforwards.
(f) Pro forma loss per share is computed by dividing pro forma net loss
available to common stockholders (pro forma net loss less historical
accretion and accretion related to preferred stock we issued to acquire
Universal Concerts assuming the preferred stock was issued on the first day
of the period) by the weighted average number of common shares outstanding
for the period.
31
<PAGE>
HOB ENTERTAINMENT, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(a)
Six month period ended December 27, 1998
<TABLE>
<CAPTION>
UCI Pro
HOB UCI Forma HOB
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues..................... $ 45,074 $ 80,719 $ -- $ 125,793
Operating expenses........... (40,643) (69,645) 339 (b) (109,949)
General and administrative... (4,629) (3,448) -- (8,077)
Depreciation and
amortization................ (2,489) (1,034) (2,994)(c) (6,517)
Venue pre-opening costs...... (332) -- (548)(b) (880)
Other expenses, net.......... (885) -- -- (885)
-------- -------- ------- ---------
Operating (loss) income..... (3,904) 6,592 (3,203) (515)
Interest expense............. (821) (208) (2,937)(d) (3,966)
Equity in (loss) income of
unconsolidated
partnerships................ (72) 4,954 (557)(c) 4,325
Other income................. 457 14 -- 471
-------- -------- ------- ---------
(Loss) income before
provision for income tax.... (4,340) 11,352 (6,697) 315
Provision for income tax..... -- (4,314) 4,314 (e) --
-------- -------- ------- ---------
Net (loss) income from
continuing operations....... $ (4,340) $ 7,038 $(2,383) $ 315
======== ======== ======= =========
Basic and diluted loss per
share....................... $ (2.12) $ (2.08)(f)
======== =========
Basic and diluted weighted
average number of shares
outstanding................. 3,384 3,384
======== =========
</TABLE>
Notes:
(a) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements. The Concert segment data is calculated from the UCI Historical
column and the pro forma adjustments noted under (b) and (c) below which
relate entirely to the Concerts segment. No other pro forma adjustments
impact segment data.
<TABLE>
<CAPTION>
Clubs Concerts Digital Other Total
------- -------- ------- ------ --------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total attributed revenues... $41,879 $122,840 $ 159 $3,036 $167,914
Less attributed revenues
from managed
unconsolidated joint
ventures.................. -- (42,121) -- -- (42,121)
------- -------- ------- ------ --------
Total revenues as reported.. 41,879 80,719 159 3,036 125,793
------- -------- ------- ------ --------
EBITDA...................... 171 12,847 (1,644) 390 11,764
Less: Depreciation and
amortization.............. (2,158) (4,028) (108) (223) (6,517)
Venue pre-opening costs.... (332) (548) -- -- (880)
Attributed EBITDA from
managed unconsolidated
joint ventures............ -- (4,882) -- -- (4,882)
------- -------- ------- ------ --------
Operating (loss) income..... (2,319) 3,389 (1,752) 167 (515)
------- -------- ------- ------ --------
</TABLE>
(b) The only significant adjustment required to the historical financial data
of Universal Concerts to conform to our accounting policies is to adjust
accounting for pre-opening costs to expense them as incurred pursuant to
SOP 98-5 which we adopted on December 29, 1997 and Universal Concerts
adopted on July 1, 1999. The pro forma adjustment reflects $548,000 of pre-
opening costs incurred in the period offset by $339,000 of pre-opening cost
amortization.
(c) Pro forma adjustment to reflect the increase in depreciation and
amortization resulting from the preliminary purchase price allocation.
Goodwill and step up of equity in unconsolidated partnerships are amortized
over 20 years. Fixed assets revalued to fair value are depreciated over 7
to 15 years.
(d) Pro forma adjustment to reflect the incremental interest expense associated
with additional variable rate borrowings of $60 million which is related to
the acquisition. Interest expense would change by $75,000 per year and
$37,500 per six month period for every 1/8th percent variance in interest
rates.
(e) Pro forma adjustment to reflect the tax effect of pro forma adjustments to
depreciation and amortization expense and interest expense and the use of
our tax losses and net operating loss carryforwards.
(f) Pro forma basic and diluted loss per share is computed by dividing pro
forma net loss available to common stockholders (pro forma net loss less
historical accretion and accretion related to preferred stock issued to
acquire Universal Concerts assuming the preferred stock was issued on the
first day of the period) by the weighted average number of common shares
outstanding for the period.
32
<PAGE>
HOB ENTERTAINMENT, INC.
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS(a)
Year ended December 27, 1998
<TABLE>
<CAPTION>
UCI Pro
HOB UCI Forma HOB
Historical Historical Adjustments Pro Forma
---------- ---------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues..................... $ 87,783 $ 116,089 $ -- $ 203,872
Operating expenses........... (79,420) (103,923) 339 (b) (183,004)
General and administrative... (9,403) (6,742) -- (16,145)
Depreciation and
amortization................ (5,073) (1,588) (6,093)(c) (12,754)
Venue pre-opening costs...... (332) -- (819)(b) (1,151)
Other expenses, net.......... (949) -- -- (949)
-------- --------- -------- ---------
Operating (loss) income .... (7,394) 3,836 (6,573) (10,131)
Interest expense............. (1,922) (216) (5,874)(d) (8,012)
Equity in (loss) income of
unconsolidated
partnerships................ (120) 5,195 (1,114)(c) 3,961
Other income................. 910 -- -- 910
-------- --------- -------- ---------
(Loss) income before
cumulative effect of change
in accounting principle and
provision for income tax.... (8,526) 8,815 (13,561) (13,272)
Provision for income tax..... -- (3,350) 3,350 (e) --
-------- --------- -------- ---------
Net (loss) income from
continuing operations....... $ (8,526) $ 5,465 $(10,211) $ (13,272)
======== ========= ======== =========
Basic and diluted loss per
share....................... $ (3.89) $ (9.63)(f)
======== =========
Basic and diluted weighted
average number of shares
outstanding................. 3,384 3,384
======== =========
</TABLE>
Notes:
(a) This note provides supplemental pro forma segment data consistent with the
historical segment data provided in Note 16 to our historical financial
statements. The Concert segment data is calculated from the UCI Historical
column and the pro forma adjustments noted under (b) and (c) below which
relate entirely to the Concerts segment. No other pro forma adjustments
impact segment data.
<TABLE>
<CAPTION>
Clubs Concerts Digital Other Total
------- -------- ------- ------ --------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total attributed revenues... $83,679 $178,105 $ 274 $3,830 $265,888
Less attributed revenues
from managed
unconsolidated joint
ventures.................. -- (62,016) -- -- (62,016)
------- -------- ------ ------ --------
Total revenues as reported.. 83,679 116,089 274 3,830 203,872
------- -------- ------ ------ --------
EBITDA...................... 1,136 11,117 (3,218) 93 9,128
Less: Depreciation and
amortization.............. (4,609) (7,681) (172) (292) (12,754)
Venue pre-opening costs.... (332) (819) -- -- (1,151)
Attributed EBITDA from
managed unconsolidated
joint ventures............ -- (5,354) -- -- (5,354)
------- -------- ------ ------ --------
Operating loss.............. (3,805) (2,737) (3,390) (199) (10,131)
------- -------- ------ ------ --------
</TABLE>
(b) The only significant adjustment required to the historical financial data
of Universal Concerts to conform to our accounting policies is to adjust
accounting for pre-opening costs to expense them as incurred pursuant to
SOP 98-5 which we adopted on December 29, 1997 and Universal Concerts
adopted on July 1, 1999. The pro forma adjustment reflects $819,000 of pre-
opening costs incurred in the period offset by $339,000 of pre-opening cost
amortization.
(c) Pro forma adjustment to reflect the increase in depreciation and
amortization resulting from the preliminary purchase price allocation.
Goodwill and step up of equity in unconsolidated partnerships are amortized
over 20 years. Fixed assets revalued to fair value are depreciated over 7
to 15 years.
(d) Pro forma adjustment to reflect the incremental interest expense associated
with additional variable rate borrowings of $60 million related to the
acquisition. Interest expense would change by $75,000 per year and $37,500
per six month period for every 1/8th percent variance in interest rates.
(e) Pro forma adjustment to reflect the tax effect of pro forma adjustments to
depreciation and amortization expense and interest expense and the use of
our tax losses and net operating loss carryforwards.
(f) Pro forma loss per share is computed by dividing pro forma net loss
available to common stockholders (pro forma net loss less historical
accretion and accretion related to preferred stock issued to acquire
Universal Concerts assuming the preferred stock was issued on the first day
of the period) by the weighted average number of common shares outstanding
for the period.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and the notes to those statements included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Please see "Risk Factors."
Overview
We are a leading live music entertainment company. We opened our first
House of Blues club in November 1992 in Harvard Square in Cambridge,
Massachusetts. Since then, we have opened six additional clubs in key
geographic areas - in New Orleans and Los Angeles in 1994, in Chicago in 1996,
in Myrtle Beach and Orlando in 1997 and in Las Vegas in 1999. On September 10,
1999, we acquired Universal Concerts, Inc., which we re-named House of Blues
Concerts, Inc., and its affiliates that comprised the Universal Concerts
business from Universal Studios, Inc. and its Canadian affiliate, both
subsidiaries of The Seagram Company Ltd.
We began distributing live music entertainment over the Internet in 1995.
We believe we were the first to offer both free and pay-per-view streaming of
live music entertainment on the Internet. We digitally capture live
performances at our clubs, and have captured and intend to continue capturing
live music events at our concert venues, for distribution over the Internet and
through other digital and traditional media. Our current Internet product
offerings include broadcasts and digital downloads of live music, Internet
radio, concert archives, artist interviews, artist text-based chats, CD sales
and an online retail store.
Following our acquisition of Universal Concerts, we changed our fiscal year
end to the Sunday closest to June 30 of each year to coincide with Universal
Concerts' fiscal year end. Previously, we used a fiscal year ending on the
Sunday closest to December 31 of each year. As a result of the change in our
fiscal year end, we had a short, six month 1999 fiscal year, which ended on
June 27, 1999.
Prior to September 1999, we managed our business as a single operating
segment. Since September 1999, we have operated our business as four separate
operating segments:
. the Clubs division, which operates our House of Blues clubs each
including a live music hall, restaurant and bars and branded retail
operations;
. the Concerts division, which operates, books and promotes live music
events in amphitheatre, theatre and arena concert venues;
. the Digital division, which includes hob.com and our other digital
media businesses; and
. other, which includes record compilations, radio and television
programming, real estate operations associated with our Chicago club
and club-level national tour promotion in 1998.
On a pro forma basis assuming that the Universal Concerts acquisition
occurred on December 28, 1998, in the 12 months ended December 26, 1999:
. the Clubs division comprised approximately 38.4% of our revenues;
. the Concerts division comprised approximately 61.4% of our revenues;
and
. the Digital division and other divisions comprised approximately 0.2%
of our revenues.
34
<PAGE>
Clubs
Our House of Blues clubs are facilities with an integrated live music hall,
restaurant and bars, and a branded retail store area. Three clubs also feature
a special Foundation Room--an exclusive, separate area of the club offering a
fine dining and luxurious lounge experience to members and their guests.
Revenues in our Clubs division are primarily derived from food and beverage
sales and the sale of tickets to the public for live music performances in our
clubs. In addition, we generate a portion of revenues in the Clubs division
from the sale of branded retail merchandise and the sale of Foundation Room
memberships. Cash from ticket sales received prior to the date of the
applicable performance is deferred on the balance sheet until the day of the
event, when the cash is recognized as revenue. Revenues from food and beverage
operations are affected by the number of customers patronizing the restaurant,
which is impacted by the number of people attending events in the music hall,
by the average amount spent on food and beverages per person, and the number of
seatings per table. Revenues from ticket sales are affected by the number of
events we host, the average ticket price and the number of tickets sold. The
average ticket price charged and the number of tickets sold depends on the
popularity of the artist whom we are promoting, the size and type of venue and
the general economic conditions and consumer tastes in the market where the
performance is being held. We also generate significant revenues through
special events, for which companies or individuals reserve all or part of our
restaurant, music hall and Foundation Room spaces.
The major operating expenses for our food and beverage operations in our
Clubs division are food and beverage costs and compensation expense for our
employees. The major operating cost for the music halls is artist compensation,
which typically is the greater of a guaranteed amount and a percentage of
ticket revenues less certain event expenses.
Concerts
Our Concerts division operates amphitheatre, theatre and arena concert
venues and promotes concerts in the United States and Canada, directly or
through joint venture arrangements. We promote concerts in our controlled
venues and in venues operated by third parties. In addition, we occasionally
host events that are being promoted by third-party promoters in our facilities.
Our primary source of revenue from concert promotion activities is ticket
sales. Cash from ticket sales received prior to the date of the applicable
performance is deferred on the balance sheet until the day of the event, when
the cash is recognized as revenue. Revenues from ticket sales are affected
primarily by the number of events we promote, the average ticket price and the
number of tickets sold. The average ticket price and the number of tickets sold
depends on the popularity of the artist whom we are promoting, the size and
type of venue and the general economic conditions and consumer tastes in the
market where the performance is being held. In venues we operate, we outsource
food and beverage operations, merchandising and other ancillary services to
third parties, and we receive a percentage of their revenues. If a
concessionaire pays us an advance as part of a multi-year contract, we
initially defer the advance on our balance sheet and then recognize it as
revenue as it is earned over the term of our contract.
The most significant operating expense for our Concerts division is artist
compensation. As a concert promoter, we generally agree to pay the artist the
greater of a minimum guarantee and a profit sharing payment based on ticket
revenues, less certain event expenses. Artist compensation depends primarily on
the popularity of the artist, the ticket price that is set by the artist and
the expected level of ticket sales. When we promote a concert, other
significant expenses include
35
<PAGE>
production costs, facility fees and advertising. As a venue operator, the
primary costs are rent, depreciation and amortization, and compensation expense
for our employees.
The operations and revenues of our Concerts division have been largely
seasonal in nature. Our outdoor venues are primarily used in the summer months
and do not generate substantial revenue in the late fall, winter and early
spring. In the 12 months ended December 26, 1999, on a pro forma basis assuming
that the acquisition of Universal Concerts occurred on December 28, 1998,
approximately 70% of revenues for our Concerts division were generated in the
second and third calendar quarters. The seasonality of our Concerts business
may cause a significant variation in our quarterly operating results.
Recently, competitors of our Concerts division have acquired the national
touring rights for many recognized artists. Frequently, we will act as a local
promoter for national tours promoted by these competitors, or our venues will
host concerts for which these competitors elect to act as the local promoter.
The large number of national tours recently acquired by these competitors may
allow them to negotiate more favorable terms of engagement with local promoters
or venue operators such as us.
Digital
Revenues recognized in our Digital business through December 1999 have
primarily been derived from the sale of sponsorships whereby we receive a fee
from another company in return for publicity in connection with our programming
or hosting of live music events. We also have recognized revenues from the sale
of advertising space on hob.com, from e-commerce sales of House of Blues
branded merchandise from our web site, and from Internet pay-per-view
transactions, where consumers have paid for the ability to view a captured live
music performance. We expect increased growth in revenues derived from the sale
of digital downloads whereby a consumer pays us a license fee to download audio
or visual live music content, and from subscriptions whereby a broadband
carrier or consumer will pay us a periodic fee for access to a library of
archived live music audio or visual digital content.
The primary operating expenses for our Digital division are artist
compensation, royalty payments to artists and their record labels, personnel
costs, technical costs including digital capture and digital distribution
services, advertising and marketing costs, the cost of merchandise inventory
sold through e-commerce, and capital spending and the related depreciation of
digital capture and editing equipment. We expect royalty payments to artists,
their record labels and performance rights societies, to become a significant
component of our Digital division's operating costs.
Allocation of Costs
Except as discussed below, there are no significant costs that are
allocated between our divisions. For performances that we digitally capture in
our clubs for concurrent or future distribution through digital media, we
allocate 50% of the artist compensation and any incremental event costs to our
Digital division. In the future, if we digitally capture a concert in one of
our concert venues for concurrent or future distribution through digital media,
we intend to allocate a portion of the artist compensation and any incremental
event costs to the Digital division. Corporate overhead is allocated to the
segments based upon the relative time spent and associated costs incurred with
respect to each segment. A portion of corporate overhead, representing general
corporate activities, is not allocated to operating segments.
36
<PAGE>
Results of Operations
We measure the operating performance of our Clubs and Concerts divisions
primarily by their ability to generate revenues, attributed revenues, and
EBITDA. Although attributed revenues are not a measure calculated in accordance
with GAAP, we believe that it is an accepted measure of performance of
entertainment companies and is used by their managements and analysts who
report publicly on the performance by entertainment companies. We calculate
attributed revenues as total reported revenues plus revenues attributed from
managed unconsolidated joint ventures which we account for under the equity
method. These managed unconsolidated joint ventures consist of our Concerts
division's investments in our partnership with PACE Amphitheatres, Inc. and
House of Blues Concerts Canada. We measure the operating performance of our
Digital division primarily by its ability to generate revenue. We also use
EBITDA as a measure of liquidity. We define EBITDA as operating income plus
depreciation and amortization, plus venue pre-opening costs, plus our
attributed share of the EBITDA from joint ventures which we manage and account
for under the equity method. The calculation of EBITDA for the periods for
which our results of operations are presented is provided in Note 16 to our
historical financial statements. Although EBITDA is not a measure of
performance calculated in accordance with GAAP, we believe that the
entertainment industry accepts EBITDA as a generally recognized measure of
performance and analysts who report publicly on the performance of
entertainment companies use EBITDA. Nevertheless, you should not consider this
measure in isolation or as a substitute for operating income, net income, net
cash provided by operating activities or any other measure for determining our
operating performance or liquidity that is calculated in accordance with GAAP.
EBITDA, as we calculate it, may not be comparable to calculations of similarly
titled measures presented by other companies.
Six months ended December 26, 1999 compared to the six months ended December
27, 1998
Revenues. Our revenues increased by $62.2 million, or by 138%, from $45.1
million in the six months ended December 27, 1998 to $107.3 million in the six
months ended December 26, 1999. Revenues from our Clubs division increased by
$15.5 million, or by 37%, from $41.9 million in the six months ended December
27, 1998 to $57.4 million in the six months ended December 26, 1999. Of that
increase, $13.1 million was due to the addition of our club in Las Vegas, which
opened in March 1999. Revenues for our remaining clubs increased by $2.4
million primarily due to higher music hall admission revenues and special
events revenues. Our Concerts division had revenues of $49.5 million from
September 11 through December 26, 1999, as a result of our acquisition of
Universal Concerts on September 10, 1999. Prior to September 10, 1999, we did
not have a Concerts division. Our Digital division had $0.3 million of revenues
for the six months ended December 26, 1999, as compared to $0.2 million for the
six months ended December 27, 1998 primarily due to increased sponsorship
revenue. Revenues from other operations decreased by $2.9 million, from $3.0
million in the six months ended December 27, 1998 to $0.1 million in the six
months ended December 26, 1999, primarily due to the absence of tour revenues
in the six months ended December 26, 1999, compared with $2.3 million of tour
revenues for the six months ended December 27, 1998.
Attributed Revenues. Our attributed revenues increased by $74.2 million, or
by 165%, from $45.1 million in the six months ended December 27, 1998 to $119.3
million in the six months ended December 26, 1999. The increase was primarily
due to the acquisition of Universal Concerts which generated attributed
revenues of $61.5 million from its acquisition date of September 10, 1999.
Operating expenses. Our operating expenses increased by $59.0 million, or
by 145%, from $40.6 million in the six months ended December 27, 1998 to $99.6
million in the six months ended December 26, 1999. Operating expenses from our
Clubs division increased by $14.8 million, or by 39%, from $37.9 million in the
six months ended December 27, 1998 to $52.7 million in the six months ended
December 26, 1999. Our new Las Vegas club accounted for $12.3 million of the
37
<PAGE>
increase. Operating expenses for our remaining clubs which were open throughout
both of these periods increased by $2.5 million primarily as the result of
higher artist compensation expenses and special event costs. Our Concerts
division had operating expenses of $44.0 million for the period from September
10, 1999 to December 26, 1999. Prior to September 10, 1999, we did not have a
Concerts division. Digital division operating expenses increased by $1.6
million as the division added personnel, increased the number of digital
captures and increased its audiovisual streaming capabilities. The operating
expenses for our other operations decreased by $1.5 million from $1.7 million
in the six months ended December 27, 1998 to $0.2 million in the six months
ended December 26, 1999, primarily due to the absence of costs relating to
national tours.
General and administrative expenses. General and administrative expenses
increased by $2.4 million, or by 52%, from $4.6 million in the six months ended
December 27, 1998 to $7.0 million in the six months ended December 26, 1999.
The acquisition of Universal Concerts accounted for $0.9 million of the
increase. For our existing operations, the increases were primarily due to
higher compensation expense as we expanded our management to accommodate the
Universal Concerts acquisition and the expansion of our digital media
businesses, and higher professional fees.
Depreciation and amortization. Depreciation and amortization increased by
$2.7 million, or by 108%, from $2.5 million in the six months ended December
27, 1998 to $5.2 million in the six months ended December 26, 1999. Of the
increase, $1.7 million was the result of our acquisition of Universal Concerts
and $0.3 million was the result of opening our new Las Vegas club.
Venue pre-opening costs. Venue pre-opening costs decreased from $0.3
million in the six months ending December 27, 1998 when we were preparing to
open our Las Vegas club, to zero in the six months ending December 26, 1999,
when there were no new clubs preparing to open.
Other expenses, net. Other expenses, net decreased by $0.4 million from
$0.9 million in the six months ended December 27, 1998 to $0.5 million in the
six months ended December 26, 1999. The six months ended December 26, 1999
includes $0.3 million of costs we incurred in conjunction with efforts to
become the exclusive booking agent for the Greek Theatre in Los Angeles. No
comparable costs were incurred in the six months ended December 27, 1998. In
the six months ended December 27, 1998 we recognized a $0.7 million loss on
abandoned development costs from the write-off costs capitalized for a proposed
Tokyo club which was abandoned during the six months ended December 27, 1998.
There was no comparable write-off in the six months ended December 26, 1999.
The absence of that loss in the six months ended December 26, 1999 was
partially offset by a $0.1 million increase in expenses related to litigation
and settlements from the six months ended December 27, 1998 to the six months
ended December 26, 1999.
Interest income. Interest income increased by $0.1 million, or by 50%, from
$0.2 million in the six months ended December 27, 1998 to $0.3 million in the
six months ended December 26, 1999 as the result of higher cash balances as
proceeds from debt and preferred stock issuances exceeded the cost of acquiring
Universal Concerts.
Interest expense. Interest expense increased by $2.3 million, or by 288%,
from $0.8 million in the six months ended December 27, 1998 to $3.1 million in
the six months ended December 26, 1999 as a result of the bank debt we incurred
to fund the Universal Concerts acquisition.
Equity in (loss) income of unconsolidated partnerships. Our equity in the
income/loss of unconsolidated partnerships improved by $0.7 million from a loss
of $0.1 million in the six months ended December 27, 1998 to income of $0.6
million in the six months ended December 26, 1999. Of the increase, $0.7
million was due to the acquisition of Universal Concerts and $0.3 million was
from an increase in income from our Chicago Marina City Hotel Enterprises LLC
partnership. The small preferred return we earn from that partnership is no
longer offset by our share of the operating losses of the partnership, as the
partnership losses to date exceed our investment and we are not legally
committed to provide additional financial support to the partnership.
38
<PAGE>
Minority interest in loss of consolidated partnership. Minority interest in
loss of consolidated partnership was relatively unchanged at $0.2 million for
the each of the six months ended December 27, 1998 and the sixth months ended
December 26, 1999 reflecting the consistent performance of HOB Marina City
Partners, L.P. in both periods.
Net loss. Due to the factors discussed above, our net loss increased by
$2.6 million, or by 60%, from $4.3 million for the six months ended December
27, 1998 to $6.9 million for the six months ended December 26, 1999.
EBITDA. EBITDA improved by $2.1 million, from a negative $1.1 million in
the six months ended December 27, 1998 to $1.0 million in the six months ended
December 26, 1999, primarily as a result of our acquisition of Universal
Concerts.
Pro forma six months ended December 26, 1999 compared to the pro forma six
months ended December 27, 1998
The following supplemental pro forma results include the results of
Universal Concerts for the periods presented, assuming it had been acquired on
December 27, 1997 rather than on September 10, 1999 as reflected in the
historical financial statements. The following discussion of the pro forma
results of our operations should be read in conjunction with the pro forma
financial statements and the notes to those statements included elsewhere in
this prospectus.
Revenues. Our pro forma revenues increased by $37.6 million, or by 30%,
from $125.8 million in the six months ended December 27, 1998 to $163.4 million
in the six months ended December 26, 1999. Pro forma revenues from our Clubs
division increased by $15.5 million, or by 37%, from $41.9 million in the
six months ended December 27, 1998 to $57.4 million in the six months ended
December 26, 1999. Of that increase, $13.1 million was due to the addition of
our club in Las Vegas, which opened in March 1999. Pro forma revenues for our
remaining clubs increased by $2.4 million primarily due to higher music hall
admissions revenues and special events revenues. Pro forma revenues from our
Concerts division increased by $25.0 million, or by 31%, from $80.7 million in
the six months ended December 27, 1998 to $105.7 million in the six months
ended December 26, 1999. Of that increase, $20.0 million was due to our
acquisition of the Hewitt/Silva concert promotions business in December 1998
and $5.0 million was primarily due to an increased number of events and
increased revenues at the Universal Amphitheatre. Our Digital division had $0.3
million of pro forma revenues for the six months ended December 26, 1999, as
compared to $0.2 million for the six months ended December 27, 1998 primarily
due to increased sponsorships. Pro forma revenues from other operations
decreased by $2.9 million, from $3.0 million in the six months ended December
27, 1998 to $0.1 million in the six months ended December 26, 1999, primarily
due to the absence of tour revenues in the six months ended December 26, 1999,
compared with $2.3 million of tour revenues for the six months ended December
27, 1998.
Attributed Revenues. Our pro forma attributed revenues increased by $34.4
million, or by 20%, from $167.9 million in the six months ended December 27,
1998 to $202.3 million in the six months ended December 26, 1999. The revenue
increases noted above were partially offset by a reduction in attributed
revenues from our two managed unconsolidated joint ventures, House of Blues
Concerts Canada and our partnership with PACE Amphitheatres, Inc., which
declined by $3.2 million, or by 8%, from $42.1 million to $38.9 million. This
decrease was due to fewer events promoted by House of Blues Concerts Canada
which caused an attributed revenue decline of $4.5 million which was partially
offset by an increase in attributed revenue from our partnership with PACE
Amphitheatres, Inc. of $1.3 million as a result of more events promoted by that
partnership.
Operating expenses. Our pro forma operating expenses increased by $40.1
million, or by 36%, from $109.9 million in the six months ended December 27,
1998 to $150.0 million in the six
39
<PAGE>
months ended December 26, 1999. Pro forma operating expenses from our Clubs
division increased by $14.8 million, or by 39%, from $37.9 million in the six
months ended December 27, 1998 to $52.7 million in the six months ended
December 26, 1999. Our Las Vegas club, which opened in March 1999, accounted
for $12.3 million of the increase. Pro forma operating expenses for our
remaining clubs which were open throughout both of these periods increased by
$2.5 million primarily as a result of higher artist compensation expenses and
special event costs. Pro forma operating expenses from our Concerts division
increased by $24.9 million, or by 36%, from $69.6 million in the six months
ended December 27, 1998 to $94.5 million in the six months ended December 26,
1999, primarily due to $18.5 million of operating expenses due to our
acquisition of the Hewitt/Silva Concerts promotion business. Pro forma
operating expenses in the existing Concerts businesses increased by $6.4
million primarily due to higher artist compensation expenses at the Universal
Amphitheatre. Our Digital division pro forma operating expenses increased by
$1.6 million due to higher staffing levels, more digital captures and
distribution of live music content, and generally higher activity levels. The
operating expenses for corporate and other operations decreased by $1.5 million
from $1.7 million in the six months ended December 27, 1998 to $0.2 million in
the six months ended December 26, 1999 primarily due to the absence of costs
relating to national tours.
General and administrative expenses. Pro forma general and administrative
expenses decreased by $0.2 million, or by 2%, from $8.1 million in the six
months ended December 27, 1998 to $7.9 million in the six months ended December
26, 1999. The elimination of $0.9 million of corporate allocations from the
former owner of our Concerts business was offset by higher compensation costs.
Depreciation and amortization. Pro forma depreciation and amortization
expense increased by $0.3 million, or by 5%, from $6.5 million in the six
months ended December 27, 1998 to $6.8 million in the six months ended December
26, 1999. The increase was primarily the result of opening our Las Vegas club
in March 1999.
Venue pre-opening costs. Pro forma venue pre-opening costs decreased from
$0.9 million in the six months ending December 27, 1998 during which we were
preparing to open our Las Vegas club, to zero in the six months ending December
26, 1999, during which we had no pre-opening activity.
Other expenses, net. Pro forma other expenses, net decreased by $0.4
million, or by 44%, from $0.9 million in the six months ended December 27,
1998, to $0.5 million in the six months ended December 26, 1999. The six months
ended December 26, 1999 includes $0.3 million of costs we incurred in
connection with efforts to become the exclusive booking agent for the Greek
Theatre in Los Angeles. No comparable costs were incurred in the six months
ended December 27, 1998. In the six months ended December 27, 1998, we
recognized a $0.7 million loss on abandoned development costs from the write-
off of costs capitalized for a proposed Tokyo Club which was abandoned during
the six months ended December 27, 1998, for which there was no comparable
write-off in the six months ended December 26, 1999. The absence of that loss
in the six months ended December 26, 1999 was partially offset by a
$0.1 million increase in expenses related to litigation and settlements from
the six months ended December 27, 1998 to the six months ended December 26,
1999.
Interest expense. Pro forma interest expense increased by $0.4 million, or
by 10%, from $4.0 million in the six months ended December 27, 1998 to $4.4
million in the six months ended December 26, 1999 as a result of higher average
amounts of pro forma debt outstanding.
Equity in (loss) income of unconsolidated partnerships. Our pro forma
equity in the income/loss of unconsolidated partnerships decreased by $0.8
million, or by 19%, from $4.3 million in the six months ended December 27, 1998
to $3.5 million in the six months ended December 26, 1999. The primary cause of
the decrease was lower earnings from our Canadian joint venture. This
40
<PAGE>
decrease was partially offset by a $0.3 million increase in income from our
Chicago Marina City Hotel Enterprises LLC partnership. The small preferred
return we earn from that partnership is no longer offset by our share of the
operating losses of the partnership, as the partnership losses to date exceed
our investment and we are not legally committed to provide additional financial
support to the partnership.
Other income (expense). Other pro forma income (expense) was relatively
unchanged at $0.5 million for each of the six months ended December 27, 1998
and December 26, 1999.
Net income (loss). Due to the factors discussed above, our net income
(loss) declined by $2.5 million from an income of $0.3 million for the six
months ended December 27, 1998 to a loss of $2.2 million for the six months
ended December 26, 1999.
EBITDA. Pro forma EBITDA decreased by $2.8 million, or by 24%, from $11.8
million in the six months ended December 27, 1998 to $9.0 million in the six
months ended December 26, 1999 primarily as a result of costs associated with
our investment in our Digital division. Pro forma EBITDA for our Clubs division
increased by $1.5 million from $0.1 million in the six months ended
December 27, 1998 to $1.6 million in the six months ended December 26, 1999.
Pro forma EBITDA for our Concerts division increased by $0.4 million, or by 3%,
from $12.8 million in the six months ended December 27, 1998 to $13.2 million
in the six months ended December 26, 1999. Pro forma EBITDA for our Digital
division decreased by $3.0 million, or by 188%, from a negative $1.6 million in
the six months ended December 27, 1998 to a negative $4.6 million in the six
months ended December 26, 1999. Pro forma EBITDA for corporate and other
operations decreased by $1.7 million from $0.4 million in the six months ended
December 27, 1998 to a negative $1.3 million in the six months ended December
26, 1999.
Six months ended June 27, 1999 compared to the six months ended June 28, 1998
Revenues. Revenues increased by $9.3 million, or by 22%, from $42.7 million
in the six months ended June 28, 1998 to $52.0 million in the six months ended
June 27, 1999, primarily from the opening of our club in Las Vegas in March
1999.
Operating expenses. Operating expenses increased by $9.0 million, or by
23%, from $38.8 million in the six months ended June 28, 1998 to $47.8 million
in the six months ended June 27, 1999, primarily as a result of the opening of
our Las Vegas club in March 1999.
General and administrative expenses. General and administrative expenses
increased by $0.3 million, or by 6%, from $4.8 million in the six months ended
June 28, 1998 to $5.1 million in the six months ended June 27, 1999, primarily
as a result of higher compensation expense and a provision for doubtful event
receivables.
Depreciation and amortization. Depreciation and amortization expense
increased by $0.2 million, or by 8%, from $2.6 million in the six months ended
June 28, 1998 to $2.8 million in the six months ended June 27, 1999.
Substantially all of the increase was attributable to our new club in Las Vegas
which we opened in March 1999.
Venue pre-opening costs. We incurred no venue preopening costs in the
six months ending June 28, 1998, compared to $0.8 million of pre-opening costs
in the six months ending June 27, 1999 which consisted of pre-opening costs
incurred prior to the March 1999 opening of our Las Vegas club.
Other expenses, net. Other expenses, net increased by $0.3 million from
$0.1 million in the six months ended June 28, 1998 to $0.4 in the six months
ended June 27, 1999 primarily due to an increase in litigation and settlement
expenses.
41
<PAGE>
Interest income. Interest income decreased by $0.1 million from $0.1
million in the six months ended June 28, 1998 to approximately zero in the six
months ended June 27, 1999 as the result of lower cash balances available for
investment.
Interest expense. Interest expense decreased by $0.4 million, or by 36%,
from $1.1 million in the six months ended June 28, 1998 to $0.7 million in the
six months ended June 27, 1999 primarily due to a lower average debt balance
outstanding.
Equity in income/loss of unconsolidated partnership. Our equity in the loss
of unconsolidated partnerships increased by $3.6 million from a loss of
slightly more than zero in the six months ended June 28, 1998 to a loss of $3.6
million in the six months ended June 27, 1999 due to depreciation and interest
expense at the partnership level which commenced following the opening of the
House of Blues hotel in Chicago. We recognized this loss and have no further
obligation, nor any further plans, to contribute additional funds to the
partnership. Therefore, we have written our remaining investment in the
partnership down to zero and are no longer recognizing our partnership share of
additional losses. In the event that we do not provide further funding to the
partnership, our ownership share may be diluted.
Minority interest in loss of consolidated partnership. Minority interest in
loss of consolidated partnership decreased by $0.1 million, or by 33%, from
$0.3 million in the six months ended June 28, 1998 to $0.2 million in the sixth
months ended June 27, 1999 as a result of lower losses for HOB Marina City
Partners, L.P.
Net loss. Due to the factors discussed above, our net loss increased by
$2.9 million, or by 48%, from $6.0 million for the six months ended June 28,
1998 to $8.9 million for the six months ended June 27, 1999.
EBITDA. EBITDA declined by $0.4 million, or by 44%, from a negative $0.9
million in the six months ended June 28, 1998 to a negative $1.3 million in the
six months ended June 27, 1999 primarily as a result of increased costs
associated with our investment in our Digital division, partially offset by
improved performance in our Clubs division as a result of opening our Las Vegas
club in March 1999.
Year ended December 27, 1998 compared to the year ended December 28, 1997
Revenues. Revenues increased by $18.3 million, or by 26%, from $69.5
million in the fiscal year ended December 28, 1997 to $87.8 million in the
fiscal year ended December 27, 1998. Of the increase, $15.4 million was due to
the opening of our Myrtle Beach and Orlando clubs in May 1997 and September
1997, respectively, and $2.3 million resulted from our promotion of national
tours in 1998. We did not promote any national tours in 1997.
Operating expenses. Operating expenses increased by $15.8 million, or 25%,
from $63.6 million in the 1997 fiscal year to $79.4 million in the 1998 fiscal
year. Of the increase, $13.6 million was due to the opening of our clubs in
Myrtle Beach and Orlando in 1997, and $1.5 million resulted from our promotion
of national tours in 1998. We did not promote any national tours in 1997.
General and administrative expenses. General and administrative expenses
decreased by $3.7 million, or by 28%, from $13.1 million in fiscal 1997 to $9.4
million in fiscal 1998 as a result of our initiatives to reduce overhead costs
by decreasing compensation expense, travel and entertainment expense and
corporate advertising and promotions.
Depreciation and amortization. Depreciation and amortization decreased by
$2.3 million, or by 31%, from $7.4 million in fiscal 1997 to $5.1 million in
fiscal 1998. Of this decrease, $2.8 million was due to the amortization of
capitalized club pre-opening expenses in fiscal 1997 compared to no
42
<PAGE>
related amortization in fiscal 1998, due to the adoption of Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities", as of the
beginning of fiscal 1998. This decrease was partially offset by $0.6 million of
additional depreciation and amortization due to a full year of operations for
our Myrtle Beach and Orlando clubs in fiscal 1998.
Venue pre-opening costs. Venue pre-opening costs increased by $0.3 million
from zero in fiscal 1997 to $0.3 million in fiscal 1998. As a result of
adopting Statement of Position 98-5, "Reporting on the Costs of Start-up
Activities" as of the beginning of fiscal 1998, the costs for our Las Vegas
venue incurred in fiscal 1998 were expensed, while analogous costs for other
new venues in the previous year had been capitalized and amortized as part of
depreciation and amortization.
Other expenses, net. Other expenses, net decreased by $2.7 million from
$3.6 million in fiscal 1997 to $0.9 million in fiscal 1998. Litigation and
settlement costs decreased by $4.2 million from $4.5 million in fiscal 1997 to
$0.3 million in fiscal 1998 due to the settlement of several lawsuits. This
decrease was partially offset by a $0.7 million loss we recognized in fiscal
1998, writing off capitalized costs incurred in connection with the abandoned
development of a Tokyo House of Blues club. The decrease further reflects a
$0.8 million gain from the 1997 sale of real estate in New York which had
previously been acquired as a potential venue site.
Interest income. Interest income remained relatively unchanged at $0.3
million for each of fiscal 1997 and fiscal 1998.
Interest expense. Interest expense increased by $0.6 million, or by 46%,
from $1.3 million in fiscal 1997 to $1.9 million in fiscal 1998 primarily due
to higher average debt balances outstanding.
Equity in loss of unconsolidated partnership. Equity in loss of
unconsolidated partnership decreased by $0.1, or by 50%, from $0.2 million in
fiscal 1997 to $0.1 million in fiscal 1998 due to lower expenses in the
partnership developing the House of Blues hotel and adjoining real estate in
Chicago.
Minority interest in loss of consolidated partnership. Minority interest in
loss of consolidated partnership was relatively unchanged at $0.5 million in
fiscal 1997 and $0.6 million in fiscal 1998.
Cumulative write-off of unamortized venue pre-opening costs. In fiscal
1998, we recorded a $1.8 million cumulative non-cash write-off of unamortized
venue pre-opening expenses which was recorded due to a change in accounting
principles as a result of the adoption of Statement of Position 98-5,
"Reporting on the Costs of Start-up Activities."
Net loss. Due to the factors discussed above, our net loss decreased by
$8.5 million, or by 45%, from $18.9 million for fiscal 1997 to $10.4 million
for fiscal 1998.
EBITDA. EBITDA improved by $8.8 million, or by 81%, from a negative $10.8
million in the fiscal year ended December 28, 1997 to a negative $2.0 million
in the fiscal year ended December 27, 1998 primarily as a result of full year
results of our Myrtle Beach and Orlando clubs which were opened during 1997,
and reductions in general and administrative expense and litigation and
settlement costs in 1998.
Year ended December 28, 1997 compared to the year ended December 29, 1996
Revenues. Revenues increased by $33.4 million, or 93%, from $36.1 million
in the fiscal year ended December 29, 1996 to $69.5 million for the fiscal year
ended December 28, 1997. Substantially all of the $33.4 million increase was
due to the opening of our club in Chicago in November 1996, our club in Myrtle
Beach in May 1997, and our club in Orlando in September 1997.
43
<PAGE>
Operating expenses. Operating expenses increased by $31.0 million, or 95%,
from $32.6 million in fiscal 1996 to $63.6 million in fiscal 1997.
Substantially all of the $31.0 million increase was from our three new clubs in
Chicago, Myrtle Beach and Orlando.
General and administrative expenses. General and administrative expenses
decreased by $1.4 million, or by 10%, from $14.5 million in fiscal 1996 to
$13.1 million in fiscal 1997 due to a $2.2 million decrease in legal and
professional fees, which was partially offset by higher compensation expenses.
Depreciation and amortization. Depreciation and amortization increased by
$5.0 million, or by 208%, from $2.4 million in fiscal 1996 to $7.4 million in
fiscal 1997. Of the increase, $2.7 million was due to amortization of
capitalized pre-opening costs related to the opening of our three new clubs in
Chicago, Myrtle Beach and Orlando, $0.9 million was due to fixed assets
depreciation and amortization at these three new clubs, and $0.8 million was
due to depreciation of the consolidated HOB Marina City Partners, L.P. joint
venture which owns and had developed the facility that houses our Chicago club.
Other expenses, net. Other expenses, net decreased by $10.1 million from
$13.7 million in fiscal 1996 to $3.6 million in fiscal 1997. In fiscal 1997, we
recorded a $0.8 million gain from the sale of real estate in New York which had
been acquired as a potential venue site. In fiscal 1996, we recorded a
$13.7 million loss in connection with a temporary club we opened and operated
in Atlanta during the 1996 Summer Olympics. The net effect of these items was
partially offset by a $4.5 million increase in litigation and settlement costs
from zero in fiscal 1996 to $4.5 million in fiscal 1997 due to accruals for
several legal claims.
Interest income. Interest income decreased by $0.3 million, or by 50%, from
$0.6 million in fiscal 1996 to $0.3 million in fiscal 1997 due to lower average
amounts of cash and cash equivalents available for investment.
Interest expense. Interest expense increased by $1.0 million from $0.3
million in fiscal 1996 to $1.3 million in fiscal 1997 primarily due to higher
average amounts of debt outstanding.
Equity in loss of unconsolidated partnership. Equity in loss of
unconsolidated partnership increased from zero in fiscal 1996 to $0.2 million
in fiscal 1997. The increase is attributable to the Marina City Hotel
Enterprises LLC partnership, which commenced operations in January 1997.
Minority interest in loss of consolidated partnership. Minority interest in
loss of consolidated partnership increased from zero in fiscal 1996 to $0.5
million in fiscal 1997 as a result of losses from the operations of HOB Marina
City Partners, L.P.
Net loss. Due to the factors discussed above, our net loss decreased by
$7.9 million, or by 29%, from $26.8 million for fiscal 1996 to $18.9 million
for fiscal 1997.
EBITDA. EBITDA improved by $13.9 million, or by 56%, from a negative $24.7
million in the year ended December 29, 1996 to a negative $10.8 million in the
year ended December 28, 1997 primarily as a result of a full year of operations
of our Chicago club which was opened in 1996. In addition, EBITDA for fiscal
1996 was negatively impacted by a loss in connection with a temporary club we
opened and operated in Atlanta during the 1996 Summer Olympics.
Liquidity and Capital Resources
We have historically financed our operations through internally generated
cash flow from operations, the proceeds from private sales of preferred equity
securities and, to a lesser extent, capital leases and other debt financing. In
September 1999, we acquired Universal Concerts for
44
<PAGE>
approximately $174 million in cash and assumed liabilities. We financed the
acquisition through the net proceeds from a private sale of $146.2 million of
preferred stock and $57.6 million in term loans under a new credit facility.
The new credit facility also includes a four-year $25 million revolving line of
credit, which we have not yet utilized.
In September 1999, our cash balances increased substantially as funds
raised from the sale of preferred stock and our new credit facility exceeded
the amount required to purchase Universal Concerts. As of December 26, 1999, we
had cash and cash equivalents of approximately $36 million. In addition, we
have approximately $25 million in available borrowings under our revolving line
of credit. We expect that, upon the closing of this offering, we will have
entered into a new or amended credit agreement.
In January and February 2000, we concluded several private sales of
preferred stock to independent third parties and a preemptive rights offering
to our preferred stockholders who had not made additional investments in
connection with the acquisition of Universal Concerts. As a result of these
sales, we issued shares of Class D-2 preferred stock and shares of 12% senior
redeemable preferred stock and received net proceeds of approximately $7.6
million. We used the proceeds for working capital and other general corporate
purposes.
Net cash used in operating activities was $13.8 million in fiscal 1996,
$18.0 million in fiscal 1997, $10.5 million in fiscal 1998, $0.9 million
provided by operating activities in the six months ended June 27, 1999, and
$3.2 million used in operating activities in the six months ended December 26,
1999. Our net use of cash in operating activities is primarily due to our net
losses in these periods.
Net cash used in investing activities was $35.3 million in fiscal 1996,
$14.4 million in fiscal 1997, $4.3 million in fiscal 1998, $5.7 million in the
six months ended June 27, 1999, and $162.1 million in the six months ended
December 26, 1999. Our net use of cash in investing activities is primarily due
to the $158.7 million from the purchase of Universal Concerts, Inc., net of
cash acquired and assumed liabilities, on September 10, 1999, and due to the
construction of our House of Blues clubs in Chicago, Myrtle Beach, Orlando and
Las Vegas.
Net cash provided by financing activities was $31.7 million in fiscal 1996,
$22.9 million in fiscal 1997, $18.4 million in fiscal 1998, $2.6 million in the
six months ended June 27, 1999, and $199.9 million in the six months ended
December 26, 1999. The net cash provided to us by financing activities has been
primarily from the issuance of various classes of preferred stock and from the
issuance of debt to finance our expansion activities.
Capital expenditures for the six months ended June 27, 1999 totaled $5.3
million. For the six months ended December 26, 1999, our capital expenditures
totaled $3.3 million. We currently estimate that capital expenditures for the
fiscal year ended July 2, 2000 will total approximately $15.0 million.
Historically, our largest capital expenditures have been to construct, furnish
and equip our club venues. During calendar 2000, however, we plan to acquire a
significant amount of digital content capture and editing equipment. We also
anticipate spending significant amounts of capital on new theatre and
amphitheatre venue developments over the next two years.
We currently anticipate that the net proceeds from this offering, funds
available under our credit agreement, our existing cash and cash generated from
currently existing club and concert venue operations will be sufficient to fund
our operating activities, capital expenditures and development activities for
at least the next 12 months. If we are not successful in generating sufficient
cash flow from currently existing club and concert venue operations, we may
need to raise additional capital through public or private debt and equity
financings, strategic relationships or other arrangements. In addition, our
ability to execute our current business plan, including development of
additional venues and our digital and traditional media businesses, is
dependent upon our ability to obtain additional
45
<PAGE>
debt and equity financing. The timing and amount of our future capital
requirements cannot be accurately predicted and we cannot assure you that we
will be able to raise additional financing on terms satisfactory to us, or at
all. If we are unable to obtain additional financing as needed, we may be
required to reduce the scope of our operations or proposed development of our
clubs, concerts and digital businesses. Accordingly, our failure to raise
sufficient capital when needed could have a material adverse effect on our
business, results of operations and financial condition. If additional funds
were raised through the issuance of equity securities, the percentage of stock
owned by our then-current stockholders would be reduced.
In the ordinary course of business, we continually have discussions and
enter into negotiations regarding possible acquisitions of music promoters and
music venue operators, both in the United States and internationally. Our
business plan calls for such acquisitions as a way of improving our
geographical reach and our scale of operations faster than could be achieved
through internal growth and construction. We can provide no assurance, however,
that we will in fact close any such acquisitions. In addition, we would have to
finance these acquisitions through the issuance of equity capital to the
owners, the use of cash on hand, or by accessing external sources of debt or
equity capital, and we cannot be sure that we will be able to find sources of
capital on terms acceptable to us, or at all for these purposes.
We have had negative cash flow from operations since our inception. In
addition, we incurred net losses in each year. Although we have experienced net
revenue growth in each of the last five fiscal years, this growth should not be
considered indicative of future revenue growth, if any. We expect to incur
additional operating losses and negative cash flow from operations as we expand
our venue, promotions and digital businesses. There can be no assurance that
our revenues will grow or be sustained in future periods or that we will be
able to achieve or sustain profitability or positive cash flow from operations
in any future period. If we cannot achieve and sustain operating profitability
or positive cash flow from operations, we may not be able to meet our debt
service or working capital requirements.
Management believes that it has an adequate plan to deal with the business
risks associated with the Company's current operations and development plan and
intends to raise additional capital to finance continued expected net losses as
well as expansion of the Company.
Year 2000 Compliance
As of March 10, 2000, we had not experienced any disruptions in the
operation of our business as a result of computer failures to recognize the
year 2000 or the date February 29, 2000. We can not be sure, however, that all
potential Year 2000 problems have become apparent. We continue to monitor our
technological operations, and the third party technological operations which
are most significant to our business, to evaluate whether there are any
indications that Year 2000 problems may still impact our business. We spent
less than $0.5 million in Year 2000 related remediation costs. These costs did
not have a material effect on our operations and financial condition and we do
not anticipate that we will incur these types of costs in the future.
46
<PAGE>
LIVE MUSIC INDUSTRY OVERVIEW
The Live Music Entertainment Industry
The live music entertainment business is a large and growing industry.
Artists have traditionally embraced live performances as a critical promotional
tool for their recordings, as a platform to maintain direct interaction with
fans and as a way to achieve a sense of authenticity and spontaneity in their
work. Similarly, consumers have typically sought out live performances to
experience a personal connection with their favorite artists and fellow music
enthusiasts and a unique presentation of their favorite songs.
Several new trends have impacted the demand for and delivery of live music
entertainment including:
. increasing supply of and demand for live music performances by both
"classic" and emerging artists;
. consolidation of the concert promotions and venue operations
businesses; and
. increasing corporate sponsorship of live music venues and events.
Supply and Demand. Recently, several new and emerging artists performed
tours that were among the most lucrative and well-attended in the world. The
successes of these newer acts have complemented the ongoing, consistent success
of live performances by "classic" and other more established artists who
continue to benefit from the music enthusiasm of older generations, including
the "baby boomers." The top ten performing artists of the 1999 concert season
included "classic" performers like The Rolling Stones, Bruce Springsteen and
Neil Diamond, well-known entertainers like Cher, George Straight Country Music
Fair, Dave Matthews Band and Celine Dion, as well as new breakout acts like 'N
Sync, Shania Twain and the Backstreet Boys. This wide-ranging success reflects
an increasingly diverse supply of artists in the live music performance market.
Considering the diverse fan base for these artists and the significant increase
in industry-wide revenues, we believe that the audience base for live music
entertainment has both diversified and expanded. According to Amusement
Business Magazine, in 1999, more than 34.5 million people attended live
concerts in North America.
47
<PAGE>
The live music entertainment industry has experienced substantial and
relatively consistent growth on a worldwide basis over the past 14 years. As
shown in the graph below, the live concert industry has grown at a compound
annual growth rate of 10.5% from 1985 through 1999.
Worldwide Live Music Concert Ticket Revenues
--------------------------------------------
($ in millions)
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
1985 $ 322
1986 $ 311
1987 $ 481
1988 $ 495
1989 $ 528
1990 $ 683
1991 $ 622
1992 $ 809
1993 $ 792
1994 $1,145(1)
1995 $ 897
1996 $ 922
1997 $1,113
1998 $1,100
1999 $1,309
</TABLE>
- --------
Source: Amusement Business Magazine
(1) The year 1994 was marked by higher than normal ticket sales due to the
simultaneous touring of The Rolling Stones, The Eagles and Pink Floyd
during the same season, each following a long absence from live
performance.
Consolidation. Historically, the concert promotions business has consisted
of regional promoters focused generally on one or two major metropolitan
markets. Similarly, the concert venue business has consisted of local operators
controlling one or two venues. During the past several years, however, the live
music industry has been characterized by consolidation within both the
promotions and concert venue businesses, which has been driven by a desire to
capitalize on economies of scale, leveraging opportunities and business
synergies.
Sponsorships. Advertisers recognize the increasing strength, broad appeal,
highly targeted demographics and unique advertising opportunities offered by
the live music entertainment industry. Beverage makers, telecommunications
companies, retailers, credit card companies and leisure companies, including,
among others, Coors, Sprint, Molson, Pepsi, Discover, Levi's and Blockbuster,
have already made significant investments in reaching the live music
entertainment audience through the advertising at and the sponsorship of
events, tours and concert venues.
48
<PAGE>
Participants in the Live Music Entertainment Industry
The process of bringing a live concert to an audience requires the
involvement of four key parties:
. artists;
. booking agents and other artists' representatives;
. promoters; and
. venue owners and operators.
An artist's representative, such as a booking agent, works with an artist
to arrange a venue and date, or series of venues and dates, for performances
and typically enters into contracts with promoters operating in the various
regions of the planned tour. A promoter is responsible for securing individual
venues for the event on given dates, marketing the event, selling tickets and
arranging for local production services, such as stage, set, sound and
lighting. The promoter may also provide limited production services. The
promoter offers the artist a guaranteed dollar amount per show based on the
expected attendance and the ticket price that is negotiated with the artist.
The promoter and artist's representative also negotiate how the revenue in
excess of the promoter's operating expenses and the artist's guaranteed amount
will be split.
A venue operator provides the venue which will host the event, and is
responsible for supplying, either through internal means or by subcontracting,
all of the necessary supplementary services required for the event. The venue
operator is paid a fee for the use of the venue and receives a rental payment
based on a percentage of ticket revenues. The operator also generates revenues
from the services it supplies, including concessions sales, merchandise sales,
parking and other ancillary services, as well as sponsorships. Additionally,
the operator generates ancillary revenues from other high margin services such
as VIP parking, corporate box seating, and related amenities which generally
command premium pricing. Industry participants, like House of Blues, often
perform more than one of the booking, promotion and venue operation functions.
Venues typically fall into one of the following categories:
. stadiums, generally accommodating more than 32,000 patrons;
. arenas, generally accommodating 15,000 to 25,000 patrons;
. amphitheatres, open air performance spaces generally accommodating
4,000 to 32,000 patrons;
. theatres, enclosed venues generally accommodating up to 6,000 patrons
in fixed seating; and
. concert clubs, generally accommodating 2,000 or fewer patrons in more
casual settings than theatres.
The Online Music Industry
The Internet. The Internet is a growing platform that allows millions of
people worldwide to deliver and receive information rapidly, to create virtual
communities around shared interests and to engage in electronic commerce. The
International Data Corporation, an industry research company, has estimated
that more than 142 million people worldwide used the Internet in 1998 and
projects that by 2003, that number will more than triple to exceed 500 million
users. Teens, college students and other young adults are at the heart of this
Internet revolution as indicated by International Data Corporation, which
reported that 58% of all Internet users are between the ages of 12 and 34.
This demographic age group has historically been the largest group of music
entertainment consumers and we believe they will also be significant consumers
of entertainment content on the Internet. Additionally, among all consumers,
the Internet has already become a widely accepted global
49
<PAGE>
medium for communications, entertainment and commerce, and Forrester Research,
an industry research firm, forecasts that the Internet will continue to win
greater proportions of customer spending. We believe that these trends will
support continued growth in consumer spending for entertainment products
online.
Entertainment on the Internet. One indication of the Internet's growing
popularity is its increasing use by consumers as a source for entertainment.
According to Forrester Research, movie- and entertainment-related content
represent the fourth most sought after information on the web. Audience &
Development reports that 30% of people watching less television are browsing
the Internet instead. Examples of the proliferation of Internet-based
entertainment companies include MTVi, which is devoted to recorded music video
broadcast on the Internet, and "bricks and mortar" entertainment companies like
World Wrestling Federation Entertainment, Inc., which currently broadcasts a
limited number of its events on the Internet. Furthermore, through web sites
like bloomberg.com and cnn.com, Internet consumers also now have the
opportunity to watch news broadcasts and sports events online. As the Internet
continues to evolve as a mass communications medium and as technology becomes
more advanced, we believe that entertainment content will increasingly be
delivered and purchased through the Internet.
Online Music. Total music industry revenues in the United States will grow
from $13.7 billion in 1998 to $18.1 billion in 2003, as projected by Jupiter
Communications. Jupiter Communications also forecasts the contribution of
online music sales of compact discs, tapes, records, and digital downloads as a
percent of total music sales to increase from 1.1%, or $152 million, in 1998 to
nearly 14.4%, or $2.6 billion, by 2003. Additionally, Jupiter Communications
forecasts a tripling of the online music consumer base from 10 million in 1999
to 33 million by 2003. For the month of January 2000 alone, Forrester Research
reports that online music sales totaled $142 million, ranking seventh among all
items purchased on the Internet. More than 12 million Internet users accessed
music and music-related content in that month, according to Media Metrix, an
Internet tracking firm.
The market data presented above and elsewhere in this prospectus shows the
referenced research firm's estimates derived from a combination of provider,
user and other market sources and therefore may differ from data cited by
companies using different market definitions or calculating methods. There can
be no assurance that any of these estimates will be achieved.
Increasing consumer demand for music and music-related content online is
evidenced by the proliferation of music-related web sites. As an important new
medium for music enthusiasts, the Internet allows consumers to conveniently
listen to and download music, watch music videos and live performances,
purchase digitally and traditionally recorded music, learn about artists and
their music and chat with artists and fellow music enthusiasts. Additionally,
we believe the Internet provides a revolutionary new opportunity for artists
and record labels to promote their music and earn additional revenues from
their music products. Through the Internet, artists can share background on
themselves and their music, communicate directly with their fans, and promote
and distribute their music products. We believe that the Internet's appeal to
artists, their representatives and record labels will grow even further with
the increasing sophistication of security technology and the industry standards
for online music distribution, since the Internet offers the unique opportunity
to:
. reach a worldwide audience for music entertainment;
. provide users with a broad and diverse offering of music content;
. tailor products based on market dynamics and consumer interests;
. digitally distribute music content efficiently and cost-effectively;
and
. collect data regarding consumer preferences and demographics for
targeted marketing, advertising, and promotions.
50
<PAGE>
Online Live Music. We believe that the Internet has the potential to fulfill
unmet consumer demand for live music entertainment by providing easy,
customized and cost-effective access to live music content which is currently
lacking in traditional media. We believe that the distribution of live music
content over the Internet will not cannibalize consumer demand for studio-
recorded music or consumer attendance of live music performances. We believe
music enthusiasts regard live performance recordings as a supplement to, rather
than as a substitute for, studio recordings due to the unique sound and
character of each live performance. Similarly, we believe that consumers of
online live music will continue to attend live music performances in person to
participate in the spontaneous social experience of interacting with the artist
and fellow music enthusiasts. We believe that, rather than reducing their live
event attendance, consumers who enjoy listening to and viewing live music
performances online, particularly that of new or unfamiliar artists, may be
inspired to attend more live performances. The popularity of live music and the
relatively low cost of capturing and distributing live music content make the
Internet a valuable platform for new promotional and revenue opportunities for
artists, their representatives, record labels, and our company.
Most consumers presently connect to the Internet through dial-up telephone
connections with access speeds of 56 Kbps or less. We believe that new
broadband platforms, such as cable and digital subscriber line modems and
satellite data broadcast, will allow for significantly faster delivery of
Internet-based products to consumers than the currently predominant narrowband
technologies. These broadband technologies facilitate connection speeds from
168 Kbps for entry-level services to over 1Mbps. The proliferation of consumer
broadband access will make the Internet an even more attractive medium for
consumers to enjoy a live music experience. As an example, as of January 2000
Forrester Research reports that while approximately 11% of inexperienced
narrowband users watch streaming video, 39% of broadband users regularly engage
in this online activity. For these reasons, we believe that the continued
growth of broadband technology usage by consumers will correspondingly increase
demand for our live music products and services. We believe that broadband
consumer adaptation rates will continue to be strong as illustrated in a March
2000 Forrester Research study that forecasted an increase in the number of
broadband Internet subscribers from an estimated 2.0 million subscribers in
1999 to 27.0 million subscribers by the end of 2003.
Similar to growth in broadband user adaptation rates, we believe that
significant increases in digital compression technologies, personal computer
processor speeds, high-speed CD- and DVD-ROM drives and other interactive
devices will accelerate the proliferation of successful online music content
distribution. To date, digital music downloads have generated limited revenues,
as most downloads that are available on the Internet have been promotional in
nature. However, according to Forrester Research, recorded music sales
delivered through digital transmission are expected to represent 7% of all
United States recorded music sales by 2003.
51
<PAGE>
BUSINESS
Introduction
We are a leading live music entertainment company with a premier venue
portfolio, a widely recognized brand name and an integrated Internet and
digital strategy. We own, operate or exclusively book 27 venues including:
. seven widely known House of Blues clubs; and
. 20 premier amphitheatre, theatre and arena concert venues
We act as a promoter of live music events at both our own and third party clubs
and concert venues. We believe that we are the second largest operator of
amphitheatre, theatre and arena venues and the second largest promoter of live
concerts in the United States. We believe that we are also the largest promoter
of live concerts in Canada through a joint venture we operate. We are able to
capitalize on the live performances we promote by digitally capturing audio and
visual live music content and distributing it through a variety of media,
including our web site, www.hob.com, television and radio. The live concert
performances that we promote and distribute reflect a diverse array of music
genres, including pop, rock, hard rock, Latin, hip hop, rap, blues, R&B, jazz,
soul, funk, swing, country & western, gospel and contemporary, and appeal to an
equally diverse demographic base.
We believe that there is a large demand for live music entertainment
worldwide that is not met by existing live music venues and traditional media
such as television, radio and recordings. Historically, the live music
entertainment business has reached only a limited portion of consumers because
of inherent constraints of time, geography, availability and cost. We believe
that numerous economically and demographically advantageous markets are
currently under-served by existing live music venues. Additionally, we believe
that the high costs associated with producing and distributing one-time
recordings of live performances limit the distribution of live music events
through traditional media. We believe that the development of new forms of
digital distribution will result in significant opportunities to efficiently
and effectively meet consumer demand for live music entertainment.
We believe that we are well-positioned to be a leading distributor of live
music entertainment through the Internet and other digital media because of our
fully integrated venue operations and live music promotions businesses and the
wide recognition of our House of Blues brand. We promote more than 3,500 live
music performances annually and are able to attract high-quality talent by
offering a state-of-the-art live performance environment, venues of varying
types and sizes, and unique multimedia promotional opportunities for artists.
Our venues and promotional businesses provide us with excellent access to live
music content and our significant production infrastructure allows us to
digitally capture that content cost-effectively. Our multi-dimensional
relationships with artists give us the ability to offer original programming at
our venues and through digital and traditional media. We began distributing
live music entertainment over the Internet in 1995 and believe we were the
first to offer both free and pay-per-view streaming live music entertainment on
the Internet. We believe that consumers and artists identify our House of Blues
brand with a high-quality live music experience and we seek to continuously
reinforce our brand as "The Home of Live Music" and "The Home of Live Music on
the Internet."
Our Strategy
We are focused on becoming the leading source for high-quality, diverse
live music entertainment content across all forms of media. Our primary
strategic objectives are to:
. reinforce our House of Blues brand as being synonymous with high-
quality live music entertainment across a variety of music genres;
52
<PAGE>
. be the premier provider and promoter of a diverse array of live music
entertainment; and
. be the leading distributor of branded live music entertainment content
through a variety of media.
We intend to implement our strategies in the following ways:
Position our House of Blues brand as the source for the highest-quality
live music entertainment across a variety of music genres. We believe our
existing clubs and concert venues, our promotions and touring businesses, our
Internet presence and our other digital and traditional media businesses
provide broad exposure of our brand to live music enthusiasts. In 1999, our
concert venues attracted approximately seven million in attendance, the music
halls at our clubs attracted approximately 1.4 million in attendance and the
restaurants at our clubs attracted approximately 1.4 million patrons. Our web
site, hob.com, currently attracts approximately 500,000 unique monthly visitors
and our terrestrial radio productions currently generate 4.7 million weekly
gross impressions in 186 radio markets. In addition, we advertise in major
newspapers in all of the markets where we operate our clubs, concert venues and
promotions business. Through all of these customer contact opportunities, we
intend to continue to develop our widely known House of Blues brand as an
internationally recognized trademark synonymous with high-quality live music
entertainment.
Expand and capitalize on long-term relationships with artists, their
representatives and record labels to maximize our access to high-quality live
music content. We employ senior executives in our club and concert venue
businesses who have an average of 19 years' experience in the talent-buying and
promoting business and have built enduring relationships with artists, thus
enabling our presentation of recurring performances by musicians like Elton
John, Jimmy Buffett, Bob Dylan, 'N Sync, Whitney Houston, Ricky Martin,
Aerosmith and Willie Nelson. We have also cultivated and continue to strengthen
our relationships with artist representatives, who not only represent
established artists but also provide us with access to emerging talent. Our
artist-friendly facilities feature high-quality production equipment and
provide an enjoyable performance experience for artists. Moreover, because we
own, operate or have booking arrangements with both small and large capacity
venues, we are able to nurture and showcase new, cutting-edge artists at our
clubs and to capitalize on our relationships by booking these artists at our
larger capacity amphitheatre, theatre and arena venues as their careers
advance. Additionally, our digital and traditional media businesses provide
attractive new promotional opportunities for artists. Our ability to showcase
artists throughout their careers and in a variety of media greatly increases
the depth and breadth of our access to high-quality live music content.
Grow our position as a leading live music venue operator and promoter. We
intend to execute our strategic plan to develop additional House of Blues clubs
and new amphitheatre and theatre venues in targeted domestic and international
markets. In addition, we continue to pursue attractive acquisitions and joint
venture opportunities in order to expand our regional and national promotions
businesses and penetrate important geographical markets. Finally, we intend to
enhance our existing operations through ongoing operational initiatives.
Leverage the opportunities created by our fully-integrated operations to
become the leading multimedia distributor of live music entertainment. Our
position as an owner and operator of a wide range of venue types and as a
concert promoter and producer, as well as our multimedia capabilities, provides
us with a unique advantage in booking and showcasing talent. We are able to
offer multiple performance platforms in geographically important markets and
thus capitalize on our economies of scale. Our existing infrastructure allows
us to digitally capture high-quality live music content at our venues for
distribution through a variety of new digital media, creating new product
opportunities at little incremental cost. Contrary to most traditional music
industry business models in
53
<PAGE>
which artists and their record labels pay for production, promotion and
distribution costs, we are able to capitalize on content that the artist has
already created without additional cost to the artist and the record label.
Through the audio and visual content distribution of live performances on the
Internet and other new forms of digital media, we intend to provide additional
revenue streams for artists, their representatives, record labels and our
company. Our multiple live performance and distribution platforms also provide
attractive sponsorship and advertising opportunities across all of our business
segments.
Continue to pursue strategic alliances and relationships to enhance our
access to live music entertainment content and expand our distribution
network. We plan to continue to enter into strategic relationships with leading
content providers such as record labels and other music entertainment companies
in order to further expand our access to live music content. In addition, we
intend to continue to enter into strategic agreements and alliances with
leading telecommunications companies, Internet service providers, online
portals and other music-related web site operators in order to enhance our
Internet and other digital distribution capabilities, generate new Internet
traffic for our hob.com web site and broaden our exposure to web users.
Our Business
We are "The Home of Live Music" and "The Home of Live Music on the
Internet," featuring and promoting all genres of music and appealing to a broad
and diverse demographic base. We aspire to develop our clubs and concert
venues, our hob.com web site and our other branded properties into the premier
sources and destinations for a broad array of live music content. We are fully
integrated with four business units:
. House of Blues Clubs;
. House of Blues Concerts;
. House of Blues Digital, including hob.com and our other digital media
businesses; and
. Traditional Media and Other Businesses.
House of Blues Clubs
Overview. The primary objectives of our club business are to:
. attract loyal consumers to our clubs with a high-quality comprehensive
entertainment experience featuring live music and dining;
. attract high-quality artists with a professionally rewarding and
promotionally valuable performance experience; and
. capture live music content for distribution through hob.com and our
other digital and traditional media businesses.
We fulfill these objectives by:
. booking a variety of high-quality talent across a broad array of music
genres;
. offering an intimate, socially interactive live music experience for
artists and their fans;
. providing a high-quality dining experience;
. providing state-of-the-art sound and lighting systems;
. actively marketing our clubs as locations for high margin corporate and
other special events;
. using experienced production teams to digitally capture live
performances; and
. fostering strong relationships with artists by providing them with
first-class, personalized hospitality.
54
<PAGE>
Existing Clubs. We opened our first House of Blues club in November 1992
in Harvard Square in Cambridge, Massachusetts. Since then, we have opened six
additional clubs in key geographic areas. An overview of our clubs is
presented below:
<TABLE>
<CAPTION>
Number of Number of Total
Nights with Content Attendance
Shows Captures in
Music Hall in Calendar in Calendar Calendar
Location Opening Date Capacity 1999 1999 1999(1)
- -------- ------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Cambridge, MA........... November 1992 165 359 16 122,225
New Orleans, LA......... January 1994 1,000 304 26 397,613
Los Angeles, CA......... May 1994 1,000 314 70 319,928
Chicago, IL............. November 1996 1,500 297 44 417,180
Myrtle Beach, SC(2) .... May 1997 1,600 141 3 348,616
Orlando, FL............. September 1997 2,000 272 11 685,963
Las Vegas, NV........... March 1999 2,000 145 60 468,516
----- --- ---------
Totals.................. 1,832 230 2,760,041
</TABLE>
- --------
(1) Includes visitors to our restaurants only, our music halls only or both.
Of the total number, approximately 1.4 million in attendance visited at
least the music halls.
(2) The Myrtle Beach club has limited operations during the winter season.
Operations. Each of our existing House of Blues clubs offers customers an
integrated live music and dining experience. Our clubs display one of the
largest collections of Southern and rural folk art in the world and share an
authentic, colorful Southern-inspired environment which celebrates the blues
music tradition. Each club showcases a variety of original live music
performances designed to appeal to a broad range of music preferences. Each
club has three primary components-- a live music hall, a restaurant and bar
and a branded specialty retail store. The Chicago location also includes a
hotel that we developed with a joint venture partner.
Live Music Hall. Each House of Blues club has a music hall, specially
designed to provide optimum acoustics for live performances. Each music hall
is outfitted with state-of-the-art sound and lighting equipment and operated
by professional production teams. We generally offer nightly live
entertainment performances and each club offers a Gospel Brunch buffet every
Sunday, featuring live gospel choirs in the music hall. The clubs regularly
host special programs for targeted groups, including service industry nights
in Los Angeles, New Orleans, Myrtle Beach, Orlando and Las Vegas and late
night dance club events in New Orleans, Chicago and Myrtle Beach following the
featured live music performance.
The music halls in our existing clubs generally accommodate between 1,000
and 2,000 guests. Our music halls are recognized by artists and other members
of the music industry as premier venues for club-level live music
performances. Each club showcases a combination of internationally recognized,
nationally known and popular regional and local artists who appeal to a broad
range of musical tastes, such as pop, rock, hard rock, Latin, blues, R&B, hip
hop, rap, jazz, soul, funk, swing, country & western, gospel and contemporary.
The following table reflects the breadth and depth of artists who have
performed at our clubs:
<TABLE>
<CAPTION>
Pop Classic/Rock Latin Hip Hop/Rap R&B/Blues
- --- ------------ ----- ----------- ---------
<S> <C> <C> <C> <C>
311 Aerosmith Buena Vista Social Club Eminem James Brown
Sheryl Crow Eric Clapton artists The Fugees D'Angelo
Duran Duran Bob Dylan Celia Cruz Ice Cube Aretha Franklin
Hootie & the Blowfish Paul Simon Jaguares Wyclef Jean Macy Gray
Joan Osbourne Van Halen Mana Public Enemy Al Green
Tito Puente
</TABLE>
55
<PAGE>
Our clubs have thrived in large part because of the expertise and industry
relationships of our talent buyers. Our club business senior management team
includes talent buyers with an average of 15 years' experience in the field and
outstanding access to key talent, their representatives and record companies.
As a result, we are generally able to attract and maintain enduring, long-
standing relationships with high-quality nationally known artists, which
differentiates our live music offerings from other local and regional club
operators. Our club talent buyers coordinate closely and leverage our brand and
network of venues to book nationally recognized acts and work individually to
attract regional artists.
Our clubs and our talent buyers have been consistently recognized for
outstanding performance throughout the years by Pollstar Magazine, the leading
live music industry trade journal. Some of the Pollstar distinctions we have
received include:
. Best Venue for the Los Angeles club from 1994-1996 and the Chicago club
in 1999; and
. Best Talent Buyer in five of the last six years.
Tickets for our club shows can be purchased by telephone, at the box
office, through retail ticket outlets or on the Internet. Tickets generally
range in price from approximately $10 to $20 for local talent, $35 for
nationally recognized acts and over $50 for "legendary," internationally known
performers.
Restaurant and Bars. Adjacent to the music hall, each club has a full-
service restaurant and bars, serving lunch, dinner and late night snacks seven
days a week. The restaurant menu features Delta-inspired Southern cuisine,
including a broad selection of appetizers, entrees and desserts with an
eclectic mix of tastes from around the world. We believe that the high quality
of the food, service and atmosphere in our restaurants attracts customers to
our clubs independently from an entertainment event, and generates a
significant amount of repeat business from local customers. Consequently, we
conduct our restaurant and bar operations as an important stand-alone business.
Foundation Room. Our Los Angeles, Chicago and Las Vegas clubs each have a
special Foundation Room. We are also developing a fourth Foundation Room
adjacent to our New Orleans club which we expect to open in March 2000. The
Foundation Room is an exclusive, separate area of the club offering a fine
dining and luxurious lounge experience to members and their guests. It also
serves as a venue for various festivals and cultural and charitable events.
Members of our Foundation Rooms must pay an annual fee, of which a portion is
paid directly to the International House of Blues Foundation, a not-for-profit
organization dedicated to promoting music and arts education.
Special Events. Each House of Blues club is designed so that all or part of
the restaurant, music hall and Foundation Room spaces can host corporate and
private parties and other special events. We actively and successfully market
our clubs as locations for high-margin corporate events, private parties, award
shows and other special events. Most recently in February 2000, the Las Vegas
club hosted the annual music industry Pollstar Awards and the Los Angeles club
hosted MTV's "Rock the Vote" party.
Specialty Retailing. Each House of Blues club also includes a small retail
store offering an exclusive line of House of Blues branded merchandise and a
line of selected compact discs, videotapes and books. Each store offers a mix
of merchandise designed to encourage purchases from patrons of the restaurant
and music hall, as well as to attract shoppers in general.
56
<PAGE>
Expansion Plans. Our club expansion strategy focuses on the following
criteria for new site selection:
. a concentrated population;
. a strong regional music tradition which is actively supported by the
local audience base; or
. a vibrant tourist and convention trade.
Our club expansion strategy is to develop newly designed clubs that we
expect to provide attractive returns based on targeted levels of operating cash
flow coupled with a highly disciplined capital investment plan. The majority of
these new clubs are expected to average approximately 20,000 square feet,
smaller than our current average club size, with restaurant capacity at
approximately 200 persons and music hall capacity at approximately 1,000
persons. We currently expect to open the first of these clubs in Anaheim,
California, during calendar year 2001. Thereafter, we intend to open four or
more of these clubs annually for the next three years. To promote international
recognition of the House of Blues brand, we expect to develop larger "showcase"
venues similar to our Chicago and Las Vegas venues in two or three high profile
internationally renowned markets such as New York, London, Paris, Tokyo and
Berlin.
House of Blues Concerts
Overview. We believe that we are the second largest owner and operator of
amphitheatre and theatre concert venues in the United States, the second
largest concert promoter in the United States and the largest concert promoter
in Canada through a joint venture we operate. We own, operate or have exclusive
booking arrangements for 20 premier amphitheatre, theatre and arena concert
venues in the United States and Canada, either solely or with a partner. Of the
20 venues we control, we wholly own or exclusively operate seven venues; we
operate four venues in partnership with other companies; and we have exclusive
booking arrangements in the remaining nine venues, three of which are arenas.
We acquired our concerts business in September 1999 from Universal Studios,
Inc. and its Canadian affiliate, both of which were subsidiaries of The Seagram
Company Ltd. Our newly acquired concert venue business has substantially
enhanced our position as a premier live music entertainment company. In
addition to greatly increasing the depth and breadth of our access to content,
our concert venue and promotions businesses allow us to participate in several
different revenue streams and to further capitalize on the synergies of our
fully integrated operations and increase recognition of our House of Blues
brand. One example of the synergy between our club and concert businesses was
our recent promotion of the D'Angelo tour with five sold-out Los Angeles club
performances leading us to book the artist subsequently at the Universal
Amphitheatre.
The majority of our owned and operated concert venues are amphitheatres.
All of our amphitheatres are located in top 50 designated market areas in North
America. Our amphitheatres are typically the regional venue of choice for
larger-scale live concerts, as they have been designed and built specifically
to showcase music talent. The amphitheatres generally possess sight lines and
acoustics that are superior to those offered by larger stadium and arena
venues. Additionally, amphitheatres typically cost less to develop, maintain
and operate than larger stadium and arena venues which generally allows music
artists to earn more attractive returns from performing in amphitheatres.
The majority of our venues are located in the western United States and
Canada. Our network of venues allows us to recognize significant economies of
scale by booking artists into multiple venues in each region which helps
artists route their tours more efficiently. We believe that our resulting
strong market position, coupled with our robust regional presence, creates a
significant advantage for our concerts business relative to other smaller
concert venue owners and operators.
57
<PAGE>
We operate our promotions business in most of the regions where we control
venues, including the Pacific Northwest, Southern California, Nevada, Texas,
Atlanta, Denver and throughout Canada. Our promotions business presents events
in both company-controlled and third party venues. In fiscal year 1999, our
venues hosted 378 live music events and we promoted 1,089 additional events at
third party venues, featuring many of the most popular artists in the music
industry today.
Our primary objectives in our concerts business are to:
. attract the greatest number of patrons to our events with a high-
quality live music entertainment experience;
. attract a wide range of high-quality artists with professionally
rewarding and promotionally valuable performance opportunities;
. identify and access audiences in traditionally under-served markets by
developing or acquiring additional venues;
. enhance and promote the appeal of the House of Blues brand; and
. capture live music content for distribution through hob.com and our
other digital and traditional media businesses.
We believe that we fulfill these objectives by:
. consistently booking a wide array of high-quality talent at all of our
concert venues;
. offering high-quality theatre, amphitheatre and arena venues with
excellent sight lines, acoustics and production equipment; and
. providing high-quality food, beverage and merchandise concessions that
contribute to a positive guest experience.
We believe that we are well-positioned to enhance our operations by
generating higher per unit profitability, developing or acquiring additional
venues and expanding our promotions business. We believe that these activities
will allow us to achieve economies of scale and increase profitability by:
. negotiating contracts with vendors for our network of venues;
. attracting talent to new areas by offering multiple venues in our
network and regional or national tour opportunities for artists;
. securing sponsorships for our network of venues;
. marketing multiple local events simultaneously; and
. acting as venue operator or manager for multiple local venues which
requires little incremental overhead.
Existing Concert Venues. Our concert venues are nationally recognized as
premier destinations and have received a number of prestigious awards and
distinctions. The Universal Amphitheatre has been Pollstar's Theater of the
Year in nine of the past ten years and has been the country's second highest
grossing theatre, after Radio City Music Hall, since 1997. The Lakewood
Amphitheatre and The Gorge were both ranked among the country's most successful
amphitheatres in 1998 and 1999, appearing on Amusement Business's list of
highest grossing venues. The Gorge was named Pollstar's Best Large Outdoor
Concert Venue for five consecutive years, from 1995 through 1999. Pollstar also
recognized our development capabilities by granting its Best Major New Concert
Venue award to Molson Amphitheatre in 1995, and to Coors Amphitheatre in 1998.
58
<PAGE>
Summary tables of our amphitheatre, theatre and arena concert venues are
presented below:
Owned or Operated Amphitheatre, Theatre and Arena Concert Venues
<TABLE>
<CAPTION>
Number of
Estimated Estimated Estimated Events in Fiscal
Fixed Lawn Total Fiscal 1999
Venue Location Capacity Capacity Capacity 1999 Attendance
----- ------------------ --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pacific Northwest
The Gorge................. Central Washington 6,300 13,700 20,000 21 250,026
Southern California
Universal Amphitheatre.... Los Angeles 6,300 0 6,300 146 614,776
Coors Amphitheatre........ San Diego 9,400 10,000 19,400 28 250,016
------ ------- ------- --- ---------
Sub Total................. 15,700 10,000 25,700 174 864,792
Colorado
Fiddler's Green
Amphitheatre............. Denver 7,000 10,000 17,000 35 351,531
Paramount Theatre......... Denver 1,900 0 1,900 22 29,699
------ ------- ------- --- ---------
Sub Total................. 8,900 10,000 18,900 57 381,230
Texas
Starplex Amphitheatre(1).. Dallas 7,400 12,500 19,900 36 304,684
South Park Meadows........ Austin 0 25,000 25,000 7 67,154
------ ------- ------- --- ---------
Sub Total................. 7,400 37,500 44,900 43 371,838
Other
Blossom Music Center...... Cleveland 5,000 13,500 18,500 27 225,150
Lakewood Amphitheatre(1).. Atlanta 7,000 12,000 19,000 23 293,123
------ ------- ------- --- ---------
Sub Total................. 12,000 25,500 37,500 50 518,273
------ ------- ------- --- ---------
Sub Total U.S............. 50,300 96,700 146,972 345 2,386,159
------ ------- ------- --- ---------
Canada(2)
Molson Amphitheatre....... Toronto 9,000 7,200 16,200 33 354,977
The Commodore............. Vancouver 1,100 0 1,100 N/A N/A
------ ------- ------- --- ---------
Sub Total Canada.......... 10,100 7,200 17,300 33 354,977
------ ------- ------- --- ---------
Total..................... 60,400 103,900 164,300 378 2,741,136
====== ======= ======= === =========
</TABLE>
- --------
(1) Operated in partnership with PACE Entertainment Corporation, which in 1998
was acquired by SFX Entertainment, Inc. We currently act as managing
partner and receive 67.5% of the profits generated by the partnership.
(2) These Canadian venues are operated by a partnership in which we are an
equal partner with Molson Breweries.
59
<PAGE>
Amphitheatre, Theatre and Arena Concert Venues
for which We Maintain Exclusive Booking Rights
<TABLE>
<CAPTION>
Number
Estimated Estimated Estimated of Events Fiscal
Fixed Lawn Total in Fiscal 1999
Venue Location Capacity Capacity Capacity 1999 Attendance
----- ----------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pacific Northwest
Chateau St. Michelle.... Seattle 1,300 3,700 5,000 15 57,756
------ ------ ------ --- -------
Sub Total............. 1,300 3,700 5,000 15 57,756
Southern
California/Nevada
Hollywood Bowl(1)....... Los Angeles 17,400 0 17,400 5 80,291
L.A. Sports Arena(1).... Los Angeles 13,000 0 13,000 N/A N/A
Open Air Amphitheatre... San Diego 4,800 0 4,800 7 23,609
Cox Arena............... San Diego 13,400 0 13,400 8 59,732
The Joint(1)............ Las Vegas 2,000 0 2,000 51 69,777
------ ------ ------ --- -------
Sub Total............. 50,600 0 50,600 71 233,409
Colorado
Magnus Arena............ Denver 6,000 0 6,000 N/A N/A
Hamilton Gymnasium...... Denver 2,700 0 2,700 N/A N/A
------ ------ ------ --- -------
Sub Total............. 8,700 0 8,700 -- --
------ ------ ------ --- -------
Sub Total U.S........... 59,300 0 64,300 86 291,165
------ ------ ------ --- -------
Canada
Molson Park(2).......... Toronto 0 35,000 35,000 4 117,657
------ ------ ------ --- -------
Sub Total Canada........ 0 35,000 35,000 4 117,657
------ ------ ------ --- -------
Total .................. 59,300 38,700 99,300 90 408,822
====== ====== ====== === =======
</TABLE>
- --------
(1) These venues are exclusively booked through a joint venture, House of Blues
Concerts/ Hewitt/Silva LLC.
(2) The Canadian venue is exclusively booked through a partnership in which we
are an equal partner with Molson Breweries.
Concert Venue and Promotions Operations. We book and market events in our
network of venues--amphitheatres, theatres and arenas that we either own or
otherwise control through a leasehold interest, management contract or
exclusive booking arrangement. In venues that we own or control through
leasehold interests, we generally maintain and manage the venues and are
responsible for supplying all of the necessary supplementary services required
to host live concert events. These supplementary services include ticket sales,
concession sales, merchandise sales, premium seating arrangements and other
services. Depending on the venue, we either provide these services directly or
subcontract with third parties.
As a promoter, we purchase specific tour dates from an artist's tour
producer or a national promoter and assume the responsibility for securing
venues for performances in a particular region or regions and for marketing and
producing the shows locally. When we act as promoter for events that are not
booked into our controlled venues, we are generally not responsible for
providing supplemental services and generally do not share in the revenues
generated from these services.
Ticket Sales. We have a branded presence for each of our owned or operated
venues in the market where it is located. Tickets to performances at our venues
can be purchased by telephone, at the venue's box office, through retail
distribution outlets or on the Internet, including at our hob.com web site. We
contract with Ticketmaster to sell tickets for all of our venues.
60
<PAGE>
Concessions and Merchandise Sales. We have contracts with concession
operators for concession services at all of our concert venues. These contracts
generally provide for certain cash advances by the concessions operator for
concession equipment and a specific revenue-sharing formula for the sales of
concession products. We also have contracts with various vendors to provide
merchandise services at our venues. Under these generally long-term contracts,
the vendor receives a percentage of gross merchandise revenues. Additionally,
for specific performances, each of our venues also separately negotiates a
merchandise revenue split with the artist who is performing.
Premium Seating and Amenities. In most of our venues, we offer a limited
number of premium seats for our events in box suites and through personal seat
licensing programs, often along with other amenities ranging from VIP dining
and parking to in-box waiter service. In select cities, we are also able to
offer patrons more comprehensive packages of premium seating and amenities
options for a collection of local venues which we own or operate, with which we
have exclusive booking relationships or with which we develop specific
operating agreements.
Sponsorships. We actively pursue the sale of title sponsorships for the
venues that we own or operate. To date, we have secured naming rights for
Molson Amphitheatre and Coors Amphitheatre, and we believe that we will be able
to secure additional sponsorship contracts with major corporations for many of
our other venues. We also pursue the sale of corporate advertising at our
venues, including on billboards, in programs and on other available advertising
space. Additionally, we actively pursue local and regional event corporate
sponsorships and the designation of "official" event regional sponsors,
merchandisers and suppliers.
Special Events. Our amphitheatre and theatre venues are popular locations
for a variety of theatrical and non-music live entertainment events. Our
concert venues host theatrical performances, such as the Radio City Christmas
Spectacular, Lord of the Dance, and Rugrats, film premieres and festivals,
television specials, fundraising events for charitable organizations, and
nationally televised awards programs such as the MTV Awards and the VH1 Honors
Awards. We also host corporate and private parties of all sizes for various
special occasions.
Content. The following table demonstrates the breadth and depth of high-
quality artists who have performed at our concert venues:
<TABLE>
<CAPTION>
Pop Classic/Rock Latin R&B Country
- --- ------------ ----- --- -------
<S> <C> <C> <C> <C>
Blink 182 Jimmy Buffett Elvis Crespo D'Angelo Clint Black
Dave
Matthews Eric Clapton Alejandro Fernandez Lauryn Hill The Judds
Band Bob Dylan Mana Whitney Houston Reba McEntire
Celine Dion Bruce Springsteen Ricky Martin Maxwell LeAnn Rimes
Janet
Jackson Sting Luis Miguel Usher Shania Twain
Sarah
McLachlan/
Lilith Fair
</TABLE>
We believe that our concert venue business provides us with a tremendous
opportunity to capture and repurpose live music entertainment content and other
non-performance content that differs from and complements the performances we
capture in our clubs. Artists who are touring in amphitheatres, theatres and
arenas frequently do not give performances in smaller, club settings. Our
access to amphitheatre, theatre, and arena performances increases the breadth
of content we can capture and offer through our hob.com web site and other
digital and traditional media businesses. Additionally, the various venue
settings give the performances a significantly different look, tone and feel--
elements which add to our product diversity. We believe that the opportunity to
collect a series of different performances by a favorite artist is a
particularly attractive prospect for music enthusiasts. To date, we have only
selectively captured content at our concert venues with our
61
<PAGE>
mobile content capture equipment. We are in the process of developing a more
comprehensive content capture process as we continue to integrate the recently
acquired concerts business with the rest of our operations.
Talent Buying Expertise. We have a staff of highly experienced talent
buyers who are recognized throughout the industry. Talent buyers have primary
responsibility for negotiating the agreements with artists and their
representatives whereby we promote artists in our venues and third party
venues. Individual talent buyers cultivate key personal relationships with
artists and maintain primary responsibility for understanding and overseeing
the various regional markets in which we operate. Our concerts business senior
talent buyers have an average of 20 years of talent-buying and promoting
experience and have developed strong and enduring team relationships with high-
quality artists, their representatives and record companies. Since 1988, our
concerts business talent buyers have won 11 Pollstar Best Talent Buyer Awards.
Our staff has developed a proprietary management system that is an invaluable
resource in determining show profitability and coordinating venue event
schedules.
Enhancing the House of Blues Brand. We believe that our extensive network
of controlled concert venues and promotional businesses provides a significant
platform to extend the strong presence of our House of Blues brand in the live
music industry. All of the events that we promote will be billed "House of
Blues Concerts presents. . ." and our brand will be featured prominently in all
related advertising and promotional materials and on-site in our venues and in
the third party venues where we promote events.
Concerts and Promotions Business Expansion Plans. We are pursuing an
expansion strategy for our concert and promotions businesses as follows:
. Venues. We seek to increase the breadth of our network of concert
venues by penetrating areas that are complementary to the
geographically clustered venues we currently control. Our site
selection strategy focuses on developing new venues in markets that
possess attractive demographics and a demonstrably live music-
enthusiastic population but do not contain a premier amphitheatre or
theatre venue. Additionally, we intend to acquire existing venues in
attractive, complementary markets. By adding these new venues, we can
anchor our presence in new areas and strategically grow our venue
network, which will attract additional performers to the region and
bolster our relationships with artists.
. Promotions. We seek to expand our promotional presence in regions where
we control venues. Additionally, we will seek to establish a presence
in new regions by acquiring local promotions businesses to facilitate
the booking of our venues and third party venues. We believe the
ability to promote events in more regions and in more venues within a
particular region will strengthen our relationships with artists and
tour producers.
We intend to pursue each of these two strategies either independently or
collectively. We believe that these combined strategies allow for extremely
attractive growth opportunities. For example, in 1998, we recognized that San
Diego, California, represented a significantly under-served market and,
therefore, constructed Coors Amphitheatre and acquired a local promotions
business. As a result, we increased the live music entertainment cash flow
generated in the San Diego area from approximately $0.5 million EBITDA to over
$3 million projected for fiscal 2000.
Touring Business. We also operate a touring business focused on acquiring
artists' tour rights and, subsequently, booking the national and international
dates for acquired tours in our owned or operated venues and in third party
venues.
When we acquire the rights to an artist's tour, we assume the
responsibilities of a national promoter by working with the artist to route the
tour path regionally, nationally or internationally. In
62
<PAGE>
regions in which we operate venues or maintain our own promotions business, we
generally assume the local promotional responsibilities in addition to acting
as the tour's national promoter. In those regions in which we do not maintain
our own promotion operations, we sell certain dates and markets to local
promoters.
Our touring business:
. represents a valuable asset in the portfolio of properties that we can
offer to artists, record companies and sponsors; and
. allows for increased penetration of the House of Blues brand across new
geographic areas and market segments.
Our tours showcase a particular music genre and feature both established
artists and new "breaking" acts. Some of the artists who have been featured in
our tours include B.B. King, Buddy Guy, Lauryn Hill and the Neville Brothers.
Both our club and concert venue businesses have produced a number of concert
tours. House of Blues Clubs produced the critically acclaimed Performing Arts
Center Highway 61 Tour and the groundbreaking Smokin' Grooves tour, which
previously earned a rating by Rolling Stone magazine as the #1 urban hip-hop
tour of 1998. House of Blues Concerts is producing the North American tour of
the innovative dance show Burn the Floor and has acquired the rights to produce
the North American portion of the Blink 182 tour scheduled for the spring and
summer 2000.
Given the trend towards consolidation of the venue operation and tour
production businesses, we intend to strategically expand our touring business
by promoting national concert tours for artists with whom we can cultivate
enduring business relationships. In addition, we will continue to actively
pursue large-scale national sponsorships, including the designation of
"official" tour sponsors, merchandisers, and suppliers.
Concerts Partnerships. We operate several facilities and promotions
businesses in partnerships or through joint ventures. The terms of these
arrangements are summarized below.
House of Blues Concerts Canada. House of Blues Concerts Canada, formerly
Universal Concerts Canada, a joint venture between one of our wholly-owned
subsidiaries and Molson Breweries, operates Molson Amphitheatre and The
Commodore and maintains exclusive booking rights to the Molson Park festival
site. House of Blues Concerts Canada is Canada's largest event promotion and
production company and was named Promoter of the Year by Canadian Music Week
for 1999. The joint venture was established in 1990 and is owned equally by HOB
Concerts Canada Ltd. and Molson Breweries, one of the largest breweries in
Canada. HOB Concerts Canada Ltd. acts as the managing partner of the
partnership and is responsible for all operations. Until 2010, both parties
have agreed to engage in the concert promotions business in Canada only through
the partnership.
Universal/PACE Partnership. In 1988, House of Blues Concerts established
a limited partnership with PACE Amphitheatres, Inc., which in 1998 was acquired
by SFX Entertainment, Inc., to develop and operate Lakewood and Starplex
Amphitheatres. We are currently the managing partner and receive 67.5% of the
profits generated by the partnership.
House of Blues Concerts/Hewitt/Silva LLC. House of Blues
Concerts/Hewitt/Silva LLC, a limited liability company which we manage,
conducts the non-San Diego promotions business we acquired from Bill Silva and
Andy Hewitt in December 1998. As part of the consideration for the acquisition,
Hewitt and Silva, as revenue members of the limited liability company, are
entitled to earn-out payments aggregating 50% of the limited liability
company's earnings over the next four to six years. The limited liability
company maintains exclusive booking rights to non-symphony events at the
Hollywood Bowl, to The Joint at the Hard Rock Hotel in Las Vegas and to the Los
Angeles Sports Arena. It also operates promotions businesses in Arizona,
Nevada, Alaska, Hawaii, Montana, Idaho and throughout California.
63
<PAGE>
hob.com and Other Digital and Traditional Media Businesses
Our Internet and other media businesses produce, capture, promote and
distribute, through digital and traditional media, the live music content being
created at our clubs and concert venues and at selected third party facilities.
We have developed these capabilities since 1995, when we began to distribute
live music content on television. We believe that we broadcast the first live
concert over the Internet in 1996. Since then, we have built a production
infrastructure centered around our digital studios, which we are able to
leverage through a series of strategic relationships with leaders in content
distribution that support the distribution of our products across all forms of
media. The focal point of our media businesses is our Internet web site,
hob.com, where we offer consumers on-demand access to our high-quality content
through a wide array of exciting new live music information services and
products including:
. daily broadcasts of live performances;
. digital downloads of live music;
. broadband pay-per-view;
. Internet radio;
. live concert archives;
. artist interviews;
. artist text-based chats;
. compact disc previews and reviews; and
. other live music event information services.
We also have the ability to distribute our content through various other forms
of digital media, including broadband cable, HDTV, satellite, wireless and DVD,
as well as through traditional media outlets, including television, radio and
recorded music products.
These products are targeted to address what we perceive is a large unmet
demand for live music entertainment that exists worldwide. In the past,
consumers have lacked access to live music due to a variety of factors
including the timing, geography, availability, and cost of live music events.
Our control of live music entertainment venues and our multi-dimensional
working relationships with artists, their representatives and record labels
give us access to an original and accumulating supply of high-quality live
music content. We have developed technologically advanced methods and the
expertise necessary for capturing this content, repurposing the content into a
variety of products and distributing the content through our array of digital
and traditional media outlets. We believe that these attributes, combined with
our powerful consumer brand name, give us the unique ability to deliver this
content to consumers worldwide through the Internet and other digital media on
a consistent, high-quality, cost-effective basis.
hob.com
For artists and other music industry participants, the Internet represents
a new medium which facilitates the promotion and distribution of music and
music-related products and direct interaction with fans. For consumers, the
Internet represents a source of music information and products and access to a
community of fellow music enthusiasts. The popularity of the Internet as a tool
for music information and consumption is evidenced by the thousands of official
and unofficial web sites devoted, wholly or in part, to music consumption and
appreciation currently on the Internet and the high volumes of traffic that
these sites generate. There are, however, very few sites currently devoted
64
<PAGE>
to providing and distributing live music content. We believe that the scarcity
of high-quality live music experiences on the Internet exists for the
following reasons:
. a lack of consistent and convenient access to live music content;
. a lack of infrastructure, experience and technological expertise
necessary to cost-effectively digitally capture, repurpose and
distribute a wide range of high-quality live music content; and
. the costs of developing a brand that consumers associate with a high-
quality live music entertainment experience.
The hob.com Advantage. We believe that we have positioned hob.com to be
"The Home of Live Music on the Internet," the premier online destination for
high-quality, innovative live music products on the Internet, by focusing on
and developing the following four important areas of our business:
. daily access with low incremental cost to a depth and breadth of live
music content;
. strategic partnerships and affiliations;
. technologically advanced infrastructure; and
. a strong brand.
Our pursuits have enabled us to develop a web site that we believe affords
consumers convenient access to a wide array of high-quality live music
products and information that are not available elsewhere. Furthermore,
hob.com is unique in its range of content from popular national artists to
niche market artists who have strong and loyal, though smaller and generally
more disparate, fan bases. For these niche artists, who may not have the
resources necessary to utilize and benefit from mass media outlets, hob.com
has become a particularly successful mechanism through which they can connect
with their fan bases and gain broader exposure to music enthusiastic
audiences. To date, we believe that no other company has consistently offered
the breadth and quality of live music content on the Internet that we do.
Access to Content. We have unique and substantial access to live music
content because of:
. our leading position as the owner and operator of a wide range of clubs
and concert venues;
. our strong, multi-dimensional relationships with artists, their
representatives and record labels;
. our unique position as a fully integrated live music digital capturing
and distribution company; and
. our highly advanced production infrastructure.
We currently capture audio and visual recordings of up to 15 concerts each
week at our clubs and selectively at our newly acquired concert venues. We
expect to capture more than 800 live music performances at our venues during
calendar 2000.
65
<PAGE>
The following is a sampling of the wide array of artists whose performance we
have broadcast over our web sites.
<TABLE>
<CAPTION>
Pop Classic/Rock Latin/World Hip Hop/Rap R&B/Blues
- --- ------------ ----------- ----------- ---------
<S> <C> <C> <C> <C>
Duran Duran Aerosmith Celia Cruz Beastie Boys The Blues Brothers
'N Sync Black Sabbath Jaguares Cypress Hill BB King
No Doubt The Rolling Stones Ziggy Marley Kid Rock Johnny Lang
Pearl Jam Santana Ricky Martin Public Enemy The Neville Brothers
Phish U2 Tito Puente Run DMC Tina Turner
</TABLE>
Innovative New Products. We seek to leverage our access to the live music
content created at our venues in order to present a wide array of high-quality
entertainment products on hob.com. These products reflect the sophistication of
our web site development and technology as well as the diversity of our
platforms for promotion and distribution of our live music products. Our
current Internet product offerings include:
. Digital Downloads. We have been a leader in the development of secure,
digital-rights-managed distribution of live music digital downloads. We
were among the first to offer this product using Microsoft's digital
rights management, or DRM, technology. hob.com's Digital Downloads at
hob.com/dd features exclusive live tracks taken directly from the live
concerts captured at our venues and regularly offers more than 200
audio digital downloads from recent and celebrated performances. We
intend to continuously expand our selection of live performance tracks
available for digital download.
. Broadband Pay-Per-View. hob.com has consulted extensively with
Microsoft in the process of developing its pay-per-view technology. As
a result, hob.com offers broadband users the ability to view our
regularly scheduled broadcasts in various bit rates of streaming
technology up to the highest rate currently supported by today's
conventional desktop computers. Users who opt for the broadband version
of the broadcast generally pay one-time fees to gain access to the
event and can view the programming in unlimited "near-demand" fashion
for a 24-hour time period.
. Internet Radio. House of Blues Internet Radio is a 24 hours a day,
seven days a week audio streaming platform available through our
hob.com web site and syndicated through other premier music web sites
including MTV.com, VH1.com and SonicNet.com. Our Internet radio station
offers extensive, mostly exclusive live music content through a series
of programs featuring a variety of music genres including "Noise
Reduction" for alternative and modern rock music; "Detour" for techno
and drum & bass music; "Live From House of Blues" featuring live music
presented at our clubs; "On Tour" featuring music from performers
currently touring; and "House of Blues Radio Hour" featuring Dan
Aykroyd as Elwood Blues. We also regularly create special Internet
radio channels featuring programs produced by selected artists, such as
the "DJ Tricky" series. Our Internet radio product is also available
throughout the DMX Digital Cable Network, which currently reaches more
than two million homes.
. Concert Archives. After an event has been cybercast, it is often stored
for on-demand availability on hob.com. We regularly edit and update our
archives, seeking to maintain a high-quality, dynamic and diverse
selection of performances.
. Artist Interviews. hob.com regularly produces audio and video
interviews with artists who perform at our clubs and concert venues.
Artist interviews are streamed live and then added to our Interview
Archives of more than 200 stored interviews available for viewing on-
demand by all hob.com visitors. Through our relationship with Los
Angeles-based public radio station KCRW, we also offer an additional
archive of more than 500 artist sessions recorded at the station.
66
<PAGE>
. Artist Text-Based Chats. hob.com, along with premier music chat partner
Yahoo!, produces weekly text-based chat events with artists currently
appearing in our clubs and concert venues. Chats are available live
through a House of Blues branded "auditorium" on the Yahoo! web site
and are then archived on hob.com. Links from the Yahoo! chat web site
to our hob.com chat archive generate a substantial amount of traffic to
hob.com.
. CD Station. The hob.com CD Station offers consumers two tools for
facilitating the purchase of compact discs. The first, CD Review,
offers between five and ten new compact disc reviews of popular
artists' new releases each week. The second, CD Preview, allows
consumers the ability to listen to an audio stream of tracks from new
or soon-to-be-released compact discs, either in full-track format or in
30-second track portions. In conjunction with reading reviews and
previewing artists' music, consumers are also able to purchase compact
discs online through Universal Music Group's e-commerce site. This
product has considerably strengthened our relationships with record
labels that have embraced our CD Station as a valuable promotional
tool.
. Informational Services. hob.com provides a number of informational
services relating to our clubs and concert venues including event
schedules and information regarding promotions such as ticket
giveaways, virtual club tours, menus, membership to our Foundation
Rooms and our traditional media properties.
. Online Retail Store. hob.com also serves as an online retail outlet for
the purchase of House of Blues merchandise. To expand our online retail
business, we recently brought the back-end transaction and fulfillment
portion of our online store in-house which now allows us to increase
the number of products offered online from 300 to almost 3000. Through
hob.com, we have the ability to market worldwide our exclusive branded
products.
We believe that consumers are willing to pay for many of the products and
services we currently offer and plan to offer in the future. In addition to
pay-per-view broadcasts of live concert performances, we intend to offer users
pay-per-view access to selected archived concerts and selected individual
tracks from performances. We also plan to create a subscription-based
membership to hob.com through which subscribers will have unlimited access to
the fee-based portions of our web site. We anticipate that this product will be
attractive both to individual users as well as to broadband providers seeking
to offer packaged content to attract consumers to their services.
We are committed to sharing our commercial potential with the artists and
record labels from whom we license the content that we broadcast. We believe
that our business model provides a new, attractive opportunity for artists,
their representatives and record labels to earn new revenues from preexisting
content without incurring incremental cost and without diminishing sales of
existing recorded music products or attendance of live music performances.
We further believe that the high quality of the products and services we
provide will position hob.com as an attractive channel for marketers and
advertisers of products targeting our audience base. We intend to sell
advertising on our web site and on our Internet radio product. We also have
plans to offer opportunities to sponsor both individual pay-per-view
broadcasts, as well as broader, more integrated areas of products and services.
Further Digital Distribution Opportunities. In anticipation of ongoing
advances in digital distribution technology, we capture content at a
significantly higher level of quality than can be utilized through current
forms of digital distribution. As a result, we believe we are prepared to
distribute content through the following emerging digital distribution
channels:
. wireless;
. satellite radio;
67
<PAGE>
. digital direct broadcast satellite;
. digital cable;
. personal desktop assistant technologies; and
. digital video discs, or DVDs.
Strategic Partnerships. In addition to the relationships that we develop
with artists, we also seek to enter into strategic content, distribution and
affiliate relationships with content providers to gain greater access to and to
secure distribution rights for live music content.
Content Relationships. Our current content relationships include the
following:
. Universal Music Group. We recently entered into a three-year strategic
alliance with Universal Music Group, Inc. which provides for the
promotion of Universal Music Group's recording artists and our
utilization of Universal Music Group's digital rights
management for specified periods.
. KCRW. We also recently entered into a relationship with Los Angeles
based radio station KCRW, according to which KCRW will provide a 24
hours a day, seven days a week Internet radio feed to hob.com.
Additionally, we plan to increase our artist interview archives with
content produced at KCRW, and are in discussions to co-create four
additional radio programs.
. Record Labels. We have already developed close relationships with
record labels and collaborate closely with them to maximize promotional
opportunities for recording artists through our portfolio of digital
products.
Distribution Relationships. We also seek to enter into strategic agreements
and alliances with Internet services providers, online leading portals and
other music-related web site operators in order to enhance our Internet
distribution capabilities, generate new Internet traffic for our hob.com web
site and broaden our interface with web users.
A description of two of our key distribution relationships follows below.
. MTVi. We recently entered into a two-year strategic promotional and
distribution relationship with MTVN Online, L.P., or MTVi, which
operates MTV.com, VH1.com, SonicNet.com, and SonicNet Radio. Among its
collective sites, MTVi operates the most visited music destinations on
the Internet today, and is an excellent media partner for our wide
array of live music content. Under the agreement, we will:
-- become the featured live music partner for MTV Interactive;
-- co-present narrowband and broadband pay-per-view cybercasts that
will be promoted throughout the MTV Interactive network and will be
broadcast from our hob.com web site;
-- receive on-air promotion for co-presented events on MTV television;
-- adopt the SonicNet Radio platform to create a House of Blues branded
radio platform called "HOB Radio." HOB Radio will feature up to 15
proprietary channels of programming that we produce which MTVi plans
to syndicate throughout the MTV Interactive Network. HOB Radio will
also have access to radio channels that are produced by MTV;
-- feature SonicNet and MTV news on our hob.com web site; and
-- create a House of Blues branded mini-portal on MTV.com and VH1.com
to display hob.com events and content with links to hob.com.
68
<PAGE>
We believe that our strategic promotional relationship with MTVi will
be a key component for driving traffic to our cybercasts and to our
hob.com products and services. Furthermore, we will work closely with
the MTVi sales team to maximize sponsorship opportunities for
advertisers.
As part of this relationship, MTVi is expected to become one of our
shareholders.
. RioPort.com. We have a strategic technology and distribution agreement
with RioPort.com that provides for:
-- distributing hob.com previously recorded music digital downloads of
live performances throughout the RioPort Internet network of web
sites, which includes the MTV Interactive Network of web sites; and
-- licensing to hob.com a House of Blues branded Audio Manager Platform
that hob.com consumers can use to organize all of their digital
downloads, regardless of format.
Affiliate Program. We began offering an affiliate program to Internet
service providers, content portals, and other web aggregators in February 2000.
In the first six weeks of the program, more than 20 leading Internet companies
have signed up to become affiliates. These affiliates include Listen.com,
StreamSearch, College Broadcast Network, Music.com, Latinoise.com,
InternetCash.com and MusicToday.com. Under the terms of the program, we license
to program members the ability to sub-brand hob.com editorial content and links
from their respective web sites to hob.com in order to increase their own
content offerings. We expect that this program will drive significant traffic
to hob.com's revenue generating Internet products. As part of this program,
affiliates will receive a percentage of gross pay-per-view revenues generated
through direct visitor referrals.
Leading Digital Technology and Expertise. We expect that the rapid
progression of a global broadband network, including cable, satellite and DSL,
and wireless will increase broadcast quality and enable us to more fully
capitalize on the content we capture. We plan on capitalizing on the
convergence of technologies and the growing awareness of the House of Blues
brand by becoming a leading online portal of high-quality live music content on
the Internet. Together with our partners, we are leaders in developing the
technology that enables the distribution of live music content through the
Internet in a desirable format. Our web site offers television-like quality
digital cybercasts of live music performances captured at our venues that are
available for 100Kbps, 300Kbps and 650Kbps broadband streams in addition to
several narrowband streams, and digital downloads of live recordings of tracks
from popular artists in addition to many other high quality products.
We believe that the Internet's infrastructure continues to present
significant challenges to the widespread distribution of high-bitrate streaming
audio and visual content. The Internet was originally designed to accommodate
the exchange of textual, non-real-time data and is an open architecture that
presents a myriad of potential points of failure or congestion. Consequently,
the ability to broadcast high-bitrate, broadband audio and visual data requires
technical and infrastructure sophistication to adequately prepare digital
content for Internet distribution and to distribute the content through the
Internet's web of routers in its journey to the end user. We believe that we
possess the technical abilities and have created the necessary relationships to
meet the challenges of Internet distribution for the following reasons:
. Since 1996 when we broadcast what we believe to be the first live music
concert over the Internet, we have worked to refine and optimize our
practices and infrastructure;
. We have collaborated with many of the top technology development
companies to create and refine hardware and systems tailored to support
our business model; a number of these products have become standard in
the industry due to their sophistication; and
. Our distribution partners are among the industry's most effective at
routing large quantities of information efficiently throughout the
world.
69
<PAGE>
We believe that our capabilities are evidenced not only by our ability to
deliver tremendous quantities of audio and visual data to Internet users
worldwide, but also, notably, by our ability to stream content at bitrates in
excess of 600Kbps, a particularly difficult process in the Internet's current
stage of development.
We have entered into and are actively pursuing strategic relationships with
leading technology companies in order to enhance our existing digital
distribution capability, gain access to new technology, provide us with
technical support and increase our access to servers worldwide. Some of these
relationships include:
.Akamai/INTERVU. Akamai/INTERVU is a streaming media broadcasting company
that maintains a network of more than 27 strategically positioned media
delivery centers. The placement of these centers facilitates the efficient
delivery of content to users worldwide by circumventing the Internet's
points of greatest congestion. Users accessing House of Blues content
receive streaming content from the closest, most efficient InterVU media
delivery center. We have worked extensively with Akamai/INTERVU on the
development and enhancement of our streaming capabilities, and our
relationship with Akamai/INTERVU allows us to cost-effectively and
efficiently broadcast our audio and visual content worldwide.
.EMedia. EMedia controls a set of large media distribution centers located
at selected key Internet traffic points, and is a developer of Internet
streaming solutions for audio and visual materials. Through our
relationship with EMedia, we have built a state-of-the-art pay-per-view
solution for delivering authenticated, broadband media. This premier system
has gained widespread industry recognition and has been licensed by
Microsoft as a core Windows Media technology.
.iBeam. iBeam is a streaming media company that maintains a satellite-based
Internet distribution system. Our relationship with iBeam facilitates the
simultaneous delivery of hundreds of thousands of streams of our content to
Internet users worldwide, allowing us to transmit content of a higher
quality and functionality more quickly and cost effectively.
.Microsoft. We have a long-standing relationship with Microsoft which has
afforded us first mover access to innovative technologies that may
originate. Together we have developed a number of new, technologically
advanced Internet broadcast products such as broadcast servers, codecs, and
other technology, which are designed, in part, to serve the particular
needs that our business demands. Our agreements with Microsoft include the
following:
. streaming technology adoption;
. premier Microsoft Network portal placement;
. Microsoft-subsidized streaming infrastructure related to servers,
software licenses, technical support and third party streaming
services; and
. broadband initiatives.
As a result of our fully integrated business, our web site, our development
of other digital businesses, our important content and distribution alliances
and our emphasis on digital technology, we act as the source, enabler and
filter of high-quality live music content on the Internet, and we have become
the live music solution for a host of leading Internet companies including
Internet service providers, web portals, search directories and content
providers, as well as for more than 100,000 Internet users.
Our Responsibility to Artists. In developing our digital business and
offering our wide range of digital products, we have been careful to respect
and protect artists' digital and intellectual property rights. With respect to
our digital business, we have been careful not to adopt new
70
<PAGE>
technologies until they have fully-developed legal protocols. For example,
although widespread use of the mp3 digital download format began in late 1998,
we did not launch our digital download products until mid-1999 when a strong
digital rights management format had been finally established. Furthermore, we
monitor legal developments for digital rights as they apply to our business,
including the Secure Digital Music Initiative and statutory license for
Internet radio, to allow consumers easy access to digital music while
concurrently providing performers and songwriters with copyright protection.
Traditional Media and Other Businesses
In addition to our digital business, we are engaged in a number of
traditional media businesses such as television, radio and record production.
Other businesses include real estate operations associated with our Chicago
hotel and, in 1998, a club-level national tour promotion. Although they
constitute a source of additional revenue for us, our traditional media and
other businesses were established, and continue to serve, primarily to enhance
our House of Blues brand, and to augment the variety of promotional tools we
can offer to artists and record labels. A description of our traditional media
businesses follows.
Television
The television show Live from the House of Blues aired on Turner
Broadcasting System in 1994 and 1995, with 26 original episodes produced in
cooperation with Time Warner. The show targeted an audience base of 18- to 24-
year olds and provided a platform which helped launch the careers of Sheryl
Crow, Hootie & the Blowfish, Blues Traveler and Dave Matthews Band. We have
also presented television specials, including a Gospel Brunch series on VH1. We
intend to continue to pursue a license for at least one House of Blues branded
television series for broadcast during calendar year 2000. Our long-term
strategy with this business is to continue to seek opportunities to feature or
integrate our brand into television programming.
Radio
We currently produce a one-hour series of radio shows syndicated by United
Stations Radio Network in association with Ben Manilla Productions, hosted by
Dan Aykroyd and broadcast in 186 North American markets and several overseas
markets. The show features in-depth musician interviews, blues from yesterday
and today and is presented in an entertaining yet informative format.
Artists previously featured on our radio show include:
. James Brown;
. Bo Diddley;
. Melissa Etheridge;
. Aretha Franklin;
. B.B. King;
. Phish;
. Taj Mahal;
. George Thorogood; and
. Stevie Ray Vaughn.
In the same markets where we broadcast our radio show, we also produce the
House of Blues Break--a five minute radio segment featured daily that includes
brief interviews and a single song. We continue to seek opportunities to
feature or integrate our brand into radio programming.
71
<PAGE>
Our Internet radio station currently presents five hours of original
programming and is featured on, and was launched in conjunction with,
Microsoft's Internet Explorer 5.0. For the month of December 1999, 193,000
visitors listened to HOB Radio. We also anticipate that we will add several
additional genre-specific Internet radio stations within the next year. We
intend to continue to develop our radio production business and produce
nationally syndicated radio programs as well as emerging Internet radio
programs.
Record Ventures
Since its inception in 1996, The House of Blues Music Company, our 50/50
joint venture with Platinum Entertainment, Inc., has released over 30
compilation albums, including the "Classic Essential Blues," "Essential Chicago
Blues," "Essential Gospel," "Essential Women in Blues" and "Songs of the
Rolling Stones." The House of Blues Music Company also produced Cissy Houston's
1997 Grammy winning release "Face to Face." We intend to utilize the content
generated from our different types and sizes of venues to strengthen our House
of Blues brand through record ventures.
Competitive Strengths
We believe that the following factors give us a competitive advantage in
the live music entertainment industry:
. We have a leading position in the live music entertainment business
with unique access to both emerging and established artists. We own,
operate or have exclusive booking arrangements at 27 premier venues in
the United States and Canada, either solely or with a partner. We
believe that our unique ability to showcase talent in a variety of
venues and to effectively capture live music performances for
multimedia distribution offers significant promotional value to
artists, record labels and other participants in the music industry. We
believe that the integrated organization of our business, which
combines a broad and unique network of award-winning live music clubs
and concert venues and a highly developed digital content business,
provides us with unique access to talent and a significant competitive
advantage.
. We have a widely recognized and powerful brand name in the live music
entertainment business. We believe that, for artists and music
enthusiasts alike, our House of Blues brand evokes the concept of high-
quality live music entertainment as a result of:
. the popularity of our clubs and concert venues;
. the production of House of Blues branded radio, television and
record ventures;
. the attractive live music content at our hob.com web site; and
. the brand imaging created through our retail operations.
We believe that consumers are attracted to our content, whether or not
they know of the particular performer, because they have come to equate
the House of Blues brand with a high-quality live music performance
experience.
. Our talent buyers and promoters are among the best in the industry and
have developed strong and enduring relationships with artists, their
representatives and record companies. In our club and concert venue
businesses, we employ 14 senior talent buyers with an average of 19
years of talent-buying and promoting experience who have developed
strong and enduring relationships with high-quality artists, their
representatives and record companies. We believe that these
relationships are a crucial component to the success of our live music
venue operations, promotions and touring businesses and provide a
significant advantage as we grow our digital business.
72
<PAGE>
. We have a "first-mover" advantage in creating an online source for
high-quality live music. In 1995, we launched what we believe to be the
first live music web site. Our accumulated experience in creating a
successful live music entertainment Internet destination has given us
significant credibility with artists, their representatives and record
labels and unique access to a broad array of high-quality content
attractive to music enthusiasts. The resulting strong brand awareness
we have cultivated has allowed us to enter into crucial strategic
relationships with leading music, technology and Internet companies.
These relationships in turn generate further exposure for our brand and
increased access to high-quality content.
. Our club and concert venue businesses provide direct access to live
music content for distribution through hob.com and our other digital
and traditional businesses. We produce, promote and host live music
events which allows us to capture content in a cost-effective manner.
We believe that no other company possesses our unique combination of a
network of venues and highly-developed Internet and digital content
businesses, giving us a significant competitive advantage.
. Our ability to cost-effectively capture and digitally distribute
content allows us to access and capitalize on diverse and smaller live
music markets. hob.com is unique in its access to content ranging from
the live performances of popular national artists to artists of niche
market appeal and eclectic music genres, who have strong and loyal,
though smaller and generally more disparate, fan bases. For these niche
artists, who may not have the resources and market penetration
necessary to utilize and benefit from mass media outlets, hob.com has
become a successful platform through which they can reach their fan
bases. For these artists' fans, hob.com provides an opportunity to
obtain historically inaccessible information and content and a forum
through which they can interact with the artists and fellow music
enthusiasts.
. Our management team has extensive experience and key industry
relationships. We are managed by executives with outstanding
credentials in the entertainment and hospitality businesses. These
executives include Gregory Trojan, our Chief Executive Officer, who
formerly was President and Chief Executive Officer of California Pizza
Kitchen; Joseph Kaczorowski, our Chief Financial Officer, formerly
Chief Financial Officer of The Cannell Studios, an international
television production and distribution studio; Jay Marciano, who has
been at House of Blues Concerts, formerly Universal Concerts, for 15
years, most recently as President; and Lou Mann, who heads our digital
and traditional media businesses, formerly Senior Vice President and
General Manager of Capitol Records.
Competition
We compete for music consumers, for relationships with artists, their
representatives and record companies, as well as for advertisers and sponsors,
in two major live music entertainment markets:
. venue operations and live music promotions; and
. online and other digital live music media.
Venue Operations and Live Music Promotions. Competition in the venue
operation and live music promotion industries is intense. We compete with venue
operators, live music promoters and tour producers including SFX Entertainment,
JAM Productions, Belkin Productions, Beaver Productions and the Nederlander
Organization. Some of these competitors have greater operating and financial
flexibility and resources than we do, and their position may be further
strengthened by consolidating activities.
73
<PAGE>
We believe that the principal competitive factors impacting the venue
operation and live music promotion industries are a market participant's access
to and expertise in operating venues, relationships with artists and
promotional expertise. We believe that we compete more successfully than many
of our current competitors in these areas due to the network of premier clubs,
amphitheatres, theatres and arenas we control, and the strong and enduring
relationships we have established with high-quality artists, their
representatives and record companies, and our significant experience in
promoting and producing live music events.
Online and Other Digital Music Media. The market for the distribution of
music and music-related content online and through other digital media is
highly competitive and, due to rapid changes taking place in the music industry
as well as the Internet's low barriers of entry, we expect the number of music-
related web sites will continue to proliferate. Currently, companies supplying
music content and music-related news and information over the Internet and
other digital media include:
. providers of online music products and content such as ARTISTdirect,
Digital Club Network, EMusic, Launch Media, Listen.com, MP3.com, MTVi,
and other web sites allowing consumers to download recorded music;
. online music broadcasters such as ARTISTdirect, Yahoo! Broadcast,
Launch Media, NetRadio.com and Pixelon;
. online portals and other web site aggregators such as AOL, Yahoo!,
Excite@Home, snap.com, Go.com, and other destinations offering music-
related news and information;
. online music technology companies such as eMedia, InterVU, Real
Networks, RioPort.com, and SonicNet, offering the tools necessary for
downloading and listening to music on the Internet;
. major online music retailers such as Amazon.com, CDNow and
Getmusic.com; and
. the Internet affiliates of traditional record companies including BMG
Entertainment, EMI Music, Sony Music Entertainment, Universal Music
Group and Warner Music Group, who increasingly promote their artists
and distribute music products online.
While we generally compete with these companies for consumers and, to a
lesser extent, artist relationships, we believe that we currently have only a
limited number of competitors who offer live music online and through other
digital media, including Digital Club Network, Live Music Channel and LA Live.
We believe that the principal competitive factors which impact the offering
of live music over the Internet and through other digital media are:
. brand recognition;
. access to content;
. the ability to cost-effectively capture content; and
. the technology and expertise necessary to repurpose that content into
high-quality digital products.
While some of our competitors may have larger customer bases, greater brand
awareness, a more established Internet presence, better access to music
content, or greater financial, marketing and technical resources than we do, we
believe that we possess significant strengths to compete effectively, including
the following:
. Our powerful House of Blues brand is widely identified with high-
quality live music entertainment;
74
<PAGE>
. We have established strong relationships with both emerging and
established music artists, their representatives and record labels;
. We are able to consistently capture a broad variety of content at a
relatively small incremental cost because it is generated at our own
network of clubs, amphitheatres, theatres and arenas; and
. We have the state-of-the-art infrastructure and extensive experience
and expertise to repurpose digitally captured content into a variety of
high-quality products for distribution online and through other digital
and traditional media.
Employees
As of March 10, 2000, we employed 2,029 employees. We believe that our
relationship with our employees is good. At various times, certain labor unions
have made unsuccessful attempts to organize employees in our clubs. In
connection with our acquisition of Universal Concerts, certain of our
subsidiaries assumed several collective bargaining agreements, including a
collective bargaining agreement with a union that had previously made an
unsuccessful attempt to organize a category of employees at one of our clubs.
We cannot be sure that unions will not make further attempts to organize
employees at our clubs and concert venues which, if successful, could result in
increased operating expenses.
Intellectual Property
We believe that our success depends to a significant extent on the strength
of our trademarks, servicemarks, trade dress, copyrights and other proprietary
rights, including our rights to the principal House of Blues mark. We have
registered the House of Blues name and associated designs and logos as
trademarks and servicemarks with the United States Patent and Trademark Office
and in such commercially important countries as the United Kingdom, Germany,
Japan and France. In addition, we are typically involved in trademark and
service mark registration proceedings in the United States and in other foreign
countries where we have an expectation of opening clubs or concert venues, or
otherwise establishing a substantial business presence, in future years. We
regard our trademarks, servicemarks, trade dress, copyrights and other
proprietary rights as having significant value and as material to our business.
Legal Proceedings
Coors Amphitheatre. In November 1997, Universal Concerts, Inc., now House
of Blues Concerts, Inc., entered into a design/build contract with Nielsen
Dillingham Builders, Inc. in which Nielsen agreed to design and build an open
air amphitheater in Chula Vista, California, now known as Coors Amphitheatre,
for an agreed price. Nielsen issued numerous change order requests which we
contend were not warranted or approved. We further contend these change orders
were for items within the scope of the design/build contract. As a result of a
dispute over these items, Nielsen filed a lawsuit in California Superior Court
of San Diego County on April 22, 1999 against us, Bitterlin Development Corp.,
Los Alisos Company, Los Alisos Development Company, and Ladco Resorts, Inc.
alleging that the defendants owe Nielsen approximately $5.4 million for goods,
work, labor and services rendered in connection with the construction of Coors
Amphitheatre, along with interest, attorney's fees, and penalties. Proceedings
in the lawsuit have been stayed pending arbitration of the dispute. On March
13, 2000, the parties executed a settlement agreement providing for payment of
a specified sum by House of Blues Concerts, Inc. in three installments with the
final installment due on July 1, 2000. The lawsuit will be dismissed upon
payment of the final installment.
75
<PAGE>
Greek Theatre. On January 26, 2000, Nederlander-Greek, Inc. filed a lawsuit
in the California Superior Court for Los Angeles County against the City of Los
Angeles, House of Blues Concerts and two of our employees alleging principally
that (i) the City had no authority to rescind its December 8, 1999 contract
extension for Nederlander to operate the City-owned Greek Theatre, (ii) we and
our employees circulated a referendum petition seeking the City's rescission of
that contract and made false and unlawful statements to induce voters to sign
the petition, and (iii) these actions constituted an intentional, negligent or
fraudulent interference with Nederlander's economic relationship with the City.
On March 6, 2000, Nederlander dismissed its claims against the City, while
maintaining its claims against us for monetary damages of not less than $5
million. We believe Nederlander is not entitled to any damages and plan to
defend this case vigorously. We cannot, however, be certain of the outcome of
this litigation. If Nederlander prevails in its claims it could have a material
adverse effect on our business and financial condition.
Marina City Partnerships. In January 1997, we formed a limited partnership,
HOB Hotel Chicago Partners, L.P., for the purposes of developing, through a
joint venture between the partnership and a financial partner, an urban
entertainment center including a House of Blues hotel in Chicago's landmark
Marina City riverfront complex. While the hotel is operating, the overall
retail development is not yet complete and has encountered construction delays
and cost overruns. We have received correspondence from our limited partner in
the partnership alleging that we are in default under the partnership agreement
for failing to use reasonable efforts to carry out the business of the
partnership. The limited partner claims damages for the potential diminution in
value of its partnership interest based upon the alleged violation. We believe
we have meritorious defenses to these allegations and, should the partner
commence litigation against us, we will vigorously pursue these defenses.
A limited partner in our subsidiary, HOB Marina City Partners, L.P., the
limited partnership which owns our Chicago club property, has requested that we
repurchase its limited partnership interest for the same consideration paid by
us in January 2000 when we repurchased the other limited partner's interest
pursuant to that partner's contractual right to require us to repurchase its
interest. The partner making the request previously held but relinquished the
same contractual right pursuant to an amendment to the partnership agreement in
December 1996. The requesting partner alleges that at the time it entered into
the amendment we made misrepresentations to the limited partner inducing it to
give up its right. We believe we have meritorious defenses to these allegations
and, should the partner commence litigation against us, we will vigorously
pursue these defenses.
General. In addition to the specific disputes described above, we are
involved in various other routine legal proceedings incidental to the conduct
of our business. As of the date of this prospectus, management of our company
does not believe that any of these other legal proceedings will have a material
adverse effect on our business, financial condition or results of operation.
Governmental Regulation
Regulations Related to Our Club and Concert Venue Businesses
Alcohol Beverage Regulation. Our club business is subject to licensing and
regulation by a number of governmental authorities. We are required to operate
our businesses in strict compliance with federal licensing requirements imposed
by the Bureau of Alcohol, Tobacco and Firearms of the United States Department
of Treasury, as well as the licensing requirements of the states and
municipalities where our clubs are located. Alcohol beverage control
regulations require each of our clubs to apply to a state authority and, in
certain locations, county and municipal authorities for a license and permit to
sell alcohol beverages on the premises. Typically, licenses must be renewed
annually and may be revoked or suspended for cause at any time. Alcohol
beverage control regulations relate to numerous aspects of the daily operations
of the units, including minimum age of
76
<PAGE>
patrons and employees, hours of operation, advertising, wholesale purchasing,
inventory control, handling, storage and dispensing of alcohol beverages and
collection and remittance of taxes. We have obtained all regulatory permits and
licenses necessary to operate our clubs that currently are open, and intend to
do the same for all future clubs. Our failure to comply with federal, state or
local regulations could cause our licenses to be revoked and force us to
terminate the sale of alcohol beverages at our clubs. To reduce this risk, each
club is operated in accordance with procedures intended to ensure compliance
with applicable laws and regulations. Any delay in obtaining, or failure in
retaining, an alcohol beverage license in a particular location could
materially and adversely affect our ability to obtain such a license elsewhere.
We are subject to "dram-shop" laws in several of the states in which we
have clubs. These laws generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully
served alcohol beverages to such person. While we carry liquor liability
coverage as part of our existing comprehensive general liability insurance,
there can be no assurance that we will not be subject to a judgment in excess
of such insurance coverage or that we will be able to obtain or continue to
maintain such insurance coverage at reasonable costs, or at all. The imposition
of a judgment substantially in excess of our insurance coverage, or our failure
or inability to obtain and maintain insurance coverage, could materially and
adversely affect our business.
Other Regulations. Our clubs and concert venues are subject to licensing
and regulation by foreign, federal, state and local health, sanitation,
building, zoning, safety, fire and other departments relating to the
development and operation of restaurants and retail establishments. These
regulations include matters relating to environmental building construction,
zoning and use requirements and the preparation and sale of food and tobacco
products. Various foreign, federal, state and local labor laws govern our
relationship with our employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements. Significant additional
government-imposed increases in minimum wages, paid leaves of absence and
requirements for employees who receive gratuities could materially and
adversely affect our business. Delays or failures in obtaining the required
construction and operating licenses, permits or approvals could delay or
prevent the opening of new clubs and concert venues.
The federal Americans with Disabilities Act, state laws and local
ordinances prohibit discrimination on the basis of disability in public
accommodations and employment. Our clubs and concert venues are currently
designed to be accessible to the disabled. We intend to continue to comply with
the Americans with Disabilities Act, state laws, local ordinances and future
regulations relating to accommodating the needs of the disabled, and we do not
anticipate that this compliance will have a material effect on our operations.
Regulations Related to Our Digital Media Businesses
Overview. The law relating to our digital businesses is evolving and no
clear precedents have been established. In addition, a number of legislative
and regulatory proposals under consideration by federal, state, local and
foreign governmental organizations may lead to laws or regulations concerning,
for example, online content, user privacy, taxation, parental consent for
access by their minor children, access charges, liability for third-party
activities, advertising, bulk e-mail or "spam", encryption standards, online
sales of goods and services, online games, sweepstakes, lotteries and contests,
domain name registration and use, trademark, copyright infringement, and other
intellectual property issues.
Regulation of Content and Access. A variety of restrictions on content and
access, primarily as they relate to children, have been enacted or proposed.
For example, in 1998 Congress enacted the Children's Online Privacy Protection
Act which establishes new requirements for the collection, use
77
<PAGE>
and disclosure of personal information of children under the age of 13. In
addition, the Federal Trade Commission and various other government regulators
of financial institutions are currently drafting new rules designed to protect
the privacy of financial records. The United States and the European Union are
currently negotiating an international privacy directive which could have a
major impact on the ability of companies to transmit online content between the
United States and the European Union. Congress has twice enacted legislation,
the Communication Decency Act of 1996, and the Communications Decency Act of
1997, and has considered other proposals to restrain and punish the
transmission of various kinds of contents that are considered objectionable
such as so-called indecent or obscene material knowingly transmitted to
children. Although such content restrictions have consistently faced legal
challenges and have not fared well in the courts, the prospect for new content
restrictions to be enacted is significant. In fact, numerous states have
adopted or are currently considering similar types of legislation relating to
privacy and access to various types of objectionable material. In addition,
laws have been proposed which would require Internet service providers to
supply, at cost, filtering technologies to limit or block the ability of minors
to access unsuitable materials on the Internet. Because of these content
restrictions and potential liability to us for materials carried on or
disseminated through our systems, we may be required to implement measures to
reduce our exposure to liability.
User Privacy Issues. Internet user privacy has become an issue both in the
United States and abroad. Some commentators, privacy advocates and government
bodies have recommended or taken actions to limit the use of personal profiles
or other personal information by those collecting such information,
particularly as it relates to children. For example, the Children's Online
Privacy Protection Act of 1998, or COPPA, requires, among other things, that
online operators obtain verifiable parental consent for the collection, use, or
disclosure of personal information from children. In October 1999, the Federal
Trade Commission published regulations implementing COPPA that govern the data
collection, use and dissemination practices of all web site operators who
interact with children under 13. These regulations go into effect in April
2000. Further, in light of recent publicity regarding the data accumulation and
use practices of third party Internet advertising companies, the Federal Trade
Commission and other government entities have commenced inquiries which may
result in new legal requirements. We are required to comply with applicable
privacy laws and regulations as they develop and apply to our business.
Internet Taxation. The tax treatment of activities on or relating to the
Internet is currently unsettled. A number of proposals have been made at the
federal, state and local levels and by foreign governments that could impose
taxes on the online sale of goods and services and other Internet activities.
Recently, the Internet Tax Information Act was signed into law, placing a
three-year moratorium on new state and local taxes on Internet commerce.
Although legislation has been introduced to make the moratorium permanent,
there is significant political support to collect taxes from commercial
activities online. There can be no assurance that future laws imposing taxes or
other regulations on commerce over the Internet would not substantially impair
the growth of Internet commerce and as a result could make it cost-prohibitive
to operate our business.
Domain Names. Domain names are addresses on the Internet, namely the World
Wide Web. The current system for registering, allocating and managing domain
names has been the subject of litigation and proposed regulatory reform.
Although we assert trademark rights in our domain names, third parties may
bring claims for infringement against us for the use of these trademarks. We
cannot assure you that these domain names will not lose their value, or that we
will not have to obtain entirely new domain names in addition to or in lieu of
our current domain names if reform efforts result in a restructuring of the
current system. In addition, third parties may seek to obtain domain names that
incorporate or are based on our affiliates' or partners' trademarks.
78
<PAGE>
MANAGEMENT
The following table sets forth, as of March 10, 2000, the name, age and
position of each of our directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Gregory A. Trojan............ 40 President, Chief Executive Officer and
Director
Joseph C. Kaczorowski........ 44 Executive Vice President, Chief Financial
Officer, Treasurer and Secretary
Daniel L. Fishkin............ 46 Senior Vice President and General Counsel
Lou Mann..................... 49 President, Media Properties
Jay Marciano................. 45 President, House of Blues Concerts, Inc.
Dolf Berle................... 37 Chief Operating Officer of HOB Clubs
Peter J. Cyffka.............. 41 Senior Vice President, Finance & Accounting
David L. Ferguson............ 44 Chairman of the Board
Daniel E. Aykroyd............ 47 Director
James Cook................... 40 Director
Andrew J. Filipowski......... 49 Director
Christopher Goldsbury, Jr. .. 56 Director
Wm. Christopher Gorog........ 47 Director
Ken Halliday................. 37 Director
William Laverack, Jr......... 42 Director
Jeffrey C. Walker............ 44 Director
</TABLE>
Gregory A. Trojan has been with our company since August 1996, most
recently as President and Chief Executive Officer. From April 1994 through
August 1996, Mr. Trojan was a senior executive at the 77-unit California Pizza
Kitchen chain, most recently as Chief Executive Officer. From January 1992
through April 1994, Mr Trojan was a key executive at PepsiCo--Pizza Hut, Inc.,
most recently as General Manager, LA Market. From 1986 to 1990, Mr. Trojan was
a management consultant at Bain & Company. Mr. Trojan holds a B.S. from the
University of Virginia and an M.B.A. from the Wharton Graduate School of
Business.
Joseph C. Kaczorowski has been with our company since August 1996 as
Executive Vice President and Chief Financial Officer. From July 1981 through
July 1995, Mr. Kaczorowski was a senior executive at The Cannell Studios, an
international television production and distribution studio, most recently as
Senior Vice President and Chief Financial Officer. In July 1995, The Cannell
Studios was sold to New World Entertainment and Mr. Kaczorowski served in an
executive capacity for New World Entertainment until June 1996. Before joining
Cannell, Mr. Kaczorowski was associated with the national accounting firm of
Kenneth Leventhal & Co. Mr. Kaczorowski is a Certified Public Accountant and a
graduate of St. John's University.
Daniel L. Fishkin has been with our company since January 1997, most
recently as Senior Vice President and General Counsel. From April 1994 through
August 1996, Mr. Fishkin was Senior Counsel at New World Entertainment, Inc., a
television production and distribution company. From September 1988 through
April 1994, Mr. Fishkin practiced corporate law at Gibson, Dunn & Crutcher. Mr.
Fishkin worked as a theatrical booking agent with Columbia Artists Management,
Inc. for ten years and also holds a Master of Fine Arts Degree in Theatre.
79
<PAGE>
Lou Mann has been with our company since July 1999 as President of Media
Properties. From September 1988 to June 1999, Mr. Mann was a senior executive
at Capitol Records, most recently Senior Vice President and General Manager.
Before that, Mr. Mann was Vice President, Marketing at MCA Records. Mr. Mann
holds an Executive M.B.A. from the Anderson School of Business.
Jay Marciano has been with House of Blues Concerts, Inc., formerly
Universal Concerts, Inc., since 1985, most recently as President.
Dolf Berle has been with our company since February 2000 as Chief Operating
Officer of HOB Clubs. From June 1998 to February 2000, Mr. Berle was at
Diedrich Coffee, most recently as Chief Operating Officer. From June 1997
through June 1998, Mr Berle was Senior Director of Operations at Tricon
International. From April 1996 through June 1997, Mr. Berle was Director of
Operations at Taco Bell International. From 1994 to 1996, Mr. Berle was Market
Manager at Taco Bell Domestic. Mr. Berle holds a B.A. from Harvard College, an
M.A. from the University of Zimbabwe and an M.B.A. from Harvard Business
School.
Peter J. Cyffka has been with our company since January 2000 as Senior Vice
President, Finance & Accounting. From April 1987 to October 1999, Mr. Cyffka
was at Twentieth Century Fox Film Corporation, most recently as Senior Vice
President, Finance. Mr. Cyffka is a Certified Public Accountant and holds a
B.S. and an M.B.A. from the University of Southern California.
David L. Ferguson has served as Chairman of the Board of our company since
September 1998 and as a director since August 1995. Mr. Ferguson joined Chase
Capital Partners in 1989 and became a general partner in 1990. Mr. Ferguson is
also a director of Wild Oats Markets, Inc., Guitar Center, Inc., and several
private companies.
Daniel E. Aykroyd has served as a director of and consultant to our company
since 1992. Mr. Aykroyd is a well-known producer, actor, screenwriter and music
artist.
James Cook has served as a director of our company since September 1999.
Since 1994, Mr. Cook has been a partner at First Union Capital Partners, the
private equity investment subsidiary of First Union Corp. Before that, Mr. Cook
was employed by Kidder, Peabody & Co. and The Bank of New York. Mr. Cook is
also a director of several private companies. Mr. Cook holds a B.S. from the
University of Virginia and an M.B.A. from Harvard Business School.
Andrew J. Filipowski has served as a director of our company since June
1996. Since June 1999, Mr. Filipowski has been Chief Executive Officer and
Chairman of the Board of Divine interVentures, Inc. From 1987 to June 1999, Mr.
Filipowski was Chief Executive Officer, President and Chairman of the Board of
Platinum Technology, Inc. Mr. Filipowski is also a director of Platinum
Entertainment, Inc., Bluestone Software, Inc., eShare Technologies Inc. and
Blue Rhino Corporation.
Christopher Goldsbury, Jr. served as a director of our company from June
1995 to March 1998, and rejoined the board of directors in September 1998. Mr.
Goldsbury has been the President and Chief Executive Officer of Silver
Ventures, a San Antonio-based private investment company since January 1995.
Before that, Mr. Goldsbury was Chairman and Chief Executive Officer of Pace
Foods, Inc.
Wm. Christopher Gorog has served as a director of our company since March
2000. From 1994 to 1999, Mr. Gorog was President--New Business Development,
Recreation Group at Universal Studios, Inc.
Ken Halliday has served as a director of our company since October 1999. He
is a partner with Silver Brands, L.P., a private equity firm affiliated with
S.A. Blues Partners, L.P. He is also a director of various portfolio companies,
including Desert Glory, Ltd. and MarketFare Foods, Inc. Mr. Halliday holds a
B.B.A. in Accounting from the University of Texas at Austin and a J.D. from the
University of Texas School of Law.
80
<PAGE>
William Laverack, Jr., has served as a director of our company since
September 1999. Since 1993, Mr. Laverack has been a General Partner of J. H.
Whitney & Co. Before that, he was with Gleacher & Co., Morgan Stanley & Co.
Incorporated, and J. P. Morgan & Co. Mr. Laverack is also a director of Steel
Dynamics, Inc. and several private companies. Mr. Laverack holds a B.A. from
Harvard College, and an M.B.A. from Harvard Business School.
Jeffrey C. Walker has served as a director of our company since July 1998.
Mr. Walker is the managing general partner of Chase Capital Partners, which he
co-founded in 1984, and member of the Executive Committee and Management
Committee of The Chase Manhattan Corporation. Mr. Walker is also a director of
Guitar Center, Inc., iXL, 1800Flowers.com, Doane Pet Care Enterprises, Inc. and
several private companies. Mr. Walker holds a B.S. from the University of
Virginia and an M.B.A. from Harvard Business School.
Board of Directors
We currently have ten authorized directors. Each of our directors is
elected at each annual meeting of stockholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
holds office until the expiration of the term for which he or she was elected
and until a successor has been elected and qualified.
Committees of the Board of Directors
Prior to the consummation of this offering, we will establish an audit
committee of the board of directors which will comply with Nasdaq's
requirements regarding audit committee composition. In addition, we will adopt
an audit committee charter. The audit committee will review, act on and report
to the board of directors with respect to various auditing and accounting
matters, including the selection of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices.
Prior to the consummation of this offering, we will establish a
compensation committee of the board of directors which will consist of at least
two independent directors. The compensation committee will determine the
salaries and incentive compensation of our officers, provide recommendations
for the salaries and incentive compensation of our other employees and
consultants and administer our stock-based compensation plans.
Director Compensation
Directors of our company are not currently compensated for their services
as directors. Directors are reimbursed for their out-of-pocket expenses
incurred in connection with their services as directors and committee members.
Directors are also entitled to participate in our stock option plan as
described in the section below entitled "--Employee Benefit Plans--2000 Equity
Participation Plan." We intend to compensate non-employee directors for their
services as directors, but have not yet determined the amount of compensation.
Compensation Committee Interlocks and Insider Participation
None of our executive officers served as a director or member of the
compensation committee or other board committee performing equivalent functions
of another corporation, one of whose executive officers served on our board of
directors or compensation committee.
81
<PAGE>
Executive Compensation
The following table sets forth information concerning compensation of our
Chief Executive Officer and the top four other highly compensated executive
officers whose salary and incentive compensation exceeded $100,000 for the
twelve months ended December 26, 1999, or the Named Executive Officers, for
services rendered in all capacities to us during that 12 month period.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual
Compensation(1) Shares
------------------- Underlying
Name and Principal Position Salary Bonus Options
--------------------------- -------- ------- ------------
<S> <C> <C> <C>
Gregory A. Trojan...................... $240,000 $81,944(2) 2,850,000
President and Chief Executive Officer
Joseph C. Kaczorowski.................. $247,831 $88,116(2)(3) 1,337,500
Executive Vice President, Chief
Financial Officer, Treasurer and
Secretary
Lou Mann............................... $225,000(4) $ -- 2,675,000
President, Media Properties
Daniel L. Fishkin...................... $190,000 $47,500(2) 350,000
Senior Vice President and General
Counsel
Kevin Morrow........................... $164,293 $19,979(2) 350,000
Senior Vice President of Entertainment
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted for the Named Executive Officers because the aggregate
amount of such perquisites and other personal benefits constituted less
than the lesser of $50,000 or 10% of the total of annual salary and bonuses
for each of such Named Executive Officers in the twelve months ended
December 26, 1999.
(2) The bonus shown is for the six month fiscal period ending June 27, 1999.
The amount, if any, to be paid for the fiscal year ending July 2, 2000 has
not yet been determined.
(3) Mr. Kaczorowski's bonus also includes a weekly payment for the six months
ended December 26, 1999 which is a guaranteed advance of his bonus for the
fiscal year ending July 2, 2002.
(4) Mr. Mann commenced employment with us in July 1999.
82
<PAGE>
Option Grants In Last Fiscal Year
The following table sets forth information regarding stock options granted
to each of the executive officers listed above during the twelve months ended
December 26, 1999. We have not granted any stock appreciation rights. In the
column marked "Potential Realizable Value at Assumed Annual Rates of Stock
Price Appreciation for Option Term," potential gains are net of exercise price,
but before taxes associated with exercise. These amounts represent assured
rates of appreciation only, based on Securities and Exchange Commission rules.
Actual gains, if any, on stock option exercises are dependent on the future
performance of the common stock, overall market conditions and the option-
holders' continued employment through the vesting period. The amounts reflected
in this table may not necessarily be achieved.
<TABLE>
<CAPTION>
% of Total Potential Realizable
Options Granted Value at Assumed
to Annual Rates of
Number of Employees during Stock Price
Securities the 12 months Appreciation for
Underlying ended Option Term
Options December 26, Exercise Expiration --------------------
Name Granted 1999 Price Date 5% 10%
---- ---------- ---------------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Trojan....... 1,500,000 7.6 $1.20 1/18/09 $ 643,342 $2,090,614
1,350,000 6.8 1.62 9/30/09 12,008 1,314,552
Joseph C. Kaczorowski... 662,500 3.4 1.20 1/18/09 284,143 923,354
675,000 3.4 1.20 9/30/09 289,504 940,776
Lou Mann................ 2,675,000 13.6 1.20 6/30/09 1,147,293 3,728,261
Daniel L. Fishkin....... 250,000 1.3 1.20 1/18/09 107,224 348,436
100,000 0.5 1.62 9/30/09 889 97,374
Kevin Morrow............ 150,000 0.8 1.20 12/31/08 64,334 209,061
200,000 1.0 1.62 9/30/09 1,779 194,748
</TABLE>
Option Exercises and Fiscal Year-End Option Values
The following table sets forth information concerning stock option
exercises in the twelve months ended December 26, 1999 and the number and value
of unexercised options held by each of the Named Executive Officers at December
26, 1999.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised In
Options At the-Money Options At
Shares December 26, 1999 December 26, 1999(1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gregory A. Trojan....... 0 0 2,875,000 2,475,000
Joseph C. Kaczorowski... 0 0 1,503,125 1,171,875
Lou Mann................ 0 0 668,750 2,006,250
Daniel L. Fishkin....... 0 0 212,500 287,500
Kevin Morrow............ 0 0 150,000 150,000
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 26,
1999. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $ per share, less the
applicable exercise price per share, multiplied by the number of underlying
shares.
83
<PAGE>
Employee Benefit Plans
Amended and Restated 1993 Stock Option Plan
The HOB Entertainment, Inc. Amended and Restated 1993 Stock Option Plan,
which we also refer to as the 1993 Plan, was initially adopted by our board of
directors and approved by our stockholders in 1993. A total of 11,500,166
shares of common stock was initially reserved for issuance under the 1993 Plan.
The 1993 Plan was subsequently amended and restated to increase the number of
shares reserved under the plan to 30,500,166 and to make certain other changes
to the plan, and stockholder approval of the amended and restated plan was
obtained. On March 13, 2000, the board of directors increased the number of
shares reserved under the plan to 31,798,000. As of the date of this
prospectus, options to purchase shares of common stock have been
exercised, and options to purchase shares of common stock are
outstanding. The maximum number of shares which may be subject to options
granted under the 1993 Plan to any individual in any calendar year cannot
exceed 4,000,000. We do not expect to make any additional grants of options
under the 1993 Plan following the initial public offering of our common stock
and any available reserved shares in this plan will be added to the shares
available for grant under our 2000 Equity Participation Plan.
The principal purpose of the 1993 Plan is to attract, retain and motivate
selected officers, employees, consultants and directors through the granting of
options to acquire common stock. The 1993 Plan provides for the grant of non-
qualified stock options and incentive stock options, within the meaning of
Section 422 of the Internal Revenue Code. Prior to the initial public offering
of our common stock, the 1993 Plan is administered by the full board of
directors. Following the initial public offering, a committee of independent
directors, each of whom is a "non-employee director" for purposes of Rule 16b-3
under the Exchange Act, will administer grants under the 1993 Plan.
The 1993 Plan provides that the committee has the authority to select the
employees, consultants and members of our board of directors to whom options
are to be granted, to determine the number of shares to be subject thereto and
the terms and conditions thereof, and to make all other determinations and to
take all other actions necessary or advisable for the administration of the
1993 Plan.
The committee and our board of directors are authorized to adopt, amend and
rescind rules relating to the administration of the 1993 Plan, and to amend,
suspend and terminate the 1993 Plan.
2000 Equity Participation Plan
Our board of directors has adopted and our stockholders have approved The
2000 Equity Participation Plan of HOB Entertainment, Inc., which we also refer
to as the 2000 Plan. The principal purpose of the 2000 Plan is to attract,
retain and motivate selected officers, employees, consultants and directors
through the granting of stock-based compensation awards. The 2000 Plan provides
for a variety of such awards, including non-qualified stock options and
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code, as well as stock appreciation rights, restricted stock, deferred
stock, dividend equivalents, performance awards, stock payments, and other
stock-related benefits. A total of shares of common stock are reserved
for issuance under the 2000 Plan. As of the date of this prospectus, no awards
have been granted under the 2000 Plan. The maximum number of shares which may
be subject to awards granted under the 2000 Plan to any individual in any
calendar year cannot exceed . In addition, any reserved shares under
the 1993 Plan will become available under this plan from and after the
completion of this offering.
Following the initial public offering of our common stock, a committee of
independent directors, each of whom is a "non-employee director" for purposes
of Rule 16b-3 under the Exchange Act and an "outside director" under Section
162(m) of the Internal Revenue Code, will administer grants to
84
<PAGE>
employees and consultants. The full board will administer the 2000 Plan with
respect to options granted to independent directors.
The 2000 Plan provides that the committee has the authority to select the
employees and consultants to whom awards are to be made, to determine the
number of shares to be subject thereto and the terms and conditions thereof,
and to make all other determinations and to take all other actions necessary or
advisable for the administration of the 2000 Plan with respect to employees or
consultants.
The committee and our board of directors are authorized to adopt, amend and
rescind rules relating to the administration of the 2000 Plan, and to amend,
suspend and terminate the 2000 Plan. We have attempted to structure the 2000
Plan in a manner such that remuneration attributable to stock options and other
awards will not be subject to the deduction limitation contained in
Section 162(m) of the Internal Revenue Code.
2000 Employee Stock Purchase Plan
Our board of directors has adopted and our stockholders have approved The
HOB Entertainment, Inc. Employee Stock Purchase Plan, which we also refer to as
the Purchase Plan. A total of shares of common stock has been
reserved for issuance under the Purchase Plan. As of the date of this
prospectus, no shares have been issued under the Purchase Plan.
The Purchase Plan, which is intended to qualify under Section 423 of the
Code, contains consecutive six-month offering periods. The offering periods
generally start on and of each year, except for the
first offering period, which will commence on the immediately prior to the
effective date of this offering and will end on .
Employees are eligible to participate in the Purchase Plan if they are
customarily employed by us or any participating subsidiary for at least 20
hours per week and more than five months in any calendar year. However, no
employee may be granted a right to purchase stock under the Purchase Plan to
the extent that, immediately after the grant of the right to purchase stock,
the employee would own, or be treated as owning, stock possessing 5% or more of
the total combined voting power or value of all classes of our capital stock or
to the extent that his or her rights to purchase stock under all of our
employee stock purchase plans accrues at a rate which exceeds $25,000 worth of
stock for each calendar year.
The Purchase Plan permits participants to purchase common stock through
payroll deductions of up to % of the participant's base compensation. Base
compensation is defined as the participant's gross base compensation, excluding
overtime payments, sales commissions, incentive compensation, bonuses, expense
reimbursements, fringe benefits and other special payments. Amounts deducted
and accumulated by the participant are used to purchase shares of common stock
at the end of each offering period.
The price of stock purchased under the Purchase Plan is 85% of the lesser
of the fair market value of the common stock at the beginning of the offering
period or at the end of the offering period. Participants may end their
participation at any time other than the final 10 days of an offering period,
and they will be paid their payroll deductions to date without interest.
Participation ends automatically upon termination of employment with us. Rights
to purchase stock granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan.
Registration under the Securities Act
We intend promptly after the completion of this offering to register on
Form S-8 all shares of common stock issuable under our compensatory stock plans
other than shares which may be resold under Rule 701 without registration.
85
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of March 13, 2000, and as adjusted to reflect
(i) the conversion of our outstanding convertible preferred stock into common
stock immediately prior to the completion of this offering except for 5,000
shares of 10% senior convertible preferred stock which will be redeemed and
(ii) the sale of the shares of common stock offered by this prospectus, by:
. each person, or group of affiliated persons, who is known by us to
beneficially own 5% or more of our common stock;
. each of our directors and Named Executive Officers; and
. all of our directors and executive officers as a group.
Share ownership in each case includes shares issuable upon exercise of
outstanding options and warrants that are exercisable within 60 days of March
13, 2000, as described in the footnotes below. Percentage of ownership is
calculated according to SEC Rule 13d-3(d)(1). Percentage ownership calculations
before and after this offering are based on 129,731,814 shares and
shares, respectively, of common stock outstanding. The address for all
executive officers and directors is c/o HOB Entertainment, Inc., 6255 Sunset
Boulevard, 16th Floor, Hollywood, California 90028.
<TABLE>
<CAPTION>
Percentage of
Common Stock
Beneficially
Owned
Number of -----------------
Shares Before After
Beneficially the the
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
Chase Capital Partners(1)....................... 43,760,202 32.7%
S.A. Blues Partners, L.P.(2).................... 21,585,250 16.4%
J. H. Whitney & Co.(3).......................... 22,544,032 16.9%
First Union Capital Partners(4)................. 15,681,818 11.8%
Gregory A. Trojan(5)............................ 2,875,000 2.1%
Joseph C. Kaczorowski(6)........................ 1,503,125 1.2%
Lou Mann(7)..................................... 668,750 *
Daniel L. Fishkin(8)............................ 212,500 *
Kevin Morrow(9)................................. 150,000 *
Daniel E. Aykroyd(10)........................... 2,532,887 2.0%
James Cook(4)................................... 15,681,818 11.8%
David L. Ferguson(1)............................ 43,760,202 32.7%
Andrew J. Filipowski(11)........................ 3,006,169 2.3%
Christopher Goldsbury, Jr.(2)................... 21,585,250 16.4%
Wm. Christopher Gorog........................... 0 *
Ken Halliday(2)................................. 21,585,250 16.4%
William Laverack, Jr.(3)........................ 22,544,032 16.9%
Jeffrey C. Walker(1)............................ 43,760,202 32.7%
All directors and executive officers as a group
(16 persons)(12)............................... 114,494,733 77.4%
</TABLE>
- --------
* Less than 1% of total.
(1) Consists of 39,808,461 shares of common stock and 3,951,741 shares of
common stock subject to warrants that are exercisable within 60 days of
March 13, 2000 held by an affiliate of Chase Capital Partners.
Messrs. Ferguson and Walker, General Partner and Managing General Partner,
respectively, of Chase Capital Partners, may be deemed to have voting and
investment power over the shares and warrants held by Chase Capital
Partners and its affiliate. Messrs. Ferguson and Walker disclaim beneficial
interest in these shares and warrants, except to the extent of their
pecuniary interest in Chase Capital Partners and its affiliate which owns
shares.
86
<PAGE>
(2) Consists of 19,373,388 shares of common stock and 2,211,862 shares of
common stock subject to warrants that are exercisable within 60 days of
March 13, 2000 held by S.A. Blues Partners, L.P. Mr. Goldsbury, President
and Chief Executive Officer of Silver Ventures, an affiliate of S.A. Blues
Partners, L.P. and Mr. Halliday, a director of Silver Brands, an affiliate
of S.A. Blues Partners, L.P. may be deemed to have voting and investment
power over the shares held by S.A. Blues Partners, L.P. Messrs. Goldsbury
and Halliday disclaim beneficial interest in these shares, except to the
extent of their respective pecuniary interests in S.A. Blues Partners,
L.P.
(3) Consists of an aggregate of 18,785,866 shares of common stock and
3,758,166 shares of common stock subject to warrants that are exercisable
within 60 days of March 13, 2000 held by three investment partnerships
which are affiliated with J. H. Whitney & Co. Mr. Laverack, a member of
the general partners of these partnerships, may be deemed to have voting
and investment power over the shares held by these partnerships. Mr.
Laverack disclaims beneficial interest in these shares, except to the
extent of his pecuniary interest in the general partners of these
partnerships.
(4) Consists of 12,899,212 shares of common stock and 2,782,606 shares of
common stock subject to warrants that are exercisable within 60 days of
March 13, 2000 held by an affiliate of First Union Capital Partners. Mr.
Cook, a partner at First Union Capital Partners, may be deemed to have
voting and investment power over the shares held by First Union Capital
Partners and its affiliates. Mr. Cook disclaims beneficial interest in
these shares, except to the extent of his pecuniary interest in First
Union Capital Partners and its affiliate which owns shares.
(5) Consists of 2,875,000 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
(6) Consists of 1,503,125 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
(7) Consists of 668,750 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
(8) Consists of 212,500 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
(9) Consists of 150,000 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
(10) Consists of 709,500 shares of Class A preferred stock, 1,337,233 shares of
Class B preferred stock, 385,802 shares of Class D-2 preferred stock,
warrants to purchase 61,352 shares of common stock that are exercisable
within 60 days of March 13, 2000 and 39,000 shares of common stock subject
to options that are exercisable within 60 days of March 13, 2000.
(11) Consists of 1,058,561 shares of common stock held by Platinum Venture
Partners, L.P., 1,114,839 shares of common stock held by Platinum Venture
Partners II, L.P., 658,937 shares of common stock and 104,707 shares of
common stock subject to warrants that are exercisable within 60 days of
March 13, 2000 held by The AJF-1999 Trust u/t/d 5/20/99 and 69,125 shares
of common stock held by Andrew J. Filipowski. Mr. Filipowski is a limited
partner of Platinum Venture Partners, L.P. and Platinum Venture Partners
II, L.P. and the sole beneficiary of The AJF-1999 Trust u/t/d 5/20/99. Mr.
Filipowski disclaims beneficial interest in the shares held by Platinum
Venture Partners, L.P. and the shares held by Platinum Venture Partners
II, L.P., except to the extent of his pecuniary interest in Platinum
Venture Partners, L.P. and Platinum Venture Partners II, L.P.,
respectively.
(12) Consists of the shares described in footnotes (1) through (8), (10) and
(11) and 125,000 shares of common stock subject to options that are
exercisable within 60 days of March 13, 2000.
87
<PAGE>
CERTAIN TRANSACTIONS
On September 10, 1999, we issued (i) 15,432,099 shares of our class D-2
preferred stock, 15,000 shares of our 12% senior redeemable preferred stock,
5,050 shares of our senior convertible preferred stock and warrants to purchase
2,867,173 shares of our common stock to an affiliate of Chase Capital Partners,
and (ii) 9,259,259 shares of our class D-2 preferred stock, 5,000 shares of our
senior convertible preferred stock and warrants to purchase 409,012 shares of
our common stock to S.A. Blues Partners, L.P. Aggregate consideration received
from the Chase affiliate for the securities it purchased was $45,050,000 and
from S.A. Blues Partners, L.P. for the securities it purchased was $20,000,000.
Chase Capital Partners, through its affiliate, is our largest stockholder and
is represented on our board of directors by David L. Ferguson and Jeffrey C.
Walker. S.A. Blues Partners, L.P. is our second largest stockholder and is
represented on our board of directors by Christopher Goldsbury, Jr. and Ken
Halliday.
On January 24, 2000, we issued warrants to purchase 843,065, 834,718,
843,064 and 818,024 shares of our common stock to an affiliate of Chase Capital
Partners, S.A. Blues Partners, L.P., two investment partnerships that are
affiliated with of J.H. Whitney & Co., and an affiliate of First Union Capital
Partners, respectively. These warrants were required to be issued pursuant to
the terms of the purchase agreement under which our senior convertible
preferred stock was sold on September 10, 1999. No additional consideration was
received for these warrants. J.H. Whitney & Co., through three investment
partnerships with which it is affiliated, is our third largest stockholder and
is represented on our board of directors by William Laverack, Jr. First Union
Capital Partners, through its affiliate, is our fourth largest stockholder and
is represented on our board of directors by James Cook.
On February 25, 2000, we issued warrants to purchase 47,929, 47,929 and
29,956 shares of our common stock to an affiliate of Chase Capital Partners,
affiliates of J.H. Whitney & Co. and an affiliate of First Union Capital
Partners, respectively. These warrants were required to be issued pursuant to
the terms of warrants issued on September 10, 1999 with our 12% senior
redeemable preferred stock. No additional consideration was received for these
warrants.
On January 31, 2000, we entered into an agreement with Christopher Gorog,
one of the members of our board of directors, concerning the advisory services
Mr. Gorog performed in connection with our acquisition of Universal Concerts,
Inc. and its affiliates. Pursuant to this agreement we issued options to Mr.
Gorog to purchase 2,675,000 shares of our common stock and paid $288,600 cash
to Mr. Gorog. Affiliates of Chase Capital Partners, J.H. Whitney & Co. and
First Union Capital Partners have agreed to sell to us shares of our common
stock equal to an aggregate of 73.8% of these options when they are exercised
by Mr. Gorog at a purchase price per share equal to the exercise price of these
options.
On September 10, 1999, we entered into a Credit Agreement with a syndicate
of lenders led by Bank of America, as administrative agent, whereby we obtained
term loan financing of $60 million and a revolving credit line of $25 million.
The Chase Manhattan Bank, an affiliate of Chase Capital Partners, acted as
syndication agent under the credit agreement and received a fee for its
service.
We are a party to a licensing agreement with Daniel E. Aykroyd and other
parties pursuant to which we licensed the rights to use the Blues Brothers
trademarks. Mr. Aykroyd is a member of our board of directors and one of our
stockholders. We paid Mr. Aykroyd $108,939 and $150,000 during the six months
ended June 27, 1999 and December 26, 1999, respectively, under this agreement.
On May 18, 1995 we entered into a lease agreement for our Orlando club with
Lake Buena Vista Communities, Inc., which is an affiliate of The Walt Disney
Company, one of our stockholders. Pursuant to this lease we paid Lake Buena
Vista Communities, Inc. $831,227 and $1,036,758 during the six months ended
June 27, 1999 and December 26, 1999, respectively.
88
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary describes the material terms of our capital stock.
However, you should refer to the actual terms of the capital stock contained in
our amended and restated certificate of incorporation and other agreements
referenced below. The following summary gives effect to the conversion of all
of our outstanding shares of convertible preferred stock into common stock upon
the completion of this offering except for 5,000 shares of our 10% senior
convertible preferred stock which will be redeemed.
Upon the filing of our amended and restated certificate of incorporation
immediately prior to the completion of this offering, the authorized capital
stock of our company will consist of shares of common stock
shares of non-voting common stock and shares of preferred stock. As
of March 13, 2000, there were 221 holders of record of common stock. The common
stock and non-voting common stock each have a par value of $.0001 per share and
the preferred stock has a par value of $.01 per share. As of March 13, 2000,
there were 129.7 million shares of common stock outstanding and, after the
offering, there will be shares outstanding. As of March 13, 2000
there were no shares of non-voting common stock outstanding and, after the
offering, there will be shares outstanding. Upon the completion of this
offering, no shares of preferred stock will be outstanding. As of March 13,
2000, options to purchase shares of common stock were outstanding. We
also have warrants outstanding as described below.
Common Stock
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to ratably receive
dividends, if any, as may be declared by the board of directors out of funds
legally available for payments of dividends, subject to any preferential
dividend rights of any outstanding preferred stock. Upon the liquidation,
dissolution or winding up of our company the holders of common stock are
entitled to ratably receive our net assets available after the payment of all
debts and other liabilities and subject to the prior rights of any outstanding
preferred stock. Holders of common stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of common stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which we may
designate and issue in the future. Upon the closing of this offering, there
will be no shares of preferred stock outstanding.
Non-Voting Common Stock
Our non-voting common stock is identical to our common stock except in two
respects. First, our non-voting common stock is not entitled to any voting
rights, except as required by law. Second, holders of our non-voting common
stock may, at the option of the holder (unless the holder is subject to certain
restrictions under the Bank Holding Company Act of 1956, as amended, and the
regulations thereunder), convert shares of non-voting common stock into fully
paid and non-assessable shares of common stock on a share-for-share basis.
Preferred Stock
As of the closing of the offering, all of our outstanding shares of
convertible preferred stock will be automatically converted into shares of our
common stock and non-voting common stock. For a description of our convertible
preferred stock, please see note 12 of the notes to our financial statements
included elsewhere in this prospectus. Upon the closing of this offering, our
board of directors will be authorized, without further stockholder approval, to
issue from time to time up to an aggregate of shares of preferred stock in
one or more series and to fix or alter the designations,
89
<PAGE>
preferences, rights and any qualifications, limitations or restrictions of the
shares of any series thereof, including the dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption including sinking fund
provisions, redemption price or prices, liquidation preferences and the number
of shares constituting any series or designations of any series. We have no
present plans to issue any shares of preferred stock. Please see the section
entitled "Description of Capital Stock--Anti-Takeover Effects of Delaware Law
and our Certificate of Incorporation and Bylaws."
Warrants
As of March 10, 2000, there were outstanding warrants to purchase
17,172,428 shares of common stock and warrants to purchase 1,636,047 shares of
non-voting common stock. These warrants have a weighted average exercise price
of $.52. See note 12 to the financial statements included in this prospectus.
Registration Rights
Pursuant to the terms of our Amended and Restated Registration Rights
Agreement, after the closing of this offering the holders of shares
of common stock and warrants to purchase common stock will be entitled to
demand and piggyback registration rights with respect to the registration of
their shares under the Securities Act. Please see "Shares Eligible for Future
Sale."
Anti-Takeover Effects of Delaware Law and Our Certificate of Incorporation and
Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law, as amended, or DGCL. Subject to a number of exceptions,
Section 203 of the DGCL prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
status as an interested stockholder with the approval of the board of directors
or unless the business combination is approved in a prescribed manner. A
"business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested stockholder. Subject to the
exceptions, an "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years did own, 15% or more of
a corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to our company and, accordingly, may discourage attempts to acquire us.
In addition, a number of provisions of our certificate of incorporation and
bylaws, which provisions will be in effect upon the closing of this offer and
are summarized in the following paragraphs, may be deemed to have an anti-
takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by our stockholders.
Board of Directors Vacancies. Our certificate of incorporation authorizes
our board of directors to fill vacant directorships or increase the size of the
board of directors. This may deter a stockholder from removing incumbent
directors and simultaneously gaining control of the board of directors by
filling the vacancies created by such removal with its own nominees.
Stockholder Action; Special Meeting of Stockholders. Our certificate of
incorporation provides that stockholders may not take action by written
consent, but only at a duly called annual or special meeting of stockholders.
Our certificate of incorporation further provides that special meetings of
stockholders of our company may be called only by the Chairman of the board of
directors or a majority of the board of directors and may not be called by
stockholders.
90
<PAGE>
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual meeting of stockholders, must provide timely
notice thereof in writing. To be timely, a stockholder's notice must be
delivered to or mailed and received at our principal executive offices not less
than 120 days prior to the first anniversary of the date of our notice of
annual meeting provided with respect to the previous year's annual meeting of
stockholders; provided that, if no annual meeting of stockholders was held in
the previous year or the date of the annual meeting of stockholders has been
changed to be more than 30 calendar days from the date contemplated at the time
of our notice of annual meeting provided with respect to the previous year's
annual meeting of stockholders, notice by the stockholder, to be timely, must
be so received not later than the tenth day following the date on which notice
of the date of the meeting is given to stockholders or made public, whichever
first occurs. Our bylaws also specify requirements as to the form and consent
of a stockholder's notice. These provisions may preclude stockholders from
bringing matters before an annual meeting of stockholders or from making
nominations for directors at an annual meeting of stockholders.
Authorized But Unissued Shares. The authorized but unissued shares of
common stock, non-voting common stock and preferred stock are available for
future issuance without stockholder approval, subject to limitations imposed by
the Nasdaq National Market. These additional shares may be utilized for a
variety of corporate purposes, including future public offerings to raise
additional capital, corporate acquisitions and employee benefit plans. The
existence of authorized but unissued and unreserved common stock, non-voting
common stock and preferred stock could render more difficult or discourage an
attempt to obtain control of our company by means of a proxy contest, tender
offer, merger or otherwise.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage. We
have provisions in our certificate and bylaws that require a super-majority
vote of the stockholders to amend, revise or repeal provisions that may have an
anti-takeover effect.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation and bylaws include provisions to (1)
eliminate the personal liability of our directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by the
DGCL and (2) indemnify our directors and officers to the fullest extent
permitted by the DGCL, including circumstances in which indemnification is
otherwise discretionary.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our bylaws. We believe that
these provisions and agreements are necessary to attract and retain qualified
directors and officers. Our bylaws also permit us to secure insurance on behalf
of any officer, director, employee or other agent for any liability arising out
of his or her actions, regardless of whether the DGCL would permit
indemnification.
Transfer Agent and Registrar
Upon the closing of this offering, the transfer agent and registrar for the
common stock will be .
91
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock, and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of shares of common stock
for sale will have on the market price of the common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of common stock in the
public market, or the perception that sales could occur, could adversely affect
the market price of the common stock and could impair our company's future
ability to raise capital through the sale of its equity securities. See "Risk
Factors--The large number of shares eligible for public sale after this
offering could cause our stock price to decline."
Upon the closing of this offering, we will have an aggregate of
shares of common stock outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
the outstanding shares, the shares sold in this offering will be freely
tradable, except that any shares held by our "affiliates," as defined in Rule
144 under the Securities Act, may only be sold in compliance with the
limitations described below. The remaining shares of common stock
will be deemed "restricted securities" as defined under Rule 144. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701
promulgated under the Securities Act, which rules are summarized below.
In accordance with the lock-up agreements described below and subject to
the provisions of Rules 144, 144(k) and 701 and, in the case of shares acquired
upon the exercise of options which are not yet fully vested, vesting,
outstanding "restricted securities" will be available for sale in the public
market as follows:
<TABLE>
<CAPTION>
Number
of Shares Date
--------- ----
<C> <S>
After the date of this prospectus
At various times after 90 days from the date of this prospectus
(Rule 144)
After 180 days from the date of this prospectus (subject, in some
cases, to volume limitations)
</TABLE>
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated), including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that do not exceed the greater of 1% of the then outstanding
shares of common stock (approximately shares immediately after this
offering) or the average weekly trading volume in the common stock during the
four calendar weeks preceding the date on which notice of the sale is filed,
subject to restrictions. In addition, a person who is not deemed to have been
our affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years would
be entitled to sell these shares under Rule 144(k) without regard to the
requirements described above. To the extent that shares were acquired from any
of our affiliates, the holding period for the purpose of effecting a sale under
Rule 144 commences on the date of transfer from the affiliate.
Our executive officers and directors and principal stockholders have agreed
with the underwriters not to dispose of or hedge any of their common stock or
securities convertible into or exchangeable for shares of our common stock
during the period from the date of this prospectus continuing through the date
180 days after the date of this prospectus, except with the prior written
consent of the representatives and except that holders of warrants outstanding
on the date of this prospectus may exercise those warrants.
92
<PAGE>
Any of our employees or consultants who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions, in each case commencing
90 days after the date of this prospectus. We intend to file one or more
registration statements on Form S-8 under the Securities Act to register all
shares of common stock subject to outstanding stock options and common stock
issued or issuable under our stock-based compensation plans. We expect to file
this registration statement within 180 days after the date of this prospectus,
thus permitting the resale of shares by nonaffiliates in the public market
without restriction under the Securities Act.
We have agreed not to dispose of or hedge any shares of common stock or
securities convertible into shares of our common stock during the period from
the date of this prospectus continuing through the date 180 days after the date
of this prospectus, except with the prior written consent of Goldman, Sachs &
Co. and except that holders of options and warrants outstanding on the date of
this prospectus may exercise those options and warrants. In addition, we may
issue shares of common stock in connection with any acquisition or strategic
investment if the terms of the issuance provide that those shares of common
stock shall not be resold prior to the expiration of the 180-day period
referenced in the preceding sentence. Please see the section entitled "Risk
Factors--The large number of shares eligible for public sale after this
offering could cause our stock price to decline."
Following this offering, holders of shares of outstanding common
stock will have demand registration rights with respect to their shares of
common stock (subject to the 180-day lock-up arrangement described above) to
require us to register their shares of common stock under the Securities Act,
and they will have specified rights to participate in any future registration
of our securities. These holders are subject to lock-up periods of not more
than 180 days following the date of this prospectus. Please see the section
entitled "Description of Capital Stock--Registration Rights."
93
<PAGE>
UNDERWRITING
HOB Entertainment, Inc. and the underwriters named below have entered into
an underwriting agreement with respect to the shares being offered. Subject to
certain conditions, each underwriter has severally agreed to purchase the
number of shares indicated in the following table. Goldman, Sachs & Co.,
Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated and Prudential Securities Incorporated are the
representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Donaldson, Lufkin & Jenrette Securities Corporation.........
Prudential Securities Incorporated..........................
-------
Total.....................................................
=======
</TABLE>
----------------
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from HOB Entertainment, Inc. to cover such sales. They may
exercise that option for 30 days. If any shares are purchased pursuant to this
option, the underwriters will severally purchase shares in approximately the
same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts
and commissions to be paid to the underwriters by HOB Entertainment, Inc. Such
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares.
Paid by HOB Entertainment, Inc.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share............................................. $ $
Total................................................. $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealers may resell any shares purchased from the underwriters
to certain other brokers or dealers at a discount of up to $ per share from
the initial public offering price. If all the shares are not sold at the
initial public offering price, the representatives may change the offering
price and the other selling terms.
HOB Entertainment, Inc., our executive officers and directors and principal
stockholders have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of our common stock during the period from the date of this prospectus
continuing through the date 180 days after the date of this prospectus, except
with the prior written consent of Goldman Sachs & Co. This agreement does not
apply to the exercise of outstanding warrants and options. In addition, we may
issue shares of common stock in connection with any acquisition or strategic
investment if the terms of the issuance provide that these shares of common
stock shall not be resold prior to the expiration of the 180-day period
referenced above. Please see the section entitled "Shares Eligible for Future
Sale" for a discussion of transfer restrictions.
94
<PAGE>
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among HOB Entertainment, Inc.
and the representatives. Among the factors to be considered in determining the
initial public offering price of the shares, in addition to prevailing market
conditions, will be HOB Entertainment, Inc.'s historical performance, estimates
of the business potential and earnings prospects of HOB Entertainment, Inc., an
assessment of HOB Entertainment, Inc.'s management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
We expect that the common stock will be quoted on the Nasdaq National
Market under the symbol "HOBE."
In connection with this offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids on purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters may also impose a penalty bid. This occurs when a
particular underwriter repays to the underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares
sold by or for the account of such underwriter in stabilizing or short covering
transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of common
stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
At the request of HOB Entertainment, Inc., the underwriters have reserved
up to shares of common stock for sale at the initial public offering price
to directors, officers, employees and their friends and to persons with
preexisting strategic or other relationships with HOB Entertainment, Inc.
through a directed share program. The number of shares of common stock
available for sale to the general public in the public offering will be reduced
to the extent these persons purchase these reserved shares. Any shares not so
purchased will be offered by the underwriters to the general public on the same
basis as the other shares offered hereby.
The underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
HOB Entertainment, Inc. estimates that its share of the total expenses of
the offering, excluding underwriting discounts and commissions, will be
approximately $ .
HOB Entertainment, Inc. has agreed to indemnify the several underwriters
against certain liabilities, including liabilities under the Securities Act of
1933.
Certain of the underwriters or their affiliates have performed in the past
and may from time to time in the future perform investment banking services for
HOB Entertainment, Inc. for which they have received and will receive customary
fees.
95
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered hereby will be passed
upon for HOB Entertainment, Inc. by Latham & Watkins, Los Angeles, California.
Certain legal matters relating to the offering of common stock will be passed
upon for the underwriters by Simpson Thacher & Bartlett, New York, New York.
EXPERTS
The consolidated financial statements of HOB Entertainment, Inc. as of
December 28, 1997, December 27, 1998 and June 27, 1999, for each of the three
years in the period ended December 27, 1998 and for the six months ended June
27, 1999, the financial statements of Universal/PACE Amphitheatres Group, L.P.
as of June 20, 1998 and June 26, 1999 and for each of the three years in the
period ended June 26, 1999 and the financial statements of Fey Concerts Company
as of and for the year ended June 21, 1997 included in this prospectus and
elsewhere in the registration statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. Reference is made to
the HOB Entertainment, Inc. report, which includes an explanatory paragraph
with respect to the change in the method of accounting for pre-opening costs to
conform with Statement of Position 98-5 as discussed in Note 2 to the
consolidated financial statements.
The financial statements of Universal Concerts, Inc. and subsidiaries as of
June 20, 1998 and June 26, 1999 and for each of the three years in the period
ended June 26, 1999 included in this prospectus and elsewhere in this
registration statement have been so included, in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
The financial statements of Universal Concerts Canada as of June 20, 1998
and June 26, 1999, and for the year ended December 31, 1996, the six month
period ended June 21, 1997 and the years ended June 20, 1998 and June 26, 1999
included in this prospectus and elsewhere in the registration statement have
been so included in reliance on the report of PricewaterhouseCoopers LLP,
independent chartered accountants, given on the authority of that firm as
experts in accounting and auditing.
The financial statements of Ticketmaster Southeast as of and for the
periods ended January 31, 1997 and December 19, 1997 have been included herein
and in the registration statement in reliance on the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of that firm as experts in accounting and auditing.
96
<PAGE>
ADDITIONAL INFORMATION
We filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including the exhibits, schedules and amendments
thereto, under the Securities Act with respect to the shares of common stock to
be sold in this offering. This prospectus does not contain all the information
set forth in the registration statement. For further information regarding our
company and the shares of common stock to be sold in this offering, please
refer to the registration statement. Statements contained in this prospectus as
to the contents of any contract, agreement or other document referred to are
not necessarily complete, and in each instance reference is made to the copy of
the contract, agreement or other document filed as an exhibit to the
registration statement. These statements are qualified in all respects by these
references.
You may read and copy all or any portion of the registration statement or
any other information that we file at the Securities and Exchange Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You
can request copies of these documents, upon payment of a duplicating fee, by
writing to the Securities and Exchange Commission. Please call the Securities
and Exchange Commission at 1-800-732-0330 for further information on the
operation of the public reference rooms. Our Securities and Exchange Commission
filings, including the registration statement, are also available to you on the
Securities and Exchange Commission's Web site located at www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and in
accordance therewith will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Upon approval of the
common stock for the quotation on the Nasdaq National Market, reports, proxy
and information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
97
<PAGE>
HOB ENTERTAINMENT, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
HOB Entertainment, Inc. and Subsidiaries.
-----------------------------------------
<S> <C>
Report of Independent Public Accountants.................................. F-3
Consolidated Balance Sheets as of December 28, 1997, December 27, 1998,
June 27, 1999 and December 26, 1999 (unaudited).......................... F-4
Consolidated Statements of Operations for the six months ended June 28,
1998 (unaudited), June 27, 1999, December 27, 1998 (unaudited) and
December 26, 1999 (unaudited)............................................ F-6
Consolidated Statements of Operations for the years ended December 29,
1996, December 28, 1997, and December 27, 1998........................... F-7
Consolidated Statements of Stockholders' Deficit for the years ended
December 29, 1996, December 28, 1997, and December 27, 1998 and the six
months ended June 27, 1999 and December 26, 1999 (unaudited)............. F-8
Consolidated Statements of Cash Flows for the six months ended June 28,
1998 (unaudited), June 27, 1999, December 27, 1998 (unaudited) and
December 26, 1999 (unaudited)............................................ F-9
Consolidated Statements of Cash Flows for the years ended December 29,
1996, December 28, 1997, and December 27, 1998........................... F-10
Notes to Consolidated Financial Statements................................ F-11
<CAPTION>
Universal Concerts, Inc. and Subsidiaries.
------------------------------------------
<S> <C>
Report of Independent Accountants......................................... U-1
Consolidated Balance Sheets as of June 20, 1998 and June 26, 1999......... U-2
Consolidated Statements of Operations for the year ended June 21, 1997,
June 20, 1998 and June 26, 1999.......................................... U-3
Consolidated Statements of Stockholders' Equity for the year ended June
21, 1997, June 20, 1998 and June 26, 1999................................ U-4
Consolidated Statements of Cash Flows for the year ended June 21, 1997,
June 20, 1998 and June 26, 1999.......................................... U-5
Notes to Consolidated Financial Statements................................ U-6
<CAPTION>
Universal/PACE Amphitheatres Group, L.P.
----------------------------------------
<S> <C>
Report of Independent Public Accountants.................................. P-1
Balance Sheets as of June 20, 1998 and June 26, 1999...................... P-2
Statements of Operations for the years ended June 21, 1997, June 20, 1998
and June 26, 1999........................................................ P-3
Statements of Partners' Capital for the years ended June 21, 1997, June
20, 1998 and June 26, 1999............................................... P-4
Statements of Cash Flows for the years ended June 21, 1997, June 20, 1998
and June 26, 1999........................................................ P-5
Notes to Financial Statements............................................. P-6
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Page
----
Universal Concerts Canada
-------------------------
<S> <C>
Auditors' Report.......................................................... C-1
Balance Sheets as of June 20, 1998 and June 26, 1999...................... C-2
Statements of Operations for the year ended December 31, 1996, the six
month period ended June 21, 1997 and the years ended June 20, 1998 and
June 26, 1999............................................................ C-3
Statements of Partners' Capital Accounts for the year ended December 31,
1996, the six month period ended June 21, 1997 and the years ended June
20, 1998 and June 26, 1999............................................... C-4
Statements of Cash Flows for the years ended December 31, 1996, June 20,
1998 and June 26, 1999 and the six month period ended June 21, 1997...... C-5
Notes to Consolidated Financial Statements................................ C-6
<CAPTION>
Ticketmaster Southeast
----------------------
<S> <C>
Report of Independent Public Accountants.................................. T-1
Balance Sheets as of January 31, 1997 and December 17, 1997............... T-2
Statements of Income for the year ended January 31, 1997 and the period
ended December 19, 1997.................................................. T-3
Statements of Venturers' Capital for the year ended January 31, 1997 and
the period ended December 19, 1997....................................... T-4
Statements of Cash Flows for the year ended January 31, 1997 and the
period ended December 19, 1997........................................... T-5
Notes to Financial Statements............................................. T-6
<CAPTION>
Fey Concerts Company
--------------------
<S> <C>
Report of Independent Public Accountants.................................. Y-1
Balance Sheet as of June 21, 1997......................................... Y-2
Statement of Operations for the year ended June 21, 1997.................. Y-3
Statement of Partners' Deficit for the year ended June 21, 1997........... Y-4
Statement of Cash Flows for the year ended June 21, 1997.................. Y-5
Notes to Financial Statements............................................. Y-6
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To HOB Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of HOB
Entertainment, Inc. (a Delaware corporation) and subsidiaries as of December
28, 1997, December 27, 1998 and June 27, 1999, and the related consolidated
statements of operations, stockholders' deficit and cash flows for each of the
three years in the period ended December 27, 1998 and the six months ended June
27, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of HOB Entertainment, Inc. and
subsidiaries as of December 28, 1997, December 27, 1998 and June 27, 1999, and
the results of their operations and their cash flows for each of the three
years in the period ended December 27, 1998 and the six months ended June 27,
1999, in conformity with accounting principles generally accepted in the United
States.
As explained in Note 2 to the financial statements, effective December 29,
1997, the Company changed its method of accounting for venue pre-opening costs
to conform with Statement of Position 98-5.
Arthur Andersen LLP
Los Angeles, California
February 16, 2000
F-3
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash
equivalents.............. $ 71,000 $ 3,652,000 $ 1,426,000 $ 35,993,000
Accounts receivable, net
of allowance for doubtful
accounts of $222,000,
$280,000, $401,000 and
$326,000................. 1,114,000 1,967,000 3,170,000 6,105,000
Due from affiliates....... 314,000 262,000 212,000 1,871,000
Inventories............... 1,383,000 1,296,000 1,833,000 2,303,000
Prepaid expenses.......... 1,288,000 787,000 2,070,000 5,360,000
Restricted cash........... -- 4,444,000 -- --
----------- ----------- ----------- ------------
Total current assets..... 4,170,000 12,408,000 8,711,000 51,632,000
RESTRICTED CASH............. 986,000 -- -- --
PROPERTY AND EQUIPMENT,
net........................ 72,276,000 72,366,000 75,541,000 106,701,000
INVESTMENTS IN
UNCONSOLIDATED
PARTNERSHIPS............... 4,379,000 3,840,000 -- 39,283,000
GOODWILL, net of accumulated
amortization of
$1,662,000................. -- -- -- 112,348,000
OTHER ASSETS, net of
accumulated amortization of
$3,668,000, $256,000,
$339,000, and $1,095,000... 2,145,000 915,000 1,285,000 13,310,000
----------- ----------- ----------- ------------
Total assets............. $83,956,000 $89,529,000 $85,537,000 $323,274,000
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C>
LIABILITIES AND
STOCKHOLDERS' DEFICIT
----------------------
CURRENT LIABILITIES:
Accounts payable...... $ 3,240,000 $ 4,180,000 $ 5,873,000 $ 4,982,000
Accrued expenses and
other................ 7,160,000 7,254,000 7,090,000 29,825,000
Current portion of
long term debt....... 372,000 939,000 4,049,000 594,000
Deferred revenue...... 2,901,000 2,623,000 3,163,000 11,819,000
------------ ------------ ------------- -------------
Total current
liabilities......... 13,673,000 14,996,000 20,175,000 47,220,000
NON-CURRENT LIABILITIES:
Deferred revenue, net
of current portion... -- -- -- 7,816,000
Long term debt, net of
current portion...... 11,084,000 9,939,000 9,796,000 71,976,000
Other long-term
liabilities.......... 2,824,000 118,000 264,000 1,773,000
------------ ------------ ------------- -------------
Total liabilities.... 27,581,000 25,053,000 30,235,000 128,785,000
COMMITMENTS AND
CONTINGENCIES
MINORITY INTEREST....... 9,498,000 8,941,000 8,712,000 8,532,000
REDEEMABLE PREFERRED
STOCK
12% Senior redeemable
preferred stock, $.01
par value, 81,125
shares authorized and
49,375 shares issued
and outstanding,
including liquidation
preference of
$51,128,151.......... -- -- -- 41,734,000
CONVERTIBLE PREFERRED
STOCK:
10% Senior convertible
preferred stock, $.01
par value, 22,000
shares authorized and
20,000 shares issued
and outstanding,
including liquidation
preference of
$20,592,000.......... -- -- -- 15,767,000
Convertible Class D-3
non-voting preferred
stock, $.01 par
value, 10,904,872
shares authorized and
7,577,712 shares
issued and
outstanding,
including liquidation
preference of
$12,639,000.......... -- -- -- 12,203,000
Convertible Class D-2
preferred stock,
$.01 par value
73,379,630 shares
authorized and
42,190,807 shares
issued and
outstanding,
including liquidation
preference of
$70,371,000.......... -- -- -- 67,944,000
Convertible Class D-1
preferred stock,
$.01 par value,
29,166,667 shares
authorized and
16,892,148 shares
issued and
outstanding,
including liquidation
preferences of
$21,093,000,
$22,090,000 and
$23,031,000 ......... -- 19,966,000 21,234,000 22,403,000
Convertible Class C
preferred stock,
$.01 par value,
15,069,588 shares
authorized, and
10,836,356 shares
issued and
outstanding,
including liquidation
preferences of
$35,241,000,
$38,217,000,
$39,799,000 and
$41,446,000.......... 35,065,000 38,080,000 39,681,000 41,348,000
Convertible Class B
preferred stock,
$.01 par value,
21,700,404 shares
authorized, and
20,491,329 shares
issued and
outstanding,
including liquidation
preference of
$61,474,000.......... 60,244,000 60,618,000 60,760,000 60,901,000
Convertible Class A
preferred stock,
$.01 par value,
15,488,672 shares
authorized, and
13,683,596 shares
issued and
outstanding,
including liquidation
preference of
$27,367,000.......... 25,257,000 25,470,000 25,578,000 25,686,000
------------ ------------ ------------- -------------
Total preferred
stock............... 120,566,000 144,134,000 147,253,000 287,986,000
STOCKHOLDERS' DEFICIT:
Common stock, $.0001
par value,
72,680,543,
114,054,991,
114,054,991 and
200,000,000 shares
authorized, and
3,383,500 shares
issued and
outstanding.......... 1,000 1,000 1,000 1,000
Additional paid in
capital.............. 7,866,000 7,938,000 7,938,000 21,956,000
Accumulated deficit... (81,556,000) (96,538,000) (108,602,000) (123,986,000)
------------ ------------ ------------- -------------
Total stockholders'
deficit............. (73,689,000) (88,599,000) (100,663,000) (102,029,000)
------------ ------------ ------------- -------------
Total liabilities,
minority interest,
preferred stock, and
stockholders'
deficit............. $ 83,956,000 $ 89,529,000 $ 85,537,000 $ 323,274,000
============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Six Months Ended
-----------------------------------------------------
June 28, June 27, December 27, December 26,
1998 1999 1998 1999
----------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
REVENUES................. $42,709,000 $ 52,003,000 $45,074,000 $107,263,000
EXPENSES:
Operating expenses..... 38,777,000 47,824,000 40,643,000 99,554,000
General and
administrative........ 4,774,000 5,130,000 4,629,000 6,958,000
Depreciation and
amortization ......... 2,584,000 2,751,000 2,489,000 5,166,000
Venue pre-opening
costs................. -- 814,000 332,000 --
Other expenses, net.... 64,000 394,000 885,000 473,000
----------- ------------ ----------- ------------
OPERATING LOSS........... (3,490,000) (4,910,000) (3,904,000) (4,888,000)
OTHER INCOME (LOSS):
Interest income........ 130,000 16,000 223,000 306,000
Interest expense....... (1,101,000) (666,000) (821,000) (3,111,000)
Equity in (loss) income
of unconsolidated
partnerships.......... (48,000) (3,614,000) (72,000) 633,000
Minority interest in
loss of consolidated
partnership........... 323,000 229,000 234,000 180,000
----------- ------------ ----------- ------------
LOSS BEFORE CUMULATIVE
EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.... (4,186,000) (8,945,000) (4,340,000) (6,880,000)
Cumulative write-off of
unamortized venue pre-
opening costs......... (1,839,000) -- -- --
----------- ------------ ----------- ------------
NET LOSS................. $(6,025,000) $ (8,945,000) $(4,340,000) $ (6,880,000)
=========== ============ =========== ============
NET LOSS APPLICABLE TO
COMMON SHAREHOLDERS..... $(7,797,000) $(12,064,000) $(7,185,000) $(15,384,000)
=========== ============ =========== ============
BASIC AND DILUTED LOSS
PER SHARE:
Loss before cumulative
effect of change in
accounting principle.. $ (1.76) $ (3.57) $ (2.12) $ (4.55)
Cumulative effect of
change in accounting
principle ............ (0.54) -- -- --
----------- ------------ ----------- ------------
Net loss............... $ (2.30) $ (3.57) $ (2.12) $ (4.55)
=========== ============ =========== ============
BASIC AND DILUTED
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING... 3,383,500 3,383,500 3,383,500 3,383,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
December 29, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES............................. $ 36,108,000 $ 69,548,000 $ 87,783,000
EXPENSES:
Operating expenses................. 32,565,000 63,610,000 79,420,000
General and administrative......... 14,519,000 13,091,000 9,403,000
Depreciation and amortization...... 2,436,000 7,395,000 5,073,000
Venue pre-opening costs............ -- -- 332,000
Other expenses, net................ 13,673,000 3,636,000 949,000
------------ ------------ ------------
OPERATING LOSS....................... (27,085,000) (18,184,000) (7,394,000)
OTHER INCOME (LOSS):
Interest income.................... 596,000 324,000 353,000
Interest expense................... (325,000) (1,310,000) (1,922,000)
Equity in loss of unconsolidated
partnerships...................... -- (222,000) (120,000)
Minority interest in loss of
consolidated partnership.......... -- 502,000 557,000
------------ ------------ ------------
LOSS BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE...... (26,814,000) (18,890,000) (8,526,000)
Cumulative write-off of unamortized
venue pre-opening costs........... -- -- (1,839,000)
------------ ------------ ------------
NET LOSS............................. $(26,814,000) $(18,890,000) $(10,365,000)
============ ============ ============
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS........................ $(27,455,000) $(22,322,000) $(14,982,000)
============ ============ ============
BASIC AND DILUTED LOSS PER SHARE:
Loss before cumulative effect of
change in accounting principle.... $ (8.20) $ (6.66) $ (3.89)
Cumulative effect of change in
accounting principle.............. -- -- (0.54)
------------ ------------ ------------
Net loss........................... $ (8.20) $ (6.66) $ (4.43)
============ ============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING........ 3,347,667 3,353,752 3,383,500
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Years Ended December 29, 1996, December 28, 1997 and December 27, 1998
and for the Six Months Ended June 27, 1999 and December 26, 1999 (unaudited)
<TABLE>
<CAPTION>
Common Stock
---------------- Additional Total
Number of Par Paid-In Accumulated Deferred Stockholders'
Shares Value Capital Deficit Compensation Deficit
--------- ------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1995................... 3,347,667 $1,000 $ 931,000 $ (31,779,000) $(160,000) $ (31,007,000)
Deferred compensation
expense.............. -- -- -- -- 95,000 95,000
Stock option
cancellation......... -- -- (65,000) -- 65,000 --
Accretion of preferred
stock................ -- -- -- (641,000) -- (641,000)
Capital contribution.. -- -- 3,400,000 -- -- 3,400,000
Net loss.............. -- -- -- (26,814,000) -- (26,814,000)
--------- ------ ----------- ------------- --------- -------------
BALANCE, December 29,
1996................... 3,347,667 1,000 4,266,000 (59,234,000) -- (54,967,000)
Exercise of stock
options.............. 27,500 -- -- -- -- --
Issuance of common
stock................ 8,333 -- -- -- -- --
Accretion of preferred
stock................ -- -- -- (3,432,000) -- (3,432,000)
Capital contribution.. -- -- 3,600,000 -- -- 3,600,000
Net loss.............. -- -- -- (18,890,000) -- (18,890,000)
--------- ------ ----------- ------------- --------- -------------
BALANCE, December 28,
1997................... 3,383,500 1,000 7,866,000 (81,556,000) -- (73,689,000)
Accretion of preferred
stock................ -- -- -- (4,617,000) -- (4,617,000)
Fair market value of
warrants issued...... -- -- 72,000 -- 72,000
Net loss.............. -- -- -- (10,365,000) -- (10,365,000)
--------- ------ ----------- ------------- --------- -------------
BALANCE, December 27,
1998................... 3,383,500 1,000 7,938,000 (96,538,000) -- (88,599,000)
Accretion of preferred
stock................ -- -- -- (3,119,000) -- (3,119,000)
Net loss.............. -- -- -- (8,945,000) -- (8,945,000)
--------- ------ ----------- ------------- --------- -------------
BALANCE, June 27, 1999.. 3,383,500 1,000 7,938,000 (108,602,000) -- (100,663,000)
Accretion of preferred
stock and dividends.. -- -- -- (8,504,000) -- (8,504,000)
Fair market value of
warrants issued in
connection with:
Acquisition of UCI... -- -- 1,914,000 -- -- 1,914,000
Issuance of new
classes of preferred
stock............... -- -- 12,104,000 -- -- 12,104,000
Net loss.............. -- -- -- (6,880,000) -- (6,880,000)
--------- ------ ----------- ------------- --------- -------------
BALANCE, December 26,
1999 (unaudited) ...... 3,383,500 $1,000 $21,956,000 $(123,986,000) $ -- $(102,029,000)
========= ====== =========== ============= ========= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months Ended
----------------------------------------------------
June 28, June 27, December 27, December 26,
1998 1999 1998 1999
----------- ----------- ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss............... $(6,025,000) $(8,945,000) $(4,340,000) $ (6,880,000)
Adjustments to
reconcile net loss to
net cash (used in)
provided by operating
activities--
Depreciation and
amortization........ 2,584,000 2,751,000 2,489,000 5,166,000
Amortization of debt
issuance costs...... -- 43,000 45,000 559,000
Cumulative write-off
of unamortized venue
pre-opening costs... 1,839,000 -- -- --
Minority interest.... (323,000) (229,000) (234,000) (180,000)
Equity in loss
(income) of
unconsolidated
partnership......... 48,000 3,614,000 72,000 (633,000)
Changes in operating
assets and
liabilities--
(Increase) decrease
in accounts
receivable.......... (902,000) (1,203,000) 49,000 (51,000)
(Increase) decrease
in due from
affiliates.......... (4,000) 50,000 56,000 (469,000)
Decrease (increase)
in inventories...... 170,000 (537,000) (83,000) (455,000)
(Increase) decrease
in prepaid expenses
and other current
assets.............. (5,274,000) 3,161,000 1,331,000 2,355,000
Increase (decrease)
in accounts
payable............. 65,000 1,693,000 875,000 (2,561,000)
Increase (decrease)
in accrued expenses
and other long-term
liabilities......... 807,000 (18,000) (3,419,000) 4,618,000
Increase (decrease)
in deferred
revenue............. 973,000 540,000 (1,251,000) (4,684,000)
----------- ----------- ----------- ------------
Net cash (used in)
provided by
operating
activities......... (6,042,000) 920,000 (4,410,000) (3,215,000)
----------- ----------- ----------- ------------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchase of UCI, net of
cash acquired......... -- -- -- (158,739,000)
Additions to property
and equipment......... (2,505,000) (5,284,000) (2,473,000) (3,308,000)
Restricted cash
deposited in escrow... 986,000 -- -- --
Investment in
intangible and other
assets................ (731,000) (655,000) (36,000) (314,000)
Cash distributions from
unconsolidated
partnerships.......... 228,000 226,000 191,000 229,000
----------- ----------- ----------- ------------
Net cash used in
investing
activities......... (2,022,000) (5,713,000) (2,318,000) (162,132,000)
----------- ----------- ----------- ------------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net proceeds from
issuance of preferred
stock................. -- -- 18,951,000 146,247,000
Net proceeds from
issuance of debt...... 10,305,000 5,937,000 1,123,000 61,521,000
Debt repayments........ (1,054,000) (3,370,000) (10,952,000) (7,854,000)
----------- ----------- ----------- ------------
Net cash provided by
financing
activities......... 9,251,000 2,567,000 9,122,000 199,914,000
----------- ----------- ----------- ------------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 1,187,000 (2,226,000) 2,394,000 34,567,000
CASH AND CASH
EQUIVALENTS, beginning
of period............. 71,000 3,652,000 1,258,000 1,426,000
----------- ----------- ----------- ------------
CASH AND CASH
EQUIVALENTS, end of
period................ $ 1,258,000 $ 1,426,000 $ 3,652,000 $ 35,993,000
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
----------------------------------------
December 29, December 28, December 27,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................. $(26,814,000) $(18,890,000) $(10,365,000)
Adjustments to reconcile net loss to
net cash used in operating
activities--
Depreciation and amortization...... 2,436,000 7,395,000 5,073,000
Amortization of debt issuance
costs............................. -- 30,000 45,000
Cumulative write-off of unamortized
venue pre-opening costs........... -- -- 1,839,000
Options granted for compensation... 95,000 -- --
Gain on sale of abandoned venue
development....................... -- (834,000) --
Minority interest.................. -- (502,000) (557,000)
Equity in loss of unconsolidated
partnership....................... -- 222,000 120,000
Changes in operating assets and
liabilities--
Increase in accounts receivable.... (326,000) (715,000) (853,000)
(Increase) decrease in due from
affiliates........................ (16,000) (91,000) 52,000
(Increase) decrease in
inventories....................... (562,000) (39,000) 87,000
Increase in prepaid expenses and
other current assets.............. (1,521,000) (2,983,000) (3,943,000)
Increase (decrease) in accounts
payable........................... 7,205,000 (6,965,000) 940,000
Increase (decrease) in accrued
expenses and other long-term
liabilities....................... 5,402,000 4,214,000 (2,612,000)
Increase (decrease) in deferred
revenue........................... 288,000 1,149,000 (278,000)
------------ ------------ ------------
Net cash used in operating
activities..................... (13,813,000) (18,009,000) (10,452,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of building....... -- 3,187,000 --
Additions to property and equipment.. (34,575,000) (15,670,000) (4,978,000)
Restricted cash deposited in escrow.. (615,000) 2,379,000 986,000
Investment in unconsolidated
partnership......................... -- (5,000,000) --
Investment in intangible and other
assets.............................. -- 283,000 (767,000)
Cash (contributions) distributions
from unconsolidated partnership..... (146,000) 399,000 419,000
------------ ------------ ------------
Net cash used in investing
activities..................... (35,336,000) (14,422,000) (4,340,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of
preferred stock..................... 5,473,000 10,311,000 18,951,000
Net proceeds from issuance of debt... 22,250,000 9,459,000 11,428,000
Debt repayment....................... (104,000) (460,000) (12,006,000)
Contributions from stockholders...... 3,400,000 3,600,000 --
Repurchase of Convertible Class A
preferred stock..................... (4,311,000) -- --
Contributions received from minority
interest............................ 5,000,000 -- --
------------ ------------ ------------
Net cash provided by financing
activities..................... 31,708,000 22,910,000 18,373,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.................... (17,441,000) (9,521,000) 3,581,000
CASH AND CASH EQUIVALENTS, beginning
of period........................... 27,033,000 9,592,000 71,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of
period.............................. $ 9,592,000 $ 71,000 $ 3,652,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of December 26, 1999 and for the six month periods ended
June 28, 1998, December 27, 1998 and December 26, 1999 is unaudited)
1. BUSINESS, ORGANIZATION, AND BUSINESS RISKS:
HOB Entertainment, Inc. (the "Company") is a leading live music
entertainment company which operates seven House of Blues(R) clubs and eleven
amphitheatre and theatre concert venues, has exclusive booking arrangements
with nine other amphitheatre, theatre and arena concert venues, digitally
captures live music performances for distribution through a variety of channels
(currently the Internet), and operates certain other complementary businesses.
The Company was incorporated in Texas on March 25, 1992, and reincorporated
in Delaware on December 4, 1992. The Company opened House of Blues(R) clubs
which integrate a live music hall, restaurant, bar and a specialty retail store
in Cambridge (1992), New Orleans (1994), Los Angeles (1994), Chicago (1996),
Myrtle Beach (1997), Orlando (1997) and Las Vegas (March 1999). The Company is
considering sites for additional live music venues in North America and
internationally.
On September 10, 1999, the Company acquired Universal Concerts Inc. ("UCI")
from Universal Studios, Inc. ("USI") (see Note 3). UCI is a leading venue
operator, venue developer, promoter and producer in live music entertainment.
It owns, operates, or has exclusive booking arrangements with 20 premier
amphitheatres and theater venues in the United States and Canada, either solely
or with a partner, and promotes live music entertainment in third party
concerts, venues and clubs throughout North America. UCI changed its name to
HOB Concerts, Inc. ("Concerts") following its acquisition.
Risks of Business
As an operator and developer of its live entertainment club and concert
venues, the Company is subject to various business risks. The live
entertainment industry is highly competitive with respect to price, service,
location and quality and is subject to changes in consumer spending, consumer
tastes, demographic trends and other economic conditions. The Company is also
subject to risks with respect to the Company's plan to develop additional club,
theatre and amphitheatre locations, including the risk that sufficient capital
will not be available to fund future development, risk of cost overruns, labor
shortages and unforeseeable construction difficulties such as engineering or
zoning problems. Management believes that it has an adequate plan to address
the business risks associated with the Company's current operations and
development plans.
The market for distributing music content over the Internet and other
digital distribution media is evolving and is subject to a high degree of
uncertainty with respect to its revenue and income potential. The growth of the
digital market for live music is dependent in part on access to content
distribution rights, the development and rollout of broadband connectivity to
households, on intellectual property laws and changes therein, on governmental
regulation, and on other factors which are outside of the Company's control.
The Company has incurred net losses in each year of operation since its
inception. The Company's ability to conduct and expand its operations has been
dependent on the continued issuance of preferred stock and debt financing.
Management intends to raise additional capital to finance continued expected
net losses as well as the expansion of the Company.
F-11
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Unaudited Information as of December 26, 1999
The accompanying unaudited consolidated financial statements as of December
26, 1999 and for the six month periods ending June 27, 1998, December 27, 1998
and December 26, 1999 reflect all adjustments which are, in the opinion of
management, necessary for the fair presentation of the financial statements for
such interim periods. Such adjustments consist only of normal recurring items.
Interim results are not necessarily indicative of results for a full year.
Fiscal Year
The Company had adopted a fifty-two/fifty-three week accounting year,
ending on the Sunday nearest to December 31 of each year. In 1999, the Company
changed its fiscal year to end on the Sunday nearest to June 30 of each year.
Principles of Consolidation
The consolidated financial statements include the accounts of all wholly-
owned, majority-owned or controlled subsidiary companies and partnerships (See
Note 5). All significant intercompany accounts and transactions have been
eliminated.
The Company uses the equity basis of accounting for investments in which it
has an ownership interest between 20% and 50% and where the Company has the
ability to exercise significant influence but not control. The Company also
accounts for investments under the equity basis of accounting when it owns more
than a 50% interest but has only temporary control over the investment (See
Note 4).
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.
Revenue Recognition
Admissions revenue is recognized on the date of the performance. Cash
received for advance ticket sales is recorded as deferred revenue until the
related event occurs. Revenue from food and beverage operations at the venues
is recognized upon provision of goods and services to customers. Concerts
outsources its food and beverage concessions to third parties and receives a
percentage of food and beverage revenue generated. The Company receives certain
advances upon entering into such agreements, which are initially recorded as
deferred revenue and are then recognized as revenue as they are earned over the
term of the contract. Merchandise revenue is recognized when goods are sold.
In consideration for exclusive publicity rights granted at certain venues
or events, the Company receives sponsorship fees. Sponsorship fees that are not
related to any single event are classified as deferred revenue and are
amortized on a straight-line basis over the term of the related contract.
F-12
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Advertising
Advertising costs are expensed as incurred. Advertising expenses included
in operating expense were $3,427,000, $2,846,000, $5,515,000, $2,155,000 and
$5,347,000 (unaudited) for the years ended December 29, 1996, December 28, 1997
and December 27, 1998 and the six month periods ended June 27, 1999, and
December 26, 1999, respectively.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid debt instruments
purchased which have original maturities of three months or less. The fair
market value of the Company's cash equivalents approximated cost at each
balance sheet date.
Inventories
Inventories consist primarily of retail merchandise, food and beverages and
are stated at the lower of cost determined on a first-in, first-out ("FIFO")
basis or market.
Prepaid Expenses
Prepaid expenses consist primarily of artist advances and other costs
directly related to future events. Such costs are charged to operations upon
occurrence of the related event.
Restricted Cash
Restricted cash included amounts deposited and held in escrow (i) to fund
certain costs related to the facility constructed in Orlando, (ii) in
accordance with the agreement with House of Blues Development Corp and (iii)
for an appellate bond related to certain litigation (see Note 10).
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of 15 to 39 years for amphitheatres, buildings and
art, and 3 to 10 years for furniture, artifacts, and office and computer
equipment. Leasehold improvements are amortized on a straight-line basis over
the lesser of the estimated useful life of the improvements or the expected
life of the lease.
Major renewals and betterments are capitalized in the property account,
while maintenance and repairs, which do not significantly improve or extend the
lives of the respective assets, are expensed as incurred.
The cost and accumulated depreciation for property and equipment sold,
retired or otherwise disposed of are relieved from the accounts and resulting
gains and losses are reflected in income.
Goodwill and Other Assets
Goodwill represents the preliminary unallocated excess of the cost of the
acquisition of UCI over the fair market value of the net identifiable assets
acquired and is amortized on a straight-line basis over twenty years. Goodwill
amortization was approximately $1,662,000 (unaudited) for the period from
September 11, 1999 through December 26, 1999.
F-13
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Trademarks are amortized over five years using the straight-line method.
Other assets include debt issuance costs, which are amortized using the
effective interest method over the respective term of the debt.
Long Lived Assets
The Company accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", which requires that
impaired long-lived assets be carried at the lower of carrying amount or fair
value and that an evaluation of an individual property for possible impairment
must be performed whenever events or changes in circumstances indicate that an
impairment may have occurred. The Company believes that there were no such
events or changes in circumstances during the periods reported.
Preferred Stock Issued with Warrants
When the Company issues preferred stock with warrants, it allocates the
proceeds from issuance between the preferred stock and the warrants based on
the fair value of the warrants on the date of issuance including the Company's
estimate of any additional warrants issuable for no consideration based upon
the preferred stock remaining outstanding as of certain dates. The preferred
stock balance is accreted from its initial allocated value to its redemption
value on its mandatory redemption date using the effective interest method.
Pre-opening Costs
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." SOP 98-5 requires that entities expense costs of start-up
activities (pre-opening, pre-operating and organizational costs) as those costs
are incurred and requires the write-off of any unamortized balances upon
adoption.
The Company adopted SOP 98-5 at the beginning of its fiscal year in 1998
(December 29, 1997) and wrote off any unamortized venue pre-opening costs. The
amounts written off have been presented as a cumulative effect of change in
accounting principle in the consolidated statement of operations.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 specifies an asset and liability approach, which requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events which have been recognized in the Company's financial
statements. In addition, SFAS 109 requires that deferred tax assets be reduced
by a valuation allowance if, based on the weight of available evidence, it is
more likely than not that some or all of the deferred tax asset will not be
realized.
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax basis of assets and liabilities and their
financial reporting basis and the potential benefits of certain tax
carryforwards. The Company had losses for both book and tax purposes in each of
the periods presented and, accordingly, recorded no provision for federal taxes
and minimal state taxes.
F-14
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders (net loss less accretion and dividends on
preferred stock) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is not separately presented
as the Company has a loss before cumulative effect of change in accounting
principle for each period presented and accordingly any calculation of diluted
loss per share would be antidilutive. Therefore, securities consisting of
options, warrants, and preferred stock that could potentially dilute basic
earnings (loss) per share are not included in the calculation of basic earnings
(loss) per share. The weighted average number of such potentially dilutive
shares are as follows:
<TABLE>
<CAPTION>
For the years ended For the six month period ended
- --------------------------------------- ----------------------------------------------
December 29, December 28, December 27, June 28, June 27, December 27, December 26,
1996 1997 1998 1998 1999 1998 1999
- ------------ ------------ ------------ ----------- -------- ------------ ------------
(unaudited) (unaudited) (unaudited)
(shares in thousands)
<S> <C> <C> <C> <C> <C> <C>
41,372 54,991 69,912 61,770 81,730 78,054 127,651
</TABLE>
Concentration and Seasonality
As of the six month period ended December 26, 1999, one vendor processed
over 67% of the Company's ticket sales revenue. Management does not believe
that this concentration poses a risk, as other vendors would be available to
provide this service at comparable terms.
The Concert operations and revenues are seasonal in nature, with higher
revenue generated in the second and third calendar quarters. The Company's
outdoor venues are primarily utilized during the warmer months and generally do
not generate significant revenue during the winter.
Prior Year Reclassifications
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform with the current presentation.
3. BUSINESS ACQUISITION:
As discussed in Note 1, on September 10, 1999, the Company acquired UCI for
approximately $174 million in cash and assumed liabilities (net of working
capital adjustments). The Company also issued warrants to USI to purchase
1,636,047 shares of the Non-Voting Common Stock of the Company and entered into
certain strategic commitments and lease agreements related to the Universal
Amphitheater with USI.
The results of operations of UCI have been included in the Company's
financial statements from the date of acquisition. The acquisition was
accounted for by the purchase method; accordingly, the purchase price has been
allocated to the net assets acquired based on their fair values. The purchase
price in excess of the fair value of the net assets of $114,010,000 represents
goodwill which is being amortized over its estimated useful life of 20 years.
The purchase price allocation is preliminary and is subject to adjustments.
Purchase accounting will be completed within the one year timeframe allowed by
Accounting Principles Board Opinion No. 16 "Business Combinations."
The following unaudited pro forma summary represents the consolidated
results for the year ended December 27, 1998 and the six-month periods ended
June 27, 1999 and December 26, 1999 as if the acquisition had occurred at the
beginning of the earliest period presented after giving effect
F-15
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
to certain preliminary adjustments, including amortization of goodwill,
depreciation of assets revalued to fair market value and interest expense on
the acquisition debt. These pro forma results have been included for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisition been made as of that date or of results which
may occur in the future.
<TABLE>
<CAPTION>
For the Year For the Six Months
Ended Ended
------------ ------------------------
December 27, June 27, December 26,
1998 1999 1999
------------ ----------- ------------
(unaudited) (unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C>
Revenues.............................. $ 203,872 $ 120,499 $163,426
Net loss before cumulative effect of
change in accounting principle....... $ (13,272) $ (18,790) $ (2,219)
Net loss.............................. $ (15,111) $ (18,790) $ (2,219)
Basic and diluted loss per share
before cumulative effect of change in
accounting principle................. $ (9.63) $ (8.99) $ (5.51)
Basic and diluted loss per share...... $ (10.17) $ (8.99) $ (5.51)
</TABLE>
4. INVESTMENTS IN UNCONSOLIDATED PARTNERSHIPS:
In 1997, the Company invested $5,000,000 in a limited partnership with a
stockholder and a third party in exchange for a 23.76% equity interest. The
Company's ownership interest may be diluted if the Company does not contribute
additional capital to the partnership. The partnership has developed, and has
licensed Loews Corporation to operate, a House of Blues hotel in Chicago. The
Company accounts for its 23.76% interest in this limited partnership under the
equity method of accounting. During the six month period ended June 27, 1999,
the Company's share of cumulative losses exceeded its $5 million investment.
Because the Company is not contractually obligated to invest additional funds
in the partnership, the Company stopped recognizing its share of losses when
its investment was written down to zero.
In September 1999, the Company acquired the joint venture interests
described below in connection with the acquisition of UCI (see Note 3). The
fair value of these interests exceeded the equity in the underlying assets by
$19,653,000 at December 26, 1999. The excess amounts are being amortized on a
straight-line basis over 20 years. Amortization included in the six months
ended December 26, 1999 was $304,000 and is included in equity in income (loss)
of unconsolidated partnerships.
HOB Concerts Canada Ltd., a wholly-owned subsidiary of the Company has a
50% interest in House of Blues Concerts Canada, which owns and operates two
facilities, and promotes and produces live music events in Canada. The Company
accounts for its 50% interest under the equity method of accounting.
HOB Concerts/PACE Amphitheatres Group, LP ("HOB/PACE") is a partnership
between the Company and PACE Entertainment Corporation (now a wholly-owned
subsidiary of SFX Entertainment, Inc.) that is an operator and developer of
amphitheatres in Atlanta and Dallas. The Company owns a 67.5% equity interest
in HOB/PACE--a 32.5% general partnership interest and a 35% limited partnership
interest in consideration for contributing certain amounts to HOB/PACE.
Although the Company is currently managing HOB/PACE, its control over the
partnership is deemed temporary per the partnership agreement and as such the
Company accounts for its 67.5% interest under the equity method of accounting.
F-16
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. INVESTMENT IN CONSOLIDATED PARTNERSHIP:
In 1996, subsidiaries of the Company became general and limited partners in
a partnership to solely own and lease to the Company the building that houses
the Chicago club. The Company has a 30% ownership interest in the partnership.
The Company also arranged and guarantees the partnership's debt. The other
limited partners consist of the Company's stockholders or their affiliates.
The Chicago club has a lease agreement with the partnership and is required
to pay rent consisting of both minimum lease rental payments and contingent
rental payments based on a percentage of sales. The lease term is for an
initial period of 20 years with three ten-year renewal options. Due to the
special purpose nature of the lease, the Company's general partner role, and
the absence of investment from unrelated parties, the Company consolidates the
results of the partnership. In January 2000, the Company purchased the
partnership interest of one of the two other partners for approximately $7.3
million consisting of $6.0 million in cash and 802,409 shares of Class D-2
preferred stock. As a result, the Company's ownership percentage increased to
65%.
6. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Land.................... $ 157,000 $ 157,000 $ 157,000 $1,017,000
Building and leasehold
improvements........... 61,778,000 63,423,000 68,428,000 93,971,000
Art and artifacts....... 4,134,000 4,272,000 4,121,000 4,151,000
Furniture and
equipment.............. 6,613,000 11,041,000 13,567,000 18,993,000
Office and computers.... 4,561,000 4,979,000 5,463,000 6,161,000
Construction in
progress............... 4,405,000 2,826,000 804,000 2,847,000
----------- ------------ ------------ ------------
81,648,000 86,698,000 92,540,000 127,140,000
Less: accumulated
depreciation and
amortization........... (9,372,000) (14,332,000) (16,999,000) (20,439,000)
----------- ------------ ------------ ------------
$72,276,000 $ 72,366,000 $ 75,541,000 $106,701,000
=========== ============ ============ ============
</TABLE>
7. ACCRUED EXPENSES AND OTHER:
Accrued expenses and other consist of the following:
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ---------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Payroll-related costs.... $ 2,069,000 $ 1,568,000 $2,349,000 $ 4,885,000
Performance and talent... -- -- -- 11,362,000
Property, sales and other
taxes................... 1,024,000 1,311,000 1,555,000 1,499,000
Litigation and
settlements............. 2,580,000 3,000,000 220,000 1,502,000
Other.................... 1,487,000 1,375,000 2,966,000 10,577,000
----------- ----------- ---------- -----------
$ 7,160,000 $ 7,254,000 $7,090,000 $29,825,000
=========== =========== ========== ===========
</TABLE>
F-17
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. INCOME TAXES:
The provision for income taxes for the years ended December 29, 1996,
December 28, 1997, and December 27, 1998 and the six months ended June 27, 1999
and December 26, 1999 resulted in effective tax rates of zero percent. The
reasons for the effective tax rate being different than the statutory United
States federal tax rate are summarized as follows:
<TABLE>
<CAPTION>
December 29, December 28, December 27, June 27, December 26,
1996 1997 1998 1999 1999
------------ ------------ ------------ -------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Assumed United States
federal tax rate....... (34)% (34)% (34)% (34)% (34)%
State income tax, net of
federal tax effect..... (6) (6) (6) (6) (6)
Effect of valuation
allowance.............. 40 40 40 40 40
--- --- --- --- ---
Effective tax rate...... -- % -- % -- % -- % -- %
=== === === === ===
</TABLE>
The significant deferred tax assets and liabilities, as determined under
the provisions of SFAS 109, and the change in those assets and liabilities, are
as follows:
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Gross deferred tax asset:
Net operating loss
carryforwards......... $ 22,325,000 $ 25,650,000 $28,825,000 $33,500,000
Venue pre-opening
costs................. 1,557,000 1,332,000 1,450,000 1,006,000
Depreciation........... 66,000 -- 289,000 352,000
Other.................. 697,000 3,313,000 3,952,000 15,709,000
------------ ------------ ----------- -----------
24,645,000 30,295,000 34,516,000 50,567,000
Gross deferred tax
liability:
Depreciation........... -- (25,000) -- --
------------ ------------ ----------- -----------
24,645,000 30,270,000 34,516,000 50,567,000
Valuation allowance...... (24,645,000) (30,270,000) (34,516,000) (50,567,000)
------------ ------------ ----------- -----------
$ -- $ -- $ -- $ --
============ ============ =========== ===========
</TABLE>
Because of the uncertainty of the realization of the net deferred tax asset
caused by historical operating losses, the Company recorded a valuation reserve
equal to its net deferred tax asset at December 28, 1997, December 27, 1998,
June 27, 1999 and December 26, 1999.
The Company had approximately $55,814,000, $64,125,000, $72,064,000 and
$83,750,000 (unaudited) in net operating loss carryforwards for federal income
tax purposes at December 28, 1997, December 27, 1998, June 27, 1999 and
December 26, 1999, respectively. The net operating loss carryforwards will
expire in fiscal years 2007 through 2019 if not previously utilized. In the
event of certain changes in ownership of the Company, as defined in the
Internal Revenue Code, existing net operating loss carryforwards would be
subject to limitation.
F-18
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. DEBT:
Debt consists of the following:
<TABLE>
<CAPTION>
December 28, December 27, June 27, December 26,
1997 1998 1999 1999
------------ ------------ ----------- ------------
(unaudited)
<S> <C> <C> <C> <C>
Revolving line of
credit(a).............. $ 560,000 $ -- $ -- $ --
Mortgage note
payable(b)............. 850,000 807,000 795,000 --
Mortgage note
payable(c)............. 8,907,000 8,768,000 8,693,000 8,613,000
Mortgage note
payable(d)............. 695,000 618,000 -- --
Revolving line of
credit(e).............. -- -- 3,002,000 --
Mortgage note
payable(f)............. -- -- -- 889,000
Term loan/revolving line
of credit(g)........... -- -- -- 60,000,000
Other................... 444,000 685,000 1,355,000 3,068,000
----------- ----------- ----------- -----------
11,456,000 10,878,000 13,845,000 72,570,000
Less current
maturities............. (372,000) (939,000) (4,049,000) (594,000)
----------- ----------- ----------- -----------
$11,084,000 $ 9,939,000 $ 9,796,000 $71,976,000
=========== =========== =========== ===========
</TABLE>
- --------
(a) Revolving line of credit of $2,500,000 bearing interest at the prime rate
plus 1% (9.5% and 8.75% at December 28, 1997 and December 27, 1998,
respectively), due May 1999, collateralized by certain property and
equipment. Subsequent to December 27, 1998, this revolving line of credit
was replaced with a new facility (see (e)).
(b) Mortgage note payable bearing interest at the prime rate plus 1% (9.5%,
8.75% and 8.75% at December 28, 1997, December 27, 1998 and June 27, 1999,
respectively), payable in monthly installments of $4,000 plus interest, and
a final payment of $795,000 due June 30, 1999, collateralized by a
building. Subsequent to June 27, 1999, the Company extended the due date of
the note and replaced it with a new mortgage note payable (see (f)).
(c) Mortgage note payable bearing interest at 11.18%, principal and interest
payable in monthly installments of $94,000 through April 2004,
collateralized by land and a building.
(d) Mortgage note payable bearing interest at 8.5%, principal and interest
payable in monthly installments of $11,000 through November 2004,
collateralized by land and a building. Subsequent to December 27, 1998 the
mortgage note was repaid with proceeds from a new revolving line of credit
(see (e)).
(e) Revolving line of credit of $15,000,000 bearing interest at 8.25% was
entered into in March 1999. The initial availability was $10,000,000,
increasing to $15,000,000 upon satisfaction of certain conditions
precedent. Upon closing the facility, the Company utilized $2,009,000 to
repay the existing revolving line of credit and a mortgage note payable
(see (a) and (d)).
Financial covenants under the facility provided that the Company maintain
certain levels of cash flows and that certain ratios of debt to cash flows
were not exceeded. The Company was in compliance with the covenants as of
June 27, 1999. Additional provisions under the facility provided that,
among other things, interest outstanding be paid monthly at the prime rate
plus 1/2 percent and a commitment fee equal to 1/2 of 1 percent per annum
of the unused portion of the line be paid quarterly. Certain of the
Company's assets were pledged as collateral under the facility. This
facility was replaced with a new facility in September 1999 (see (g)).
(f) Mortgage note payable bearing interest at 8% and collateralized by a
building was entered into in September 1999. Monthly principal payments of
$5,656 plus interest will be paid over a 59-month period with the remaining
principal balance due in September 2004. Proceeds from this loan were used
to replace an existing mortgage (see (b)).
F-19
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(g) Term loan financing of $60 million and a revolving credit line of $25
million were entered into in September 1999. The proceeds were used to fund
the acquisition of UCI (see Note 3) and repay the facility entered into in
March 1999 (see (e)). As of December 26, 1999, $25 million of the revolving
credit line was available.
Financial covenants under the facility provide that the Company maintains
certain levels of adjusted interest expense coverage ratios and leverage
ratios as defined in the agreement. The Company was in compliance with the
covenants as of December 26, 1999. Additional provisions under the facility
provide that, among other things, interest outstanding be paid quarterly at
varying spreads over one of four base rates (which resulted in a rate of
9.79% percent at December 26, 1999) and a commitment fee equal to 0.75 %
per annum of the unused portion of the line be paid quarterly. Certain of
the Company's assets are pledged as collateral under the facility.
Approximate principal payments due on long-term debt as of June 27, 1999
and December 26, 1999 are as follows:
<TABLE>
<CAPTION>
June 27, December 26,
1999 1999
----------- ------------
(unaudited)
<S> <C> <C>
Fiscal Year
2000.............................................. $ 4,049,000 $ 594,000
2001.............................................. 1,147,000 1,866,000
2002.............................................. 361,000 6,287,000
2003.............................................. 338,000 10,384,000
2004.............................................. 258,000 19,897,000
Thereafter........................................ 7,692,000 33,542,000
----------- -----------
$13,845,000 $72,570,000
=========== ===========
</TABLE>
The fair value of the Company's mortgage debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. Rates on the
Company's mortgage debt approximate current market rates, and as such, the
carrying value approximates fair value.
10. COMMITMENTS AND CONTINGENCIES:
Litigation
In 1997, the Company expensed $2.9 million in connection with a breach of
contract lawsuit. During 1998, the Company was required to escrow $4.4 million
to secure an appellate bond in connection with its appeal of this judgement. On
December 28, 1998, the matter was settled for $2.6 million and the balance of
the escrow was returned to the Company.
In April 1999, the contractor of a UCI amphitheatre sued UCI for $5.4
million plus other costs. In March 2000, the parties agreed to a tentative
settlement.
In January 2000, a competitor of Concerts filed a lawsuit against the
Company for monetary damages of not less than $5 million with respect to the
operation of the Greek Theater.
A stockholder of the Company and limited partner in the consolidated
partnership (See Note 5) has made threats of legal action against the Company
relating to certain transactions between the Company and such stockholder. No
lawsuits have been filed to date, and the Company intends to defend any such
lawsuits if filed.
F-20
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company and its subsidiaries are parties to various other legal
proceedings arising in the ordinary course of business. Management believes,
based upon the advice of legal counsel responsible for the review of such
matters, that there is no proceeding, either threatened or pending, against the
Company or its subsidiaries that could result in a material adverse effect on
the results of operations or the financial condition of the Company.
Operating Lease Agreements
The Company has entered into various operating lease agreements for land
and buildings for entertainment venues and office space. Total rent expense for
the years ended December 29, 1996, December 28, 1997 and December 27, 1998 and
the six month period ended June 27, 1999 and December 26, 1999 was $1,330,000,
$2,563,000, $3,480,000, $2,875,000 and $3,218,000 (unaudited), respectively.
Future minimum lease payments at June 27, 1999 and December 26, 1999, relating
to the Company's non-cancelable operating leases, are as follows:
<TABLE>
<CAPTION>
June 27, December 26,
1999 1999
----------- ------------
(unaudited)
<S> <C> <C>
Fiscal Year
2000.............................................. $ 4,526,000 $ 3,297,000
2001.............................................. 4,626,000 5,579,000
2002.............................................. 4,544,000 5,457,000
2003.............................................. 4,271,000 9,313,000
2004.............................................. 4,275,000 9,320,000
Thereafter........................................ 53,878,000 116,387,000
----------- ------------
$76,120,000 $149,353,000
=========== ============
</TABLE>
Certain entertainment venue property leases require base and/or additional
contingent rental payments based upon a percentage of gross sales above a
minimum amount. Certain property leases have renewal options, which permit the
Company to extend the basic lease for periods from five to thirty years beyond
the original terms.
11. RELATED PARTY TRANSACTIONS:
The Company has entered into the following transactions with its
affiliates.
In 1995, the Company entered into a Development Agreement (the "Agreement")
with a Corporation, wholly-owned by a stockholder of the Company (the
"Developer"). In 1997, the Company and Developer agreed to terminate the
Agreement. Total development fees payable upon termination totaled $1,750,000,
of which $1,000,000 was paid in cash in 1997 and $350,000 was paid in 1998. The
remaining $400,000 is payable or convertible into the Company's Common Stock at
the option of either party by December 1999. Subsequent to December 26, 1999,
the Company has re-negotiated the settlement agreement with the Developer and
has paid $250,000 in cash.
The Company has entered into partnerships with stockholders and a party
related to a stockholder (see Note 4 and 5). The Company also entered into
other stock warrants and option transactions and borrowings with related
parties, including as a result of financing activities (see Notes 9 and 12).
F-21
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. PREFERRED STOCK AND STOCKHOLDERS' EQUITY:
As of June 27, 1999 the Company had outstanding four classes of Preferred
Stock and one class of Common Stock. The classes of Preferred Stock were the
Class A Preferred Stock, Class B Preferred Stock, Class C Preferred Stock and
Class D-1 Preferred Stock. On September 10, 1999, the Company issued four
additional classes of Preferred Stock and authorized a class of Non-Voting
Common Stock. The four additional classes of Preferred Stock are the Class D-2
Preferred Stock, Class D-3 Preferred Stock, Senior Convertible Preferred Stock
and 12% Senior Redeemable Preferred Stock. The Class A Preferred Stock, Class B
Preferred Stock, Class C Preferred Stock, Class D-1 Preferred Stock, Class D-2
Preferred Stock and Class D-3 Preferred Stock are collectively referred to as
the "Convertible Preferred Stock." The Class D-1 Preferred Stock, the Class D-2
Preferred Stock and the Class D-3 Preferred Stock are collectively referred to
as the "Class D Preferred Stock."
Holders of Convertible Preferred Stock are entitled to share ratably with
the holders of the Common Stock, on an as-converted basis, in any dividends
declared or paid by the Company. Holders of Senior Convertible Preferred Stock
are entitled to cumulative dividends at the rate of 10% per annum on the
original purchase price of the shares, compounded quarterly. Holders of 12%
Senior Redeemable Preferred Stock are entitled to cumulative dividends at the
rate of 12% per annum on the original purchase price of the shares, compounded
quarterly. The dividend rate on the 12% Senior Redeemable Preferred Stock is
subject to increase to as high as 18% in certain circumstances. All dividends
are to be paid out of assets legally available for distribution.
The Convertible Preferred Stock, other than the Class D-3 Preferred Stock,
is convertible, at the option of the holder, into shares of Common Stock. The
Class D-3 Preferred Stock is convertible, at the option of the holder, into
shares of Non-Voting Common Stock. The conversion ratio for all Convertible
Preferred Stock was one-to-one at December 26, 1999, and is subject to
adjustment for the issuance of equity securities at a price per share less than
prevailing fair market value, and, in the case of the Class D-2 Preferred Stock
and the Class D-3 Preferred Stock, at a price per share less than the then
applicable conversion value of such shares. In addition, the Senior Convertible
Preferred Stock is convertible, at the option of the holder, into shares of
either Class D-2 Preferred Stock, Class D-3 Preferred Stock or 12% Senior
Redeemable Preferred Stock. The conversion ratio for conversions into shares of
Class D-2 Preferred Stock or Class D-3 Preferred Stock was approximately one-
to-617.3 and for conversions into shares of 12% Senior Redeemable Preferred
Stock was one-to-one at December 26, 1999. Upon conversion of shares of Senior
Convertible Preferred Stock into shares of 12% Senior Redeemable Preferred
Stock, the Company is required to issue to the holder warrants to purchase
Common Stock at a ratio of 1,636,047 warrants for each $10,000,000 of
liquidation preference converted, or any portion thereof. The Convertible
Preferred Stock, other than the Class D-3 Preferred Stock, automatically
converts to Common Stock, and the Class D-3 Preferred Stock automatically
converts to Non-Voting Common Stock, upon the closing of a Qualified Public
Offering or a Qualified Sale, each as defined in the Company's certificate of
incorporation. The Senior Convertible Preferred Stock automatically converts
into Class D-2 Preferred Stock, Class D-3 Preferred Stock or 12% Senior
Redeemable Preferred Stock upon the earlier of the consummation of a Qualified
Public Offering, as defined in the Company's certificate of incorporation, or
350 days from the date of the issuance of the shares of Senior Convertible
Preferred Stock.
The Class A Preferred Stock and B Preferred Stock have an initial
liquidation preference of $2.00 and $3.00, respectively. The Class C Preferred
Stock has an initial liquidation preference of $3.00, which increases quarterly
by $0.075 on April 1, July 1, October 1 and January 1 of each year. The Class
D-1 Preferred Stock has an initial liquidation preference of $1.20 which
increases at the
F-22
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
rate of 10% per annum compounded annually. The Class D-2 Preferred Stock and
Class D-3 Preferred Stock have an initial liquidation preference of $1.62 which
increases at the rate of 10% per annum compounded annually.
At any time on or after July 1, 2005, the holders of a majority of the
outstanding shares of Class A Preferred Stock and Class B Preferred Stock,
voting together as a single class, have the right to request the Company to
redeem all of their outstanding shares of Class A Preferred Stock or Class B
Preferred Stock, as applicable. The Class A and Class B stockholders'
redemption rights are subject to the prior retirement of any outstanding shares
of Senior Convertible Preferred Stock and 12% Senior Redeemable Preferred
Stock, and are subject to the rights of the holders of Class D Preferred Stock
and Class C Preferred Stock, which require the Company to first redeem the
shares of Class D and Class C Preferred Stock, together with the applicable
redemption premium.
At any time on or after January 1, 2005, the holders of a majority of the
outstanding shares of Class C Preferred Stock have the right to require the
Company to redeem all of their outstanding shares of Class C Preferred Stock.
The Class C stockholders' redemption rights are subject to the prior retirement
of any outstanding shares of Senior Convertible Preferred Stock and 12% Senior
Redeemable Preferred Stock, and are subject to the rights of the holders of
Class D Preferred Stock which require the Company to first redeem the shares of
Class D Preferred Stock, together with the applicable redemption premium.
At any time on or after July 1, 2004, the holders of a majority of the
Class D-1 Preferred Stock have the right to require the Company to redeem all
of their outstanding shares of Class D-1 Preferred Stock. The Class D-1
Stockholders' redemption rights are subject to the prior retirement of any
outstanding shares of Senior Convertible Preferred Stock and 12% Senior
Redeemable Preferred Stock and are subject to the rights of the holders of
Class D-2 Preferred Stock and Class D-3 Preferred Stock which require the
Company to first redeem the shares of Class D-2 Preferred Stock and Class D-3
Preferred Stock, together with the applicable redemption premium.
At any time on or after July 1, 2004, the holders of a majority of the
Class D-2 Preferred Stock and Class D-3 Preferred Stock, voting together as a
single class, have the right to request the Company to redeem all of their
outstanding shares of Class D-2 Preferred Stock or Class D-3 Preferred Stock,
as applicable. The Class D-2 and Class D-3 stockholders redemption rights are
subject to the prior retirement of any outstanding shares of Senior Convertible
Preferred Stock and 12% Senior Redeemable Preferred Stock, together with the
applicable redemption premium.
The Senior Convertible Preferred Stock is redeemable at the option of the
Company at any time at the original purchase price per share. The 12% Senior
Convertible Preferred Stock is redeemable at the option of the Company at any
time, is mandatorily redeemable in full at September 30, 2010 and in part upon
the occurrence of certain equity security offerings by the Company and in the
event of certain asset sales by the Company, and is redeemable at the option of
the holder in the event of a Change of Control (as defined in the Company's
certificate of incorporation), in each case at the original purchase price per
share plus accrued but unpaid dividends and the applicable redemption premium.
The Company will be increasing the carrying amount of the Convertible
Preferred Stock, the Senior Convertible Preferred Stock and the 12% Senior
Redeemable Preferred Stock by periodic accretions, using the effective interest
method, such that the carrying amount of such shares will equal (i) in the case
of the Convertible Preferred Stock, the redemption amount at the date the
shares become redeemable at the option of the holder, (ii) in the case of the
Senior Convertible Preferred Stock, the redemption amount at the date the
shares of Class D Preferred Stock into which
F-23
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
the Senior Convertible Preferred Stock is convertible become redeemable at the
option of the holder, and (iii) in the case of the 12% Senior Redeemable
Preferred Stock, the redemption amount at the mandatory redemption date.
Further, the Company had stock issuance expenses, which were recorded as a
reduction of the stock proceeds.
Certain holders of the Common and Preferred Stock of the Company have
registration rights, rights of first refusal on disposition of shares by other
holders and contractual preemptive rights.
As of June 27, 1999, there were reserved for issuance under a stock option
agreement 212,963 shares of Class A Preferred Stock with an exercise price of
$2.00 per share. These options have subsequently expired.
Warrants and Options
In connection with various transactions, the Company has issued and has
outstanding as of December 26, 1999 the following warrants and options to
purchase shares of the Company's Common Stock.
<TABLE>
<CAPTION>
No. of Warrant/
Common Option Exercise
Related Transaction Year Stock* Price Period
------------------- ---- --------- -------- --------
<S> <C> <C> <C> <C>
Issued in connection with the development of
the Chicago club venue....................... 1996 334,000 $3.00 10 years
Issued in connection with the Company's
agreement with Barefoot Blues Partnership
relating to the Myrtle Beach club venue...... 1996 100,000 $3.00 10 years
Issued to purchasers of the Company's
convertible notes that were issued in
contemplation of the Class C Preferred Stock
offering..................................... 1996 194,715 $3.00 3 years
Issued to investors in connection with the
Class C Preferred Stock offering............. 1997 2,014,407 $3.00 3 years
Issued to a financial advisor in connection
with the Class C Preferred Stock offering.... 1997 200,000 $3.00 5 years
Issued in connection with the partnership
agreement which operates the hotel adjacent
to the House of Blues club in Chicago (see
Note 4)...................................... 1997 262,500 $3.00 3 years
Issued in connection with a $9,000,000
mortgage loan obtained by the Company's
investment (see Note 9). These warrants were
adjusted due to anti-dilution provisions of
the warrants, upon issuance of the Class D
Preferred Stock.............................. 1997 400,000 $3.00 10 years
Issued in connection with the development of
the Myrtle Beach and Orlando club venues
granted to the Developer (see Note 11)....... 1997 100,000 $3.00 10 years
1997 37,500 $1.20 5 years
Issued to USI in connection with the
acquisition of UCI (see Note 3).............. 1999 1,636,047 $ .01 10 years
Issued in connection with the issuance of 12%
Senior Redeemable Preferred Stock............ 1999 8,077,984 $ .01 10 years
Issued in connection with the issuance of
Senior Convertible Preferred Stock........... 1999 1,636,048 $ .01 10 years
Issued in connection with the acquisition of
UCI (see Note 3)............................. 1999 2,675,000 $1.62 10 years
</TABLE>
- --------
* The number of shares of Common Stock for which these warrants are exercisable
is subject to adjustment in the event of specified dilutive transactions or
events.
F-24
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of December 27, 1998 and December 26, 1999, there were outstanding
options to purchase 100,000 shares of the Company's Common Stock under the
Company's 1993 stock option plan (See Note 13) that were issued to a non-
employee spokesperson of the Company. Further, in connection with the Company's
settlement of certain matters with a former Company executive and current
shareholder, options were issued which allow for that individual to purchase
shares of the Company's Common Stock as follows: 1,296,296 shares at $3.00
each, 1,000,000 shares at $2.50 each, and 500,000 shares at $5.00 each. Also,
in connection with severance settlements with former executives, common stock
options of 100,000 shares at $3.00 and 25,000 shares at $2.00 were issued.
Subsequent to December 26, 1999 the Company issued additional warrants to
purchase 3,338,871 shares of Common Stock to holders of the Senior Convertible
Preferred Stock and additional warrants to purchase 157,767 shares of Common
Stock to holders of the 12% Senior Redeemable Preferred Stock in connection
with contractual obligations to those holders. In addition, in February 2000
the Company issued warrants to purchase 476,090 shares of Common Stock to
purchasers of 12% Senior Convertible Preferred Stock. Furthermore, the Company
is required to issue to the holders of Senior Convertible Preferred Stock
additional warrants to purchase an aggregate 686,299 shares of Common Stock if
the Senior Convertible Preferred Stock is not redeemed or converted on or
before June 6, 2000 and additional warrants to purchase an aggregate of
1,703,332 shares of Common Stock if the Senior Convertible Preferred Stock is
not redeemed or converted on or before August 25, 2000. Finally, in February
2000 warrants to purchase 497,867 shares of Common Stock that were issued in
connection with the Class C Preferred Stock offering expired.
F-25
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. STOCK OPTION PLAN:
The Company adopted a stock option plan (the "Option Plan") during 1993.
The Option Plan allows for a committee selected by the Board of Directors to
grant stock options to certain employees at a price not less than 100% of the
fair value of the Company's Common Stock, as defined by the Option Plan
(incentive stock options), or issue nonqualified stock options pursuant to the
Option Plan. The Option Plan prescribes general terms for the exercise of
options and option periods subject to the condition that all options terminate
not more than ten years from the date of grant. Options granted generally vest
over four-year periods unless otherwise specified in the option grant. On
December 14, 1998, the Company repriced existing employee options to $1.20 per
share, which was not less than the fair market value of the Company's Common
Stock on that date.
Information regarding stock options awarded under the Option Plan is as
follows:
<TABLE>
<CAPTION>
December 29, December 28, December 27, December 26,
1996 1997 1998 June 27, 1999 1999
--------------- ---------------- ---------------- ----------------- ----------------
Wtd. Avg. Ex. Wtd. Avg. Ex. Wtd. Avg. Ex. Wtd. Avg. Ex. Wtd. Avg. Ex.
Shares Price Shares Price Shares Price Shares Price Shares Price
--------- ----- --------- ----- --------- ----- ---------- ----- ---------- -----
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of year...... 1,209,000 $2.00 6,923,000 $1.67 8,575,000 $1.73 8,219,000 $1.63 13,128,000 $1.43
Granted................. 5,714,000 1.59 1,755,000 1.94 315,000 1.86 5,507,000 1.20 14,245,000 1.44
Exercised............... -- -- (28,000) .01 -- -- -- -- -- --
Canceled................ -- -- (75,000) 1.20 (671,000) 3.00 (598,000) 2.09 -- --
--------- ----- --------- ----- --------- ----- ---------- ----- ---------- -----
Options outstanding at
end of year............ 6,923,000 $1.67 8,575,000 $1.73 8,219,000 $1.63 13,128,000 $1.43 27,373,000 $1.44
========= ===== ========= ===== ========= ===== ========== ===== ========== =====
Options exercisable at
end of year............ 4,751,000 $1.56 6,105,000 $1.64 7,151,000 $1.64 7,516,000 $1.59 8,325,000 $1.56
========= ===== ========= ===== ========= ===== ========== ===== ========== =====
Weighted average fair
value of options
granted................ $ .39 $ .56 $ .37 $ .21 $ .12
===== ===== ===== ===== =====
</TABLE>
The following summarizes the exercise price per share, the number of shares
outstanding and exercisable, and the weighted average remaining contractual
life of options exercisable at June 27, 1999 and December 26, 1999:
<TABLE>
<CAPTION>
June 27, 1999 December 26, 1999 (unaudited)
----------------------------------- -----------------------------------
Wtd. Avg. Wtd. Avg.
Remaining Remaining
Shares Shares Contractual Shares Shares Contractual
Exercise Price Per Share Outstanding Exercisable Life Outstanding Exercisable Life
------------------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$0.01................. 101,000 101,000 5.04 101,000 101,000 4.55
1.20................. 10,864,000 5,336,000 8.34 16,979,000 6,020,000 8.50
1.50................. 40,000 40,000 4.84 40,000 40,000 4.34
1.62................. -- -- -- 8,130,000 125,000 9.78
2.00................. 491,000 491,000 3.53 491,000 491,000 3.03
2.50................. 270,000 270,000 7.27 270,000 270,000 6.77
3.00................. 1,362,000 1,278,000 6.24 1,362,000 1,278,000 5.74
---------- --------- ---------- ---------
13,128,000 7,516,000 27,373,000 8,325,000
========== ========= ========== =========
</TABLE>
F-26
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company accounts for the Option Plan under APB Opinion No. 25
"Accounting for Stock Issued for Employees," under which compensation cost is
not recognized for options issued at the market value of the Common Stock at
the date of the grant. Had compensation cost for the Option Plan been
determined consistent with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the Company's net loss
would have been increased to the following pro forma amounts:
<TABLE>
<CAPTION>
For the Six Months
For the Years Ended Ended
---------------------------------------- ------------------------
December 29, December 28, December 27, June 27, December 26
1996 1997 1998 1999 1999
------------ ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss--as reported... $(26,814,000) $(18,890,000) $(10,365,000) $(8,945,000) $(6,880,000)
Net loss--pro forma..... $(28,156,000) $(19,582,000) $(10,764,000) $(9,341,000) $(7,727,000)
Net loss per share--as
reported .............. $ (8.20) $ (6.66) $ (4.43) $ (3.57) $ (4.55)
Net loss per share--
pro forma.............. $ (8.60) $ (6.86) $ (4.55) $ (3.68) $ (4.80)
</TABLE>
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant was estimated on the date of grant
using the minimum value method with the following weighted average assumptions
for grants in 1996, 1997, 1998, and in the six months ended June 27, 1999 and
December 26, 1999, respectively: risk-free interest rates of 6.33%, 6.33%,
6.49%, 4.93% and 6.08%, expected lives of five years, and payment of no
dividends.
14. EMPLOYEE BENEFIT PLAN:
Effective January 1, 1996, the Company adopted the HOB Entertainment, Inc.
401(k) Plan to provide deferred compensation benefits for all eligible
employees. Each year, participants may elect to contribute a fixed dollar
amount or percentage not to exceed 15 percent of compensation, as defined,
subject to Internal Revenue Code limitations. The Company may make qualified
non-elective contributions to certain eligible participants for each 401(k)
Plan year. There were no contributions made by the Company for the years ended
December 29, 1996, December 28, 1997, and December 27, 1998 and for the six
month periods ended June 27, 1999 and December 26, 1999.
F-27
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information and noncash investing and
financing activities for the years ended December 29, 1996, December 28, 1997
and December 27, 1998 and the six months period ended June 27, 1999 and
December 26, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
------------------------------------- ---------------------
December 29, December December 27, June 27, December 26,
1996 28, 1997 1998 1999 1999
------------ ----------- ------------ -------- ------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flow information:
Cash paid for
interest.............. $ 173,000 $ 1,213,000 $1,939,000 $592,000 $1,799,000
Noncash investing and
financing activities:
Repayment of
convertible notes
payable through
issuance of preferred
stock................. $ -- $22,000,000 $ -- $ -- $ --
Contribution of
building by minority
interest.............. $5,000,000 $ -- $ -- $ -- $ --
Repurchase of Class A
Convertible Preferred
Stock through issuance
of a note payable..... $ 7,000 $ -- $ -- $ -- $ --
</TABLE>
16. SEGMENT REPORTING
The Company has three reportable segments: Clubs, Concerts and Digital. The
Clubs division operates seven integrated live music halls, restaurants, bars
and specialty retail stores which are located in the United States. The
Concerts division owns, operates or has exclusive booking arrangements with 20
amphitheatres, theatres and arena concert venues and also promotes live
entertainment events in the United States and Canada. The Digital division
captures live music performances and currently distributes live music-related
content primarily through the Internet. The Company acquired UCI on
September 10, 1999 (see Note 3).
The Company's reportable operating segments have been determined in
accordance with the Company's internal management structure, which is organized
based on operating activities. The accounting policies of the operating
segments are the same as those described in the summary of significant
accounting policies (see Note 2). The Company evaluates performance based upon
several factors, of which the primary two financial measures are attributed
revenue and EBITDA. Attributed revenue is the Company's total consolidated
revenues plus the Company's share of the revenues from joint ventures which it
manages and accounts for under the equity method. EBITDA is operating income
plus depreciation and amortization, plus venue pre-opening costs, plus the
Company's attributed share of the EBITDA from joint ventures which we manage
and account for under the equity method. Intersegment sales and transfers are
not significant, except that the Digital and Clubs divisions have allocated 50%
of the artist compensation and any incremental event costs to the Company's
Digital division of a performance (primarily artist compensation) where an
artist performance in a club was digitally captured for distribution through a
number of distribution channels, including the Internet. Corporate overhead is
allocated to the segments based upon the relative time and associated costs
incurred with respect to each segment.
F-28
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized financial information concerning the Company's reportable
segments are shown in the following table. The "Other" column includes
corporate related items, results of insignificant operations and, as it relates
to segment profit (loss), income and expense not allocated to reportable
segments.
<TABLE>
<CAPTION>
For the six months ended December 26, 1999 (unaudited)
------------------------------------------------------------
Clubs Concerts Digital Other Total
---------- ------------ ----------- ---------- -----------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total attributed
revenues............... $ 57,374 $ 61,526 $ 302 $ 82 $ 119,284
Less attributed
revenues from managed
unconsolidated joint
ventures............. -- (12,021) -- -- (12,021)
---------- ----------- ---------- ---------- -----------
Total revenues as
reported............... 57,374 49,505 302 82 107,263
---------- ----------- ---------- ---------- -----------
EBITDA.................. 1,643 5,283 (4,599) (1,283) 1,044
Less: Depreciation and
amortization......... (2,618) (2,227) (225) (96) (5,166)
Venue pre-opening
costs................ -- -- -- -- --
Attributed EBITDA from
managed
unconsolidated
joint ventures... -- (766) -- -- (766)
---------- ----------- ---------- ---------- -----------
Operating (loss)
income............... (975) 2,290 (4,824) (1,379) (4,888)
---------- ----------- ---------- ---------- -----------
Capital expenditures.. 1,449 997 312 550 3,308
<CAPTION>
As of December 26, 1999 (unaudited)
------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C>
Total assets............ 58,404 202,523 725 61,622 323,274
Investments in
unconsolidated
partnerships........... -- 39,283 -- -- 39,283
</TABLE>
<TABLE>
<CAPTION>
For the six months ended
December 27, 1998 (unaudited)
---------------------------------
Clubs Digital Other Total
------- ------- ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total revenues as
reported................. $41,879 $ 159 $3,036 $45,074
------- ------- ------ -------
EBITDA.................... 171 (1,644) 390 (1,083)
Less: Depreciation and
amortization........... (2,158) (108) (223) (2,489)
Venue pre-opening
costs.................. (332) -- -- (332)
------- ------- ------ -------
Operating (loss)
income................. (2,319) (1,752) 167 (3,904)
------- ------- ------ -------
Capital expenditures.... 2,160 1 312 2,473
<CAPTION>
As of December 27, 1998
(unaudited)
---------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total assets.............. 49,109 7 40,413 89,529
Investments in
unconsolidated
partnerships............. -- -- 3,840 3,840
</TABLE>
F-29
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
For the six months ended June
27, 1999
---------------------------------
Clubs Digital Other Total
------- ------- ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total revenues as
reported................. $51,712 $ 141 $ 150 $52,003
------- ------- ------ -------
EBITDA.................... 2,261 (2,863) (743) (1,345)
Less: Depreciation and
amortization........... (2,519) (160) (72) (2,751)
Venue pre-opening
costs.................. (814) -- -- (814)
------- ------- ------ -------
Operating (loss)
income................. (1,072) (3,023) (815) (4,910)
------- ------- ------ -------
Capital expenditures.... 4,569 488 227 5,284
<CAPTION>
As of June 27, 1999
---------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total assets.............. 60,641 477 24,419 85,537
Investments in
unconsolidated
partnerships............. -- -- -- --
<CAPTION>
For the six months ended June
28, 1998 (unaudited)
---------------------------------
Clubs Digital Other Total
------- ------- ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total revenues as
reported................. $41,800 $ 115 $ 794 $42,709
------- ------- ------ -------
EBITDA.................... 965 (1,574) (297) (906)
Less: Depreciation and
amortization........... (2,451) (64) (69) (2,584)
Venue pre-opening
costs.................. -- -- -- --
------- ------- ------ -------
Operating (loss)
income................. (1,486) (1,638) (366) (3,490)
------- ------- ------ -------
Capital expenditures.... 2,291 6 208 2,505
<CAPTION>
As of June 28, 1998
(unaudited)
---------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total assets.............. 50,653 6 38,117 88,776
Investments in
unconsolidated
partnerships............. -- -- 4,103 4,103
<CAPTION>
For the year ended
December 27, 1998
---------------------------------
Clubs Digital Other Total
------- ------- ------ -------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total revenues as
reported................. $83,679 $ 274 $3,830 $87,783
------- ------- ------ -------
EBITDA.................... 1,136 (3,218) 93 (1,989)
Less: Depreciation and
amortization........... (4,609) (172) (292) (5,073)
Venue pre-opening
costs.................. (332) -- -- (332)
------- ------- ------ -------
Operating (loss)
income................. (3,805) (3,390) (199) (7,394)
------- ------- ------ -------
Capital expenditures.... 4,451 7 520 4,978
<CAPTION>
As of December 27, 1998
---------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C>
Total assets.............. 49,109 7 40,413 89,529
Investments in
unconsolidated
partnerships............. -- -- 3,840 3,840
</TABLE>
Prior to December 28, 1997, the Digital Division had insignificant
operations and it is impracticable to break out the segment data.
F-30
<PAGE>
HOB ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenues from Canada are generated principally from an unconsolidated
equity investment reported under the Concerts business segment. There is no
material reliance on any single customer.
17. DETAIL OF OTHER FINANCIAL STATEMENTS ACCOUNTS
Allowance for doubtful accounts:
<TABLE>
<CAPTION>
December 29, December 28, December 27, June 27,
1996 1997 1998 1999
------------ ------------ ------------ ---------
<S> <C> <C> <C> <C>
Beginning balance............ $ -- $ -- $ 222,000 $ 280,000
Charged to costs and expenses
............................ -- 222,000 280,000 329,000
Actual write-
offs/recoveries............. -- -- (222,000) (208,000)
------ -------- --------- ---------
Ending balance............... $ -- $222,000 $ 280,000 $ 401,000
====== ======== ========= =========
</TABLE>
18. SUBSEQUENT EVENTS (unaudited) (also see Notes 10 and 12)
As a result of the transactions discussed in Notes 10 and 12 and certain
other transactions, subsequent to December 26, 1999 the Company issued
approximately 4.7 million shares of Class D-2 preferred stock, 3 thousand
shares of 12% senior redeemable preferred stock and warrants to purchase 4
million shares of common stock in connection with certain strategic
arrangements, capital raising activities and settlement of obligations. Net
proceeds received from the above issuances were approximately $7.6 million.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Universal Concerts, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, shareholder's equity and cash
flows present fairly, in all material respects, the financial position of
Universal Concerts, Inc. and its subsidiaries (the "Company") at June 20, 1998
and June 26, 1999, and the results of their operations and their cash flows for
each of the three years in the period ended June 26, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Century City, California
August 30, 1999
(except for Note 11, which
is as of September 13, 1999)
U-1
<PAGE>
UNIVERSAL CONCERTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents............................ $ 2,250,000 $ 4,019,000
Accounts receivable.................................. 2,291,000 2,558,000
Receivables from affiliates.......................... 9,283,000 --
Prepaids and other current assets.................... 3,941,000 4,803,000
----------- -----------
Total current assets............................... 17,765,000 11,380,000
----------- -----------
INVESTMENTS IN UNCONSOLIDATED AFFILIATED COMPANIES..... 10,147,000 14,417,000
PROPERTY AND EQUIPMENT, NET............................ 17,448,000 25,236,000
GOODWILL............................................... 3,725,000 11,763,000
OTHER ASSETS........................................... 595,000 3,416,000
----------- -----------
Total assets....................................... $49,680,000 $66,212,000
=========== ===========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses................ $ 8,710,000 $11,611,000
Payables to affiliates............................... -- 6,497,000
Ticketmaster advance, current portion................ 900,000 900,000
Notes payable, current portion....................... 166,000 722,000
Deferred revenue, current portion.................... 19,600,000 19,418,000
----------- -----------
Total current liabilities.......................... 29,376,000 39,148,000
----------- -----------
DEFERRED REVENUE....................................... 556,000 1,102,000
TICKETMASTER ADVANCE................................... 3,787,000 2,961,000
NOTES PAYABLE.......................................... 2,450,000 4,885,000
----------- -----------
Total liabilities.................................. 36,169,000 48,096,000
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 9)
SHAREHOLDER'S EQUITY:
Common stock, no par value; authorized 100,000
shares; issued and outstanding 100 shares........... 100 100
Retained earnings.................................... 13,510,900 18,115,900
----------- -----------
Total shareholder's equity......................... 13,511,000 18,116,000
----------- -----------
Total liabilities and shareholder's equity......... $49,680,000 $66,212,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
U-2
<PAGE>
UNIVERSAL CONCERTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
--------------------------------------
June 21, June 20, June 26,
1997 1998 1999
----------- ----------- ------------
<S> <C> <C> <C>
REVENUES.............................. $61,002,000 $77,491,000 $148,255,000
OPERATING EXPENSES:
Cost of revenues.................... 47,146,000 62,743,000 121,885,000
Selling, general and administrative
expenses........................... 14,522,000 13,625,000 21,081,000
Depreciation and amortization....... 1,212,000 1,293,000 2,309,000
----------- ----------- ------------
62,880,000 77,661,000 145,275,000
----------- ----------- ------------
INCOME (LOSS) FROM OPERATIONS......... (1,878,000) (170,000) 2,980,000
Equity in earnings of unconsolidated
affiliates........................... 5,682,000 5,573,000 4,844,000
Other income, net..................... 195,000 107,000 14,000
Interest expense...................... (136,000) (268,000) (410,000)
Gain on sale of unconsolidated
affiliates........................... -- 7,994,000 --
----------- ----------- ------------
Income before provision for income
taxes.............................. 3,863,000 13,236,000 7,428,000
Provision for income taxes............ 1,468,000 5,030,000 2,823,000
----------- ----------- ------------
NET INCOME............................ $ 2,395,000 $ 8,206,000 $ 4,605,000
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
U-3
<PAGE>
UNIVERSAL CONCERTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
Common Stock Total
---------------------- Retained Shareholder's
Shares Paid-In-Capital Earnings Equity
------ --------------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE at June 23, 1996...... 100 $100 $ 2,909,900 $ 2,910,000
Net income for the period
ended
June 21, 1997.............. -- -- 2,395,000 2,395,000
--- ---- ----------- -----------
BALANCE at June 21, 1997...... 100 100 5,304,900 5,305,000
Net income for the period
ended
June 20, 1998.............. -- -- 8,206,000 8,206,000
--- ---- ----------- -----------
BALANCE at June 20, 1998...... 100 100 13,510,900 13,511,000
Net income for the period
ended
June 26, 1999.............. -- -- 4,605,000 4,605,000
--- ---- ----------- -----------
BALANCE at June 26, 1999...... 100 $100 $18,115,900 $18,116,000
=== ==== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
U-4
<PAGE>
UNIVERSAL CONCERTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year Ended
---------------------------------------
June 21, June 20, June 26,
1997 1998 1999
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 2,395,000 $ 8,206,000 $ 4,605,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 1,212,000 1,293,000 2,309,000
Gain on sale of unconsolidated
affiliates........................ -- (7,994,000) --
Equity in earnings of
unconsolidated affiliates, less
dividends received................ (2,942,000) (3,762,000) (4,269,000)
Ticketmaster recoupment of cash
advances.......................... -- (140,000) (983,000)
Other noncash items, net........... 152,000 93,000 (66,000)
Changes in assets and liabilities,
net of effects of businesses
acquired:
Accounts receivable................ 220,000 2,360,000 (142,000)
Prepaid assets and other current
assets............................ 1,356,000 320,000 (759,000)
Other assets....................... 884,000 (127,000) (3,306,000)
Accounts payable and accrued
expenses.......................... 1,006,000 43,000 2,668,000
Deferred revenue................... (2,204,000) 8,681,000 309,000
----------- ------------ ------------
Net cash provided by operating
activities...................... 2,079,000 8,973,000 366,000
----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures................. (375,000) (7,914,000) (8,043,000)
Acquisitions of business, net of cash
acquired............................ -- 842,000 (7,574,000)
Proceeds from sale of unconsolidated
affiliates.......................... -- 9,500,000 --
Repayments of loans to affiliates.... 2,914,000 2,914,000 --
----------- ------------ ------------
Net cash (used in) provided by
investing activities............ 2,539,000 5,342,000 (15,617,000)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances (repayments) from (to)
related parties..................... (4,386,000) (19,698,000) 15,780,000
Proceeds from Ticketmaster advance... 353,000 5,500,000 --
Proceeds from notes payable.......... -- -- 1,540,000
Repayments of notes payable.......... (275,000) (326,000) (300,000)
----------- ------------ ------------
Net cash provided by (used in)
financing activities............ (4,308,000) (14,524,000) 17,020,000
----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 310,000 (209,000) 1,769,000
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD................. 2,149,000 2,459,000 2,250,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD.............................. $ 2,459,000 $ 2,250,000 $ 4,019,000
=========== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the year for:
Interest........................... $ 116,000 $ 140,000 $ 133,000
Taxes.............................. $ 112,000 $ 123,000 $ 121,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
U-5
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
Universal Concerts, Inc. (the "Company") is a wholly owned subsidiary of
Universal Studios Holding Corp. ("Universal"), whose ultimate parent company is
The Seagram Company Ltd. ("Seagram"). The Company is a leading promoter,
producer, venue developer, and venue operator in the live entertainment
industry and is the second largest venue operator and promoter of music
concerts in the United States and the largest promoter of concerts in Canada.
The Company currently owns, operates or has exclusive booking arrangements with
18 premier amphitheatre and theater venues in the United States and Canada,
either solely or with a partner, and promotes additional venues and concert
clubs throughout North America. The Company promotes live entertainment events
in ten states across the country and in Canada through Universal Concerts
Denver, Universal Concerts Northwest, and Universal Concerts Canada.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and all majority owned subsidiaries.
The Company has investments in unconsolidated affiliates, owned 20% or
more, accounted for under the equity method of accounting. Under the equity
method, the original investment is recorded at cost of acquisition and adjusted
for the Company's share of undistributed earnings or losses and dividends.
All significant intercompany transactions and balances have been
eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Accounts Receivable
The Company's accounts receivable consist primarily of amounts due from
food and merchandise concessionaires. These amounts are stated at fair value
and are typically collected proximate to the dates of the related performance.
The remaining amounts are expected to be realized within one year. Certain
other accounts receivable are periodically reviewed for collectibility and
allowances for doubtful accounts are recorded as required. Management considers
these accounts to be fully collectible, and no allowance for doubtful amounts
is maintained.
Prepaid Expenses
Prepaid expenses consist primarily of artist advances and other costs
directly related to future events. Such costs are charged to operations upon
occurrence of the related event.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method based
upon the estimated useful lives of the
U-6
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
assets. Leasehold improvements are amortized over the shorter of the estimated
useful life or the life of the lease. The Company has no capital leases.
Depreciation and amortization periods by asset category are as follows:
<TABLE>
<S> <C>
Amphitheatres and buildings......... 15-39 years
Furniture and equipment............. 3-10 years
Leasehold improvements.............. Shorter of useful life or lease term
</TABLE>
Maintenance and repairs are charged to expense as incurred while renewals
and improvements are capitalized. Upon the sale or retirement of property and
equipment, the accounts are relieved of the cost and the related accumulated
depreciation, with any resulting gain or loss included in the Statement of
Operations.
Goodwill
Goodwill represents the unallocated excess of the cost of purchased
businesses over the fair market value of the net assets acquired and is
amortized on a straight-line basis over fifteen years. Accumulated amortization
was $1,183,000 and $1,951,000 at June 20, 1998 and June 26, 1999, respectively.
Long-Lived Assets
The carrying value of long-lived assets, primarily consisting of
investments, property and equipment, and goodwill is periodically reviewed by
management. The Company reviews the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Determination of any impairment would include a
comparison of estimated undiscounted future cash flows anticipated to be
generated during the remaining life of the long-lived asset to the net carrying
value of the long-lived asset.
Revenue Recognition
Event revenue from the presentation and production of an event is
recognized on the date of the performance. Advance ticket sales are recorded as
deferred revenue until the related event occurs.
In consideration for the exclusive rights granted at certain venues, the
Company receives an annual sponsorship fee. Sponsorship fees that are not
related to any single event are classified as deferred revenue and are
amortized on a straight-line basis over the operating season during the term of
the related contract.
The Company's operations and revenues are largely seasonal in nature, with
higher revenues generated in the first and fourth fiscal quarters. The
Company's outdoor venues are primarily utilized during the warmer months and
generally do not generate significant revenue during the winter.
Advertising Costs
Advertising costs are expensed as incurred and consist primarily of print
costs. Advertising expense was approximately $3,755,000, $5,540,000 and
$8,194,000 for the years ended June 21, 1997, June 20, 1998 and June 26, 1999,
respectively.
U-7
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Allocations from Universal
The Company operates as a separate company. Direct and indirect costs are
allocated to the Company from Universal relate primarily to accounting and
human resource functions, as well as occupancy costs and other general and
administrative functions performed directly on behalf of and for the benefit of
the Company. Costs for such services have been reflected in the financial
statements on the basis of activity or utilization, estimated support provided
to the Company, or other methods management believes to be reasonable.
Income Taxes
The Company is included in the consolidated tax return of Universal. All
income taxes are paid by Universal. Income taxes are allocated to the Company
by Universal and Seagram using an effective tax rate of 38% for all periods
presented.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Concentrations of Risk
The Company is highly dependent on one vendor for ticket sale processing.
This vendor processes over 85% of the Company's ticket sale volume. A
disruption in the operations of this vendor could cause a delay in the
Company's sale of tickets which would adversely affect operating results.
Fair Value of Financial Instruments
The carrying amount of accounts receivable, receivables from affiliates,
accounts payable and accrued liabilities, payables to affiliates, and the
current portion of Ticketmaster advances and notes payable approximate fair
value because of the short maturities of these instruments. The Company has
estimated the fair value of certain other long-term debt instruments (Notes 6
and 7) based upon Universal's prevailing average borrowing rate.
New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position ("SOP")
98-5, "Reporting on the Costs of Start-Up Activities". This SOP provides
guidance on the financial reporting of start-up costs and organization costs.
It requires costs of start-up activities and organization costs to be expensed
as incurred. Initial application of this SOP will be reported as a cumulative
change in accounting principles, as described in Accounting Principles Board
Opinion No. 20, "Accounting Changes". The SOP is effective for the Company for
the year ending June 24, 2000. The Company will adopt the SOP in fiscal year
2000. Adoption of this SOP will require the Company to write-off unamortized
start-up costs, related primarily to costs associated with the building of the
Coors Amphitheatre in San Diego, CA, of approximately $310,000 as of June 26,
1999. Start-up costs are currently amortized over five years.
U-8
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain prior year balances have been reclassified to conform to current
year presentation.
3. DETAILS OF BALANCE SHEET
(Payables) Receivables (to) from Affiliates
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
---------- -----------
<S> <C> <C>
Seagram companies................................... $9,250,000 $(7,687,000)
Unconsolidated affiliated companies................. 33,000 1,190,000
---------- -----------
$9,283,000 $(6,497,000)
========== ===========
</TABLE>
Prepaid Expenses and Other Current Assets
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
---------- ----------
<S> <C> <C>
Artist advances........................................ $1,773,000 $2,701,000
Prepaid rent........................................... 1,523,000 1,518,000
Other.................................................. 645,000 584,000
---------- ----------
$3,941,000 $4,803,000
========== ==========
</TABLE>
Property and Equipment
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
----------- -----------
<S> <C> <C>
Land............................................... $ 600,000 $ 600,000
Amphitheatres, buildings and improvements.......... 12,603,000 20,504,000
Furniture and equipment............................ 2,135,000 3,611,000
Leasehold improvements............................. 4,831,000 4,783,000
----------- -----------
20,169,000 29,498,000
Less, accumulated depreciation..................... (2,721,000) (4,262,000)
----------- -----------
$17,448,000 $25,236,000
=========== ===========
</TABLE>
Buildings include construction-in-progress of $9,763,000 for the Coors
Amphitheatre (Note 9) at June 20, 1998. There was no construction-in-progress
at June 26, 1999.
Accounts Payable and Accrued Expenses
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
---------- -----------
<S> <C> <C>
Accounts payable..................................... $1,434,000 $ 1,119,000
Accrued compensation................................. 1,310,000 1,677,000
Accrued show expenses................................ 3,723,000 2,926,000
Other accrued expenses............................... 2,243,000 5,889,000
---------- -----------
$8,710,000 $11,611,000
========== ===========
</TABLE>
U-9
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATED COMPANIES
June 21, 1997
Investments in unconsolidated affiliated companies include a 50% interest
in Universal Concerts Canada ("UCC"), a 50% interest in the Fey Concert Company
("Fey"), a 33 1/3% share of Ticketmaster-Southeast, Inc. ("Ticketmaster-SE")
and a 67.5% interest in Universal/Pace Amphitheatres Group, L.P. ("Pace"). UCC
is a partnership between Molson Breweries and Universal Concerts Canada, Ltd.
(a wholly owned subsidiary of the Company) that promotes, produces and
commercially exploits concerts in Canada. Fey is a partnership between the
Company and Every Dog Has Its Day, Inc. to engage in the business of promoting,
producing and commercially exploiting concerts and public attractions at the
Fiddler's Green Amphitheatre and other venues in the Denver, Colorado area.
Ticketmaster-SE is a joint venture between the Company, Ticketmaster Georgia,
Inc., and Seats, Inc. that provides computerized ticketing services to
promoters of concerts, sporting and other events in the states of Georgia,
North Carolina and South Carolina. Pace is a partnership between the Company
and PACE Entertainment that is an operator and developer of amphitheaters in
Atlanta and Dallas.
The Company's interest in Pace consists of a 32.5% general partnership
interest and a 35% limited partnership interest in consideration for providing
financial services related to the construction of amphitheatres. Pace allocates
revenues and all costs with the exception of depreciation and pre-opening cost
amortization, as applicable, to the partners in accordance with their interest
in the partnership. Depreciation and pre-opening cost amortization are
allocated only to the general partners. Although the Company currently manages
Pace, its control of the partnership is deemed temporary per the partnership
agreement and as such the Company accounts for its 67.5% interest under the
equity method of accounting.
June 20, 1998
Investments include UCC and Pace as described above.
In August 1997, the Company purchased the remaining 50% interest in Fey
Concert Company ("Fey"), thereby assuming 100% control of Fey, for $3,050,000.
The Company recorded $2,881,000 in goodwill related to this acquisition.
In December 1997, the Company sold its entire investment of 33 1/3% share
of Ticketmaster-Southeast, Inc. ("Ticketmaster-SE") for $9,500,000. The results
for the year ended June 20, 1998 reflect a $7,994,000 gain from the sale.
June 26, 1998
Investments include UCC and Pace as described above.
U-10
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized Balance Sheet Information of Investments
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
----------- -----------
<S> <C> <C>
Current assets...................................... $19,002,000 $21,481,000
Non-current assets.................................. 28,387,000 27,936,000
----------- -----------
Total assets...................................... $47,389,000 $49,417,000
=========== ===========
Current liabilities................................. $21,833,000 $22,420,000
Non-current liabilities............................. 10,383,000 5,355,000
Shareholder's equity................................ 15,173,000 21,642,000
----------- -----------
Total liabilities and shareholder's equity........ $47,389,000 $49,417,000
=========== ===========
The Company's proportionate share of net assets..... $ 9,427,000 $13,447,000
=========== ===========
</TABLE>
Summarized Statement of Operations
<TABLE>
<CAPTION>
June 21, June 20, June 26,
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Revenue.............................. $142,034,000 $126,129,000 $106,708,000
Gross profit......................... $ 26,930,000 $ 21,183,000 $ 25,093,000
Income from operations............... $ 9,879,000 $ 8,377,000 $ 6,688,000
Net income........................... $ 9,380,000 $ 8,197,000 $ 6,759,000
</TABLE>
The difference between the carrying amount of the investment and underlying
equity in net assets is due primarily to the allocation of depreciation and
preopening costs amortization at Pace to the general partners only.
The Company's share of undistributed earnings of affiliated companies
included in consolidated retained earnings was $6,312,000, $8,386,000 and
$12,635,000 at June 21, 1997, June 20, 1998, and June 26, 1999, respectively.
The Company received dividends of $1,792,000, $1,485,000, and $0 for the
periods ended June 21, 1997, June 20, 1998, and June 26, 1999, respectively.
5. ACQUISITION
In December 1998, Universal Concerts acquired Bill Silva Presents, the
dominant promoter of live entertainment in the San Diego market. With the
acquisition, the Company gained booking rights to the Cox Arena and the Open
Air Theater for five years with an option to renew for another five. In
addition to the San Diego operations, the Company also purchased Andy Hewitt's
and Bill Silva's non-San Diego businesses which consisted of exclusive booking
rights to The Joint, a concert club at the Hard Rock Hotel in Las Vegas, and
the non-symphony booking rights to the Hollywood Bowl in Los Angeles
(collectively the "acquisition"). The purchase price for the acquisition was
approximately $14,000,000 and is subject to contingent price adjustments based
on future earnings, which will be recorded when the contingency is resolved,
over the next five to seven years.
The acquisition, accounted for under the purchase method, was financed with
cash payments and short-term payables of approximately $7,607,000 and $445,000.
The Company recorded approximately $8,325,000 in goodwill related to this
acquisition. No additional consideration was paid for the period ended June 26,
1999. Additionally, certain contingent payments have acceleration clauses if a
change in the beneficial ownership of the Company of more than 50% occurs.
U-11
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Pro Forma Results of Operations (unaudited)
The following unaudited pro forma consolidated results of operations have
been prepared as if the acquisition had occurred as of the beginning of fiscal
1999 and 1998:
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
------------ ------------
<S> <C> <C>
Revenues.......................................... $101,322,000 $160,356,000
Income from operations............................ $ 220,000 $ 3,038,000
Net income........................................ $ 8,421,000 $ 4,575,000
</TABLE>
6. TICKETMASTER ADVANCE
In September 1997, the Company received $5,500,000 (the "advance") upon
entering into an exclusive agreement with Ticketmaster for the right to sell
tickets to events promoted by the Company. The agreement expires December 31,
2002. Ticketmaster collects a $.50 service charge for each ticket sold to
Company promoted events. This service charge is a recoupment of Ticketmaster's
initial advance with a minimum annual recoupment of $900,000. The advance is
noninterest bearing; however, the Company has imputed interest expense at 6.0%
per annum, which approximates Seagram's outside borrowing rate at the date the
advance was received. The unamortized discount is recorded as a deferred
exclusivity bonus and is amortized into revenue on a straight line basis over
the term of the advance. As of June 20, 1998 and June 26, 1999, the deferred
exclusivity bonus balance was approximately $663,000 and $516,000,
respectively.
7. NOTES PAYABLE
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
---------- ----------
<S> <C> <C>
Trade note payable, due in quarterly installments at
varying amounts between $95,000 and $470,000 totaling
$1,950,000, comprising principle and interest through
September 30, 2008, bearing interest at 6.68% per
annum(1)............................................. $1,509,000 $1,446,000
Trade note payable, due in annual installments of
$200,000 comprising principle and interest through
December 31, 2008, bearing interest at 6.10% per
annum(3)............................................. -- 1,506,000
Trade note payable, due in varying amounts totaling
$1,750,000, comprising principal and interest through
May 1, 2007, bearing interest at 6.10% per
annum(1)(3).......................................... -- 1,353,000
Trade note payable, due in quarterly installments of
$37,500, comprising principle and interest through
July 1, 2004, bearing interest at
6.68% per annum(1)................................... 741,000 640,000
Trade note payable, due in annual installments of
$43,000, comprising principle and interest through
July 1, 2008, bearing interest at
6.10% per annum(3)................................... -- 330,000
Trade note payable, due in annual installments of
$50,000, comprising principle and interest through
May 1, 2004, bearing interest at 6.68% per annum(1).. 241,000 207,000
Contract payable, due in full on August 23, 1999(2)... 125,000 125,000
---------- ----------
2,616,000 5,607,000
Less: current portion................................. (166,000) (722,000)
---------- ----------
$2,450,000 $4,885,000
========== ==========
</TABLE>
- --------
(1) The debt instrument is non-interest bearing; however, the Company estimated
and recorded the fair value of the note based on issuance at the prevailing
average borrowing rate.
U-12
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) This debt instrument is non-interest bearing and represents the Company's
final payment for its acquisition of Fey (Note 4).
(3) The note is repaid through the recoupment of certain revenues. The Company
has assumed ratable annual recoupments over the term of the note.
The maturities of notes payable as of June 26, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................... $ 722,000
2001........................................................... 533,000
2002........................................................... 579,000
2003........................................................... 627,000
2004........................................................... 841,000
Thereafter..................................................... 2,305,000
</TABLE>
8. RELATED PARTY TRANSACTIONS
Universal and certain of its subsidiaries have provided services to the
Company. The costs allocated from Universal and Seagram are not necessarily
representative of the costs the Company would incur if the Company was a stand-
alone entity. The principal related-party allocations are summarized below:
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
---------- ----------
<S> <C> <C>
Allocations from Universal:
Corporate overhead(a)................................. $ 894,000 $ 700,000
Information technology overhead(b).................... 776,000 1,665,000
Studio facility overhead(c)........................... 150,000 576,000
Insurance(d).......................................... 1,010,000 1,297,000
Depreciation(e)....................................... 122,000 --
Taxes (Note 9)........................................ 5,080,000 2,802,000
---------- ----------
Total............................................... $8,032,000 $7,040,000
========== ==========
</TABLE>
- --------
(a) Includes allocations for certain corporate services, such as executive
management, finance, legal and tax consulting and return preparation. These
costs were allocated based upon certain employee annual compensation costs
and tangible assets of Universal Concerts, Inc.
(b) Information technology usage and support costs were allocated based on the
percentage of consolidated revenues of Universal.
(c) Universal's studio facility overhead allocation is based on the percentage
of consolidated revenues of Universal.
(d) Costs charged for insurance have been based upon Universal's actual costs
and Universal Concerts, Inc.'s proportional payroll, revenues and insured
assets, with adjustments for loss experience.
(e) Depreciation was allocated to Universal Concerts, Inc. on a monthly basis
based on the useful lives of the assets for the period ended June 20, 1998.
There was no depreciation allocation for the period ended June 26, 1999.
Allocations from Universal, excluding facility usage charges, are included
in selling, general and administrative expenses in the Consolidated Statement
of Operations.
Universal provides the Company with the use of a rent-free venue facility
at Universal Studios Hollywood.
U-13
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Universal Concerts, Inc. has participated in Universal's centralized cash
management system. Working capital requirements of Universal Concerts, Inc.
have been met and the majority of intercompany transactions have been effected
through receivables from or payables to affiliates. Universal Concerts, Inc.
has had no external sources of financing, such as available lines of credit, as
would be necessary to operate as a stand-alone company. Intercompany advances,
not including the intercompany tax account, consisted of a receivable of
$14,793,000 at June 20, 1998 and payables of $1,226,000, $7,510,000,
$14,018,000, and $5,195,000 at September 19, 1998, December 19, 1998, March 20,
1999, and June 26, 1999, respectively. On a pro forma basis, using Universal's
average borrowing rate of 6.1%, the Company would have incurred interest
expense of $278,000 for the year ended June 26, 1999 related to their
intercompany advances.
Employees of Universal Concerts, Inc. and its equity investments have been
paid directly by Universal and some have participated in incentive compensation
and other employee plans of Universal. The salary and related costs, incentive
compensation and costs of other employee plans have been charged to Universal
Concerts, Inc. based upon actual costs incurred by Universal.
Universal Concerts, Inc. has been charged for certain payments, principally
professional fees, based on the actual amounts paid by Universal for such
services.
In June 1999, the Company loaned $1,190,000 to Universal Concerts Canada.
This receivable is included in net payables to affiliates.
9. TAXES
The Company is included in the consolidated tax return of Universal. Income
taxes are allocated to the Company by Universal and Seagram using an effective
tax rate of 38% for all periods presented. Included in receivables (payables)
from (to) affiliates are current taxes payable of $5,543,000 and $2,492,000 and
deferred taxes payable of $664,000 and $754,000 at June 20, 1998 and June 26,
1999, respectively. Significant temporary differences include primarily
depreciation, deferred revenue, accrued liabilities and various investments
accounted for under the equity method.
The following is pro forma income statement data for the year ended June
26, 1999 reflecting a tax provision on the separate return basis:
<TABLE>
<S> <C>
Income before provision for income taxes........................ $ 7,374,000
Provision for income taxes...................................... (3,050,000)
-----------
Net income...................................................... $ 4,324,000
===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has certain non-cancelable operating leases with respect to
venues, office space and land. These lease terms range from four to ten years.
Certain leases provide for contingent rentals, generally based upon a
percentage of gross venue revenues, as defined by the respective lease
agreements. Future minimum lease obligations have not been reduced by related
future minimum sublease rentals of approximately $402,000, $149,000, and $0 as
of June 21, 1997, June 20, 1998, and June 26, 1999, respectively, to be
received over the term of the sublease.
U-14
<PAGE>
UNIVERSAL CONCERTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense pertaining to all operating leases as of:
<TABLE>
<CAPTION>
June 21, June 20, June 26,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Minimum rentals............................. $ 161,000 $ 240,000 $ 936,000
Contingent rentals.......................... 1,201,000 926,000 1,849,000
Other....................................... -- 9,000 --
---------- ---------- ----------
$1,362,000 $1,175,000 $2,785,000
========== ========== ==========
</TABLE>
Minimum rental expense on operating leases at June 26, 1999 is as follows:
<TABLE>
<S> <C>
2000........................................................... $1,179,000
2001........................................................... 856,000
2002........................................................... 779,000
2003........................................................... 650,000
2004........................................................... 650,000
Thereafter..................................................... 2,900,000
</TABLE>
Purchase Commitments
The Company had commitments of approximately $8,628,000 as of June 20, 1998
principally for the purchase or construction of property, plant and equipment.
Guarantees
The Company has guaranteed annual maximum rent obligations of $230,000 for
a venue.
Litigation
The Company is involved in certain lawsuits, claims and inquiries.
Management and its legal counsel believe the resolution of these matters will
not have a material adverse effect on the financial position or results of
operations of the Company.
11. SUBSEQUENT EVENT
In September 1999, Universal Studios, Inc. and Universal Studios Canada
Ltd. finalized a stock purchase agreement with HOB Entertainment, Inc. ("HOB")
to sell the Company for a combination of cash and warrants to purchase non-
voting common stock of HOB. Under the proposed terms of the sale, Universal
will retain ownership of the Universal Amphitheatre and lease this venue to
HOB.
U-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Universal/PACE Amphitheatres Group, L.P.:
We have audited the accompanying balance sheets of Universal/PACE
Amphitheatres Group, L.P. as of June 20, 1998 and June 26, 1999, and the
related statements of operations, partners' capital and cash flows for each of
the three years in the period ended June 26, 1999. These financial statements
are the responsibility of the Partnership's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Universal/PACE
Amphitheatres Group, L.P. as of June 20,1998 and June 26, 1999, and the results
of its operations and its cash flows for each of the three years in the period
ended June 26, 1999, in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Los Angeles, California
February 16, 2000
P-1
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
----------- -----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. $ 5,886,000 $13,449,000
Accounts receivable, net of allowance for doubtful
accounts of $0 and $77,000........................... 1,278,000 1,194,000
Prepaid expenses and other............................ 1,595,000 67,000
----------- -----------
Total current assets................................ 8,759,000 14,710,000
NOTE RECEIVABLE, net of current portion................. 192,000 182,000
PROPERTY AND EQUIPMENT, net............................. 13,621,000 13,609,000
OTHER ASSETS............................................ 90,000 94,000
----------- -----------
Total assets........................................ $22,662,000 $28,595,000
=========== ===========
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable...................................... $ 1,413,000 $ 791,000
Due to related parties................................ 449,000 368,000
Accrued expenses...................................... 664,000 841,000
Note payable.......................................... 30,000 32,000
Advances.............................................. 286,000 143,000
Deferred revenue...................................... 8,314,000 10,657,000
Other current liabilities............................. 290,000 240,000
----------- -----------
Total current liabilities........................... 11,446,000 13,072,000
NON-CURRENT LIABILITIES:
Note payable, net of current portion.................. 552,000 520,000
Advances, net of current portion...................... 143,000 --
----------- -----------
Total liabilities................................... 12,141,000 13,592,000
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
PACE Entertainment, Inc............................... 2,072,000 3,423,000
Universal Concerts II, Inc............................ 8,449,000 11,580,000
----------- -----------
Total partners' capital............................. 10,521,000 15,003,000
----------- -----------
Total liabilities and partners' capital............. $22,662,000 $28,595,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-2
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
June 21, June 20, June 26,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES.................................. $23,584,000 $30,785,000 $33,695,000
EXPENSES:
Operating expenses...................... 16,079,000 22,530,000 23,683,000
Selling, general and administrative..... 2,901,000 2,591,000 3,127,000
Depreciation and amortization........... 586,000 594,000 603,000
Other................................... 1,306,000 1,792,000 1,871,000
----------- ----------- -----------
20,872,000 27,507,000 29,284,000
----------- ----------- -----------
OPERATING INCOME.......................... 2,712,000 3,278,000 4,411,000
INTEREST (EXPENSE) INCOME, net............ (488,000) (202,000) 71,000
----------- ----------- -----------
NET INCOME................................ $ 2,224,000 $ 3,076,000 $ 4,482,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-3
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Limited
General Partners Partner
------------------------ ----------
PACE Universal Universal
Entertainment Concerts Concerts
Corp. II, Inc. II, Inc. Total
------------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
BALANCE at June 22, 1996....... $ 556,000 $ 556,000 $4,109,000 $ 5,221,000
Net Income................... 620,000 620,000 984,000 2,224,000
---------- ---------- ---------- -----------
BALANCE at June 21, 1997....... 1,176,000 1,176,000 5,093,000 7,445,000
Net Income................... 896,000 896,000 1,284,000 3,076,000
---------- ---------- ---------- -----------
BALANCE at June 20, 1998....... 2,072,000 2,072,000 6,377,000 10,521,000
Net Income................... 1,351,000 1,351,000 1,780,000 4,482,000
---------- ---------- ---------- -----------
BALANCE at June 26, 1999....... $3,423,000 $3,423,000 $8,157,000 $15,003,000
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-4
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------------
June 21, June 20, June 26,
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 2,224,000 $ 3,076,000 $ 4,482,000
Adjustments to reconcile net income to
net cash provided by operating
activities--
Depreciation and amortization........ 586,000 594,000 603,000
Changes in operating assets and
liabilities--
(Increase) decrease in accounts
receivable.......................... (759,000) 367,000 84,000
Decrease (increase) in prepaid
expenses and other assets........... 526,000 (1,398,000) 1,524,000
Increase (decrease) in accounts
payable............................. 266,000 1,009,000 (622,000)
Increase (decrease) in due to related
parties............................. 159,000 (413,000) (81,000)
(Decrease) increase in accrued
expenses............................ (500,000) 56,000 177,000
Decrease in advances................. (286,000) (287,000) (286,000)
Increase (decrease) in other current
liabilities......................... -- 286,000 (50,000)
Increase in deferred revenue......... 1,036,000 4,243,000 2,343,000
----------- ----------- -----------
Net cash provided by operating
activities........................ 3,252,000 7,533,000 8,174,000
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable collected from third
parties............................... 10,000 10,000 10,000
Additions to property and equipment.... (342,000) (419,000) (591,000)
----------- ----------- -----------
Net cash used in investing
activities........................ (332,000) (409,000) (581,000)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable............... (2,942,000) (2,941,000) (30,000)
----------- ----------- -----------
Net cash used in financing
activities........................ (2,942,000) (2,941,000) (30,000)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS...................... (22,000) 4,183,000 7,563,000
CASH AND CASH EQUIVALENTS, beginning of
period................................ 1,725,000 1,703,000 5,886,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of
period................................ $ 1,703,000 $ 5,886,000 $13,449,000
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................. $ 625,000 $ 368,000 $ 31,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
P-5
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
June 26, 1999
1. DESCRIPTION OF BUSINESS
In January, 1988, a predecessor of Universal Concerts II, Inc., a wholly-
owned subsidiary of Universal Concerts, Inc. ("UCI"), and PACE Entertainment
Corporation ("PACE"), now a wholly-owned subsidiary of SFX Entertainment, Inc.,
entered into a limited partnership agreement to form Universal/PACE
Amphitheatres Group, L.P. (the "Partnership"), a Delaware partnership, to
develop, manage and operate two amphitheatres, the Lakewood Amphitheatre in
Atlanta, Georgia and the Starplex Amphitheatre in Dallas, Texas. The
Partnership also promotes, produces and commercially exploits concerts in these
areas. The Partnership has been managed by UCI. If certain criteria are met as
defined in the Agreement, control of the partnership may be transferred to
PACE.
The Partnership interests as of June 20, 1998 and June 26, 1999 are as
follows:
<TABLE>
<CAPTION>
Interest
--------
<S> <C>
PACE Entertainment Corporation--general partnership interest.... 32.5%
Universal Concerts II, Inc.--general partnership interest....... 32.5%
Universal Concerts II, Inc.--limited partnership interest....... 35.0%
------
100.0%
======
</TABLE>
Under the Agreement of Limited Partnership of Universal/PACE Amphitheatres
Group, L.P. ("the Agreement"), UCI was required to fund certain amounts to the
partnership. In consideration for such funding, UCI was granted a 35% limited
partnership interest in the Partnership.
Furthermore, UCI subsequently changed its name to HOB Concerts, Inc. in
September 1999 when UCI was acquired by HOB Entertainment, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Partnership has adopted a fifty-two/fifty-three week accounting year.
The periods ending June 21, 1997 and June 20, 1998 are fifty-two week years and
the period ending June 26, 1999 is a fifty-three week year.
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.
Revenue Recognition
Admission revenue from the presentation and production of an event is
recognized on the date of the performance. Advance ticket sales are recorded as
deferred revenue until the related event occurs. The Partnership outsources its
food and beverage concessions to third parties and receives a percentage of
food and beverage revenue generated. The Partnership receives certain advances
upon entering into such agreements, which are initially recorded as deferred
revenue and are then recognized as revenue as they are earned over the terms of
the contracts.
P-6
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 26, 1999
The Partnership receives an annual sponsorship fee, in consideration for
the exclusive rights granted at certain venues. Sponsorship fees that are not
related to any single event are classified as deferred revenue and are
amortized on a straight-line basis over the operating season during the term of
the related contract.
Advertising Expenses
Advertising costs are expensed as incurred. Advertising expenses, included
in operating expense, were $1,059,000, $1,374,000 and $1,090,000 for the years
ended June 20, 1997, June 21, 1998, and June 26, 1999.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid debt instruments
purchased which have original maturities of three months or less. The fair
market value of the Partnership's cash equivalents approximated cost at each
balance sheet date.
Accounts Receivable
Accounts receivable are due principally from food and merchandise
concessionaires. These amounts are typically collected proximate to the date of
the related performance. Certain other accounts receivable, arising from the
normal course of business, are reviewed for collectibility and allowances for
doubtful accounts are recorded as required.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of seven years for furniture and equipment and five
years for all other assets. Leasehold improvements are amortized on a straight-
line basis over the estimated useful life of the improvement or the length of
the lease, whichever is shorter. When property is sold or otherwise disposed
of, the cost and related accumulated depreciation is removed from the accounts,
and any resulting gain or loss is included in income. The costs of normal
maintenance and repairs are charged to expense when incurred.
The Partnership accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires that
impaired long-lived assets be carried at the lower of carrying amount or fair
value. The Partnership reviews the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Measurement of any impairment would include a
comparison of estimated future cash flows anticipated to be generated during
the remaining life of the long-lived asset to the net carrying value of the
long-lived asset.
Concentration Risk and Seasonality
One vendor processes over 90% of the Partnership's ticket sale volume.
Management does not believe that this concentration poses a risk, as other
vendors are available to provide this service at comparable terms.
P-7
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 26, 1999
The Partnership's operations and revenues are largely seasonal in nature,
with higher revenues generated in the first and fourth fiscal quarters. The
Partnership's outdoor venues are primarily utilized during the warmer months
and generally do not generate significant revenue during the winter.
Income Taxes
No provision has been made in the accompanying financial statements for
federal or state income taxes as the liability for such income taxes is the
responsibility of the Partners.
Allocation of Net Income and Losses
Net income and losses before depreciation and amortization of the
Partnership are allocated based on the economic interest of the Partners (see
Note 1). Depreciation and amortization expense is allocated equally between the
General Partners.
Fair Value of Financial Instruments
The carrying values of short-term receivables and payables approximate
their estimated fair values because of the short maturity of these instruments.
3. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, are comprised of the following:
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
----------- -----------
<S> <C> <C>
Furniture and equipment........................... $ 2,738,000 $ 2,812,000
Leasehold improvements............................ 18,550,000 18,797,000
Construction in progress.......................... -- 270,000
----------- -----------
21,288,000 21,879,000
Less: accumulated depreciation and amortization... (7,667,000) (8,270,000)
----------- -----------
$13,621,000 $13,609,000
=========== ===========
</TABLE>
4. NOTE RECEIVABLE
The Company has a non-interest bearing note receivable consisting of 15
annual installments of $27,000. The annual imputed interest rate on the note is
8.17%. The note will mature in July 2009. The current portion of the notes
receivable balance is included in prepaid and other current assets. Interest
income for the period ended June 21, 1997, June 20, 1998, and June 26, 1999,
was $18,000, $17,000 and $16,000, respectively.
P-8
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 26, 1999
5. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
--------- --------
<S> <C> <C>
Performance and talent................................ $ 218,000 $268,000
Other................................................. 446,000 573,000
--------- --------
$ 664,000 $841,000
========= ========
</TABLE>
6. NOTE PAYABLE
The Company has a non-interest bearing note payable consisting of 15
annually installments of $77,000. The imputed interest on the note is 8.17%
annually. The note will mature in July 2009. Interest expense for the period
ended June 21, 1997, June 20, 1998, and June 26, 1999, was $51,000, $49,000 and
$47,000, respectively.
Annual future minimum maturities of debt are as follows:
<TABLE>
<S> <C>
2000.............................................................. $ 32,000
2001.............................................................. 35,000
2002.............................................................. 38,000
2003.............................................................. 41,000
2004.............................................................. 44,000
Thereafter........................................................ 362,000
--------
Total........................................................... $552,000
========
</TABLE>
7. RELATED PARTY TRANSACTIONS
UCI advanced certain costs and expenses on behalf of the Partnership that
are later reimbursed at cost. These costs include payroll, insurance premiums,
and certain administrative allocations. Advances from UCI for the years ended
June 21, 1997, June 20, 1998, and June 26, 1999 are as follows:
<TABLE>
<CAPTION>
June 21, June 20, June 26,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Payroll.......................................... $735,000 $659,000 $882,000
Insurance........................................ 151,000 159,000 226,000
Administrative allocations....................... 24,000 31,000 31,000
</TABLE>
The Partnership pays a management fee to the General Partners. Management
fee was $170,000, $89,000 and $77,000 for the period ended June 21, 1997, June
20, 1998, and June 26, 1999, respectively.
The amount payable to UCI on June 20, 1998 and June 26, 1999 was $390,000,
and $318,000, respectively. The amount payable to PACE on June 20, 1998 and
June 26, 1999 was $59,000 and $50,000 at June 20, 1998 and June 26, 1999,
respectively.
P-9
<PAGE>
UNIVERSAL/PACE AMPHITHEATRES GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 26, 1999
8. COMMITMENTS AND CONTINGENCIES
Operating Lease Agreements
The Partnership has entered into various operating lease agreements for
land and buildings for entertainment venues and office space. Total rent
expense, included in operating expenses for the years ended June 21, 1997, June
20, 1998 and June 26, 1999, was $707,000, $1,099,000 and $1,093,000,
respectively. Future minimum lease payments at June 26, 1999, relating to the
Partnership's non-cancelable operating leases through 2034, are as follows:
<TABLE>
<S> <C>
2000............................................................ $ 470,000
2001............................................................ 470,000
2002............................................................ 470,000
2003............................................................ 470,000
2004............................................................ 520,000
Thereafter...................................................... 6,973,000
----------
Total......................................................... $9,373,000
==========
</TABLE>
Certain property leases require base and/or additional contingent rental
payments based upon a percentage of gross sales above a minimum amount. Certain
property leases have renewal options, which permit the Partnership to extend
the basic lease for periods from five to ten years beyond the original terms.
P-10
<PAGE>
AUDITORS' REPORT
To the Directors of
Universal Concerts Canada
(a partnership)
We have audited the balance sheets of Universal Concerts Canada as at June
20, 1998 and June 26, 1999 and the statements of operations, partners' capital
accounts and cash flows for the year ended December 31, 1996, six-month period
ended June 21, 1997 and for the years ended June 20, 1998 and June 26, 1999.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the partnership as at June 20, 1998 and
June 26, 1999 and the results of its operations and its cash flows for the year
ended December 31, 1996, six-month period ended June 21, 1997 and for the years
ended June 20, 1998 and June 26, 1999 in accordance with Canadian generally
accepted accounting principles.
PricewaterhouseCoopers LLP
Chartered Accountants
Mississauga, Ontario, Canada
September 3, 1999 (except for
Note 11 which is at February
17, 2000)
C-1
<PAGE>
UNIVERSAL CONCERTS CANADA
BALANCE SHEETS
<TABLE>
<CAPTION>
June 20, June 26,
1998 1999
-------- --------
(in thousands of
Canadian dollars)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash and cash equivalents................................. $10,259 $ 4,774
Accounts receivable....................................... 1,444 1,695
Due from partners......................................... 378 197
Artists advances and deferred production costs............ 2,195 3,067
Prepaid and other current assets.......................... 257 217
------- -------
14,533 9,950
GOODWILL--net of accumulated amortization of $1,097 (1998--
$722)...................................................... 4,940 4,564
CAPITAL ASSETS (note 3)..................................... 16,344 16,084
------- -------
$35,817 $30,598
======= =======
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
CURRENT LIABILITIES
Accounts payable and accrued liabilities.................. $ 3,786 $ 2,314
Due to partners........................................... 27 165
Deferred revenue.......................................... 10,952 9,008
Advance from partner (note 4)............................. -- 1,750
Long-term debt, current portion (note 5).................. 500 500
------- -------
15,265 13,737
DEFERRED INCOME (note 6).................................... 737 605
LONG-TERM DEBT (note 5)..................................... 13,500 6,500
PARTNERS' CAPITAL........................................... 6,315 9,756
------- -------
$35,817 $30,598
======= =======
COMMITMENTS AND CONTINGENCIES (note 9)
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-2
<PAGE>
UNIVERSAL CONCERTS CANADA
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six-month
Year ended period ended Year ended Year ended
December 31, June 21, June 20, June 26,
1996 1997 1998 1999
------------ ------------ ---------- ----------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C>
REVENUES
Concerts..................... $65,713 $41,931 $110,286 $116,340
Related party sponsorship
fees (note 7)............... 2,176 685 1,498 1,600
------- ------- -------- --------
67,889 42,616 111,784 117,940
------- ------- -------- --------
OPERATING EXPENSES
Cost of revenues............. 58,510 38,040 98,992 104,878
General and administrative... 4,484 3,252 6,469 6,093
Depreciation and
amortization................ 1,162 951 1,700 1,388
Related party services fee
(note 7).................... 1,479 743 1,498 1,600
------- ------- -------- --------
65,635 42,986 108,659 113,959
------- ------- -------- --------
NET INCOME (LOSS).............. $ 2,254 $ (370) $ 3,125 $ 3,981
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-3
<PAGE>
UNIVERSAL CONCERTS CANADA
STATEMENTS OF PARTNERS' CAPITAL ACCOUNTS
<TABLE>
<CAPTION>
Universal
Molson Concerts
Breweries Canada, Ltd. Total
--------- ------------ --------
(in thousands of Canadian
dollars)
<S> <C> <C> <C>
PARTNERS' CAPITAL--January 1, 1996............ $ 14,982 $ -- $ 14,982
Capital contributions....................... 1,771 -- 1,771
Partner draws (note 5)...................... (13,447) -- (13,447)
Income allocated to partners................ 1,127 1,127 2,254
-------- ------ --------
PARTNERS' CAPITAL--December 31, 1996.......... 4,433 1,127 5,560
Loss allocated to partners.................. (185) (185) (370)
-------- ------ --------
PARTNERS' CAPITAL--June 21, 1997.............. 4,248 942 5,190
Partner draws (note 5)...................... (2,000) -- (2,000)
Income allocated to partners................ 1,563 1,562 3,125
-------- ------ --------
PARTNERS' CAPITAL--June 20, 1998.............. 3,811 2,504 6,315
Partner draws (note 5)...................... (540) -- (540)
Income allocated to partners................ 1,990 1,991 3,981
-------- ------ --------
PARTNERS' CAPITAL--June 26, 1999.............. $ 5,261 $4,495 $ 9,756
======== ====== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
C-4
<PAGE>
UNIVERSAL CONCERTS CANADA
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six-month
Year ended period ended Year ended Year ended
December 31, June 21, June 20, June 26,
1996 1997 1998 1999
------------ ------------ ---------- ----------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C>
CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net income (loss)............. $ 2,254 $ (370) $ 3,125 $ 3,981
Adjustments to reconcile net
income to net cash provided
by operating activities
Depreciation and
amortization............... 1,162 951 1,700 1,388
Changes in assets and
liabilities
Accounts receivable......... (944) 622 (497) (251)
Due from and to partners.... (1,387) 395 101 319
Prepaid expenses and artist
advances................... 248 (1,280) (1,003) (832)
Deferred revenue and
income..................... 147 8,117 2,612 (2,076)
Accounts payable and accrued
liabilities................ 299 2,023 127 (1,361)
Repayment of liabilities
assumed on acquisition of
business................... (1,080) (133) (426) (111)
-------- ------- ------- -------
699 10,325 5,739 1,057
-------- ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures.......... (1,711) (102) (444) (752)
Acquisition of business (note
8)........................... (2,818) -- -- --
-------- ------- ------- -------
(4,529) (102) (444) (752)
-------- ------- ------- -------
FINANCING ACTIVITIES
Proceeds from borrowings...... 15,000 -- -- 2,290
Repayment of borrowings....... -- (2,500) (1,000) (7,540)
Capital contributions from
partner...................... 1,771 -- -- --
Partner draws................. (13,447) -- (2,000) (540)
-------- ------- ------- -------
3,324 (2,500) (3,000) (5,790)
-------- ------- ------- -------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS......... (506) 7,723 2,295 (5,485)
CASH AND CASH EQUIVALENTS--
BEGINNING OF PERIOD.......... 747 241 7,964 10,259
-------- ------- ------- -------
CASH AND CASH EQUIVALENTS--END
OF PERIOD.................... 241 7,964 10,259 4,774
======== ======= ======= =======
</TABLE>
There was no interest paid or income taxes paid in any period.
The accompanying notes are an integral part of these financial statements.
C-5
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 20, 1998 and June 26, 1999
1. DESCRIPTION OF THE BUSINESS
The Universal Concerts Canada partnership was formed on August 1, 1990
(under the laws of Ontario) between Molson Breweries and Universal Concerts
Canada, Ltd. to promote, produce and commercially exploit concerts in Canada.
Effective January 1, 1996, an Amended and Restated Partnership Agreement
extended the partnership until December 31, 2010. Under this Partnership
Agreement, cash distributions to partners are restricted until certain loans to
Canadian Breweries Inc., a subsidiary of Molson Breweries, are repaid.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Partnership
These financial statements present the financial position, operations, and
cash flows of the partnership and accordingly do not include the assets,
liabilities, revenue and expenses of the partners. No provision has been made
in these financial statements for any income or capital taxes which may be
assessable to or recoverable by the partners on their share of the net income
or loss, if any, of the partnership. No amounts have been charged by the
partners against income for salaries, interest or other similar compensation
other than as described in note 7.
US GAAP reconciliation
The financial statements of the partnership have been prepared in
accordance with generally accepted accounting principles (GAAP) as applied in
Canada. There are no material differences between net income for the years
ended June 20, 1998 and June 26, 1999 reported under Canadian GAAP and the net
income for the same years which would be reported by applying US GAAP. There
are also no material differences in the balance sheets as at June 20, 1998 and
June 26, 1999 reported under Canadian GAAP and the balance sheets that would be
reported by applying US GAAP. As a result of the transaction referred to in
note 11, these financial statements have been reconciled to US GAAP for two
fiscal years for purposes of complying with the requirements of the Securities
and Exchange Commission (SEC).
Cash and cash equivalents
The partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
Concentration of risk
The partnership's accounts receivable comprise primarily amounts due from
ticket sale vendors. These amounts are carried at fair values and are generally
collected proximate to the related performance or event. The partnership is
highly dependent on one vendor for ticket sale processing. A disruption in the
operations of this vendor could cause a delay in the partnership's sale of
tickets and would adversely affect operating results.
C-6
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 20, 1998 and June 26, 1999
Capital assets
Capital assets are stated at cost, less accumulated amortization.
Amortization is computed using a straight-line basis at annual rates
sufficient to write off the cost of the assets over their estimated useful
lives as follows:
<TABLE>
<S> <C>
Furniture and equipment.......................... 1-5 years
Computer hardware................................ 3 years
Molson Amphitheatre .............................
Building ...................................... 35 years
Seating........................................ 10 years
Equipment...................................... 5-10 years
Leasehold improvements........................... over the term of the lease
</TABLE>
Construction in progress is not depreciated until the construction is
substantially completed and the facility is ready for its intended use.
Revenue recognition
Revenue from ticket sales is recognized on the date of the performance.
Advance ticket sales received by the partnership are recorded as deferred
revenue until the related event occurs.
In consideration for the exclusive rights received under the Partnership
Agreement, one of the partners has agreed to pay the partnership an annual fee
in accordance with the terms of the Partnership Agreement. Sponsorship fee
revenue is recognized in accordance with the terms of the Amended and Restated
Partnership Agreement as described in Note 7.
Goodwill
Goodwill represents the excess of the cost of purchased businesses over
the fair value of the net assets acquired. Goodwill arising from acquisitions
is amortized on a straight-line basis over its estimated useful life of 15
years. The partnership evaluates the carrying value of goodwill for possible
impairment on an annual basis by estimating future net undiscounted cash
flows. Goodwill would be written down as a charge against income for any
permanent impairment in value.
Artist advances and production cost
Advances paid to artists prior to the date of the performance are recorded
as artist advances. These costs are charged to cost of revenues upon
occurrence of the related performance. Production costs directly related to a
future performance are deferred and charged to cost of revenues upon
occurrence of the related performance.
Advertising costs
Advertising costs are expensed as incurred and consist primarily of print
and other media costs.
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
C-7
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 20, 1998 and June 26, 1999
of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
for the period reported. Actual results could differ from those estimates.
3. CAPITAL ASSETS
<TABLE>
<CAPTION>
June June
20, 26,
1998 1999
------- -------
(in thousands
of Canadian
dollars)
<S> <C> <C>
Cost
Amphitheatre building and improvements.................... $16,297 $16,407
Furniture and equipment................................... 2,477 2,542
Computer hardware......................................... 360 417
Leasehold improvements.................................... 440 561
Construction in progress.................................. -- 394
------- -------
19,574 20,321
------- -------
Accumulated depreciation
Amphitheatre building and improvements.................... 1,794 2,310
Furniture and equipment................................... 1,065 1,391
Computer hardware......................................... 264 325
Leasehold improvements.................................... 107 211
------- -------
3,230 4,237
------- -------
Net book value.............................................. $16,344 $16,084
======= =======
</TABLE>
The partnership is in the process of renovating a concert facility in
Vancouver. Costs of $393,708 have been incurred as of June 26, 1999 with costs
to complete the project estimated at $3,106,000.
4. ADVANCE FROM PARTNER
This advance from Universal Concerts Canada, Ltd. is non-interest bearing
and is without specific terms of repayment. This advance ranks second in
priority to the CBI promissory note (note 5).
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
1998 1999
------- ------
(in thousands
of Canadian
dollars)
<S> <C> <C>
Promissory note, non-interest-bearing, due June 30,
2026(1)................................................. $12,000 $5,500
Loan, non-interest-bearing, unsecured, due July 26,
2001(2)................................................. 2,000 1,500
------- ------
14,000 7,000
Current portion.......................................... (500) (500)
------- ------
$13,500 $6,500
======= ======
</TABLE>
C-8
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 20 1998 and June 26, 1999
- --------
(1) The promissory note is due to Canadian Breweries Inc. (CBI), a subsidiary
of Molson Breweries, and is unsecured. The agreement requires that this
promissory note is repaid out of available cash from the partnership. The
following is a summary of the movement in the CBI promissory notes during
the periods:
<TABLE>
<CAPTION>
1996 1997 1998 1999
------- ------- ------- -------
(in thousands of Canadian
dollars)
<S> <C> <C> <C> <C>
Balance--Beginning of period.......... $ -- $15,000 $12,500 $12,000
Arising on payment of partner draws... 12,500 -- 2,000 540
Cash borrowings....................... 2,500 -- -- --
Repayment of debt..................... -- (2,500) (2,500) (7,040)
------- ------- ------- -------
Balance--End of period................ $15,000 $12,500 $12,000 $ 5,500
======= ======= ======= =======
</TABLE>
(2) Minimum principal repayment requirements on long-term debt during the next
five years ended June 30 are as follows:
<TABLE>
<CAPTION>
(in thousands
of Canadian
dollars)
<S> <C>
2000........................................................ $ 500
2001........................................................ 500
2002........................................................ 500
</TABLE>
The fiscal 2000 repayment of $500,000 was made in July 1999.
The partnership also has an unused US$2,000,000 operating facility which is
guaranteed by one of the partners. Interest is payable monthly at prime or US
base rate, depending upon the currency in which the funds were borrowed.
6. DEFERRED INCOME
Amounts received under a concession agreement expiring in 2004 have been
deferred and are amortized into income over the term of the agreement. Both the
concessionaire and the partnership have the right under certain circumstances
to terminate this agreement prior to its expiry, which would result in the
repayment of the balance of deferred income to the concessionaire.
7. RELATED PARTY TRANSACTIONS
Sponsorship fee revenue
In accordance with the terms of the Amended and Restated Partnership
Agreement, $1,599,956 (year ended December 31, 1996--$2,176,100; six months
ended June 21, 1997--$685,000; year ended June 20, 1998--$1,498,238) was
recorded as income during the period by the partnership from Molson Breweries
in consideration of the exclusive sponsorship rights received. These
sponsorship fees have been recorded at their exchange amounts, which is the
amount of the consideration established and agreed to by the related parties.
Service fee expense
The partnership has entered into an agreement with Universal Concerts,
Inc., an affiliated company of one of the partners, to provide specified
services with respect to the promotion and
C-9
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 20, 1998 and June 26, 1999
production by the partnership of concerts in Canada, including the Molson
Amphitheatre. In consideration for the services to be rendered, the partnership
has agreed to pay various fees over the life of the partnership. During the
period, $1,599,956 (year ended December 31, 1996--$1,478,600; six months ended
June 21, 1997--$742,500; year ended June 20, 1998--$1,498,238) was recorded by
the partnership in respect of these services. These service fees have been
recorded at their exchange amounts, which is the amount of consideration
established and agreed to by the related parties.
Revenues and expenses
Included in revenues and expenses are ticket sales to a partner of
$1,486,100 (year ended December 31, 1996--$626,000; six months ended June 21,
1997--$684,000; year ended June 20, 1998--$1,134,000) and operating lease
payments to a partner of $472,500 (year ended June 20, 1998--$150,000). These
transactions have been recorded at their exchange amounts.
8. ACQUISITION
Effective July 26, 1996, the partnership acquired certain assets relating
to the promotion and production of concerts in Canada.
The acquisition was accounted for using the purchase method and the results
of operations are included from the date of acquisition. The assets acquired at
fair values are as follows:
<TABLE>
<CAPTION>
(in thousands
of Canadian
dollars)
<S> <C>
Capital assets............................................... $ 350
Event licence................................................ 1,084
Goodwill..................................................... 5,634
------
$7,068
======
</TABLE>
The consideration paid, including costs relating to the acquisition of
$317,575, comprised:
<TABLE>
<CAPTION>
(in thousands
of Canadian
dollars)
<S> <C>
Cash......................................................... $2,818
Debt......................................................... 2,500
Liabilities assumed.......................................... 1,750
------
$7,068
======
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
The partnership has entered into various operating leases, the largest of
which is a ground lease agreement with Ontario Place Corporation for the land
on which the Molson Amphitheatre is located. The term of the ground lease,
should all of the options to renew be exercised, is 35 years. In addition to
basic rent, the lease provides for participation rent payable based on
percentages of gross revenues, as defined, attributable to the operation of the
amphitheatre.
C-10
<PAGE>
UNIVERSAL CONCERTS CANADA
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 20, 1998 and June 26, 1999
Minimum annual lease payments for basic rent on all leases are as follows:
<TABLE>
<CAPTION>
(in thousands
of Canadian
dollars)
<S> <C>
2000........................................................ $1,115
2001........................................................ 732
2002........................................................ 825
2003........................................................ 825
2004........................................................ 825
Thereafter.................................................. 12,500
</TABLE>
The partnership has entered into an agreement with a company to operate a
concert facility in Vancouver, Canada. The partnership has provided an
indemnification to the landlord in the event that the company defaults on the
lease payments of the concert facility. At June 26, 1999, total future minimum
lease payments over the ten-year term of the lease guaranteed by the
partnership amounted to $3,379,000.
The partnership is involved in litigation and claims which arise in the
normal course of business. In the opinion of management, any liability that may
arise from such contingencies would not have a significant adverse effect on
the financial position of the partnership.
10. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the partnership's cash and cash equivalents,
accounts receivable, due from partners, accounts payable and accrued
liabilities and due to partners approximate their carrying amounts due to the
relatively short period to maturity of these instruments.
The estimated fair value of the long-term debt due to CBI is not readily
determinable since the Amended and Restated Partnership Agreement requires this
related party note be repaid out of available cash flows. The estimated fair
value of the advance due to Universal Concerts Canada, Ltd. is not readily
determinable since this non-interest bearing related party loan has no fixed
terms of repayment.
The estimated fair value of the non-interest bearing loan due July 26, 2001
is $1,408,000. This estimated fair value is based on the present value of cash
flows using rates for borrowings with similar terms and conditions currently
available to the partnership.
11. SUBSEQUENT EVENT
In September 1999, Universal Studios, Inc., the ultimate parent company of
Universal Concerts Canada, Ltd., finalized a stock purchase agreement with HOB
Entertainment, Inc. (HOB) to sell the company for a combination of cash and
warrants to purchase non-voting common stock of HOB.
Subsequent to this transaction, Universal Concerts Canada continues to
operate as a partnership and the Amended and Restated Partnership Agreement and
all other particular agreements between the partnership, Universal Concerts
Canada, Ltd. and Molson Breweries continued in effect.
12. COMPARATIVE AMOUNTS
Certain prior year figures have been reclassified to conform to the current
year's presentation.
C-11
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Venturers
Ticketmaster Southeast (A Joint Venture):
We have audited the accompanying balance sheets of Ticketmaster Southeast
(a joint venture) as of January 31, 1997 and December 19, 1997 and the related
statements of income, venturers' capital and cash flows for the year ended
January 31, 1997 and period from February 1, 1997 to December 19, 1997. These
financial statements are the responsibility of Ticketmaster Southeast's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ticketmaster Southeast (a
joint venture) as of January 31, 1997 and December 19, 1997 and the results of
its operations and its cash flows for the year ended January 31, 1997 and
period from February 1, 1997 to December 19, 1997 in conformity with generally
accepted accounting principles.
KPMG LLP
Los Angeles, California
February 18, 2000
T-1
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
BALANCE SHEETS
<TABLE>
<CAPTION>
January 31, December 19,
1997 1997
----------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents........................... $2,629,405 1,818,561
Accounts receivable, ticket sales................... 887,040 835,447
Accounts receivable, trade.......................... 70,635 56,327
Amount due from affiliates.......................... 503,282 658,348
Prepaid expenses.................................... 69,918 85,241
---------- ---------
Total current assets............................... 4,160,280 3,453,924
---------- ---------
NONCURRENT ASSETS:
Equipment and leasehold improvements, net........... 622,673 1,158,858
Other assets........................................ 73,134 66,745
Contract rights, net of accumulated amortization of
$6,342,274 at January 31, 1997 and $7,035,165 at
December 19, 1997.................................. 2,448,477 1,755,587
---------- ---------
Total noncurrent assets............................ 3,144,284 2,981,190
---------- ---------
$7,304,564 6,435,114
========== =========
LIABILITIES AND VENTURERS' CAPITAL
----------------------------------
CURRENT LIABILITIES:
Accounts payable, trade............................. $ 97,319 90,018
Accounts payable, clients........................... 2,732,424 2,186,360
Accrued expenses.................................... 225,504 482,703
Other............................................... 209,272 170,126
---------- ---------
Total current liabilities.......................... 3,264,519 2,929,207
VENTURERS' CAPITAL.................................... 4,040,045 3,505,907
---------- ---------
$7,304,564 6,435,114
========== =========
</TABLE>
See accompanying notes to financial statements.
T-2
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Period from
February 1,
Year ended 1997 to
January 31, December 19,
1997 1997
----------- ------------
<S> <C> <C>
Revenue:
Ticket operations.................................... $13,022,427 14,970,325
Other................................................ 626,308 748,165
----------- ----------
13,648,735 15,718,490
----------- ----------
Costs and expenses:
Direct operating costs............................... 4,630,447 5,153,709
Call center.......................................... 2,523,250 2,714,155
Data processing services............................. 1,267,999 1,199,138
Sales and marketing.................................. 293,693 218,513
General and administrative........................... 1,920,794 1,833,193
----------- ----------
10,636,183 11,118,708
----------- ----------
Income before depreciation and amortization........ 3,012,552 4,599,782
Depreciation........................................... 259,827 286,029
Amortization of contract rights........................ 783,514 692,891
----------- ----------
Net income......................................... $ 1,969,211 3,620,862
=========== ==========
</TABLE>
See accompanying notes to financial statements.
T-3
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
STATEMENTS OF VENTURERS' CAPITAL
Year ended January 31, 1997 and
period from February 1, 1997 to December 19, 1997
<TABLE>
<CAPTION>
Ticketmaster MCA
Georgia, Tickets, Seats,
Inc. Inc. Inc. Total
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Venturers' capital, January
31, 1996..................... $ 1,689,031 1,689,031 612,772 3,990,834
----------- ---------- ---------- ----------
Net income:
Income before amortization
of contract rights......... 917,575 917,575 917,575 2,752,725
Amortization of contract
rights at inception........ (112,145) (112,145) (27,448) (251,738)
Amortization of contract
rights subsequently
acquired................... (234,908) (234,908) (61,960) (531,776)
----------- ---------- ---------- ----------
Net income................ 570,522 570,522 828,167 1,969,211
Distribution to venturers..... (640,000) (640,000) (640,000) (1,920,000)
----------- ---------- ---------- ----------
Venturers' capital, January
31, 1997..................... 1,619,553 1,619,553 800,939 4,040,045
----------- ---------- ---------- ----------
Net income:
Income before amortization
of contract rights......... 1,823,493 1,437,879 1,052,380 4,313,752
Amortization of contract
rights at inception........ (106,513) (98,534) (17,579) (222,626)
Amortization of contract
rights subsequently
acquired................... (224,992) (208,139) (37,133) (470,264)
----------- ---------- ---------- ----------
Net income................ 1,491,988 1,131,206 997,668 3,620,862
----------- ---------- ---------- ----------
Distribution to venturers..... (2,020,000) (1,385,000) (750,000) (4,155,000)
Acquisition (disposal) of
interest in joint venture.... 1,048,607 -- (1,048,607) --
----------- ---------- ---------- ----------
Venturers' capital, December
19, 1997..................... $ 2,140,148 1,365,759 -- 3,505,907
=========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
T-4
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 1,
Year ended 1997 to
January 31, December 19,
1997 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 1,969,211 3,620,862
Adjustments to reconcile net income to net cash
provided by
operating activities:
Depreciation and amortization of contract rights.. 1,043,341 978,920
Changes in operating assets and liabilities:
Accounts receivable............................. (360,131) 65,901
Prepaid expenses................................ 30,990 (15,323)
Other assets.................................... (6,235) 6,389
Due from/to affiliates.......................... (143,495) (155,066)
Accounts payable................................ 469,876 (553,364)
Accrued expenses................................ (290,454) 257,199
Deferred income................................. 165,598 (39,146)
----------- -----------
Net cash provided by operating activities..... 2,878,701 4,166,372
CASH FLOWS USED IN INVESTING ACTIVITIES--purchases
of
equipment and leasehold improvements, net.......... (398,004) (822,216)
CASH FLOWS USED IN FINANCING ACTIVITIES--
distribution to venturers.......................... (1,920,000) (4,155,000)
----------- -----------
NET INCREASE (DECREASE) in cash and cash
equivalents........................................ 560,697 (810,844)
CASH AND CASH EQUIVALENTS, beginning of period...... 2,068,708 2,629,405
----------- -----------
CASH AND CASH EQUIVALENTS, end of period............ $ 2,629,405 1,818,561
=========== ===========
</TABLE>
See accompanying notes to financial statements.
T-5
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
NOTES TO FINANCIAL STATEMENTS
January 31, 1997 and December 19, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Financial Statement Presentation
Ticketmaster Southeast (Joint Venture) is a joint venture between
Ticketmaster Georgia, Inc. (TMGA), a Georgia corporation, and MCA Tickets, Inc.
(MCA), a California corporation. The Joint Venture commenced operations on
March 15, 1990 for the purpose of providing computerized ticketing services to
promoters of concerts, sporting and other events in the states of Georgia,
North Carolina and South Carolina. In September 1999, Seats, Inc. (Seats) sold
its interest in the Joint Venture to TMGA for $9.5 million. Additionally, on
December 19, 1997, TMGA acquired MCA's 33% Joint Venture interest for $9.5
million (unaudited--note 7).
These financial statements have been prepared to reflect Venturers' capital
as of, and results of operations up to, December 19, 1997, prior to the time
TMGA acquired its 100% interest. The accompanying financial statements have
been prepared using the Joint Venture's cost basis in assets acquired. No step
up in assets acquired resulting from purchase transactions amongst the Venture
partners has been reflected in these financial statements.
(b) Revenue Recognition
Income from ticket operations and mailing income from handling charges
relating to phone sales are recognized on the accrual basis as tickets are
sold.
(c) Depreciation and Amortization
Equipment and leasehold improvements are stated at cost. Depreciation of
computers, furniture and equipment is computed using the straight-line method
over the estimated useful lives of the related assets. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated useful lives of the assets or the remaining term of
the lease. Amortization of contract rights to provide computerized ticketing
services to specific venues is computed on a straight-line basis over the terms
of the contracts.
(d) Income Taxes
No provision has been made for federal and state income taxes, since these
taxes are the responsibility of the Joint Venturers.
(e) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Joint Venture considers
all highly liquid temporary investments purchased with a maturity of three
months or less to be cash equivalents.
Cash and cash equivalents include $150,000 which is held in escrow as
required by agreement with a client to guarantee certain future amounts owed to
this client as a result of future ticket sales.
T-6
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
NOTES TO FINANCIAL STATEMENTS--(Continued)
(f) Concentration of Credit Risk
The Joint Venture places its cash equivalents principally in money market
accounts with its banks. The money market investments are diverse and generally
short-term and, therefore, bear minimal risk. The Company has not experienced
any losses on its money market investments.
Accounts receivable are very short-term and represent balances from many
customers. Concentration of credit risk is considered minimal and bad debts
have not been significant. The Company does not require collateral or other
security to support credit sales.
(g) Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, accounts receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of such
instruments.
(h) 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
disclosures of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(i) Long-Lived Assets
The Company accounts for long-lived assets, including intangibles, at
amortized cost. As part of an ongoing review of the valuation and amortization
of long-lived assets, management assesses the carrying value of such assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the assets will not be recoverable, as determined by a
nondiscounted cash flow analysis over the remaining amortization period, the
carrying value of the assets would be reduced to estimated fair market value,
usually based on discounted cash flows.
(j) New Accounting Pronouncements
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards to measure all
changes in equity that result from transactions and other economic events other
than transactions with owners. Comprehensive income is the total of net
earnings and all other nonowner changes in equity. Except for net earnings, the
Company does not have any transactions and other economic events that qualify
as comprehensive income as defined under SFAS No. 130. Accordingly, the
adoption of SFAS No. 130 did not affect the Company's financial position,
results of operations or financial statement presentation.
T-7
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
NOTES TO FINANCIAL STATEMENTS--(Continued)
2. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at January 31, 1997 and December 19,
1997 are summarized as follows:
<TABLE>
<CAPTION>
January December 19,
31, 1997 1997
---------- ------------
<S> <C> <C>
Telephone and computer equipment................... $1,036,602 1,490,294
Furniture and equipment............................ 53,362 83,155
Leasehold improvements............................. 157,301 183,311
---------- ---------
1,247,265 1,756,760
Less accumulated depreciation and amortization..... (624,592) (597,902)
---------- ---------
$ 622,673 1,158,858
========== =========
</TABLE>
3.CONTRACT RIGHTS
Initial capital contributions of $2.5 million each by TMGA and MCA were
used to acquire from Seats a 67% interest in certain contract rights to provide
computerized ticketing services to the Atlanta Braves, the Atlanta Hawks and
the Omni Coliseum for a period of five years from March 15, 1990. The remaining
33% interest in these contract rights was contributed to the Joint Venture by
Seats at their cost basis of $434,375.
As provided in the Joint Venture agreement, TMGA and MCA each contributed
an additional $1,500,000 in the fiscal year ended January 31, 1994 which was
used to extend the Seats' contract rights for an additional five-year period
through March 14, 2000. As part of this transaction, Seats recorded their
interest in these contract rights at their cost basis of $434,375, a noncash
transaction. The cost of these contract rights has been recorded as an asset
(contract rights), and is being amortized by the straight-line method over the
remaining term of the Joint Venture agreement.
Income or loss before amortization of Seats' contract rights is shared
equally by the Joint Venturers. Amortization of Seats' contract rights is
charged to the capital accounts of TMGA, MCA and Seats in proportion to their
cost basis.
4.COMMITMENTS
The Joint Venture leases office space, equipment and a suite under various
operating leases which expire at various dates through 2001. At December 19,
1997, future minimum lease payments required under these leases are as follows:
<TABLE>
<S> <C>
Twelve months ending December 19:
1998........................................................... $ 440,100
1999........................................................... 428,800
2000........................................................... 150,600
2001........................................................... 47,700
----------
$1,067,200
==========
</TABLE>
T-8
<PAGE>
TICKETMASTER SOUTHEAST
(A Joint Venture)
NOTES TO FINANCIAL STATEMENTS--(Continued)
Rental expense under operating leases amounted to approximately $340,000
for the year ended January 31, 1997 and $300,000 for the period ended December
19, 1997.
Future minimum lease payments do not include contingent rentals that may be
required for the Joint Venture's pro rata share of certain operating expenses
associated with office space leases. No contingent rental payments were paid in
1997.
5.RELATED PARTY TRANSACTIONS
TMGA receives compensation from the Joint Venture in consideration of its
services as managing partner. By agreement, the amount of such compensation is
$60,000 per year with automatic increases of 10% every other year during the
term TMGA serves as managing partner. Managing fees under this agreement were
$79,255 for the year ended January 31, 1997 and $70,630 for the period from
February 1, 1997 to December 19, 1997.
Purchases of equipment and reimbursements for other services from
Ticketmaster Corporation and its affiliates amounted to approximately
$1,250,000 during the year ended January 31, 1997 and $639,730 for the period
from February 1, 1997 to December 19, 1997.
6.EMPLOYEE BENEFIT PLAN
Ticketmaster Corporation has a 401(k) Plan (The Plan) sponsored by
Ticketmaster Corporation. The Plan contains an employer match feature of 25% of
the employee's contribution up to a maximum of 6% of the employee's
compensation. The Joint Venturer's contribution was $16,893 during the year
ended January 31, 1997 and $13,776 for the period from February 1, 1997 to
December 19, 1997.
7.SUBSEQUENT EVENT--UNAUDITED
On December 19, 1997, TMGA acquired MCA's Joint Venture interest for $9.5
million, thus increasing TMGA's interest in the Joint Venture to 100%.
T-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Fey Concert Company:
We have audited the accompanying balance sheet of Fey Concert Company (a
Colorado general partnership) (the "Partnership") as of June 21, 1997, and the
related statements of operations, partners' deficit and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Fey Concert Company as of
June 21, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with accounting principles generally accepted in
the United States.
Arthur Andersen LLP
Los Angeles, California,
February 16, 2000
Y-1
<PAGE>
FEY CONCERT COMPANY
BALANCE SHEET
As of June 21, 1997
<TABLE>
<S> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents........................................ $3,804,000
Accounts receivable, net of allowance for doubtful accounts of
$551,000........................................................ 1,050,000
Prepaid expenses and other current assets........................ 304,000
----------
Total current assets........................................... 5,158,000
PROPERTY AND EQUIPMENT, net........................................ 223,000
----------
Total assets................................................... $5,381,000
==========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
CURRENT LIABILITIES:
Accounts payable................................................. $ 105,000
Accrued expenses................................................. 1,278,000
Deferred revenue................................................. 4,646,000
----------
Total current liabilities...................................... 6,029,000
----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' DEFICIT.................................................. (648,000)
----------
Total liabilities and partners' deficit........................ $5,381,000
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Y-2
<PAGE>
FEY CONCERT COMPANY
STATEMENT OF OPERATIONS
For the Year Ended June 21, 1997
<TABLE>
<S> <C>
REVENUES........................................................... $29,370,000
EXPENSES:
Operating expenses............................................... 23,179,000
Selling, general and administrative.............................. 4,410,000
Depreciation and amortization.................................... 43,000
-----------
27,632,000
-----------
OPERATING INCOME................................................... 1,738,000
OTHER INCOME....................................................... 113,000
-----------
NET INCOME......................................................... $ 1,851,000
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Y-3
<PAGE>
FEY CONCERT COMPANY
STATEMENT OF PARTNERS' DEFICIT
For the Year Ended June 21, 1997
<TABLE>
<S> <C>
BALANCE, June 22, 1996............................................ $(1,257,000)
Distributions to partners....................................... (1,083,000)
Advances to partner............................................. (159,000)
Net income...................................................... 1,851,000
-----------
BALANCE, June 21, 1997............................................ $ (648,000)
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Y-4
<PAGE>
FEY CONCERT COMPANY
STATEMENT OF CASH FLOWS
For the Year Ended June 21, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 1,851,000
Adjustments to reconcile net income to net cash provided by
operating activities-- Depreciation and amortization............. 43,000
Changes in operating assets and liabilities--
Increase in receivables......................................... (377,000)
Increase in prepaid expenses and other current assets........... (199,000)
Decrease in accounts payable.................................... (102,000)
Decrease in accrued expenses.................................... (481,000)
Increase in deferred revenue.................................... 1,172,000
-----------
Net cash provided by operating activities..................... 1,907,000
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... (116,000)
-----------
Net cash used in investing activities......................... (116,000)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners......................................... (1,083,000)
Advances to partner............................................... (159,000)
-----------
Net cash used in financing activities......................... (1,242,000)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 549,000
CASH AND CASH EQUIVALENTS, beginning of period.................... 3,255,000
-----------
CASH AND CASH EQUIVALENTS, end of period.......................... $ 3,804,000
===========
</TABLE>
The accompanying notes are an integral part of this financial statement.
Y-5
<PAGE>
FEY CONCERT COMPANY
NOTES TO FINANCIAL STATEMENTS
June 21, 1997
1. DESCRIPTION OF BUSINESS:
In October, 1991, a predecessor of Universal Concerts, Inc. ("UCI") and
Every Dog Has Its Day, Inc. ("EDHID") entered into a general partnership
agreement to form Fey Concert Company (the "Partnership"), a Colorado general
partnership, to engage in the business of promoting, producing and commercially
exploiting concerts and public attractions at the Fiddler's Green Amphitheatre
and other venues in the Denver, Colorado area. UCI is the managing partner of
the Partnership.
The Partnership interests as of June 21, 1997 was as follows:
<TABLE>
<CAPTION>
Interest
--------
<S> <C>
UCI--general partnership interest................................. 50.0%
EDHID--general partnership interest............................... 50.0%
------
100.0%
======
</TABLE>
In August 1997, UCI purchased EDHID's general partnership interest in the
Partnership for $3,050,000.
In September 1999, UCI subsequently changed its name to HOB Concerts, Inc.
when UCI was acquired by HOB Entertainment, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Fiscal Year
The Partnership has adopted a fifty-two/fifty-three week accounting year.
The period ending June 21, 1997 is a fifty-two week year.
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.
Revenue Recognition
Admission revenue from the presentation and production of an event is
recognized on the date of the performance. Advance ticket sales are recorded as
deferred revenue until the related event occurs. The Partnership outsources its
food and beverage concessions to third parties and receives a percentage of
food and beverage revenue generated.
In consideration for the exclusive rights granted at certain venues, the
Partnership receives an annual sponsorship fee. Sponsorship fees that are not
related to any single event are classified as deferred revenue and are
amortized on a straight-line basis over the operating season during the term of
the related contract.
Y-6
<PAGE>
FEY CONCERT COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 21, 1997
Advertising
Advertising costs are expensed as incurred. Advertising expenses, included
in operating expenses were, $2,025,000 for the year ended June 21, 1997.
Cash and Cash Equivalents
Cash and cash equivalents represent all highly liquid debt instruments
purchased which have original maturities of three months or less. The fair
market value of the Partnership's cash equivalents approximated cost at the
balance sheet date.
Accounts Receivable
Accounts receivable are due principally from food and merchandise
concessionaires and sponsorship. These amounts are typically collected
proximate to the date of the related performance. Certain other accounts
receivable, arising from the normal course of business, are reviewed for
collectibility and allowances for doubtful accounts are recorded as required.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets of seven years for furniture and equipment and three
to five years for all other assets. Leasehold improvements are amortized on a
straight-line basis over the estimated useful life of the improvement or the
length of the lease, whichever is shorter. When property is sold or otherwise
disposed of, the cost and related accumulated depreciation is removed from the
accounts, and any resulting gain or loss is included in income. The costs of
normal maintenance and repairs are charged to expense when incurred.
The Partnership accounts for long-lived assets under Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires that
impaired long-lived assets be carried at the lower of carrying amount or fair
value. The Partnership reviews the carrying value of long-lived assets for
impairment whenever events or changes in circumstances indicate the carrying
value may not be recoverable. Measurement of any impairment would include a
comparison of estimated future cash flows anticipated to be generated during
the remaining life of the long-lived asset to the net carrying value of the
long-lived asset.
Concentration and Seasonality
One vendor processes approximately 90% of the Partnership's ticket sale
volume. Management does not believe that this concentration poses a risk, as
other vendors are available to provide this service at comparable terms.
The Partnership's operations are somewhat seasonal in nature, with higher
revenues generated in the first and fourth fiscal quarters.
Y-7
<PAGE>
FEY CONCERT COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 21, 1997
Income Taxes
No provision has been made in the accompanying financial statements for
federal or state income taxes as the liability for such income taxes is the
responsibility of the Partners.
Fair Value of Financial Instruments
The carrying values of short-term receivables and payables approximate
their estimated fair values because of the short maturity of these
instruments.
3. PROPERTY AND EQUIPMENT:
Property and equipment, stated at cost, as of June 21, 1997 are comprised
of the following:
<TABLE>
<S> <C>
Furniture and equipment......................................... $ 72,000
Leasehold improvements.......................................... 293,000
Computers and other assets...................................... 76,000
---------
441,000
Less: accumulated depreciation and
amortization................................................... (218,000)
---------
$ 223,000
=========
</TABLE>
4. ACCRUED EXPENSES:
Accrued expenses as of June 21, 1997 are comprised of the following:
<TABLE>
<S> <C>
Performance and talent........................................ $ 612,000
Other......................................................... 666,000
----------
$1,278,000
==========
</TABLE>
5. RELATED PARTY TRANSACTIONS:
UCI advanced certain costs and expenses on behalf of the Partnership that
are later reimbursed at cost. These costs include payroll, insurance premiums,
and certain administrative allocations. Advances from UCI for the year ended
June 21, 1997 were as follows:
<TABLE>
<S> <C>
Payroll.......................................................... $735,000
Insurance........................................................ 151,000
Administrative allocations....................................... 24,000
</TABLE>
Amounts payable to UCI on June 21, 1997 was $125,000.
The Partnership made certain advances to EDHID. As of June 21, 1997,
advances of $500,000 was included in the EDHID partner's capital account, of
which $159,000 were advanced during the year ended June 21, 1997.
Subsequently, the advances were effectively repaid, as a reduction of EDHID's
selling price of its interest in the Partnership (see Note 1).
Y-8
<PAGE>
FEY CONCERT COMPANY
NOTES TO FINANCIAL STATEMENTS--(Continued)
June 21, 1997
6. COMMITMENTS AND CONTINGENCIES:
Operating Lease Agreements
The Partnership has entered into various operating lease agreements for
office space and entertainment venues. Total rent expense for the year ended
June 21, 1997, was $1,508,000. Future minimum lease payments at June 21, 1997,
relating to the Partnership's non-cancelable operating leases, are as follows:
<TABLE>
<S> <C>
1998............................................................ $ 251,000
1999............................................................ 231,000
2000............................................................ 223,000
2001............................................................ 127,000
2002............................................................ 127,000
Thereafter...................................................... 1,283,000
----------
Total......................................................... $2,242,000
==========
</TABLE>
Guarantees
The Partnership has guaranteed annual maximum rent obligations of $230,000
through August 2000 for one of its venues.
Y-9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 24
Selected Consolidated Financial Data..................................... 25
Unaudited Pro Forma Consolidated Financial Statements.................... 28
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 34
Live Music Industry Overview............................................. 47
Business................................................................. 52
Management............................................................... 79
Principal Stockholders................................................... 86
Certain Transactions..................................................... 88
Description of Capital Stock............................................. 89
Shares Eligible for Future Sale.......................................... 92
Underwriting............................................................. 94
Legal Matters............................................................ 96
Experts.................................................................. 96
Additional Information................................................... 97
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to a dealer's obligation to deliver a prospectus when
acting as an underwriting and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
HOB Entertainment, Inc.
Common Stock
---------------
[LOGO OF HOUSE OF BLUES]
---------------
Goldman, Sachs & Co.
Merrill Lynch & Co.
Donaldson, Lufkin & Jenrette
Prudential Securities
Representatives of the Underwriters
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than the
underwriting discount, payable by the Registrant in connection with the sale of
the Common Stock being registered. All amounts are estimates except the SEC
registration fee, the NASD filing fees and the Nasdaq National Market listing
fee.
<TABLE>
<CAPTION>
Amount to
Be Paid
---------
<S> <C>
SEC registration fee.................................................. $26,400
NASD filing fee....................................................... 10,500
Nasdaq National Market listing fee.................................... *
Legal fees and expenses............................................... *
Accounting fees and expenses.......................................... *
Printing and engraving................................................ *
Blue sky fees and expenses (including legal fees)..................... *
Transfer agent fees................................................... *
Miscellaneous......................................................... *
-------
Total............................................................... *
=======
</TABLE>
- --------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers
Our certificate of incorporation in effect as of the date hereof, and our
amended and restated certificate of incorporation to be in effect upon the
closing of this offering (collectively, the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law, as
amended (the "DGCL"), the Registrant's directors shall not be personally liable
to the Registrant or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the Registrant. Under the DGCL, the directors
have a fiduciary duty to the Registrant which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of nonmonetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the Registrant,
for acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by the DGCL. This provision also does not
affect the directors' responsibilities under any other laws, such as the
Federal securities laws. The Registrant may obtain liability insurance for its
officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate
II-1
<PAGE>
eliminates the personal liability of directors to the fullest extent permitted
by Section 102(b)(7) of the DGCL and provides that the Registrant may fully
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director or officer of the Registrant, or is or was
serving at the request of the Registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
Item 15. Recent Sales of Unregistered Securities
(a) On July 31, 1998, the Registrant issued 16,666,667 shares of its Class
D-1 Preferred Stock to Chase/HOB 1998 (GC), L.L.C. and 225,481 shares of its
Class D-1 Preferred Stock to certain existing stockholders of the Registrant
who are accredited investors pursuant to preemptive rights to purchase such
shares. The aggregate offering price of these securities was $20,270,578.
(b) On September 10, 1999, the Registrant issued (i) 15,432,099 shares of
its Class D-2 Preferred Stock, 15,000 shares of its 12% Senior Redeemable
Preferred Stock, 5,050 shares of its 10% Senior Convertible Preferred Stock and
warrants to purchase 2,867,173 shares of its Common Stock to Chase/HOB 1999
(GC), L.L.C., (ii) 9,259,259 shares of its Class D-2 Preferred Stock,
5,000 shares of its 10% Senior Convertible Preferred Stock and warrants to
purchase 409,012 shares of its Common Stock to S.A. Blues Partners, L.P.,
(iii)15,068,991 shares of its Class D-2 Preferred Stock, 4,931 shares of its
10% Senior Convertible Preferred Stock, 4,882 shares of its 12% Senior
Redeemable Preferred Stock and warrants to purchase 1,202,100 shares of its
Common Stock to J.H. Whitney III, L.P., (iv) 363,108 shares of its Class D-2
Preferred Stock, 119 shares of its 10% Senior Convertible Preferred Stock, 118
shares of its 12% Senior Redeemable Preferred Stock and warrants to purchase
1,202,100 shares of Common Stock to Whitney Strategic Partners III, L.P., (v) ,
10, 000 shares of its 12% Senior Redeemable Preferred Stock and warrants to
purchase 1,668,000 shares of its Common Stock to J.H. Whitney Market Value
Fund, L.P., (vi) 2,067,350 shares of its Class D-2 Preferred Stock, 7,577,712
shares of its Class D-3 Preferred Stock, 9,375 shares of its 12% Senior
Redeemable Preferred Stock, 4,900 shares of its 10% Senior Convertible
Preferred Stock and warrants to purchase 1,934,626 shares of its Common Stock
to First Union Investors, Inc., (vii) 5,000 shares of its 12% Senior Redeemable
Preferred Stock and warrants to purchase 818,024 shares of its Common Stock to
Ares Leveraged Investment Fund, L.P. and (viii) 5,000 shares of its 12% Senior
Redeemable Preferred Stock and warrants to purchase 818,024 shares of its
Common Stock to Ares Leveraged Investment Fund, L.P. The aggregate offering
price of these securities was $150,000,000.
(c) On January 31, 2000, the Registrant issued options to purchase
2,675,000 shares of its Common Stock in consideration of advisory services
performed in connection with the Company's acquisition of HOB Concerts, Inc.
and its affiliates.
(d) On January 5, 2000, the Registrant issued 802,469 shares of its Class
D-2 Preferred Stock to two existing stockholders of the Registrant in
connection with the settlement of a contractual obligation.
(e) On January 24, 2000, the registrant issued warrants to purchase
3,338,871 shares of its Common Stock to holders of its Senior Convertible
Preferred Stock. These warrants were required to be issued pursuant to the
terms of the purchase agreement under which the 10% Senior Convertible
Preferred Stock was sold. No additional consideration was received for these
warrants.
(f) On February 11 and February 25, 2000 the Registrant issued and sold
2,996,513 shares of its Class D-2 Preferred Stock, 2,910 shares of its 12%
Senior Redeemable Preferred Stock and
II-2
<PAGE>
warrants to purchase 476,090 shares of its Common Stock to certain existing
stockholders of the Company pursuant to preemptive rights to purchase such
shares and to new investors. The aggregate offering price of these securities
was $7,764,210.
(g) On February 25, 2000, the Registrant issued warrants to purchase
157,767 shares of its Common Stock to holders of its 12% Senior Redeemable
Preferred Stock. These warrants were required to be issued pursuant to the
terms of the warrants issued with the 12% Senior Redeemable Preferred Stock on
September 10, 1999. No additional consideration was received for these
warrants.
(h) On February 24, 2000, the Registrant issued 8,694 shares of its Common
Stock upon the exercise of options therefor. The aggregate consideration
received these securities was $26,082.
(i) As of March 13, 2000, the Registrant had issued options exercisable for
shares (net of cancellations) of its common stock pursuant to its 1993
Stock Option Plan. Of this amount, options for shares of its common stock
had been exercised as of March 13, 2000.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
compensatory issuances to employees and directors, Rule 701 promulgated under
Section 3(b) of the Securities Act as transactions by an issuer not involving a
public offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under such Rule 701. The
recipients of securities in each of the foregoing transactions represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the instruments representing such securities issued in
such transactions.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of this offering.
*3.2 Form of Amended and Restated Bylaws to be in effect upon the closing of
this offering.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Latham & Watkins.
10.1 Amended and Restated 1993 Stock Option Plan.
10.2 Amendment to Amended and Restated 1993 Stock Option Plan.
10.3 Second Amendment to Amended and Restated 1993 Stock Option Plan.
*10.4 2000 Equity Participation Plan.
*10.5 2000 Employee Stock Purchase Plan.
10.6 Form of Warrant Agreement for investors purchasing Senior Convertible
Preferred Stock.
10.7 Form of Warrant Agreement for investors purchasing 12% Senior
Redeemable Preferred Stock.
10.8 Amended and Restated Registration Rights Agreement.
*10.9 Form of Indemnification Agreement between HOB Entertainment, Inc. and
directors, executive officers and other key employees.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
*10.10 Employment Agreement by and between HOB Entertainment, Inc. and
Gregory A. Trojan.
*10.11 Employment Agreement by and between HOB Entertainment, Inc. and
Joseph C. Kaczorowski.
*10.12 Employment Agreement by and between HOB Entertainment, Inc. and Daniel
L. Fishkin.
10.13 Employment Agreement, dated as of May 1999, by and between HOB
Entertainment, Inc. and Lou Mann.
10.14 Employment Agreement, dated as of March 8, 1999, by and between
Universal Studios, Inc. and Jay Marciano, as assumed by HOB
Entertainment, Inc.
10.15 Purchase Agreement, dated as of July 21, 1999, by and among HOB
Entertainment, Inc. and certain investors.
10.16 Supplement to Purchase Agreement, dated as of September 7, 1999, by
and among HOB Entertainment, Inc. and certain investors.
+*10.17 Strategic Alliance Agreement, dated as of September 10, 1999, by and
between Universal Music Group, Inc. and HOB Entertainment, Inc.
+*10.18 Stock Purchase Agreement, dated as of December 17, 1998, by and among
Universal Concerts, Inc., William J. Silva and Andrew Hewitt.
+*10.19 Operating Agreement, dated as of December 17, 1998, by and among
William J. Silva, Andrew Hewitt, WJS III, Inc. and The Andrew Hewitt
Corporation.
10.20 Loan Agreement, dated as of May 1, 1997, by and between Carbon Capital
Mortgage Partners, L.P. and HOB Marina City Partners, L.P.
10.21 Contract of Guaranty, dated as of May 1, 1997, by HOB Entertainment,
Inc. to Carbon Capital Mortgage Partners, L.P.
10.22 Agreement of Limited Partnership of HOB Marina City Partners, L.P.,
dated as of January 29, 1996, by and among HOB Marina City, Inc.,
Niki Development, Corp., Platinum Blues Chicago, LLC and HOB Chicago,
Inc.
10.23 First Amendment to Agreement of Limited Partnership of HOB Marina City
Partners, L.P., dated as of December 20, 1996, by and among HOB
Marina City, Inc., Niki Development, Corp., Platinum Blues Chicago,
LLC and HOB Chicago, Inc.
10.24 Second Amendment to Agreement of Limited Partnership of HOB Marina
City Partners, L.P., dated as of May 1, 1997, by and among HOB Marina
City, Inc., Niki Development, Corp., Platinum Blues Chicago, LLC and
HOB Chicago, Inc.
10.25 Third Amendment to Agreement of Limited Partnership of HOB Marina City
Partners, L.P., dated as of January 5, 2000, made by HOB Marina City,
Inc., as general partner.
10.26 Purchase Agreement, dated as of January 5, 2000, by and between
Platinum Blues Chicago, LLC and HOB Chicago, Inc.
10.27 Advisory Agreement, dated as of January 31, 2000, by and between Wm.
Christopher Gorog, HOB Entertainment, Inc. and certain investors.
10.28 Stock Option Agreement, dated as of January 31, 2000, by and between
HOB Entertainment, Inc. and Wm. Christopher Gorog.
10.29 Contribution Agreement, dated as of January 31, 2000, by and among HOB
Entertainment, Inc. and certain investors.
+*10.30 Lease Agreement, dated as of September 14, 1998, by and between
Mandalay Corp. and House of Blues Las Vegas Restaurant Corp.
10.31 Standard Industrial Lease, dated as of April 10, 1992, by and between
William L. Penzner, Trustee of William L. Penzner Trust and Rama
Media Investments, Inc., a Tennessee Corporation, or Assignee.
</TABLE>
II-4
<PAGE>
<TABLE>
<C> <S>
10.32 First Amendment to Standard Industrial Lease, dated as of September
19, 1992, by and between Rama Media Investments, Inc., and William L.
Penzner.
10.33 Second Amendment to Lease, dated as of June 15, 1993, by and between
William L. Penzner and House of Blues Los Angeles Restaurant Corp.
10.34 Assignment of Interests Under Lease Agreement, dated as of May 12,
1993, by and between Rama Media Investments, Inc. and House of Blues
Los Angeles Restaurant Corp.
10.35 Ratification and Memorandum of Lease Agreement, dated as of October
21, 1998, by and between Penzner Iverson Family Trust, and House of
Blues Los Angeles Restaurant Corp.
10.36 Lease Agreement, dated as of October 14, 1992, by and between Beni
Toledano and House of Blues Partnership Management Corporation.
10.37 Amendment to Lease Agreement, dated as of December 20, 1993, by and
among Beni Toledano and Jacqueline G. Toledano and House of Blues New
Orleans Restaurant Corp.
10.38 Second Amendment to Lease Agreement, dated as of January 20, 1994, by
and among Beni Toledano and Jacqueline G. Toledano and House of Blues
New Orleans Restaurant Corp.
10.39 Third Amendment to Lease Agreement, dated as of November 26, 1997, by
and among Beni Toledano and Jacqueline G. Toledano and House of Blues
New Orleans Restaurant Corp.
10.40 Lease Agreement, dated as of January 29, 1996, by and between HOB
Marina City Partners, L.P. and HOB Chicago, Inc.
10.41 Amendment to Lease Agreement, dated as of August 20, 1996, by and
between HOB Marina City Partners, L.P. and HOB Chicago, Inc.
10.42 Second Amendment to Lease Agreement, dated as of May 1, 1997, by and
between HOB Marina City Partners, L.P. and HOB Chicago, Inc.
+*10.43 Universal Amphitheatre Lease, dated as of September 10, 1999, by and
between Universal Studios, Inc. and Hilltop Concerts, Inc.
+*10.44 Ground Lease Agreement, dated as of September 4, 1997, by and between
Los Alisos Company and Universal Concerts, Inc.
+*10.45 Sublease Agreement, dated as of September 4, 1997, by and between the
City of Chula Vista and Universal Concerts, Inc.
+*10.46 Tri-Party Agreement, dated as of September 4, 1997, by and among Los
Alisos Company, Universal Concerts, Inc. and the City of Chula Vista.
10.47 Agreement, dated as of October 10, 1988, by and between The City of
Atlanta and MCA Concerts, Inc.
10.48 First Amendment to Agreement, dated as of July 14, 1989, by and
between The City of Atlanta and MCA Concerts, Inc.
10.49 Second Amendment to Agreement, dated as of June 1989, by and between
The City of Atlanta and MCA Concerts, Inc.
10.50 Third Amendment to Agreement, dated as of July 1989, by and between
The City of Atlanta and MCA Concerts, Inc.
10.51 Fourth Amendment to Agreement, dated as of March 1993, by and between
The City of Atlanta and MCA Concerts, Inc.
+*10.52 Lease and Use Agreement, dated as of December 9, 1987, by and between
City of Dallas and Pace Entertainment Group, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<C> <S>
+*10.53 Amendment to Lease and Use Agreement, dated as of June 14, 1989, by
and between City of Dallas and MCA/Pace Amphitheatres Group, L.P.
10.54 Real Property Purchase Agreement, dated as of October 6, 1993, by and
among Champs de Brionne Winery Associates, Summer Music Theater,
Inc., Vincent E. Bryan, Carol A. Bryan and MCA Concerts, Inc.
+*10.55 Ground Lease, dated as of August 15, 1994, by and among Her Majesty
the Queen in Right of Ontario, MCA Concerts Canada and Ontario Place
Corporation.
+*10.56 Amended and Restated Partnership Agreement, dated as of January 1,
1996, by and between Molson Breweries and MCA Concerts Canada.
+*10.57 Agreement of Limited Partnership, dated as of January 22, 1988, by and
between MCA Concerts II, Inc. and PACE.
+*10.58 Amendment No. 1 to the Agreement of Limited Partnership, dated as of
March 2, 1988, by and between MCA Concerts II, Inc. and PACE.
+*10.59 Amendment No. 2 to the Agreement of Limited Partnership, dated as of
May 11, 1989, by and between MCA Concerts II, Inc. and PACE.
+*10.60 Amendment No. 3 to the Agreement of Limited Partnership, dated as of
May 12, 1989, by and between MCA Concerts II, Inc. and PACE.
+*10.61 Amendment No. 4 to the Agreement of Limited Partnership, dated as of
January 23, 1990, by and between MCA Concerts II, Inc. and PACE.
+*10.62 Master Licensed User Agreement, dated as of December 5, 1997, by and
between Ticketmaster Ticketing Co., Inc. and Universal Concerts, Inc.
+*10.63 Licensing Agreement, dated as of February 18, 1992, by and among
Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.64 Amendment No. 1 to Licensing Agreement dated February 18, 1992, dated
as of June 16, 1993, by and among Daniel Aykroyd, Judith Pisano and
Isaac Tigrett.
10.65 Amendment No. 2 to Licensing Agreement dated February 18, 1992, dated
as of May 1, 1996, by and among Daniel Aykroyd, Judith Pisano and
Isaac Tigrett.
+*10.66 Agreement, dated as of April 4, 1992, by and among Daniel Aykroyd,
Judith Pisano and Isaac Tigrett.
10.67 Waiver and Consent Agreement, dated as of February 18, 1992, by and
among Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.68 Amendment to Waiver and Consent Agreement, dated as of June 23, 1993,
by and among Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.69 Release Agreement, dated as of June 4, 1993, by and among Daniel
Aykroyd, Isaac Tigrett, House of Blues, Inc., House of Blues Brands
Corp. and House of Blues Cambridge Restaurant Corp.
10.70 Guaranty Supplement, dated as of May 14, 1998, by and among Dan
Aykroyd, Judith Pisano, Isaac Tigrett and HOB Entertainment, Inc.
10.71 Assignment, dated as of July 7, 1998, by and between Daniel E. Aykroyd
and Applied Action Research Corporation.
10.72 Indemnification Agreement, dated as of July 31, 1998, by and between
HOB Entertainment, Inc. and Chase Venture Capital Associates, L.P.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
</TABLE>
II-6
<PAGE>
<TABLE>
<C> <S>
23.3 Consent of KPMG, LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
*23.5 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (See signature page on Form S-1).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Registrant will request confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and will separately file such exhibit with
the Commission.
* To be supplied by amendment.
Item 17. Undertakings
The undersigned Registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424 (b)(1) or
(4), or 497(h) under the Securities Act of 1933, shall be deemed to be part
of this registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Los Angeles, State of
California, on this 14th day of March, 2000.
HOB ENTERTAINMENT, INC.
/s/ Gregory A. Trojan
By: _________________________________
Name: Gregory A. Trojan
Title: Chief Executive Officer
POWERS OF ATTORNEY
Each person whose signature appears below constitutes and appoints Gregory
A. Trojan, Joseph C. Kaczorowski and Peter J. Cyffka, and each of them, as
attorney-in-fact with the power of substitution, for him or her in any and all
capacities, to sign any amendment to this registration statement (including
post-effective amendments and registration statements filed pursuant to
Rule 462 and otherwise), and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting to said attorneys-in-fact, and each of them individually, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact or each of them individually, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Gregory A. Trojan President, Chief Executive March 14, 2000
____________________________________ Officer and Director
Gregory A. Trojan (Principal Executive Officer)
/s/ Joseph C. Kaczorowski Executive Vice President, March 14, 2000
____________________________________ Chief Financial Officer,
Joseph C. Kaczorowski Treasurer and Secretary
(Principal Financial
Officer)
/s/ Peter J. Cyffka Senior Vice President, March 14, 2000
____________________________________ Finance and Accounting and
Peter J. Cyffka Chief Accounting Officer
(Principal Accounting
Officer)
/s/ David L. Ferguson Chairman of the Board of March 14, 2000
____________________________________ Directors
David L. Ferguson
/s/ Andre J. Filipowski Director March 14, 2000
____________________________________
Andrew J. Filipowski
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Christopher Goldsbury, Jr. Director March 14, 2000
____________________________________
Christopher Goldsbury, Jr.
/s/ Daniel E. Aykroyd Director March 14, 2000
____________________________________
Daniel E. Aykroyd
/s/ Jeffrey C. Walker Director March 14, 2000
____________________________________
Jeffrey C. Walker
/s/ Ken Halliday Director March 14, 2000
____________________________________
Ken Halliday
/s/ William Laverack Director March 14, 2000
____________________________________
William Laverack
/s/ James Cook Director March 14, 2000
____________________________________
James Cook
/s/ Wm. Christopher Gorog Director March 14, 2000
____________________________________
Wm. Christopher Gorog
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
*3.1 Form of Amended and Restated Certificate of Incorporation to be in
effect upon the closing of this offering.
*3.2 Form of Amended and Restated Bylaws to be in effect upon the closing
of this offering.
*4.1 Specimen Common Stock Certificate.
*5.1 Opinion of Latham & Watkins.
10.1 Amended and Restated 1993 Stock Option Plan.
10.2 Amendment to Amended and Restated 1993 Stock Option Plan.
10.3 Second Amendment to Amended and Restated 1993 Stock Option Plan.
*10.4 2000 Equity Participation Plan.
*10.5 2000 Employee Stock Purchase Plan.
10.6 Form of Warrant Agreement for investors purchasing Senior Convertible
Preferred Stock.
10.7 Form of Warrant Agreement for investors purchasing 12% Senior
Redeemable Preferred Stock.
10.8 Amended and Restated Registration Rights Agreement.
*10.9 Form of Indemnification Agreement between HOB Entertainment, Inc. and
directors, executive officers and other Key employees.
*10.10 Employment Agreement by and between HOB Entertainment, Inc. and
Gregory A. Trojan.
*10.11 Employment Agreement by and between HOB Entertainment, Inc. and
Joseph C. Kaczorowski.
*10.12 Employment Agreement by and between HOB Entertainment, Inc. and Daniel
L. Fishkin.
10.13 Employment Agreement, dated as of May 1999, by and between HOB
Entertainment, Inc. and Lou Mann.
10.14 Employment Agreement, dated as of March 8, 1999, by and between
Universal Studios, Inc. and Jay Marciano, as assumed by HOB
Entertainment, Inc.
10.15 Purchase Agreement, dated as of July 21, 1999, by and among HOB
Entertainment, Inc. and certain investors.
10.16 Supplement to Purchase Agreement, dated as of September 7, 1999, by
and among HOB Entertainment, Inc. and certain investors.
+*10.17 Strategic Alliance Agreement, dated as of September 10, 1999, by and
between Universal Music Group, Inc. and HOB Entertainment, Inc.
+*10.18 Stock Purchase Agreement, dated as of December 17, 1998, by and among
Universal Concerts, Inc., William J. Silva and Andrew Hewitt.
+*10.19 Operating Agreement, dated as of December 17, 1998, by and among
William J. Silva, Andrew Hewitt, WJS III, Inc. and The Andrew Hewitt
Corporation.
10.20 Loan Agreement, dated as of May 1, 1997, by and between Carbon Capital
Mortgage Partners, L.P. and HOB Marina City Partners, L.P.
10.21 Contract of Guaranty, dated as of May 1, 1997, by HOB Entertainment,
Inc. to Carbon Capital Mortgage Partners, L.P.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.22 Agreement of Limited Partnership of HOB Marina City Partners, L.P.,
dated as of January 29, 1996, by and among HOB Marina City, Inc.,
Niki Development, Corp., Platinum Blues Chicago, LLC and HOB Chicago,
Inc.
10.23 First Amendment to Agreement of Limited Partnership of HOB Marina City
Partners, L.P., dated as of December 20, 1996, by and among HOB
Marina City, Inc., Niki Development, Corp., Platinum Blues Chicago,
LLC and HOB Chicago, Inc.
10.24 Second Amendment to Agreement of Limited Partnership of HOB Marina
City Partners, L.P., dated as of May 1, 1997, by and among HOB Marina
City, Inc., Niki Development, Corp., Platinum Blues Chicago, LLC and
HOB Chicago, Inc.
10.25 Third Amendment to Agreement of Limited Partnership of HOB Marina City
Partners, L.P., dated as of January 5, 2000, made by HOB Marina City,
Inc., as general partner.
10.26 Purchase Agreement, dated as of January 5, 2000, by and between
Platinum Blues Chicago, LLC and HOB Chicago, Inc.
10.27 Advisory Agreement, dated as of January 31, 2000, by and between Wm.
Christopher Gorog, HOB Entertainment, Inc. and certain investors.
10.28 Stock Option Agreement, dated as of January 31, 2000, by and between
HOB Entertainment, Inc. and Wm. Christopher Gorog.
10.29 Contribution Agreement, dated as of January 31, 2000, by and among HOB
Entertainment, Inc. and certain investors.
+*10.30 Lease Agreement, dated as of September 14, 1998, by and between
Mandalay Corp. and House of Blues Las Vegas Restaurant Corp.
10.31 Standard Industrial Lease, dated as of April 10, 1992, by and between
William L. Penzner, Trustee of William L. Penzner Trust and Rama
Media Investments, Inc., a Tennessee Corporation, or Assignee.
10.32 First Amendment to Standard Industrial Lease, dated as of September
19, 1992, by and between Rama Media Investments, Inc., and William L.
Penzner.
10.33 Second Amendment to Lease, dated as of June 15, 1993, by and between
William L. Penzner and House of Blues Los Angeles Restaurant Corp.
10.34 Assignment of Interests Under Lease Agreement, dated as of May 12,
1993, by and between Rama Media Investments, Inc. and House of Blues
Los Angeles Restaurant Corp.
10.35 Ratification and Memorandum of Lease Agreement, dated as of October
21, 1998, by and between Penzner Iverson Family Trust, and House of
Blues Los Angeles Restaurant Corp.
10.36 Lease Agreement, dated as of October 14, 1992, by and between Beni
Toledano and House of Blues Partnership Management Corporation.
10.37 Amendment to Lease Agreement, dated as of December 20, 1993, by and
among Beni Toledano and Jacqueline G. Toledano and House of Blues New
Orleans Restaurant Corp.
10.38 Second Amendment to Lease Agreement, dated as of January 20, 1994, by
and among Beni Toledano and Jacqueline G. Toledano and House of Blues
New Orleans Restaurant Corp.
10.39 Third Amendment to Lease Agreement, dated as of November 26, 1997, by
and among Beni Toledano and Jacqueline G. Toledano and House of Blues
New Orleans Restaurant Corp.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.40 Lease Agreement, dated as of January 29, 1996, by and between HOB
Marina City Partners, L.P. and HOB Chicago, Inc.
10.41 Amendment to Lease Agreement, dated as of August 20, 1996, by and
between HOB Marina City Partners, L.P. and HOB Chicago, Inc.
10.42 Second Amendment to Lease Agreement, dated as of May 1, 1997, by and
between HOB Marina City Partners, L.P. and HOB Chicago, Inc.
+*10.43 Universal Amphitheatre Lease, dated as of September 10, 1999, by and
between Universal Studios, Inc. and Hilltop Concerts, Inc.
+*10.44 Ground Lease Agreement, dated as of September 4, 1997, by and between
Los Alisos Company and Universal Concerts, Inc.
+*10.45 Sublease Agreement, dated as of September 4, 1997, by and between the
City of Chula Vista and Universal Concerts, Inc.
+*10.46 Tri-Party Agreement, dated as of September 4, 1997, by and among Los
Alisos Company, Universal Concerts, Inc. and the City of Chula Vista.
10.47 Agreement, dated as of October 10, 1988, by and between The City of
Atlanta and MCA Concerts, Inc.
10.48 First Amendment to Agreement, dated as of July 14, 1989, by and
between The City of Atlanta and MCA Concerts, Inc.
10.49 Second Amendment to Agreement, dated as of June 1989, by and between
The City of Atlanta and MCA Concerts, Inc.
10.50 Third Amendment to Agreement, dated as of July 1989, by and between
The City of Atlanta and MCA Concerts, Inc.
10.51 Fourth Amendment to Agreement, dated as of March 1993, by and between
The City of Atlanta and MCA Concerts, Inc.
+*10.52 Lease and Use Agreement, dated as of December 9, 1987, by and between
City of Dallas and Pace Entertainment Group, Inc.
+*10.53 Amendment to Lease and Use Agreement, dated as of June 14, 1989, by
and between City of Dallas and MCA/Pace Amphitheatres Group, L.P.
10.54 Real Property Purchase Agreement, dated as of October 6, 1993, by and
among Champs de Brionne Winery Associates, Summer Music Theater,
Inc., Vincent E. Bryan, Carol A. Bryan and MCA Concerts, Inc.
+*10.55 Ground Lease, dated as of August 15, 1994, by and among Her Majesty
the Queen in Right of Ontario, MCA Concerts Canada and Ontario Place
Corporation.
+*10.56 Amended and Restated Partnership Agreement, dated as of January 1,
1996, by and between Molson Breweries and MCA Concerts Canada.
**10.57 Agreement of Limited Partnership, dated as of January 22, 1988, by and
between MCA Concerts II, Inc. and PACE.
**10.58 Amendment No. 1 to the Agreement of Limited Partnership, dated as of
March 2, 1988, by and between MCA Concerts II, Inc. and PACE.
**10.59 Amendment No. 2 to the Agreement of Limited Partnership, dated as of
May 11, 1989, by and between MCA Concerts II, Inc. and PACE.
**10.60 Amendment No. 3 to the Agreement of Limited Partnership, dated as of
May 12, 1989, by and between MCA Concerts II, Inc. and PACE.
**10.61 Amendment No. 4 to the Agreement of Limited Partnership, dated as of
January 23, 1990, by and between MCA Concerts II, Inc. and PACE.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
**10.62 Master Licensed User Agreement, dated as of December 5, 1997, by and
between Ticketmaster Ticketing Co., Inc. and Universal Concerts, Inc.
+*10.63 Licensing Agreement, dated as of February 18, 1992, by and among
Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.64 Amendment No. 1 to Licensing Agreement dated February 18, 1992, dated
as of June 16, 1993, by and among Daniel Aykroyd, Judith Pisano and
Isaac Tigrett.
10.65 Amendment No. 2 to Licensing Agreement dated February 18, 1992, dated
as of May 1, 1996, by and among Daniel Aykroyd, Judith Pisano and
Isaac Tigrett.
+*10.66 Agreement, dated as of April 4, 1992, by and among Daniel Aykroyd,
Judith Pisano and Isaac Tigrett.
10.67 Waiver and Consent Agreement, dated as of February 18, 1992, by and
among Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.68 Amendment to Waiver and Consent Agreement, dated as of June 23, 1993,
by and among Daniel Aykroyd, Judith Pisano and Isaac Tigrett.
10.69 Release Agreement, dated as of June 4, 1993, by and among Daniel
Aykroyd, Isaac Tigrett, House of Blues, Inc., House of Blues Brands
Corp. and House of Blues Cambridge Restaurant Corp.
10.70 Guaranty Supplement, dated as of May 14, 1998, by and among Dan
Aykroyd, Judith Pisano, Isaac Tigrett and HOB Entertainment, Inc.
10.71 Assignment, dated as of July 7, 1998, by and between Daniel E. Aykroyd
and Applied Action Research Corporation.
10.72 Indemnification Agreement, dated as of July 31, 1998, by and between
HOB Entertainment, Inc. and Chase Venture Capital Associates, L.P.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen, LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of KPMG, LLP.
23.4 Consent of PricewaterhouseCoopers LLP.
*23.5 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (See signature page on Form S-1).
27.1 Financial Data Schedule.
</TABLE>
- --------
+ Registrant will request confidential treatment pursuant to Rule 406 for a
portion of the referenced exhibit and will separately file such exhibit with
the Commission.
* To be supplied by amendment.
<PAGE>
EXHIBIT 10.1
HOB ENTERTAINMENT, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
ARTICLE I
PURPOSE; ADMINISTRATION; PARTICIPATION
Section 1.1 Purpose. The purpose of the HOB Entertainment, Inc. 1993
-------
Stock Option Plan (the "Plan") is to strengthen HOB Entertainment, Inc. (the
"Company") by providing a means of attracting and retaining competent personnel
by extending to participating directors, officers, other employees and
consultants of the Company and its Subsidiaries (as hereinafter defined), added
long-term incentives for high levels of performance and for unusual efforts
designed to improve the financial performance of the Company. It is intended
that this purpose be achieved through the opportunity for ownership of shares of
common stock, $.0001 par value per share (the "Common Stock"), of the Company
and the potential benefits of stock appreciation. It is further intended that
pursuant to this Plan the Committee (as defined herein) may grant either
incentive stock options, as defined in Section 422 of the Internal Revenue Code
of 1986 (the "Code"), or nonqualified stock options.
Section 1.2 Administration. The Plan shall be administered either by the
--------------
full Board of Directors of the Company or by a committee selected by the Board
of Directors of the Company which shall be comprised of at least two (2) or more
directors (in either case the administering body being referred to herein as the
"Committee"). If any equity security of the Company is registered under Section
12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
if the Plan is administered by a Committee consisting of less than the full
Board of Directors, each of the directors comprising the Committee shall be a
"non-employee director," as defined in Rule 16b-3(b)(3), promulgated under the
Exchange Act.
Subject to the express provisions of the Plan, the Committee shall
determine from the eligible class those individuals to whom incentive stock
options or nonqualified stock options under the Plan shall be granted (the
"Optionees"), the terms and provisions of the respective agreements (which need
not be identical) evidencing such options, the times at which options shall be
granted, and the number of shares of Common Stock subject to each option. In
addition, subject to the express provisions of the Plan, the Committee shall
have the authority to construe and interpret the Plan, to define the terms used
in the Plan, to prescribe, amend and rescind rules and regulations relating to
the administration of the Plan, to determine the duration and purposes of leaves
of absence which may be granted to participants without constituting a
termination of their employment or directorship (as applicable) for purposes of
the Plan, and to make all other determinations necessary or advisable for the
administration of the Plan. The determinations of the Committee on all matters
referred to in this Plan shall be conclusive. Notwithstanding anything in this
Plan to the contrary, if the Plan is
<PAGE>
administered by a Committee consisting of less than the full Board of Directors,
the full Board of Directors of the Company shall nevertheless determine whether
any member of the Committee shall be granted nonqualified stock options under
the Plan, the terms and provisions of the respective agreements evidencing such
options, the times at which such options shall be granted, and the number of
shares of Common Stock subject to each such option and shall make all
determinations under the Plan with respect to such options (which determinations
of the Board of Directors shall be conclusive).
Section 1.3 Participation. Directors, officers, other employees and
-------------
consultants of the Company and its Subsidiaries shall be eligible for selection
to participate in the Plan upon approval by the Committee. Directors and
consultants who are not employees of either the Company or any Subsidiary are
not eligible to receive Incentive Stock Options (as hereinafter defined) under
the Plan. For purposes of the Plan, the term "Subsidiary" shall have the
meaning set forth in Section 424(f) of the Code.
Section 1.4 Stock Subject to the Plan. Subject to adjustment as provided
-------------------------
in Section 3.1 hereof, the stock issuable under the Plan shall consist of
-----------
treasury shares or authorized but unissued Common Stock. The aggregate number
of shares of Common Stock to be issued upon exercise of all options granted
under the Plan shall not exceed 11,500,166 shares, subject to adjustment as set
forth in Section 3.1 hereof. If any option granted hereunder shall lapse or
-----------
terminate for any reason without having been fully exercised, the shares subject
thereto shall again be available for issuance under the Plan. The maximum
number of shares of Common Stock subject to options granted under the Plan to an
eligible individual in any calendar year may not exceed 4,000,000 shares.
ARTICLE II
STOCK OPTIONS
Section 2.1 Grant and Option Price.
----------------------
(a) The Committee may grant one or more options to any eligible
individual for such number of shares of Common Stock as the Committee shall
determine. Options granted under the Plan shall be granted within ten (10)
years from the effective date of the Plan. Such options may be intended to
qualify as Incentive Stock Options or, in the Committee's discretion,
nonqualified stock options. All options shall be subject to the terms and
conditions set forth in the Plan and such other terms and conditions established
by the Committee as are not inconsistent with the purposes and provisions of the
Plan.
(b) The purchase price per share of Common Stock subject to each
option shall be determined by the Committee and set forth in the Option
Agreement (as hereinafter defined); provided, however, that the purchase price
-------- -------
per share of Common Stock subject to an "incentive stock option" within the
meaning of Section 422 of the Code ("Incentive Stock Option") shall be
determined in accordance with Section 2.10 and
------------
2
<PAGE>
the purchase price per share of stock subject to a nonqualified stock option
granted after January 17, 1997 shall not be less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock on the date of grant.
Section 2.2 Stock Option Agreement. Each option granted pursuant to the
----------------------
Plan shall be evidenced by a Stock Option Agreement ("Option Agreement") in such
form and containing such terms and conditions as the Committee shall determine
including, without limitation, an express designation of each option as either
an Incentive Stock Option or nonqualified stock option.
Section 2.3 Option Term. Except as otherwise provided herein, each
-----------
option and all rights or obligations thereunder shall expire on such date as the
Committee shall determine, but not later than the tenth anniversary of the date
on which the option is granted, and shall be subject to earlier termination as
herein provided.
Section 2.4 Vesting Of Options. Each option granted under this Plan by
------------------
its terms shall require the Optionee to remain in the continuous service of the
Company or one of its Subsidiaries for such period of time, if any, from the
date of grant of the option before the right to exercise any part of the option
will accrue as the Committee may determine at the time of granting such option.
Section 2.5 Exercise of Options. Each option shall become exercisable as
-------------------
the Committee shall determine. The Committee shall also determine the purchase
price payment methods available to an Optionee upon exercise of an option, which
methods shall be set forth in the Optionee's Option Agreement. The Committee
may determine and an Option Agreement may provide that options may be exercised
by payment of the purchase price in cash, by delivery of the equivalent Fair
Market Value (as herein defined) of Common Stock or, if the Company's Common
Stock is registered under the Exchange Act, by a "cashless exercise" procedure
in which an Optionee is permitted to exercise an option by arranging with the
Company and his or her broker to deliver the appropriate purchase price from the
concurrent market sale of the acquired shares, or a combination of the
foregoing. An Optionee's withholding tax due upon exercise of a nonqualified
stock option must be satisfied by a cash payment or, if the Committee shall
determine to permit and the Option Agreement shall so provide, the retention
from the exercise of a number of shares of Common Stock with a Fair Market Value
equal to the required withholding tax.
In addition, with respect to the exercise of any nonqualified stock
option, the Committee shall advise the Optionee, upon receipt of notice of
intent to exercise such option, of the income tax withholding consequences to
such Optionee of such exercise, the amount of the appropriate withholding tax
and any other payments due by reason thereof. Such Optionee must satisfy all of
the preceding payment requirements in order to receive stock upon exercise of
such option. No option shall be exercisable except in respect of whole shares
of Common Stock.
3
<PAGE>
Section 2.6 Restrictions on Exercise. No option granted hereunder may be
------------------------
exercised until a registration statement under the Securities Act of 1933, as
amended (the "Securities Act"), relating to the Common Stock issuable upon
exercise of such option has been filed with, and declared effective by, the
Securities and Exchange Commission (the "Commission"), and there is available
for delivery a prospectus meeting the requirements of Section 10 of the
Securities Act, or until the Committee has determined that the issuance of
Common Stock upon such exercise is exempt from the registration and prospectus
requirements of the Securities Act.
Section 2.7 Non-Transferability of Options. An Incentive Stock Option
------------------------------
granted under the Plan shall, by its terms, be non-transferable by the Optionee
other than by will or the laws of descent and distribution, and shall be
exercisable during the Optionee's lifetime only by the Optionee. A nonqualified
stock option granted under the Plan shall be non-transferable by the Optionee
other than by will or the laws of descent and distribution or, if determined by
the Committee and provided in the Option Agreement, by transfer to an immediate
member of the Optionee's family, a family trust, or a charitable organization.
Section 2.8 Termination of Relationship. Each option shall be exercisable
---------------------------
during such period as is provided under the terms of the governing Option
Agreement but in no event shall an option be exercisable after the expiration of
ten (10) years from the date of grant. After termination (due to resignation,
death, disability or otherwise) of employment, directorship or service, as
applicable, (i) Incentive Stock Options shall be exercisable (to the extent
exercisable at the date of termination) for the periods, and in accordance with
the terms, set forth in the respective governing Option Agreements which shall
not exceed the periods permitted under Section 422 of the Code, and (ii)
nonqualified stock options shall be exercisable (to the extent exercisable at
the date of termination) for the periods, and in accordance with the terms, set
forth in the respective governing Option Agreements. Subject to the limitations
contained in this Plan and in the Optionee's Option Agreement, if an Optionee
dies, his or her option shall be exercisable by his or her estate.
Section 2.9 Issuance of Stock Certificates. Upon exercise of an option,
------------------------------
the person exercising the option shall be entitled to one (1) or more stock
certificates evidencing the shares acquired upon such exercise.
Section 2.10 Limitation on Grant of Incentive Stock Options.
----------------------------------------------
(a) The purchase price per share of Common Stock subject to an
Incentive Stock Option shall not be less than 100% of the Fair Market Value (as
hereinafter defined) of the Common Stock on the date of grant of such Option.
For purposes of the Plan, the term "Fair Market Value" on any date shall mean:
(i) if the Common Stock is listed or admitted to trade on a national securities
exchange, the closing price of the Common Stock on the Composite Tape, as
published in the Wall Street Journal, of the principal national securities
exchange on which the Common Stock is so
4
<PAGE>
listed or admitted to trade, on such date or, if there is no trading of the
Common Stock on such date, then the closing price of the Common Stock as quoted
on such Composite Tape on the next preceding date on which there was trading in
such shares; (ii) if the Common Stock is not listed or admitted to trade on a
national securities exchange, the closing or last price of the Common Stock on
such date, as furnished by the National Association of Securities Dealers, Inc.
through NASDAQ or a similar organization if NASDAQ is no longer reporting such
information; or (iii) if the Common Stock is not listed or admitted to trade on
a national securities exchange and if closing or last prices for the Common
Stock are not so furnished through NASDAQ or a similar organization, the values
established by the Committee for purposes of granting options under the Plan.
(b) If an Optionee owns (subject to applicable owner-ship
attribution rules of Section 424(d) of the Code and the regulations promulgated
thereunder) Common Stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any Parent
(as such term is defined in Section 424(e) of the Code) or Subsidiary at the
time an Incentive Stock Option is granted, then (i) the purchase price per share
of Common Stock subject to such Incentive Stock Option shall not be less than
one hundred ten percent (110%) of the Fair Market Value of the Common Stock on
the date of grant of the Incentive Stock Option, and (ii) the Incentive Stock
Option shall not be exercisable after the date five (5) years subsequent to the
date on which such Incentive Stock Option is granted.
(c) The aggregate Fair Market Value (determined at the time an
option is granted) of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by an Optionee during any calendar year
(under all such plans of the individual's employer corporation and its Parent
and Subsidiary corporations) shall not exceed $100,000. In the event the limits
of this Section 2.10 would otherwise be exceeded, the Optionee may still
------------
exercise his options, but such option, to the extent of such excess, shall be
deemed to be a nonqualified stock option.
(d) The Board shall impose any other limitations on the terms and
conditions of Incentive Stock Options granted under the Plan required in order
that such options qualify as Incentive Stock Options under Section 422 of the
Code.
ARTICLE III
OTHER PROVISIONS
Section 3.1 Adjustments Upon Changes in Capitalization. If a stock
------------------------------------------
dividend or stock split is hereafter declared upon the Common Stock, the number
of shares of Common Stock then subject to any option and the number of shares
reserved for issuance under the Plan but not yet covered by an option shall be
adjusted by adding to each such share the number of shares which would be
distributable thereon if such share had been outstanding on the date fixed for
determining the stockholders entitled to receive such stock dividend or stock
split. If the outstanding shares of Common Stock are changed
5
<PAGE>
into or exchanged for a different number or kind of security of the Company or
of another corporation (subject to Section 3.2 hereof), whether through
-----------
reorganization, recapitalization, stock split-up, combination of shares, merger
or consolidation, then there shall be substituted for each share of Common Stock
subject to any such option and for each share of Common Stock reserved for
issuance pursuant to the Plan but not yet covered by an option, the number and
kind of securities into which each outstanding share of Common Stock shall be so
changed or for which each such share shall be exchanged. If there is any
change, other than as specified above in this Section 3.1, in the number or kind
-----------
of outstanding shares of Common Stock or of any other securities into which
Common Stock shall have been changed or for which it shall have been exchanged,
then if the Committee in its sole discretion determines that such change
equitably requires an adjustment in the number or kind of shares theretofore
reserved for issuance under the Plan but not yet covered by an option and of the
shares then subject to an option or options, such adjustment shall be made by
the Committee and shall be effective and binding for all purposes of the Plan
and of each Option Agreement. In the case of any such substitution or
adjustment pursuant to this Section 3.1, the option price set forth in each
-----------
Option Agreement for each share covered thereby prior to such substitution or
adjustment will be the option price for all shares of stock or other securities
which shall have been substituted for such share or to which such adjustment
provided for in this Section 3.1 shall be made in accordance with Section 424(a)
-----------
of the Code. No adjustment or substitution provided for in this Section 3.1
-----------
shall require the Company in any Option Agreement to sell a fractional share,
and the total substitution or adjustment with respect to each Option Agreement
shall be limited accordingly. Notwithstanding the provisions of this Section
-------
3.1 or Section 3.2, the Committee shall have the authority to grant individual
- --- -----------
Optionees additional adjustment rights and/or rights in the event of a change of
control, or to further limit such adjustment rights and/or rights in the event
of a change of control, which rights, to the extent granted or restricted, shall
be evidenced in such Optionee's Option Agreement.
Section 3.2 Change of Control.
-----------------
(a) A "Change of Control" for purposes of this Plan shall mean:
(i) the acquisition by a single entity or group of affiliated entities of more
than 50% of the Common Stock issued and outstanding immediately prior to such
acquisition; or (ii) the dissolution or liquidation of the Company or the
consummation of any merger or consolidation of the Company or any sale or other
disposition of all or substantially all of its assets, if the stockholders of
the Company immediately before such transaction own, immediately after
consummation of such transaction, equity securities (other than options and
other rights to acquire equity securities) possessing less than 50% of the
voting power of the surviving or acquiring corporation. All adjustments under
this Section shall be made by the Committee, whose determination as to what
adjustments shall be made and the extent thereof shall be final, binding and
conclusive for all purposes of the Plan and of each Option Agreement.
6
<PAGE>
(b) Change of Control with Provision Being Made Therefor. If in
----------------------------------------------------
connection with a Change of Control a written provision is made for the
assumption and continuance of any option granted under the Plan, or the
substitution for such option of a new option covering the shares of the
successor employer corporation, with appropriate adjustment as to the number and
kind of shares and prices, the option granted under the Plan, or the new option
substituted therefor, as the case may be, shall continue in the manner and under
the terms provided.
(c) Change of Control Without Provision Being Made Therefor. If
-------------------------------------------------------
no written provision is made in connection with a Change of Control for the
continuance and assumption of any option granted under the Plan or for the
substitution of any option covering the shares of the successor employer
corporation, then, subject to the limitations of Section 2.10 hereof, the holder
------------
of any such option shall be entitled, prior to the effective date of any such
Change of Control, to purchase the full number of shares not previously
exercised under such option, without regard to the periods and installments of
exercisability made pursuant to Sections 2.4 and 2.5 if (and only if) such
--------------------
option has not at that time expired or been terminated, failing which purchase,
any unexercised portion shall be deemed canceled as of the effective date of
such Change of Control.
Section 3.3 Continuation of Service. Nothing contained in the Plan (or in
-----------------------
any option granted pursuant to the Plan) shall confer upon any employee,
director or consultant any right to continue in the service of the Company or
any Subsidiary or constitute any contract or agreement of employment or
interfere in any way with the right of the Company or any Subsidiary to reduce
any person's compensation from the rate in existence at the time of the granting
of an option or to terminate such person's employment. Nothing contained herein
or in any Option Agreement shall affect any other contractual rights of an
employee, director or consultant.
Section 3.4 Mandatory Participation upon Sale of the Company.
------------------------------------------------
Notwithstanding anything to the contrary contained in the Plan, in the event a
majority of the Board of Directors and the holders of a majority of the
Company's shares of Class D Preferred Stock, $.01 par value (the "Class D
Preferred Stock"), then outstanding approve a Qualified Sale (as defined below),
the holders of shares of Common Stock obtained through the exercise of options
granted under the Plan will consent to and raise no objections against the
Qualified Sale of the Company, and if the Qualified Sale of the Company is
structured as a sale of stock, the holders of shares of Common Stock obtained
through the exercise of options granted under the Plan will agree to sell all of
their shares of Common Stock on the terms and conditions approved by the Board
of Directors and the holders of a majority of the Class D Preferred Stock then
outstanding. The holders of shares of Common Stock obtained through the exercise
of options granted under the Plan will take or cause to be taken all necessary
and desirable actions in connection with the consummation of the Qualified Sale
of the Company. A "Qualified Sale" shall mean the sale of the Company to an
independent third party (whether by merger, share exchange, consolidation,
recapitalization, sale of all or substantially all of
7
<PAGE>
its assets or sale of all or not less than 85% of the equity and voting
interests in the Company) in which the aggregate consideration to be paid in the
transaction to the stockholders or the Company (but only to the extent that such
consideration to be paid to the Company would be available for distribution to
the stockholders after payment of all liabilities and obligations of the
Company, including, but not limited to, change of control payments, all as
determined in good faith by the Company's Board of Directors) has a fair market
value as determined in good faith by the Company's Board of Directors as of the
date definitive documents relating to the sale are executed of at least $2.40
per share of Common Stock on a fully diluted basis (assuming the conversion or
exercise of all securities convertible into or exercisable for Common Stock). A
transaction shall not be deemed a "Qualified Sale" unless each of the following
conditions are also satisfied: (i) upon the consummation of the Qualified Sale,
all of the holders of Preferred Stock and Common Stock will receive the same
form and amount of consideration per share of Preferred Stock and Common Stock,
or if any holders are given an option as to the form and amount of consideration
to be received, all holders will be given the same option; (ii) any
indemnification obligation will be limited to the purchase price received by
each holder of Preferred Stock or Common Stock; (iii) no holder of Preferred
Stock or Common Stock will be obligated to make directly representations or
warranties that do not relate directly to it (it being understood, however, that
this clause (iii) shall not limit or restrict any indemnification obligation
related to the Company's representations and warranties that complies with
clause (ii) above); and (iv) under the terms of the transaction, all holders of
other exercisable rights to acquire shares of Common Stock or Preferred Stock
will be presented at least one of the following alternatives: (A) to exercise
such rights (or, in the case of warrants, to convert such warrants into shares
on a cashless basis, to the extent permitted by the terms thereof) prior to the
consummation of the Qualified Sale and participate in such sale as holders of
Common Stock, (B) upon the consummation of the Qualified Sale, to receive in
exchange for such rights consideration equal to the amount determined by
multiplying (1) the same amount of consideration per share of Common Stock or
Preferred Stock received by the holders of Common Stock or Preferred Stock in
connection with the Qualified Sale less the exercise price (per share of Common
Stock or Preferred Stock, as applicable) of such rights to acquire Common Stock
or Preferred Stock by (2) the number of shares of Common Stock or Preferred
Stock represented by such rights, or (C) if agreeable to the acquiror, to permit
the acquiror to assume and continue the rights of all holders of rights to
acquire shares of Common Stock and Preferred Stock, or substitute for such
rights substantially similar securities of the acquiror, with appropriate
adjustment as to the number and kind of securities and prices, existing rights,
or new securities substituted therefor, as the case may be. In determining
whether the amount of consideration to be paid in the transaction has a fair
market value of at least $2.40 per share, no reduction shall be made for amounts
to be deposited in escrow or which are subject to holdback or offset. If the
consideration to be paid by the acquiror in connection with a Qualified Sale
includes securities or other property which do not have a readily ascertainable
fair market value, and holders of 30% or more of the Company's Class A Preferred
Stock, Class B Preferred Stock, Class C Preferred Stock and Class D Preferred
Stock (on an as-converted basis) notify the Company, within 10 days after
receipt of the Company's fair market value
8
<PAGE>
determination, of their reasonable belief that the fair market value of such
consideration to be paid in the transaction is less than $2.40 per share of
Common Stock on a fully diluted basis, then the determination of fair market
value shall be made by a nationally recognized investment banking firm selected
by the Company. For purposes of this paragraph, an "independent third party" is
any person other than a person who is the "beneficial owner" (within the meaning
of Rule 13d-3 under the Exchange Act) of 10% or more of the Common Stock,
assuming conversion of all shares of Preferred Stock into Common Stock, or any
"affiliate" or "associate" (each within the meaning of Rule 12b-2 under the
Exchange Act) of such beneficial owner.
If the Company or the holders of the Company's securities enter into any
negotiation or transaction for which Rule 506 (or any similar rule then in
effect) promulgated by the Securities and Exchange Commission may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), each holder of options or shares of
Common Stock obtained through the exercise of options granted under the Plan
that is not an "accredited investor," as defined in Rule 501 under Regulation D
under the Securities Act, will, at the request of the Company, appoint a
purchaser representative (as such term is defined in Rule 501) reasonably
acceptable to the Company. If any such holder of options or shares of Common
Stock obtained through the exercise of options granted under the Plan appoints
the purchaser representative designated by the Company, the Company will pay the
fees of such purchaser representative, but if such holder declines to appoint
the purchaser representative designated by the Company such holder will appoint
another purchaser representative (reasonably acceptable to the Company), and
such holder will be responsible for the fees of the purchaser representative so
appointed.
The provisions of this Section 3.4 will terminate upon the first to occur
of (i) the merger or consolidation of the Company into a new surviving company
and the holders of the Company's outstanding voting securities immediately prior
to the merger or consolidation own less than a majority of the ordinary voting
power to elect directors of the new surviving company (on a fully-diluted basis)
or (ii) a sale of all, or substantially all, of the Company's assets to a third
party in any transaction or series of related transactions.
Section 3.5 Amendment and Termination. The Board may at any time suspend,
-------------------------
amend or terminate the Plan. The amendment, suspension or termination of the
Plan shall not, without the consent of the Optionee, alter or impair any rights
or obligations under any option theretofore granted under the Plan. If any
amendment to the Plan would (a) increase the number of shares of Common Stock
which may be issued under the Plan, (b) materially modify the requirements as to
eligibility for participation in the Plan, or (c) effect any other change
requiring stockholder approval under Section 422 of the Code, then such
amendment shall be approved by the stockholders of the Company.
9
<PAGE>
Section 3.6 Modification, Extension and Renewal of Options. Within the
----------------------------------------------
limitations of the Plan, the Committee may modify, extend or renew outstanding
options or may accept the cancellation of outstanding options (to the extent not
previously exercised) in exchange for the granting of new options in
substitution therefor. Notwithstanding the foregoing, no modification of an
option shall, without the consent of the Optionee, alter or impair the
Optionee's rights or obligations under such option.
Section 3.7 Time of Grant and Exercise. The granting of an option
--------------------------
pursuant to the Plan shall take place at the time of the Committee's action;
provided, however, that if the appropriate resolutions of the Committee indicate
- -------- -------
that an option is to be granted as of and at some future date, the date of grant
shall be such future date. An option shall be deemed to be exercised when the
Secretary of the Company receives written notice of such exercise from the
person entitled to exercise the option together with payment of the purchase
price made in accordance with Section 2.5 of this Plan.
-----------
Section 3.8 Privileges of Stock Ownership; Non-Distributive Intent. The
------------------------------------------------------
holder of an option shall not be entitled to the privilege of stock ownership as
to any shares of Common Stock not actually issued and delivered to the holder.
Subject to the provisions of Section 2.6 hereof, upon exercise of an option at
-----------
a time when there is not in effect under the Securities Act a registration
statement relating to the Common Stock issuable upon exercise of such option and
not available for delivery a prospectus meeting the requirements of Section
10(a)(3) of the Securities Act, the Optionee shall represent and warrant in
writing to the Company that, inter alia, the shares of Common Stock purchased
are being acquired for investment and not with a view to the resale or
distribution thereof. No shares of Common Stock shall be issued upon the
exercise of any option unless and until there shall have been compliance with
any then applicable requirements of the Commission, other regulatory agencies
having jurisdiction and any exchanges upon which securities subject to the
option may be listed.
Section 3.9 Effective Date of the Plan; Expiration. The Plan was adopted
--------------------------------------
effective June 16, 1993. Unless previously terminated by the Board, the Plan
shall expire at the close of business on June 15, 2003, and no option shall be
granted under it thereafter, but such expiration shall not affect any option
theretofore granted.
Section 3.10 Governing Law. The Plan and the options issued hereunder
-------------
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware applicable to contracts made and performed within that
State.
Section 3.11 No Liability for Good Faith Determinations. Neither the
------------------------------------------
members of the Board of Directors nor any member of the Committee shall be
liable for any act, omission or determination taken or made in good faith with
respect to the Plan or any option granted under it.
Section 3.12 Execution of Receipts and Releases. Any payment or any
----------------------------------
issuance or transfer of shares of Common Stock to the Optionee, or to his or her
legal
10
<PAGE>
representative, heir, legatee or distributee in accordance with the
provisions hereof, shall, to the extent thereof, be in full satisfaction of all
claims of such persons hereunder. The Board of Directors may require any
Optionee, legal representative, heir, legatee or distributee, as a condition
precedent to such payment, to execute a release and receipt therefor in such
form as it shall determine.
Section 3.13 No Guarantee of Interests. Neither the Board of Directors
-------------------------
nor the Company guarantees the Common Stock of the Company from loss or
depreciation.
Section 3.14 Company Records. Records of the Company or any Subsidiary
---------------
regarding an Optionee's period of employment, termination of employment and the
reason therefor, leaves of absence, re-employment and other matters shall be
conclusive for all purposes hereunder, unless determined by the Board of
Directors to be incorrect.
Section 3.15 Severability. In the event any provision of this Plan shall
------------
be held to be illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining provisions hereof, but shall be fully severable
and the Plan shall be construed and enforced as if the illegal or invalid
provision had never been included herein.
Section 3.16 Notice. Whenever any notice is required or permitted
------
hereunder, such notice must be in writing and personally delivered or sent by
mail. Except as otherwise provided in Section 3.6 of this Plan, any notice
-----------
required or permitted to be delivered hereunder shall be deemed to be delivered
on the date on which it is personally delivered or, whether actually received or
not, on the third (3rd) business day after it is deposited in the United States
mail, certified or registered, postage pre-paid, addressed to the person who is
to receive it at the address which such person has theretofore specified by
written notice delivered in accordance herewith.
Section 3.17 Waiver of Notices. Any person entitled to notice hereunder
-----------------
may waive such notice.
Section 3.18 Successors. The Plan shall be binding upon the Optionee, his
----------
heirs, legatees and legal representatives, and upon the Company, its successors
and assigns.
Section 3.19 Headings. The titles and headings of articles and sections
--------
are included for convenience of reference only and are not to be considered in
construction of the provisions hereof.
Section 3.20 Word Usage. Words used in the masculine shall apply to the
----------
feminine where applicable and, wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
11
<PAGE>
EXHIBIT 10.2
AMENDMENT
TO THE
HOB ENTERTAINMENT, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
HOB Entertainment, Inc., a corporation organized under the laws of
State of Delaware (the "Company"), hereby adopts this Amendment to the HOB
Entertainment, Inc. Amended and Restated 1993 Stock Option Plan (the "Plan").
WHEREAS, the Company has previously adopted the Plan which, among
other things, contemplated the issuance of options to purchase up to an
aggregate of 11,500,166 shares of Common Stock of the Company;
WHEREAS, the Company's Board of Directors and stockholders have
determined that it is in the best interests of the Company to authorize
the issuance of additional shares to purchase Common Stock, at the
discretion of the Committee (as defined in the Plan)and to make an
appropriate amendment to the Plan to approve such issuances.
NOW, THEREFORE, the Plan is hereby amended as follows:
Amendment to Section 1.4. The second sentence of Section 1.4 is
------------------------
hereby deleted and replaced to read in its entirety as follows:
The aggregate number of shares of Common Stock to be issued upon
exercise of all options granted under the Plan shall not exceed
30,500,166 shares, subject to adjustment as set forth in Section
-------
3.1 hereof.
---
(Signature Page Follows)
<PAGE>
I hereby certify that the foregoing Plan Amendment was duly adopted by
the Board of Directors of HOB Entertainment, Inc., effective as of January 19,
1999.
Executed on this ______ day of October, 1999.
/s/ Joseph C. Kaczorowski
-------------------------
Secretary
I hereby certify that the foregoing Plan Amendment was duly approved
by the stockholders of HOB Entertainment, Inc., effective as of September 10,
1999.
Executed on this ______ day of October, 1999.
/s/ Joseph C. Kaczorowski
-------------------------
Secretary
<PAGE>
EXHIBIT 10.3
SECOND AMENDMENT
TO THE
HOB ENTERTAINMENT, INC.
AMENDED AND RESTATED
1993 STOCK OPTION PLAN
HOB Entertainment, Inc., a corporation organized under the laws of State of
Delaware (the "Company"), hereby adopts this Second Amendment to the HOB
-------
Entertainment, Inc. Amended and Restated 1993 Stock Option Plan (the "Plan").
----
WHEREAS, the Company has previously adopted the Plan which, among
other things, contemplated the issuance of options to purchase up to an
aggregate of 11,500,166 shares of Common Stock of the Company;
WHEREAS, subsequent to its adoption, the Plan was amended to increase
the number of shares authorized for issuance thereunder to 30,500,166
shares of the Company's Common Stock; and
WHEREAS, the Company's Board of Directors has determined that it is in
the best interests of the Company to amend the Plan to authorize the
issuance of additional shares of Common Stock thereunder, subject to
stockholder approval of such amendment.
NOW, THEREFORE, the Plan is hereby amended as follows:
Amendment to Section 1.4. The second sentence of Section 1.4 is
------------------------
hereby deleted and replaced to read in its entirety as follows:
The aggregate number of shares of Common Stock to be issued upon
exercise of all options granted under the Plan shall not exceed
31,798,000 shares, subject to adjustment as set forth in Section 3.1
-----------
hereof.
(Signature Page Follows)
<PAGE>
I hereby certify that the foregoing Second Amendment to the Plan was duly
adopted by the Board of Directors of HOB Entertainment, Inc., effective as of
March 13, 2000.
Executed on this 13th day of March, 2000.
/s/ Joseph C. Kaczorowski
--------------------------
Secretary
I hereby certify that the foregoing Second Amendment to the Plan was duly
approved by the stockholders of HOB Entertainment, Inc., effective as of March
13, 2000.
Executed on this 13th day of March, 2000.
/s/ Joseph C. Kaczorowski
--------------------------
Secretary
A-1
<PAGE>
EXHIBIT 10.6
THIS WARRANTS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE WARRANTS
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 (K) OF SUCH
ACT.
WARRANT AGREEMENT
This WARRANT AGREEMENT ("Agreement") is made as of ,1999,
--------- -----------
between HOB Entertainment, Inc., a Delaware corporation (the "Company"), and
-------
(together with its permitted assigns, the "Holder").
- ---------------- ------
RECITALS
--------
WHEREAS, the Company deems it advisable to issue in consideration for the
benefits provided to the Company by Holder to issue to Holder warrants (the
"Warrants") represented and evidenced by this Agreement entitling Holder to
- ---------
purchase an aggregate of shares of Common Stock of the Company,
-----------
$.0001 par value (such shares of Common Stock issuable upon exercise of the
Warrants are referred to as the "Warrant Shares"), with each such Warrant being
--------------
exercisable initially for one Warrant Share, subject to adjustment and on the
terms provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereto agree as follows:
ARTICLE 1. Issuance And Delivery Of Warrants.
---------------------------------
Section 1.01. Issuance of Warrants. To be effective as of the date first
--------------------
written above (the "Effective Date", the Company does hereby grant to Holder or
--------------
its assignees (who shall be persons to whom Warrants could be transferred under
Section 5.01), Warrants to acquire up to Warrant Shares.
- ------------ ---------
ARTICLE 2. Duration and Exercise of Warrants.
---------------------------------
Section 2.01. Duration of Warrants. Subject to Section 4.03 hereof, the
-------------------- ------------
Warrants represented hereby may be exercised at any time on or after the
Effective Date and shall remain exercisable until the close of business on the
tenth anniversary of the Effective Date (the "Termination Date"); provided,
---------------- --------
however, that if the Termination Date provided for herein shall fall on a
- -------
Saturday, Sunday or legal holiday, then such Termination Date shall be deemed to
be the first regular business day following such Saturday, Sunday or legal
holiday.
Section 2.02. Terms of Exercise. Each Warrant shall entitle the holder
-----------------
thereof to purchase one (1) Warrant Share upon payment of $.01 per share, each
as adjusted as provided in Article 3. Such price, as in effect from time to time
---------
as provided in Article 3, is referred to as the "Exercise Price." In no event
--------- --------------
may Holder exercise any Warrant represented hereby (before or after any
adjustment or substitution pursuant to Article 3 hereof) for a fraction of a
---------
share.
<PAGE>
Section 2.03. Exercise of Warrants
--------------------
(a) All or any portion of such Warrants may be exercised by surrendering
this Agreement, together with a subscription in the form attached hereto duly
executed, accompanied by payment of the Exercise Price. Such Agreement and
subscriptions may be surrendered at the corporate headquarters of the Company
(as set forth in Section 9.02, or as such address may be changed from time to
------------
time) or, if the Company so notifies the Holder hereafter, at the office of any
transfer agent for the Common Stock appointed hereafter. The payment and
subscription materials shall be accompanied by such other instruments or
agreements duly signed by Holder as may be reasonably necessary or advisable in
order that the issuance of such Warrant Shares comply with applicable rules and
regulations under the Securities Act, any applicable state securities laws or
any requirement of any national securities exchange on which Common Stock may be
traded.
(b) Payment shall be made either: (1) by cash, money order, certified or
bank cashier's check drawn in United States currency and payable to the order of
the Company; (2) by wire transfer; (3) by cashless exercise pursuant to Section
-------
2.03(c), ("Cashless Exercise") or (4) any combination of the foregoing at the
- ------- -----------------
option of the Holder.
(c) In lieu of paying the Exercise Price in cash, the Holder may utilize
a Cashless Exercise. A Holder is permitted to exercise Warrants pursuant to a
Cashless Exercise by directing the Company to withhold from the Warrant Shares
issuable upon such exercise a number of Warrant Shares having an aggregate Fair
Market Value (as defined herein) equal to the aggregate Exercise Price for all
Warrants exercised.
(d) Warrants shall be exercisable during the period provided in Section
-------
2.01 at any time in whole or from time to time in part. As soon as practicable
- ----
after any of the Warrants have been so exercised, the Company shall issue and
deliver or cause to be delivered to, or upon the order of, the Holder, in such
name or names as may be directed by Holder, a certificate or certificates for
the number of full Warrant Shares to which Holder is entitled, and if the
Warrants represented by the surrendered Agreement shall not have been exercised
in full, a new Warrant Agreement, for the remaining number of Warrants which
shall not have been exercised (however, to the extent such a new Warrant
Agreement is issued for such remaining number of Warrants on the same terms and
conditions as set forth herein, such replacement Warrant Agreement may be
unilaterally executed and delivered by the Company, without need for Holder's
signature). In connection with such exercise, the Company shall use its best
efforts to cause its transfer agent to deliver the shares, as provided herein,
on a timely basis in order to permit settlement of a normal brokerage
transaction within three business days of the exercise.
Section 2.04. Common Stock Issued upon Exercise of Warrants.
---------------------------------------------
(a) All Warrant Shares shall be duly authorized, validly issued, fully
paid and nonassessable. The Company shall pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares. The Company shall not be
required, however, to pay any tax imposed in connection with any transfer
involved in the issue of the Warrant Shares in a name other than that of the
Holder. In such case, the Company shall not be required to issue any certificate
for Warrant Shares until the person or persons requesting the same shall have
paid to the Company the amount of any such tax or shall have established to the
Company's satisfaction that the tax has been paid or that no tax is due. The
Company shall at all times reserve and keep available such number of shares of
its authorized but unissued Common Stock as shall from time to time be
sufficient to permit the exercise of all outstanding Warrants represented
hereby. If at any time the number of authorized but unissued shares of Common
Stock shall
2
<PAGE>
not be sufficient for such purpose, the Company shall take such action as may
reasonably be necessary to increase its authorized but unissued Common Stock to
such number of shares as shall be sufficient for such purpose. The Company will
not take any actions or enter into any agreements which will frustrate or
interfere with the timely exercise and performance under this Warrant.
(b) Each stock certificate shall carry such appropriate legend, and such
written instructions shall be given to the Company's transfer agent, as may be
reasonably necessary or advisable to satisfy the requirements of the Securities
Act of 1933, as amended (the "Securities Act") or any state securities laws.
--------------
Neither Holder nor its legal representative shall be or have any of the rights
or privileges of a stockholder of the Company in respect to any of the Warrant
Shares unless and until certificates representing such shares shall have been
issued and delivered to Holder.
ARTICLE 3. Anti-Dilution Provisions.
------------------------
Section 3.01. Adjustment of Exercise Price and Number of Warrant Shares.
---------------------------------------------------------
The Exercise Price shall be subject to adjustment from time to time as provided
in this Article 3. Upon each adjustment of the Exercise Price, the Holder shall
---------
be entitled to purchase pursuant hereto, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares purchasable pursuant to the aggregate number of unexercised
Warrants represented by this Agreement immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
Section 3.02. Adjustment in the Event of Certain Issuances.
--------------------------------------------
(a) Upon Issuance of Common Stock for Less Than Fair Market Value. If
-------------------------------------------------------------
the Company shall issue or sell, or be deemed to issue and sell in accordance
with Section 3.02(c) hereof, after the date hereof, shares of its Common Stock
---------------
without consideration or at a price per share less than the Fair Market Value
(as determined in accordance with Section 3.02(c) hereof) of the Common Stock on
---------------
the date of such issuance or sale, then in each such case, the Exercise Price in
effect immediately prior to such issuance or sale shall be lowered so as to be
equal to an amount determined by multiplying the Exercise Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding (or deemed
outstanding in accordance with Section 3.02(d)(i) hereof) immediately prior to
----------
such issuance or sale and the number of shares of Common Stock which the
aggregate consideration received (or deemed received in accordance with Section
-------
3.02(c) hereof) by the Company for such issuance or sale would purchase at such
- -------
Fair Market Value per share of Common Stock, and the denominator of which shall
be the number of shares of Common Stock outstanding (or deemed outstanding in
accordance with Section 3.02(c) hereof) immediately after such issuance or sale.
---------------
Such adjustment shall be made successively whenever the Company issues shares of
its Common Stock without consideration or at a price per share less than the
Fair Market Value. If both this Section and Section 3.02(b) are applicable to an
---------------------------
issuance, then the Section which provides the adjustment to the Exercise Price
most favorable to the Holder shall apply and be applicable to such issuance.
(b) Upon Issuance of Common Stock for Less Than Designated Value.
------------------------------------------------------------
Subject to the last sentence of Section 3.02(a), if the Company shall issue or
sell, or be deemed to issue and sell in accordance with Section 3.02(c) hereof,
---------------
after the date hereof, shares of its Common Stock without consideration or at a
price per share less than $1.62 per share, as equitably adjusted for any stock
split, stock dividend, combination, reclassification or like event affecting the
Common Stock after the date
3
<PAGE>
hereof (the "Designated Value") of the Common Stock on the date of such issuance
----------------
or sale, then in each such case, the Exercise Price in effect immediately prior
to such issuance or sale shall be lowered so as to be equal to an amount
determined by multiplying the Exercise Price in effect immediately prior to such
issuance or sale by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding (or deemed outstanding in
accordance with Section 3.02(c) hereof) immediately prior to such issuance or
---------------
sale and the number of shares of Common Stock which the aggregate consideration
received (or deemed received in accordance with Section 3.02(c) hereof) by the
---------------
Company for such issuance or sale would purchase at such Designated Value per
share of Common Stock, and the denominator of which shall be the number of
shares of Common Stock outstanding (or deemed outstanding in accordance with
Section 3.02(c) hereof) immediately after such issuance or sale. Such adjustment
- ---------------
shall be made successively whenever the Company issues shares of its Common
Stock without consideration or at a price per share less than the Designated
Value.
(c) Upon Issuance of Warrants, Options and Rights to Purchase Common
----------------------------------------------------------------
Stock.
-----
(i) For the purpose of this Section 3.02, the issuance of any
------------
warrants, options, subscriptions or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into,
exercisable for or exchangeable for shares of Common Stock (or the issuance
of any warrants, options or any rights with respect to such convertible or
exchangeable securities) shall be deemed an issuance of such Common Stock
at such time if the Net Consideration Per Share (as hereinafter defined)
which may be received by the Company for such Common Stock shall be less
than the Fair Market Value or the Designated Value, as the case may be, of
the Common Stock on the date of such issuance. Any obligation, agreement
or undertaking to issue warrants, options, subscriptions or purchase rights
at any time in the future shall be deemed to be an issuance at the time
such obligation, agreement or undertaking is made or arises. No adjustment
of the Exercise Price shall be made under this Section 3.02 upon the
------------
issuance or deemed issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or exchange
rights with respect to any convertible securities if an adjustment shall
previously have been made upon the issuance of such warrants, options or
subscriptions or purchase rights or upon the issuance of such convertible
securities (or upon the issuance of such warrants, options or any rights
therefor), as the case may be, as above provided.
(ii) Should the Net Consideration Per Share of any such warrants,
options, subscriptions or purchase rights or convertible securities be
decreased or increased from time to time then, upon the effectiveness of
each such change, the Exercise Price shall be adjusted to such Exercise
Price as would have resulted (1) had the adjustments made upon the issuance
of such warrants, options, rights or convertible securities been made upon
the basis of the actual Net Consideration Per Share of such securities, and
(2) had the adjustments made to the Exercise Price since the date of
issuance of such securities been made to the Exercise Price as adjusted
pursuant to (1) above. Any adjustment of the Exercise Price with respect
to this Section 3.02 which relates to warrants, options, subscriptions or
------------
purchase rights with respect to shares of Common Stock shall be disregarded
if, as, and when all of such warrants, options, subscriptions or purchase
rights expire or are canceled without being exercised, so that the Exercise
Price effective immediately upon such cancellation or expiration shall be
equal to the Exercise Price which would have been in effect at the time of
such cancellation or expiration had the expired or canceled warrants,
options, subscriptions or purchase rights not been issued.
(d) Certain Definitions. For purposes of this Section 3.02, the
------------------- ------------
following terms shall have
4
<PAGE>
the following meanings:
(i) The "Fair Market Value" of a share of Common Stock as of a
-----------------
particular date shall mean:
(x) If the Company is subject to the reporting obligations
under the Securities Exchange Act of 1934, as amended (the "Exchange
--------
Act"), pursuant to Section 12 or Section 15(d) of such Exchange Act,
---
or if a registration under the Securities Act of 1933, as amended,
covering an initial underwritten public offering of such capital
stock of the Company has been declared effective by the U.S.
Securities and Exchange Commission and consummated, then the "Fair
Market Value" of the Common Stock shall be deemed to be the average
of the reported last sale price (or reported closing bid price, if
last sale data is not reported for such security) for the five
consecutive business day period ending with the last business day
immediately prior to the date such determination is made as reported
by the principal national securities exchange or automated quotation
system on which such security is then traded (as measured by average
daily volume of trading in such security during such five business
day period); and
(y) In all other cases, the "Fair Market Value" of the
Common Stock shall be determined in good faith by the Board of
Directors of the Company upon review of the relevant factors;
provided, however, that if the date of such determination falls
within five business days prior to the effective date of a
registration statement for an initial public offering of Common
Stock, the Fair Market Value of a share of Common Stock included in
such registration statement will be deemed to be the per share
public offering price, less the aggregate underwriting discount,
provided for in such registration statement; and provided further,
however, that if, within 60 days after receipt of the first notice
of the issuance of any security in one or a series of related
transactions in which the aggregate consideration received (or
deemed received in accordance with Section 3.02(c)) exceeds $1.0
million and the holders of 30% or more of the Warrants issued
pursuant to the Stock Purchase Agreement, dated as of July __, 1999,
notify the Company of their reasonable belief that the "Fair Market
Value" of the Common Stock as so determined by the Board of
Directors above is less than the actual fair market value of the
Common Stock, then the "Fair Market Value" of the Common Stock shall
be determined by a nationally recognized investment banking firm
selected by the Company.
(ii) The "Net Consideration Per Share" which may be received by
---------------------------
the Company shall mean the amount equal to the total amount of
consideration, if any, received by the Company for the issuance of such,
warrants, options, subscriptions or other purchase rights or convertible or
exchangeable securities (taking into consideration appropriate allocations
of consideration if securities are issued in units or are otherwise issued
with other securities or property), plus the minimum amount of
consideration, if any, payable to the Company upon exercise or conversion
thereof, divided by the maximum aggregate number of shares of Common Stock
that would be issued if all such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities were exercised,
exchanged or converted.
(e) Consideration Other than Cash. For purposes of this Section 3.02, if
----------------------------- ------------
a part or all of the consideration received by the Company in connection with
the issuance of shares of the Common Stock
5
<PAGE>
or the issuance of any of the securities described in this Section 3.02 consists
------------
of property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Company.
(f) Events Not Requiring an Adjustment. Notwithstanding the provisions
----------------------------------
of this Section 3.02, no adjustment of the Exercise Price or the number of
------------
Warrant Shares shall be required with respect to any issuances to which Section
-------
3.03 or Section 3.04 are applicable and with respect to the items specified in
- ---- ------------
Article Four, Section 5(a)(iv)(A)(4) of the Second Amended and Restated
Certificate of Incorporation the Company as in effect on the date hereof.
Section 3.03. Stock Dividends. If the Company shall declare a dividend or
---------------
any other distribution upon any capital stock which is payable in shares of
Common Stock, the Exercise Price and Designated Value shall be reduced to the
quotient obtained by dividing (i) the number of shares of Common Stock
outstanding immediately prior to such declaration multiplied by the then
effective Exercise Price or Designated Value, respectively, by (ii) the total
number of shares of Common Stock outstanding immediately after such declaration.
Section 3.04. Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price and Designated Value shall be proportionately reduced
and the number of Warrant Shares issuable upon exercise of the Warrants
represented hereby shall be proportionately increased. If the Company shall
combine the outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price and Designated Value shall be proportionately increased and
the number of Warrant Shares issuable upon exercise of the Warrants represented
hereby shall be proportionately decreased.
Section 3.05. Notice of Change in Shares Issuable, etc. Whenever the
----------------------------------------
securities issuable or deliverable upon exercise of the Warrants is changed
pursuant to this Article 3, the Company shall mail a notice of such change to
---------
Holder at the address registered with the Company. Failure to file such
statement or to publish such notice, or any defect in such statement or notice,
shall not affect the legality or validity of any such change. Such notice shall
be accompanied by a certificate executed by the Company's chief financial
officer, setting forth in reasonable detail the facts requiring the change and
specifying the effective date of such change and the number or amount of, and
describing the shares or other securities issuable or deliverable in exchange
for, the Warrants as so changed.
Section 3.06. Limitations on Adjustment. Except in the case of a reverse
-------------------------
stock split or similar recapitalizing transaction, the Exercise Price shall not
be increased as a result of any adjustments set forth in this Article 3 above
---------
the Exercise Price which would be in effect had no adjustment ever been made to
the Exercise Price in accordance with the terms of this Warrant with respect to
the Common Stock, options or convertible securities for which the adjustment in
question is being made.
Section 3.07. Good Faith. If any event occurs as to which in the
----------
reasonable opinion of the Board of Directors of the Company, in good faith, the
other provisions of this Article 3 are not strictly applicable but the lack of
any adjustment in the Warrant Shares would not in the opinion of the Board of
Directors of the Corporation fairly protect the exercise rights of the holders
of the Warrants, in accordance with the basic intent and principles of such
provisions, then the Board of Directors of the Corporation shall appoint a firm
of independent certified public accountants (which may be the regular auditors
of the Company) of recognized national standing, which shall give their opinion
upon the adjustment, if any, to the Exercise Price and/or Warrant Shares, as the
case may be, on a basis consistent with the basic intent and principles of this
Article 3, necessary to preserve, without dilution, the exercise
6
<PAGE>
rights of all the registered holders of the Warrants in accordance with this
Agreement.
ARTICLE 4. Rights; Liquidation, Merger, etc.
---------------------------------
Section 4.01. Subscription or Purchase Rights. If at any time the Company
-------------------------------
grants, issues or Sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of Common Stock (the "Purchase Rights"), then the Holder of this Warrant
---------------
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such Holder could have acquired if such
Holder had held the number of Warrant Shares issuable upon complete exercise of
this Warrant immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
Section 4.02. Notice to Holder. If, at any time after the date hereof:
----------------
(a) the Company shall authorize the distribution to all holders of
Common Stock of evidence of its indebtedness, assets (other than Common Stock
(for which adjustment is provided in Section 3.03 hereof) or cash dividends or
------------
cash distributions payable out of current earnings, retained earnings or earned
surplus or dividends payable in Common Stock);
(b) there shall be proposed any consolidation or merger to which the
Company is to be a party and for which approval of the holders of Common Stock
is required, or the conveyance or transfer of the properties and assets of the
Company substantially as an entirety;
(c) there shall be proposed any capital reorganization or
reclassification (other than a subdivision or combination of shares, stock
dividend, consolidation, merger, or conveyance or transfer of
7
<PAGE>
assets provided for elsewhere herein); or
(d) there shall be proposed the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
the Company shall cause to be given to Holder at the address registered with the
Company, by first-class mail, postage prepaid, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be entitled
to receive any such distributions are to be determined or (ii) the date on which
any consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange the shares for securities
or other property, if any, deliverable upon the consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up. Such notice shall be filed and mailed in the case of a notice
pursuant to clause (i) above at least 10 calendar days before the record date
specified and, in the case of a notice pursuant to clause (ii) above, at least
20 calendar days before the earlier of the dates specified. Any notice pursuant
to clause (ii) above shall also state whether or not unexercised Warrants will
become void as provided in the last sentence of Section 4.03.
------------
Section 4.03. Expiration Date of Warrants or Limitations of Rights. From
----------------------------------------------------
the time notice is required to be given pursuant to Section 4.02, the Holder
------------
shall be entitled to exercise the Warrants represented hereby, effective
immediately prior to the transaction described in the notice, at the Exercise
Price then in effect. For any transaction pursuant to Section 4.02(b) in which
---------------
the Company is not the surviving or acquiring entity and Holder does not
exercise all of the Warrants, the Company shall use reasonable efforts to
negotiate to cause the surviving or acquiring entity to assume the obligation
represented by such Warrants so as to insure that each Holder will thereafter
have the right to acquire and receive in lieu of or addition to the shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
such Warrants, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of such Warrants
had such transaction not taken place. As to any transaction specified in Section
-------
4.02(b) above in which the Company shall not be the surviving or acquiring party
- -------
and in which the Company is unable to negotiate the assumption of the
obligations represented by the Warrants by the acquiring or surviving entity
(and the Company has used its reasonable efforts to negotiate such assumption),
or in which the Company shall have disposed of substantially all of its assets,
or any transaction specified in Section 4.02(b), the right to exercise the
---------------
Warrants shall expire at the close of business on the later of the dates
specified in such notice as the date on which any consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up is expected to become effective and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property, if any, deliverable upon
the consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up. Any Warrant not so
exercised in such cases shall become void and all rights under this Warrant
Agreement shall cease.
ARTICLE 5. Transfer of Ownership of Warrants.
---------------------------------
Section 5.01. Negotiability and Ownership. The Warrants represented hereby
---------------------------
shall not be transferable by the Holder or his permitted assigns during their
term except (a) to persons who demonstrate to the reasonable satisfaction of the
Company that they are "accredited investors" within the meaning of Regulation D
promulgated under the Securities Act and who deliver to the Company warranties
and representations substantially to the same effect as those set forth in
Section 6.02 hereof or
- ------------
8
<PAGE>
otherwise reasonably appropriate to demonstrate compliance with the Securities
Act, (b) in the case of an individual, pursuant to such individual's last will
and testament or the laws of descent and distribution, or (c) to any underwriter
in connection with an underwritten public offering in which such Warrants will
be exercised by such underwriters prior to or concurrently with the sale of the
Warrant Shares to the public and, in any of the foregoing cases, only in
compliance with the Securities Act. Any attempted transfer in contravention of
this Section 5.01 shall be null and void. Any such transferee may be required to
------------
execute an investment letter containing representation and warranties as to his
or her investment intent, financial sophistication and ability to bear the risk
of any investment in the Warrants or the Warrant Shares, and containing
substantially similar warranties and representations to those contained in
Section 6.02 hereof before any such transfer shall be given effect. Further, the
- ------------
Company may condition any such transfer on the execution by the transferee of a
joinder agreement to the Company's Amended and Restated Registration Rights
Agreement in the same form as was binding against the Holder who transferred
such Warrants.
ARTICLE 6. Warranties and Representations.
------------------------------
Section 6.01. Company's Representations, Warranties. The Company
-------------------------------------
represents and warrants to the Registered Holder that:
(a) The Company has full power and authority to enter into this
Agreement, and to issue and deliver this Agreement and the Warrant Shares upon
exercise of the Warrants, and to incur and perform fully the obligations
provided herein, all of which have been duly authorized by all necessary
corporate action, upon exercise in accordance writh the terms hereof, the
Warrant Shares issued upon such exercise will be validly issued, fully paid and
non-assessable;
(b) This Agreement has been duly executed and delivered and is the valid
and binding obligation of the Company enforceable in accordance with its terms;
(c) The Company has obtained all necessary consents prior to the
execution and delivery of this Agreement and the performance by the Company of
this Agreement in accordance with its terms and conditions will not: (i) require
the approval or consent of any governmental or regulatory body whether federal,
state, local or foreign or the approval or consent of any other person, or (ii)
conflict with or result in any breach or violation of any of the terms and
conditions of, or constitute (with notice or lapse of time or both) a default
under any certificate of incorporation, by-law, statute, regulation, order,
judgment or decree of or applicable to the Company, or any instrument, contract
or other agreement to which the Company is a party or by or to which the Company
is bound or subject; and
(d) There are no preemptive rights with respect to the issuance and sale
of the Warrants or the Warrant Shares which have not been waived or previously
satisfied.
Section 6.02. Investment Warranties and Representations. In connection
-----------------------------------------
with the acquisition of the Warrants, and with the understanding that warranties
and representations of similar effect hereto may be required to be made by any
holder of the Warrants in connection with the exercise thereof, Holder hereby
makes the following representations to the Company in order that the Company may
rely on such representations in connection with the issuance and sale of the
Warrants and/or the Warrant Shares:
9
<PAGE>
(a) Holder is at present financially able to bear the economic risks of
an investment in the Warrants or the Warrant Shares of the Company and has no
need for liquidity in this investment.
(b) Holder has received no public solicitation or advertisement and has
attended no public seminar or meeting regarding investment in the Company, nor
is Holder aware of any such public solicitation, advertisement or meeting.
(c) The Warrants have been, and, if the Warrants are exercised, the
Warrant Shares will be, acquired for the account of Holder for investment and
not with a view to resale or further distribution thereof in contravention of
applicable law.
(d) Holder has no contract, undertaking, arrangement or agreement with
any person to sell or transfer or to have any person sell for Holder all or any
of the Warrants or Warrant Shares and is aware of and agrees to the restrictions
on transferability of the Warrants imposed by Section 5.01 hereof.
------------
(e) Prior to any exercise of the Warrants, Holder understands and agrees
that it may be required to represent and provide such reasonably satisfactory
evidence thereof as the Company may require that he is an "accredited investor"
within the meaning of Regulation D promulgated by the Securities and Exchange
Commission.
(f) Holder is knowledgeable in and experienced with respect to
investments in general and with respect to investments of a nature similar to an
investment in the Company. By reason of such knowledge and experience, Holder is
capable of evaluating the merits and risks of, and making an informed business
decision with regard to, an investment in the Company.
(g) Holder (i) received all the information that Holder deemed necessary
to make an informed investment decision with respect to an investment in the
Company, (ii) has had the unrestricted opportunity to make such investigation as
Holder desired pertaining to the Company and an investment therein to verify the
information previously furnished to Holder; and (iii) has had the opportunity to
ask questions of the Company's representatives concerning the Company.
(h) Holder hereby consents to the placement of a legend on any
certificate evidencing the Warrants or Warrant Shares, which legend shall be in
form substantially as set forth at the top of this Agreement.
(i) Holder also consents to the placement of a "stop order" on the stock
transfer books of the Company to enforce the restrictions set forth in the
above-mentioned legend. Holder further indemnifies and agrees to hold the
Company harmless from and against all loss, liabilities, obligations and costs
arising out of or related to the resale or distribution by Holder of all or any
portion of the Warrants and Warrant Shares under such circumstances as to bring
the issuance, sale or transfer of the Warrants and Warrant Shares within the
provisions of Section 5 of the Securities Act unless a Registration Statement
under the Securities Act is in effect as to the Warrants or Warrant Shares or
unless an opinion of counsel satisfactory to the Company is delivered opining
that an exemption from such registration requirements is available for any such
sale or transfer.
10
<PAGE>
(j) Holder realizes that the Warrants and Warrant Shares have not been
registered under the Securities Act by reason of a specific exemption under the
provisions of the Securities Act which depends upon the investment intent of the
undersigned. Therefore, the Warrants and Warrant Shares are "restricted
securities" as that term is defined in Securities and Exchange Commission Rule
144 ("Rule 144"), and accordingly, must be held indefinitely unless they are
--------
subsequently registered under the Securities Act, or an exemption from such
registration is available.
(k) Holder realizes that Rule 144, which provides an exemption from
registration under the Securities Act, merely permits the sale of limited
amounts of Warrants and Warrant Shares in accordance with the terms and
conditions set forth in Rule 144. One such condition at present is that the
Warrants and Warrant Shares not be sold until such time as they have been held
for at least two (2) years from the date of purchase (one (1) year if the
Company becomes subject to the Exchange Act). Holder further understands that
the availability of Rule 144 is dependent upon adequate current public
information, with respect to the Company, being available and that such
information is not currently available and there is no guarantee that such
information will be available at any further time. Holder further understands
that, except as otherwise provided in the Registration Rights Agreement, the
Company is under no obligation to make such information publicly available, to
supply Holder with information necessary to sell the Warrants or Warrant Shares
under Rule 144, to register the Warrants and Warrant Shares under the Securities
Act, or to otherwise comply with any exemption under the Securities Act.
ARTICLE 7. No Impairment. The Company will not, by any voluntary
-------------
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Agreement
and in the taking of all such action as may be necessary or appropriate in order
to protect the rights of the Holder of this Agreement against impairment.
ARTICLE 8. Reports. Upon request, the Company shall deliver to the
-------
Holder copies of all reports or notices distributed or made generally available
to all of the Company's stockholders, when and as such reports or notices are
delivered to the stockholders.
ARTICLE 9. Miscellaneous Provisions.
------------------------
Section 9.01. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware.
Section 9.02. Notices. Any notice pursuant to this Agreement to be given
-------
to the Company or Holder shall be sufficiently given if sent by first-class
mail, postage prepaid, addressed (until another address is filed in writing by
the Holder or the Company until the Company designates a transfer agent as the
appropriate recipient of certain types of notice to it contemplated hereby) as
follows:
If to the Company:
HOB Entertainment, Inc.
6255 Sunset Boulevard, 16th Floor
Los Angeles, California 90028
Attention: President
11
<PAGE>
and to Holder at its address set out on the signature page hereto, or such other
address as may be furnished in writing to the Company from time to time
hereafter. All such notices, requests, demands and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telegraphed, be effective four days after
deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
Section 9.03. Amendments. The provisions of this Agreement may be amended
----------
only by the written agreement of the Company and the Holder.
Section 9.04. Successor. All the covenants and provisions of this
---------
Agreement by or for the benefit of the Company or Holder shall bind and inure to
the benefit of their respective successors and assigns hereunder.
Section 9.05. Theft, Loss, Destruction. Upon receipt by the Company of
------------------------
evidence reasonably satisfactory to it (an affidavit of the Registered Holder
will be satisfactory) of the loss, theft, destruction or mutilation of this
Agreement, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, the Company will make and deliver a new Agreement
of like tenor, in lieu of this Agreement.
Section 9.06. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or Company other than the Company and the
Holder any legal or equitable right, remedy or claim under this Agreement. This
Agreement shall be for the sole and exclusive benefit of the Company and such
Holder.
Section 9.07. Headings. The section headings herein are for convenience
--------
only and are not part of this Agreement and shall not affect the interpretation
hereof.
(Signature Page Follows)
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed, all as of the day and year first above written.
HOB ENTERTAINMENT, INC.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
HOLDER:
-----------------------------
(if applicable) By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address for Notice:
-------------------
13
<PAGE>
(SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF
SOME OR ALL OF THE WARRANTS)
The undersigned, registered holder or assignee of such registered Holder of
the within Agreement, hereby:
(a) subscribes for ___ shares of Common Stock which the undersigned is
entitled to purchase under the terms of the within Agreement, (b) makes the
full cash payment therefor called for by the within Agreement or elects a
Cashless Exercise as provided therein, and (c) directs that the Common
Stock issuable upon exercise of said Warrants be issued as described
hereunder.
In addition, the undersigned acknowledges that he or she may be required to
make the representations and warranties contained in Section 6.02 of the
------------
attached Agreement prior to HOB Entertainment, Inc.'s acceptance of this
subscription.
-----------------------------------
(Name)
-----------------------------------
(Address)
-----------------------------------
SIGNATURE
- ---------------------
Dated:
- -------------------------------------------------------------------------------
NOTICE: The signature on this subscription form must correspond with the
name of the Holder as indicated in the attached Warrant Agreement, in every
particular, without alteration or enlargement, or any change whatsoever,
and must be guaranteed by a bank or trust company having an office or
correspondent in New York, New York, or by a firm having membership on a
registered national securities exchange.
<PAGE>
EXHIBIT 10.7
THIS WARRANTS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE WARRANTS
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO RULE 144 (K) OF SUCH
ACT.
WARRANT AGREEMENT
This WARRANT AGREEMENT ("Agreement") is made as of ___________,1999,
---------
between HOB Entertainment, Inc., a Delaware corporation (the "Company"), and
-------
________________ (together with its permitted assigns, the "Holder").
------
RECITALS
--------
WHEREAS, the Company deems it advisable to issue in consideration for the
benefits provided to the Company by Holder to issue to Holder warrants (the
"Warrants") represented and evidenced by this Agreement entitling Holder to
--------
purchase an aggregate of ___________ shares of Common Stock of the Company,
$.0001 par value (such shares of Common Stock issuable upon exercise of the
Warrants are referred to as the "Warrant Shares"), with each such Warrant being
--------------
exercisable initially for one Warrant Share, subject to adjustment and on the
terms provided for herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties hereto agree as follows:
ARTICLE 1. Issuance And Delivery Of Warrants.
---------------------------------
Section 1.01. Issuance of Warrants. To be effective as of the date
--------------------
first written above (the "Effective Date", the Company does hereby grant to
--------------
Holder or its assignees (who shall be persons to whom Warrants could be
transferred under Section 5.01), Warrants to acquire up to _________ Warrant
------------
Shares.
ARTICLE 2. Duration and Exercise of Warrants.
---------------------------------
Section 2.01. Duration of Warrants. Subject to Section 4.03 hereof,
-------------------- ------------
the Warrants represented hereby may be exercised at any time on or after the
Effective Date and shall remain exercisable until the close of business on the
tenth anniversary of the Effective Date (the "Termination Date"); provided,
---------------- --------
however, that if the Termination Date provided for herein shall fall on a
- -------
Saturday, Sunday or legal holiday, then such Termination Date shall be deemed
to be the first regular business day following such Saturday, Sunday or legal
holiday.
Section 2.02. Terms of Exercise. Each Warrant shall entitle the holder
-----------------
thereof to purchase one (1) Warrant Share upon payment of $.01 per share,
each as adjusted as provided in Article 3. Such price, as in effect from time
---------
to time as provided in Article 3, is referred to as the "Exercise Price." In
--------- --------------
no event may Holder exercise any Warrant represented hereby (before or after
any adjustment or substitution pursuant to Article 3 hereof) for a fraction of
---------
a share.
<PAGE>
Section 2.03. Exercise of Warrants
--------------------
(a) All or any portion of such Warrants may be exercised by surrendering
this Agreement, together with a subscription in the form attached hereto duly
executed, accompanied by payment of the Exercise Price. Such Agreement and
subscriptions may be surrendered at the corporate headquarters of the Company
(as set forth in Section 9.02, or as such address may be changed from time to
------------
time) or, if the Company so notifies the Holder hereafter, at the office of any
transfer agent for the Common Stock appointed hereafter. The payment and
subscription materials shall be accompanied by such other instruments or
agreements duly signed by Holder as may be reasonably necessary or advisable in
order that the issuance of such Warrant Shares comply with applicable rules and
regulations under the Securities Act, any applicable state securities laws or
any requirement of any national securities exchange on which Common Stock may be
traded.
(b) Payment shall be made either: (1) by cash, money order, certified or
bank cashier's check drawn in United States currency and payable to the order of
the Company; (2) by wire transfer; (3) by cashless exercise pursuant to Section
-------
2.03(c), ("Cashless Exercise") or (4) any combination of the foregoing at the
- ------- -----------------
option of the Holder.
(c) In lieu of paying the Exercise Price in cash, the Holder may utilize a
Cashless Exercise. A Holder is permitted to exercise Warrants pursuant to a
Cashless Exercise by directing the Company to withhold from the Warrant Shares
issuable upon such exercise a number of Warrant Shares having an aggregate Fair
Market Value (as defined herein) equal to the aggregate Exercise Price for all
Warrants exercised.
(d) Warrants shall be exercisable during the period provided in Section
-------
2.01 at any time in whole or from time to time in part. As soon as practicable
- ----
after any of the Warrants have been so exercised, the Company shall issue and
deliver or cause to be delivered to, or upon the order of, the Holder, in such
name or names as may be directed by Holder, a certificate or certificates for
the number of full Warrant Shares to which Holder is entitled, and if the
Warrants represented by the surrendered Agreement shall not have been exercised
in full, a new Warrant Agreement, for the remaining number of Warrants which
shall not have been exercised (however, to the extent such a new Warrant
Agreement is issued for such remaining number of Warrants on the same terms and
conditions as set forth herein, such replacement Warrant Agreement may be
unilaterally executed and delivered by the Company, without need for Holder's
signature). In connection with such exercise, the Company shall use its best
efforts to cause its transfer agent to deliver the shares, as provided herein,
on a timely basis in order to permit settlement of a normal brokerage
transaction within three business days of the exercise.
Section 2.04. Common Stock Issued upon Exercise of Warrants.
---------------------------------------------
(a) All Warrant Shares shall be duly authorized, validly issued, fully
paid and nonassessable. The Company shall pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares. The Company shall not
be required, however, to pay any tax imposed in connection with any transfer
involved in the issue of the Warrant Shares in a name other than that of the
Holder. In such case, the Company shall not be required to issue any
certificate for Warrant Shares until the person or persons requesting the same
shall have paid to the Company the amount of any such tax or shall have
established to the Company's satisfaction that the tax has been paid or that no
tax is due. The Company shall at all times reserve and keep available such
number of shares of its authorized but unissued Common Stock as shall from time
to time be sufficient to permit the exercise of all outstanding Warrants
represented hereby. If at any time the number of authorized but unissued shares
of Common Stock shall
2
<PAGE>
not be sufficient for such purpose, the Company shall take such action as may
reasonably be necessary to increase its authorized but unissued Common Stock to
such number of shares as shall be sufficient for such purpose. The Company will
not take any actions or enter into any agreements which will frustrate or
interfere with the timely exercise and performance under this Warrant.
(b) Each stock certificate shall carry such appropriate legend, and such
written instructions shall be given to the Company's transfer agent, as may be
reasonably necessary or advisable to satisfy the requirements of the Securities
Act of 1933, as amended (the "Securities Act") or any state securities laws.
--------------
Neither Holder nor its legal representative shall be or have any of the rights
or privileges of a stockholder of the Company in respect to any of the Warrant
Shares unless and until certificates representing such shares shall have been
issued and delivered to Holder.
ARTICLE 3. Anti-Dilution Provisions.
------------------------
Section 3.01. Adjustment of Exercise Price and Number of Warrant Shares.
---------------------------------------------------------
The Exercise Price shall be subject to adjustment from time to time as
provided in this Article 3. Upon each adjustment of the Exercise Price, the
---------
Holder shall be entitled to purchase pursuant hereto, at the Exercise Price
resulting from such adjustment, the number of Warrant Shares obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant to the aggregate number of
unexercised Warrants represented by this Agreement immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
Section 3.02. Adjustment in the Event of Certain Issuances.
--------------------------------------------
(a) Upon Issuance of Common Stock for Less Than Fair Market Value. If the
-------------------------------------------------------------
Company shall issue or sell, or be deemed to issue and sell in accordance with
Section 3.02(c) hereof, after the date hereof, shares of its Common Stock
- ---------------
without consideration or at a price per share less than the Fair Market Value
(as determined in accordance with Section 3.02(c) hereof) of the Common Stock on
---------------
the date of such issuance or sale, then in each such case, the Exercise Price in
effect immediately prior to such issuance or sale shall be lowered so as to be
equal to an amount determined by multiplying the Exercise Price in effect
immediately prior to such issuance or sale by a fraction, the numerator of which
shall be the sum of the number of shares of Common Stock outstanding (or deemed
outstanding in accordance with Section 3.02(d)(i) hereof) immediately prior to
------------------
such issuance or sale and the number of shares of Common Stock which the
aggregate consideration received (or deemed received in accordance with Section
-------
3.02(c) hereof) by the Company for such issuance or sale would purchase at such
- -------
Fair Market Value per share of Common Stock, and the denominator of which shall
be the number of shares of Common Stock outstanding (or deemed outstanding in
accordance with Section 3.02(c) hereof) immediately after such issuance or sale.
---------------
Such adjustment shall be made successively whenever the Company issues shares of
its Common Stock without consideration or at a price per share less than the
Fair Market Value. If both this Section and Section 3.02(b) are applicable to
---------------------------
an issuance, then the Section which provides the adjustment to the Exercise
Price most favorable to the Holder shall apply and be applicable to such
issuance.
(b) Upon Issuance of Common Stock for Less Than Designated Value.
------------------------------------------------------------
Subject to the last sentence of Section 3.02(a), if the Company shall issue or
sell, or be deemed to issue and sell in accordance with Section 3.02(c) hereof,
---------------
after the hereof, shares of its Common Stock without consideration or at a
price per share less than $1.62 per share, as equitably adjusted for any stock
split, stock dividend, combination, reclassification or like event affecting the
Common Stock after the date
3
<PAGE>
hereof (the "Designated Value") of the Common Stock on the date of such issuance
----------------
or sale, then in each such case, the Exercise Price in effect immediately prior
to such issuance or sale shall be lowered so as to be equal to an amount
determined by multiplying the Exercise Price in effect immediately prior to such
issuance or sale by a fraction, the numerator of which shall be the sum of the
number of shares of Common Stock outstanding (or deemed outstanding in
accordance with Section 3.02(c) hereof) immediately prior to such issuance or
---------------
sale and the number of shares of Common Stock which the aggregate consideration
received (or deemed received in accordance with Section 3.02(c) hereof) by the
---------------
Company for such issuance or sale would purchase at such Designated Value per
share of Common Stock, and the denominator of which shall be the number of
shares of Common Stock outstanding (or deemed outstanding in accordance with
Section 3.02(c) hereof) immediately after such issuance or sale. Such adjustment
- ---------------
shall be made successively whenever the Company issues shares of its Common
Stock without consideration or at a price per share less than the Designated
Value.
(c) Upon Issuance of Warrants, Options and Rights to Purchase Common
-----------------------------------------------------------------
Stock.
- -----
(i) For the purpose of this Section 3.02, the issuance of any
------------
warrants, options, subscriptions or purchase rights with respect to shares
of Common Stock and the issuance of any securities convertible into,
exercisable for or exchangeable for shares of Common Stock (or the issuance
of any warrants, options or any rights with respect to such convertible or
exchangeable securities) shall be deemed an issuance of such Common Stock
at such time if the Net Consideration Per Share (as hereinafter defined)
which may be received by the Company for such Common Stock shall be less
than the Fair Market Value or the Designated Value, as the case may be, of
the Common Stock on the date of such issuance. Any obligation, agreement
or undertaking to issue warrants, options, subscriptions or purchase rights
at any time in the future shall be deemed to be an issuance at the time
such obligation, agreement or undertaking is made or arises. No adjustment
of the Exercise Price shall be made under this Section 3.02 upon the
------------
issuance or deemed issuance of any shares of Common Stock which are issued
pursuant to the exercise of any warrants, options, subscriptions or
purchase rights or pursuant to the exercise of any conversion or exchange
rights with respect to any convertible securities if an adjustment shall
previously have been made upon the issuance of such warrants, options or
subscriptions or purchase rights or upon the issuance of such convertible
securities (or upon the issuance of such warrants, options or any rights
therefor), as the case may be, as above provided.
(ii) Should the Net Consideration Per Share of any such warrants,
options, subscriptions or purchase rights or convertible securities be
decreased or increased from time to time then, upon the effectiveness of
each such change, the Exercise Price shall be adjusted to such Exercise
Price as would have resulted (1) had the adjustments made upon the issuance
of such warrants, options, rights or convertible securities been made upon
the basis of the actual Net Consideration Per Share of such securities, and
(2) had the adjustments made to the Exercise Price since the date of
issuance of such securities been made to the Exercise Price as adjusted
pursuant to (1) above. Any adjustment of the Exercise Price with respect
to this Section 3.02 which relates to warrants, options, subscriptions or
------------
purchase rights with respect to shares of Common Stock shall be disregarded
if, as, and when all of such warrants, options, subscriptions or purchase
rights expire or are canceled without being exercised, so that the Exercise
Price effective immediately upon such cancellation or expiration shall be
equal to the Exercise Price which would have been in effect at the time of
such cancellation or expiration had the expired or canceled warrants,
options, subscriptions or purchase rights not been issued.
(d) Certain Definitions. For purposes of this Section 3.02, the following
------------------- ------------
terms shall have
4
<PAGE>
the following meanings:
(i) The "Fair Market Value" of a share of Common Stock as of a
-----------------
particular date shall mean:
(x) If the Company is subject to the reporting obligations under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
------------
pursuant to Section 12 or Section 15(d) of such Exchange Act, or if a
registration under the Securities Act of 1933, as amended, covering an
initial underwritten public offering of such capital stock of the Company
has been declared effective by the U.S. Securities and Exchange Commission
and consummated, then the "Fair Market Value" of the Common Stock shall be
deemed to be the average of the reported last sale price (or reported
closing bid price, if last sale data is not reported for such security) for
the five consecutive business day period ending with the last business day
immediately prior to the date such determination is made as reported by the
principal national securities exchange or automated quotation system on
which such security is then traded (as measured by average daily volume of
trading in such security during such five business day period); and
(y) In all other cases, the "Fair Market Value" of the Common
Stock shall be determined in good faith by the Board of Directors of the
Company upon review of the relevant factors; provided, however, that if the
date of such determination falls within five business days prior to the
effective date of a registration statement for an initial public offering
of Common Stock, the Fair Market Value of a share of Common Stock included
in such registration statement will be deemed to be the per share public
offering price, less the aggregate underwriting discount, provided for in
such registration statement; and provided further, however, that if, within
60 days after receipt of the first notice of the issuance of any security
in one or a series of related transactions in which the aggregate
consideration received (or deemed received in accordance with Section
3.02(c)) exceeds $1.0 million and the holders of 30% or more of the
Warrants issued pursuant to the Stock Purchase Agreement, dated as of July
__, 1999, notify the Company of their reasonable belief that the "Fair
Market Value" of the Common Stock as so determined by the Board of
Directors above is less than the actual fair market value of the Common
Stock, then the "Fair Market Value" of the Common Stock shall be determined
by a nationally recognized investment banking firm selected by the Company.
(ii) The "Net Consideration Per Share" which may be received by the
---------------------------
Company shall mean the amount equal to the total amount of consideration, if
any, received by the Company for the issuance of such, warrants, options,
subscriptions or other purchase rights or convertible or exchangeable securities
(taking into consideration appropriate allocations of consideration if
securities are issued in units or are otherwise issued with other securities or
property), plus the minimum amount of consideration, if any, payable to the
Company upon exercise or conversion thereof, divided by the maximum aggregate
number of shares of Common Stock that would be issued if all such warrants,
options, subscriptions or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
(e) Consideration Other than Cash. For purposes of this Section 3.02, if a
----------------------------- ------------
part or all of the consideration received by the Company in connection with the
issuance of shares of the Common Stock
5
<PAGE>
or the issuance of any of the securities described in this Section 3.02 consists
------------
of property other than cash, such consideration shall be deemed to have a fair
market value as is reasonably determined in good faith by the Board of Directors
of the Company.
(f) Events Not Requiring an Adjustment. Notwithstanding the provisions
----------------------------------
of this Section 3.02, no adjustment of the Exercise Price or the number of
------------
Warrant Shares shall be required with respect to any issuances to which
Section 3.03 or Section 3.04 are applicable and with respect to the items
- ------------ ------------
specified in Article Four, Section 5(a)(iv)(A)(4) of the Second Amended and
Restated Certificate of Incorporation the Company as in effect on the date
hereof.
Section 3.03. Stock Dividends. If the Company shall declare a dividend
---------------
or any other distribution upon any capital stock which is payable in shares of
Subject to Section 4.03 hereof, the Common Stock, the Exercise Price and
Designated Value shall be reduced to the quotient obtained by dividing (i) the
number of shares of Common Stock outstanding immediately prior to such
declaration multiplied by the then effective Exercise Price or Designated Value,
respectively, by (ii) the total number of shares of Common Stock outstanding
immediately after such declaration.
Section 3.04. Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price and Designated Value shall be proportionately reduced
and the number of Warrant Shares issuable upon exercise of the Warrants
represented hereby shall be proportionately increased. If the Company shall
combine the outstanding shares of Common Stock into a smaller number of shares,
the Exercise Price and Designated Value shall be proportionately increased and
the number of Warrant Shares issuable upon exercise of the Warrants represented
hereby shall be proportionately decreased.
Section 3.05. Notice of Change in Shares Issuable, etc. Whenever the
-----------------------------------------
securities issuable or deliverable upon exercise of the Warrants is changed
pursuant to this Article 3, the Company shall mail a notice of such change to
---------
Holder at the address registered with the Company. Failure to file such
statement or to publish such notice, or any defect in such statement or notice,
shall not affect the legality or validity of any such change. Such notice shall
be accompanied by a certificate executed by the Company's chief financial
officer, setting forth in reasonable detail the facts requiring the change and
specifying the effective date of such change and the number or amount of, and
describing the shares or other securities issuable or deliverable in exchange
for, the Warrants as so changed.
Section 3.06. Limitations on Adjustment. Except in the case of a reverse
-------------------------
stock split or similar recapitalizing transaction, the Exercise Price shall not
be increased as a result of any adjustments set forth in this Article 3 above
---------
the Exercise Price which would be in effect had no adjustment ever been made to
the Exercise Price in accordance with the terms of this Warrant with respect to
the Common Stock, options or convertible securities for which the adjustment in
question is being made.
Section 3.07. Good Faith. If any event occurs as to which in the
----------
reasonable opinion of the Board of Directors of the Company, in good faith, the
other provisions of this Article 3 are not strictly applicable but the lack of
any adjustment in the Warrant Shares would not in the opinion of the Board of
Directors of the Corporation fairly protect the exercise rights of the holders
of the Warrants, in accordance with the basic intent and principles of such
provisions, then the Board of Directors of the Corporation shall appoint a firm
of independent certified public accountants (which may be the regular auditors
of the Company) of recognized national standing, which shall give their opinion
upon the adjustment, if any, to the Exercise Price and/or Warrant Shares, as the
case may be, on a basis consistent with the basic intent and principles of this
Article 3, necessary to preserve, without dilution, the exercise
6
<PAGE>
rights of all the registered holders of the Warrants in accordance with this
Agreement.
To be included in initial Senior Preferred Stock Warrants Only:
[Section 3.08. Special Adjustment Related to Preemptive Rights Offering.
--------------------------------------------------------
The number of Warrant Shares shall be adjusted (the "Special Financing
-----------------
Adjustment") upon the completion by the Company of the Preemptive Rights
- ----------
Offering (the "Preemptive Offering") provided for in Section 8 of the Amended
-------------------
and Restated Stockholders Agreement, dated as of _________, 1999, and related
to the Stock Purchase Agreement, dated as of _________, 1999, pursuant to which
the Class D-2 Preferred Stock, 12% Senior Redeemable Preferred Stock and Senior
Convertible Preferred Stock of the Company were originally issued. The Special
Financing Adjustment will be equal to the amount arrived at by multiplying the
number of Warrant Shares then issuable pursuant to the exercise of this Warrant
Agreement in full by the percentage dilution caused by the Preemptive Offering
(the "Adjustment Factor"). The Adjustment Factor will be equal to a fraction
-----------------
wherein the numerator is the number of common stock equivalents issued in the
Preemptive Offering and the denominator is the number of common stock
equivalents of the Company outstanding immediately prior to the closing of the
Preemptive Offering. The Warrant Shares represented by the Special Financing
Adjustment will be evidenced by an additional warrant agreement, substantially
identical to this Warrant Agreement (except that this Section 3.08 shall not be
included in such warrant agreement, and for purposes of the anti-dilution
adjustment provisions, such warrant agreement shall be deemed to have been
issued on the date of this Warrant Agreement). The adjustment made by this
Section 3.08 shall be made only once, and once made and documented by delivery
of the related warrant agreement, this Section shall be extinguished.]
ARTICLE 4. Rights; Liquidation, Merger, etc.
---------------------------------
Section 4.01. Subscription or Purchase Rights. If at any time the
-------------------------------
Company grants, issues or Sells any options, convertible securities or rights to
purchase stock, warrants, securities or other property pro rata to the record
holders of Common Stock (the "Purchase Rights"), then the Holder of this
---------------
Warrant will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such Holder could have acquired if
such Holder had held the number of Warrant Shares issuable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 4.02. Notice to Holder. If, at any time after the date hereof:
----------------
(a) the Company shall authorize the distribution to all holders of Common
Stock of evidence of its indebtedness, assets (other than Common Stock (for
which adjustment is provided in Section 3.03 hereof) or cash dividends or cash
------------
distributions payable out of current earnings, retained earnings or earned
surplus or dividends payable in Common Stock);
(b) there shall be proposed any consolidation or merger to which the
Company is to be a party and for which approval of the holders of Common Stock
is required, or the conveyance or transfer of the properties and assets of the
Company substantially as an entirety;
(c) there shall be proposed any capital reorganization or reclassification
(other than a subdivision or combination of shares, stock dividend,
consolidation, merger, or conveyance or transfer of
7
<PAGE>
assets provided for elsewhere herein); or
(d) there shall be proposed the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
the Company shall cause to be given to Holder at the address registered with the
Company, by first-class mail, postage prepaid, a written notice stating (i) the
date as of which the holders of record of shares of Common Stock to be entitled
to receive any such distributions are to be determined or (ii) the date on which
any consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
shares of Common Stock shall be entitled to exchange the shares for securities
or other property, if any, deliverable upon the consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up. Such notice shall be filed and mailed in the case of a notice
pursuant to clause (i) above at least 10 calendar days before the record date
specified and, in the case of a notice pursuant to clause (ii) above, at least
20 calendar days before the earlier of the dates specified. Any notice pursuant
to clause (ii) above shall also state whether or not unexercised Warrants will
become void as provided in the last sentence of Section 4.03.
------------
Section 4.03. Expiration Date of Warrants or Limitations of Rights.
----------------------------------------------------
From the time notice is required to be given pursuant to Section 4.02,
------------
the Holder shall be entitled to exercise the Warrants represented hereby,
effective immediately prior to the transaction described in the notice, at the
Exercise Price then in effect. For any transaction pursuant to Section 4.02(b)
---------------
in which the Company is not the surviving or acquiring entity and Holder does
not exercise all of the Warrants, the Company shall use reasonable efforts to
negotiate to cause the surviving or acquiring entity to assume the obligation
represented by such Warrants so as to insure that each Holder will thereafter
have the right to acquire and receive in lieu of or addition to the shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
such Warrants, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of such Warrants
had such transaction not taken place. As to any transaction specified in
Section 4.02(b) above in which the Company shall not be the surviving or
- ---------------
acquiring party and in which the Company is unable to negotiate the assumption
of the obligations represented by the Warrants by the acquiring or surviving
entity (and the Company has used its reasonable efforts to negotiate such
assumption), or in which the Company shall have disposed of substantially all of
its assets, or any transaction specified in Section 4.02(b), the right to
---------------
exercise the Warrants shall expire at the close of business on the later of the
dates specified in such notice as the date on which any consolidation, merger,
conveyance, transfer, reorganization, reclassification, dissolution, liquidation
or winding up is expected to become effective and the date as of which it is
expected that holders of record of shares of Common Stock shall be entitled to
exchange such shares for securities or other property, if any, deliverable upon
the consolidation, merger, conveyance, transfer, reorganization,
reclassification, dissolution, liquidation or winding up. Any Warrant not so
exercised in such cases shall become void and all rights under this Warrant
Agreement shall cease.
ARTICLE 5. Transfer of Ownership of Warrants.
---------------------------------
Section 5.01. Negotiability and Ownership. The Warrants represented
---------------------------
hereby shall not be transferable by the Holder or his permitted assigns during
their term except (a) to persons who demonstrate to the reasonable satisfaction
of the Company that they are "accredited investors" within the meaning of
Regulation D promulgated under the Securities Act and who deliver to the Company
warranties and representations substantially to the same effect as those set
forth in Section 6.02 hereof or
------------
8
<PAGE>
otherwise reasonably appropriate to demonstrate compliance with the Securities
Act, (b) in the case of an individual, pursuant to such individual's last will
and testament or the laws of descent and distribution, or (c) to any underwriter
in connection with an underwritten public offering in which such Warrants will
be exercised by such underwriters prior to or concurrently with the sale of the
Warrant Shares to the public and, in any of the foregoing cases, only in
compliance with the Securities Act. Any attempted transfer in contravention of
this Section 5.01 shall be null and void. Any such transferee may be required to
------------
execute an investment letter containing representation and warranties as to his
or her investment intent, financial sophistication and ability to bear the risk
of any investment in the Warrants or the Warrant Shares, and containing
substantially similar warranties and representations to those contained in
Section 6.02 hereof before any such transfer shall be given effect. Further, the
- ------------
Company may condition any such transfer on the execution by the transferee of a
joinder agreement to the Company's Amended and Restated Registration Rights
Agreement in the same form as was binding against the Holder who transferred
such Warrants.
ARTICLE 6. Warranties and Representations.
------------------------------
Section 6.01. Company's Representations, Warranties. The Company
-------------------------------------
represents and warrants to the Registered Holder that:
(a) The Company has full power and authority to enter into this Agreement,
and to issue and deliver this Agreement and the Warrant Shares upon exercise of
the Warrants, and to incur and perform fully the obligations provided herein,
all of which have been duly authorized by all necessary corporate action, upon
exercise in accordance with the terms hereof, the Warrant Shares issued upon
such exercise will be validly issued, fully paid and non-assessable;
(b) This Agreement has been duly executed and delivered and is the valid
and binding obligation of the Company enforceable in accordance with its terms;
(c) The Company has obtained all necessary consents prior to the execution
and delivery of this Agreement and the performance by the Company of this
Agreement in accordance with its terms and conditions will not: (i) require the
approval or consent of any governmental or regulatory body whether federal,
state, local or foreign or the approval or consent of any other person, or (ii)
conflict with or result in any breach or violation of any of the terms and
conditions of, or constitute (with notice or lapse of time or both) a default
under any certificate of incorporation, by-law, statute, regulation, order,
judgment or decree of or applicable to the Company, or any instrument, contract
or other agreement to which the Company is a party or by or to which the Company
is bound or subject; and
(d) There are no preemptive rights with respect to the issuance and sale of
the Warrants or the Warrant Shares which have not been waived or previously
satisfied.
Section 6.02. Investment Warranties and Representations. In connection
-----------------------------------------
with the acquisition of the Warrants, and with the understanding that warranties
and representations of similar effect hereto may be required to be made by any
holder of the Warrants in connection with the exercise thereof, Holder hereby
makes the following representations to the Company in order that the Company may
rely on such representations in connection with the issuance and sale of the
Warrants and/or the Warrant Shares:
9
<PAGE>
(a) Holder is at present financially able to bear the economic risks
of an investment in the Warrants or the Warrant Shares of the Company and
has no need for liquidity in this investment.
(b) Holder has received no public solicitation or advertisement and
has attended no public seminar or meeting regarding investment in the
Company, nor is Holder aware of any such public solicitation, advertisement
or meeting.
(c) The Warrants have been, and, if the Warrants are exercised, the
Warrant Shares will be, acquired for the account of Holder for investment
and not with a view to resale or further distribution thereof in
contravention of applicable law.
(d) Holder has no contract, undertaking, arrangement or agreement
with any person to sell or transfer or to have any person sell for Holder
all or any of the Warrants or Warrant Shares and is aware of and agrees to
the restrictions on transferability of the Warrants imposed by Section 5.01
------------
hereof.
(e) Prior to any exercise of the Warrants, Holder understands and
agrees that it may be required to represent and provide such reasonably
satisfactory evidence thereof as the Company may require that he is an
"accredited investor" within the meaning of Regulation D promulgated by the
Securities and Exchange Commission.
(f) Holder is knowledgeable in and experienced with respect to
investments in general and with respect to investments of a nature similar
to an investment in the Company. By reason of such knowledge and
experience, Holder is capable of evaluating the merits and risks of, and
making an informed business decision with regard to, an investment in the
Company.
(g) Holder (i) received all the information that Holder deemed
necessary to make an informed investment decision with respect to an
investment in the Company, (ii) has had the unrestricted opportunity to
make such investigation as Holder desired pertaining to the Company and an
investment therein to verify the information previously furnished to
Holder; and (iii) has had the opportunity to ask questions of the Company's
representatives concerning the Company.
(h) Holder hereby consents to the placement of a legend on any
certificate evidencing the Warrants or Warrant Shares, which legend shall
be in form substantially as set forth at the top of this Agreement.
(i) Holder also consents to the placement of a "stop order" on the
stock transfer books of the Company to enforce the restrictions set forth
in the above-mentioned legend. Holder further indemnifies and agrees to
hold the Company harmless from and against all loss, liabilities,
obligations and costs arising out of or related to the resale or
distribution by Holder of all or any portion of the Warrants and Warrant
Shares under such circumstances as to bring the issuance, sale or transfer
of the Warrants and Warrant Shares within the provisions of Section 5 of
the Securities Act unless a Registration Statement under the Securities Act
is in effect as to the Warrants or Warrant Shares or unless an opinion of
counsel satisfactory to the Company is delivered opining that an exemption
from such registration requirements is available for any such sale or
transfer.
10
<PAGE>
(j) Holder realizes that the Warrants and Warrant Shares have not been
registered under the Securities Act by reason of a specific exemption under
the provisions of the Securities Act which depends upon the investment
intent of the undersigned. Therefore, the Warrants and Warrant Shares are
"restricted securities" as that term is defined in Securities and Exchange
Commission Rule 144 ("Rule 144"), and accordingly, must be held
--------
indefinitely unless they are subsequently registered under the Securities
Act, or an exemption from such registration is available.
(k) Holder realizes that Rule 144, which provides an exemption from
registration under the Securities Act, merely permits the sale of limited
amounts of Warrants and Warrant Shares in accordance with the terms and
conditions set forth in Rule 144. One such condition at present is that
the Warrants and Warrant Shares not be sold until such time as they have
been held for at least two (2) years from the date of purchase (one (1)
year if the Company becomes subject to the Exchange Act). Holder further
understands that the availability of Rule 144 is dependent upon adequate
current public information, with respect to the Company, being available
and that such information is not currently available and there is no
guarantee that such information will be available at any further time.
Holder further understands that, except as otherwise provided in the
Registration Rights Agreement, the Company is under no obligation to make
such information publicly available, to supply Holder with information
necessary to sell the Warrants or Warrant Shares under Rule 144, to
register the Warrants and Warrant Shares under the Securities Act, or to
otherwise comply with any exemption under the Securities Act.
ARTICLE 7. No Impairment. The Company will not, by any voluntary action,
-------------
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Agreement and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder of this Agreement against impairment.
ARTICLE 8. Reports. Upon request, the Company shall deliver to the Holder
-------
copies of all reports or notices distributed or made generally available to all
of the Company's stockholders, when and as such reports or notices are delivered
to the stockholders.
ARTICLE 9. Miscellaneous Provisions.
------------------------
Section 9.01. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the laws of the State of Delaware.
Section 9.02. Notices. Any notice pursuant to this Agreement to be
-------
given to the Company or Holder shall be sufficiently given if sent by first-
class mail, postage prepaid, addressed (until another address is filed in
writing by the Holder or the Company until the Company designates a transfer
agent as the appropriate recipient of certain types of notice to it contemplated
hereby) as follows:
If to the Company:
HOB Entertainment, Inc.
6255 Sunset Boulevard, 16th Floor
Los Angeles, California 90028
Attention: President
11
<PAGE>
and to Holder at its address set out on the signature page hereto, or such other
address as may be furnished in writing to the Company from time to time
hereafter. All such notices, requests, demands and other communication shall,
when mailed (registered or certified mail, return receipt requested, postage
prepaid), personally delivered, or telegraphed, be effective four days after
deposit in the mails, when personally delivered, or when delivered to the
telegraph company, respectively, addressed as aforesaid, unless otherwise
provided herein and, when telecopied, shall be effective upon actual receipt.
Section 9.03. Amendments. The provisions of this Agreement may be amended
----------
only by the written agreement of the Company and the Holder.
Section 9.04. Successor. All the covenants and provisions of this
---------
Agreement by or for the benefit of the Company or Holder shall bind and inure
to the benefit of their respective successors and assigns hereunder.
Section 9.05. Theft, Loss, Destruction. Upon receipt by the Company
------------------------
of evidence reasonably satisfactory to it (an affidavit of the Registered Holder
will be satisfactory) of the loss, theft, destruction or mutilation of this
Agreement, and, in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, the Company will make and deliver a new Agreement
of like tenor, in lieu of this Agreement.
Section 9.06. Benefits of this Agreement. Nothing in this Agreement shall
--------------------------
be construed to give to any person or Company other than the Company and the
Holder any legal or equitable right, remedy or claim under this Agreement. This
Agreement shall be for the sole and exclusive benefit of the Company and such
Holder.
Section 9.07. Headings. The section headings herein are for convenience
--------
only and are not part of this Agreement and shall not affect the
interpretation hereof.
(Signature Page Follows)
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be duly executed, all as of the day and year first above written.
HOB ENTERTAINMENT, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
HOLDER:
-------------------------------
(if applicable) By:
----------------------------
Name:
--------------------------
Title:
-------------------------
Address for Notice:
-------------------
13
<PAGE>
(SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF
SOME OR ALL OF THE WARRANTS)
The undersigned, registered holder or assignee of such registered Holder of
the within Agreement, hereby:
(a) subscribes for ___ shares of Common Stock which the undersigned is
entitled to purchase under the terms of the within Agreement, (b) makes the
full cash payment therefor called for by the within Agreement or elects a
Cashless Exercise as provided therein, and (c) directs that the Common
Stock issuable upon exercise of said Warrants be issued as described
hereunder.
In addition, the undersigned acknowledges that he or she may be required to
make the representations and warranties contained in Section 6.02 of the
------------
attached Agreement prior to HOB Entertainment, Inc.'s acceptance of this
subscription.
--------------------------
(Name)
--------------------------
(Address)
--------------------------
SIGNATURE
Dated:
----------------------
................................................................................
NOTICE: The signature on this subscription form must correspond with the
name of the Holder as indicated in the attached Warrant Agreement, in every
particular, without alteration or enlargement, or any change whatsoever,
and must be guaranteed by a bank or trust company having an office or
correspondent in New York, New York, or by a firm having membership on a
registered national securities exchange.
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
---------
is made as of September 10, 1999, by and among HOB ENTERTAINMENT, INC., a
Delaware corporation (the "Company"), the stockholders listed on Exhibit A
------- ---------
hereto (the "Existing Stockholders") and the new investors in the Company listed
---------------------
on Exhibit B hereto (the "New Stockholders").
--------- ----------------
WHEREAS, in connection with the issuance and sale of certain shares of
Class A Preferred Stock of the Company (the "Class A Preferred Stock") the
-----------------------
Company entered into a Registration Rights Agreement (the "Registration Rights
-------------------
Agreement"), granting to the holders of the Class A Preferred Stock and certain
- ---------
other security holders rights to have certain shares of common stock par value
$.0001 per share ("Common Stock"), of the Company registered for resale; and
------------
WHEREAS, in connection with the issuance and sale of shares of Class B
Preferred Stock of the Company (the "Class B Preferred Stock") and shares of
-----------------------
Class C Preferred Stock of the Company (the "Class C Preferred Stock"), the
-----------------------
Company entered into an Amended and Restated Registration Rights Agreement, as
amended on January 17, 1997 (the "1997 Registration Rights Agreement"), amending
----------------------------------
and restating the Registration Rights Agreement and additionally granting to the
holders of the Class B Preferred Stock and the Class C Preferred Stock and to
certain other holders of warrants and other securities of the Company rights to
have certain shares of Common Stock of the Company registered for resale; and
WHEREAS, in connection with the issuance and sale of shares of the Class D-
1 Preferred Stock (formerly classified as Class D Preferred Stock, but to be
reclassified as Class D-1 Preferred Stock contemporaneous with the execution of
this Agreement), $.01 par value (the "Class D-1 Preferred Stock"), the Company
-------------------------
entered into an Amended and Restated Registration Rights Agreement, dated as of
July 31, 1998 (the "1998 Registration Rights Agreement"), amending and restating
----------------------------------
the 1997 Registration Rights Agreement and additionally granting to the holders
of the Class D-1 Preferred Stock rights to have certain shares of Common Stock
registered for resale; and
WHEREAS, the Company is or will issue pursuant to a Purchase Agreement,
dated as of July 21, 1999 (the "1999 Preferred Stock Purchase Agreement"),
---------------------------------------
relating to the issuance of shares of Class D-2 Preferred Stock, par value $.01
per share (the "Class D-2 Preferred Stock"), Class D-3 Preferred Stock, par
-------------------------
value $.01 per share (the "Class D-3 Preferred Stock" and, collectively with the
-------------------------
Class D-1 Preferred Stock and the Class D-2 Preferred Stock, the "Class D
-------
Preferred Stock"), 12 % Senior Redeemable Preferred Stock, $.01 par value (the
- ---------------
"Senior Preferred Stock"), and/or Senior Convertible Preferred Stock, par value
- -----------------------
$.01 per share (the "Bridge Preferred Stock" and, collectively with the Class D-
----------------------
2 Preferred Stock, the Class D-3 Preferred Stock and Senior Preferred Stock, the
"Acquisition Preferred Stock"), as well as the related issuance to purchasers of
---------------------------
Senior Preferred Stock and Bridge Preferred Stock of specified warrants to
acquire shares of Common Stock (the "1999 Warrants"), and
-------------
<PAGE>
WHEREAS, each share of Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D-1 Preferred Stock issued and outstanding as
of the date hereof, each share of Class D-2 Preferred Stock being issued
pursuant to the 1999 Preferred Stock Purchase Agreement, including shares of
Class D-2 Preferred Stock issuable upon conversion of the Bridge Preferred Stock
or the Class D-3 Preferred Stock and each share of the Company's Non-Voting
Common Stock (the "Non-Voting Common Stock"), par value $.0001 per share
-----------------------
(collectively, the "Shares"), is convertible into the number of shares of Common
------
Stock of the Company as set forth in the Second Amended and Restated Certificate
of Incorporation of the Company (the "Conversion Shares"); and
-----------------
WHEREAS, the Company has obtained the consent of persons holding a majority
of the Registrable Securities (as defined herein) currently outstanding to the
amendment and restatement of the 1998 Registration Rights Agreement as set forth
herein; and
WHEREAS, it is a condition to the purchase of the shares of Acquisition
Preferred Stock and the 1999 Warrants pursuant to the 1999 Preferred Stock
Purchase Agreement that the Company, Existing Stockholders holding at least a
majority of the Registrable Securities (determined on an as-converted, as-
exercised basis) and the parties to the 1999 Preferred Stock Purchase Agreement
enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements herein contained, the parties hereto agree as follows:
1. Registration Rights.
-------------------
1.1. Definitions and Conventions.
---------------------------
(a) The terms "register," "registered," and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(the "1933 Act"), and the automatic effectiveness or the declaration or
--------
ordering of effectiveness of such registration statement or document.
(b) The term "Registrable Securities" means (1) the Common Stock
----------------------
issuable or issued upon conversion of the Shares, (2) any Common Stock of
the Company issuable or issued upon conversion of 212,963 shares of Class A
Preferred Stock issued or issuable to Judith Belushi Pisano upon the
exercise of an option to purchase such shares granted to Ms. Pisano, (3)
62,500 shares of Common Stock issued or issuable to Michael Murphy on
exercise of options granted by Isaac B. Tigrett to Michael Murphy, (4)
500,000 shares of Common Stock issued or issuable to Laurence Bilzerian on
exercise of options granted by Isaac B. Tigrett to Laurence Bilzerian, (5)
shares of Common Stock transferred by Isaac B. Tigrett to InterRedec, Inc.
or its affiliates, including without limitation Parkway Hotel Corp.
(collectively "InterRedec"), including shares of Common Stock sold by, or
----------
issuable upon exercise of options granted by, Isaac B. Tigrett to
InterRedec and upon any foreclosure of securities pledged by Isaac B.
Tigrett to
2
<PAGE>
InterRedec, (6) the shares of Common Stock held by Isaac B. Tigrett as of
the date hereof, including any such shares which are acquired by InterRedec
or any other pledgee in a transaction permitted under the Company's Amended
and Restated Stockholders Agreement, as the same may be further amended
from time to time, (7) the shares of Common Stock issuable upon exercise of
warrants granted to Platinum Venture Partners II, L.P. as of February 28,
1997, (8) the shares of Common Stock issuable upon exercise of warrants
granted to S.A. Blues Partners, L.P. ("S.A. Blues"), Chase Venture Capital
----------
Associates, L.P. and Aeneas Venture Corporation as of February 28, 1997,
(9) the Common Stock issued or issuable upon exercise of warrants to
acquire up to 200,000 shares of Common Stock issued to Donaldson, Lufkin &
Jenrette Securities Corporation, (10) the shares of Common Stock issued or
issuable upon exercise of warrants to acquire up to 100,000 shares of
Common Stock issued to Barefoot Blues Partnership, (11) the shares of
Common Stock issued or issuable upon exercise of warrants to acquire up to
100,000 shares of Common Stock issued to James Cafarelli, (12) the shares
of Common Stock issued or issuable upon exercise of warrants to acquire up
to 400,000 shares of Common Stock issued to Carbon Capital Mortgage
Partners, L.P., (13) the shares of Common Stock issued or issuable upon
exercise of warrants to acquire up to 300,000 shares of Common Stock issued
to John Marks, (14) the shares of Common Stock issued or issuable upon
exercise of warrants to acquire up to 262,500 shares of Common Stock issued
to Nomura Asset Capital Corporation, (15) the shares of Common Stock issued
or issuable upon exercise of warrants to acquire up to 334,000 shares of
Common Stock issued to Platinum Blues Chicago, L.L.C., (16) [intentionally
omitted], (17) the shares of Common Stock issuable upon exercise of
warrants granted to investors pursuant to the Class C Preferred Stock
Purchase Agreement among the Company and the purchasers of the Class C
Preferred Stock and related Warrant Agreements, (18) the shares of Common
Stock issuable upon exercise of the 1999 Warrants issued or issuable in
conjunction with the Senior Preferred Stock and the Bridge Preferred Stock
and the shares of Common Stock issuable upon exercise, or issuable upon
conversion of Non-Voting Common Stock issuable upon exercise, of the
warrants issued to Universal Studios, Inc. in connection with the Company's
acquisition of Universal Concerts, Inc. (the shares of Common Stock issued
or issuable upon exercise of warrants referred to in subsections (7), (8),
(9), (12), (14), (17) and (18) are collectively referred to herein as the
"Warrant Shares"), (19) the shares of Common Stock issued or issuable upon
---------------
exercise of options to acquire up to 100,000 shares of Common Stock issued
to James Belushi, and (20) any Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, option, right, or
other security which is issued as) a dividend or other distribution with
respect to, in exchange for, or in replacement of, the securities described
in (1) through (19) above; provided, however, that any shares previously
-------- -------
sold to the public pursuant to a registered public offering or through a
broker, dealer or market maker in compliance with Rule 144 under the 1933
Act pursuant to which the transferee received freely-tradable securities
without any restrictive legend shall cease to be Registrable Securities;
and provided further that the registration rights provided for herein shall
-------- -------
apply only to the resale of the shares of Common Stock described in
subsections (1) through (20) above and not to their original issuance by
the Company.
3
<PAGE>
(c) The number of shares of Registrable Securities outstanding at any
time shall be determined by adding the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which upon issuance
or exercise would be, Registrable Securities.
(d) The term "Holder" means any person owning or having the right to
------
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(e) The terms "Form S-1," "Form S-3," "Form S-4" and "Form S-8" mean
-------- -------- -------- --------
such respective forms under the 1933 Act as in effect on the date hereof or
any successor registration forms to Form S-1, Form S-3, Form S-4 and Form
S-8, respectively, under the 1933 Act subsequently adopted by the
Securities and Exchange Commission ("SEC").
---
(f) The term "Designated Class D Holder" shall mean any of (i) Chase
-------------------------
Capital Partners (which shall be deemed to include any affiliated
investment partnership, limited liability company or similar entity
(including, without limitation, Chase Venture Capital Associates, L.P.,
Chase/HOB Partners 1998 (GC), LLC and Chase/HOB Partners 1999 (GC), LLC,
all of which are referred to herein as "CCP"), (ii) J.H. Whitney & Co.,
---
J.H. Whitney III, L.P., Whitney Strategic Partners III, L.P. and J.H.
Whitney Market Value Fund, L.P. (collectively, "J.H. Whitney"), (iii) First
Union Investors, Inc. ("First Union"), (iv) S.A. Blues Partners L.P. ("S.A.
----------- ----
Blues"), and (v) Ares Leveraged Investment Fund, L.P. and Ares Leveraged
-----
Investment Fund II, L.P. (collectively, "Ares").
----
(g) The terms "Requisite Holders" shall mean (i) CCP and (ii) any two
----------------- ---
of J.H. Whitney, S.A. Blues and First Union.
(h) The term "Class D Registrable Securities" shall mean (i) the
------------------------------
Conversion Shares related to the Class D Preferred Stock, (ii) the
Conversion Shares related to the Non-Voting Common Stock issued upon
conversion of the Class D-3 Preferred Stock and (iii) the Warrant Shares
related to the 1999 Warrants.
(i) The term "SEC" shall mean the U.S. Securities and Exchange
---
Commission.
1.2. Request for Registration.
------------------------
(a) General Demand Rights. If the Company shall receive at any time
---------------------
after the date six months after the effective date of the first
registration statement for a firm commitment underwritten public offering
of Common Stock of the Company registered with the SEC, a written request
from either (i) the Holders of in excess of 25% of the Registrable
Securities then outstanding and entitled to registration rights under this
Section 1 or (ii) any Designated Class D Holder (the "Initiating
----------
Holder(s)") that the Company effect the registration under the 1933 Act of
---------
at least (x) 15% of the Registrable Securities then outstanding or (y) the
number of Registrable Securities whose aggregate
4
<PAGE>
offering price is expected to be at least $20,000,000 (whichever is
lesser), then the Company shall, within five days of the receipt thereof,
give written notice of such request to all Holders and shall, subject to
the limitations of this Section 1.2, use its reasonable best efforts to
effect such a registration as soon as practicable and in any event to file
within 75 days of the receipt of such request a registration statement
under the 1933 Act covering all the Registrable Securities which the
Holders shall in writing request (given within 20 days of receipt of the
notice given by the Company pursuant to this Section 1.2(a)) to be included
in such registration and to use its reasonable best efforts to have such
registration statement become effective.
(b) Demand Rights of Requisite Holders. Notwithstanding anything to
----------------------------------
the contrary contained in Section 1.2(a), (with respect to the prior
occurrence of an underwritten public offering by the Company or expiration
of a six month period thereafter) or in Section 1.2(e), if the Company
shall receive at any time on or after the date hereof a written request
from the Requisite Holders entitled to registration rights under this
Section 1 (the "Initiating Holders") that the Company effect the
------------------
registration under the 1933 Act of at least (i) 25% of the Class D
Registrable Securities then outstanding or (ii) the number of Class D
Registrable Securities whose aggregate offering price is expected to be at
least $10 million (whichever is lesser), then the Company shall, within
five days of the receipt thereof, give written notice of such request to
all Holders of Registrable Securities and shall, subject to the limitations
of this Section 1.2, use its reasonable best efforts to effect such a
registration as soon as practicable and in any event to file within 75 days
of the receipt of such request a registration statement under the 1933 Act
covering all the Registrable Securities which such Holders shall in writing
request (given within 20 days of receipt of the notice given by the Company
pursuant to this Section 1.2(b)) to be included in such registration and to
use its reasonable best efforts to have such registration statement become
effective.
(c) Procedures for Underwritten Offering. If the Initiating Holders
------------------------------------
intend to distribute the Registrable Securities covered by their request by
means of an underwriting, they shall so advise the Company as part of their
request made pursuant to this Section 1.2 and the Company shall include
such information in the written notice referred to in subsection 1.2(a) and
(b). In such event, the right of any Holder to include its Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder)
to the extent provided herein. All Holders proposing to distribute their
securities through such an underwriting shall (together with the Company as
provided in subsection 1.4(e)) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders, subject
to approval by the Company, such approval not to be unreasonably withheld.
Notwithstanding any other provision of this Section 1.2, if, in the case of
a registration requested pursuant to Section 1.2(a) or (b), the underwriter
advises the Initiating Holders and the Company in writing that marketing
factors require a limitation of the number of shares to be underwritten,
then the Initiating
5
<PAGE>
Holders shall so advise the Company and all Holders of Registrable
Securities which would otherwise be underwritten pursuant hereto, and the
number of Registrable Securities that may be included in the underwriting
shall be allocated in the following order of priority: (i) first, Class D
Registrable Securities pro rata among all Holders of Class D Registrable
Securities desiring to participate in such underwriting (according to the
number of Class D Registrable Securities then held by each such Holder),
(ii) second, Conversion Shares related to Class C Preferred Stock and
Warrant Shares (other than Warrant Shares related to the 1999 Warrants) pro
rata among all Holders of Class C Preferred Stock and Conversion Shares
related thereto and the Warrant Shares (other than Warrant Shares related
to the 1999 Warrants) desiring to participate in such underwriting
(according to the number of Conversion Shares issued or issuable upon
conversion of the Class C Preferred Stock and Warrant Shares (other than
Warrant Shares related to the 1999 Warrants) issued or issuable upon
exercise of the related warrants then held by each such Holder) and (iii)
finally, pro rata among all Holders of other Registrable Securities
desiring to participate in such underwriting (according to the number of
other Registrable Securities then held by each Holder). No Registrable
Securities requested by a Holder to be included in a registration pursuant
to Section 1.2(a) or (b) shall be excluded from the underwriting unless all
securities other than Registrable Securities are first excluded.
(d) Limitations on Demand Registrations. The Company is obligated to
-----------------------------------
effect only three registrations pursuant to Section 1.2(a) and only three
registrations pursuant to Section 1.2(b); provided, however, that no
-------- -------
registration of Registrable Securities which shall not have become and
remained effective in accordance with Section 1.4 hereof shall be deemed to
be a registration for any purpose of this sentence.
(e) Deferral Right. Notwithstanding the foregoing, (i) the Company
--------------
shall not, except in accordance with Section 1.2(b), be obligated to effect
the filing of a registration statement pursuant to this Section 1.2 during
the 180 days following the effective date of a registration statement
pertaining to the underwritten public offering of equity securities for the
account of the Company, or (ii) if the Company shall furnish to Holders
requesting a registration statement pursuant to this Section 1.2 a
certificate signed by the Chairman of the Board or Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would not be in the best interests of the
Company and its stockholders generally for such registration statement to
be filed, the Company shall have the right to defer such filing for a
period of not more than 180 days after receipt of the request of the
Initiating Holders; provided, however, that the Company may not utilize the
-------- -------
right set forth in this subsection (e)(ii) more than once in any twelve-
month period; nor, to the extent a registration request is received by the
Company within the 180-day period set forth in this subsection (e)(i),
shall the Company utilize the right set forth in this subsection (e)(ii) in
combination with the delay right set forth in such subsection (e)(i) to
cause a delay of more than 180 days from the date of such request until the
filing of such registration statement.
(f) SEC Form to be Used. Each registration requested pursuant to
-------------------
Section 1.2(a) or (b) shall be effected by the filing of a registration
statement on
6
<PAGE>
Form S-1, unless the use of a different form is consented to by Initiating
Holders holding a majority of Registrable Securities or Class D Registrable
Securities, as the case may be, held by all Initiating Holders or unless
another form would be equally effective, as determined by the Initiating
Holders in their sole discretion.
1.3. Company Registration. If (but without any obligation to do so) the
--------------------
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its capital stock
or other securities under the 1933 Act in connection with the public offering of
such securities solely for cash (other than a registration on Form S-8 or any
successor form relating solely to the sale of securities to participants in a
Company stock plan, or a registration on Form S-4 or any successor form), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of a Holder given within 20 days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 1.8, use its reasonable best efforts to cause a
registration statement covering all of the Registrable Securities that such
Holder has requested to be registered to become effective under the 1933 Act.
The Company shall be under no obligation to complete any offering of its
securities it proposes to make and shall incur no liability to any Holder for
its failure to do so. Notwithstanding the foregoing, this Section 1.3 shall not
apply to a Qualified Public Offering (as defined in the immediately following
sentence) if the managing underwriter or, after consultation with the managing
underwriter, the Company's Board of Directors determines that marketing or other
factors favor an offering of securities for the account of the Company only.
For purposes hereof, a "Qualified Public Offering" shall mean an underwritten
-------------------------
initial public offering on a firm commitment basis pursuant to an effective
registration statement under the 1933 Act covering the offer and sale of Common
Stock for the account of the Company, in which the aggregate gross proceeds to
the Company are at least $30,000,000, at a price per share of Common Stock
greater than or equal to $2.00 per share (such per share amount shall be
adjusted for stock splits, stock dividends and the like).
1.4. Obligations of the Company. Whenever required under this Section 1
--------------------------
to use its reasonable best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible: prepare
and file with the SEC a registration statement with respect to such Registrable
Securities and use its reasonable best efforts to cause such registration
statement to become effective, and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to 180 days or until the Holders have
informed the Company in writing that the distribution of their securities has
been completed; and shall:
(a) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement, and use its reasonable best efforts to cause each
such amendment to become effective, as may be necessary to comply with the
provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement.
7
<PAGE>
(b) Furnish to the Holders such reasonable number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(c) Use its reasonable best efforts to register or qualify the
securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such states or
jurisdiction.
(d) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement, including furnishing any opinion of
counsel and entering into a lock-up agreement reasonably requested by the
managing underwriter.
(e) Notify each Holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under
the 1933 Act, at such time as the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material
fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing and promptly file such amendments and
supplements which may be required pursuant to subparagraph (b) of this
Section 1.4 on account of such event and use its reasonable best efforts to
cause each such amendment and supplement to become effective.
(f) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, or, if such securities are
not being sold through underwriters on the date that the registration
statement with respect to such securities becomes effective, (i) an opinion
or opinions, dated such date, of the counsel representing the Company for
the purposes of such registration, in form and substance as is customarily
given by company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
such date, from the independent certified public accountant of the Company,
in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities (if permitted by applicable
professional standards).
8
<PAGE>
(g) Apply for listing and use its reasonable best efforts to list the
Registrable Securities being registered on any national securities exchange
on which a class of the Company's equity securities is listed or, if the
Company does not have a class of equity securities listed on a national
securities exchange but does have a class of equity securities quoted on
the automated quotation system of the National Association of Securities
Dealers, Inc. (the "NASD"), apply for qualification and use its reasonable
----
best efforts to qualify the Registrable Securities being registered for
inclusion on the automated quotation system of the NASD.
(h) Without in any way limiting the types of registrations to which
this Section 1 shall apply, in the event that the Company shall effect a
"shelf registration" under Rule 415 promulgated under the 1933 Act, the
Company shall take all necessary action, including, without limitation, the
filing of post-effective amendments, to permit the Holders to include their
Registrable Securities in such registration in accordance with the terms of
this Section 1.
1.5. Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1 in
respect of the Registrable Securities of any selling Holder that such selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them, and the intended method of disposition of
such securities as shall reasonably be required to effect the registration of
their Registrable Securities.
1.6. Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions relating to Registrable Securities
incurred in connection with each registration, filing or qualification pursuant
to Section 1.2(a) or (b) and all registrations, filings or qualifications
pursuant to Section 1.11, including (without limitation) all registration,
filing and qualification fees, printing and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
-------- -------
any expenses of any registration proceeding begun pursuant to Section 1.2(a) or
(b) if the registration request is subsequently withdrawn at any time at the
request of the Holders of a majority of the Class D Registrable Securities to be
registered pursuant to Section 1.2(b) or the Holders of a majority of the
Registrable Securities to be registered pursuant to Section 1.2(a), as the case
may be (in which cases all participating Holders shall bear such expenses),
unless the Holders of a majority of the Registrable Securities or Class D
Registrable Securities, as the case may be, agree to forfeit their right to one
demand registration pursuant to Section 1.2(a) or (b) as the case may be;
provided further, however, that if at the time of such withdrawal, the Holders
- -------- ------- -------
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders of a majority of the
Registrable Securities then outstanding at the time of their request that makes
the proposed offering unreasonable in the good faith judgment of a majority in
interest of the Holders of the Registrable Securities or Class D Registrable
Securities, as the case may be, then the Holders shall not be required to pay
any of such expenses and the right to one demand registration pursuant to
Section 1.2(a) or (b) as the case may be, shall not be forfeited. Underwriting
discounts and commissions relating to
9
<PAGE>
Registrable Securities will be borne and paid ratably by the Holders of such
Registrable Securities.
1.7. Expenses of Company Registration. The Company shall bear and pay all
--------------------------------
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder (which right may be assigned as provided in Section 1.13),
including, without limitation, all registration, filing and qualification fees,
printing and accounting fees, fees and disbursements of counsel for the Company
and the reasonable fees and disbursements of one counsel for the selling
Holders. Underwriting discounts and commissions relating to Registrable
Securities will be borne and paid ratably by the Holders of such Registrable
Securities.
1.8. Underwriting Requirements. In connection with any offering involving
-------------------------
an underwriting of securities being issued by the Company, the Company shall not
be required under Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it, and then only in such
quantity, if any, as will not, in the opinion of the managing underwriter,
jeopardize the success of the offering by the Company. If the managing
underwriter for the offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that can be successfully offered, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the managing underwriter
believes will not jeopardize the success of the offering (the securities so
included to be reduced as follows: all securities other than those to be
included by the Company for its own account and other than those which the
Holders seek to include in the offering shall be excluded from the offering to
the extent limitation on the number of shares included in the underwriting is
required, and, if further limitation on the number of shares to be included in
the underwriting is required, then the number of Registrable Securities that may
be included in the underwriting shall be allocated in the following order of
priority: (i) first, Class D Registrable Securities pro rata among all Holders
of Class D Registrable Securities desiring to participate in such underwriting
(according to the number of Class D Registrable Securities then held by each
such Holder), (ii) second, Conversion Shares related to Class C Preferred Stock
and Warrant Shares (other than Warrant Shares related to the 1999 Warrants) pro
rata among all Holders of Class C Preferred Stock and Conversion Shares related
thereto and the Warrant Shares (other than the Warrant Shares related to the
1999 Warrants) desiring to participate in such underwriting (according to the
number of Conversion Shares issued or issuable upon conversion of the Class C
Preferred Stock and Warrant Shares (other than the Warrant Shares related to the
1999 Warrants) issued or issuable upon exercise of the related warrants then
held by each such Holder) and (iii) finally, pro rata among all Holders of other
Registrable Securities desiring to participate in such underwriting (according
to the number of other Registrable Securities then held by each Holder); but in
no event shall the amount of securities of the selling Holders included in the
offering be reduced below 20% (twenty percent) of the total amount of securities
included in such offering, unless (i) such offering is the initial public
offering of the Company's securities in which case the selling Holders may be
excluded if the managing underwriter makes the determination described above
10
<PAGE>
and no securities other than those of the Company are included, or (ii) such
offering is the Qualified Public Offering as defined in Section 1.3 hereof and
no securities other than those of the Company are included. For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a Holder of Registrable Securities and which is a partnership or a
corporation, the partners, retired partners and shareholders of such holder, or
the estates and family members of such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall collectively be
deemed to be a "selling Holder," and any pro rata reduction with respect to such
"selling Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder," as defined in this sentence.
1.9. Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless each Holder, the
officers, directors, partners, agents and employees of each Holder, any
underwriter (as defined in the 1933 Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
----
Act"), against any losses, claims, damages, or liabilities (joint or
---
several) to which they may become subject under the 1933 Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a material fact
contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law in connection with any matter relating to such registration
statement. The Company will promptly reimburse each such Holder, officer,
director, partner, agent, employee, underwriter or controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action. The indemnity agreement contained in this subsection 1.9(a) shall
not apply to amounts paid in settlement of any loss, claim, damage,
liability, or action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably withheld), nor shall
the Company be liable to a Holder in any such case for any such loss,
claim, damage, liability, or action (i) to the extent that it arises out of
or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by or on behalf of such Holder,
underwriter or controlling person or (ii) in the case of a sale directly by
a Holder of Registrable Securities (including a sale of such Registrable
Securities through any underwriter retained by such Holder to engage in a
distribution solely on behalf of such Holder), such untrue statement or
alleged untrue statement or
11
<PAGE>
omission or alleged omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and such Holder failed to
deliver a copy of the final or amended prospectus at or prior to the
confirmation of the sale of the Registrable Securities to the person
asserting any such loss, claim, damage or liability in any case where such
delivery is required by the Securities Act.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement, that the Company
shall have received an undertaking from the prospective selling Holder that
such selling Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the meaning
of the 1933 Act, each agent and any underwriter for the Company, and any
other Holder selling securities in such registration statement or any of
its directors, officers, partners, agents or employees or any person who
controls such Holder or underwriter, against any losses, claims, damages,
or liabilities (joint or several) to which the Company or any such
director, officer, controlling person, agent, or underwriter or controlling
person, or other such Holder or director, officer or controlling person may
become subject, under the 1933 Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by or on
behalf of such Holder expressly for use in connection with such
registration; and each such Holder will promptly reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, controlling person, agent or underwriter or controlling person,
other Holder, officer, director, partner, agent, employee, or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the liability of any
-------- -------
Holder hereunder shall be limited to the amount of net proceeds (after
deduction of all underwriters' discounts and commissions and all other
expenses paid by such Holder in connection with the registration in
question) received by such Holder, in the offering giving rise to the
Violation; and provided further that the indemnity agreement contained in
-------- -------
this subsection 1.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Holder, which consent shall not be
unreasonably withheld nor, in the case of a sale directly by the Company of
its securities (including a sale of such securities through any underwriter
retained by the Company to engage in a distribution solely on behalf of the
Company), shall the Holder be liable to the Company in any case in which
such untrue statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and corrected in a final
or amended prospectus, and the Company failed to deliver a copy of the
final or amended prospectus at or prior to the confirmation of the sale of
the securities to the person asserting any such loss, claim, damage or
liability in any case where such delivery is required by the 1933 Act.
(c) Promptly after receipt by an indemnified party under this Section
1.9 of notice of the commencement of any action (including any governmental
action), such
12
<PAGE>
indemnified party will, if a claim in respect thereof is to be made against
any indemnifying party under this Section 1.9, deliver to the indemnifying
party a written notice of the commencement thereof and the indemnifying
party shall have the right to participate in, and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume and control the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an
-------- -------
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests, as
reasonably determined by either party, between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to
its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.9 to the extent
of such prejudice, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.9.
(d) The obligations of the Company and the Holders under this Section
1.9 shall survive the conversion, if any, of the Shares and the completion
of any offering of Registrable Securities in a registration statement
whether under this Section 1 or otherwise.
(e) If the indemnification provided for in this Section 1.9 is
unavailable to a party that would have been an indemnified party under such
Section in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
party that would have been an indemnifying party thereunder shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) in
such proportion as is appropriate to reflect the relative fault of such
indemnifying party on the one hand and such indemnified party on the other
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the Violation relates to information supplied
by such indemnifying party or such indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such Violation. The parties agree that it would not be
just and equitable if contribution pursuant to this Section 1.9(e) were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to in
the preceding sentence. The amount paid or payable by a contributing party
as a result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 1.9(e)
shall include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act)
13
<PAGE>
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The liability of any Holder of
Registrable Securities in respect of any contribution obligation of such
Holder (after deduction of all underwriters' discounts and commissions and
all other expenses paid by such Holder in connection with the registration
in question) arising under this Section 1.9(e) shall not in any event
exceed an amount equal to the net proceeds to such Holder from the
disposition of the Registrable Securities disposed of by such Holder
pursuant to such registration less any amounts paid pursuant to Section
1.9(b).
1.10. Reports Under Securities Exchange Act of 1934.
---------------------------------------------
(a) Resales Under Rule 144; Form S-3 Registration. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under
the 1933 Act and any other rule or regulation of the SEC that may at any
time permit a Holder to sell securities of the Company to the public
without registration, and with a view to making it possible for Holders to
register the Registrable Securities pursuant to a registration on Form S-3,
the Company agrees to:
(i) use its reasonable best efforts to make and keep public
information available, as those terms are understood and defined in
Rule 144, at all times after 90 days after the effective date of the
first registration statement filed by the Company for the offering of
its securities to the general public;
(ii) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to
enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable
(but not later than 90 days) after the end of the fiscal year in which
the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(iii) use its reasonable best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company under the
1933 Act and the 1934 Act; and
(iv) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement
by the Company as to its compliance with the reporting requirements of
Rule 144 (at any time after 90 days after the effective date of the
first registration statement filed by the Company for the offering of
the securities to the general public), the 1933 Act and the 1934 Act
(at any time after it has become subject to such reporting
requirements), or as to its qualification as a registrant whose
securities may be resold pursuant to Form S-3 (at any time after it so
qualifies), (ii) a copy of the most recent annual or quarterly report
of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration
or pursuant to such form.
14
<PAGE>
(b) Resale Under Rule 144A. The Company agrees that, at all times
----------------------
during which the Company is neither subject to the reporting requirement of
Sections 13 or 15(d) of the 1934 Act, nor exempt from reporting pursuant to
Rule 12g3-2(b) under the 1934 Act, it will provide in written form, upon
the written request of a Holder, or a prospective purchaser of securities
of the Company from such Holder all information required by Rule
144A(d)(4)(i) of the General Regulations promulgated by the SEC under the
1933 Act ("144A Information"); the Company further agrees, upon written
----------------
request, to cooperate with and assist any Holder or any member of the NASD
system for Private Offerings Resales and Trading through Automated Linkages
("PORTAL") in applying to designate and thereafter maintaining the
------
eligibility of the Company's securities for trading through PORTAL. With
respect to each Holder, the Company's obligations under this Section
1.10(b) shall at all times be contingent upon such Holder's obtaining from
a prospective purchaser an agreement to take all reasonable precautions to
safeguard the Rule 144A Information from disclosure to anyone other than
employees of the prospective purchaser who require access to the 144A
Information for the sole purpose of evaluating its purchase of the
Company's securities.
1.11. Form S-3 Registration. In addition to the rights granted pursuant
---------------------
to Section 1.2 hereof, in case the Company shall receive from any Holder or
Holders a written request or requests that the Company effect a registration on
Form S-3 (or on any successor form to Form S-3 regardless of its designation)
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders (which, as contemplated
by Section 1.4(g), may be a shelf registration), the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) use its reasonable best efforts to effect, as soon as
practicable, such registration, qualification or compliance as may be so
requested and as would permit or facilitate the sale and distribution of
all or such portion of such Holder's or Holders' Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 20 days after
receipt of such written notice from the Company; provided, however, that
-------- -------
the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 1.11 if: (1) Form S-3
(or any successor form to Form S-3 regardless of its designation) is not
available for such offering by the Holders; (2) the aggregate net offering
price (after deduction of underwriting discounts and commissions) of the
Registrable Securities specified in such request is not at least
$2,500,000; (3) the Company has already effected one registration on Form
S-3 in which Holders had a right to participate within the previous six-
month period; (4) the Company has effected the initial public offering of
its Common Stock within the previous twelve month period; or (5) the
Company shall furnish to the Holders a certificate signed by the Chairman
of the Board or Chief Executive Officer of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would not
be in the best interests of the Company and its
15
<PAGE>
stockholders for such Form S-3 registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the
Form S-3 registration for a period of not more than 180 days after receipt
of the request of the Holder or Holders under this Section 1.11; provided,
--------
however, that the Company shall not utilize this right more than once in
-------
any twelve-month period.
1.12. Lock-up Agreements. If requested by the Company and the managing
------------------
underwriter, the Holders agree to enter into lock-up agreements pursuant to
which they will not, for a period of 180 days following the effective date of a
registration statement for the initial public offering of the Company's
securities, offer, sell or otherwise dispose of the Registrable Securities,
except the Registrable Securities sold pursuant to such registration statement,
without the prior consent of the Company and the managing underwriter, provided
that the officers, directors and all holders of more than one and one-half
percent (1 1/2%) of the shares of Common Stock (calculated for this purpose as
if all securities convertible into or exercisable for Common Stock, directly or
indirectly, are so converted or exercised) of the Company are required to enter
into such lock-up agreements for the same period and on the same terms. In
addition, if requested by the Company or the managing underwriter, the Holders
agree to enter into lock-up agreements pursuant to which they will not, for a
period of 90 days following the effective date of a registration statement for
any subsequent firmly underwritten public offering of the Company's securities
effected pursuant to Section 1.2, Section 1.3 or Section 1.11 hereof (provided
that registration rights with respect to such registration have been extended to
such Holders to the extent required by Section 1.3 and Section 1.8 herein),
offer, sell or otherwise dispose of the Registrable Securities, except the
Registrable Securities sold pursuant to such registration statement, without the
prior consent of the Company and the underwriter, provided that the officers,
directors and all holders of more than one and one-half percent (1 1/2%) of the
shares of Common Stock (calculated for this purpose as if all securities
convertible into or exercisable for Common Stock, directly or indirectly, are so
converted or exercised) of the Company are required to enter into such lock-up
agreements for the same period and on the same terms.
1.13. Assignment of Registration Rights. The rights to cause the Company
---------------------------------
to register Registrable Securities pursuant to this Section 1 (other than those
expressly granted to the Designated Class D Holders and the Requisite Holders
pursuant to Section 1.2(a) or 1.2(b), which are personal to them) may be
assigned by any Holder to a permitted transferee, and by such transferee to a
subsequent permitted transferee, but only if such rights are transferred (i) to
an affiliate, partner or stockholder of such Holder or transferee or an account
managed or advised by the manager or adviser of such Holder or transferee or
(ii) in connection with the sale or other transfer of not less than an aggregate
of 250,000 Registrable Securities or some lesser number, if such lesser number
represents all the Registrable Securities then held by such Holder. Any
transferee to whom rights under this Agreement are transferred shall (a) as a
condition to such transfer, deliver to the Company a written instrument by which
such transferee agrees to be bound by the obligations imposed upon Holders under
this Agreement to the same extent as if she, he or it were a Holder under this
Agreement and (b) be deemed to be a Holder hereunder.
16
<PAGE>
1.14. Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company relating to registration rights unless such agreement includes:
(a) to the extent the agreement would allow such holder or prospective holder to
include such securities in any registration filed under Section 1.2, 1.3 or 1.11
hereof, a provision that such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable Securities of the
Holders which would otherwise be included; and (b) no provision which would
allow such holder or prospective holder to make a demand registration which
could result in such registration statement being declared effective prior to
the earlier of the dates set forth in subsections 1.2(a) and 1.2(b).
1.15. Management Support. In the event of any underwritten offering
------------------
hereunder, in addition to the other requirements hereof, the Company shall cause
its senior management to support such offering with a road show and similar
marketing support customary in such offerings.
2. Miscellaneous.
-------------
2.1. Legend. Each certificate representing Registrable Securities shall
------
state therein:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS OF
AN AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, DATED AS OF
SEPTEMBER 10, 1999 BY AND AMONG THE CORPORATION AND THE INVESTORS NAMED
THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE CORPORATION.
2.2. Notices. All notices, requests, consents and demands shall be in
-------
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed, to the Company at:
HOB Entertainment, Inc.
6255 Sunset Boulevard, 16th Floor
Hollywood, California 90028
with a copy to the same address to:
Attn: General Counsel
and to each Holder at its address set out on Exhibit A or Exhibit B or its
signature page hereto, as applicable, or such other address as may be furnished
in writing to the other parties hereto, with a copy to one attorney of any such
Holder as may be designated thereon. All such notices, requests, demands and
other communication shall, when mailed (registered or certified mail, return
receipt requested, postage prepaid), personally delivered, or telegraphed, be
effective four days after deposit in the mails, when personally delivered, or
when delivered to the telegraph company, respectively, addressed as aforesaid,
unless otherwise provided herein and, when telecopied, shall be effective upon
actual receipt.
17
<PAGE>
2.3. Entire Agreement. This Agreement constitutes the entire agreement of
----------------
the parties with respect to the matters contemplated herein. This Agreement
supersedes any and all prior understandings or agreements as to the subject
matter of this Agreement.
2.4. Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, changes in or additions to this Agreement may be
made, and compliance with any covenant or provision herein set forth may be
omitted or waived, if the Company (i) shall obtain consent thereto in writing
from persons holding or having the right to acquire in the aggregate a majority
of the aggregate of the Registrable Securities then outstanding and (ii) shall,
in each such case, deliver copies of such consent (or this Agreement as so
amended) in writing to any holders who did not execute the same. Notwithstanding
the foregoing, any amendment to this Agreement which materially adversely
affects the rights or substantially increases the obligations of any holder of
Registrable Securities and which does not also affect all other holders either
to the same degree or in proportion to the amount of Registrable Securities held
by each of them shall require the consent of such adversely affected holder.
2.5. Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the personal representatives, successors and assigns of
the respective parties hereto. The Company shall not have the right to assign
its obligations hereunder or any interest herein without obtaining the prior
written consent of the Holders holding a majority of the Registrable Securities
then outstanding, provided in accordance with Section 2.4.
2.6. General. The headings contained in this Agreement are for reference
-------
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement. In this Agreement the singular includes the plural, the plural,
the singular, the masculine gender includes the neuter, masculine and feminine
genders. This Agreement shall be governed by and construed under the laws of
the State of Delaware, without regard to the conflicts of laws provisions
thereof.
2.7. Severability. If any provisions of this Agreement shall be found by
------------
any court of competent jurisdiction to be invalid or unenforceable, the parties
hereby waive such provision to the extent that it is found to be invalid or
unenforceable. Such provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as modified, shall
be enforced as any other provision hereof, all the other provisions hereof
continuing in full force and effect.
2.8. Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same instrument.
2.9. Specific Performance. The Company recognizes that the rights of the
--------------------
Holders under this Agreement are unique, and, accordingly, the Holders shall, in
addition to such other remedies as may be available to them at law or in equity,
have the right to enforce their rights hereunder by actions for injunctive
relief and specific performance to the extent permitted by law. This Agreement
is not intended to limit or abridge any rights of the Holders which may exist
apart from this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Registration Rights Agreement
has been executed as of the date first above written.
COMPANY
-------
HOB ENTERTAINMENT, INC.
By:___________________________________________
Name:
Title:
EXISTING STOCKHOLDERS
---------------------
By:___________________________________________
Joseph C. Kaczorowski, as attorney-in-fact
to each of the Existing Stockholders listed
on the attached page, pursuant to the
authority granted in the Stockholder
Consent and Waiver executed in connection
with the Consent Solicitation Statement of
the Company dated September 1, 1999.
NEW STOCKHOLDERS
----------------
CHASE/HOB 1999 PARTNERS (GC), L.L.C.
By: Chase Venture Capital Associates, L.P.,
Its Managing Member
By: Chase Capital Partners,
Its General Partner
By:_________________________________
Name:
Title:
S-1
<PAGE>
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III, LLC,
Its General Partner
By:______________________________________
Name:
Title:
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney Equity Partners III, LLC,
Its General Partner
By:______________________________________
Name:
Title:
J.H. WHITNEY MARKET VALUE FUND, L.P.
By: Whitney Market Value GP, Ltd.,
Its General Partner
By:______________________________________
Name:
Title:
FIRST UNION INVESTORS, INC.
By:___________________________________________
Name:
Title:
S-2
<PAGE>
ARES LEVERAGED INVESTMENT FUND, L.P.
By: Ares Management, L.P.,
Its Manager
By:______________________________________
Name:
Title:
ARES LEVERAGED INVESTMENT FUND II, L.P.
By: Ares Management, L.P.,
Its Manager
By:______________________________________
Name:
Title:
S-3
<PAGE>
ADDITIONAL SIGNATURE PAGE TO
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, this Amended and Restated Registration Rights Agreement
has been executed by the undersigned as of ___________________________, 1999.
INDIVIDUAL INVESTOR: ________________________________________
(Signature)
________________________________________
(Printed Name)
CORPORATE OR PARTNERSHIP ________________________________________
INVESTOR: (Name of Corporation or Partnership)
By:_____________________________________
Name:________________________________
Title:_______________________________
TRUST INVESTOR: ________________________________________
(Full Name of Trust)
By:_____________________________________
(Signature of Trustee)
Address for Notice
- ------------------
_________________
_________________
_________________
<PAGE>
EXHIBIT 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
This EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made and entered
into as of the ___ day of May, 1999 and effective as of the 1st day of July,
1999 (the "Effective Date") by and between HOB Entertainment, Inc. (the
"Company"), a Delaware corporation, and Lou Mann (the "Executive").
WHEREAS, the operations of the Company and its Affiliates are a complex
business requiring direction and leadership in a variety of arenas, including
accounting, financial, regulatory and others; and
WHEREAS, subject to the terms and conditions hereinafter set forth, the
Company desires to employ the Executive as the President of the HOB Media
Properties ("Media Division") and the Executive desires to accept such
employment.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree:
1. Employment. Subject to the terms and conditions set forth in this
----------
Agreement, the Company hereby offers and the Executive hereby accepts
employment.
2. Term. The Executive's employment hereunder shall be for a term (the
----
"Term") commencing on the Effective Date and extending through December 31,
2003, unless such Term shall terminate pursuant to any of the provisions of
Section 5 hereof.
3. Capacity and Performance.
------------------------
a. During the term hereof, the Executive shall serve the Company as
the President of Media Division, and his duties will be those customarily
attendant to an Executive holding such positions. As the President of Media
Division, Executive shall report to the Chief Executive Officer of the Company.
Executive will be based in the Company's headquarters which shall be located in
the Greater Los Angeles metropolitan area. The Company will provide Executive an
assistant and Executive will be directly involved in the hiring of such
assistant.
b. During the term hereof, at the request of the Chief Executive
Officer or the Board of Directors of the Company, Executive shall serve as an
executive of the affiliates of the Company without further compensation;
provided, however, that Executive's basic duties shall not be changed without
his consent. If the Company or any Affiliate of the Company shall make a public
offering of securities, (i) it will enter into an Indemnification Agreement
providing the fullest indemnification (including advancement of expenses)
legally possible and (ii) the Executive will have the benefit of officer and
director insurance and/or By-law and Certificate of Incorporation
indemnification provisions available to any other director or officer of such
entity.
c. During the term hereof, the Executive shall be employed by the
Company on a full-time basis and shall perform such duties and responsibilities
on behalf of the Company and its Affiliates as may be designated from time to
time by the Chief Executive Officer or the Board. During
<PAGE>
the term hereof, the Executive shall devote his full business time and
his best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and its Affiliates and
to the discharge of his duties and responsibilities hereunder. The Executive
shall not engage in any other business activity or serve in any industry, trade,
professional, governmental or academic position during the term of this
Agreement, except as may be expressly approved in writing, which approval shall
not be unreasonably withheld, by the Board, as the Company encourages
participation by the Executive in community and charitable activities generally
considered to be in the public interest and the Company's interest.
Notwithstanding the foregoing, the Company hereby approves the Executive's (i)
directorships and other activities set forth on Exhibit A hereto and (ii)
investments in public companies of less than one percent (1%) of the outstanding
shares of such companies.
4. Compensation and Benefits. As compensation for all services performed
-------------------------
by the Executive under and during the term hereof:
a. Base Salary. During the term hereof, the Company shall pay the
-----------
Executive a base salary, payable in accordance with the customary payroll
practices of the Company for its executives. Such base salary shall be $450,000
for the first year of the term hereof; $500,000 for the second year of the term
hereof; $550,000 for the third year of the term hereof; and $275,000 for the
last six months of the term hereof. Such base salary, as from time to time
increased, is hereafter referred to as the "Base Salary."
b. Bonus Compensation. During the Term hereof, Executive shall be
------------------
eligible to receive a special performance bonus of up to $400,000 for the first
year of the term hereof; up to $350,000 for the second year of the term hereof;
up to $300,000 for the third year of the term hereof; and up to $150,000 for the
last six months of the term hereof, pursuant to a bonus plan attached hereto as
Exhibit B. All bonuses in this Section 4.b or portions thereof will be deemed
-----------
earned at the times specified in Exhibit B and will be due and payable at the
end of the applicable one-year period or six-month period, in the case of the
final six months of the Agreement.
c. Stock Options.
-------------
(i) The Company hereby grants Executive stock options to purchase
approximately 2,675,000 shares of Common Stock (representing 3% of the fully
diluted in-force option, warrant and equity shares of the Company), for a
purchase price of $1.20 per share, which options shall expire on the tenth
anniversary of the Effective Date hereof (subject to earlier termination of such
options as provided in this Section 4.c. This grant of options is subject to
-----------
any requisite shareholder approval which shall be obtained by the Company on or
prior to September 1, 1999. The stock options to be received by Executive shall
vest and become exercisable in four increments as follows: 25% of such option
shares on the Effective Date, 25% of such option shares each on the first,
second and third anniversary of the Effective Date hereof (each annual period
ending on an anniversary of the Effective Date hereof being referred to herein
as an "Option Year") of this Agreement. Except as specifically provided in this
Section 4.c, once options become exercisable, such options shall remain
- -----------
exercisable through the expiration date and may be exercised whether or not the
Executive's employment with the Company has terminated. Such options shall be
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code of 1986 to the extent of the maximum number of such options which
may so qualify.
2
<PAGE>
In the event of a public offering of the Company' securities,
Executive agrees that he will execute the same form of agreement not to sell
securities ("Lock-Up Agreement") executed by the other executives of the Company
as required by the Company's underwriters.
In the event of a stock split, reverse split, stock dividend,
recapitalization or other reclassification in the Company's common stock, the
exercise price of any options granted pursuant to this Agreement shall be
adjusted appropriately to an amount that bears the same relationship to the
exercise price in effect immediately prior to such action as the total number of
shares of common stock (or shares of any security into which such common shares
have been reclassified, subdivided, split or otherwise changed) outstanding
immediately after such action; in such event, the number of shares for which an
option is exercisable shall be adjusted to a number obtained by dividing the
exercise price in effect prior to adjustment thereof by the new exercise price
after such adjustment. Such adjustments shall be made successively when any
event described above occurs. As used in this agreement, "Company" includes any
parent entity which at any time owns HOB Entertainment, Inc. or operates the
business theretofore operated by HOB Entertainment, Inc. and its Affiliates.
On the tenth (10th) day following the termination of the Executive's
employment pursuant to Section 5.c (By the Company for Cause), all options
-----------
granted hereunder (including options which are then exercisable) shall
terminate. In the event of the termination of the Executive's employment by the
Executive, all options not exercisable upon such termination shall lapse and
terminate. In the event that the Executive's employment terminates pursuant to
Section 5.a (Death), Section 5.b (Disability) or Section 5.d (By the Company
- ----------- ----------- -----------
Other than for Cause), then in such event, the Options granted under Section 4.c
-----------
which would become exercisable at the end of the Option Year in which such
termination occurs shall immediately vest and become exercisable and all other
options shall lapse and terminate. Upon a Change of Control as herein defined,
all options granted under this Agreement, including, without limitation, options
which are not then exercisable at the time of such Change of Control shall
immediately become exercisable. For the purposes hereof Change of Control is
defined as follows: (i) any sale, merger, consolidation, issuance of shares
(excluding a public offering of shares), or other transaction (each a
"Transaction") as a result of which at least 51 % the voting power of the
Company (or any parent entity of the Company) is not held, directly or
indirectly, by persons or entities who held at least 51% of the voting power
before such Transaction; (ii) a sale or other disposition of all or a
substantial part of the Company's assets, whether in one transaction or a series
of related transactions; (iii) any person or entity or group of persons or
entities (as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder) acquires the power, through
ownership of securities or otherwise, to elect a majority of the Company's or
any parent entity's board of directors (or similar governing body) (such power
being called "voting power"); other than groups formed by existing Stockholders
of the Company on the date hereof, or (iv) individuals who on the date hereof
constitute the Company's board of directors and any new director (other than a
director designated by a person or entity who has entered into an agreement to
effect a transaction described in clause (i) or (ii) above) whose nomination
and/or election to the board was approved by a vote of at least a majority of
the directors then still in office who either were directors on the date hereof
or whose election or nomination for election was previously so approved, cease
for any reason to constitute a majority of the Company's or such parent's board
of directors. Notwithstanding the foregoing, any changes in ownership, voting
or otherwise resulting from the proposed UCI transaction shall not constitute a
Change of Control.
3
<PAGE>
(ii) The Executive agrees to become a party to the Company's Amended
and Restated Stockholders Agreement, dated as of July 31, 1998, and execute a
joinder thereto as required by Section 20 of such agreement.
d. Other Benefits. During the term hereof and subject to any
--------------
contribution therefor generally required of executives of the Company, the
Executive shall be entitled to participate in any and all employee benefit plans
from time to time in effect for executives of the Company generally, except to
the extent such plans are in a category of benefit otherwise provided to the
Executive. Such participation shall be subject to (i) the terms of the
applicable plan documents, (ii) generally applicable Company policies and (iii)
the discretion of the Board or any administrative or other committee provided
for in or contemplated by such plan. The Company may alter, modify, add to or
delete its employee benefit plans at any time as it, in its sole judgment,
determines to be appropriate, without recourse by the Executive. The travel
policy developed for all of the highest senior executives of the Company will be
applicable to Executive for travel arrangements and accommodations.
e. Vacations. During the term hereof, the Executive shall be
---------
entitled to four (4) weeks of vacation per annum, to be taken at such times and
intervals as shall be determined by the Executive, with the approval of the
Chief Executive Officer.
f. Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable and customary expenses incurred or paid by the
Executive in the performance of his duties and responsibilities hereunder,
subject to periodic review of the amount of such expenses from time to time by
the Board, and subject to such reasonable substantiation and documentation as
may be specified by the Board from time to time; provided, however, the
Executive shall only be reimbursed for travel consistent with the travel
reimbursement policy established by the Board for the Company's highest senior
management employees.
g. Car Allowance. During the term hereof, the Company shall pay or
-------------
reimburse the Executive the sum of $1,500 per month as a car allowance.
h. Transaction Costs. The Company shall reimburse, or make payments
-----------------
on behalf of, Executive for up to $50,000 for transaction costs (including legal
fees) incurred by Executive in connection with entering into this Agreement.
5. Termination of Employment and Severance Benefits. Notwithstanding the
------------------------------------------------
provisions of Section 2 hereof, the Executive's employment hereunder shall
---------
terminate prior to the expiration of the term hereof under the following
circumstances:
a. Death. In the event of the Executive's death during the term
-----
hereof, the Executive's employment hereunder shall immediately and automatically
terminate. In the event of the Executive's death during the term hereof, the
Company shall pay to the Executive's designated beneficiary or, if no
beneficiary has been designated by the Executive, to his estate, any earned and
unpaid Base Salary and any earned and unpaid bonus.
4
<PAGE>
b. Disability.
----------
(i) The Company may terminate the Executive's employment
hereunder, upon notice to the Executive during the period of disability, in
the event that the Executive becomes disabled during his employment
hereunder through any illness, injury, accident or condition of either a
physical or psychological nature and, as a result, is unable to perform
substantially all of his duties and responsibilities hereunder for one
hundred eighty (180) days during any period of three hundred and sixty-five
(365) consecutive calendar days. In the event of such termination, then
until the earliest of (i) the conclusion of the Term of this Agreement or
(ii) the conclusion of a period of twelve (12) months following the date of
termination, the Company shall continue to pay the Executive the Base
Salary at the rate in effect on the date of termination, subject to any
employee contribution applicable to the Executive on the date of
termination, shall continue to contribute to the cost of the Executive's
participation in the Company's group medical and dental insurance plan, if
any, provided that the Executive is entitled to continue such participation
under applicable law and plan terms. The Company shall also pay to
Executive any bonus earned by Executive while employed, but unpaid as of
the date of his termination, in the same manner as if Executive were still
employed by the Company.
(ii) The Board may designate another employee to act in the
Executive's place during any period of the Executive's disability.
Notwithstanding any such designation, the Executive shall continue to
receive the Base Salary in accordance with Section 4.a, and benefits in
-----------
accordance with Section 4.d, to the extent permitted by the then-current
-----------
terms of the applicable benefit plans, if any, until the Executive becomes
eligible for disability income benefits under the Company's disability
income plan, if any, or until the termination of his employment, whichever
shall first occur.
(iii) While receiving disability income payments under the
Company's disability income plan, if any, the Executive shall be entitled
to receive the excess, if any, of Base Salary under Section 4.a hereof over
-----------
such disability income payments and shall continue to participate in
Company benefit plans in accordance with Section 4.d and the terms of such
-----------
plans, until the termination of his employment except to the extent
provided in Section 5.b(i).
--------------
(iv) If any question shall arise as to whether during any
period the Executive is disabled through any illness, injury, accident or
condition of either a physical or psychological nature so as to be unable
to perform substantially all of his duties and responsibilities hereunder,
the Executive may, and at the request of the Company shall, submit to a
medical examination by a physician selected by the Executive or his duly
appointed guardian, if any, to whom the Board has no reasonable objection
to determine whether the Executive is so disabled and such determination
shall for the purposes of this Agreement be conclusive of the issue. If
such question shall arise and the Executive shall fail to submit to such
medical examination, the Board's determination of the issue shall be
binding on the Executive.
c. By the Company for Cause. The Company may terminate the
------------------------
Executive's employment hereunder for Cause upon notice to the Executive setting
forth the nature of such Cause in reasonable detail; provided, however, that, in
the case of subsections (i), (ii), (iv) and (v) immediately below, to the extent
that such breach is curable, the Executive shall have 14 days from the receipt
of
5
<PAGE>
such notice to cure such breach. The following, as determined by the Board
in its reasonable judgment, shall constitute "Cause" for termination:
(i) fraud, embezzlement or other material dishonesty with
respect to the Company or any of its Affiliates;
(ii) conviction of, or plea of nolo contendere to, a felony
or other crime involving moral turpitude;
(iii) conduct by the Executive that is intentionally
materially harmful to the business, interests or reputation of the Company
or any of its Affiliates;
(iv) the Executive's intentional failure to comply with any
material instructions of the Company's Chief Executive Officer to the
extent that such instructions do not violate the terms and provisions of
this Agreement; or
(v) the Executive executes a written contract, commitment or
obligation of the Company or personally takes actions which bind the
Company to an oral contract, commitment or obligation, which in either case
involves a commitment in excess of express written limits on authority
established by the Board with respect to such matters, which limits have
been made known to Executive. Notwithstanding the foregoing, the
Executive's carrying out of prior commitments made by other officers and/or
directors shall not constitute "Cause".
Upon the giving of notice of termination of the Executive's employment hereunder
for Cause (or upon the expiration of any applicable cure period, if such default
is not cured within such period), the Company shall have no further obligation
or liability to the Executive, other than for Base Salary and bonus, in each
case earned and unpaid at the date of termination.
d. By the Company Other than for Cause.
-----------------------------------
(i) The Company may terminate the Executive's employment
hereunder other than for Cause at any time upon written notice to the
Executive. In the event of such termination, the Executive shall be
entitled to benefits under Section 4.d and a severance payment equal to
------------
Executive's Base Salary to the end of the Term of this Agreement payable in
the same manner and installments as if Executive were still employed by the
Company; provided however, that the Company shall be entitled to reduce
such severance payment by amounts earned by the Executive during the Term
as a result of employment by another employer after the date on which the
Executive's employment is terminated hereunder. The Company shall also pay
to Executive any bonus earned by Executive while employed, but unpaid as of
the date of his termination, in the same manner as if Executive were still
employed by the Company.
(ii) In addition, (x) a breach by the Company of any material
provision of this Agreement or (y) a material breach by the Company of the
provisions of this Agreement may be deemed by Executive a termination by
the Company other than for Cause if such breach is not cured by the Company
(if capable of being cured) within fourteen (14) days after Executive gives
the Company written notice of such breach.
6
<PAGE>
e. Post-Agreement Employment. In the event the Executive remains in
-------------------------
the employ of the Company or any of its Affiliates beyond the term of this
Agreement, by the expiration of the term hereof or otherwise, then such
employment shall be at will. Any such employment shall be on the same monetary
terms as those existing under this Agreement on the last day of the Term.
6. Effect of Termination. The provisions of this Section 6 shall apply to
--------------------- ---------
termination due to the expiration of the Term hereof, pursuant to Section 5 or
otherwise. ---------
a. Payment by the Company in full of Base Salary, bonus and
contributions to the cost of the Executive's continued participation in the
Company's group health and dental plans, in each case if any, that may be due
the Executive in each case under the applicable termination provision of Section
5 shall constitute the entire obligation of the Company to the Executive.
Acceptance by the Executive of such performance by the Company shall constitute
full settlement of any claim that the Executive might otherwise assert against
the Company, its Affiliates or any of their shareholders, directors, officers,
employees or agents on account of such termination. The Executive shall promptly
give the Company notice of all facts necessary for the Company to determine the
amount and duration of its obligations in connection with any termination
pursuant to Section 5.d hereof.
-----------
b. Except for medical and dental insurance coverage continued
pursuant to the terms hereof, and subject always to applicable law, including
COBRA, benefits shall terminate pursuant to the terms of the applicable benefit
plans based on the date of termination of the Executive's employment without
regard to any continuation of Base Salary or other payment to the Executive
following such date of termination.
c. Upon the expiration of the Term hereof, the Company shall remain
obligated to pay to the Executive any earned and unpaid Base Salary, together
with any earned and unpaid bonus.
d. Provisions of this Agreement shall survive any termination if so
provided herein or if necessary or desirable to fully accomplish the purposes of
such provision, including without limitation the obligations of the Executive
under Sections 7 and 8 hereof. The obligation of the Company to make payments
----------------
to or on behalf of the Executive under Section 5.a, 5.b, 5.d, or 6.c hereof is
------------------------------
expressly conditioned upon the Executive's continued full performance of his
obligations under Sections 7 and 8 hereof. The Executive recognizes that,
----------------
except as expressly provided in Section 5.a, 5.b, 5.d, or 6.c, no compensation
-----------------------------
is earned after termination of employment.
7. Confidential Information.
------------------------
a. The Executive acknowledges that the Company and its Affiliates
continually develop Confidential Information, that the Executive may develop
Confidential Information for the Company or its Affiliates and that the
Executive may learn of Confidential Information during the course of employment.
The Executive will comply with the policies and procedures of the Company and
its Affiliates for protecting Confidential Information and shall never disclose
to any Person (except as required by applicable law or for the proper
performance of his duties and responsibilities to the Company and its
Affiliates), or use for his own benefit or gain, any Confidential Information.
The Executive understands that this restriction shall continue to apply after
his employment terminates, regardless of the reason for such termination.
7
<PAGE>
b. All documents, records, tapes and other media of every kind and
description relating to the business, present or otherwise, of the Company or
its Affiliates and any copies, in whole or in part, thereof (the "Documents"),
whether or not prepared by the Executive, shall be the sole and exclusive
property of the Company and its Affiliates. The Executive shall safeguard all
Documents and shall surrender to the Company at the time his employment
terminates, or at such earlier time or times as the Board or its designee may
specify, all Documents then in the Executive's possession or control.
8. Restricted Activities. The Executive agrees that some restrictions on
---------------------
his activities during and after his employment are necessary to protect the
goodwill, Confidential Information and other legitimate interests of the Company
and its Affiliates:
a. While the Executive is employed by the Company and during any
period where Executive is paid by the Company pursuant to Section 5(d)(i), the
Executive shall not, directly or indirectly, whether as owner, partner,
investor, consultant, agent, employee, co-venturer or otherwise, compete with
the Media Division of the Company, or discuss with any person or persons, the
planning for any business competitive with the Media Division of the Company.
Specifically, but without limiting the foregoing, the Executive agrees not to
engage in any manner in any activity that is directly or indirectly competitive
or potentially competitive with the business of the Media Division of the
Company as conducted or under consideration at any time during the Executive's
employment.
b. The Executive agrees that, except as provided in Section 3.c,
-----------
during his employment with the Company, he will not undertake any outside
activity, whether or not competitive with the business of the Company or its
Affiliates, that could give rise to a conflict of interest or otherwise
interfere with his duties and obligations to the Company or any of its
Affiliates.
c. The Executive further agrees that while he is employed by the
Company or paid by the Company pursuant to Section 5(d)(i), the Executive will
not hire or attempt to hire any employee of the Company or any of its
Affiliates, assist in such hiring by any Person, encourage any such employee to
terminate his or her relationship with the Company or any of its Affiliates, or
solicit or encourage any customer or vendor of the Company or any of its
Affiliates to terminate its relationship with them; provided that this provision
shall not apply to anyone whose employment is terminated by the Company.
9. Enforcement of Covenants. The Executive acknowledges that he has
------------------------
carefully read and considered all the terms and conditions of this Agreement,
including the restraints imposed upon him pursuant to Sections 7 and 8 hereof.
----------------
The Executive agrees that said restraints are necessary for the reasonable and
proper protection of the Company and its Affiliates and that each and every one
of the restraints is reasonable in respect to subject matter, length of time and
geographic area. The Executive also acknowledges that, were he to breach any of
the covenants contained in Sections 7 or 8 hereof, the damage to the Company
---------------
would be irreparable. The Executive therefore agrees that the Company, in
addition to any other remedies available to it, shall be entitled to preliminary
and permanent injunctive relief against any breach or threatened breach by the
Executive of any of said covenants, without having to post bond. The parties
further agree that, in the event that any provision of Section 7 or 8 hereof
--------------
shall be determined by any court of competent jurisdiction to be unenforceable
by reason of its being extended over too great a time, too large a geographic
area or too great a range of activities, such provision shall be deemed to be
modified to permit its enforcement to the maximum extent permitted by law.
8
<PAGE>
10. Conflicting Agreements. The Executive hereby represents and warrants
----------------------
that the execution of this Agreement and the performance of his obligations
hereunder will not breach or be in conflict with any other agreement to which
the Executive is a party or is bound and that the Executive is not now subject
to any covenants against competition or similar covenants that would affect the
performance of his obligations hereunder. The Executive will not disclose to or
use on behalf of the Company any proprietary information of a third party
without such party's consent.
11. Definitions. Words or phrases which are initially capitalized or are
-----------
within quotation marks shall have the meanings provided in this Section 11 and
----------
as provided elsewhere herein. For purposes of this Agreement, the following
definitions apply:
"Affiliates" means all persons and entities directly or indirectly
controlling, controlled by or under common control with the Company, where
control may be by either management authority or equity interest.
"Confidential Information" means any and all information of the
Company and its Affiliates that is not generally known by others with whom
they compete or do business, or with whom they plan to compete or do
business and any and all information, not publicly known, which, if
disclosed by the Company or its Affiliates would assist in competition
against them. Confidential Information includes without limitation such
information relating to (i) the development, research, testing,
manufacturing, marketing and financial activities of the Company and its
Affiliates, (ii) the costs, sources of supply, financial performance and
strategic plans of the Company and its Affiliates, (iii) recipes, designs,
product names, staffing plans, operations objectives, equipment
configurations and customer and supplier lists. Confidential Information
also includes comparable information that the Company or any of its
Affiliates have received belonging to others or which was received by the
Company or any of its Affiliates with any understanding that it would not
be disclosed. Notwithstanding the foregoing, Confidential Information does
not include information which becomes publicly known through no fault of
the Executive.
"Person" means an individual, a corporation, an association, a
partnership, an estate, a trust and any other entity or organization, other
than the Company or any subsidiary of the Company.
12. Mechanics of Combined Health Care Coverage. Whenever any provision
------------------------------------------
hereof requires the continuation of contributions by the Company on Executive's
behalf to its group medical and dental insurance plan after termination of
Executive's employment with the Company, the Company will only be required to so
contribute if Executive elects to continue his participation in such group
health and dental plans under applicable federal law ("COBRA") by signing and
returning the election form to be provided prior to Executive's last day of
employment, in which case, for a period of twelve months following termination
of Executive's employment or, if earlier, until the date Executive becomes
eligible for coverage under the group health plan of another employer, the
Company will continue to contribute to the cost of Executive's participation in
the Company's group health and dental plans at the same percentage rate as the
Company contributes to the cost of coverage for Executive prior to termination.
In order to be eligible for these contributions from the Company, however,
Executive must continue to pay his percentage share of the cost of coverage. If
COBRA or similar laws do not at the time exist and the terms of any such plans
would not allow the continued coverage of the Executive, the Company shall
9
<PAGE>
pay the Executive a portion of the reasonable cost of health care insurance
providing similar benefits as the group medical and dental insurance plans
covering Executive immediately prior to the termination of his employment in the
same proportion as paid by the Company prior to such termination.
13. Withholding. All payments made by the Company under this Agreement
-----------
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
14. Assignment. Neither the Company nor the Executive may make any
----------
assignment of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other; provided, however,
that the Company may assign its rights and obligations under this Agreement
without the consent of the Executive in the event that the Company shall
hereafter effect a reorganization, consolidate with, or merge into, any other
Person or transfer all or substantially all of its properties or assets to any
other Person. This Agreement shall inure to the benefit of and be binding upon
the Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.
15. Severability. If any portion or provision of this Agreement shall to
------------
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
16. Waiver. No waiver of any provision hereof shall be effective unless
------
made in writing and signed by the waiving party. The failure of either party to
require the performance of any term or obligation of this Agreement, or the
waiver by either party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.
17. Notices. Any and all notices, requests, demands and other
-------
communications provided for by this Agreement shall be in writing and shall be
effective when delivered in person or deposited in the United States mail,
postage prepaid, registered or certified, and addressed to the Executive at his
last known address on the books of the Company with a notice to David Glinert,
Glinert & Chidekel, 11 East 44th Street, New York, New York 10017 or, in the
case of the Company, at its principal place of business, to the attention of the
Chief Executive Officer of the Company, or to such other address as either party
may specify by notice to the other.
18. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes all prior communications, agreements and
understandings, written or oral, with respect to the terms and conditions of the
Executive's employment.
19. Amendment. This Agreement may be amended or modified only by a
---------
written instrument signed by the Executive and by an expressly authorized
representative of the Company.
20. Headings. The headings and captions in this Agreement are for
--------
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.
10
<PAGE>
21. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which together shall
constitute one and the same instrument.
22. Expenses in Case of Dispute. If the event of a dispute between the
---------------------------
parties related to or in connection with this Agreement shall result in
litigation, then, in such event, the party prevailing in such litigation shall
have his or its expenses (including reasonable legal fees) related to such
litigation reimbursed by the non-prevailing party.
23. Governing Law. This is a Delaware contract and shall be construed and
-------------
enforced under and be governed in all respects by the laws of the State of
Delaware, without regard to the conflict of laws principles thereof.
11
<PAGE>
IN WITNESS WHEREOF, this Executive Employment Agreement has been executed
as a sealed instrument by the Company, by its duly authorized representative,
and by the Executive, as of the date first above written.
THE EXECUTIVE HOB ENTERTAINMENT, INC.
/s/ Lou Mann /s/ Gregory A. Trojan
- --------------------------------- -------------------------------
Lou Mann By: Gregory A. Trojan
Title: Chief Executive Officer
12
<PAGE>
Exhibit A
Approved Directorships and Other Activities
President: Neil Bogart Foundation
Member of the Executive Board
and Board of Directors: T.J. Martell Foundation
Fundraising Chairperson: Valley United Club Soccer Team
Involved in various community and civic functions.
<PAGE>
Exhibit B
Bonus Plan
The Company and the Executive agree to negotiate and establish in good
faith mutually agreeable special performance bonus criteria for the first year
of the term hereof within 15 days of the date of the Agreement, which criteria
shall be attached hereto as Exhibit B and form part of the Agreement. On or
prior to each subsequent anniversary date of the Agreement during the term
hereof, the Company and the Executive agree to establish in good faith mutually
agreeable special performance bonus criteria for the applicable one-year period
of the term hereof or six-month period of the term hereof following such
anniversary date, which criteria shall be attached hereto as Exhibit B and form
part of the Agreement.
<PAGE>
EXHIBIT 10.14
[LETTERHEAD OF UNIVERSAL]
As of January 27, 1999
Mr. Jay L. Marciano
Universal Studios, Inc.
100 Universal City Plaza
Universal City, CA 91608
Dear Mr. Marciano:
Universal Studios, Inc. ("Universal" or the "Company") agrees to employ you
and you agree to accept employment upon the terms and conditions set forth in
this agreement (the "Agreement").
1. Term. The term of this Agreement will commence on January 27, 1999
----
and continue until January 26, 2004, unless earlier terminated pursuant to the
provisions of Paragraph 4 (the "Term").
You agree and acknowledge that Universal has no obligation to extend the
Term or to continue your employment after expiration of the Term, and you
expressly acknowledge that no promises or understandings to the contrary have
been made or reached. You also agree and acknowledge that, should Universal
choose to continue your employment for any period of time following the
expiration of the Term (including any extensions thereof), your employment with
Universal will be "at will;" in other words, during any time following the
expiration of the Term, Universal may terminate your employment at any time,
with or without reason and with or without notice, and you may resign at any
time, with or without reason and with our without notice.
2. Duties. You agree to be employed and perform your exclusive services
------
for the Company or one of its affiliates upon the terms and conditions of this
Agreement. You will commence your services hereunder as President, Universal
Concerts and you will perform the services requested from time to time by the
Board of Directors of Universal (the "Board") or its duly authorized officers.
3. Compensation and Related Matters.
--------------------------------
(a) Base Salary. For all services rendered under this Agreement,
-----------
commencing January 27, 1999, Universal will pay you base salary at an annual
rate of Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00), payable in
accordance with Universal's applicable payroll practices ("Base Salary"). Any
higher Base Salary paid to you subsequently will be deemed the annual rate for
the purposes of this Agreement and will commence on the date determined by the
Board or its duly authorized officers. Universal is not obligated to actually
utilize your services, and payment as described in Paragraphs 4(a) and 4(c) will
discharge the Company's obligation under this Agreement.
(b) Bonus Compensation. You will be eligible to participate at a level
------------------
appropriate to your position in Universal's Annual Incentive Plan
/s/ (signature illegible)
- --------------------------------
Initials of employer
Page 1
<PAGE>
or any plan adopted in replacement thereof as determined by the Board of
Directors of Universal and in accordance with the plan's terms and conditions.
(c) Long Term Incentive Plan. You will be eligible to participate at a
------------------------
level appropriate to your position in The Seagram Company Ltd. Stock Incentive
Plan or any plan adopted in replacement thereof as determined by the Board of
Directors of Joseph E. Seagram & Sons, Inc. and in accordance with the plan's
terms and conditions.
(d) Benefits. You will be entitled to participate in the benefit plans
--------
generally available to employees of Universal so long as the Company provides
such plans and programs and subject to their terms and conditions, except that
you will not participate in any severance plan of Universal. Instead, subject
to the requirements of this Paragraph, upon an involuntary termination of
employment, as described in Paragraph 4(c), you will receive the greater of (i)
the amounts payable pursuant to Paragraph 4(c) or (ii) the basic amounts payable
pursuant to the Company's severance plan or policy. If the amount described in
clause (ii) above is greater than the amount described in clause (i) above, you
will receive, in exchange for a release acceptable to the Company, a lump sum
payment calculated by the Company in its sole discretion equal to the difference
between the amounts described in clauses (i) and (ii) of the previous sentence.
You will receive this lump sum payment as soon as practical after the release
has been fully executed by you and the Company. In addition, you will be
entitled to participate in the Universal Officers Supplemental Plan and the
Executive Auto Allowance Program on the same terms and conditions and only so
long as Universal provides such plans and programs and in accordance with the
plan's terms and conditions.
(e) Expense Reimbursements. During your employment, Universal will
----------------------
reimburse you for your reasonable and necessary business expenses in accordance
with its then prevailing policy for similarly situated employees (which will
include appropriate itemization and substantiation of expenses incurred).
(f) Withholding. The Company may withhold from any amounts payable under
-----------
this Agreement such federal, state or local taxes as will be required to be
withheld pursuant to any applicable laws or regulation.
4. Compensation Upon Certain Termination Events.
--------------------------------------------
(a) Compensation Payable. Should your employment with Universal
--------------------
terminate, you will be entitled to the amounts and benefits shown on the
following table, subject to Paragraph 4(b) through 4(e). In the event of such
termination, and except for payments noted in this Paragraph 4, Universal will
have no further obligations to you under this Agreement.
Page 2
<PAGE>
- --------------------------------------------------------------------------------
Termination Involuntary Disability Death
For Cause Termination
- --------------------------------------------------------------------------------
Payment of Same as for Your Base Salary Payment of (1) any
(1) any termination will continue accrued but unpaid
accrued but for Cause until the Base Salary due
unpaid except that earliest of (1) you through your
Base Salary your Base the 180th day date of death, and
due you Salary and following the (2) other unpaid
through benefits start of your amounts then due
termination, (other than disability you under Company
and (2) other benefits absence, or (2) benefit plans or
unpaid provided your death and programs, except
amounts then under (1) any will be reduced that those
due you under plan by other payments will be
Company qualified Company-provided made to your
benefit plans under Section disability estate or legal
or programs. 401(a) of the benefits representative,
Internal available to and your death
Revenue Code, you. Payment of benefits payable
(2) any (1) any accrued due to your death
nonqualified but unpaid Base under Company
pension plan Salary due you employee benefit
and (3) any through plans or programs
stock or termination, and will also be paid.
incentive (2) other unpaid
based plan) amounts then due
will also you under
continue Company benefit
through the plans or
expiration of programs.
the Term,
provided you
meet the
requirements
in Paragraph
5 and subject
to the terms
and
conditions of
each benefit
plan.
- --------------------------------------------------------------------------------
(b) Termination for Cause. The Company may terminate your employment for
---------------------
cause at any time without advance notice. "Cause" will include, but not be
limited to:
(i) your material failure to perform your duties or your material
breach of the terms of this Agreement;
(ii) your material failure to comply with Company policies, including,
without limitation those set forth in the Policies and Procedures for Worldwide
Business Conduct of The Seagram Company Ltd. and Affiliates and the Universal
Discrimination and Sexual Harassment Policy, copies of which are attached as
Schedule 1 to this Agreement; or
Page 3
<PAGE>
(iii) your conviction of a felony or crime of moral turpitude.
(c) Involuntary Termination. Universal may terminate your employment other
-----------------------
than for Cause or on account of disability, as defined in Paragraph 4(d), in
which case you will receive continuation of Base Salary and benefits as
specified in Paragraph 4(a); provided the Company will retain a right of offset
against the amounts payable to you under this Paragraph and will be entitled to
reduce the amount of any compensation and benefits payable to you under this
Agreement by the amount of compensation and benefits of any kind earned or
received by you from any third party from the date of termination through the
end of the payment term pursuant to this Paragraph. You agree that you will have
no rights or remedies in the event of your termination without Cause other than
those set forth in this Agreement.
(d) Termination for Disability. The Company may terminate your employment
--------------------------
on account of a Disability and the payments required by Paragraph 4(a) will be
made. You will be deemed to have a "Disability" if you are incapacitated by a
physical or mental condition, illness or injury which has prevented you from
being able to perform the essential duties of your position under this Agreement
in a satisfactory fashion for all of a consecutive 180-day period.
(e) Death. If you die while employed under this Agreement, the payments
-----
required by Paragraph 4(a) will be made.
5. Covenents.
---------
(a) Acknowledgement. You acknowledge that you currently possess or will
---------------
acquire secret, confidential, or proprietary information or trade secrets
concerning the operations, future plans, or business methods of the Company or
its affiliates. You agree that the Company wold be severely damaged if you
misused or disclosed this information. To prevent this harm, you are making the
promises set forth in this Paragraph. You acknowledge that the provisions of
this Paragraph are reasonable and necessary to protect the legitimate interests
of the Company and that any violation of such provisions would result in
irreparable injury to the Company. In the event of a violation of the provisions
of this Paragraph, you further agree that the Company will, in addition to all
other remedies available to it, be entitled to seek equitable relief by way of
injunction and any other legal or equitable remedies.
(b) Promise Not to Disclose. You will hold a fiduciary capacity, for the
------------------------
benefit of the Company, all confidential or proprietary information, knowledge
and data of the Company which you may acquire, learn, obtain or develop during
your employment by the Company. Further, you will not, during the Term or at any
time thereafter, directly or indirectly use, communicate or divulge for your own
benefit or for the benefit of another any such information, knowledge or data
other than (i) as required by the Company or (ii) as required by law or as
ordered by a court or (iii) with respect to matters that are generally known to
the public. You make the same commitments with respect to the secret,
confidential or proprietary information, knowledge and data of affiliates,
customers, contractors and others with whom the Company has a business
relationship or to whom the Company or its affiliates owe a duty
Page 4
<PAGE>
of confidentiality. The information covered by this protection includes, but is
not limited to, matters of a business or strategic nature such as information
about costs and profits, projections, personnel information, reengineering,
records, customer lists, contact persons, customer data, software, sales data,
possible new business ventures and/or expansion plans or matters of a creative
nature, including without limitation, matters regarding ideas of a literary,
creative, musical or dramatic nature, or regarding any form of product produced,
distributed or acquired by the Company ("Company Information"). Company
Information will be considered and kept as the private, proprietary and
confidential information of the Company except within the Company as required to
perform services, and may not be divulged (A) without the express written
authorization of the Company or (B) unless required by law or ordered by a court
or (C) unless the Company Information is generally known to the public. You
further agree that you will neither publicly disclose the terms of this
Agreement nor publicly discuss the Company in a manner that tends to portray the
Company in an unfavorable light.
(c) Promise Not to Engage In Certain Activities. You will not at any
-------------------------------------------
time during your employment by the Company be or become (i) interested or
engaged in any manner, directly or indirectly, either alone or with any person,
firm or corporation now existing or hereafter created, in any business which is
or may be competitive with the business of the Company and its affiliates or
(ii) directly or indirectly a stockholder or officer, director, agent,
consultant or employee of, or in any manner associated with, or aid or abet, or
give information or financial assistance to, any such business. The provisions
of this Paragraph will not be deemed to prohibit your purchase or ownership, as
a passive investment, of not more than five percent (5%) of the outstanding
capital stock of any corporation whose stock is publicly traded.
(d) Promise to Return Property. All records, files, lists, drawings,
--------------------------
documents, models, equipment, property, computer, software or intellectual
property relating to the Company's business in whatever form (including
electronic) will be returned to the Company upon the termination of your
employment, whether such termination is at your or the Company's request.
(e) Promise Not to Solicit. You will not during (i) the period of your
----------------------
employment by the Company, (ii) the period of payment pursuant to Paragraph 4 or
(iii) the period ending one (1) year after the later of the periods described in
the previous clauses (i) or (ii) induce or attempt to induce any employees,
consultants, contractors or representatives of the Company (or those of any of
its affiliates) to stop working for, contracting with or representing the
Company or any of its affiliates or to work for, contract with or represent any
of the Company's (or its affiliates') competitors.
(f) Universal Ownership. The results and proceeds of your services
-------------------
hereunder, including, without limitation, any works of authorship resulting from
your services during your employment with Universal and/or any of Universal's
affiliates and any works in progress, will be works-made-for hire and Universal
will be deemed the sole owner throughout the universe of any and all rights of
whatsoever nature therein, whether or not now or hereafter known, existing,
contemplated, recognized or developed, with the right to use the same in
perpetuity in any manner Universal determines in its sole discretion
Page 5
<PAGE>
without any further payment to you whatsoever. If, for any reason, any of such
results and proceeds will not legally be a work-for-hire and/or there are nay
rights which do not accrue to Universal under the preceding sentence, then you
hereby irrevocably assign and agree to assign any and all of your right, title
and interest thereto, including, without limitation, any and all copyrights,
patents, trade secrets, trademarks and/or other rights of whatsoever nature
therein, whether or not now or hereafter known, existing, contemplated,
recognized or developed, to Universal, and Universal will have the right to use
the same in perpetuity throughout the universe in any manner Universal
determines without any further payment to you whatsoever. You will, from time
to time, as may be requested by Universal, do any and all things which Universal
may deem useful or desirable to establish or document Universal's exclusive
ownership of any and all rights in any such results and proceeds, including,
without limitation, the execution of appropriate copyright and/or patent
applications or assignments. To the extent you have any rights in the results
and proceeds of your services that cannot be assigned in the manner described
above, you unconditionally and irrevocably waive the enforcement of such rights.
This Paragraph is subject to and will not be deemed to limit, restrict, or
constitute any waiver by Universal of any rights of ownership to which Universal
may be entitled by operation of law by virtue of Universal being your employer.
(g) Prior Restrictions. You represent that you are free to enter into this
------------------
Agreement and are not restricted in any manner from performing under this
Agreement by any prior agreement, commitment, or understanding with any third
party. If you have acquired confidential or proprietary information in the
course of your prior employment or as a consultant, you will fully comply with
any duties not to disclose such information then applicable to you during the
Term.
6. Services Unique. You recognize that your services hereunder are of a
---------------
special, unique, unusual, extraordinary and intellectual character, giving them
a peculiar value, the loss of which the Company cannot be reasonably or
adequately compensated for in damages. In the event of a breach of this
Agreement by you (particularly, but without limitation, with respect to the
provisions hereof relating to the exclusivity of your services), the Company
will, in addition to all other remedies available to it, be entitled to seek
equitable relief by way of injunction and any other legal or equitable remedies.
This provision will not be construed as a waiver of the rights which the Company
may have for damages under this Agreement or otherwise, and all of the Company's
rights and remedies will be unrestricted.
7. Notices. All notices and other communications hereunder will be in
-------
writing and will be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
Page 6
<PAGE>
If to Employee:
--------------
At the address indicated on the first page hereof.
If to Universal:
---------------
Universal Studios, Inc.
100 Universal City Plaza
Universal City, California 91608
Attention: Senior Vice President, Human Resources
or to such other address as either party will have furnished to the other in
writing. Notice and communications will be effective when actually received by
the addressee.
8. Assignment/Affiliated Corporations. Universal will have the right to
----------------------------------
assign this Agreement to any affiliate or successor of Universal. You
acknowledge and agree that all of your covenants and obligations to Universal,
as well as the rights of Universal hereunder, will run in favor of and will be
enforceable by Universal, its affiliates and their successors. Without limiting
the foregoing, you also acknowledge and agree that this Agreement may be
assigned to, and will be enforceable by, any entity which, directly or
indirectly, acquires all, or substantially all, of the stock or assets of
Universal Concerts, Inc.
9. Arbitration of Disputes.
------------------------
(a) Arbitrable Disputes. You agree to use final and binding arbitration to
-------------------
resolve any dispute (an "Arbitrable Dispute") you may have with the Company or
any affiliate. This arbitration agreement applies to all matters relating to
this Agreement, your employment with and/or termination from Universal,
including disputes about the validity, interpretation, or effect of this
Agreement, or alleged violations of it, and further including all claims arising
out of any alleged discrimination, harassment, retaliation, including, but not
limited to those covered by the California Fair Employment and Housing Act (or
similar state statute), the 1964 Civil Rights Act, 42 U.S.C. Section 2000
et seg., the Federal Age Discrimination in Employment Act, the Americans With
- -------
Disabilities Act and the Family and Medical Leave Act of 1993.
(b) Injunctive Relief. Notwithstanding Paragraph 9(a), due to the
-----------------
irreparable harm that would result from an actual or threatened violation of
Paragraph 5 that involves disclosure or use of confidential information, trade
secrets, or competition with the Company and Paragraphs 2 and 6 that involve
exclusivity of your service with Universal, you agree that the Company may seek
an injunction prohibiting you from committing such a violation.
(c) The Arbitration. Arbitration will take place in Los Angeles,
---------------
California before a single experienced employment arbitrator licensed to
practice law in California and selected in accordance with the Employment
Dispute Resolution Rules of the American Arbitration Association. The arbitrator
may not modify or change this Agreement in any way.
(d) Fees and Expenses. Each party will pay the fees of their respective
-----------------
attorneys, the expenses of their witnesses, and any other
Page 7
<PAGE>
expenses connected with the arbitration, but all other costs of the arbitration,
including the fees of the arbitrator, cost of any record or transcript of the
arbitration, administrative fees, and other fees and costs will be paid in equal
shares by the Company and you.
(e) Exclusive Forum. Arbitration in this manner will be the exclusive forum
---------------
for any Arbitrable Dispute. Should you or the Company attempt to resolve an
Arbitrable Dispute by any method other than arbitration pursuant to this
Paragraph, the responding party will be entitled to recover from the initiating
party all damages, expenses, and attorneys' fees incurred as a result of that
breach.
10. Miscellaneous. No provisions of this Agreement may be amended,
-------------
modified, waived, or discharged except by a written document signed by you and a
duly authorized officer of the Company. A waiver of any conditions or provisions
of this Agreement in a given instance will not be deemed a waiver of such
conditions or provisions at any other time. The validity, interpretation,
construction, and performance of this Agreement will be governed by the laws of
the State of California without regard to its conflicts of law principles. This
Agreement will be binding upon, and will inure to the benefit of, you and your
estate and the Company and any successor thereto, but neither this Agreement nor
any rights arising under it may be assigned or pledged by you.
11. Validity. The invalidity or unenforceability of any provisions of this
--------
Agreement will not affect the validity or enforceability of any other provisions
of this Agreement, which will remain in full force and effect.
12. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which will be deemed to be an original, but all of which
together will constitute the same instrument.
13. Entire Agreement. This Agreement sets forth the entire understanding
----------------
between us; all oral or written agreements or representations, express or
implied, with respect to the subject matter of this Agreement are set forth in
this Agreement except that the terms of any applicable stock option agreement
still apply. All prior employment agreements, understandings and obligations
(whether written, oral, express or implied) between us, if any, are terminated
as of the commencement date of the Term and are superseded by this Agreement.
Very truly yours,
UNIVERSAL STUDIOS, INC.
By: /s/(illegible)
-------------------
Name:
Title:
ACCEPTED AND AGREED:
/s/ JAY J. MARCIANO
- -------------------
JAY J. MARCIANO
<PAGE>
EXHIBIT 10.15
==============================================================================
HOB ENTERTAINMENT, INC.
PURCHASE AGREEMENT
FOR
CLASS D-2 PREFERRED STOCK,
12% SENIOR REDEEMABLE PREFERRED STOCK,
SENIOR CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
Dated as of July 21, 1999
==============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
Purchase Agreement for Class D-2 Preferred Stock, 12% Senior Redeemable Preferred Stock, Senior Convertible Preferred
Stock and Common Stock Purchase Warrants...................................................................................... 1
Recitals...................................................................................................................... 1
1. Purchase and Sale of the Class D-2 Preferred Stock, the Senior Preferred Stock, the Bridge Preferred Stock and the
Warrants; Closings....................................................................................................... 2
1.1 Purchase and Sale of the Class D-2 Preferred Stock, the Senior Preferred Stock, the Bridge Preferred Stock
and the Warrants................................................................................................. 2
1.2 Closings......................................................................................................... 2
(a) The Initial Closing......................................................................................... 2
(b) Subsequent Closings......................................................................................... 2
2. Representations and Warranties of the Company.............................................................................. 3
2.1 Organization and Corporate Power................................................................................. 3
2.2 Authorization.................................................................................................... 3
2.3 Capitalization................................................................................................... 4
2.4 Subsidiaries..................................................................................................... 5
2.5 Financial Statements............................................................................................. 6
2.6 Absence of Undisclosed Liabilities............................................................................... 6
2.7 Absence of Certain Developments.................................................................................. 6
2.8 Title to Properties.............................................................................................. 6
2.9 Tax Matters...................................................................................................... 7
2.10 Contracts and Commitments........................................................................................ 7
2.10A Nonproduced Documents............................................................................................
2.11 No Defaults...................................................................................................... 8
2.12 Intellectual Property............................................................................................ 8
2.13 Effect of Transactions........................................................................................... 8
2.14 Consents and Approvals........................................................................................... 9
2.15 Litigation....................................................................................................... 9
2.16 Business.........................................................................................................10
2.17 Brokerage........................................................................................................10
2.18 Employees........................................................................................................10
2.19 Insurance........................................................................................................10
2.20 Environmental and Safety Laws....................................................................................11
2.21 Retirement Obligations, etc......................................................................................13
2.22 Transactions with Affiliates.....................................................................................13
2.23 Books and Records................................................................................................13
2.24 Material Facts...................................................................................................13
2.25 Securities Laws..................................................................................................14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
2.26 Small Business Matters; Use of Proceeds.......................................................................... 14
2.27 Year 2000........................................................................................................ 15
3. Representation and Warranties and other Agreements of the Investors..................................................... 15
3.1 Authorization................................................................................................... 15
3.2 Purchase Entirely for Own Account............................................................................... 16
3.3 Restricted Securities........................................................................................... 16
3.4 Formation....................................................................................................... 16
3.5 Suitability..................................................................................................... 16
3.6 Financial Condition............................................................................................. 16
3.7 Experience...................................................................................................... 16
3.8 Receipt of Information.......................................................................................... 16
3.9 Brokerage....................................................................................................... 17
3.10 Further Limitations on Disposition.............................................................................. 17
3.11 Legends......................................................................................................... 17
3.12 Certain Governmental Approvals.................................................................................. 18
4. Conditions to the Investors' Obligations at each of the Closings......................................................... 17
4.1 Performance of Covenants......................................................................................... 18
4.2 Compliance Certificate........................................................................................... 18
4.3 Amendment and Restatement of Certificate of Incorporation, By laws and Option Plan............................... 18
4.4 Other Agreements................................................................................................. 18
4.5 Opinion of Company Counsel....................................................................................... 18
4.6 Secretary's Certificate.......................................................................................... 18
4.7 Closing of Acquisition........................................................................................... 18
4.8 Governmental Filings and Consents................................................................................ 19
5. Conditions of the Company's Obligations at any Closing................................................................... 19
5.1 Representations and Warranties................................................................................... 19
5.2 Payment of Purchase Price........................................................................................ 19
5.3 Other Agreements................................................................................................. 19
5.4 Governmental Filings and Consents................................................................................ 19
6. Affirmative Covenants of the Company..................................................................................... 19
6.1 Financial and Other Information.................................................................................. 19
(a) Accounts and Reports........................................................................................ 19
(b) Annual and Quarterly Financial Statements................................................................... 20
(c) Monthly Financial Statements and Budgets.................................................................... 20
(d) Visits and Discussions...................................................................................... 20
(e) Adverse Change; Litigation.................................................................................. 21
(f) Other Information........................................................................................... 21
(g) Termination of Certain Obligations.......................................................................... 21
6.2 Confidentiality.................................................................................................. 21
6.3 Insurance......................................................................................................... 21
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
6.4 Payment of Taxes; Corporate Existence.............................................................................. 22
6.5 Transactions with Affiliates....................................................................................... 22
6.6 Regulatory Compliance Cooperation.................................................................................. 23
6.7 Information Rights and Related Covenants........................................................................... 25
6.8 Remedies of Investors.............................................................................................. 26
6.9 Issue of Additional Warrants....................................................................................... 26
6.10 Issuance of Certain Warrants in the Event of a Failure to Issue Bridge
Preferred Shares................................................................................................... 27
6.11 Modifications of Certain Existing Instruments...................................................................... 27
6.12 Performance of UCI Stock Purchase Agreement........................................................................ 27
7. Restrictive Covenants in Favor of Holders of Senior Preferred Stock and Bridge Preferred Stock.......................... 27
7.1 Transactions with Affiliates...................................................................................... 27
7.2 Mergers and Consolidations........................................................................................ 28
7.3 Issuance of Senior or Pari Passu Equity Securities................................................................ 28
7.4 Restricted Payments............................................................................................... 28
7.5 Incurrence of Indebtedness........................................................................................ 28
7.6 Redemption of Bridged Preferred Stock............................................................................. 29
8. Miscellaneous ........................................................................................................... 29
8.1 Certain Defined Terms.............................................................................................. 29
8.2 Survival of Covenants; Assignability of Rights..................................................................... 29
8.3 Incorporation by Reference......................................................................................... 29
8.4 Parties in Interest................................................................................................ 30
8.5 Amendments and Waivers............................................................................................. 30
8.6 Governing Law...................................................................................................... 30
8.7 Notices............................................................................................................ 30
8.8 Subsidiaries....................................................................................................... 30
8.9 Effect of Headings................................................................................................. 31
8.10 Entire Agreement................................................................................................... 31
8.11 Severability....................................................................................................... 31
8.12 Counterparts....................................................................................................... 31
8.13 Fees and Expenses.................................................................................................. 31
8.13 Attorneys' Fees.................................................................................................... 31
</TABLE>
iii
<PAGE>
PURCHASE AGREEMENT
FOR
CLASS D-2 PREFERRED STOCK,
12% SENIOR REDEEMABLE PREFERRED STOCK,
SENIOR CONVERTIBLE PREFERRED STOCK
AND
COMMON STOCK PURCHASE WARRANTS
* * * * *
This PURCHASE AGREEMENT FOR CLASS D-2 PREFERRED STOCK, 12% SENIOR
REDEEMABLE PREFERRED STOCK, SENIOR CONVERTIBLE PREFERRED STOCK AND COMMON STOCK
PURCHASE WARRANTS (this "Agreement") is dated as of this 21st day of July, 1999,
---------
by and among HOB ENTERTAINMENT, INC., a Delaware corporation (the "Company"),
-------
and the Investors listed on Exhibits A-1 and A-2 attached hereto (each of whom
------------ ---
is individually referred to herein as an "Investor" and collectively are
referred to herein as the "Investors").
---------
RECITALS
--------
WHEREAS, the Company has authorized the issuance and sale of up to (i)
73,379,630 shares of Class D-2 Preferred Stock, $.01 par value (the "Class D-2
---------
Preferred Stock"), (ii) 81,125 shares of the 12% Senior Redeemable Preferred
- ---------------
Stock, $.01 par value (the "Senior Preferred Stock"), and (iii) 22,000 shares of
----------------------
the Senior Convertible Preferred Stock, $.01 par value (the "Bridge Preferred
----------------
Stock"), each to be issued pursuant to this Agreement; and
- -----
WHEREAS, the Company has authorized the issuance of warrants (the
"Warrants") to purchase up to 24,216,188 shares of common stock, $.0001 par
--------
value per share (the "Common Stock") to purchasers of the Senior Preferred Stock
------------
and the Bridge Preferred Stock pursuant to this Agreement; and
WHEREAS, the rights, privileges and preferences of the Class D-2 Preferred
Stock, the Senior Preferred Stock and the Bridge Preferred Stock are set forth
in the Company's Amended and Restated Certificate of Incorporation attached to
this Agreement as Exhibit B; and
---------
WHEREAS, the terms of the Warrants are set forth in the form of Warrant
Agreement (the "Warrant Agreement") attached to this Agreement as Exhibit C; and
---------
WHEREAS, the Company desires to issue and sell to the Investors and the
Investors desire to purchase from the Company shares of Class D-2 Preferred
Stock, the Senior Preferred Stock, the Bridge Preferred Stock and the Warrants;
and
WHEREAS, each of the parties hereto, in order to induce each of the other
parties hereto to enter into this Agreement and to consummate the transactions
contemplated hereby, agrees to the covenants and agreements set forth herein;
1
<PAGE>
NOW, THEREFORE, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. Purchase and Sale of the Class D-2 Preferred Stock, the Senior Preferred
------------------------------------------------------------------------
Stock, the Bridge Preferred Stock and the Warrants; Closings.
- ------------------------------------------------------------
1.1. Purchase and Sale of the Class D-2 Preferred Stock, the Senior
--------------------------------------------------------------
Preferred Stock, the Bridge Preferred Stock and the Warrants. Subject to the
- ------------------------------------------------------------
terms and conditions of this Agreement and on the basis of the representations,
warranties and covenants set forth herein, the Company agrees to sell to the
Investors and each such Investor, severally and not jointly, agrees to purchase
from the Company (i) the number of shares of Class D-2 Preferred Stock (the
"Class D-2 Shares") set forth opposite such Investor's name on either Exhibit A-
---------------- ---------
1 or A-2 hereto under the heading "Total Class D-2 Shares Purchased" at a
- - ---
purchase price of $1.62 per share of Class D-2 Preferred Stock, (ii) the number
of shares of Senior Preferred Stock (the "Senior Preferred Shares") set forth
-----------------------
opposite such on either Exhibit A-1 or A-2 hereto under the heading "Total
----------- ---
Senior Preferred Shares Purchased" at a purchase price of $1,000.00 per share of
Senior Preferred Stock, (iii) the number of shares of Bridge Preferred Stock
(the "Bridge Preferred Shares" and together with the Class D-2 Preferred Shares
-----------------------
and the Senior Preferred Shares, the "Shares") set forth opposite such
------
Investor's name on Exhibit A hereto under the heading "Total Bridge Preferred
---------
Shares Purchased" at a purchase price of $1,000.00 per share of Bridge Preferred
Stock and (iv) in the case of Investors purchasing Senior Preferred Shares and
Bridge Preferred Shares, the number of detachable Warrants set forth opposite
such Investor's name on Exhibit A hereto under the heading "Total Warrants
---------
Purchased" for no additional consideration. Following Closing, the Company and
the Investors will mutually agree on an allocation of the aggregate purchase
price paid under this Agreement among the Senior Preferred Shares and the Bridge
Preferred Shares and the respective Warrants issued in connection therewith, and
all tax returns or other filings by the parties will reflect and be consistent
with such allocation.
1.2. Closings. Subject to the terms and conditions hereof, the purchase and
--------
sale of the Shares of Class D-2 Preferred Stock, Senior Preferred Stock, Bridge
Preferred Stock and Warrants contemplated by Section 1.1 hereof will take place
-----------
at one or more closings (the "Closings") at such place as the parties shall
--------
mutually agree.
(a) The Initial Closing. The initial closing (the "Initial Closing")
------------------- ---------------
shall take place as soon as all requisite consents and conditions to closing
described herein have been satisfied, and contemporaneously with the closing of
the transactions contemplated by the UCI Stock Purchase Agreement (as defined in
Section 2.6 hereof). At the Initial Closing, the Company shall deliver to each
Investor identified on Exhibit A-1 one or more certificates and Warrant
-----------
Agreements representing the number of Shares and Warrants, respectively, set
forth opposite such Investor's name on Exhibit A-1 hereto to be purchased at
-----------
such Closing against the payment of the purchase price thereof pursuant to the
provisions of this Section 1.2(a), less the amount of any fees and expenses
-------------
payable or reimbursable to such Investor pursuant to Section 8.13 hereof.
------------
2
<PAGE>
(b) Subsequent Closings. The Company may conduct one or more
-------------------
subsequent Closings (each a "Subsequent Closing") for the issuance and sale of
------------------
additional Shares of Class D-2 Preferred Stock and Senior Preferred Stock with
Warrants in units consisting of Shares of Class D-2 Preferred Stock (having an
aggregate liquidation preference equal to $6.25), Shares of Senior Preferred
Stock having an aggregate liquidation preference equal to $3.75, and Warrants
exercisable into 0.6135176 Shares of Common Stock at such time or times as the
parties shall mutually agree; provided, that the Company shall not issue more
than an aggregate of 10,030,864 additional Shares of Class D-2 Preferred Stock,
9,750 additional Shares of Senior Preferred Stock and additional Warrants
exercisable into 1,708,499 Shares of Common Stock. Each issuance at a Subsequent
Closing, except for issuances to existing stockholders of the Company pursuant
to their preemptive rights under the Amended Stockholders Agreement (as defined
herein), must be approved by the Company's Executive Committee. At such
Subsequent Closings, the Company shall deliver to each Investor one or more
certificates representing the total number of Shares and a Warrant Agreement for
the Warrants being purchased by such Investor against the payment of the
purchase price therefor pursuant to the provisions of this Section 1.2. Each
-----------
Investor purchasing Shares and Warrants in a Subsequent Closing shall execute
and deliver signature pages to this Agreement and the other agreements
identified in Section 4.4, binding them to each such agreement. The Company
------------
shall amend Exhibit A-2 to reflect the names of such Investors and the number of
Shares and Warrants purchased by them.
2. Representations and Warranties of the Company.
---------------------------------------------
In order to induce the Investors to enter into this Agreement and to
purchase the Shares and Warrants hereunder, the Company hereby represents and
warrants to each Investor that, as of the date hereof and as of each Closing:
2.1. Organization and Corporate Power. The Company is a corporation duly
--------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware and is qualified to do business as a foreign corporation in each
jurisdiction where such qualification is required and in which failure to so
qualify would have a material adverse effect on the Company. The Company has
all required corporate power and authority to own its property, to carry on its
business as presently conducted or contemplated to be conducted and to carry out
the transactions contemplated hereby. The copies of the Amended and Restated
Certificate of Incorporation (the "Amended Certificate") and Amended and
-------------------
Restated Bylaws (the "Amended Bylaws") of the Company, as amended to date or as
--------------
will be amended prior to the Initial Closing (in the case of the Amended
Certificate), which are in the form attached hereto as Exhibits B and D,
----------------
respectively, are correct and complete; provided that the Amended Bylaws will be
further amended prior to the Initial Closing as necessary to give effect to the
transactions contemplated by this Agreement, such amendment to be in form and
substance reasonably satisfactory to the Investors.
2.2. Authorization. This Agreement and any other agreements, instruments or
-------------
documents entered into by the Company pursuant to this Agreement (or
contemplated hereby, as identified on Schedule 2.2) have been duly executed and
------------
delivered by the Company and are the legal, valid and, assuming due execution
and delivery by the other parties hereto and thereto,
3
<PAGE>
binding obligations of the Company, enforceable against the Company in
accordance with their terms. The execution, delivery and performance of this
Agreement and any other agreement, instrument or document entered into by the
Company pursuant to this Agreement has been duly authorized by all necessary
corporate action of the Company.
2.3. Capitalization. The entire authorized capital stock of the Company
--------------
consists of 195,480,322 shares of Common Stock, of which 3,393,500 shares are
issued and outstanding, 15,488,672 shares of Class A Preferred Stock, $.01 par
value per share (the "Class A Preferred Stock"), of which 13,683,596 shares are
-----------------------
issued and outstanding, 21,700,404 shares of Class B Preferred Stock, $.01 par
value per share (the "Class B Preferred Stock"), of which 20,491,329 shares are
-----------------------
issued and outstanding, 15,069,588 shares of Class C Preferred Stock, $.01 par
value per share (the "Class C Preferred Stock"), of which 10,833,356 shares are
-----------------------
issued and outstanding, and 29,166,667 shares of Class D-1 Preferred Stock, of
which 16,892,148 shares are issued and outstanding, and as of the Initial
Closing will also include 73,379,630 shares of Class D-2 Preferred Stock,
49,768,519 shares of which will be issued and outstanding, 81,125 shares of
Senior Preferred Stock, 49,375 shares of which will be issued and outstanding
and 22,000 shares of Bridge Preferred Stock, 20,000 shares of which will be
issued and outstanding, after giving effect, in the case of the Class D-2
Preferred Stock, the Senior Preferred Stock and the Bridge Preferred Stock, to
the Shares to be issued and sold under this Agreement. For purposes hereof, the
Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred
Stock are collectively referred to as the "Junior Preferred Stock," and the
----------------------
Class A Preferred Stock, the Class B Preferred Stock, the Class C Preferred
Stock, the Class D-1 Preferred Stock, the Class D-2 Preferred Stock, the Senior
Preferred Stock and the Bridge Preferred Stock are collectively referred to as
the "Preferred Stock." Except for 1,592,105 shares of Class A Preferred Stock
---------------
which have been previously repurchased from a stockholder and are held in
treasury but are not subject to reissuance, the Company holds no shares of
Common Stock and no shares of Preferred Stock in its treasury. In addition to
the Shares, Warrants, Conversion Shares and Warrants issuable in connection with
the transactions contemplated by the Agreement, the Company has reserved (i)
15,500,166 shares of Common Stock for issuance pursuant to options granted or
available for grant under the Company's 1993 Stock Option Plan; (ii) 2,946,296
shares of Common Stock for issuance pursuant to options granted outside of the
Company's 1993 Stock Option Plan; (iii) 1,470,013 shares of Common Stock for
issuance pursuant to warrants granted by the Company to consultants, development
partners and others; (iv) 212,963 shares of Class A Preferred Stock (and
underlying Common Stock) for issuance to Judith Belushi Pisano upon exercise of
options granted to Ms. Pisano; (v) 411,833 shares of Common Stock issuable upon
exercise of warrants ("Convertible Note Warrants") granted by the Company in
-------------------------
connection with the issuance by the Company of convertible notes on November 5
and 19, 1996; (vi) 1,550,907 shares of Common Stock issuable upon exercise of
warrants ("Investor Warrants") granted by the Company in connection with the
-----------------
issuance of the Class C Preferred Stock; (vii) 1,636,047 shares of Common Stock
issuable upon exercise of warrants issued to Universal Studios, Inc. under the
UCI Stock Purchase Agreement; and (viii) 1,000,000 shares of Common Stock for
issuance pursuant to options granted or available for grant under the Company's
Spokesperson Plan. All of the issued and outstanding shares of capital stock of
the Company are duly authorized, validly issued and outstanding, fully paid and
nonassessable. The
4
<PAGE>
Company has reserved all of the authorized shares of Class D-2 Preferred Stock,
Senior Preferred Stock and Bridge Preferred Stock for issuance hereunder.
The Company has authorized and reserved for issuance, (i) upon conversion
of the issued and outstanding Class A Preferred Stock, Class B Preferred Stock,
Class C Preferred Stock and Class D-1 Preferred Stock, upon conversion of the
Class D-2 Preferred Stock issuable hereunder, and upon conversion of Class D-2
Preferred Stock issuable upon conversion of the Bridge Preferred Stock issuable
hereunder, a sufficient number of shares of its Common Stock (the "Common
------
Conversion Shares"), (ii) upon conversion of the Bridge Preferred Stock issuable
- -----------------
hereunder, a sufficient number of shares of Senior Preferred Stock and Class D-2
Preferred Stock ("Preferred Conversion Shares" and together with the Common
---------------------------
Conversion Shares, the "Conversion Shares"), (iii) upon exercise of the Warrants
-----------------
issuable hereunder, a sufficient number of shares of its Common Stock (the
"Warrant Shares") and (iv) upon the payment-in-kind of any dividends on the
- ---------------
Bridge Preferred Stock, a sufficient number of shares of Bridge Preferred Stock.
The Conversion Shares, the Warrant Shares and the Shares referred to in clause
(iv) above will, upon such issuance in accordance with the terms of the Amended
Certificate and the Warrants, as the case may be, be duly authorized, validly
issued and outstanding, fully paid and nonassessable. Except as set forth in
Schedule 2.3, there are no outstanding warrants, options or other rights to
- ------------
purchase equity securities granted by the Company. Except as will be provided
in Section 8 of the Second Amended and Restated Stockholders Agreement among the
Company, the Investors and certain other stockholders of the Company (the
"Amended Stockholders Agreement"), a copy of which is attached hereto as Exhibit
- ------------------------------- -------
E, as of the Initial Closing and at all times thereafter, there will be no
- -
preemptive rights with respect to the issuance or sale by the Company of the
Shares, the Warrants, the Conversion Shares or the Warrant Shares. Except as
will be provided in the Amended Certificate, the Amended Bylaws, the Amended
Stockholders Agreement and the Second Amended and Restated Registration Rights
Agreement among the Company, the Investors and certain holders of the Company's
securities (the "Amended Registration Rights Agreement"), a copy of which is
-------------------------------------
attached hereto as Exhibit F, or as imposed by applicable securities laws, and
---------
except for any restrictions upon transfer or voting imposed by action of any
holder of Preferred Stock or Common Stock with respect to such holder, as of the
Initial Closing and at all times thereafter, there will be no restrictions on
the transfer or voting of any shares of the Company's Preferred Stock or Common
Stock. Except as set forth on Schedule 2.3 or as set forth in the Amended
-------------
Registration Rights Agreement, as of the Initial Closing and at all times
thereafter, there will be no existing rights with respect to registration under
the Securities Act of 1933, as amended (the "1933 Act"), of any of the Company's
--------
Common Stock or Preferred Stock. On or prior to the Initial Closing, the
Company also will adopt certain amendments to its Amended and Restated Stock
Option Plan. The Company has not violated the 1933 Act or any state Blue Sky or
securities laws in connection with the issuance of any of its securities.
The consummation of the transactions contemplated by this Agreement,
including without limitation the issuance of the Shares, Warrants, Conversion
Shares and Warrant Shares, will not trigger "anti-dilution" rights or other
adjustments which would result in an increase of more than an aggregate of 1.0%
of the Company's total issued and outstanding capital stock,
5
<PAGE>
assuming that all securities which are either directly or indirectly exercisable
or convertible into capital stock of the Company have been either fully
exercised or converted.
2.4 Subsidiaries. The subsidiaries of the Company are listed on Schedule
------------ --------
2.4 (each a "Subsidiary" and collectively the "Subsidiaries"), and, except as
- --- ---------- ------------
set forth on Schedule 2.4, each Subsidiary is, directly or indirectly, wholly
------------
owned by the Company, and the Company has no investments in any other
corporation or business organization. All capital stock of each Subsidiary has
been duly authorized and is validly issued, fully paid, nonassessable and,
except as set forth on Schedule 2.4, free and clear of all liens. All such stock
------------
was issued in compliance with all applicable state and federal laws concerning
the issuance of securities. Except as set forth on Schedule 2.4, each of the
-------------
Subsidiaries is duly organized, validly existing and in good standing under the
laws of its respective jurisdiction of organization as set forth on Schedule 2.4
------------
and is duly qualified to do business as a foreign corporation in each
jurisdiction where such qualification is required and in which failure to so
qualify would have a material adverse effect on such Subsidiary. Each Subsidiary
has all required corporate power and authority to own its property and to carry
on its business as presently conducted or contemplated to be conducted.
2.5. Financial Statements. The Company has delivered to the initial
--------------------
Investors, (i) the Company's audited consolidated balance sheet as of December
27, 1998 and its audited consolidated statements of income and cash flows for
the 52-week period then ended (the "1998 Financials"), (ii) the Company's
---------------
audited consolidated balance sheet as of December 28, 1997 and its audited
consolidated statements of income and cash flows for the 52-week period then
ended (the "1997 Financials") and (iii) the unaudited consolidated balance sheet
---------------
as of June 27, 1999 and its unaudited consolidated statements of income and cash
flows for the 26-week period then ended (the "Interim Financial Statements,"
----------------------------
along with the 1998 and 1997 Financials, the "Financial Statements"). The
--------------------
Financial Statements are complete and correct, in all material respects, have
been prepared in accordance with generally accepted accounting principles,
consistently applied, and fairly present, in all material respects, the
financial position of the Company as of each such date and the results of
operations for each such period then ended.
2.6. Absence of Undisclosed Liabilities. (i) Except as and to the extent
----------------------------------
reflected or reserved against in the 1998 Financials, (ii) except for
liabilities arising in the ordinary course of its business since December 27,
1998, (iii) except for obligations under that certain Stock Purchase Agreement
dated as of July 20, 1999 (the "UCI Stock Purchase Agreement") by and among the
----------------------------
Company, Universal Studios, Inc. and Universal Studios Canada Ltd. or in respect
of the debt and equity financing transactions related thereto, and (iv) except
as disclosed on Schedule 2.6, neither the Company nor any Subsidiary has
------------
incurred any material accrued or contingent liability arising out of any
transaction or state of facts existing prior to the date hereof, which liability
exists on the date hereof.
2.7. Absence of Certain Developments. Since December 27, 1998, except as
-------------------------------
disclosed in Schedule 2.7, there has been no (i) material adverse change in the
------------
condition, financial or otherwise, of the Company or any Subsidiary or in the
assets, liabilities, properties, prospects or business of the Company or any
Subsidiary, (ii) declaration, setting aside or payment of any dividend or other
distribution with respect to the capital stock of the Company or of any
6
<PAGE>
Subsidiary, (iii) loss, destruction or damage to any property of the Company or
of any Subsidiary, whether or not insured, which loss would have a material
adverse effect on the Company or any Subsidiary, (iv) labor trouble involving
the Company or any Subsidiary or any material change in any of their respective
personnel or the terms and conditions of employment, (v) waiver of any valuable
right, (vi) loan or extension of credit to any officer or employee of the
Company or any Subsidiary, (vii) material change in any governmental permit of
the Company or (viii) acquisition or disposition of any material assets (or any
contract or arrangement therefor), or any other material transaction by the
Company or any Subsidiary otherwise than for fair value in the ordinary course
of business.
2.8. Title to Properties. Except as disclosed in Schedule 2.8, other than
------------------- ------------
(i) any lien in respect of current taxes not yet due and payable, (ii) possible
minor liens and encumbrances which do not in any case materially detract from
the value of the property subject thereto or materially impair the operations of
the Company, or any Subsidiary, and which have arisen in the ordinary course of
business and shall be removed within a reasonable period, and (iii) any
materials or mechanics' liens which arise by the operation of law and which do
not materially impair the operations of the Company or any Subsidiary, each of
the Company and the Subsidiaries has good and marketable title to all properties
and assets owned by it necessary to its business as presently conducted and as
proposed to be conducted, free and clear of all mortgages, security interests,
liens, restrictions or encumbrances. Except as disclosed in Schedule 2.8, all
------------
machinery and equipment included in such properties which is necessary to the
business of the Company or of any Subsidiary is in good condition and repair
except for reasonable wear and tear, and all leases of real or personal property
to which the Company or any Subsidiary is a party are fully effective and afford
the Company or such Subsidiary, as the case may be, peaceful and undisturbed
possession of the subject matter of the lease. Except as disclosed in Schedule
--------
2.8, to the best of the Company's knowledge, neither the Company nor any
- ---
Subsidiary is in material violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties likely to impede the normal operation of the
business of the Company or of any Subsidiary, and neither the Company nor any
Subsidiary has received any written notice of violation with which such
recipient has not complied.
2.9. Tax Matters. Except as disclosed in Schedule 2.9, the Company and the
----------- ------------
Subsidiaries have duly filed all federal, state, county and local tax returns
required to have been filed by them and have paid, or will pay, all taxes shown
on such returns to be due pursuant to any assessment, notice of deficiency or
other notice received by them. Except as disclosed in Schedule 2.9, there are in
------------
effect no waivers of applicable statutes of limitations with respect to taxes
for any year. The provisions for taxes in the Financial Statements are
sufficient for the payment of all accrued and unpaid federal, state, county and
local taxes of the Company and the Subsidiaries, whether or not assessed or
disputed as of the date of each such balance sheet. There have been no
examinations or audits of any tax returns or reports by any applicable federal,
state or local governmental agency.
2.10. Contracts and Commitments. Except for the contracts described in
-------------------------
Schedule 2.10 (the "Material Agreements"), neither the Company nor any
- ------------- -------------------
Subsidiary has any contract,
7
<PAGE>
obligation or commitment which involves by its terms a commitment in excess of
$100,000, including any written employment contracts (including contracts with
any agent or independent contractor), stock redemption or purchase agreements,
financing agreements, distribution agreements, partnership or joint venture
agreements, confidentiality or non-competition agreements in which the Company
or any Subsidiary is an obligor, agreements with holders of the Company's
securities, royalty agreements, licenses under which either the Company or any
Subsidiary is licensee or licensor, leases of real property, pension, profit-
sharing, retirement or stock options plans. With respect to each Material
Agreement, except as disclosed on Schedules 2.7 and 2.11: (i) the agreement is
------------- ----
legal, valid, binding and in full force and effect; (ii) the agreement will
continue to be legal, valid, binding, enforceable and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; and (iii) to the best of the Company's knowledge, no party has
repudiated any provision of the agreement.
2.10A. Nonproduced Documents. The Company acknowledges that certain
---------------------
documents identified in Schedule 2.10 hereto and the other Schedules attached
-------------
hereto, in each case as marked with an asterisk, have not been received by the
Investors or their respective legal counsel (the "Nonproduced Documents"). The
Company represents and warrants to the Investors that the Nonproduced Documents
do not contain provisions which, taken as a whole, could reasonably be expected
to have a material adverse impact on the decision by the Investors to purchase
the Shares and Warrants to be purchased by the Investors pursuant to this
Agreement.
2.11. No Defaults. Except as described on Schedule 2.11, neither the
----------- -------------
Company nor any Subsidiary is in default (which default would have a material
adverse effect on the Company's or any such Subsidiary's properties or assets or
the business of the Company or any such Subsidiary as presently conducted or
proposed to be conducted) (a) under its charter documents or its Amended Bylaws
or any note, indenture or Material Agreement to which it is a party or by which
it or any of its property is bound or affected or (b) with respect to any order,
writ, injunction or decree of any court or any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. To the best of the Company's knowledge,
there exists no condition, event or act which after notice, lapse of time, or
both, could constitute a default by the Company or any Subsidiary under any of
the foregoing. To the best of the Company's knowledge, no third party is in
default under any Material Agreement to which the Company or any Subsidiary is a
party or by which any of them or any of their property is affected, which
default would have a material adverse effect on the Company's or any such
Subsidiary's properties or assets or the business of the Company or any such
Subsidiary as presently conducted or proposed to be conducted.
2.12. Intellectual Property. Schedule 2.12A contains a list of all patents
--------------------- --------------
and of all registered and material non-registered trademarks and service marks
(in each case, whether issued or pending), and all licenses with respect to any
of the foregoing, owned or possessed by the Company or any Subsidiary, the loss
of which would have a material adverse effect on the Company. All of such
patents, registered and material non-registered trademarks and service marks,
and licenses are valid and enforceable and, except as disclosed on Schedule
--------
2.12A, are free and clear of all liens and encumbrances of any nature. Except as
- -----
disclosed on Schedule 2.12B, to the best of the Company's knowledge, neither the
--------------
Company nor any
8
<PAGE>
Subsidiary infringes any patent, copyright, or trademark rights of others.
Except as disclosed on Schedule 2.12C, the Company and each Subsidiary has the
--------------
right to use, free and clear of claims or rights of others, all material trade
secrets, customer lists, processes, computer software, patents, copyrights and
trademarks required for, incident to or included in its products and its
proposed products, and, to its knowledge, is not using and has not used any
confidential information, trade secrets or computer software required for its
products of any former employer of any of its past or present employees except
to the extent properly licensed to the Company or such Subsidiary.
2.13. Effect of Transactions. Except as disclosed on Schedule 2.13, the
---------------------- -------------
execution, delivery and performance of this Agreement and any other agreements,
instruments, or documents entered into by the Company pursuant to this Agreement
(as set forth on Schedule 2.2), the issuance, sale and delivery of the Shares,
------------
the Warrants, the Conversion Shares and the Warrant Shares, and compliance with
the provisions hereof and thereof by the Company, do not and will not, with or
without the passage of time or the giving of notice or both, (a) violate any
provision of law, statute, rule or regulation or any ruling, writ, injunction,
order, judgment or decree of any court, administrative agency or other
governmental body, (b) conflict with or result in any breach of any of the
terms, conditions or provisions of, or constitute a default (or give rise to any
right of termination, cancellation or acceleration) under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of the
properties or assets of the Company or any Subsidiary under its respective
charter or by-laws or under any note, indenture, mortgage, lease, agreement,
contract, purchase order or other instrument, document or agreement to which the
Company or any Subsidiary is a party or by which any of them or any of their
property is bound or affected, or (c) result in (i) any payment under, (ii)
amendment or change of the terms of or rights under, or (iii) vesting,
acceleration or increase of rights, compensation or benefits under any
agreement, plan, policy, commitment, security, right to acquire securities of
the Company or other contract to which the Company or any of its Subsidiaries is
a party.
2.14. Consents and Approvals. No authorization, consent, approval or other
----------------------
order of, declaration to, or filing with, any governmental agency or body, and
no consent of any other person or entity, is required for or in connection with
the valid and lawful authorization, execution and delivery by the Company of
this Agreement or any other agreements, instruments or documents entered into by
the Company pursuant to this Agreement (as set forth on Schedule 2.2) or in
------------
connection with the valid and lawful authorization, issuance, sale and delivery
of the Shares and Warrants, except as set forth on Schedule 2.14, and except
-------------
where the failure to obtain any such authorization, consent, approval or order
or to make any such declaration or filing would not have a material adverse
effect on the business or financial condition of the Company and the
Subsidiaries, taken as a whole, or on the Investor or its ability to consummate
the transactions contemplated hereby.
2.15. Litigation. All significant claims pending against the Company or
----------
any Subsidiary are identified on Schedule 2.15. There is no action, suit,
-------------
proceeding or investigation pending or, to the Company's knowledge, threatened
against the Company or any Subsidiary which questions the validity of this
Agreement or any other agreements, instruments or documents entered into by the
Company pursuant to this Agreement (as set forth on Schedule 2.2) or the
------------
9
<PAGE>
right of the Company to enter into them or to consummate the transactions
contemplated hereby or thereby, or which the Company reasonably believes will,
either individually or in the aggregate, result in any material adverse change
in the business, assets, conditions, operations, prospects or affairs of the
Company, or of any Subsidiary, financial or otherwise, or any change in the
current equity ownership of the Company or of any Subsidiary, nor is the Company
aware that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or, to the best of the Company's knowledge,
threatened, involving the prior employment of any of the Company's employees or
those of any Subsidiary, their use in connection with the Company's or any
Subsidiary's business of any information, creations or techniques allegedly
proprietary to any of their former employers or other persons or entities, or
their obligations under any agreements with prior employers or other persons or
entities. None of the Company or any of its executive officers or directors or
any Subsidiary, or any Subsidiary's executive officers or directors, is a party
to, or subject to the provisions of, any order, writ, injunction, judgment or
decree of any court or governmental agency or instrumentality which might
result, either individually or in the aggregate, in any material adverse change
in the business, assets, conditions, operations, affairs, or, in the reasonable
business judgment of the Company, prospects of the Company or of any Subsidiary,
financial or otherwise, or any change in the current equity ownership of the
Company or of any Subsidiary. Except as disclosed on Schedule 2.15, there is no
action, suit or proceeding by the Company or any Subsidiary currently pending or
which the Company or any Subsidiary presently intends to initiate.
2.16. Business. Except as disclosed in Schedule 2.16, each of the Company
-------- -------------
and each Subsidiary has all necessary franchises, permits, licenses and other
rights and privileges necessary to permit it to own its property and to conduct
its present business. Neither the Company nor any Subsidiary is in violation of
any law, regulation, authorization or order of any public authority relevant to
the ownership of its properties or the carrying on of its present business which
in the aggregate would have a material adverse affect on the Company or on any
Subsidiary.
2.17. Brokerage. Except as disclosed on Schedule 2.17, there are no claims
--------- -------------
for brokerage commissions or finder's fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement
made by or on behalf of the Company, and the Company agrees to pay any such
brokerage commissions, finder's fees or similar compensation based on any
arrangement made by or on behalf of the Company whether or not listed on
Schedule 2.17 and to indemnify and hold the Investors harmless against any
- -------------
damages incurred as a result of any such claim.
2.18. Employees. There are no controversies or labor troubles pending, or
---------
to the best of the Company's knowledge, threatened between it and its employees
or the employees of any Subsidiary or between any Subsidiary and the Company's
employees or the employees of any Subsidiary. Except as disclosed on Schedule
--------
2.18, to the best of the Company's knowledge: (a) no employee of the Company or
- ----
any Subsidiary is in violation of any term of any employment contract, patent or
other proprietary information disclosure agreement or any other material
contract or agreement relating to the right of any such employee to be employed
by the Company or such Subsidiary because of the nature of the business
conducted or proposed to be
10
<PAGE>
conducted by the Company or such Subsidiary or for any other reason, and the
continued employment by the Company and each Subsidiary of its respective
present employees will not result in any such violation; (b) no officer of the
Company or any Subsidiary has any present intention of terminating his
employment therewith nor does the Company or any Subsidiary have any present
intention of terminating any such employment; and (c) the Company and each
Subsidiary has complied in all material respects with all applicable state and
federal laws and regulations respecting employment and employment practices,
terms and conditions of employment, wages and hours and other laws related to
employment, and there are no arrears in the payments of wages, withholding or
social security taxes, unemployment insurance premiums or other similar
obligations. Except as set forth in Schedule 2.10, neither the Company nor any
-------------
Subsidiary is a party to any agreement with any of its respective officers with
respect to such person's employment.
2.19. Insurance. The Company and each Subsidiary maintains in full force
---------
and effect such types and amounts of insurance issued by insurers of recognized
responsibility insuring each of them with respect to its respective business and
properties, in such amounts and against such losses and risks as are listed in
Schedule 2.19, which such insurance covers such risks and is maintained in such
- -------------
amounts as is usually carried by persons engaged in the same or similar
businesses.
2.20. Environmental and Safety Laws.
-----------------------------
(a) As used in this Agreement, the terms "Removal," "Remedial
Action," "Release," "Hazardous Substance" and "National Priorities List" shall
have the same meaning as those terms are given in the Comprehensive
Environmental Response Compensation and Liability Act ("CERCLA") and its
implementing regulations, and the terms "Hazardous Waste" and "Solid Waste"
shall have the same meaning as those terms are given in the Resource
Conservation and Recovery Act, as amended ("RCRA") and its implementing
----
regulations.
(b) The ownership, use and operation by the Company or any
Subsidiary of each facility used in its business has been and all ownership, use
and operation of each such facility by any Person has been, in compliance in all
material respects with all Federal, state and local environmental, safety and
anti-pollution laws, including without limitation RCRA, its implementing
regulations and all applicable state hazardous waste laws; the Clean Water Act,
as amended, its implementing regulations and all applicable state and local
effluent discharge laws; the Clean Air Act, as amended, its implementing
regulations and all applicable state and local air emission laws; the Toxic
Substances Control Act, as amended, its implementing regulations and all
applicable state and local toxic substance laws; CERCLA, its implementing
regulations and all applicable state and local environmental response,
compensation and liability laws; the National Environmental Policy Act of 1969
and its implementing regulations; the Occupational Safety and Health Act, its
implementing regulations and all applicable state and local worker safety and
health laws; and all such laws concerning particulate emissions, hazard
communication, surface water pollution, groundwater pollution, air pollution,
solid wastes, hazardous wastes, hazardous substances, toxic substances, storage,
handling, treatment, transportation, spills or other releases, and disposal of
any substance, chemicals, materials or
11
<PAGE>
wastes, and exposure to or notification regarding any substance, chemical,
material or waste, and neither the Company nor any Subsidiary has reason to
believe that any claim, action, lawsuit, proceeding, complaint or charge exists
or may be brought for violation of any such laws.
(c) To the best of the Company's knowledge, neither the Company nor
any Subsidiary has any liability, arising out of its own actions or inactions,
or to its knowledge, any other liability, whether fixed, unliquidated, absolute,
contingent or otherwise, under any Federal, state or local environmental, safety
or anti-pollution laws, including any liability, responsibility or obligation
for investigation, removal, Remedial Action or any fines, penalties, costs or
expenses to effect compliance with or discharge any duty, obligation or claim
under any such laws, and neither the Company nor any Subsidiary has reason to
believe that any claims, actions, suits, proceedings or investigations under
such laws exist or may be brought or threatened.
(d) There has not been, and is not occurring, at any facility owned
or operated or previously owned or operated by the Company or any Subsidiary any
Release or threatened Release of any Hazardous Substance, Hazardous Waste, Solid
Waste or petroleum, including crude oil or any fraction thereof, nor has the
Company or any Subsidiary any reason to believe such a Release either is
occurring or has occurred at any time in the past. Neither the Company nor any
Subsidiary has applied or disposed of any Hazardous Substance, Hazardous Waste,
Solid Waste or petroleum, including crude oil or any fraction thereof, in any
manner which may form the basis for any present or future claim, demand or
action seeking investigation, Removal, or Remedial Action at any facility, site,
location or body of water, surface or subsurface, including groundwater or any
costs or expenses related thereto.
(e) Neither the Company nor any Subsidiary has sent, arranged for
disposal or treatment, arranged with a transporter for transport for disposal or
treatment, transported, or accepted for transport any Hazardous Substance,
Hazardous Waste, Solid Waste or petroleum, including crude oil or any fraction
thereof, to a facility, site or location, which, pursuant to CERCLA or any
similar state or local law, (a) has been placed or is proposed to be placed, on
the National Priorities List or its state equivalent or (b) which is subject to
a claim, administrative order or other request to take clean up action, Removal
or Remedial Action by any person or entity (including any governmental entity)
or which is subject to a claim for damages by any person or entity (including
any governmental entity).
(f) Neither the Company nor any Subsidiary stores, generates or
produces any Hazardous Substance, Hazardous Waste, or petroleum in material
violation of any law. There has not been any contamination of groundwater,
surface waters, soils or sediments, as a result of the manufacture, storage,
processing, loss, leak, escape, spillage, disposal or other handling or
disposition by or on behalf of the Company or by or on behalf of any Subsidiary
of any product or substance on or prior to the Closing. All Hazardous
Substances, Hazardous Wastes and petroleum stored by or on behalf of the Company
or by or on behalf of any Subsidiary have been stored in all material respects
in compliance with all Federal, state and local environmental, safety and
antipollution laws.
12
<PAGE>
(g) All facilities located on owned or leased real estate of the
Company and those of any Subsidiary have been approved by all necessary
governmental authorities, and each of the Company and each Subsidiary has
obtained and is in possession of all material environmental and safety permits
and licenses necessary for its business including permits required by local
zoning laws. Except as disclosed on Schedule 2.20, there have not been any
-------------
environmental audits or assessments or occupational health studies undertaken by
or on behalf of the Company or by or on behalf of any Subsidiary or governmental
agencies with respect to the Company or any Subsidiary or the Company's or any
Subsidiary's assets, employees, facilities or properties, the results of
groundwater and soil testing, the results of underground fuel, waste or waste
tank tests and soil samples, written communications with Federal, state or local
governments on environmental, safety or anti-pollution matters, or Occupational
Safety and Health Administration citations.
(h) Except as disclosed on Schedule 2.20, there have been no
-------------
Hazardous Substances, Hazardous Wastes, Solid Wastes, petroleum, tanks,
containers, cylinders, drums, bottles or cans buried, stored or deposited in
violation of any law in or on any real property currently or formerly owned or
operated by the Company or any Subsidiary while owned or operated by the Company
or any Subsidiary, or to the best of the Company's knowledge, before owned or
operated by the Company or any Subsidiary.
2.21. Retirement Obligations, etc. Except as disclosed on Schedule 2.21,
---------------------- -------------
neither the Company nor any Subsidiary has any pension, retirement or similar
plan or obligation, whether of a legally binding nature or in the nature of
informal understandings. Neither the Company nor any Subsidiary is a party to
any collective bargaining agreement and, to the best of the Company's knowledge,
no organizational efforts are presently being made with respect to any of its
employees or those of any Subsidiary. Schedule 2.21 lists the employee benefit
-------------
plans of the Company and each of the Subsidiaries.
2.22. Transactions with Affiliates. Except as disclosed on Schedule 2.22,
---------------------------- -------------
no 1% or greater stockholder, officer or director of the Company or of any
Subsidiary, nor any "affiliate" or "associate" of such persons (as such terms
are defined in the rules and regulations promulgated under the 1933 Act) nor any
member of such person's family (herein, a "Related Party") is a party to any
-------------
transaction with the Company or any Subsidiary, including, without limitation,
any contract, agreement or other arrangement providing for the rental of real or
personal property from, or otherwise requiring payments to, any Related Party.
Except as set forth in Schedule 2.22 no employee of the Company or of any
-------------
Subsidiary nor any Related Party is indebted in an amount greater than $20,000
to the Company or any Subsidiary and neither the Company nor any Subsidiary is
indebted to any such employee or Related Party.
2.23. Books and Records. The minute books of the Company and those of each
-----------------
of the Subsidiaries as provided upon request to the Investors and their counsel
contain complete and accurate records of all meetings and all other corporate
actions of each of their respective stockholders, Board of Directors and all
committees, if any, appointed by its Board of Directors. The stock ledger of the
Company and that of each of the Subsidiaries as provided upon request to the
Investors and their counsel are complete and reflect all issuances, transfers,
repurchases and
13
<PAGE>
cancellations of shares of capital stock of each of the Company and the
Subsidiaries. The books of account, ledgers, order books, records and documents
of the Company and those of each of the Subsidiaries as provided upon request to
the Investors and their counsel accurately and completely reflect all material
information relating to their respective business, the nature, acquisition,
maintenance, location and collection of their respective assets and the nature
of all transactions giving rise to their respective obligations and accounts
receivable.
2.24. Material Facts. This Agreement and the Schedules hereto and
--------------
furnished contemporaneously herewith, and each other agreement, document,
certificate or written statement, if any, furnished or to be furnished to the
Investors through the Closings by or on behalf of the Company or any Subsidiary
in connection with the transactions contemplated hereby, taken as a whole, do
not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements contained therein or herein in light of
the circumstances in which they were made not misleading. To the best of the
Company's knowledge, there is no fact which has not been disclosed herein or
otherwise by the Company to the Investors and which may materially adversely
affect the business, properties, assets or condition, financial or otherwise, of
the Company or of any Subsidiary except for facts relating to general economic
conditions which may affect all companies which are in a similar industry.
2.25. Securities Laws. Assuming that the Investors' representations and
---------------
warranties contained in Section 3 of this Agreement are true and correct, the
---------
offer, issuance and sale by the Company to the Investors of the Shares,
Warrants, Conversion Shares and Warrant Shares are, and will be as of each
Closing or the date of issuance of Conversion Shares and Warrant Shares, as
applicable, exempt from the registration and prospectus delivery requirements of
the 1933 Act, and have been, or will be as of each Closing, registered or
qualified (or are, or will be as of each Closing, exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state Blue Sky and securities laws.
2.26. Small Business Matters; Use of Proceeds.
---------------------------------------
(a) The Company, together with its "affiliates" (as that term is
defined in Title 13, Code of Federal Regulations, (S) 121.103), is a "small
business concern" within the meaning of the Small Business Investment Act of
1958, as amended (the "SBIA") and the regulations thereunder, including 13 CFR
----
(S) 121.301(c) and (S) 121.302. The information set forth in the Small Business
Administration Forms 480, 652 and Parts A and B of Form 1031 regarding the
Company and its affiliates, when delivered to Chase Venture Capital Associates,
L.P. or any Investor controlled by it including, without limitation, Chase/HOB
1999 Partners (GC), L.L.C. ("Chase/HOB") a Delaware limited liability company
---------
(collectively, "CVCA"), will be accurate and complete and will be in form and
----
substance acceptable to CVCA. Copies of such forms, as applicable, shall be
completed and executed by the Company and delivered to CVCA at the Closing.
(b) The proceeds from the sale of the Shares will be used by the
Company to (1) acquire all of the stock of Universal Concerts, Inc., Universal
Arenas, Inc., Universal Events, Inc., and Universal Concerts Canada, Ltd.
pursuant to the UCI Stock Purchase Agreement, (2)
14
<PAGE>
finance initial working capital and other corporate needs related to the
foregoing acquisitions, and (3) pay expenses related to the transactions
contemplated by this Agreement and the UCI Stock Purchase Agreement. Absent
completion of the sale of Shares to CVCA at the Initial Closing of this
financing, the Company does not have access to the capital resources necessary
to satisfy such obligations. No portion of such proceeds will be issued (i) to
provide capital to a corporation licensed under the SBIA, (ii) to acquire farm
land, (iii) to fund production of a single item or defined limited number of
items, generally over a defined production period, and such production will
constitute the majority of the activities of the Company and its Subsidiaries
(examples include motion pictures and electric generating plants), or (iv) for
any purpose contrary to the public interest (including, but not limited to,
activities which are in violation of law) or inconsistent with free competitive
enterprise, in each case, within the meaning of 13 CFR (S) 107.720.
(c) Neither the Company's nor any of its Subsidiaries' primary
business activity involves, directly or indirectly, providing funds to others
(other than its wholly owned subsidiaries), the purchase or discounting of debt
obligations, factoring or long-term leasing of equipment with no provision for
maintenance or repair, and neither the Company nor any of its Subsidiaries is
classified under Major Group 65 (Real Estate) of the SIC Manual. The assets of
the business of the Company and its Subsidiaries (the "Business") will not be
--------
reduced or consumed, generally without replacement, as the life of the Business
progresses, and the nature of the Business does not require that a stream of
cash payments be made to the Business's financing sources, on a basis associated
with the continuing sale of assets (examples of such businesses would include
real estate development projects and oil and gas wells).
(d) The proceeds from the sale of the Shares to CVCA will not be
used substantially for a foreign operation; and at Closing or within one year
thereafter, no more than 49% of the employees or tangible assets of the Company
and its Subsidiaries will be located outside the United States. This subsection
(d) does not prohibit such proceeds from being used to acquire foreign materials
and equipment or foreign property rights for use or sale in the United States.
(e) To the best knowledge of the Company, prior to Closing no SBIC
owns any Securities (as defined herein) issued by the Company, other than CVCA.
Without the consent of Chase Venture Capital Associates, L.P., which will not be
unreasonably withheld, the Company will not issue Securities to any SBIC in the
future.
(f) If the Company breaches this representation in any material
respect, then in addition to all other remedies available to CVCA, CVCA may
demand that the Company repurchase all Shares acquired by CVCA at the original
cost thereof.
2.27. Year 2000.
---------
The Company and its Subsidiaries have implemented a comprehensive
program to address the "year 2000 problem" (that is, the risk that computer
applications may not be able to properly perform date-sensitive functions after
December 31, 1999) and expect to resolve on a timely basis (and in any case, in
advance of December 31, 1999) any material year 2000
15
<PAGE>
problem. The Company and its Subsidiaries have also made or will timely make
inquiry of each supplier and vendor of the Company and its Subsidiaries that is
of material importance to the financial well-being of the Company and its
Subsidiaries with respect to the "year 2000 problem." On the basis of the
inquiries made to date, the Company reasonably believes that each such supplier
and vendor will resolve any material
year 2000 problem on a timely basis.
3. Representation and Warranties and other Agreements of the Investors.
-------------------------------------------------------------------
Each Investor, severally and not jointly, hereby represents, warrants and agrees
with the Company as follows:
3.1. Authorization. Such Investor has full corporate or partnership power
-------------
and authority, as the case may be, to execute, deliver and perform this
Agreement, the Amended Stockholders Agreement and the Amended Registration
Rights Agreement and to acquire the Shares and Warrants. This Agreement, the
Amended Stockholders Agreement and the Amended Registration Rights Agreement
constitute the legal, valid and, assuming due execution and delivery by the
other parties thereto, binding obligation of such Investor, enforceable in
accordance with their respective terms.
3.2. Purchase Entirely for Own Account. The Shares and Warrants to be
---------------------------------
received by such Investor and the Conversion Shares and Warrant Shares received
upon conversion of such Shares and Warrants, respectively (collectively, the
"Purchased Securities") will be acquired for investment for such Investor's own
--------------------
account, not as a nominee or agent and not with a view to the distribution of
any part thereof in contravention of applicable law. Such Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same in contravention of applicable law. Such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third person,
with respect to any of the Purchased Securities.
3.3. Restricted Securities. Such Investor understands that the Purchased
---------------------
Securities may not be sold, transferred, or otherwise disposed of without
registration under the 1933 Act, or an exemption therefrom, and in the absence
of an effective restriction statement covering the Purchased Securities or
available exemption from registration under the 1933 Act, the Purchased
Securities must be held indefinitely. In the absence of an effective
registration statement covering the Purchased Securities, such Investor will
sell, transfer or otherwise dispose of the Purchased Securities only in a manner
consistent with its representations and agreements set forth herein and the
terms and conditions set forth in the Amended Registration Rights Agreement and
the Amended Stockholders Agreement.
3.4. Formation. Except as disclosed on Schedule 3.4, such Investor
---------- ------------
represents that it was not organized for the purpose of making an investment in
the Company.
3.5. Suitability. Such Investor is an Accredited Investor as such term is
-----------
defined in Rule 501(a) promulgated pursuant to the 1933 Act.
16
<PAGE>
3.6. Financial Condition. Such Investor's financial condition is such
-------------------
that it is able to bear the risk of holding the Purchased Securities for an
indefinite period of time and can bear the loss of its entire investment in its
Purchased Securities.
3.7. Experience. Such Investor has such knowledge and experience in
----------
financial and business matters and in making high-risk investments of this type
that it is capable of evaluating the merits and risks of the purchase of the
Purchased Securities.
3.8. Receipt of Information. Such Investor has been furnished access
----------------------
to the business records of the Company and such additional information and
documents as such Investor has requested and has been afforded an opportunity to
ask questions of and receive information from representatives of the Company
concerning the terms and conditions of this Agreement, the purchase of the
Purchased Securities, the Company's business, operations, market potential,
capitalization, financial condition and prospects, and all of the matters deemed
relevant by such Investor; provided, however, that Investor's receipt of such
-------- -------
information and documents shall not limit Investor's ability to rely upon the
Company's representations and warranties contained herein.
3.9. Brokerage. There are no claims for brokerage commissions or
---------
finder's fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of such Investor, and such Investor agrees to indemnify and hold the
Company and the other Investors harmless against any damages incurred as a
result of any such claims based on any arrangement or agreement made by or on
behalf of such Investor.
3.10. Further Limitations on Disposition.
-----------------------------------
(a) Each Investor further agrees not to make any disposition of
all or any portion of the Purchased Securities unless and until:
(i) There is then in effect a registration statement under
the 1933 Act covering such proposed disposition and such
disposition is made in accordance with such registration
statement and all applicable state securities laws; or
(ii) (A) Such Investor shall have notified the Company of
the proposed disposition and shall have furnished the Company
with a statement of the circumstances surrounding the proposed
disposition, and (B) such Investor shall have furnished the
Company with a reasonably satisfactory opinion from counsel,
reasonably satisfactory to the Company, that such disposition
will not require registration of such shares under the 1933 Act.
(b) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by any Investor pursuant to Rule 144(k) promulgated under the
1933 Act, or any other valid exception thereto, or a transfer by an Investor to
a partner, subsidiary, shareholder or affiliate of such Investor, if the
17
<PAGE>
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were an original Investor hereunder.
3.11. Legends. It is understood that the certificates evidencing the
-------
Purchased Securities may bear substantially the following legends:
(a) "These securities have not been registered under the 1933 Act,
and may not be sold, offered for sale, pledged or hypothecated in the absence of
a registration statement in effect with respect to the securities under such Act
or an opinion of counsel satisfactory to the Company that such registration is
not required, or unless sold pursuant to Rule 144(k) of such Act.
(b) Any legend required by the Amended Stockholders Agreement, the
Amended Registration Rights Agreement or the laws of any other applicable
jurisdiction.
3.12. Certain Governmental Approvals. In the event that (x) all conditions
------------------------------
to the closing of the transactions contemplated by the UCI Stock Purchase
Agreement have been satisfied or, to the extent permitted, waived (subject to
the limitation on waivers contained in the equity commitment letters referred to
below), and (y) the Investors are obligated to fund the Company in accordance
with their respective equity commitment letters, dated July 21, 1999, delivered
to Universal Studios, Inc. but for the fact that one or more Investors have
failed to receive all regulatory approvals, including, without limitation, any
required by the HSR Act (a "Regulatory Issue"), and such Regulatory Issue would
----------------
not be present if the Investor acquired some or all of the Company securities to
be issued to it in the form of non-voting securities, then each Investor shall
nonetheless be required to close its investment in the Company, subject to the
following adjustments: (a) each Investor with a Regulatory Issue shall determine
the greatest number of voting securities ("Voting Securities") that it can
-----------------
acquire measured as a ratio of (i) the number of Voting Securities that the
Investor may acquire without causing a Regulatory Issue to (ii) the total number
of such securities that the Investor is required to purchase hereunder (such
ratio, the "Voting Ratio"); (b) if it has not already done so, the Company shall
------------
authorize non-voting securities that are otherwise identical in all substantive
respects to its related Voting Securities and in any event in form and substance
reasonably satisfactory to each Investor, and are convertible into such Voting
Securities on a share-for-share basis at the election of the holder (the "Non-
---
Voting Shares"); (c) each Investor shall then close its investment in the
- -------------
Company and pay the aggregate cash purchase price due and payable at Closing,
whereupon the Company will issue to each Investor that was otherwise to have
acquired Voting Securities a combination of Voting Securities and Non-Voting
Securities in accordance with the Voting Ratio; and (d) each Investor will be
deemed to have covenanted and agreed with each other Investor not to convert any
Non-Voting Shares into Voting Shares unless each Investor has resolved its
Regulatory Issue and all shares can be so converted by all Investors. Each
Investor agrees that it will keep the Company and each other Investor apprised
of the status of any Regulatory Issue applicable to it, such advice to be
confirmed in writing upon request.
4. Conditions to the Investors' Obligations at each of the Closings.
----------------------------------------------------------------
18
<PAGE>
The obligations of the Investors under Section 1 of this Agreement to
---------
purchase the Shares and Warrants at the Initial Closing and any Subsequent
Closing are subject to the fulfillment on or before the Initial Closing or any
Subsequent Closing, as the case may be, of each of the following conditions
unless waived by the Investors in accordance with Section 7.5 hereof:
-----------
4.1. Performance of Covenants. The Company shall have performed and
------------------------
complied in all material respects with all covenants contained in this Agreement
that are required to be performed or complied with by it on or before such
Closing; it being understood that the failure of any representations or
warranties contained in Section 2 to be true and correct when made or as of the
Closing shall not be deemed to constitute a failure of this condition; provided,
--------
however, that the Investors shall not be deemed to have waived any of their
- -------
rights or remedies hereunder with respect to any breach or failure of such
representation or warranties.
4.2. Compliance Certificate. The President of the Company shall deliver to
----------------------
the Investors at such Closing a certificate certifying that, as with respect to
the Company, the conditions specified in Sections 4.1, 4.3, 4.4, 4.7 and 4.8
--------------------------- ---
have been fulfilled.
4.3. Amendment and Restatement of Certificate of Incorporation, Bylaws and
---------------------------------------------------------------------
Option Plan. The Company shall have filed with the Secretary of State of
- -----------
Delaware the Amended Certificate which is attached hereto as Exhibit B.
---------
4.4. Other Agreements. The Amended Stockholders Agreement substantially in
----------------
the form of Exhibit E attached hereto, and the Amended Registration Rights
---------
Agreement substantially in the form of Exhibit F attached hereto, shall have
---------
each been executed and delivered by the parties thereto.
4.5. Opinion of Company Counsel. The Investors shall have received from
--------------------------
Latham & Watkins, counsel for the Company, an opinion dated as of such Closing
addressing matters customary in transactions of the type contemplated by this
Agreement and containing customary qualifications and exemptions.
4.6. Secretary's Certificate. The Secretary or an Assistant Secretary of
-----------------------
the Company shall deliver to the Investors at such Closing a Certificate, dated
as of the Closing, certifying: (a) that attached thereto is a true and complete
copy of all resolutions and consents adopted by the Board of Directors and the
stockholders of the Company authorizing the issuance, sale and delivery of the
Shares and the reservation, issuance and delivery of the Conversion Shares and
Warrant Shares, and that all such resolutions are in full force and effect and
are all the resolutions adopted in connection therewith; and (b) to the
incumbency and specimen signature of certain officers of the Company.
4.7. Closing of Acquisition. All conditions precedent to the Company's
----------------------
obligation to consummate the transactions contemplated by the UCI Stock Purchase
Agreement shall have been satisfied or, with the consent of all Investors,
waived, such that the acquisition contemplated thereby shall be consummated
immediately following the Initial Closing, and the
19
<PAGE>
UCI Stock Purchase Agreement shall not have been amended in a manner adverse to
any Investor without the consent of such Investor.
4.8. Governmental Filings and Consents. Subject to Section 3.12, with
---------------------------------
respect to the Hart Scott Rodino Antitrust Improvements Act ("HSR") filings by
---
Chase/HOB 1999 Partners (GC), L.L.C. ("Chase"), affiliates of J. H. Whitney &
-----
Co. (collectively, "J. H. Whitney"), First Union Investors, Inc. ("First
------------- -----
Union"), and S.A. Blues Partners, L.P. ("S.A. Blues") and by the Company, the
- ----- ----------
waiting period shall have elapsed or early termination thereof shall have been
granted without adverse action by the Federal Trade Commission or the Department
of Justice; and all approval and consents under the Competition Act (Canada) and
Bank Act (Canada) applicable to the issuance and sale of the Shares and Warrants
shall have been received, provided that each Investor, with respect to itself,
shall (i) make any required filing pursuant to HSR, the Competition Act (Canada)
and the Bank Act (Canada) as soon as practicable after the date hereof, (ii)
supply as promptly as practicable to the appropriate governmental authorities
any additional information and documentary material that may be requested
pursuant thereto and (iii) use its reasonable best efforts to obtain all such
approvals and consents and such early termination.
5. Conditions of the Company's Obligations at any Closing.
------------------------------------------------------
The obligations of the Company under Section 1 of this Agreement are subject to
---------
the fulfillment on or before any such Closing of each of the following
conditions unless waived by the Company:
5.1. Representations and Warranties. The representations and warranties of
------------------------------
the Investors contained in Section 3 shall be true and correct on and as of the
---------
date of such Closing with the same effect as though such representations and
warranties had been made on and as of the date of such Closing.
5.2. Payment of Purchase Price. The Investors shall have delivered payment
-------------------------
of the aggregate purchase price of the Shares and Warrants to be purchased by
them at such Closing as set forth in Section 1.2, by payment of cash.
-----------
5.3. Other Agreements. The Amended Registration Rights Agreement
----------------
substantially in the form of Exhibit F attached hereto and the Amended
---------
Stockholders Agreement substantially in the form of Exhibit E attached hereto
---------
shall have each been executed and delivered by the parties thereto.
5.4. Governmental Filings and Consents. With respect to the HSR filings by
---------------------------------
Chase, J. H. Whitney, First Union and S.A. Blues and by the Company, the waiting
period shall have elapsed or early termination thereof shall have been granted
without adverse action by the Federal Trade Commission or the Department of
Justice; and all approvals and consents under the Competition Act (Canada) and
Bank Act (Canada) applicable to the issuance and sale of the Shares and Warrants
shall have been received, provided that the Company shall (i) make any required
filing pursuant to HSR, the Competition Act (Canada) and the Bank Act (Canada)
as soon as practicable after the date hereof, (ii) supply as promptly as
practicable to the appropriate
20
<PAGE>
governmental authorities any additional information and documentary material
that may be requested pursuant thereto and (iii) use its reasonable best efforts
to obtain all such approvals and consents and such early termination.
6. Affirmative Covenants of the Company.
------------------------------------
6.1. Financial and Other Information.
-------------------------------
(a) Accounts and Reports. The Company will maintain a standard system
--------------------
of accounts in accordance with generally accepted accounting principles
consistently applied.
(b) Annual and Quarterly Financial Statements. The Company will
-----------------------------------------
deliver to each Investor: (i) within ninety (90) days after the end of each
fiscal year a copy of the balance sheet of the Company as of the end of such
year, together with consolidated and consolidating statements of income and of
cash flows of the Company for such year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles, consistently applied,
and certified in an audit report by independent public accountants of national
standing selected by the Board of Directors of the Company, and (ii) copies of
all financial statements and reports which the Company shall send to its
stockholders or file with the Securities and Exchange Commission or any stock
exchange on which any securities of the Company may be listed. The Company shall
also deliver to each Investor who holds Shares having an aggregate liquidation
preference of at least $1,000,000 or Conversion Shares issued thereunder (each a
"Principal Holder"), within forty-five (45) days after the end of each of the
----------------
first three quarters of each fiscal year, a copy of the consolidated balance
sheet of the Company as of the end of such quarter and consolidated statements
of income and of cash flows of the Company for the fiscal quarter and for the
portion of the fiscal year ending on the last day of such quarter, each of the
foregoing balance sheets and statements to set forth in comparative form the
corresponding figures for the same period of the prior fiscal year, and actual
versus budgeted amounts, to be in reasonable detail; provided, however, such
-------- -------
financials are subject to year-end adjustments and may not contain all footnotes
required under generally accepted accounting principles and to be certified,
subject to normal year-end audit adjustments, by the principal financial officer
of the Company that they are true and accurate in all material respects as of
their dates.
(c) Monthly Financial Statements and Budgets. The Company will
----------------------------------------
furnish to each Principal Holder: within thirty (30) days after the end of each
month, other than the last month of any fiscal quarter or of the fiscal year of
the Company, a copy of the consolidated balance sheet of the Company as of the
end of such month and consolidated statements of income and of cash flows of the
Company for such month, each of the foregoing balance sheets and statements to
set forth in comparative form the corresponding figures for the prior fiscal
period, to be in reasonable detail, to be prepared in accordance with generally
accepted accounting principles, consistently applied, and to be certified,
subject to normal year-end audit adjustments, by the principal financial officer
of the Company that they are true and accurate in all material respects as of
their dates; and, to the extent provided to the Board of Directors, as soon as
possible, but in any event at least thirty (30) days prior to the beginning of
each fiscal year, a budget, prepared on a period by period basis with each
period including four or five
21
<PAGE>
weeks, and operating plan for such fiscal year, each approved by the Company's
Board of Directors, including projected balance sheets and statements of income
and changes in financial condition of the Company for such months.
(d) Visits and Discussions. The Company will permit each Principal
----------------------
Holder and its authorized representatives, at all reasonable times during normal
business hours and as often as reasonably requested, to visit and inspect, at
the expense of such Investor, any of the properties of the Company, including
its books and records and, subject to reasonable arrangements with any transfer
agents of the Company, lists of security holders, and to make extracts therefrom
and to discuss the affairs, finances, and accounts of the Company with its
officers.
(e) Adverse Change; Litigation. The Company will promptly advise each
--------------------------
Principal Holder in writing of each suit or proceeding commenced or threatened
against the Company which, if adversely determined, would result in a material
adverse change in the condition or business, financial or otherwise, of the
Company and of any facts that come to the Company's attention which question the
accuracy or completeness of the representations and warranties contained herein
when made.
(f) Other Information. The Company will also furnish to each
-----------------
Principal Holder with reasonable promptness, such other information and data
with respect to the Company as such Investor may from time to time reasonably
request.
(g) Termination of Certain Obligations. The obligations of the
----------------------------------
Company to comply with Sections 6.1(b) - 6.1(f) above shall terminate upon the
--------------- ------
closing of a Qualified Public Offering (as such term is defined in the Amended
Certificate attached hereto as Exhibit B).
---------
6.2. Confidentiality. Each of the Investors further covenants and agrees
---------------
that any authorized representative of such Investor receiving information under
Sections 6.1(b) - 6.1(f), or exercising rights of visitation or inspection
- -------------- ------
granted hereunder shall maintain the confidentiality of all financial,
confidential and proprietary information of the Company acquired by them in
exercising such rights. Notwithstanding the preceding sentence, each Investor
may (1) disclose such information when required by law or governmental order or
regulation, or when required by a subpoena or other process, (2) disclose such
information to the extent necessary to enforce this Agreement, (3) disclose such
information to its attorneys, accountants, governmental regulators, consultants
and other professionals to the extent necessary to obtain their services in
connection with its investment in the Company, provided that the requirements of
this subsection shall in turn be binding on any such attorney, accountant,
consultant or other professional, or (4) disclose such information as may be
required by any prospective purchaser of any Shares, Conversion Shares or
Warrant Shares from such Investor, provided that such prospective purchaser
agrees in writing to be bound by the provisions of this subsection. An Investor
may also disclose such information to any affiliate of such Investor provided
that the requirements of this Section 6.2 shall in turn be binding on any such
affiliate, or, to a partner, shareholder or subsidiary of such Investor if such
partner, shareholder or subsidiary agrees in writing to be bound by the
provisions of this Section 6.2.
-----------
22
<PAGE>
6.3. Insurance. The Company will keep all its and its Subsidiaries'
---------
insurable properties properly insured against loss or damage by fire and other
risks; maintain public liability insurance against claims for personal injury,
death or property damage suffered by others upon or in or about any premises
occupied by it or arising from equipment owned by the Company or any of its
Subsidiaries and leased to and located upon or in or about any premises occupied
by any other person; maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which it may be engaged in business; and maintain such other insurance as is
usually maintained by persons engaged in the same or similar business as is the
Company or any of its Subsidiaries. All such insurance shall be maintained
against such risks and in at least such amounts as such insurance is usually
carried by persons engaged in the same or similar businesses, and all insurance
herein provided for shall be effected and maintained in force under a policy or
policies issued by insurers of recognized responsibility, except that the
Company or any of its Subsidiaries may effect worker's compensation or similar
insurance in respect of operations in any state or other jurisdiction either
through an insurance fund operated by such state or other jurisdiction or by
causing to be maintained a system or systems of self-insurance which is in
accord with applicable laws. The Company's executive officers shall periodically
report to the Board of Directors on the status of the insurance coverage of the
Company and its Subsidiaries.
6.4 Payment of Taxes; Corporate Existence. The Company and each Subsidiary
-------------------------------------
will:
(a) pay and discharge promptly, or cause to be paid and discharged
promptly, when due and payable, all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or upon any of its property, real,
personal and mixed, or upon any part thereof, as well as all claims of any kind
(including claims for labor, materials and supplies) which if unpaid might by
law become a lien or charge upon its property; provided, however, that the
-------- -------
Company or any Subsidiary shall not be required to pay any tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and if the
Company or any Subsidiary shall have set aside on its books reserves (classified
to the extent required by generally accepted accounting principles) deemed by it
adequate with respect thereto; and provided further, that the Company or any
-------- ------
Subsidiary shall have no obligation to make any payments under this paragraph
(a) with respect to property subject to leases pursuant to the terms of which
the lessees thereof have undertaken to make such payments;
(b) do or cause to be done all things necessary to preserve and keep
in full force and effect its respective corporate existence, rights and
franchises; provided, however, that nothing in this paragraph (b) shall (i)
-------- -------
prevent the abandonment or termination of the Company's or any Subsidiary's
authorization to do business in any foreign state or jurisdiction if, in the
opinion of the Company's or any Subsidiary's Board of Directors, such
abandonment or termination is in the interest of the Company or any Subsidiary
and not disadvantageous in any material respect to the equity holders of the
Company or (ii) require compliance with any law so long as the validity or
applicability thereof shall be disputed or contested in good faith; and
23
<PAGE>
(c) maintain and keep, or cause to be maintained and kept, its
properties in good repair, working order and condition, and from time to time
make, or cause to be made, all repairs, renewals and replacements which in the
opinion of the Company are necessary and proper so that the business carried on
in connection therewith may be properly and advantageously conducted at all
times.
6.5 Transactions with Affiliates. Except for transactions described on
----------------------------
Schedule 2.22, the Company will not, and will cause its Subsidiaries not to,
enter into any transaction of any kind with any officers or directors of the
Company or a holder of five percent (5%) or more of the Common Stock of the
Company outstanding or options to purchase such Common Stock or other securities
directly or indirectly convertible or exercisable into such Common Stock, any
member of their respective families, or any corporation or other entity directly
or indirectly controlled by, controlling or under common control with one or
more such officers, directors or five percent (5%) stockholders or members of
their families, other than (a) transactions between or among the Company and any
----------
Subsidiary, (b) transactions on terms at least as favorable to the Company and
its Subsidiaries as would be the case in an arm's-length transaction between
unrelated parties of equal bargaining power, (c) payment of reasonable and
customary fees paid to members of the board of directors of the Company, (d)
ordinary and usual compensation arrangements for officers, and (e) transactions
approved by a majority of the disinterested directors of the Company's or
applicable Subsidiary's board of directors.
6.6. Regulatory Compliance Cooperation.
---------------------------------
(a) In the event that CVCA or First Union determines that it has a
Regulatory Problem (as defined below), the Company agrees to use commercially
reasonable efforts to take all such actions as are reasonably requested by CVCA
or First Union, as the case may be, in order (i) to effectuate and facilitate
any transfer by CVCA or First Union of any Securities (as defined below) of the
Company then held by CVCA or First Union to any Person designated by CVCA or
First Union , (ii) to permit CVCA or First Union (or any affiliate of CVCA or
First Union) to exchange all or any portion of the voting Securities then held
by such Person on a share-for-share basis for shares of a class of non-voting
Securities of the Company, which non-voting Securities shall be identical in all
respects to such voting Securities, except that such new Securities shall be
non-voting and shall be convertible into voting Securities on such terms as are
requested by CVCA or First Union in light of regulatory considerations then
prevailing, and (iii) to continue and preserve the respective allocation of the
voting interests with respect to the Company provided for in the Amended
Stockholders Agreement and the Amended Certificate and with respect to CVCA's or
First Union's ownership of the Company's voting Securities. Such actions may
include, but shall not necessarily be limited to:
(A) entering into such additional agreements as are requested
by CVCA or First Union to permit any Person(s) designated by CVCA or First
Union to exercise any voting power which is relinquished by CVCA or First
Union upon any exchange of voting Securities for non-voting Securities of
the Company; and
24
<PAGE>
(B) entering into such additional agreements, adopting such
amendments to the Amended Certificate and Amended Bylaws of the Company and
taking such additional actions as are reasonably requested by CVCA or First
Union in order to effectuate the intent of the foregoing.
If CVCA elects to transfer Securities of the Company to a Regulated Holder (as
defined below) in order to avoid a Regulatory Problem, the Company shall enter
into such agreements with such Regulated Holder as it may reasonably request in
order to assist such Regulated Holder in complying with applicable laws, rules
and regulations to which it is subject. Such agreements may include
restrictions on the redemption, repurchase or retirement of Securities of the
Company that would result or be reasonably expected to result in such Regulated
Holder holding more voting securities or total securities (equity and debt) than
it is permitted to hold under such regulations.
(b) In the event CVCA or First Union has the right to acquire any of the
Company's Securities (as the result of a preemptive offer, pro rata offer or
otherwise), at CVCA's or First Union's request the Company will offer to sell to
CVCA or First Union non-voting Securities (or, if the Company is not the
proposed seller, will arrange for the exchange of any voting Securities for non-
voting Securities immediately prior to or simultaneous with such sale) on the
same terms as would have existed had CVCA or First Union acquired the Securities
so offered and immediately requested their exchange for non-voting Securities
pursuant to paragraph (a) above.
(c) In the event that any Subsidiary of the Company ever offers to sell
any of its Securities to CVCA or First Union, then the Company will cause such
Subsidiary to enter into agreements with CVCA and First Union substantially
similar to this Section 6.6 and, if applicable, Section 6.7 below.
----------- -----------
(d) The Company shall grant to any subsequent holder of Securities
originally acquired by CVCA or First Union (a "Subsequent Purchaser"), upon such
--------------------
Person's request, the same rights granted to CVCA and First Union pursuant to
this Section 6.6 and, if applicable, Section 6.7 below.
----------- -----------
(e) In furtherance of the provisions of this Section 6.6, the Company
acknowledges that First Union is a Regulated Holder and, is subject, among other
things, to certain restrictions on the ownership of voting and non-voting
Securities of the Company. On or prior to the Initial Closing, the Company
agrees to take all such actions as are reasonably requested by First Union (and
reasonably acceptable to Chase and J. H. Whitney) to permit First Union to
comply with Regulation Y in connection with the transactions contemplated
hereby, including without limitation:
(i) authorizing an additional class of preferred stock of the
Company identical in all respects to the Class D-2 Preferred Stock, except
that such class of preferred stock shall be non-voting and shall be
convertible into Common Stock or non-voting common stock of the Company (as
described below) on such terms as are requested by First Union in light of
prevailing regulatory considerations;
25
<PAGE>
(ii) authorizing an additional class of common stock of the Company
identical in all respect to the Common Stock, except that such class of
common stock shall be non-voting and shall be convertible into Common Stock
on such terms as are requested by First Union in light of prevailing
regulatory considerations;
(iii) permitting First Union to purchase, in lieu of its commitment
to purchase certain shares of Class D-2 Preferred Stock and Warrants
hereunder, a requisite number of shares of the class of preferred stock
authorized pursuant to clause (i) and a requisite number of warrants to
purchase the class of non-voting common stock authorized pursuant to clause
(ii) so as to comply with Regulation Y; and
(iv) amending this Agreement (including the form of Amended
Certificate, Amended Stockholders Agreement and Amended Registration Rights
Agreement attached hereto) so as to properly reflect the transactions
contemplated by clauses (i), (ii) and (iii) above and so as to include any
other agreements deemed reasonably necessary by First Union, including
agreements of the nature set forth in Section 6.6(a).
(f) For purposes of this Agreement:
(i) "Regulated Holder" means any holder of the Company's Securities
----------------
that is (or that is a subsidiary of a bank holding company that is) subject
to the various provisions of Regulation Y of the Board of Governors of the
Federal Reserve System, 12 CFR, Part 225 (or any successor to Regulation Y)
("Regulation Y");
(ii) "Regulatory Problem" means (A) any set of facts or
------------------
circumstances wherein it has been asserted by any governmental regulatory
agency (or CVCA, First Union or any Subsequent Purchaser believes that
there is a significant risk of such assertion) that such Person (or any
bank holding company that controls such Person) is not entitled to hold, or
exercise any material right with respect to, all or any portion of the
Securities of the Company which such Person holds or (B) when such Person
and its affiliates would own, control or have power (including voting
rights) over a greater quantity of Securities of the Company than is
permitted under any law or regulation or any requirement of any
governmental authority applicable to such Person or to which such Person is
subject; and
(iii) "Securities" means, with respect to any Person, such Person's
----------
capital stock or any option, warrants or other Securities which are
directly or indirectly convertible into, or exercisable or exchangeable
for, such Persons' capital stock (whether or not such derivative Securities
are issued by the Company). Whenever a reference herein to Securities
refers to any derivative Securities, the rights of CVCA and First Union
shall apply to such derivative
26
<PAGE>
Securities and all underlying Securities directly or indirectly
issuable upon conversion, exchange or exercise of such derivative
Securities.
6.7. Information Rights and Related Covenants.
----------------------------------------
(a) Promptly after the end of each fiscal year (but in any event
prior to February 28 of each year), the Company shall, upon request, provide to
CVCA a written assessment, in form and substance reasonably satisfactory to
CVCA, of the economic impact of CVCA's financing hereunder, specifying the full-
time equivalent jobs created or retained, the impact of the financing on the
consolidated revenues and profits of the Business and on taxes paid by the
Business and its employees (as contemplated by 13 CFR (S) 107.630(e)) .
(b) Upon the request of CVCA or any affiliate of CVCA, the Company
will (A) provide to such Person such financial statements and other information
as such Person may from time to time reasonably request for the purpose of
assessing the Company's financial condition and (B) furnish to such Person all
information reasonably requested by it in order for it to prepare and file SBA
Form 468 and any other information reasonably requested or required by any
governmental agency asserting jurisdiction over such Person.
(c) For a period of one year following the date hereof, neither the
Company nor any of its Subsidiaries will change its business activity if such
change would render the Company ineligible to receive financial assistance from
an SBIC under the SBIA and the regulations thereunder (within the meanings of 13
CFR (S) 107.720 and (S) 107.760(b)).
(d) The Company will at all times comply with the non-discrimination
requirements of 13 CFR, Parts 112, 113 and 117.
(e) The Company understands that its violation of Sections 2.26, 6.6
------------- ---
or this Section 6.7 of this Agreement may result in CVCA being required by the
-----------
SBA to sell the Company Securities acquired by CVCA, and such sale may be at
depressed prices due to the circumstances and timing of the sale. Therefore, in
addition to any other remedies available to CVCA for the Company's violation of
this Agreement, the Company agrees that CVCA shall be entitled to seek specific
enforcement or other equitable relief to prevent a violation by the Company of
such specified terms of this Agreement, and the Company waives any requirement
that CVCA posts any bond as a condition to seeking or obtaining equity relief.
6.8. Remedies of Investors. If, pursuant to those certain equity
---------------------
commitment letters in favor of Universal Studios, Inc. executed substantially
concurrently herewith, the Investors are required to make an equity investment
in the Company, (i) such investment will take the form of an issuance of Shares
and Warrants as provided in this Agreement, (ii) the Company shall not be
released from liability for any breach of its obligations under this Agreement
(including Section 6.6) and (iii) the Investors shall be entitled to all rights
-----------
and remedies under this Agreement in respect of such investment or otherwise. To
that end, the Company agrees to use the proceeds received by the Company in
accordance with the first sentence of Section 2.26(b) within 45 days after
receipt thereof.
27
<PAGE>
6.9. Issue of Additional Warrants With Respect to the Bridge Preferred
-----------------------------------------------------------------
Shares. If the Bridge Preferred Shares have not been redeemed in accordance with
- ------
the terms of the Amended Certificate on or before the 135th day following the
Initial Closing, then the Company will on such day issue to the Investors
holding such Bridge Preferred Shares additional Warrants, in a form identical to
the Warrants issued at the Initial Closing (except for date, amount and other
conforming changes) to exercisable for 3,338,871 shares of Common Stock in the
aggregate, with each such Investor receiving a pro rata portion of such Warrants
based on the number of Bridge Preferred Shared held by such Investor (and
------
reduced pro rata if there has been any partial redemption of Bridge Preferred
Shares). If the Bridge Preferred Shares have not been redeemed in accordance
with the terms of the Amended Certificate on or before the 270th day following
the Initial Closing, then the Company will on such day issue to the Investors
holding such Bridge Preferred Shares additional Warrants, in a form identical to
the Warrants issued at the Initial Closing (except for date, amount and other
conforming changes) exercisable for 1,686,299 shares of Common Stock in the
aggregate, with each such Investor receiving a pro rata portion of such Warrants
based on the number of Bridge Preferred Shared held by such Investor (and
reduced pro rata if there has been any partial redemption of Bridge Preferred
Shares). If the Bridge Preferred Shares have not been redeemed in accordance
with the terms of the Amended Certificate on or before the 350th day following
the Initial Closing, then the Company will on such day issue to the Investors
holding such Bridge Preferred Shares additional Warrants, in a form identical to
the Warrants issued at the Initial Closing (except for date, amount and other
conforming changes) exercisable for 1,703,332 shares of Common Stock in the
aggregate, with each such Investor receiving a pro rata portion of such Warrants
based on the number of Bridge Preferred Shared held by such Investor (and
reduced pro rata if there has been any partial redemption of Bridge Preferred
Shares) (such Warrants, together with any additional warrants issued as
described in the preceding two sentences, are referred to herein as the
"Additional Warrants"). The number of Additional Warrants issued as of each of
------------------
the relevant dates as set forth in this Section 6.9 shall be subject to
adjustment as necessary in order to give effect to the anti-dilution provisions
thereof as though all such Additional Warrants were deemed to be issued as of
the Initial Closing.
6.10. Company Election to Reduce or Eliminate Bridge Preferred Shares.
---------------------------------------------------------------
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall have the right to elect not to issue Bridge Preferred Shares to
the Investors who have committed to purchase such Bridge Preferred Shares on
Exhibit A-1 hereto, or to issue fewer Bridge Preferred Shares than those
committed to be purchased, provided that all Investors who have committed to
purchase Bridge Preferred Shares hereunder are affected by such election on a
pro rata basis, and provided further that all Warrants associated with such
Bridge Preferred Shares are reduced on a pro rata basis or eliminated, as
applicable, subject to the following sentence. In the event that the
transactions contemplated by the UCI Stock Purchase Agreement are consummated
but the Bridge Preferred Shares are not issued, other than as a result of a
willful breach by an Investor who has agreed to purchase Bridge Preferred Shares
hereunder (each a "Bridge Investor"), the Bridge Investors nevertheless will be
---------------
entitled to receive Warrants to purchase 1,636,047 shares of Common Stock in
the aggregate, with each Bridge Investor receiving a pro rata portion of such
Warrants based on the total number of
28
<PAGE>
Bridge Preferred Shares committed to be purchased by such Bridge Investor. The
Company shall not issue Bridge Preferred Shares to any person other than those
Investors identified on Exhibit A-1 as a purchaser of Bridge Preferred Shares,
unless all such persons have agreed in
writing
6.11. Modifications of Certain Existing Instruments. As of the Initial
---------------------------------------------
Closing, the Company agrees, for the benefit of each Investor that has committed
to purchase Shares with an aggregate value of at least $2,000,000 hereunder and
that holds Investor Warrants or Convertible Note Warrants (the "Bridge Note
-----------
Warrants"), to amend the Investor Warrants and Convertible Note Warrants held by
- --------
such Investors to extend the exercise period thereof for five years beyond the
currently scheduled expiration thereof.
6.12. Performance of UCI Stock Purchase Agreement. The Company will use
-------------------------------------------
all commercially reasonable efforts to timely satisfy the conditions to its
obligations under the UCI Stock Purchase Agreement and will perform all of its
obligations thereunder.
7. Restrictive Covenants in Favor of Holders of Senior Preferred Stock and
-----------------------------------------------------------------------
Bridge Preferred Stock.
----------------------
So long as any Senior Preferred Stock or Bridge Preferred Stock
remain outstanding, the Company agrees, solely for the benefit of the holders of
such Senior Preferred Stock or Bridge Preferred Stock (it being understood that
Investors who do not hold, or cease to hold, Senior Preferred Stock or Bridge
Preferred Stock shall have no rights to enforce the following covenants), that
it will not, and will cause its Subsidiaries not to:
7.1 Transactions with Affiliates. Except for transactions described on
----------------------------
Schedule 2.22, enter into any transaction of any kind with any officers or
- -------------
directors of the Company or a holder of five percent (5%) or more of the Common
Stock of the Company outstanding or options to purchase such Common Stock or
other securities directly or indirectly convertible or exercisable into such
Common Stock, any member of their respective families, or any corporation or
other entity directly or indirectly controlled by, controlling or under common
control with one or more of such officers, directors or five percent (5%)
stockholders or members of their families, other than (a) transactions between
----------
or among the Company and any Subsidiary, (b) transactions on terms at least as
favorable to the Company and its Subsidiaries as would be the case in an arm's-
length transaction between unrelated parties of equal bargaining power, (c)
payment of reasonable and customary fees paid to members of the board of
directors of the Company, (d) ordinary and usual compensation arrangements for
officers, and (e) transactions approved by a majority of the disinterested
directors of the Company's or applicable Subsidiary's board of directors.
7.2 Mergers and Consolidations. Merge, combine or consolidate with or into
--------------------------
any other entity, except (i) mergers, combinations and consolidations of a
Subsidiary into another Subsidiary or into the Company, (ii) mergers,
combinations or consolidations of a Subsidiary with another entity for the
purpose of effecting an acquisition, or a disposition of all or a part of the
stock or assets of such Subsidiary, (iii) mergers, combinations and
consolidations of the Company with another entity, provided that the Company is
the surviving corporation in such
29
<PAGE>
merger, combination or consolidation or (iv) mergers, combinations and
consolidations of the Company with another entity in which the Company does not
survive, provided that the survivor is a corporation organized under the laws of
the United States and expressly assumes all obligations of the Company under
this Agreement.
7.3 Issuance of Senior or Pari Passu Equity Securities. Issue any
--------------------------------------------------
preferred stock or other equity securities that rank senior to or pari passu
with the Senior Preferred Stock or the Bridge Preferred Stock in respect of the
right to receive dividends or to receive distributions upon a liquidation or
dissolution of the Company (including upon change of control events).
7.4 Restricted Payments.
-------------------
(1) Declare or pay any dividend on, or make any distribution to
the holders (as such) in respect of any shares of capital stock of the
Company or any Subsidiary, except to the Company or another directly
or indirectly wholly-owned Subsidiary; or
(2) Purchase, redeem or otherwise retire for value any capital
stock of the Company or any Subsidiary (other than any such capital
stock owned by the Company or any other directly or indirectly wholly
owned Subsidiary), excluding repurchases of stock in an aggregate
amount not to exceed $250,000 in any fiscal year of the Company; and
excluding capital stock deemed to be repurchased upon exercise of
stock options or warrants if such capital stock represents a portion
of the exercise price of such options or warrants (i.e., a "cashless
----
exercise").
7.5 Incurrence of Indebtedness. Incur any Indebtedness if, as a result of
--------------------------
such incurrence, the Company and its Subsidiaries would have outstanding
Indebtedness in excess of $400 million in aggregate principal amount on a
consolidated basis. For purpose of the foregoing, (A) "Indebtedness" means, as
------------
to any person, (a) all indebtedness of such Person for borrowed money, (b) that
portion of the obligations of such Person under capital leases which is properly
recorded as a liability on a balance sheet of that Person prepared in accordance
with generally accepted accounting principles, (c) any obligation of such Person
that is evidenced by a promissory note or other instrument representing an
extension of credit to such Person, whether or not for borrowed money, (d) any
obligation of such Person for the deferred purchase price of Property or
services (other than trade or other accounts payable in the ordinary course of
----------
business in accordance with customary terms), (e) any obligation of such Person
that is secured by a lien on assets of such Person, whether or not that Person
has assumed such obligation or whether or not such obligation is non-recourse to
the credit of such Person, but only to the extent of the fair market value of
the assets so subject to the lien, (f) obligations of such Person arising under
acceptance facilities or under facilities for the discount of accounts
receivable of such Person and (g) obligations of such Person for unreimbursed
draws under letters of credit issued for the account of such Person and (B)
"Person" means any entity, whether an individual, trustee, corporation, general
partnership, limited partnership, joint stock company, limited liability
company, business trust, trust,
30
<PAGE>
estate, unincorporated organization, business association, firm, joint venture,
government agency, or otherwise.
7.6 Redemption of Bridge Preferred Stock. Subject to Section 7.7, if the
------------------------------------
Company issues additional Shares and Warrants to existing stockholders of the
Company in a Subsequent Closing, and if and to the extent that the Executive
Committee of the Company's Board of Directors determines in its good faith
judgment that the Company's current and reasonably foreseeable working capital
needs have been provided for, then the Company will make an offer to each
Investor holding Bridge Preferred Stock to redeem, at the option of such
Investor and on a pro rata basis, Bridge Preferred Stock held by such Investor
on or before the 60th day following the Subsequent Closing, in accordance with
Section 6 of the Amended Certificate (except that redemption will be at the
option of the Investor), with and to the extent of the net proceeds of the sale
of Shares in the Subsequent Closing.
7.7 Limitation on Conversion of Bridge Preferred Stock. If the Company
--------------------------------------------------
gives notice of a redemption of Bridge Preferred Shares in accordance with
Section 6 of the Amended Certificate with and to the extent of the net proceeds
of any issuance of equity securities to (i) Bain Capital or its affiliates, (ii)
existing stockholders of the Company pursuant to Section 8 of the Amended
Stockholders Agreement or (iii) other investors identified prior to the Initial
Closing by mutual agreement of the Company and J. H. Whitney & Co., then in any
such event the Investors holding Bridge Preferred Shares agree to refrain from
exercising their conversion rights set forth in Article Four, Section 5 of the
Amended Certificate for a period beginning on delivery of the applicable
redemption notice and ending on the applicable redemption date, provided that
full payment is made for such shares on such date. Any Investor who sells or
transfers Bridge Preferred Shares shall obtain the written agreement of its
transferee, for the benefit of the Company, to comply with the requirements of
this Section 7.7.
8. Miscellaneous.
-------------
8.1. Certain Defined Terms. As used in this Agreement, the term "Person"
--------------------- ------
shall mean an individual, corporation, trust, partnership, joint venture,
unincorporated organization, government agency or any agency or political
subdivision thereof, or other entity.
8.2. Survival of Covenants; Assignability of Rights. All covenants,
----------------------------------------------
agreements, representations and warranties of the Company made herein and in the
certificates, lists, exhibits, schedules or other written information delivered
or furnished to any Investor in connection herewith shall be deemed material and
to have been relied upon by such Investor, and except that representations and
warranties contained herein shall only survive thirty-six months after the last
Closing, shall survive the delivery of the Shares, and shall bind the Company's
successors and assigns, whether so expressed or not, and, except as provided
otherwise in this Agreement, all such covenants, agreements, representations and
warranties shall inure to the benefit of the Investor's successors and assigns
and to transferees of the Shares, whether so expressed or not.
8.3. Incorporation by Reference. All exhibits and schedules appended to
--------------------------
this Agreement are herein incorporated by reference and made a part hereof.
31
<PAGE>
8.4. Parties in Interest. All covenants, agreements, representations,
-------------------
warranties and undertakings in this Agreement made by and on behalf of any of
the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not.
8.5. Amendments and Waivers. This Agreement may be amended and any term,
----------------------
covenant, agreement, condition or provision set forth herein may be omitted or
waived (either generally or in a particular instance and either retroactively or
prospectively), upon the written consent of the holders of Shares which
represent more than the Requisite Percentage of the outstanding Class D-2
Preferred Shares or the Common Conversion Shares issuable with respect thereto;
provided that no amendment may increase the financial obligations of any
Investor hereunder or make any other material economic change adverse to any
Investor without the consent of such Investor; and provided further that no
amendment may be made to Section 7 of this Agreement without the consent of
holders of 66% of the outstanding Senior Preferred Shares and Bridge Preferred
Shares, voting together for this purpose as a single class. The "Requisite
---------
Percentage" shall be 85% prior to the Initial Closing and 80% thereafter.
- ----------
8.6. Governing Law. This Agreement shall be deemed a contract made under
-------------
the laws of the state of Delaware and, together with the rights of obligations
of the parties hereunder, shall be construed under and governed by the laws of
the state of Delaware, without regard to the conflicts of law provision thereof.
8.7. Notices. All notices, requests, consents and demands shall be in
-------
writing and shall be personally delivered, mailed, postage prepaid, telecopied
or telegraphed :
To the Company: HOB Entertainment, Inc.
6255 Sunset Blvd., 16th Floor
Hollywood, CA 90028
Attention: President
Telecopy: (323) 769-4780
with a copy to: John Jameson
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
or to each Investor at its address set forth on Exhibit A hereto, or such other
---------
requests, demands and other communication shall, when mailed (registered or
certified mail, return receipt requested, postage prepaid), personally
delivered, or telegraphed, be effective four days after deposit in the mails,
when personally delivered, or when delivered to the telegraph company,
respectively, addressed as aforesaid, unless otherwise provided herein and, when
telecopied, shall be effective upon actual receipt.
8.8. Subsidiaries. The financial statements of the Company described in
------------
Section 6.1 shall include all subsidiaries of the Company, whether now owned or
- -----------
hereafter acquired to the extent required by generally accepted accounting
principles and the other covenants, and
32
<PAGE>
obligations of the Company set forth in this Agreement hereof shall apply where
relevant to such subsidiaries as well as the Company.
8.9. Effect of Headings. The section and paragraph headings herein are for
------------------
convenience only and shall not affect the construction hereof.
8.10. Entire Agreement. This Agreement and the Exhibits and Schedules
----------------
hereto together with any other agreement referred to herein (the "Additional
----------
Agreements") constitute the entire agreement among the Company and the Investors
- ----------
with respect to the subject matter hereof. This Agreement and such Additional
Agreements supersede all prior agreements between the parties with respect to
the subject matter hereof.
8.11. Severability. The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
8.12. Counterparts. This Agreement may be executed in counterparts, all of
------------
which together shall constitute one and the same instrument.
8.13. Fees and Expenses. (a) The parties will pay all of their respective
-----------------
expenses incurred by them in connection herewith, except that upon the Initial
Closing, the Company will reimburse Chase, J. H. Whitney and First Union (the
"Principal Investors") and S.A. Blues on demand for all reasonable out-of-pocket
- --------------------
fees and expenses incurred by them or their affiliates, including reasonable
fees and expenses of counsel, fees under the Hart-Scott-Rodino Antitrust
Improvements Act and other governmental filing fees, if any (such Hart-Scott
Rodino and other filing fees, the "Filing Fees"), and travel-related expenses.
In the event that Closing does not occur as a result of the failure of any
condition set forth herein or otherwise (other than as a result of a willful
breach by a Principal Investor), all reasonable costs and expenses, including
costs of conducting due diligence (but excluding Filing Fees) incurred by the
Principal Investors will be shared by them pro rata based on their aggregate
commitment amounts; provided, however, that the Company will reimburse any
Principal Investor for all such reasonable costs and expenses incurred by it
(including Filing Fees) if the Company completes the sale of its equity
securities for an aggregate purchase price of at least $20,000,000 on or before
the first anniversary of the date hereof, and such Principal Investor purchases
at least $5,000,000 of such equity securities.
(b) At each Closing, the Company will pay each Investor a closing fee
equal to 3% of the aggregate liquidation preference of the Senior Preferred
Stock purchased by such Investor, and, at the Initial Closing, an advisory fee
of $3,000,000 in the aggregate to certain Investors as follows: $250,000 to
First Union, $250,000 to S.A. Blues (provided that it purchases Shares for an
aggregate purchase price of at least $15,000,000 pursuant to this Agreement) and
the balance to Chase and J.H. Whitney (or their respective designees) in equal
amounts. With regard to the portion of such advisory fees payable to J. H.
Whitney or its designees, $781,250 shall be payable to J.H. Whitney III
Management, L.L.C., and $468,750 shall be payable to Whitney Market Value Fund
Management Company, L.L.C.
33
<PAGE>
8.14 Attorneys' Fees. In the event of any action brought by any party
---------------
hereto to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its reasonable attorneys' fees and expenses.
8.15 Termination of Agreement. This Agreement shall terminate on the
------------------------
earlier to occur of the twelve month anniversary hereof and the date upon which
the UCI Stock Purchase Agreement terminates in accordance with its terms.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
34
<PAGE>
IN WITNESS WHEREOF, this Purchase Agreement for Class D-2 Preferred
Stock, 12% Senior Redeemable Preferred Stock, Senior Convertible Preferred Stock
and Common Stock Purchase Warrants has been executed as of the date first above
written.
COMPANY
HOB ENTERTAINMENT, INC.
By:_________________________________________
Name:____________________________________
Title:___________________________________
35
<PAGE>
ADDITIONAL SIGNATURE PAGE TO
PREFERRED STOCK PURCHASE AGREEMENT
IN WITNESS WHEREOF, this Purchase Agreement for Class D-2 Preferred Stock,
12% Senior Redeemable Preferred Stock, Senior Convertible Preferred Stock and
Common Stock Purchase Warrants has been executed as of
___________________________, 1999.
INDIVIDUAL INVESTOR: ___________________________________
(Signature)
___________________________________
(Printed Name)
CORPORATE OR PARTNERSHIP ___________________________________
INVESTOR: (Name of Corporation or Partnership)
By:_________________________________
Name:____________________________
Title:_____________________________
TRUST INVESTOR: ____________________________________
(Full Name of Trust)
By:_________________________________
(Signature of Trustee)
Amount of each type of security to be purchased:
Class D-2 Preferred Stock: $__________________
Senior Preferred Stock: $__________________
Bridge Preferred Stock: $__________________
Warrants: _______________ (underlying shares)
36
<PAGE>
EXHIBIT 10.16
SUPPLEMENT TO PURCHASE AGREEMENT
THIS SUPPLEMENT TO PURCHASE AGREEMENT (this "Supplement") is dated as of
----------
September 7, 1999, by and among HOB Entertainment, Inc., a Delaware corporation
(the "Company"), and the Investors listed on the signature pages hereto (the
-------
"Investors").
- ----------
RECITALS
A. The Company and the Investors (other than Chase/HOB 1999 (GC), L.L.C.)
are party to a Purchase Agreement for Class D-2 Preferred Stock, 12% Senior
Redeemable Preferred Stock, Senior Convertible Preferred Stock and Common Stock
Purchase Warrants, dated as of July 21, 1999 (the "Purchase Agreement").
------------------
B. The Company and the Investors desire to supplement and amend the
Purchase Agreement as provided herein.
C. As provided in Section 8.5 of the Purchase Agreement, this Supplement
will be effective upon the execution hereof by the Company and the holders of
the Requisite Percentage (as defined in the Purchase Agreement).
AGREEMENT
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used herein and not
-----------
otherwise defined herein have the meanings assigned to them in the Purchase
Agreement.
Section 2. Section 2.3 of the Purchase Agreement.
-------------------------------------
(a) Section 2.3 of the Purchase Agreement is hereby amended as follows:
(i) The number "195,480,322" in the first sentence of the first
paragraph of Section 2.3 shall be deleted and replaced with "114,054,991";
(ii) The words "as of the Initial Closing" shall be added to the
end of the first sentence of the first paragraph of Section 2.3; and
(iii) The number "15,500,166" in the fourth sentence of the first
paragraph of Section 2.3 shall be deleted and replaced with "30,500,166".
(b) Notwithstanding anything to the contrary contained in Section 2.3
of the Purchase Agreement, as amended hereby, the authorized capital stock of
the Company as of the Initial Closing will be as set forth in the Amended
Certificate in the
1
<PAGE>
form set forth in the Consent Solicitation Statement of the Company dated
September 1, 1999 (the "Consent Solicitation").
--------------------
Section 3. Section 3.2 of the Purchase Agreement. Section 3.2 of the
-------------------------------------
Purchase Agreement is hereby amended by adding the following to the end of the
last sentence of Section 3.2: ",other than, in the case of J.H. Whitney Market
Value Fund, L.P., Ares Leveraged Investment Fund, L.P. and Ares Leveraged
Investment Fund II, L.P., pursuant to a pledge required by the principal debt
financing arrangements pursuant to which such Investors obtain financing for the
purpose of purchasing Shares and Warrants hereunder"
Section 4. Acquisition. Each Investor acknowledges that the
-----------
representations and warranties made by the Company in the Purchase Agreement are
intended to apply only to the Company immediately prior the proposed acquisition
(the "Acquisition") of Universal Concerts, Inc. and its subsidiaries Universal
-----------
Arenas, Inc., Universal Events, Inc. and Universal Concerts Canada Ltd.
(collectively "UCI") and not to the Company and UCI subsequent to the
---
Acquisition.
Section 5. Changes for Regulatory Purposes. Each Investor and the
--------------------------------
Company acknowledges that for regulatory purposes First Union has exercised its
rights pursuant to Section 6.6 of the Purchase Agreement and, as a result of
such exercise, certain of the transaction documents have been modified from the
forms appended as exhibits to the Purchase Agreement. Accordingly, the Investors
hereby approve the forms of the Amended Certificate, Amended Stockholders
Agreement and Amended Registration Rights Agreement, each as set forth in the
Consent Solicitation, and the form of Co-Sale Agreement attached hereto as
Exhibit A. Furthermore, the parties acknowledge that for all purposes under the
- ---------
Purchase Agreement, including without limitation, Section 8.5, the shares of
Class D-3 Preferred Stock of the Company, $.01 per share (the "Class D-3
---------
Preferred Stock"), issued to First Union shall be deemed to be Class D-2
- ---------------
Preferred Stock and the shares of Non-Voting Common Stock of the Company, $.0001
par value per share, issued upon conversion of the Class D-3 Preferred Stock
shall be deemed to be Common Stock.
Section 6. No Amendment. Except to the extent each is amended by the
------------
terms of this First Amendment, all terms and conditions of the Agreement remain
in full force and effect, and from and after the effectiveness of the First
Amendment, all references to the Agreement shall mean such agreement as amended
hereby.
Section 7. Substitution of CVCA. As permitted by Exhibit A-1 to the
--------------------
Purchase Agreement, Chase Venture Capital Associates, L.P. hereby confirms that
it has assigned its right to purchase all of the Shares and Warrants to be
purchased by it pursuant to the Purchase Agreement to Chase/HOB 1999 (GC),
L.L.C., which by execution hereof agrees to be bound as an Investor under the
Purchase Agreement.
2
<PAGE>
Section 8. Miscellaneous Provisions. The Miscellaneous provisions of
------------------------
the Purchase Agreement (i.e., Article 8) shall apply to this Supplement as if
fully set forth herein.
(Signature Pages Follow)
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed as of the day and year first written above.
HOB ENTERTAINMENT, INC.
By: /s/ Joseph C. Kaczorowski
------------------------------------
Name: Joseph C. Kaczorowski
Title: Chief Financial Officer, Treasurer
and Secretary
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners,
Its General Partner
By: /s/ David L. Ferguson
------------------------------------
Name: David L. Ferguson
Title: Authorized Signatory
CHASE/HOB 1999 PARTNERS (GC), L.L.C.
By: CB Capital Investors, L.P.
Its Managing Member
By: CB Capital Inverstors, Inc.
Its General Partner
By: /s/ David L. Ferguson
--------------------------
Name: David L. Ferguson
Title: Authorized Signatory
S.A. BLUES PARTNERS, L.P.
By: S.A. Blues Management, Inc.,
Its General Partner
By: /s/ Eric S. Foultz
-------------------------------
Name: Eric S. Foultz
Title: Vice President
S-1
<PAGE>
J.H. WHITNEY III, L.P.
By: J.H. Whitney Equity Partners III, LLC,
Its General Partner
By: /s/ Daniel J. O'Brien
--------------------------------
Name: Daniel J. O'Brien
Title:
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J.H. Whitney Equity Partners III, LLC,
Its General Partner
By: /s/ Daniel J. O'Brien
---------------------------------
Name: Daniel J. O'Brien
Title:
J.H. WHITNEY MARKET VALUE FUND, L.P.
By: Whitney Market Value GP, Ltd.,
Its General Partner
By: /s/ Daniel J. O'Brien
-------------------------------
Name: Daniel J. O'Brien
Title:
FIRST UNION INVESTORS, INC.
By: /s/ James C. Cook
-------------------------------
Name: James C. Cook
Title: Senior Vice President
S-2
<PAGE>
ARES LEVERAGED INVESTMENT FUND, L.P.
By: Ares Management, L.P.,
Its Manager
By: /s/ Eric Beckman
------------------------------------
Name: Eric Beckman
Title: Vice President
ARES LEVERAGED INVESTMENT
FUND II, L.P.
By: Ares Management II, L.P.,
Its Manager
By: /s/ Eric Beckman
---------------------------------
Name: Eric Beckman
Title: Vice President
S-3
<PAGE>
EXHIBIT 10.20
LOAN AGREEMENT
BY AND BETWEEN
CARBON CAPITAL MORTGAGE PARTNERS, L.P.,
as lender
Having an address at:
11601 Wilshire Boulevard
Los Angeles, California 90025
and
HOB MARINA CITY PARTNERS, L.P.
as borrower
Having an address at:
8439 Sunset Boulevard, Suite 404
West Hollywood, California 90069
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
1. CERTAIN DEFINITIONS.............................................. 1
Section 1.1 Definitions........................................ 1
2. GENERAL TERMS.................................................... 17
Section 2.1 Amount of the Loan................................. 17
Section 2.2 Use of Proceeds.................................... 17
Section 2.3 Security for the Note.............................. 17
Section 2.4 Payment of Loan.................................... 17
Section 2.5 Transfer of Mortgaged Property..................... 17
Section 2.6 Cash Management.................................... 17
Section 2.7 Taxes and Insurance................................ 22
Section 2.8 Supplemental Mortgage Affidavits................... 23
3. REPRESENTATIONS AND WARRANTIES................................... 23
Section 3.1 Borrower's Representations......................... 23
Section 3.2 Survival of Representations........................ 31
4. AFFIRMATIVE COVENANTS............................................ 32
Section 4.1 Borrower Covenants................................. 32
5. NEGATIVE COVENANTS............................................... 42
Section 5.1 Borrower Negative Covenants......................... 42
6. DEFAULTS......................................................... 43
Section 6.1 Event of Default.................................... 43
Section 6.2 Remedies........................................... 46
Section 6.3 Remedies Cumulative................................ 47
Section 6.4 Prepayment Upon Default............................ 47
7. MISCELLANEOUS.................................................... 47
Section 7.1 Survival........................................... 47
Section 7.2 Lender's Discretion................................ 48
Section 7.3 Governing Law...................................... 48
Section 7.4 Modification, Waiver in Writing.................... 48
Section 7.5 Delay Not a Waiver................................. 48
Section 7.6 Notices............................................ 49
Section 7.7 Trial By Jury...................................... 50
Section 7.8 Headings........................................... 50
Section 7.9 Assignment......................................... 50
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.10 Severability....................................... 50
Section 7.11 Preferences........................................ 50
Section 7.12 Waiver of Notice................................... 51
Section 7.13 Remedies of Borrower............................... 51
Section 7.14 Exhibits Incorporated.............................. 51
Section 7.15 Offsets, Counterclaims and Defenses................ 51
Section 7.16 No Joint Venture or Partnership.................... 52
Section 7.17 Publicity.......................................... 52
Section 7.18 Waiver of Marshalling of Assets Defense............ 52
Section 7.19 Waiver of Counterclaim............................. 52
Section 7.20 Conflict, Construction of Documents................ 52
Section 7.21 Brokers and Financial Advisors..................... 53
Section 7.22 Joint and Several Liability........................ 53
Section 7.23 Counterparts....................................... 53
</TABLE>
ii
<PAGE>
LOAN AGREEMENT
--------------
LOAN AGREEMENT (this "Agreement"), made as of the 1st day of May, 1997, by
---------
and between CARBON CAPITAL MORTGAGE PARTNERS, L.P., a Delaware limited
partnership, as lender (together with its successors and assigns, "Lender"), and
HOB MARINA CITY PARTNERS, L.P., a Delaware limited partnership ("Borrower").
RECITALS
--------
WHEREAS, Borrower desires to obtain a loan (the "Loan") from Lender in the
amount of Nine Million Dollars ($9,000,000.00) (the "Loan Amount");
------------
WHEREAS, Lender is willing to make the Loan to Borrower in the Loan Amount
upon the terms and subject to the conditions set forth herein and in the other
Loan Documents (hereinafter defined); and
WHEREAS, the Loan will be secured by, among other things that certain
Indenture of Deed of Trust, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Rents and Leases, dated as of the date hereof, made
by Borrower in favor of Lender as security for the Loan, as same may hereafter
from time to time be supplemented, amended, modified or extended by one or
more agreements supplemental thereto, (the "Indenture"), which Indenture
encumbers the Mortgaged Property (as hereinafter defined).
NOW, THEREFORE, in consideration of the making of the Loan by Lender and
tIme covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
1. CERTAIN DEFINITIONS
-------------------
Section 1.1 Definitions.
----------- -----------
For all purposes of this Agreement, except as otherwise expressly
required or unless the context clearly indicates a contrary intent:
(1) the capitalized terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(2) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP (as hereinafter defined) in
effect on the date hereof;
<PAGE>
(3) the words "herein," "hereof," and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section, or other subdivision; and
(4) the capitalized terms used and not otherwise defined herein,
shall have the meanings ascribed to them in the Indenture (as hereinafter
defined).
"Accounts" shall collectively mean the Rent Account and the Revenue
--------
Account.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities or other beneficial
interest, by contract or otherwise; and the terms "controlling" and "controlled"
have the meanings correlative to the foregoing.
"Appraisal" means the appraisal of the Mortgaged Property made by an
---------
Appraiser.
"Appraiser" shall mean an Independent appraiser selected by Lender who
---------
is a member of the American Institute of Real Estate Appraisers with a national
practice and which has at least ten (10) years experience with real estate of
the same type and in the geographic area of the Mortgaged Property.
"Assignment" shall mean that certain first priority Assignment of
----------
Leases, Rents and Security Deposits, dated as of the date hereof, from
Borrower, as assignor, to Lender, as assignee, assigning to Lender Borrower's
interest in and to the Leases and the Property Income as collateral security
for the repayment of the Note.
"Authorized Representative" shall mean (i) with respect to any
-------------------------
Borrower that is a partnership, any executive officer of the General Partner,
(ii) with respect to any Borrower that is a corporation, any executive officer
of Borrower, (iii) with respect to any Borrower that is a business trust, the
trustee of such trust, and (iv) with respect to any Borrower that is a limited
liability company, the manager or any authorized member of such limited
liability company.
"Bankruptcy Proceeding" shall mean any proceeding, action, petition or
---------------------
filing under the Federal Bankruptcy Code or any similar state or federal law now
or hereafter in effect relating to bankruptcy, reorganization or insolvency, or
the arrangement or adjustment of debts.
"Borrowings" shall mean, without duplication (i) all indebtedness of
----------
the party in question for borrowed money or for the deferred purchase price of
property or services, (ii)
-2-
<PAGE>
all indebtedness of the party in question evidenced by a note, bond, debenture
or similar instrument, (iii) the face amount of all letters of credit issued for
the account of the party in question and, without duplication, all unreimbursed
amounts drawn thereunder, (iv) all indebtedness of the party in question secured
by a Lien on any property owned by such party whether or not such indebtedness
has been assumed, (v) all contingent obligations of the party in question (those
being any obligation of such party guaranteeing or intended to guarantee any
indebtedness, leases, dividends or other obligations of any other Person in any
manner, whether directly or indirectly), and (vi) all payment obligations of
the party in question under any interest rate protection agreement (including,
without limitation, any interest rate swaps, caps, floors, collars or similar
agreements) and similar agreements. Notwithstanding anything to the contrary
contained in this definition, "Borrowings" shall not include short term trade
debt to the extent such debt is not evidenced by a note and if the party in
question is a trust, Borrowings shall not include any debt of any beneficiary or
trustee of such trust.
"Business Day" means any day other than a Saturday, Sunday or any
------------
other day on which banking or savings and loan institutions in New York or, at
any time during which the Loan is an asset of a securitization, the states
and/or commonwealth used in the comparable definition of "Business Day" in the
------------
securitization documents, are authorized or obligated by law, governmental
decree or executive order to be closed.
"Collateral Security Instrument" shall mean any right, document or
------------------------------
instrument, other than a deed of trust or mortgage, given as security for the
Note (including, without limitation, the Assignment), as same may be amended or
modified from time to time.
"Condemnation Proceeds" shall have the meaning provided in Section
---------------------
2.6(f) hereof.
"Contingent Obligation" shall mean any obligation of Borrower
---------------------
guaranteeing or intended to guarantee any indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
--------------------- -------
obligor") in any manner, whether directly or indirectly, including, without
- --------
limitation, any obligation of Borrower, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance or supply funds (x) for the purchase
or payment of any such primary obligation or (y) to maintain working capital or
equity capital of, or otherwise provide funds for or enter into a contractual
relationship whereby the Borrower provides funds to the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof.
The amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Borrower is
-3-
<PAGE>
required to perform thereunder) as determined by Borrower in good faith in
accordance with GAAP.
"Corporate General Partner" shall mean each general partner of each
-------------------------
General Partner, as of the date hereof, and their respective successors to the
extent permitted by Section 2.16 of the Indenture. If Borrower is not a
partnership, or if the General Partner of Borrower is not a partnership, this
definition shall not be applicable and references to Corporate General Partner
throughout the Loan Documents shall be deemed inapplicable.
"Current Period" shall mean any particular month during the term
--------------
hereof.
"Debt Service" shall mean the amount of interest and principal
------------
payments due and payable in accordance with the Note during an applicable
period.
"Default" shall mean the occurrence of any event hereunder or under
-------
any other Loan Document which, but for the giving of notice or passage of time,
or both, would be an Event of Default.
"Disclosure Document" shall have the meaning provided in Section
-------------------
4.1(s) hereof.
"EBITDA" means, for any period, with respect to Tenant, determined in
------
accordance with GAAP, the sum of (a) the net income (or net loss) and (b) to the
extent included in the determination of such net income (or net loss), amounts
attributable to Minimum Rent, Percentage Rent, depreciation, interest, federal
and state income taxes and the amortization of intangibles of any kind to the
extent included in the determination of such net income (or loss).
"Eligible Account" shall mean a segregated account held by a
----------------
depository institution approved by Lender that is either: (a) maintained with a
federal or state chartered depository institution or trust company the long-term
unsecured debt obligations of which (or, in the case of a depository institution
or trust company that is the principal subsidiary of a holding company, the
long-term unsecured debt obligations of such holding company) have been rated by
two of the Rating Agencies in one of their two highest rating categories or the
short-term commercial paper of which is rated by two of the Rating Agencies in
their highest rating category at the time of any deposit therein; or (b) an
account or accounts maintained with a federal or state chartered depository
institution or trust company with trust powers acting in its fiduciary capacity
provided that any such state chartered institution or trust company shall be
subject to regulations regarding fiduciary funds on deposit substantially
similar to federal regulation 12 CFR (S) 910(b). The title of each Eligible
Account shall indicate that funds held therein are held in trust for the uses
and purposes set forth herein.
"Environmental Claim" shall mean any claim, action, investigation or
-------------------
written notice by any Person alleging potential liability (including, without
limitation, potential liability
-4-
<PAGE>
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or penalties) arising out
of, based on or resulting from (i) the presence, or release into the
environment, of any Hazardous Substance (as hereinafter defined) at or from the
Mortgaged Property or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
"Environmental Consultant" shall mean an Independent environmental
------------------------
consultant or environmental firm reasonably approved by Lender.
"Environmental Guaranty" shall mean that certain Environmental
----------------------
Guaranty and Indemnity Agreement, dated as of the date hereof, made by the
Borrower and Guarantor, in favor and for the benefit of Lender.
"Environmental Law" shall mean any present or future federal, state or
-----------------
local law, statute, regulation or ordinance, and any judicial or administrative
order or judgment thereunder, and judicial opinions or orders, pertaining to
health, industrial hygiene, Hazardous Substances or the environment, including,
but not limited to, each of the following, as enacted as of the date hereof or
as hereafter amended: the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq.; the Resource
-- ---
Conservation and Recovery Act of 1976, 42 U.S.C. (S)(S) 6901 et seq.; the Toxic
Substances Control Act, 15 U.S.C. ss 2601 et seq.; the Water Pollution Control
------
Act (also known as the Clean Water Act), 33 U.S.C. (S)(S) 1251 et seq,; the
-- ---
Clean Air Act, 42 U.S.C. (S)(S) 7401 et seq.; and the Hazardous Materials
-- ---
Transportation Act, 49 U.S.C. (S)(S) 1801 et seq.
-- ---
"Environmental Report" shall mean the environmental report prepared by
--------------------
an Environmental Consultant and delivered to Lender in connection with the Loan
and which Borrower shall bear the cost of obtaining.
"Environmental Violation" shall have the meaning provided in Section
-----------------------
4.1(f).
"Equipment" has the meaning set forth in the Indenture.
---------
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time.
"Event of Default" has the meaning set forth in Section 6.1(a) hereof.
----------------
"Excess Cash Flow" shall mean an amount equal to the amount by which
----------------
Gross Revenues received by Tenant during any particular period of time exceeds
the Operating Expenses incurred by Tenant during such period of time (including
any amounts represented by any checks written for Operating Expenses for such
period of time which have not yet cleared through Tenant's operating account,
but specifically excluding any amounts paid for capital expenditures to the
extent the same have not been approved by Lender).
-5-
<PAGE>
"Excess Rent Account" shall mean an account maintained with the same
-------------------
banking institution as the Rent Account, and which shall be in the name of, and
under the control of, Borrower.
"Exchange Act" shall have the meaning provided in Section 4. 1(s)
------------
hereof.
"Financing Statements" shall have the meaning provided in Section
--------------------
3.1(v) hereof.
"Fiscal Year" shall mean each twelve month period commencing on
-----------
January 1 and ending on December 31 during each year of the term of the Loan.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America as in effect as of the date so indicated herein.
"General Partner" shall mean each general partner of Borrower, as of
---------------
the date hereof, and its successors to the extent permitted by Section 2.16 of
the Indenture. If Borrower is a limited liability company, General Partner shall
refer to any managing Member or manager, whichever is the entity managing the
limited liability company. If Borrower is not a partnership, this definition
shall not be applicable and references to General Partner throughout the Loan
Documents shall be deemed inapplicable.
"Governmental Authority" shall mean any federal, state, regional or
----------------------
local government or political subdivision thereof and any Person exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Gross Revenue" shall mean all rents, issues, profits, revenues,
-------------
royalties, benefits and income of every nature of and from Tenant's operations
at the Mortgaged Property received by or on behalf of Tenant.
"Guarantor" shall mean HOB Entertainment, Inc., a Delaware
---------
corporation.
"Guaranty" shall mean that certain Contract of Guaranty, dated as of
--------
the date hereof, made by the Guarantor, in favor and for the benefit of Lender.
"Hazardous Substance" shall mean any material, waste or substance
-------------------
which is:
(i) included within the definition of "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances" or pollutants
or contaminants in or pursuant to any Environmental Law or regulated under
any Environmental Law;
(ii) listed in the United States Department of Transportation
Optional Hazardous Materials Table, 49 C.F.R. (S) 172. 101, as enacted as
of the date hereof or as hereafter amended, or in the United States
Environmental Protection Agency List of
-6-
<PAGE>
Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as
enacted as of the date hereof or as hereafter amended; or
(iii) explosive, radioactive, asbestos, a polychlorinated
biphenyl, petroleum or a petroleum product or waste oil.
"Impositions" means all taxes (including, without limitation, all ad
-----------
valorem, sales (including those imposed on lease rentals), use, single business,
gross receipts, value added, intangible transaction privilege, privilege or
license or similar taxes), assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not commenced or completed
within the term of the Indenture), ground rents, water, sewer or other rents and
charges, excises, levies, fees (including, without limitation, license, permit,
inspection, authorization and similar fees), and all other governmental charges,
in each case whether general or special, ordinary or extraordinary, or foreseen
or unforeseen, of every character in respect of the Mortgaged Property and/or
any Property Income (including all interest and penalties thereon), which at any
time prior to, during or in respect of the term hereof may be assessed or
imposed on or in respect of or be a lien upon (a) the Borrower (including,
without limitation, all income, franchise, single business or other taxes
imposed on Borrower for the privilege of doing business in the jurisdiction in
which the Mortgaged Property, or any other collateral delivered or pledged to
Lender in connection with the Loan, is located) or Lender, (b) the Mortgaged
Property, or any other collateral delivered or pledged to Lender in connection
with the Loan, or any part thereof or any Property Income therefrom or any
estate, right, title or interest therein, or (c) any occupancy, operation, use
or possession of, or sales from, or activity conducted on, or in connection with
the Mortgaged Property or the leasing or use thereof or any part thereof, or the
acquisition or financing of the acquisition of the Mortgaged Property by
Borrower. Nothing contained in this Agreement shall be construed to require
Borrower to pay any tax, assessment, levy or charge imposed on any of the Lender
Parties in the nature of a franchise, capital levy, estate, inheritance,
succession, income or net revenue tax.
"Improvements" has the meaning set forth in the recitals to the
------------
Indenture.
"Indebtedness" means the indebtedness in the original principal amount
------------
evidenced by the Note, together with all other obligations and liabilities due
or to become due to Lender pursuant hereto, under the Note or in accordance
with any of the other Loan Documents, all amounts, sums and expenses paid by or
payable to Lender hereunder or pursuant to the Note or any of the other Loan
Documents, and all other covenants, obligations and liabilities of Borrower
hereunder or pursuant to the Note or any of the other Loan Documents, together
with all interest thereon.
"Indenture" shall have the meaning set forth in the Recitals hereof.
---------
-7-
<PAGE>
"Independent" means, when used with respect to any Person, a Person
-----------
who (i) does not have any direct financial interest or any material indirect
financial interest in Borrower, or in any Affiliate of Borrower or any
constituent partner, shareholder, member or beneficiary of Borrower and (ii) is
not connected with Borrower or any Affiliate of Borrower or any constituent
partner, shareholder, member or beneficiary of Borrower as an officer, employee,
promoter, underwriter, trustee, partner, director or person performing similar
functions. Whenever it is herein provided that any Independent Person's opinion
or certificate shall be provided, such opinion or certificate shall state that
the Person executing the same has read this definition and is Independent within
the meaning hereof.
"Independent Director" shall mean:
--------------------
(a) if with respect to a corporation, a director of such
corporation who is not and for the prior five years has not been (i) a
stockholder, officer, member, employee or creditor of such corporation or such
corporation's ultimate parent or any subsidiaries or Affiliate of such
corporation, or (ii) a member of the immediate family of any such stockholder,
officer, member, employee, creditor, or other director of such corporation, or
of any Affiliate of such corporation;
(b) if with respect to a limited partnership, a director of a
Corporate General Partner of such limited partnership who is not and for the
prior five years has not been (i) a stockholder, officer, member, employee or
creditor of such limited partnership, General Partner, if applicable, or General
Partner's ultimate parent or any subsidiaries or Affiliate of such limited
partnership or General Partner, or (ii) a member of the immediate family of any
such stockholder, officer, member, employee, creditor, or other director of such
limited partnership, General Partner or of any Affiliate of such limited
partnership or General Partner;
(c) if with respect to a limited liability company, a director
of a managing corporate member of such limited liability company (or a Corporate
General Partner of a managing, limited partnership) (which member must hold at
least a 1% ownership interest in such limited liability company) who is not and
for the prior five years has not been (i) a stockholder, officer, member,
employee or creditor of such limited liability company, such member or General
Partner, if applicable, or such member's or General Partner's ultimate parent or
any subsidiaries or Affiliate of such limited liability company or such member
or General Partner, or (ii) a member of the immediate family of any such
stockholder, officer, member, employee, creditor, or other director of such
limited liability company, such member or of any Affiliate of such limited
liability company or such member or General Partner; and
(d) if with respect to a trust, an Independent trustee which is
a bank or trust company organized under the laws of the United States or any
state thereof having a combined capital and surplus of at least $100,000,000.
-8-
<PAGE>
"Insurance Proceeds" shall have the meaning provided in Section 2.6(d)
------------------
hereof.
"Insurance Requirements" means all material terms of any insurance
----------------------
policy required pursuant to this Agreement or the Indenture, all material
requirements of the issuer of any such policy, and all material regulations and
then current standards applicable to or affecting the Mortgaged Property or any
part thereof or any use or condition thereof, which may, at any time, be
recommended by the Board of Fire Underwriters, if any, having jurisdiction over
the Mortgaged Property, or such other body exercising similar functions.
"Intangibles" shall have the meaning provided in the Indenture.
-----------
"Leases" shall have the meaning provided in the Indenture.
------
"Lease Event of Default" shall mean an Event of Default, as defined in
----------------------
the Net Lease.
"Legal Requirements" shall mean all federal, state, county, municipal
------------------
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of Governmental Authorities (including,
without limitation, Environmental Laws) affecting the Mortgaged Property or any
part thereof or the construction, use, alteration or operation thereof, or any
part thereof, whether now or hereafter enacted and in force, and all permits,
licenses and authorizations and regulations relating thereto, and all covenants,
agreements, restrictions and encumbrances contained in any instruments, either
of record or known to Borrower, at any time in force affecting the Mortgaged
Property or any part thereof, including, without limitation, any which may (i)
require repairs, modifications or alterations in or to the Mortgaged Property or
any part thereof, or (ii) in any way limit the use and enjoyment thereof.
"Lender" shall mean Carbon Capital Mortgage Partners, L.P., a
------
Delaware limited partnership, and its successors and assigns.
"Lender Parties" shall mean Lender and its successors in interest and
--------------
assigns, and their respective affiliates, subsidiaries, parents, employees,
officers, shareholders, partners, members, managers, trustees, beneficial owners
and directors.
"Lender Party" shall mean any one of the Lender Parties individually.
------------
"Leverage Covenant" shall have the meaning given to such term in
-----------------
Section 2.6(d) of this Agreement.
"Liabilities" shall have the meaning provided in Section 4.1(s)
-----------
hereof.
"Lien" shall mean any mortgage, deed of trust, lien, pledge,
----
hypothecation, assignment, security interest, or any other encumbrance, charge
or transfer of, on or affecting
-9-
<PAGE>
the Mortgaged Property or any portion thereof or Borrower, or any interest
therein, including, without limitation, any conditional sale or other title
retention agreement, any financing lease having substantially the same economic
effect as any of the foregoing, the filing of any financing statement, and
mechanic's, materialmen's and other similar liens and encumbrances.
"Loan" shall have the meaning set forth in the Recitals hereto.
----
"Loan Amount" shall have the meaning set forth in the Recitals hereto.
-----------
"Loan Documents" shall mean this Agreement, the Note, the Indenture,
--------------
the Assignment, the Guaranty, the Environmental Guaranty and all other
agreements, instruments, certificates and documents delivered by or on behalf
of Borrower or its Affiliates to evidence or secure the Loan or otherwise in
satisfaction of the requirements of this Agreement, the Indenture or the other
documents listed above.
"Loan Proceeds" shall mean the funds advanced to, or at the direction
-------------
of, Borrower by Lender in accordance with the terms hereof.
"Loss Proceeds" shall have the meaning provided in Section 2.6(f)
-------------
hereof.
"Maturity Date" shall mean the maturity date of the Note, as set forth
-------------
therein.
"Minimum Rent" shall have the meaning set forth in the Net Lease.
------------
"Mortgaged Property " shall have the meaning set forth in the granting
------------------
clause of the Indenture.
"Net Lease" shall mean that certain Lease Agreement dated as of
---------
January 29, 1996, by and between Borrower, as landlord, and Tenant, as tenant,
as amended by Amendment to Lease Agreement dated as of August 20, 1996, and
Second Amendment to Lease Agreement, dated as of May 1, 1997.
"Net Proceeds" shall mean the excess of (i) (x) the purchase price (at
------------
foreclosure or otherwise) actually received by Lender with respect to the
Mortgaged Property as a result of the exercise by Lender of its rights, powers,
privileges and other remedies after the occurrence of an Event of Default, or
(y) in the event that Lender (or Lender's nominee) is the purchaser at
foreclosure by credit bid, then the amount of such credit bid, in either case,
over (ii) all costs and expenses, including, without limitation, all reasonable
attorneys' fees and disbursements and any brokerage fees, if applicable,
incurred by Lender in connection with the exercise of such remedies, including
the sale of such Mortgaged Property after a foreclosure against the Mortgaged
Property.
"Note" shall mean and refer to that certain Promissory Note, dated as
----
of the date hereof, made by Borrower, as maker, in favor of Lender, as payee, as
such note may be
-10-
<PAGE>
modified, amended, supplemented or extended, and any note(s) issued in exchange
therefor or in replacement thereof.
"Officer's Certificate" means a certificate delivered to Lender by
---------------------
Borrower which is signed by the Authorized Representative of Borrower:
"Operating Expenses" shall mean all operating expenses and capital
------------------
expenditures paid by Tenant for Tenant's operations at the Mortgaged Property.
"Other Borrowings" shall mean, with respect to Borrower, without
----------------
duplication and not including the Indebtedness or any deferred fees payable in
connection with the Loan (i) all indebtedness of Borrower for borrowed money or
for the deferred purchase price of property or services, (ii) all indebtedness
of Borrower evidenced by a note, bond, debenture or similar instrument, (iii)
the face amount of all letters of credit issued for the account of Borrower and,
without duplication, all unreimbursed amounts drawn thereunder, (iv) all
indebtedness of Borrower secured by a Lien on any property owned by Borrower
whether or not such indebtedness has been assumed, (v) all Contingent
Obligations of Borrower, and (vi) all payment obligations of Borrower under any
interest rate protection agreement (including, without limitation, any interest
rate swaps, caps, floors, collars or similar agreements) and similar agreements.
Notwithstanding anything to the contrary contained in this definition, "Other
Borrowings" shall not include borrowings or advances from Affiliates of Borrower
if expressly subordinated to the Indebtedness, short term trade debt to the
extent such debt is not evidenced by a note and if Borrower is a trust, Other
Borrowings shall not include any debt of any beneficiary or trustee of such
trust.
"Payment Date" shall mean the date on which payments are due under the
------------
Note, which shall be the first day of each month, or if such day is not a
Business Day, the next following Business Day.
"Percentage Rent" shall have the meaning set forth in the Net Lease.
---------------
"Performance Account" shall mean an account under the sole dominion
-------------------
and control of Lender.
"Permitted Encumbrances" means (a) the Liens created by the Indenture
----------------------
and the other Loan Documents, (b) all Liens and other matters disclosed as
permitted exceptions in the Title Insurance Policy affecting the Mortgaged
Property or any part thereof, (c) Liens, if any, for Impositions imposed by any
Governmental Authority not yet due or delinquent or being contested in good
faith and by appropriate proceedings in accordance with Section 2.6(b) of the
Indenture, (d) any mechanics, and materialmen's Liens deleted from the
exceptions to, or affirmatively insured against loss or damage to Lender under
the Title Insurance Policy or contested in good faith pursuant to the Indenture,
(e) without limiting the foregoing, any and all governmental and public utility
easements, licenses or other agreements which may hereafter be granted by
Borrower (subject to Lender's approval right under Section 2.18(g) of
-11-
<PAGE>
the Indenture) and which do not adversely affect (i) the marketability of title
to the Mortgaged Property, (ii) the fair market value thereof, or (iii) the use
thereof as of the date hereof, (f) rights of existing and future tenants, as
tenants only pursuant to written Leases, and (g) such other title and survey
exceptions as Lender may approve in writing or accept in Lender's sole
discretion.
"Permitted Investments" shall mean any one or more of the following
---------------------
obligations or securities acquired at a purchase price of not greater than par,
including those issued by Lender or any of its Affiliates:
(i) direct obligations of, or obligations fully guaranteed as to
payment of principal and interest by, (a) the United States or any agency
or instrumentality thereof provided such obligations are backed by the full
faith and credit of the United States of America, or (b) FHLMC, FNMA, the
Federal Farm Credit System or the Federal Home Loan Banks provided such
obligations at the time of purchase or contractual commitment for purchase
are qualified by the Rating Agencies as a Permitted Investment hereunder as
evidenced in writing;
(ii) fully FDIC insured demand and time deposits in or
certificates of deposit of, or bankers' acceptances issued by, any bank or
trust company, savings and loan association or savings bank, provided that
the commercial paper and long-term unsecured debt obligations of such
depository institution or trust company have one of the two highest rating
available for such securities by two of the Rating Agencies, or such lower
rating as is consented to in writing by Lender;
(iii) repurchase obligations with respect to any security
described in clause (i) above entered into with a depository institution or
trust company (acting as principal) described in clause (ii) above;
(iv) general obligations of or obligations guaranteed by any
State of the United States or the District of Columbia receiving one of the
two highest long-term unsecured debt rating available for such securities
by two of the Rating Agencies, or such lower rating as is consented to in
writing by Lender;
(v) securities bearing interest or sold at a discount that are
issued by any corporation incorporated under the laws of the United States
of America or any State thereof or the District of Columbia and is rated by
two of the Rating Agencies in one of their two highest long-term unsecured
rating categories at the time of such investment or contractual commitment
providing for such investment; provided, however, that securities issued by
any such corporation will not be Permitted Investments to the extent that
investment therein will cause the then outstanding principal amount of
securities issued by such corporation and held as part of either Account to
exceed 20% of the aggregate principal amount of all Permitted Investments
held in such Account;
-12-
<PAGE>
(vi) commercial or finance company paper (including both non-
interest-bearing discount obligations and interest-bearing obligations
payable on demand or on a specified date not more than one year after the
date of issuance thereof) that is rated by two of the Rating Agencies in
their highest short-term unsecured debt rating available at the time of
such investment or contractual commitment providing for such investment,
and is issued by a corporation the outstanding senior long-term debt
obligations of which are then rated by two of the Rating Agencies in their
highest short-term and long-term unsecured debt ratings, or such lower
rating as is consented to in writing by Lender;
(vii) guaranteed reinvestment agreements acceptable to the Rating
Agencies issued by any bank, insurance company or other corporation rated
in the highest long-term unsecured rating levels available to such issuers
by the Rating Agencies throughout the duration of such agreements, or such
lower rating as is consented to in writing by Lender;
(viii) units of taxable money market funds, which funds are
regulated investment companies, which seek to maintain a constant net asset
value per share and invest solely in obligations backed by the full faith
and credit of the United States, which funds have been consented to in
writing by the Lender; and
(ix) any other demand, money market or time deposit, or any
other obligation, security or investment, that may be consented to in
writing by Lender;
provided, however, that no instrument or security shall be a Permitted
- --------- -------
Investment if (y) such instrument or security evidences a right to receive only
interest payments or (z) the right to receive principal and interest payments
derived from the underlying investment provides a yield to maturity in excess of
120% of the yield to maturity at par of such underlying investment, provided,
further, derivatives (e.g., instruments paying interest or principal only, or
inverse floaters), shall not be Permitted Investments.
"Person" shall mean any individual, corporation, partnership, limited
------
liability company, joint venture, estate, trust, business trust, unincorporated
association, any federal, state, county or municipal government or any bureau,
department or agency thereof and any fiduciary acting, in such capacity on
behalf of any of the foregoing.
"Premises" has the meaning set forth in the granting clause of the
--------
Indenture.
"Property Income" shall mean all rents, income, issues, profits,
---------------
security deposits, Loss Proceeds and other benefits to which Borrower may now or
hereafter be entitled from the Premises, the Equipment or the Intangibles or
under or in connection with the Leases including without limitation, all income
received from tenants, transient guests, lessees, licensees and concessionaires
and other persons occupying space at the Premises and/or rendering services to
tenants thereat.
-13-
<PAGE>
"Provided Information" shall have the meaning provided in Section
--------------------
4.1(s) hereof.
"Rating Agencies" shall mean Duff & Phelps Credit Rating Co., Standard
---------------
& Poor's Ratings Group, Fitch Investors Services, Inc., and Moody's Investors
Service Inc. or any successor thereto, and any other nationally recognized
statistical rating, agency which may hereafter be engaged by Lender; provided,
however, that at any time during which the Loan is an asset of a securitization,
"Rating Agencies" shall mean the rating agencies that from time to time rate
the securities issued in connection with such securitization.
"Registration Statement" shall have the meaning provided in Section
----------------------
4.1(s) hereof.
"Remedial Work" shall have the meaning provided in Section 4.l(d)(i).
-------------
"Rent" shall mean Minimum Rent, Percentage Rent and all other
----
payments, if any, due from Tenant to Borrower under the Net Lease.
"Rent Account" shall mean an Eligible Account, maintained in the name
------------
of Lender, as secured party, as may be designated by Lender into which Rent
shall be deposited.
"Required Debt Service Payment" with respect to any payment period,
-----------------------------
shall mean the amount which is required to be paid pursuant to the Note during
such period.
"Required Tax/Insurance Payment" with respect to any payment period,
------------------------------
shall mean the amount which is required to be remitted pursuant to Section 2.7
hereof during such period.
"Revenue Account" shall mean an account, subject to Lender's
---------------
reasonable approval, into which all Cash Proceeds shall be deposited (subject to
Section 2.6(c)(ii)).
"Security Deposit Account" shall have the meaning provided in Section
------------------------
3.l(ac) hereof.
"Single Purpose Entity" shall mean a Person, other than an individual,
---------------------
estate or unincorporated association, which:
(a) Has not engaged and shall not engage in any business unrelated
to the management and ownership of the Mortgaged Property (or to the
ownership of a Person which owns the Mortgaged Property);
(b) Has not owned and will not own any assets other than those
related to the Mortgaged Property (or to the ownership of a Person which
owns the Mortgaged Property);
-14-
<PAGE>
(c) Shall not, without the unanimous consent of the Independent
Director, file a bankruptcy or insolvency petition or otherwise institute
insolvency proceedings;
(d) Has not dissolved and shall not dissolve, liquidate,
consolidate, merge, or sell all or substantially all of its assets or amend
its organizational documents with respect to its purpose or any other
provision designed to insure single purpose entity status;
(e) Has had and shall have an Independent Director;
(f) Shall not incur any debt, other than (1) the Loan, and (2)
accounts and unsecured obligations incurred with respect to the operation of
the Mortgaged Property in the ordinary course of business;
(g) Has corrected and shall correct any known misunderstanding
regarding its separate identity;
(h) Has maintained and shall maintain its accounts separate from any
other Person;
(i) Has maintained and shall maintain its books, records,
resolutions and agreements as official records;
(j) Has not commingled and shall not commingles its funds or assets
with those of any other Person;
(k) Has conducted and shall conduct its own business in its own
name;
(l) Has maintained and shall maintain its financial statements,
accounting records and other entity documents separate from any other
Person;
(m) Has paid and shall pay its own liabilities out of its own funds
or assets;
(n) Has observed and shall observe all entity formalities;
(o) Has not guaranteed or become obligated and shall not guarantee
or become obligated for the debts of any other Person and has not held and
will not hold out that its credit as being available to satisfy the
obligations of others;
(p) Has not acquired and shall not acquire obligations or securities
of its affiliates;
(q) Has allocated and shall allocate fairly and reasonably any
overhead for shared office space and use separate stationery, invoices, and
checks;
-15-
<PAGE>
(r) Has not pledged and shall not pledge its assets for the benefit
of any other Person;
(s) Has held and shall hold itself out as a separate and distinct
entity under its own name and not as a division or part of any other
Person;
(t) Has not made and shall not make loans to any Person;
(u) Has maintained and shall maintain adequate capital for its
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;
(v) Has not identified and shall not identify its owners or any
Affiliates as a division or part of it;
(w) Has not entered and shall not enter into or be a party to, any
transaction with its owners or its Affiliates except in the ordinary course
of its business and on terms which are intrinsically fair and are no less
favorable to it than would be obtained in a comparable arm's-length
transaction with an unrelated third party;
(x) Has maintained and will maintain a governing agreement which
will require that such entity shall continue in existence so long as one
owner is in existence and has not been declared as bankrupt.
"Securities" shall have the meaning provided in Section 4.1(s) hereof.
----------
"Securities Act" shall have the meaning provided in Section 4.1(s)
--------------
hereof.
"Securities Group" shall have the meaning provided in Section 4.1(s)
----------------
hereof.
"Securitization" shall have the meaning provided in Section 4.1(r)
--------------
hereof.
"State" means the State in which the Mortgaged Property is
-----
situated.
"Taking" shall mean a taking or voluntary conveyance during the term
------
hereof of all or part of the Mortgaged Property, or any interest therein or
right accruing thereto or use thereof, as the result of, or in settlement of any
condemnation or other eminent domain proceeding whether or not the same shall
have actually been commenced.
"Tax and Insurance Escrow Fund" shall have the meaning provided in
-----------------------------
Section 2.7 hereof.
"Tenant" shall mean HOB Chicago, Inc., a Delaware corporation, as
------
tenant under the Net Lease.
-16-
<PAGE>
"Title Insurance Policy" shall mean the ALTA Form 1992 lender's title
----------------------
insurance policy (in states in which the 1992 form is not available, the 1990
form), insured, co-insured or reinsured by Chicago Title Insurance Company and
insuring, the first priority lien in favor of Lender pursuant to the Indenture
subject only to the Permitted Encumbrances, and containing such endorsements and
affirmative assurances as Lender shall reasonably require.
"Transfer" shall have the meaning set forth in the Indenture.
--------
"UCC" means the Uniform Commercial Code as in effect in a State.
---
2. GENERAL TERMS
------- -----
Section 2. 1 Amount of the Loan.
------------ ------------------
Subject to the terms and conditions of this Agreement, the Lender
shall lend to Borrower the Loan Amount. The Loan to Borrower shall be evidenced
by the Note.
Section 2.2 Use of Proceeds.
----------- ---------------
All proceeds of the Loan shall be used for commercial purposes only in
connection with the ownership and operation of the Mortgaged Property (and
including reimbursement for costs incurred prior to the date hereof in
developing the Mortgaged Property including construction costs) and will not be
used for personal, family or household use.
Section 2.3 Security for the Note.
----------- ---------------------
The Note and Borrower's obligations hereunder and under the other Loan
Documents shall be secured by (a) the Indenture; (b) the Assignment; and (c) the
other Loan Documents.
Section 2.4 Payment of Loan.
----------- ---------------
Borrower shall repay the Loan in accordance with the provisions of the
Note.
Section 2.5 Transfer of Mortgaged Property.
----------- ----------- ------------------
Borrower shall not Transfer the Mortgaged Property or any part thereof
or permit any Transfer to occur, except in accordance with Section 2.16 of the
Indenture.
Section 2.6 Cash Management.
----------- ---------------
(a) Rent Account. At all times until the Loan has been repaid in
------------
full, Borrower shall cause all payments of Rent under the Net Lease to be
promptly delivered by
-17-
<PAGE>
Tenant directly into the Rent Account by wire transfer. Tenant, by its execution
of this Agreement, agrees to make all payments of Rent into the Rent Account and
will continue to do so unless and until otherwise instructed by Lender. Lender
may establish the Rent Account in the name of Lender, as secured party, or as
Lender may otherwise designate. The Rent Account shall be under the sole
dominion and control of Lender. Borrower hereby grants to Lender a security
interest in Borrower's right, title and interest in all amounts to be deposited
into the Rent Account. Borrower hereby irrevocably directs and authorizes Lender
to withdraw and apply funds from the Rent Account in accordance with the terms
and conditions of this Agreement. Borrower shall not have any right of
withdrawal in respect of the Rent Account.
(b) Payments from Rent Account. On each Payment Date, Lender shall
--------------------------
withdraw from the Rent Account an amount necessary to make the Required Debt
Service Payment and the Required Tax/Insurance Payment. Provided that no Event
of Default has occurred and is continuing, on each Payment Date all monies
remaining in the Rent Account in each calendar month after Lender has received
the Required Debt Service Payment and the Required Tax/Insurance Payment due in
such month shall be withdrawn from the Rent Account and deposited in the Excess
Rent Account. If there are not sufficient funds deposited in the Rent Account on
or before the Payment Date to fund the applicable Required Debt Service Payment
and the Required Tax/Insurance Payment, then a Default shall exist hereunder and
Borrower shall, upon demand, deposit immediately available funds into the Rent
Account in the amount of any such deficiency, and failure to make such deposit
within five (5) days after such demand shall be an Event of Default hereunder.
For so long as any Default or Event of Default shall exist and is continuing no
disbursements shall be required to be made by Lender from the Rent Account to
Borrower, and all amounts held in the Rent Account may be retained by Lender in
the Rent Account as security for Borrower's obligations under the Loan Documents
or may, at Lender's option, be applied to such obligations.
(c) Revenue Account. (i) Subject to the terms of this Section
---------------
2.6(c), Borrower shall cause Tenant to promptly remit to the Revenue Account all
cash proceeds collected each day by Tenant from Tenant's operations at the
Mortgaged Property (the "Cash Proceeds"), which remittance of Cash Proceeds
---- --------
must, during any Excess Cash Event (as such term is hereinafter defined), be
made within one Business Day of being collected. Tenant, by its execution of
this Agreement, agrees to comply with the terms of the preceding sentence, and
agrees that the Revenue Account will not be changed without the consent of
Lender (which consent will not be unreasonably withheld so long as Lender is
provided access to such new accounts in a manner which will allow Lender to
exercise its rights with respect to the Revenue Account as set forth in this
Agreement). Subject to the provisions of this Section 2.6(c) and Section 2.6(d),
Tenant shall have the right to withdraw funds from the Revenue Account to pay
all Operating Expenses incurred by Tenant and to make distributions to itself to
the extent the amounts contained in the Revenue Account are in excess of the
amounts required to pay Operating Expenses.
(ii) Upon the occurrence of an Excess Cash Event, Lender shall have
the right on the seventh (7th) Business Day of each calendar month to deduct
from the Revenue
-18-
<PAGE>
Account an amount equal to the Excess Cash Flow generated by the operation of
Tenant's business at the Mortgaged Property for the prior calendar month, which
monies will be transferred by Lender to the Performance Account. On or before
the seventh (7th) Business Day of each calendar month during any Excess Cash
Event, Borrower shall cause Tenant to furnish Lender with a complete accounting
of all Gross Revenue received by Tenant and all Operating Expenses made during
the prior calendar month. If Lender does not receive such report on the seventh
(7th) Business Day of any month during an Excess Cash Event (the "Report
Delivery Date"), Lender shall have the absolute and unconditional right at any
time and from time to time to withdraw from the Revenue Account such amounts as
Lender, in its sole and absolute discretion, determines, for application in
accordance with the provisions of this Section 2.6(c)(ii), provided, however,
that if Lender receives such report within ten (10) days after such Report
Delivery Date, Lender shall give due consideration to the information contained
therein and make any necessary and appropriate adjustments when it receives the
next due monthly report. For the purposes of this Agreement, an "Excess Cash
Event" shall be deemed to have occurred (1) whenever an Event of Default has
occurred and is continuing, (2) upon the election of Lender, pursuant to the
terms of the Note, to extend the maturity date of the Loan from the Initial
Maturity Date to the Extended Maturity Date and for so long thereafter as any
portion of the Loan remains outstanding, or (3) whenever a breach of either of
the Performance Covenants or the Leverage Covenant has occurred and is
continuing. If an Event of Default has occurred and is continuing or Lender
elects, pursuant to the terms of the Note, to extend the maturity date of the
Loan from the Initial Maturity Date to the Extended Maturity Date, Lender shall,
notwithstanding anything to the contrary which may be contained in this
Agreement (including in the following sentence) have the absolute and
unconditional right to apply all monies in the Performance Account to the
Indebtedness. Any monies transferred into the Performance Account whenever a
breach of either of the Performance Covenants or the Leverage Covenant has
occurred and is continuing, shall be held in such account pursuant to Section
2.6(d)(iii) below.
(iii) Borrower and Tenant hereby grant Lender a security interest in
Borrower's and Tenant's respective right, title and interest in all amounts to
be deposited into the Revenue Account and the Performance Account. Borrower and
Tenant hereby irrevocably direct and authorize Lender to withdraw and apply
funds from the Revenue Account in accordance with the terms and conditions of
this Agreement.
(iv) Borrower and Tenant (i) represent that Tenant is affiliated with
Borrower and wholly owned by Guarantor and (ii) acknowledge that (x) Borrower,
Tenant and Guarantor are receiving substantial benefits from the Loan and (y)
Lender would not have made the Loan to Borrower without, among other things,
Tenant's agreement to the terms hereof.
(d) Restriction on Revenue and Performance Accounts.
-----------------------------------------------
(i) For the purposes of this Section 2.6(d), the Performance
Covenants will be deemed to have been breached if with respect to the two full
calendar quarters that are
-19-
<PAGE>
immediately prior to any date after September 30, 1997, (x) Gross Revenues are
less than $7,610,000 or (y) the ratio of EBITDA to Required Debt Service
Payments is less than 2:1.
(ii) For the purposes of this Section 2.6(d), the Leverage Covenant
will be deemed to have been breached if at any time the aggregate amount of
outstanding and unpaid Borrowings (other than non-recourse debt) of Guarantor
and its affiliates on a consolidated basis (the "Guarantor's Includable
----------------------
Liabilities") exceeds fifty percent (50%) of the book value (net of
- ------------
depreciation) of the real and personal property and equipment owned by Guarantor
and its affiliates on a consolidated basis excluding any such real and personal
property and equipment securing non-recourse debt (the "Guarantor's Includable
----------------------
Assets"). Notwithstanding the preceding sentence, the Leverage Covenant will not
- --------
be deemed to have been breached if, at a time that Guarantor would otherwise be
in breach of the Leverage Covenant, the excess of the Guarantor's Includable
Assets over the aggregate amount of the Guarantor's Includable Liabilities
equals or exceeds an amount equal to the Principal Amount multiplied by three.
-------------
For the purposes of this paragraph, "affiliates" of Guarantor shall be those
entities with whom Guarantor reports consolidated financial results.
(iii) During any period of time that there is a breach of either of
the Performance Covenants or of the Leverage Covenant, the Tenant shall be
prohibited from withdrawing monies from the Revenue Account for any purpose
other than to pay Operating Expenses and shall be expressly prohibited during
any such period from withdrawing any monies in the Revenue Account for
distribution to itself or any Affiliate of Tenant (including, without
limitation, any shareholders of Tenant). The amount of monies which are
transferred to the Performance Account during any period that there is a breach
of the Performance Covenants or the Leverage Covenant shall be herein referred
to as "Reserved Monies". If the Performance Covenants, and the Leverage Covenant
---------------
are satisfied after one calendar quarter in which there has been a breach of the
Performance Covenants or the Leverage Covenant, the Reserved Monies will be
returned to the Revenue Account promptly after Lender has received evidence that
the Performance Covenants and the Leverage Covenants have been satisfied. If the
Performance Covenants and the Leverage Covenant are satisfied after two or more
successive calendar quarters in which there has been a breach of the Performance
Covenants or a breach of the Leverage Covenant, fifty percent (50%) of the
Reserved Monies will be returned to the Revenue Account promptly after Lender
has received evidence that the Performance Covenants and the Leverage Covenants
have been satisfied, and the remaining fifty percent (50%) of the Reserved
Monies will be returned on or about ninety (90) days thereafter. In no event
shall Lender be required to return any Reserved Monies at anytime that a Default
or an Event of Default shall have occurred and be continuing.
(e) Permitted Investments. Upon the written request of the Borrower,
---------------------
Lender shall instruct the depositary institution(s) holding the Rent Account and
the Performance Account to invest and reinvest any balance in such accounts from
time to time in Permitted Investments as instructed by the Borrower and
otherwise in accordance with this Section 2.6(e), provided that (i) if the
Borrower fails to so instruct such depositary, or upon the occurrence and during
the continuance of a Default or Event of Default, Lender may invest and reinvest
-20-
<PAGE>
such balance in Permitted Investments as Lender shall determine in its sole
discretion, (ii) the maturities of the Permitted Investments on deposit in the
Rent Account and the Performance Account shall, to the extent such dates are
ascertainable, be selected and coordinated to become due not later than the day
before any disbursements from such accounts must be made, (iii) all such
Permitted Investments shall be held in the name and be under the sole dominion
and control of Lender, and (iv) no Permitted Investment shall be made unless
Lender shall retain a perfected first priority Lien in such Permitted Investment
securing the Indebtedness and all filings and other actions necessary to ensure
the validity, perfection, and priority of such Lien have been taken. All funds
in the Rent Account and the Performance Account that are invested in a Permitted
Investment are deemed to be held in such accounts for all purposes of this
Agreement and the other Loan Documents. Neither Lender nor any of the other
Lender Parties shall have any liability for any loss in investments of funds in
the Rent Account and the Performance Account that are invested in Permitted
Investments whether Borrower or Lender selected such Permitted Investments in
accordance herewith and no such loss shall affect Borrower's obligation to fund,
or liability for funding, such accounts. Borrower agrees that Borrower shall
include all such earnings on the Rent Account and the Performance Account as
income of the Borrower (and, if Borrower is a partnership or other pass-through
entity, the partners, members or beneficiaries of Borrower, as the case may be),
and shall be the owner of such accounts for federal and applicable state and
local tax purposes.
(f) Loss Proceeds. Subject to the final sentence of Section 2.6(b),
-------------
in the event of a casualty to the Mortgaged Property, unless Lender elects or is
deemed to have elected or is required pursuant to the Indenture to make the
proceeds received under the insurance policy required to be maintained by
Borrower ("Insurance Proceeds") available to Borrower or Tenant, as applicable,
--------------------
for restoration, then, Lender and Borrower shall cause all such Insurance
Proceeds (less Borrower's cost of recovering such Insurance Proceeds, including,
without limitation, reasonable attorneys' fees) to be paid by the insurer
directly to the Rent Account, whereupon Lender shall (after deducting out
Lender's cost of recovering and paying out such Insurance Proceeds, including,
without limitation, reasonable attorneys' fees) apply same to reduce the
Indebtedness, in accordance with the terms of the Note and the Indenture. In the
event that Insurance Proceeds are to be applied toward restoration, Lender shall
cause such funds to be held in a segregated bank account, which shall be an
Eligible Account, and shall disburse same in accordance with the provisions of
the Indenture. Unless Lender elects, or is deemed to have elected, pursuant to
the Indenture to make all of the proceeds in respect of any Taking (any such
proceeds, "Condemnation Proceeds") available to Borrower for restoration, then
----------------------
Lender and Borrower shall cause all such Condemnation Proceeds (less Borrower's
cost of recovering such Condemnation Proceeds, including, without limitation,
reasonable attorneys' fees) to be paid to the Rent Account, whereupon Lender
shall (after deducting out Lender's cost of recovering and paying out such
Condemnation Proceeds, including, without limitation, reasonable attorneys'
fees) apply same to reduce the Indebtedness in accordance with the terms of the
Note and the Indenture; provided, however, that any Condemnation Proceeds
--------- -------
received in connection with a temporary taking shall be maintained in the Rent
Account and applied by Lender in the same manner as Rent received from Borrower
with respect to the operation of the Mortgaged Property; provided further,
-------- --------
however,
- -------
-21-
<PAGE>
that in the event that the Condemnation Proceeds of any such temporary taking
are paid in a lump sum in advance, Lender shall cause such Condemnation Proceeds
to be held in a segregated interest-bearing escrow account, which shall be an
Eligible Account, shall estimate, in Lender's reasonable discretion, the number
of Payment Dates that the Mortgaged Property shall be affected by such temporary
taking, shall divide the aggregate Condemnation Proceeds in connection with such
temporary taking by such number of Payment Dates, and shall disburse from such
escrow account into the Rent Account each Payment Date during the pendency of
such temporary taking such installment of said Condemnation Proceeds. In the
event that Condemnation Proceeds are to be applied toward restoration, Lender
shall cause such funds to be held in a segregated bank account which shall be an
Eligible Account, and shall disburse same in accordance with the provisions of
the Indenture. If any Insurance Proceeds or Condemnation Proceeds (collectively,
"Loss Proceeds") are received by Borrower, such Loss Proceeds (less Borrower's
-------------
cost of recovering such Loss Proceeds, including, without limitation, reasonable
attorneys' fees) shall be received in trust for Lender, shall be segregated from
other funds of Borrower, and shall be forthwith paid into the Rent Account, or
paid to Lender to hold in a segregated account, in each case to be applied or
disbursed in accordance with the foregoing. Any Loss Proceeds made available to
the Borrower or Tenant, as applicable, for restoration in accordance herewith,
to the extent not used by Borrower or Tenant, as applicable, in connection with,
or to the extent they exceed the cost of, such restoration, shall be deposited
into the Rent Account, whereupon Lender shall apply the same to reduce the
Indebtedness in accordance with the terms of the Note.
(g) Bank Fees. Borrower shall pay any fees imposed by the depository
---------
institution(s) holding the Rent Account, Revenue Account, Performance Account,
Security Deposit Account and any other accounts required or permitted under the
terms of this Loan Agreement and the other Loan Documents.
Section 2.7 Taxes and Insurance.
----------- -------------------
(a) Tax and Insurance Escrow Fund. Borrower shall pay to Lender on
-----------------------------
each Payment Date (a) one-twelfth of the Impositions that Lender estimates will
be payable during the next ensuing twelve (12) months in order to accumulate
with Lender sufficient funds to pay all such Impositions at least thirty (30)
days prior to their respective due dates, and (b) one-twelfth of the premiums
that Lender estimates will be payable for the renewal of the insurance policies
required to be maintained by Borrower under Section 2.14 of the Indenture upon
the expiration thereof in order to accumulate with Lender sufficient funds to
pay all such insurance premiums at least thirty (30) days prior to the
expiration of such policies (said amounts in (a) and (b) above hereinafter
called the "Tax and Insurance Escrow Fund"). To the extent available, Lender
-----------------------------
will apply the Tax and Insurance Escrow Fund to payments of Impositions and
insurance premiums required to be made by Borrower pursuant to the Indenture on
or prior to the date they are due; or to reimburse Borrower for such amounts
upon presentation of evidence of payment and an Officer's Certificate from
Borrower in form and substance satisfactory to Lender. In making any payment
relating to the Tax and Insurance Escrow Fund, Lender may do so according to any
bill, statement or estimate procured from
-22-
<PAGE>
the appropriate public office (with respect to Impositions) or insurer or agent
(with respect to insurance premiums), without inquiry into the accuracy of such
bill, statement or estimate or into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof. If the amount of the Tax and
Insurance Escrow Fund shall exceed the amounts due for Impositions and insurance
premiums pursuant to the Indenture, Lender shall, in its sole discretion, return
any excess to Borrower or credit such excess against future payments to be made
to the Tax and Insurance Escrow Fund. In allocating such excess, Lender may deal
with the person or entity shown on the records of Lender to be the owner of the
Mortgaged Property. If at any time Lender determines that the Tax and Insurance
Escrow Fund is not or will not be sufficient to pay the items set forth in (a)
and (b) above, Lender shall notify Borrower of such determination and Borrower
shall increase the monthly payments to Lender by the amount that Lender
reasonably estimates is sufficient to make up the deficiency at least thirty
(30) days prior to delinquency of the Impositions and/or expiration of the
Policies, as the case may be.
(b) Grant of Security Interest. Borrower hereby pledges, assigns and
--------------------------
grants a security interest to Lender, as security for payment of all sums due
under the Loan and the performance of all other terms, conditions and provisions
of the Loan Documents and this Agreement on Borrower's part to be paid and
performed, of all Borrower's right, title and interest in and to the Tax and
Insurance Escrow Fund. Borrower shall not, without obtaining the prior written
consent of Lender, further pledge, assign or grant any security interest in the
Tax and Insurance Escrow Fund, or permit any lien or encumbrance to attach
thereto, or any levy to be made thereon, or any UCC-l Financing Statements,
except those naming Lender as the secured party, to be filed with respect
thereto.
(c) Application of Tax and Insurance Escrow Fund. Upon the
--------------------------------------------
occurrence of an Event of Default, Lender may apply any sums then present in the
Tax and Insurance Escrow Fund to the payment of the following items in any order
in its sole discretion: (a) Impositions; (b) insurance premiums; (c) interest on
the unpaid principal balance of the Note; (d) amortization of the unpaid
principal balance of the Note; or (e) all other sums payable pursuant to this
Agreement and the other Loan Documents. The Tax and Insurance Escrow Fund shall
not constitute a trust fund and may be commingled with other monies held by
Lender. Sums in the Tax and Insurance Escrow Fund shall be held by Lender in an
account in Lender's name at a financial institution selected by Lender in its
sole discretion and shall be invested in Permitted Investments. Earnings or
interest, if any, thereon shall be retained as part of such funds and applied in
accordance with this Section 2.7. Lender shall not be liable for any loss
sustained on the investment of any funds constituting the Tax and Insurance
Escrow Fund.
Section 2.8 Supplemental Mortgage Affidavits.
----------- --------------------------------
The lien created by the Indenture is intended to encumber the
Mortgaged Property to the full extent of the Indebtedness. As of the date
hereof, Borrower has paid all state, county and municipal recording and all
other taxes imposed upon the execution and
-23-
<PAGE>
recordation of the Indenture in the State in which the Mortgaged Property is
located based upon the foregoing.
3. REPRESENTATIONS AND WARRANTIES
Section 3.1 Borrower's Representations.
----------- --------------------------
Borrower represents and warrants that, as of the date hereof:
(a) Organization. Borrower (i) is a duly organized and validly
------------
existing limited partnership, in good standing under the laws of the
jurisdiction of its formation, (ii) has all requisite power and authority
to own its properties (including, without limitation, the Mortgaged
Property) and to carry on its business as now being conducted and is
qualified to do business in every jurisdiction where it conducts business,
(iii) has the power to execute and deliver, and perform its obligations
under this Agreement, the Note, the Indenture and all of the other Loan
Documents to which it is a party, and (iv) has duly qualified and is
authorized to do business and is in good standing as a limited partnership
in every jurisdiction in which it owns or leases real property or in which
the nature of its business requires it to be so qualified. Guarantor (i) is
a duly organized and validly existing corporation, in good standing under
the laws of the jurisdiction of its formation, (ii) has all requisite power
and authority to own its properties and to carry on its business as now
being conducted and is qualified to do business in every jurisdiction where
it conducts business, (iii) has the power to execute and deliver, and
perform its obligations under the Guaranty and the Environmental Guaranty,
and (iv) has duly qualified and is authorized to do business and is in good
standing as a corporation in every jurisdiction in which it owns or leases
real property or in which the nature of its business requires it to be so
qualified.
(b) Authorization. Borrower's execution and delivery of this
-------------
Agreement, the Note, the Indenture and each of the other Loan Documents,
Borrower's performance of its respective obligations thereunder and the
creation of the security interests and liens provided for in this Agreement
and the other Loan Documents have been duly authorized by all requisite
action on the part of Borrower, including the consent of its partners,
shareholders, members, managers, trustees, beneficiaries and/or directors,
as applicable, and where required, will not violate any provision of any
Legal Requirements (to the best knowledge of Borrower), any order of any
court or other Governmental Authority, the partnership agreement,
certificate of incorporation, certificate of formation, operating
agreement, declaration of trust or bylaws of Borrower, as the case may be,
or any indenture, agreement or other instrument to which Borrower is a
party or by which Borrower is bound, or be in conflict with, result in a
breach of, or constitute (with due notice or lapse of time or both) a
default under, or except as may be provided by this Agreement, the Note,
the Indenture or any other Loan Document, result in the creation or
imposition of any Lien of any nature whatsoever upon any of the property or
assets of Borrower pursuant to any such
-24-
<PAGE>
indenture, agreement or instrument. Guarantor's execution and delivery of the
Guaranty and the Environmental Guaranty and Guarantor's performance of its
respective obligations thereunder has been duly authorized by all requisite
action on the part of Guarantor, including the consent of its shareholders
and/or directors, as applicable, and where required, will not violate any
provision of any Legal Requirements (to the best knowledge of Borrower), any
order of any court or other Governmental Authority, the certificate of
incorporation or bylaws of Guarantor, or any indenture, agreement or other
instrument to which Guarantor is a party or by which Guarantor is bound, or be
in conflict with, result in a breach of, or constitute (with due notice or lapse
of time or both) a default under, or result in the creation or imposition of any
Lien of any nature whatsoever upon any of the property or assets of Guarantor
pursuant to any such indenture, agreement or instrument. Guarantor is not
required to obtain any consent, approval or authorization from, or to file any
declaration or statement with, any Governmental Authority or other agency in
connection with or as a condition to the execution, delivery or performance of
the Guaranty and the Environmental Guaranty.
(c) Litigation. There are no actions, suits or proceedings at law or in
----------
equity by or before any Governmental Authority or other agency now pending or,
to the best of Borrower's knowledge, threatened against or affecting Borrower,
Guarantor or the Mortgaged Property, which actions, suits or proceedings, if
determined against Borrower, Guarantor or the Mortgaged Property, might
materially adversely affect the condition (financial or otherwise) or business
of Borrower or Guarantor or the condition or ownership of the Mortgaged
Property.
(d) Agreements. Borrower is not a party to any agreement or instrument or
----------
subject to any restriction which might materially adversely affect Borrower or
the Mortgaged Property, or Borrower's business, properties or assets, operations
or condition, financial or otherwise. Borrower is not in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which it is a party or by
which Borrower or the Mortgaged Property is bound which might materially
adversely affect Borrower or the Mortgaged Property, or Borrower's business,
properties or assets, operations or condition, financial or otherwise.
(e) Title to the Mortgaged Property. Borrower owns good, marketable and
-------------------------------
insurable fee simple title to the Mortgaged Property, free and clear of all
covenants, liens, encumbrances, restrictions, easements and other matters
affecting title other than the Permitted Encumbrances. There are no outstanding
options or rights of first refusal affecting the Mortgaged Property or any
portion thereof.
(f) No Bankruptcy Filing. Neither Borrower nor Guarantor is contemplating
--------------------
either the filing of a petition by it under any state or federal bankruptcy or
insolvency laws or the liquidation of all or a major portion of Borrower's or
Guarantor's assets or
-25-
<PAGE>
property, and Borrower has no knowledge of any Person contemplating the filing
of any such petition against it or Guarantor. Neither Borrower nor Guarantor is
currently the subject of any bankruptcy or similar proceeding under any state or
federal law and the Mortgaged Property is not currently under the jurisdiction
of any bankruptcy court or other court having similar jurisdiction.
(g) Full and Accurate Disclosure. No statement of fact made by or on behalf
----------------------------
of Borrower in this Agreement or in any of the other Loan Documents contains any
untrue statement of a material fact or omits to state any material fact
necessary to make statements contained herein or therein not misleading. There
is no fact presently known to Borrower which has not been disclosed to Lender
which adversely affects or might adversely affect, the Mortgaged Property or the
business, operations or condition (financial or otherwise) of Borrower or
Guarantor.
(h) Tax Filings. Borrower has filed all federal, state and local tax
-----------
returns required to be filed and has paid or made adequate provision for the
payment of all federal, state and local taxes, charges and assessments payable
by Borrower. Borrower believes that its tax returns properly reflect the income
and taxes of Borrower for the periods covered thereby, subject only to
reasonable adjustments required by the Internal Revenue Service or other
applicable tax authority upon audit.
(i) Compliance. Borrower has not received any written notice that the
----------
Mortgaged Property or the use thereof do not comply with all applicable Legal
Requirements, including, without limitation, building and zoning ordinances and
codes. Borrower is not in default or violation of any order, writ, injunction,
decree or demand of any Governmental Authority, the violation of which might
materially adversely affect the condition (financial or otherwise) or business
of Borrower.
(j) Use of Proceeds. Borrower's use of the proceeds of the Loan are and
---------------
will continue to be for the purposes described in Section 2.2 hereof.
(k) Financial Information. All financial data that has been delivered by
---------------------
Borrower or Guarantor to Lender (i) is true, complete and correct in all
material respects. (ii) accurately represents the financial condition of the
Persons covered thereby as of the date of such reports, and (iii) has been
prepared in accordance with GAAP consistently applied throughout the periods
covered, except as disclosed therein. As of the date of this Agreement, neither
Borrower nor Guarantor has a material contingent liability, liability for taxes
or other unusual or forward commitment not reflected in such financial
statements. Since the latest date of the financial data provided to Lender by
Borrower and Guarantor, except as otherwise disclosed in such financial
statements or notes thereto, there has been no material adverse change in the
assets, liabilities or financial position of Borrower or Guarantor or in the
results of operations of Borrower or Guarantor. Neither Borrower nor Guarantor
has incurred any obligation or liability, contingent or otherwise, that is not
reflected in such financial
-26-
<PAGE>
statements which might adversely affect its business operations or the Mortgaged
Property.
(l) Condemnation. No Taking has been commenced or, to Borrower's best
------------
knowledge, is contemplated with respect to all or any portion of the Mortgaged
Property or for the relocation of roadways providing access to the Mortgaged
Property.
(m) Other Mortgage Debt. Borrower has not received and will not borrow or
-------------------
receive other debt financing secured by the Mortgaged Property or any part
thereof.
(n) Federal Reserve Regulations. No part of the proceeds of the Loan will
---------------------------
be used for the purpose of purchasing or acquiring any "margin stock" within the
meaning of Regulation G, T, U and X of the Board of Governors of the Federal
Reserve System or for any other purpose which would be inconsistent with such
Regulations or any other Regulations of such Board of Governors, or for any
purposes prohibited by Legal Requirements or by the terms and conditions of this
Agreement.
(o) Utilities and Public Access. The Mortgaged Property has adequate rights
---------------------------
of access to public ways and is served by adequate water, sewer, sanitary sewer
and storm drain facilities for the operation of the Mortgaged Property (assuming
no vacant residential or commercial space) as currently operated. All public
utilities necessary or convenient to the full use and enjoyment of the Mortgaged
Property as currently operated (assuming no vacant residential or commercial
space) are located in the public right-of-way abutting the Premises, and all
such utilities are connected so as to serve the Mortgaged Property without
passing over other property, except to the extent such other property is subject
to a perpetual easement for such utility benefiting the Mortgaged Property, and
such easement is insured under the Title Insurance Policy. The location of all
Improvements to the Mortgaged Property is within applicable setback lines. All
roads necessary for the full utilization of the Mortgaged Property for its
current purpose have been completed and dedicated to public use and accepted by
all Governmental Authorities.
(p) Environmental Compliance. Borrower has not received any written notice
------------------------
that the Mortgaged Property is not in full compliance with all applicable
Environmental Laws, which compliance includes, but is not limited to, the
possession by Borrower or Tenant or any other tenant of all permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof, except where the failure to
comply with such laws would not materially adversely affect Lender's security
interest in the Mortgaged Property, or the condition (financial or otherwise) of
Borrower. Borrower has not received any written communication, whether from a
Governmental Authority, citizens group, employee or otherwise, that alleges that
Borrower or Tenant is not in such compliance. There is no Environmental Claim
pending or, to Borrower's best knowledge, threatened, against Borrower in
connection with the Mortgaged Property or, to
-27-
<PAGE>
Borrower's actual knowledge, against any Person whose liability for any such
Environmental Claim Borrower has or may have retained or assumed either
contractually or by operation of law. To Borrower's actual knowledge, there are
no present or past actions, activities, circumstances, conditions, events or
incidents, including, without limitation, the release, emission, discharge,
presence or disposal of any Hazardous Substance, that are likely to form the
basis of any Environmental Claim against Borrower in connection with the
Mortgaged Property or, to Borrower's actual knowledge, against any Person whose
liability for any Environmental Claim Borrower has or may have retained or
assumed either contractually or by operation of law, except for any such
Environmental Claim that would not materially adversely affect the value of
Lender's security interest in the Mortgaged Property or the condition (financial
or otherwise) of Borrower.
(q) Solvency. Giving effect to the transactions contemplated hereby, the
--------
fair saleable value of the Borrower's assets exceeds and will, immediately
following the making of the Loan, exceed Borrower's total liabilities,
including, without limitation, subordinated, unliquidated, disputed and
contingent liabilities. The fair saleable value of Borrower's assets is and
will, immediately following the making of the Loan, be greater than such
Borrower's probable liabilities, including the maximum amount of its contingent
liabilities on its debts as such debts become absolute and matured. Borrower's
assets do not and, immediately following the making of the Loan will not,
constitute unreasonably small capital to carry out its business as conducted or
as proposed to be conducted. Borrower does not intend to, and does not believe
that it will, incur debts and liabilities (including, without limitation,
contingent liabilities and other commitments) beyond its ability to pay such
debts as they mature (taking into account the timing and amounts of cash to be
received by Borrower and the amounts to be payable on or in respect of
obligations of Borrower).
(r) Not Foreign Person. Borrower is not a "foreign person" within the
------------------
meaning of (S) 1445(f)(3) of the I.R.C.
(s) Single Purpose Entity.
---------------------
(i) Borrower at all times since its formation has been, and will
continue to be, a duly formed and existing limited partnership, general
partnership, corporation, business trust or a limited liability company and, in
each case, a Single Purpose Entity. Borrower (and each General Partner and
Corporate General Partner or if Borrower is a limited liability company, each
managing member) at all times since its formation has been, and will continue to
be, duly qualified as a foreign partnership, corporation, business trust or
limited liability company in each jurisdiction in which such qualification was
or may be necessary for the conduct of its business.
(ii) If Borrower is a limited partnership, at least one general
partner of Borrower at all times since its formation has been, and will continue
to be,
-28-
<PAGE>
a duly formed and existing corporation which is a Single Purpose Entity. If
Borrower is a limited liability company, at least one managing member of
Borrower at all times since its formation has been, and will continue to be, a
duly formed and existing corporation which is a Single Purpose Entity.
(iii) Borrower at all times since its formation has complied, and
will continue to comply, with the provisions of its organizational documents and
the laws of its jurisdiction of formation relating to partnerships,
corporations, trusts or limited liability companies, as the case may be.
(t) No Joint Assessment. Separate Tax Lots. Borrower shall not suffer,
--------------------------------------
permit or initiate the joint assessment of the Mortgaged Property (i) with any
other real property constituting a separate tax lot, and (ii) with any portion
of the Mortgaged Property which may be deemed to constitute personal property,
or any other procedure whereby the lien of any taxes which may be levied against
such personal property shall be assessed or levied or charged to the Mortgaged
Property as a single lien. Borrower agrees to promptly initiate and prosecute in
good faith and with due diligence the proceedings necessary to have the
Mortgaged Property assessed as a separate tax parcel, provided that such
assessment shall be completed on or before November 30, 1997 or, in the event
that Borrower on or before November 30, 1997 obtains from the appropriate state
or municipal authority an extension in writing of the final date for such
assessment (and promptly delivers a copy of such written extension to Borrower),
such extended date. Notwithstanding the foregoing, such assessment shall be
completed no later than November 30, 1998.
(u) Assessments. There are no pending or, to Borrower's actual knowledge,
-----------
proposed special or other assessments for public improvements or otherwise
affecting the Mortgaged Property which are not the obligation of Tenant under
the Net Lease, nor are there any contemplated improvements to the Mortgaged
Property that may result in such special or other assessments which will not be
the obligation of Tenant under the Net Lease.
(v) Indenture Lien. The Indenture creates, and Lender has, a valid and
--------------
enforceable first deed of trust or first mortgage Lien on the Mortgaged Property
in which Borrower owns a fee simple estate, as security for the repayment of the
Indebtedness, subject only to the Permitted Encumbrances. All property covered
by any Collateral Security Instrument is subject to a Uniform Commercial Code
financing statement filed and/or recorded and refiled and rerecorded, as
appropriate, in all places necessary to perfect a valid first priority security
interest with respect to the rights and property that are the subject of such
Collateral Security Instrument (collectively, the "Financing Statements").
(w) Enforceability. The Note, the Indenture and each other Loan Document
--------------
executed by Borrower in connection therewith, including without limitation, any
-29-
<PAGE>
Collateral Security Instrument, is original, and each is the legal, valid and
binding obligation of Borrower, enforceable against Borrower in accordance with
its terms, subject to bankruptcy, insolvency and equitable principles. Said Note
and Indenture and the other Loan Documents executed by Borrower are, as of the
date hereof, not subject to any right of rescission, setoff, counterclaim or
defense by Borrower, including the defense of usury, nor will the operation of
any of the terms of said Note, the Indenture and other Loan Documents executed
by Borrower, or the exercise of any right thereunder, render the Indenture
unenforceable against Borrower, in whole or in part, or subject to any right of
rescission, setoff, counterclaim or defense by Borrower, including the defense
of usury, and Borrower has not asserted any right of rescission, setoff,
counterclaim or defense with respect thereto. The Guaranty and the Environmental
Guaranty are each an original, and are each the legal, valid and binding
obligation of Guarantor, enforceable against Guarantor in accordance with their
terms, subject to bankruptcy, insolvency and equitable principles. Neither the
Guaranty nor the Environmental Guaranty is, as of the date hereof, subject to
any right of rescission, setoff, counterclaim or defense by Guarantor, including
the defense of usury, nor will the operation of any of the terms of the Guaranty
or the Environmental Guaranty or the exercise of any right thereunder, render
the Indenture unenforceable against Borrower or the Guaranty or the
Environmental Guaranty unenforceable against Guarantor, in whole or in part, or
subject to any right of rescission, setoff, counterclaim or defense, including
the defense of usury, and neither Borrower nor Guarantor has asserted any right
of rescission, setoff, counterclaim or defense with respect thereto.
(x) Creation of Lien. Each Collateral Security Instrument delivered in
----------------
connection with the origination of the Loan establishes and creates a valid,
subsisting and enforceable Lien on and a security interest in, or claim to, the
rights and property described therein.
(y) No Prior Assignment. As of the date hereof, (i) Lender is the assignee
-------------------
of Borrower's interest under the Leases, and (ii) there are no prior assignments
of the Leases or any portion of the Property Income due and payable or to become
due and payable which are presently outstanding.
(z) Insurance. Borrower has obtained and has delivered to Lender insurance
---------
policies satisfying insurance coverage, amounts and other requirements set forth
in Section 2 of the Indenture.
(aa) Certificate of Occupancy. Borrower or Tenant, as applicable, has
------------------------
obtained (i) all permits, licenses, approvals and franchises (the "Permits")
necessary and all Permits which a commercially reasonable property owner and
operator would obtain, in order to use and operate the Mortgaged Property. The
use being made of the Mortgaged Property is in conformity with any applicable
certificate of occupancy and/or commercial license.
-30-
<PAGE>
(ab) Flood Zone. The Improvements are not located in a flood hazard area as
----------
defined by the Federal Insurance Administration.
(ac) Security Deposits. As of the date hereof, Borrower has not received
-----------------
nor is Borrower entitled to any security deposit from Tenant under the Net
Lease. If, after the date hereof, Borrower shall receive any security deposits
from tenants under any Leases at the Mortgaged Property, same shall be deposited
by Borrower, into a segregated bank account at such commercial or savings bank
or banks as may be reasonably satisfactory to Lender (the "Security Deposit
Account") in accordance with applicable law.
(ad) No Plan Assets. Borrower is not an "employee benefit plan," as defined
--------------
in Section 3(3) of ERISA, subject to Title I of ERISA, and none of the assets of
Borrower constitute or will constitute "plan assets" of one or more such plans
within the meaning of 29 C.F.R. Section 2510.3-101.
(ae) Physical Condition. The Mortgaged Property, including all buildings,
------------------
improvements, parking facilities, sidewalks, storm drainage systems, roofs,
plumbing systems, HVAC systems, fire protection systems, electrical systems,
equipment, elevators, exterior sidings and doors, landscaping, irrigation
systems and all structural components, are in good condition, order and repair
in all material respects; there exists no structural or other material defects
or damages in the Mortgaged Property, whether latent or otherwise. Neither the
Borrower nor any of its Affiliates has received notice from any insurance
company or bonding company of any defects or inadequacies in any of the Mortgage
Property, or any part thereof, which would adversely affect the insurability of
the same or cause the imposition of extraordinary premiums or charges thereon or
of any termination or threatened termination of any policy of insurance or bond.
(af) Survey. To Borrower's best knowledge and belief, the surveys for the
------
Mortgaged Property delivered to Lender in connection with the Loan does not fail
to reflect any material matter affecting the Mortgaged Property or the title
thereto.
(ag) Investment Company Act. Borrower is not (i) an "investment company" or
----------------------
a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended; (ii) a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of either a
"holding company" or a "subsidiary company" within the meaning of the Public
Utility Holding Company Act of 1935, as amended; or (iii) subject to any other
federal or state law or regulation which purports to restrict or regulate its
ability to borrow money.
Section 3.2 Survival of Representations.
----------- ---------------------------
-31-
<PAGE>
Borrower agrees that all of the representations and warranties of
Borrower set forth in Section 3.1 and elsewhere in this Agreement and in the
other Loan Documents are made as of the date hereof (except as expressly
otherwise provided) and shall survive the delivery of the Note and making of the
Loan and continue for so long as any amount remains owing to Lender under this
Agreement, the Note or any of the other Loan Documents; provided, however, that
the representations set forth in clause (p) of Section 3.1 shall survive in
perpetuity. All representations, warranties, covenants and agreements made in
this Agreement or in the other Loan Documents shall be deemed to have been
relied upon by Lender notwithstanding any investigation heretofore or hereafter
made by Lender or on its behalf.
4. AFFIRMATIVE COVENANTS
---------------------
Section 4.1 Borrower Covenants.
------------ ------------------
Borrower covenants and agrees, from the date hereof and until payment
in full of the Indebtedness under the Note or the earlier release of the
Indenture, as follows:
(a) Existence; Compliance with Legal Requirements, Insurance.
--------------------------------------------------------
(i) Borrower will do or cause to be done all things necessary
to comply with all Legal Requirements applicable to Borrower and to
preserve, renew and keep in full force and effect its existence, and to the
extent necessary or desirable for the conduct of its business, its rights,
licenses, permits and franchises. Borrower shall at all times maintain,
preserve and protect all franchises and trade names and preserve all the
remainder of its property used or useful in the conduct of its business and
keep or cause Tenant or any future tenant of the Mortgaged Property to keep
the Mortgaged Property in compliance with all Legal Requirements and in
good working order and repair, ordinary wear and tear excepted, and from
time to time make, or cause to be made, all reasonably necessary repairs,
renewals, replacements, betterments and improvements thereto, all as more
fully provided in the Indenture. Borrower shall keep or cause Tenant to
keep the Mortgaged Property insured at all times, by financially sound and
reputable insurers, to such extent and against such risks, and maintain
liability and such other insurance, as is more fully provided in the
Indenture.
(ii) Without limiting the generality of the foregoing, Borrower
(A) will or will cause an Environmental Consultant to inspect, handle,
encapsulate, treat and remove asbestos located at the Premises, if any, as
required by Legal Requirements or as recommended in the Environmental
Report and (B) shall implement and continue, throughout the term of this
Agreement, to conduct a compliance program to ensure that any such asbestos
is at all times maintained or removed in accordance with Legal Requirements
and such recommendations.
-32-
<PAGE>
(b) Impositions and Other Claims. Borrower will pay and discharge or
----------------------------
cause to be paid and discharged all Impositions, as well as all lawful claims
for labor, materials and supplies or otherwise, which could become a Lien, all
as more fully provided, and to the extent required, in the Indenture.
(c) Litigation. Borrower will give prompt written notice to Lender of
----------
any litigation or governmental proceedings pending or threatened (in writing)
against Borrower which might materially adversely affect Borrower's condition
(financial or otherwise) or business.
(d) Environmental Remediation.
-------------------------
(i) If any investigation, site monitoring, containment, cleanup,
removal, restoration or other remedial work of any kind or nature
(collectively, the "Remedial Work") is required on the Mortgaged Property
-------------
pursuant to an order or directive of any Governmental Authority or under
any applicable Environmental Law, or in Lender's opinion, based upon
recommendations of a qualified environmental engineer reasonably acceptable
to Lender, after notice to Borrower, is reasonably necessary to prevent
future liability under any applicable Environmental Law, because of or in
connection with the current or future presence, suspected presence,
release, or suspected release of a Hazardous Substance into the air, soil,
ground water, surface water, or soil vapor on, under or from the Mortgaged
Property or any portion thereof, Borrower shall (at Borrower's sole cost
and expense), or shall cause such responsible third parties to promptly
commence and diligently prosecute to completion (or cause to be commenced
and diligently prosecuted to completion) all such Remedial Work. In all
events, such Remedial Work shall be commenced within thirty (30) days after
any demand therefor by Lender or such shorter period as may be required
under any applicable Environmental Law; however, Borrower shall not be
required to commence such Remedial Work within the above specified time
periods if prevented from doing so by any Governmental Authority, or if
commencing such Remedial Work within such time periods would result in
Borrower or such Remedial Work violating any Environmental Law. All such
Remedial Work shall be commenced within thirty (30) days after any demand
therefor by Lender or such shorter period as may be required under any
applicable Environmental Law; however, Borrower shall not be required to
commence such Remedial Work within the above-specified time periods if (x)
prevented from doing so by any Governmental Authority, (y) commencing such
Remedial Work within such time periods would result in Borrower or such
Remedial Work violating any Environmental Law or (z) Borrower is contesting
in good faith and by appropriate proceedings the applicability of the
relevant Environmental Laws; provided that such contest shall not (i)
create or materially increase the risk of any civil or criminal liability
of any kind whatsoever on the part of Lender or (ii) permit or materially
increase the risk of the spread, release or suspected release of any
Hazardous Substance into the air, soil, ground water, surface water, or
soil vapor on, under or emanating from the Property or any portion thereof
during the pendency of such contest.
-33-
<PAGE>
(ii) All Remedial Work under subsection (d)(i) hereof shall be
performed by contractors, and under the supervision of a consulting engineer,
each approved in advance by Lender (which approval shall not be unreasonably
withheld or delayed). All costs and expenses reasonably incurred in connection
with such Remedial Work and Lender's reasonable monitoring or review of such
Remedial Work (including reasonable attorneys' fees and disbursements, but
excluding internal overhead, administrative and similar costs of Lender) shall
be paid by Borrower. If Borrower does not timely commence and diligently
prosecute to completion the Remedial Work, then Lender may (but shall not be
obligated to) cause such Remedial Work to be performed. The Borrower agrees to
bear and shall pay or reimburse Lender on demand for all Advances (as defined in
the Indenture) and expenses (including reasonable attorneys' fees and
disbursements, but excluding internal overhead, administrative and similar costs
of Lender) reasonably relating to or incurred by Lender in connection with
monitoring, reviewing or performing any such Remedial Work.
(iii) Except with Lender's prior written consent, Borrower shall not
commence any Remedial Work under subsection (d)(i) hereof or enter into any
settlement agreement, consent decree or other compromise relating to any
Hazardous Substances or Environmental Laws which might, in Lender's sole
judgment, impair the value of Lender's security hereunder to a material degree.
Lender's prior written consent shall not be required, however, if the presence
or threatened presence of Hazardous Substances on, under or about the Mortgaged
Property poses an immediate threat to the health, safety or welfare of any
person or is of such a nature that an immediate remedial response is necessary,
or if Lender fails to respond to any notification by Borrower hereunder within
twenty (20) Business Days from the date of such notification. In such events,
Borrower shall notify Lender as soon as practicable of any action taken.
(e) Environmental Matters; Inspection.
---------------------------------
(i) Upon reasonable prior notice, Lender and its agents,
representatives and employees shall have the right at all reasonable times and
during normal business hours, except to the extent such access is limited by
applicable law, to enter upon and inspect all or any portion of the Mortgaged
Property, provided that such inspections shall not unreasonably interfere with
the operation thereof or the tenants thereon. At its sole expense, except as
provided in subparagraph (e)(ii) hereof, (y) Lender may retain an environmental
consultant to conduct and prepare reports of such inspections and (z) Borrower
shall be given a reasonable opportunity to review any and all reports, data and
other documents or materials reviewed or prepared by the consultant, and to
submit comments and suggested revisions or rebuttals to same. The inspection
rights granted to Lender in this Section 4.1(e) shall be in addition to, and not
in limitation of, any other inspection rights granted to Lender in this
Agreement, and shall expressly include the right to conduct soil borings and
other customary environmental tests, assessments and audits in compliance with
applicable Legal
-34-
<PAGE>
Requirements; provided, that, except as set forth in clause (ii) below,
Lender shall repair any damage caused by such borings, tests, assessments or
audits.
(ii) Borrower agrees to bear and shall pay or reimburse
Lender on demand for all Advances and expenses (including reasonable
attorneys' fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) reasonably relating to or
incurred by Lender in connection with the inspections, tests and reports
described in this Section 4.1(e) in the following situations:
(x) If Lender has reasonable grounds to believe at the time any
such inspection is ordered, that there exists an Environmental Violation or
that a Hazardous Substance is present on, under or emanating from the
Mortgaged Property, or is migrating to or from adjoining property, except
under conditions permitted by applicable Environmental Laws and not
prohibited by any Loan Document;
(y) If any such inspection reveals an Environmental Violation or
that a Hazardous Substance is present on, under or emanating to or from the
Mortgaged Property or is migrating from adjoining property, except under
conditions permitted by applicable Environmental Laws and not prohibited by
any Loan Document; or
(z) If an Event of Default exists at the time any such inspection
is ordered.
(f) Environmental Notices. To the extent that Borrower has knowledge
---------------------
thereof, Borrower shall promptly provide notice to Lender of:
(i) any proceeding or investigation commenced or threatened by
any Governmental Authority with respect to the presence of any Hazardous
Substance on, under or emanating from the Mortgaged Property;
(ii) any proceeding or investigation commenced or threatened by
any Governmental Authority, against Borrower, with respect to the presence,
suspected presence, release or threatened release of Hazardous Substances
from any property not owned by Borrower, including, but not limited to,
proceedings under the Federal Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq.;
-- ---
(iii) all claims made or any lawsuit or other legal action or
proceeding brought by any Person against (A) Borrower or the Mortgaged
Property or any portion thereof, or (B) any other party occupying the
Mortgaged Property or any portion thereof, in any such case relating to any
loss or injury allegedly resulting from any Hazardous Substance or relating
to any violation or alleged violation of Environmental Law;
-35-
<PAGE>
(iv) the discovery of any occurrence or condition on the
Mortgaged Property or on any real property adjoining or in the vicinity of
the Mortgaged Property, of which Borrower becomes aware, which reasonably
could be expected to lead to the Mortgaged Property or any portion thereof
being in violation of any Environmental Law or subject to any restriction
on ownership, occupancy, transferability or use under any Environmental Law
(collectively, an "Environmental Violation") or which might subject Lender
-----------------------
to an Environmental Claim; and
(v) the commencement and completion of any Remedial Work.
(g) Copies of Notices. Borrower will transmit to Lender copies of any
-----------------
citations, orders, notices or other communications received by Borrower from any
Person with respect to the notices described in Section 4.1(f) hereof.
(h) Environmental Claims. Lender may join and participate in, as a
--------------------
party if Lender so determines, any legal or administrative proceeding or action
concerning the Mortgaged Property or any portion thereof under any Environmental
Law, if, in Lender's reasonable judgment, the interests of Lender will not be
adequately protected by Borrower. Borrower agrees to bear and shall pay or
reimburse Lender on demand for all Advances and expenses (including reasonable
attorneys' fees and disbursements, but excluding internal overhead,
administrative and similar costs of Lender) relating to or incurred by Lender in
connection with any such action or proceeding.
(i) Indemnification. Borrower agrees to indemnify, reimburse, defend,
---------------
and hold harmless Lender and the other Lender Parties for, from, and against all
demands, claims, actions or causes of action, assessments, losses, damages,
liabilities, costs and expenses, including, without limitation, interest,
penalties, punitive and consequential damages, reasonable attorneys' fees,
disbursements and expenses, and reasonable consultants' fees, disbursements and
expenses (but excluding internal overhead, administrative and similar costs of
Lender and the other Lender Parties), asserted against, resulting to, imposed
on, or incurred by Lender and/or the other Lender Parties, directly or
indirectly, in connection with any of the following:
(i) the events, circumstances, or conditions which are alleged
to, or do, (1) relate to the presence, or release into the environment, of
any Hazardous Substance at any location owned, leased or operated by the
Borrower or relate to circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law by the Borrower or with respect
to any such locations, and in either case, result in Environmental Claims,
or (2) constitute Environmental Violations;
(ii) any pollution or threat to human health or the environment
that is related in any way to Borrower's or any previous owner's or
operator's management, use, control, ownership or operation of the
Mortgaged Property, including, without limitation, all onsite and offsite
activities involving Hazardous
-36-
<PAGE>
Substances, and whether occurring, existing or arising prior to or from and
after the date hereof, and whether or not the pollution or threat to human
health or the environment is described in the Environmental Report;
(iii) any Environmental Claim against any Person whose liability
for such Environmental Claim Borrower has or may have assumed or retained
either contractually or by operation of law;
(iv) any Remedial Work under subsection 4.1(d)(i) hereof,
required to be performed pursuant to any Environmental Law or the terms
hereof; or
(v) the breach of any environmental representation, warranty or
covenant set forth in this Agreement;
including in each case, without limitation, with respect to each of the Lender
Parties, as the case may be, to the extent such Environmental Claims result from
their respective negligence, except in each case, to the extent that they result
solely from their respective gross negligence or willful misconduct.
The indemnity provided in this Section 4.1(i) shall not be included
in any exculpation of Borrower or the General Partner, if any, from personal
liability provided in this Agreement or in any of the other Loan Documents (but
in no event shall any trustee of Borrower have any personal liability hereunder)
and shall survive the repayment in full of the Indebtedness, any foreclosure of
the Mortgaged Property and the satisfaction and release of the Indenture or
reconveyance. Nothing in this Section 4.1(i) shall be deemed to deprive Lender
of any rights or remedies provided to it elsewhere in this Agreement or the
other Loan Documents. Notwithstanding anything to the contrary set forth herein,
if title to the Mortgaged Property is transferred to Lender or its nominee
pursuant to a foreclosure or a deed-in-lieu of foreclosure and neither Tenant
nor any Affiliate of Tenant is a tenant of the Mortgaged Property, then (i) in
the event that Lender's willful misconduct or gross negligence with respect to
Hazardous Substances existing on, at or under the Mortgage Property prior to
such transfer of title causes additional liability with respect to such
Hazardous Substances, Borrower shall have no obligation to indemnify the Lender
Parties for the cost, if any, of such additional liability, and (ii) Borrower
shall have no obligation to indemnify the Lender Parties for liability arising
from Hazardous Substances placed, released or disposed on, at or under the
Mortgaged Property after the date of such transfer of title solely through the
willful misconduct or negligence of Lender.
(j) Access to Premises. Subject to the terms of the Net Lease and
------------------
Tenant's rights thereunder, Borrower will permit agents, representatives and
employees of Lender to inspect the Mortgaged Property or any part thereof at
reasonable hours upon reasonable advance written notice.
-37-
<PAGE>
(k) Notice of Default. Borrower will promptly advise Lender of any
-----------------
material adverse change in Borrower's condition, financial or otherwise, or of
the occurrence of any Event of Default by Borrower, or of the occurrence of any
event which upon notice or the passage of time or both would constitute an Event
of Default.
(l) Cooperate In Legal Proceedings. Borrower will cooperate fully with
------------------------------
Lender with respect to any proceedings before any court, board or other
Governmental Authority which may in any way affect the rights of Lender
hereunder or any rights obtained by Lender under any of the Loan Documents and,
in connection therewith, permit Lender, at its election, to participate in any
such proceedings at Lender's expense.
(m) Perform Loan Documents. Borrower shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all costs, fees and expenses to the extent required under the Loan
Documents.
(n) Insurance Benefits. Borrower shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any Insurance Proceeds lawfully or
equitably payable in connection with the Mortgaged Property, and Lender shall be
reimbursed for any expenses incurred in connection therewith (including
reasonable attorneys' fees and disbursements, and the payment by Borrower of the
expense of an Appraisal on behalf of Lender in case of a fire or other casualty)
out of such Insurance Proceeds, all as more specifically provided in the
Indenture.
(o) Further Assurances. Borrower shall, at Borrower's sole cost and
------------------
expense:
(i) furnish to Lender all instruments, documents, boundary
surveys, footing or foundation surveys, certificates, plans and
specifications (to the extent in Borrower's possession or readily
obtainable by Borrower), Appraisals, title and other insurance reports and
agreements, and each and every other document, certificate, agreement and
instrument required to be furnished pursuant to the terms of the Loan
Documents or reasonably requested by Lender in connection therewith;
(ii) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary or desirable, to evidence, preserve and/or protect the collateral
at any time securing or intended to secure the Note, as Lender may
reasonably require; provided, same shall not create any personal liability
on the part of Borrower except as expressly provided herein or in the other
Loan Documents; and
(iii) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying
out of the intents and purposes of this Agreement and the other Loan
Documents, as Lender shall reasonably require from time to time; provided,
same shall not create any personal
-38-
<PAGE>
liability on the part of Borrower except as expressly provided herein or in
the other Loan Documents.
(p) Financial Reporting
-------------------
(i) Borrower will keep and maintain or will cause to be
kept and maintained on a fiscal year basis, in accordance with GAAP (or such
other accounting basis reasonably acceptable to Lender) consistently applied,
proper and accurate books, records and accounts reflecting all of the financial
affairs of Borrower and all items of income and expense in connection with the
operation of the Mortgaged Property or in connection with any services,
equipment or furnishings provided in connection with the operation thereof,
whether such income or expense may be realized by Borrower or by any other
Person whatsoever, excepting lessees unrelated to and unaffiliated with Borrower
who have leased from Borrower portions of the Mortgaged Property for the purpose
of occupying the same. Lender shall have the right from time to time at all
times during normal business hours upon reasonable notice to examine such books,
records and accounts at the office of Borrower or other Person maintaining such
books, records and accounts and to make such copies or extracts thereof as
Lender shall desire. After the occurrence of an Event of Default, Borrower shall
pay any costs and expenses incurred by Lender to examine Borrower's accounting
records with respect to the Mortgaged Property, as Lender shall determine to be
necessary or appropriate in the protection of Lender's interest.
(ii) Borrower will furnish Lender annually, within one
hundred twenty (120) days following the end of each Fiscal Year of Borrower,
Tenant and Guarantor, with a complete copy of Borrower's, Tenant's and
Guarantor's financial statement audited by a nationally-recognized Independent
certified public accountant that is reasonably acceptable to Lender (in
accordance with GAAP except as disclosed in accordance with generally accepted
auditing standards consistently applied as in effect as of the end of such
Fiscal Year) containing a statement of revenues and expenses, a statement of
assets and liabilities and a statement of each such entity's equity. Each such
annual statement shall indicate compliance with any financial covenant relating,
to Borrower, Tenant or Guarantor contained in the Loan Documents. Together with
such annual financial statements, each such entity shall furnish to Lender an
Officer's Certificate certifying as of the date thereof (A) that the annual
financial statements accurately represent the results of operation and financial
condition of such entity all in accordance with GAAP (except as disclosed) and
in accordance with generally accepted auditing standards consistently applied,
and (B) whether there exists an event or circumstance which constitutes, or
which upon notice or lapse of time or both would constitute, a Default under
this Agreement, the Note or any other Loan Document executed and delivered by
Borrower, and if such event or circumstance exists, the nature thereof, the
period of time it has existed and the action then being taken to remedy such
event or circumstance.
(iii) Borrower will furnish Lender quarterly, within thirty
(30) days following the end of each calendar quarter, with a complete copy of
Borrower's, Tenant's and Guarantor's financial statement, unaudited, containing
a statement of revenues and
-39-
<PAGE>
expenses, a statement of assets and liabilities and a statement of each such
entity's equity. Together with such quarterly financial statements, each such
entity shall furnish to Lender an Officer's Certificate certifying as of the
date thereof that the quarterly financial statements accurately represent the
results of operation and financial condition of such entity.
(iv) Borrower will furnish Lender monthly, within thirty (30)
days following the end of each month, with a complete copy of the reports made
by Tenant to calculate Percentage Rent under the Lease.
(v) Borrower shall furnish to Lender, within thirty (30)
Business Days after Lender's request therefor, such further detailed information
with respect to the operation of the Mortgaged Property and the financial
affairs of Borrower as may be reasonably requested by Lender. Borrower shall
also furnish to Lender any financial reports delivered to Borrower by Tenant.
(q) Financing Statements. Borrower shall, promptly upon Lender's
--------------------
request, at Borrower's sole cost and expense, timely file or refile, or cause to
be filed or refiled, all continuations and any assignments of any of the
Financing Statements as appropriate, in the appropriate recording offices, such
that Lender will continue to have a valid and perfected first Lien on the
collateral secured by such Financing Statements.
(r) Securitization Transaction. In the event this Loan becomes the
--------------------------
subject of a transaction involving the sale of the Loan or participation therein
or the sale or transfer of the Loan to a trust or other special purpose vehicle
to be formed as part of a transaction involving the issuance of publicly or
privately placed, rated or unrated mortgage pass-through securities (each a
"Securitization"), Borrower and Tenant shall cooperate with and take such
- -----------------
actions as may be reasonably required by Lender, the Rating Agencies or the
marketplace in connection with such a Securitization. Without limiting the
foregoing, Borrower shall: (i) within ten (10) Business Days after Lender's
written request therefor, deliver opinions in form and substance and delivered
by counsel reasonably acceptable to Lender and the Rating Agencies, as may be
reasonably required by Lender or the Rating Agencies in connection with such
Securitization including, without limitation, opinions on due authorization,
execution, enforceability, substantive non-consolidation, fraudulent conveyance,
true sale and 10b-5 opinions, (ii) upon Lender's written request therefor,
promptly deliver such audited or unaudited financial statements and related
documentation prepared by an Independent certified public accountant and other
financial information relating to the Mortgaged Property or Borrower as may be
reasonably requested by Lender or the Rating Agencies, (iii) provide Lender and
the Rating Agencies business plans and budgets relating to the Mortgaged
Property and such other information as may be reasonably requested by Lender or
the Rating Agencies or as may be necessary or appropriate in connection with the
Securitization, (iv) perform or permit or cause to be performed or permitted
such site inspection, appraisals, market studies, environmental reviews and
reports (Phase I's and, if appropriate, Phase II's), engineering reports and
other due diligence investigations of the Mortgaged Property and Borrower, all
as may be reasonably requested by Lender or the Rating Agencies or as may be
necessary or
-40-
<PAGE>
appropriate in connection with the Securitization, (v) make such representations
and warranties as of the closing date of the Securitization with respect to the
Mortgaged Property, Borrower, and the Loan Documents as are customarily provided
in securitization transactions and as may be reasonably requested by Lender or
the Rating Agencies, including certifying as to the accuracy of the
representations and warranties made in the Loan Documents, (vi) execute such
amendments to the Loan Documents and Borrower's organizational documents, enter
into additional lock-box or similar arrangements with respect to the Rents and
Excess Cash Flow and establish and fund such reserve funds (including reserve
funds for deferred maintenance and capital improvements) as may be reasonably
requested by Lender or the Rating Agencies or otherwise to effect the
Securitization, provided that no such amendments shall alter any material
provisions of the Loan Documents and Borrower's organizational documents without
Borrower's prior consent (which consent shall not be unreasonably withheld),
(vii) provide such information as may be reasonably requested by such Rating
Agencies in connection with any surveillance conducted after the closing of such
Securitization, and (viii) meet with representatives of such Rating Agencies to
discuss the business and operations of the Mortgaged Property and otherwise
cooperate with the reasonable requests of Lender and the Rating Agencies in
connection with all of the foregoing, provided, however, that in connection with
the foregoing Borrower shall not be required to acquiesce in respect of material
modifications to the Loan or the Loan Documents relating to (1) the interest
rate payable in respect of the Loan, (2) the stated maturity of the Loan, (3)
the amortization of the Loan, and (4) the calculation of applicable prepayment
consideration. Lender shall reimburse Borrower for third-party costs and
expenses incurred by Borrower specifically in fulfillment of its obligations
under this Section 4.1(r), provided that Borrower shall be responsible for (x)
any internal costs and expenses attributable to this Section 4.1(r), including,
without limitation, Borrower's administrative and overhead costs and
compensation to Borrower's officers and employees and (y) any costs and expenses
incurred in connection with any item which Borrower is already obligated to
provide, deliver or obtain under this Agreement. In addition, at the direction
of Lender, Borrower will have added to the surveys delivered in connection with
the Loan (as parties to whom such surveys are certified), any person or entity
now or hereafter having an interest in the Loan, at the cost and expense of
Borrower.
(s) Securitization Indemnification. (i) Borrower understands that
------------------------------
certain of the information provided by Borrower pursuant to Section 4.1(r) above
(the "Provided Information") may be included in disclosure documents in
---------------------
connection with the Securitization, including a prospectus or private placement
memorandum (each, a "Disclosure Document") and may also be included in filings
---------- ---------
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Securities Act"), or the Securities and Exchange Act of
----------------
1934, as amended (the "Exchange Act"), or provided or made available to
--------------
investors or prospective investors in the securities offered pursuant to the
Securitization (the "Securities"), the Rating Agencies, and service providers
----------
relating to the Securitization. Borrower agrees and covenants that it will
cooperate with Lender in the preparation of the Disclosure Document and will
provide all current information pertaining to Borrower and the Mortgaged
Property necessary to cause the Disclosure Document to be accurate and complete
in all material respects.
-41-
<PAGE>
(ii) In connection with a Securitization transaction, Borrower agrees
to provide an indemnification agreement in which Borrower shall:
(A) certify that (i) Borrower has carefully examined those
portions of any Disclosure Document reasonably identified by Lender as
pertaining to Borrower, the Mortgaged Property and the Loan and (ii) such
sections do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made, in the light of
the circumstances under which they were made, not misleading;
(B) indemnify Lender, any placement agent or underwriter of the
Securities, each party that has filed a registration statement relating to the
securities (a "Registration Statement") and each of their respective officers,
-----------------------
directors and each person or entity who controls such party within the meaning
of Section 15 of the Securities Act or Section 30 of the Exchange Act
(individually and collectively, the "Securities Group") for any losses, claims,
-----------------
damages, costs, expenses or liabilities (the "Liabilities") to which the
------------
Securities Group may become subject insofar as the Liabilities arise out of or
are based upon (i) any untrue statement or alleged untrue statement of any
material fact contained in the applicable sections of the Disclosure Document
identified by Lender as provided above as pertaining to Borrower, the Mortgaged
Property or the Loan, or the omission or alleged omission to state in such
sections a material fact known to Borrower required or necessary to be stated in
such sections in order to make the statements in such sections, in light of the
circumstances under which they were made, not misleading or (ii) any untrue
statement or alleged untrue statement of any material fact contained in any
Provided Information, or the omission or alleged omission to state in such
Provided Information a material fact known to Borrower required or necessary to
be stated in such Provided Information in order to make the statements in such
Provided Information, in light of the circumstances under which they were made,
not misleading; and
(C) agree to reimburse the Securities Group for any legal or
other expenses reasonably incurred by such parties in connection with
investigating or defending the Liabilities. The indemnity agreement will be in
addition to any liability to the Securities Group which Borrower may otherwise
have.
5. NEGATIVE COVENANTS
------------------
Section 5.1 Borrower Negative Covenants.
----------- ---------------------------
Borrower covenants and agrees that, until payment in full of the
Indebtedness under the Note, it will not do, directly or indirectly, any of the
following unless Lender consents thereto in writing:
(a) Liens on the Mortgaged Property. Incur, create, assume, become or
-------------------------------
be liable in any manner with respect to, or permit to exist, any Lien or
liability with respect to the Mortgaged Property, except: (i) Liens in
favor of the Lender; (ii) the Permitted Encumbrances; (iii) other
indebtedness or liens, if any, permitted pursuant
-42-
<PAGE>
to the Indenture; and (iv) Liens securing the payment of Impositions, either not
yet due or the validity of which is being contested in good faith by appropriate
proceedings in accordance with the Indenture.
(b) Sale or Transfer. Except as expressly permitted by or pursuant to the
----------------
Indenture or this Agreement, allow any Transfer to occur, or turn over the
management of, or enter into a management contract with respect to, the
Mortgaged Property.
(c) Leases. Enter into, amend or cancel the Net Lease or any other Leases,
------
except as permitted by or pursuant to the Indenture.
(d) Other Borrowings. Incur, create, assume, become or be liable in any
----------------
manner with respect to Other Borrowings.
(e) Dissolution. Dissolve, terminate, liquidate, merge with or consolidate
-----------
into another Person, except as expressly permitted pursuant to the Indenture.
(f) Change in Business. Enter into any line of business other than the
------------------
ownership and operation of the Mortgaged Property, or otherwise cease to be a
Single Purpose Entity, or make any material change in the scope or nature of its
business objectives, purposes or operations, or undertake or participate in
activities other than the continuance of its present business.
(g) Debt Cancellation. Cancel or otherwise forgive or release any claim or
-----------------
debt owed to Borrower by any Person, except for adequate consideration and in
the ordinary course of Borrower's business.
(h) Affiliate Transactions. Enter into, or be a party to, any transaction
----------------------
with an Affiliate of Borrower or any of the partners of Borrower, except in the
ordinary course of business and on terms which are fully disclosed to Lender in
advance and are no less favorable to Borrower or such Affiliate than would be
obtained in a comparable arm's length transaction with an unrelated third party.
(i) Creation of Easements. Except as allowed under Section 2.19 of the
---------------------
Indenture, create, or permit the Mortgaged Property or any part thereof to
become subject to, any easement, license or restrictive covenant, other than a
Permitted Encumbrance. Lender agrees that it will join in and subordinate the
lien of the Indenture to any easement, license or restrictive covenant (i) which
arises after the date hereof, and (ii) that Lender, in Lender's reasonable
discretion, deems to constitute a Permitted Encumbrance.
(j) Misapplication of Funds. Distribute any Property Income to Borrower or
-----------------------
partners or beneficiaries thereof in violation of the provisions of Section 2.6
hereof.
-43-
<PAGE>
6. DEFAULTS
--------
Section 6.1 Event of Default.
----------- ----------------
(a) The occurrence of one (1) or more of the following events with
respect to Borrower or the Mortgaged Property shall be an "Event of Default"
hereunder:
(i) if on any Payment Date Borrower fails to pay the Required
Debt Service Payment or any Required Tax/Insurance Payment and such failure
continues for five (5) Business Days;
(ii) subject to the provisions of Section 2.6(b), if on any
Payment Date, the funds in the Rent Account are insufficient to pay the
Required Debt Service Payment due under the Note on such Payment Date and
the Required Tax/Insurance Payment due under this Agreement on such Payment
Date;
(iii) if Borrower fails to pay all or any portion of the
principal amount of the Note on the Maturity Date;
(iv) the occurrence of any of the events identified herein as
constituting an "Event of Default";
(v) if Borrower or Tenant fails to pay any other amount
payable pursuant to this Agreement when due and payable in accordance with
the provisions hereof and such failure continues for ten (10) days after
Lender delivers written notice thereof to Borrower (other than any Default
under clauses (i), (ii) and (iii) above for which either no grace period or
a shorter grace period (as specified in such clause) shall be applicable);
(vi) if Guarantor shall default under the provisions of the
Guaranty or the Environmental Guaranty;
--------
(vii) if any material representation or warranty made herein or
in any other Loan Document, or in any report, certificate, financial
statement or other instrument, agreement or document furnished by Borrower
or Guarantor in connection with this Agreement, the Note, the Guaranty, the
Environmental Guaranty or any other Loan Document executed and delivered by
Borrower or Guarantor, shall be false or misleading in any material respect
as of the date such representation or warranty was made;
(viii) if Borrower, General Partner or Guarantor files or
consents to the filing of, or commences or consents to the commencement of,
any Bankruptcy Proceeding with respect to Borrower, General Partner or
Guarantor or such entity, or if Borrower, General Partner or Guarantor
shall make an assignment for the benefit of
-44-
<PAGE>
its creditors or shall admit in writing the inability to pay its debts generally
as they become due;
(ix) if any Bankruptcy Proceeding shall have been filed against
Borrower, General Partner or Guarantor and the same is not withdrawn, dismissed,
canceled or terminated within ninety (90) days after the date of such filing;
(x) if a receiver, liquidator or trustee shall be appointed for
Borrower, General Partner or Guarantor, or if Borrower, General Partner or
Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for
bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or
any similar federal or state law, shall be filed by or against, consented to, or
acquiesced in by, Borrower, General Partner or Guarantor, or if any proceeding
for the dissolution or liquidation of Borrower, General Partner or Guarantor
shall be instituted and any of the foregoing is not withdrawn, dismissed,
canceled or terminated ninety (90) days after the date of such filing,
adjudication, order or appointment;
(xi) if any Transfer occurs other than in accordance with the
Indenture or any other Loan Document;
(xii) if Borrower is a partnership, if any provision of the
partnership agreement of Borrower affecting (A) the purpose for which such
Borrower is formed or (B) transfers of the General Partner's interest in such
Borrower or if any provision of the certificate of incorporation or the bylaws
of the General Partner affecting the purpose for which the General Partner is
formed or transfers of interest in the General Partner is amended or modified in
any material respect which may adversely affect the Lender, or if the
constituent partners of Borrower or the stockholders of the General Partner fail
to perform or enforce the provisions of such partnership agreement or
organizational documents, as the case may be, or attempt to dissolve Borrower or
the General Partner or terminate such partnership agreement;
(xiii) if Borrower is a corporation, if any provision of the
certificate of incorporation or the bylaws of Borrower affecting the purpose for
which the Borrower is formed or transfers or issuance of stock in the Borrower
is amended or modified in any material respect which may adversely affect the
Lender, or if the stockholders of the Borrower fail to perform or enforce the
provisions of such organizational documents or attempt to dissolve Borrower;
(xiv) if Borrower is a trust, if any provision of the declaration of
trust or such other agreement which established the trust, affecting the purpose
for which the Borrower is formed or transfers of beneficial interests in the
Borrower is amended or modified in any material respect which may adversely
affect the Lender, or if the beneficiaries of the Borrower fail to perform or
enforce the provisions of such organizational documents or attempt to terminate
the trust;
-45-
<PAGE>
(xv) if Borrower is a limited liability company, if any of
Borrower's or General Partner's organization documentation is modified in
any material respect which may adversely affect the Lender, or if the
members fail to perform or enforce the provisions of such organizational
documents;
(xvi) if an Event of Default as defined or described in the
Note, the Indenture or in any other Loan Document occurs or if any other
event shall occur or condition shall exist, if the effect of such event or
condition is to accelerate the maturity of any portion of the Indebtedness
as to all or any portion of the Mortgaged Property or to permit Lender to
accelerate the maturity of all or any portion of the Indebtedness as to all
or any portion of the Mortgaged Property;
(xvii) if a Lease Event of Default shall occur; or
(xviii) if Borrower shall continue to be in Default under any of
the other terms, covenants or conditions of this Agreement for ten (10)
days after notice to Borrower has been sent from Lender, in the case of any
Default which can be cured by the payment of a sum of money, or for thirty
(30) days after notice from Lender, in the case of any other Default;
provided, however, that if such nonmonetary Default is susceptible of cure
but cannot reasonably be cured within such thirty (30) day period and
provided further that Borrower shall have commenced to cure such Default
within such thirty (30) day period and thereafter diligently and
expeditiously proceeds to cure the same, such thirty (30) day period shall
be extended for such time as is reasonably necessary for Borrower in the
exercise of due diligence to cure such Default but in no event shall such
extension be for a period in excess of ninety (90) days;
then, upon the occurrence of any such Event of Default and at any time
thereafter during the continuance of such Event of Default, Lender may, in
addition to any other rights or remedies available to it pursuant to this
Agreement, the Note, the Indenture or the other Loan Documents, or at law or in
equity, take such action, without notice or demand, as Lender deems advisable to
protect and enforce its rights against Borrower and in and to all or any portion
of the Mortgaged Property, including, without limitation, declaring by written
notice to Borrower the entire Indebtedness to be immediately due and payable and
may enforce or avail itself of any or all rights or remedies provided in the
Loan Documents against Borrower and/or the Mortgaged Property, including,
without limitation, all rights or remedies available at law or in equity.
Section 6.2 Remedies.
----------- --------
(a) Upon the occurrence and during the continuance of an Event of
Default, all or any one or more of the rights, powers, privileges and other
remedies available to Lender against Borrower under this Agreement, the Note,
the Indenture or any of the other Loan Documents, or at law or in equity may be
exercised by Lender at any time and from time to time, whether or not all or any
portion of the Indebtedness shall be declared due and payable,
-46-
<PAGE>
and whether or not Lender shall have commenced any foreclosure proceeding, or
other action for the enforcement of its rights and remedies under any of the
Loan Documents with respect to all or any portion of the Mortgaged Property. Any
such actions taken by Lender shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of Lender permitted by law, equity or contract or as set
forth herein or in the other Loan Documents.
(b) In the event of the foreclosure or other action by Lender to
enforce its remedies in connection with the Mortgaged Property, Lender shall
apply the proceeds received by Lender from such action in reduction of
Indebtedness in accordance with the provisions of the Indenture, after payment
by Borrower of all transaction costs and expenses and costs of enforcement as
provided therein.
Section 6.3 Remedies Cumulative.
----------- -------------------
The rights, powers and remedies of Lender under this Agreement shall
be cumulative and shall not be exclusive of any other right, power or remedy
which Lender may have against Borrower pursuant to this Agreement or the other
Loan Documents, or existing at law or in equity or otherwise. Lender's rights,
powers and remedies may be pursued singly, concurrently or otherwise, at such
time and in such order as Lender may determine in Lender's sole discretion. No
delay or omission to exercise any remedy, right or power accruing upon an Event
of Default shall impair any such remedy, right or power or shall be construed as
a waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of any Default or
Event of Default shall not be construed to be a waiver of any subsequent Default
or Event of Default by Borrower or to impair any remedy, right or power
consequent thereon.
Section 6.4 Prepayment Upon Default.
----------- -----------------------
If, following the occurrence of any Event of Default hereunder and the
acceleration of the secured indebtedness but prior to the foreclosure sale under
the Indenture, Borrower shall tender to Lender payment of any principal portion
of the indebtedness, such tender shall be deemed to be a voluntary prepayment
under the Note and if made during any time when prepayment is prohibited
thereunder, Borrower shall also pay to Lender an amount equal to the then
applicable Make-Whole Premium, as defined in the Note. In addition, as outlined
in the Indenture, if a foreclosure sale of the Mortgaged Property occurs during
any time when prepayment of the Note is prohibited, such sale shall be deemed to
be a voluntary prepayment and the then applicable Make-Whole Premium shall be
included within the amount owed as part of the secured indebtedness.
7. MISCELLANEOUS
-------------
-47-
<PAGE>
Section 7.1 Survival.
----------- --------
This Agreement and all covenants, agreements, representations and
warranties made herein and in the certificates delivered pursuant hereto shall
survive the making by Lender of the Loan and the execution and delivery to
Lender of the Note, and shall continue in full force and effect so long as any
portion of the Indebtedness is outstanding and unpaid. Whenever in this
Agreement any of the parties hereto is referred to (including any provision with
respect to the delivery of notice), such reference shall be deemed to include
the legal representatives, successors and assigns of such party. All covenants,
promises and agreements in this Agreement contained, by or on behalf of
Borrower, shall inure to the benefit of the respective legal representatives,
successors and assigns of Lender. Nothing in this Agreement or in any other Loan
Document, express or implied, shall give to any Person other than the parties
and the holder(s) of the Note and the Indenture, and their legal
representatives, successors and assigns, any benefit or any legal or equitable
right, remedy or claim hereunder.
Section 7.2 Lender's Discretion.
----------- -------------------
Except as expressly provided to the contrary herein, whenever pursuant
to this Agreement, Lender exercises any right given to it to approve or
disapprove, or any arrangement or term is to be satisfactory to Lender, the
decision of Lender to approve or disapprove or to decide whether arrangements or
terms are satisfactory or not satisfactory shall (except as is otherwise
specifically herein provided) be in the sole discretion of Lender and shall be
final and conclusive.
Section 7.3 Governing Law.
----------- -------------
This Agreement and the obligations arising hereunder shall be governed
by, and construed in accordance with, the laws of the State of Illinois (without
giving effect to the State of Illinois' choice of law rules) applicable to
contracts made and performed in such State and any applicable law of the United
States of America. To the fullest extent permitted by law, Borrower hereby
unconditionally and irrevocably waives any claim to assert that the law of any
other jurisdiction governs this Agreement.
Section 7.4 Modification. Waiver in Writing.
----------- -------------------------------
No modification, amendment, extension, discharge, termination or
waiver (a "Modification") of any provision of this Agreement, or of the Note, or
------------
of any other Loan Document, nor consent to any departure by Borrower therefrom,
shall in any event be effective unless the same shall be in a writing signed by
the party against whom enforcement is sought, and then such waiver or consent
shall be effective only in the specific instance, and for the purpose, for which
given. Except as otherwise expressly provided herein, no notice to, or demand on
Borrower, shall entitle Borrower to any other or future notice or demand in the
same, similar or other circumstances. Lender does not hereby agree to, nor does
Lender hereby commit itself to, enter into any Modification.
-48-
<PAGE>
Section 7.5 Delay Not a Waiver.
----------- ------------------
Neither any failure nor any delay on the part of Lender in insisting
upon strict performance of any term, condition, covenant or agreement, or
exercising any right, power, remedy or privilege hereunder, or under the Note,
or of any other Loan Document, or any other instrument given as security
therefor, shall operate as or constitute a waiver thereof, nor shall a single or
partial exercise thereof preclude any other future exercise, or the exercise of
any other right, power, remedy or privilege. In particular, and not by way of
limitation, by accepting payment after the due date of any amount payable under
this Agreement, the Note or any other Loan Document, Lender shall not be deemed
to have waived any right either to require prompt payment when due of all other
amounts due under this Agreement, the Note or the other Loan Documents, or to
declare a default for failure to effect prompt payment of any such other amount.
Section 7.6 Notices.
----------- -------
All notices, consents, approvals and requests required or permitted
hereunder or under any other Loan Document shall be given in writing and shall
be effective for all purposes if hand delivered or sent by (a) certified or
registered United States mail, postage prepaid, or (b) expedited prepaid
delivery service, either commercial or United States Postal Service, with proof
of attempted delivery, addressed as follows:
If to Lender: Carbon Capital Mortgage Properties, L.P.
11601 Wilshire Boulevard
Los Angeles, California 90025
Attention: Mitchell Clarfield
with copy to: Battle Fowler LLP
75 E. 55th Street
New York, New York 10022
Attention: Alvin J. Sarter, Esq.
If to Borrower: HOB Marina City Partners, L.P.
8439 Sunset Boulevard
West Hollywood, California 90069
Attention: Joseph C. Kaczorowski
with copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
Attention: Cecil Schenker, P.C.
-49-
<PAGE>
Such address may be changed by any party in a written notice to the other
parties hereto in the manner provided for in this Section 7.6. A notice shall be
deemed to have been given: in the case of hand delivery, at the time of
delivery; in the case of registered or certified mail, when delivered or the
first attempted delivery on a Business Day; or in the case of expedited prepaid
delivery, upon the first attempted delivery on a Business Day. A party receiving
a notice which does not comply with the technical requirements for notice under
this Section 7.6 may elect to waive any deficiencies and treat the notice as
having been properly given.
Section 7.7 Trial By Jury.
----------- -------------
BORROWER AND TENANT, TO THE FULLEST EXTENT THAT THEY MAY LAWFULLY DO
SO, WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING, INCLUDING, WITHOUT
LIMITATION, ANY TORT ACTION, BROUGHT BY ANY PARTY HERETO WITH RESPECT TO THIS
AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS.
Section 7.8 Headings.
----------- --------
The Article and/or Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
Section 7.9 Assignment.
----------- ----------
Lender shall have the right to transfer, sell or assign this Agreement
and any of the other Loan Documents and the obligations hereunder to any Person
who purchases or otherwise acquires Lender's interest in the Loan. All
references to "Lender" hereunder shall be deemed to include the successors and
assigns of Lender.
Section 7.10 Severability.
------------ ------------
Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
Section 7.11 Preferences.
------------ -----------
Lender shall have no obligation to marshal any assets in favor of
Borrower or any other party or against or in payment of any or all of the
obligations of Borrower pursuant to this Agreement, the Note or any other Loan
Document. Lender shall have the continuing and exclusive right to apply or
reverse and reapply any and all payments by Borrower to any portion of the
obligations of Borrower hereunder. To the extent Borrower makes a payment
-50-
<PAGE>
or payments to Lender, which payment or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or, equitable cause, then, to
the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 7.12 Waiver of Notice.
------------ ----------------
Borrower shall not be entitled to any notices of any nature whatsoever
from Lender except with respect to matters for which this Agreement or the other
Loan Documents specifically and expressly provide for the giving of notice by
Lender to Borrower and except with respect to matters for which Borrower is not,
pursuant to applicable Legal Requirements, permitted to waive the giving of
notice. Borrower hereby expressly waives the right to receive any notice from
Lender with respect to any matter for which this Agreement or the other Loan
Documents does not specifically and expressly provide for the giving of notice
by Lender to Borrower.
Section 7.13 Remedies of Borrower.
------------ --------------------
In the event that a claim or adjudication is made that Lender or any
of the Lender Parties has acted unreasonably or unreasonably delayed acting in
any case where by law or under this Agreement, the Note, the Indenture or the
other Loan Documents, Lender or such Lender Party, as the case may be, has an
obligation to act reasonably or promptly, Borrower agrees that neither Lender
nor such Lender Party shall be liable for any monetary damages, and Borrower's
sole remedy shall be limited to commencing an action seeking injunctive relief
or declaratory judgment. The parties hereto agree that any action or proceeding
to determine whether Lender or a Lender Party has acted reasonably shall be
determined by an action seeking only a declaratory judgment.
Section 7.14 Exhibits Incorporated.
------------ ---------------------
The information set forth on the cover hereof, and the exhibits
annexed hereto, are hereby incorporated herein as a part of this Agreement with
the same effect as if set forth in the body hereof.
Section 7.15 Offsets, Counterclaims and Defenses.
------------ -----------------------------------
Any assignee of the Lender's interest in and to this Agreement, the
Note, the Indenture and the other Loan Documents shall take the same free and
clear of all offsets, counterclaims or defenses which are unrelated to this
Agreement, the Note, the Indenture and the other Loan Documents which Borrower
may otherwise have against any assignor of this Agreement, the Note, the
Indenture and the other Loan Documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower in any action or
-51-
<PAGE>
proceeding brought by any such assignee upon this Agreement, the Note, the
Indenture and other Loan Documents and any such right to interpose or assert any
such unrelated offset, counterclaim or defense in any such action or proceeding
is hereby expressly waived by Borrower.
Section 7.16 No Joint Venture or Partnership.
------------ -------------------------------
Borrower and Lender intend that the relationship created hereunder be
solely that of borrower and lender. Nothing herein or in the other Loan
Documents is intended to create a joint venture, partnership, tenancy-in-common,
or joint tenancy relationship between Borrower and Lender nor to grant Lender
and interest in the Mortgaged Property other than that of mortgagee or lender.
Section 7.17 Publicity.
------------ ---------
All promotional news releases, publicity or advertising by Borrower or
its Affiliates through any media intended to reach the general public shall not
refer to the Loan Documents or the financing evidenced by the Loan Documents, or
to the Lender without the prior written approval of Lender, in each instance.
Any of the Lender Parties shall be authorized to provide information relating to
the Mortgaged Property, the Loan and matters relating thereto to rating
agencies, underwriters, placement agents, any other Persons engaged in
connection with a proposed securitization intending to include the Loan,
potential securities investors, auditors, regulatory authorities and to any
parties which may be entitled to such information by operation of law.
Section 7.18 Waiver of Marshalling of Assets Defense.
------------ ---------------------------------------
To the fullest extent Borrower may legally do so, Borrower waives all
rights to a marshalling of the assets of Borrower, its partners, if any, and
others with interests in Borrower, and of the Mortgaged Property, or to a sale
in inverse order of alienation in the event of foreclosure of the interests
hereby created, and agrees not to assert any right under any laws pertaining to
the marshalling of assets, the sale in inverse order of alienation, homestead
exemption, the administration of estates of decedents, or any other matters
whatsoever to defeat, reduce or affect the right of Lender under the Loan
Documents to a sale of the Mortgaged Property for the collection of the
Indebtedness without any prior or different resort for collection, or the right
of Lender to the payment of the Indebtedness out of the Net Proceeds of the
Mortgaged Property in preference to every other claimant whatsoever.
Section 7.19 Waiver of Counterclaim.
------------ ----------------------
Borrower hereby waives the right to assert a counterclaim, other than
compulsory counterclaim, in any action or proceeding brought against it by
Lender or its respective agents.
-52-
<PAGE>
Section 7.20 Conflict. Construction of Documents.
------------ -----------------------------------
In the event of any conflict between the provisions of this Agreement
and the provisions of the Note, the Indenture or any of the other Loan
Documents, the provisions of whichever document is most favorable to Lender
shall prevail. The parties hereto acknowledge that they were represented by
counsel in connection with the negotiation and drafting of the Loan Documents
and that the Loan Documents shall not be subject to the principle of construing
their meaning, against the party which drafted same.
Section 7.21 Brokers and Financial Advisors.
------------ ------------------------------
Borrower and Lender hereby represent that they have dealt with no
financial advisors, brokers, underwriters, placement agents, agents or finders
in connection with the transactions contemplated by this Agreement. Borrower and
Lender hereby agree to indemnify and hold the other harmless from and against
any and all claims, liabilities, costs and expenses of any kind in any way
relating to or arising from a claim by any Person that such Person acted on
behalf of the indemnifying party in connection with the transactions
contemplated herein. The provisions of this Section 7.21 shall survive the
expiration and termination of this Agreement and the repayment of the
Indebtedness.
Section 7.22 Joint and Several Liability.
------------ ---------------------------
If Borrower consists of more than one Person or party, the obligations
and liabilities of each such Person or party hereunder shall be joint and
several.
Section 7.23 Counterparts.
------------ ------------
This Agreement may be executed in multiple counterparts, all of which
together constitute one and the same instrument.
-53-
<PAGE>
IN WITNESS WHEREOF, this Loan Agreement has been executed by the
parties hereto as of the day and year first hereinabove written.
BORROWER:
--------
HOB MARINA CITY PARTNERS, L.P.,
a Delaware limited partnership
By: HOB Marina City, Inc., a Delaware corporation, its
general partner
By: /s/ Joseph C. Kaczorowski
------------------------------------
Name: Joseph C. Kaczorowski
Title: Executive Vice President
LENDER:
------
CARBON CAPITAL MORTGAGE PARTNERS, L.P., a
Delaware limited partnership
By: Carbon Mesa Partners, L.P., a Delaware limited
partnership, its general partner
By: Carbon Mesa Management, Inc., a California
corporation, its general partner
By: /s/ Mitchell D. Clarfield
---------------------------
Name: Mitchell D. Clarfield
Title: President
TENANT:
------
Tenant is hereby executing this Agreement to acknowledge
its consent and agreement to terms of this Agreement.
HOB CHICAGO, INC., a Delaware corporation
By: /s/ Joseph C Kaczorowski
----------------------------------
Name: Joseph C. Kacorowski
Title : Executive Vice President
-54-
<PAGE>
EXHIBIT 10.21
CONTRACT OF GUARANTY
--------------------
THIS CONTRACT OF GUARANTY (this "Contract of Guaranty"). made as of the
--------------------
1st day of May, 1997, is by HOB ENTERTAINMENT, INC., a Delaware corporation
- ---
("Guarantor") to CARBON CAPITAL MORTGAGE PARTNERS,L.P., a Delaware limited
---------
partnership ("Lender").
------
WITNESSETH:
------------
THAT, WHEREAS, HOB Marina City Partners, L.P., a Delaware limited
partnership ("Borrower") has applied to Lender for a loan (the "Loan"); and
-------- ----
WHEREAS, the Loan is evidenced and/or secured by a Promissory Note (the
"Note") of even date herewith in the stated principal amount of $9,000,000.00
----
executed by Borrower and payable to the order of Lender, by an Indenture of Deed
of Trust, Security Agreement, Fixture Filing, Financing Statement and Assignment
of Rents and Leases (the Indenture") of even date herewith encumbering certain
---------
real property and improvements thereon and appurtenances thereto (collectively,
the "Property") in the City of Chicago, County of Cook, State of Illinois, which
--------
real property is legally described on Exhibit A, attached hereto and
---------
incorporated herein by this reference, from Borrower for the benefit of Lender
securing payment of the Note, by a Loan Agreement (the "Loan Agreement") of even
--------------
date herewith between Borrower and Lender and by certain other documents or
instruments (the Note, the Indenture, the Loan Agreement and such other
documents and instruments, as same may from time to time be amended or replaced,
are sometimes collectively referred to herein as the "Loan Documents"); and
--------------
WHEREAS, Lender is willing to make the Loan only on condition that
payment of all amounts owing from time to time under the Loan Documents,
including, without limitation, principal and interest under the Note, be fully
guaranteed by Guarantor and that performance, observance and discharge of each
and every other obligation, covenant and agreement of Borrower contained in the
Loan Documents be fully guaranteed by Guarantor. (All amounts guaranteed hereby,
including, without limitation, principal and interest under the Note and
including the Make-Whole Premium (as defined in the Note), if applicable, are
sometimes collectively referred to herein as the "Indebtedness"); and
------------
WHEREAS, Guarantor is the sole shareholder of the general partner of
Borrower, the extension of the Loan is of substantial benefit to Guarantor and,
therefore, Guarantor desires to guarantee payment of the Indebtedness and
performance, observance and discharge of each and every other obligation,
covenant and agreement of Borrower contained in the Loan Documents, all on the
terms and conditions hereinafter set forth.
<PAGE>
NOW, THEREFORE, in order to induce Lender to extend the Loan to
Borrower, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Guarantor hereby covenants and agrees as follows:
1. Guarantor hereby irrevocably and unconditionally fully guarantees
to Lender (a) the due, prompt and complete payment of the Indebtedness,
including, without limitation, principal, interest, fees, penalties and charges
payable under the Note, and (b) the due, prompt and complete observance,
performance and discharge of each and every other obligation, covenant and
agreement of Borrower contained in the Loan Documents, (c) the due, prompt and
complete payment of all costs and expenses (including, without limitation,
reasonable attorneys' fees) incurred by Lender in collection of the Indebtedness
or the enforcement of this Contract of Guaranty against Guarantor, and (d) the
accuracy of each and every warranty or representation of Borrower contained in
any of the Loan Documents.
2. Lender shall have the right to deal with the Indebtedness and the
other obligations guaranteed hereby in any manner without notice to or consent
from Guarantor (and Guarantor hereby waives, to the full extent permitted by
law, any right to object to such dealings or to claim that any such dealings
have modified or terminated the obligations of Guarantor hereunder) and, in
particular, Lender shall have the right, without such notice or consent, at any
time and from time to time:
(a) to renew, compromise, extend, accelerate or otherwise change the
time or place of payment of or to otherwise change the terms of the Indebtedness
or the terms of performance of any of the other obligations guaranteed hereby,
including, without limitation, to increase or decrease any rate of interest
contained in any of the Loan Documents;
(b) to modify or to waive any of the terms of any agreement with
Borrower pertaining to the Indebtedness and/or the other obligations guaranteed
hereby;
(c) to take and hold security for the payment of the Indebtedness
and/or performance of the other obligations guaranteed hereby and to impair,
exhaust, exchange, enforce, waive or release any such security;
(d) to direct the order or manner of sale of any such security as
Lender in its discretion may determine;
(e) to grant any indulgence, forbearance or waiver with respect to
the Indebtedness or any of the other obligations guaranteed hereby; and/or
(f) to agree to any valuation by Lender of any collateral securing
payment of any of the Indebtedness in any proceedings under the United States
Bankruptcy Code concerning Borrower and/or Guarantor.
-2-
<PAGE>
The liability of Guarantor hereunder shall not be affected, impaired or reduced
in any way by any action taken by Lender under the foregoing provisions or any
other provision hereof, or by any delay, failure or refusal of Lender to
exercise any right or remedy Lender may have against Borrower or any other
person, firm or corporation, including other guarantors, if any, liable for all
or any part of the Indebtedness or any of the other obligations guaranteed
hereby.
3. Guarantor agrees that if any of the Indebtedness is not paid
according to the terms of the Loan Documents, whether by acceleration or
otherwise, Guarantor shall immediately upon receipt of written demand therefor
from Lender, pay all of the Indebtedness in like manner as if the Indebtedness
constituted the direct and primary obligation of Guarantor. Guarantor further
agrees that if any other obligation, covenant or agreement guaranteed hereby, is
not observed, performed or discharged as required, Guarantor shall, immediately
upon receipt of written demand therefor from Lender, observe, perform or
discharge such obligation, covenant or agreement in like manner as if same
constituted the direct and primary obligation of Guarantor. Guarantor further
agrees that if any warranty or representation of Borrower contained in the Loan
Documents is inaccurate in any material respect, Guarantor shall be deemed to
have made such warranty or representation, and Lender shall be entitled to such
remedies with respect to Guarantor to which Lender is entitled against Borrower,
as if same constituted the warranty or representation of Guarantor.
4. Satisfaction by Guarantor of any liability hereunder incident to
a particular default under the Loan Documents or the occurrence of an additional
default under the Loan Documents shall not discharge Guarantor except with
respect to the default satisfied, it being the intent hereof that this Contract
of Guaranty and the obligations of Guarantor hereunder shall be continuing and
irrevocable until the Note has been paid in full and all obligations under the
Loan Documents satisfied. Notwithstanding the foregoing or anything else set
forth herein, and in addition thereto, if at any time all or any part of any
payment received by Lender from Guarantor under or with respect to this Contract
of Guaranty is or must be rescinded or returned for any reason whatsoever
(including, but not limited to, determination that said payment was a voidable
preference under insolvency, bankruptcy or reorganization laws), then
Guarantor's obligations hereunder shall, to the extent of the payment rescinded
or returned, be deemed to have continued in existence, notwithstanding such
previous receipt of payment by Lender, and Guarantor's obligations hereunder
shall continue to be effective or be reinstated, as the case may be, as to such
payment, all as though such previous payment to Lender had never been made. The
provisions of the foregoing sentence shall survive termination of this Contract
of Guaranty, cancellation of the Note and termination of the other Loan
Documents and shall remain a valid and binding obligation of Guarantor until
satisfied.
5. Guarantor hereby waives notice of acceptance of this Contract of
Guaranty by Lender, and this Contract of Guaranty shall immediately be binding,
upon Guarantor.
-3-
<PAGE>
6. Guarantor hereby waives and agrees not to assert or take
advantage of:
(a) any right to require Lender to proceed against Borrower or any
other person or to proceed against or exhaust any security held by Lender at any
time or to pursue any other remedy in Lender's power before proceeding against
Guarantor hereunder.
(b) any defense that may arise by reason of the incapacity, lack of
authority, death of disability of any other person or persons or the failure of
Lender to file or enforce a claim against the estate (in administration,
bankruptcy or any other proceeding) of any other person or persons;
(c) demand, presentment for payment, notice of non-payment, protest,
notice of protest and all other notices of any kind, including, without
limitation, notice of the existence, creation or incurring of any new or
additional indebtedness or obligation or of any action or non-action on the part
of Borrower, Lender, any endorser or creditor of Borrower or Guarantor or on the
part of any other person whomsoever under this or any other instrument in
connection with any obligation or evidence of indebtedness held by Lender or in
connection with the Indebtedness;
(d) any defense based upon an election of remedies by Lender,
including without limitation, an election to proceed by non-judicial rather than
judicial foreclosure which destroys or otherwise impairs any or all of the
subrogation rights of Guarantor, the right of Guarantor to proceed against
Borrower for reimbursement, or both;
(e) all duty or obligation on Lender's part to perfect, protect, not
impair retain or enforce any security for the payment of the Indebtedness or
performance of any of the other obligations guaranteed hereby;
(f) any right of recourse against Lender by reason of any action
Lender may take or omit to take under this Contract of Guaranty or under any of
the other Loan Documents, including, without limitation, any such action which
directly or indirectly results in or aids the discharge of Borrower for any
indebtedness, whether by operation of law or otherwise;
(g) any defense arising by reason of the application by Borrower of
the proceeds of any of the Indebtedness for purposes other than the purposes
represented by Borrower or Lender or intended or understood by Lender or
Guarantor; and
(h) any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are unknown to Guarantor or has a reasonable opportunity to communicate such
facts to Guarantor, it being understood and agreed that Guarantor is fully
responsible for being and keeping informed of
-4-
<PAGE>
the financial condition of Borrower and of any and all circumstances bearing on
the risk of non-payment of the Indebtedness and/or non-performance of any of the
other obligations guaranteed hereby.
7. In addition to all liens and rights of setoff given to Lender by law
against any property of Borrower or of Guarantor, Lender shall have a general
lien on and security interest in and a right of setoff against all property of
Guarantor now or hereafter in the physical possession of or on deposit with
Lender or Lender's affiliates, whether held in a general or special account, on
deposit or for safekeeping or otherwise. Each such lien, security interest and
right of setoff may be enforced or exercised without demand upon or notice to
Guarantor at any time following failure of performance by Guarantor hereunder,
shall continue in full force unless specifically waived or released by Lender in
writing and shall not be deemed waived by any conduct of Lender, by any failure
of Lender to exercise any such right of setoff or to enforce any such lien or
security interest or by any neglect or delay in so doing.
8. All existing and future indebtedness of Borrower to Guarantor or to
any person controlled or owned in whole or in part by Guarantor and the right of
Guarantor to withdraw or to cause or permit any person controlled or owned in
whole or in part by Guarantor to withdraw any capital invested by Guarantor or
such person in Borrower, is hereby deferred, postponed and subordinated to the
Indebtedness and the liens and security interests of the Indenture and the other
Loan Documents. Furthermore, without the prior written consent of Lender, such
subordinated indebtedness shall not be paid and such capital shall not be
withdrawn in whole or in part nor shall Guarantor accept or cause or permit any
person controlled or owned in whole or in part by Guarantor to accept any
payment of or on account of any such subordinated indebtedness or as a
withdrawal of capital while this Contract of Guaranty is in effect. Each payment
by Borrower in violation of this Contract of Guaranty shall be received by the
person to whom paid in trust for Lender, and Guarantor shall cause the same to
be paid to Lender immediately on account of the Indebtedness. No such payment
shall reduce or affect in any manner the liability of Guarantor under this
Contract of Guaranty.
9. If Guarantor shall file a claim in any bankruptcy or other proceeding
in which the filing of claims is required by law, Guarantor shall assign to
Lender all claims which Guarantor may have against Borrower relating to any
indebtedness of Borrower to Guarantor and any rights of Guarantor thereunder as
security for the performance of Guarantor's obligations hereunder. If Guarantor
does not file any such claim, Lender, as attorney-in-fact for Guarantor, is
hereby authorized to do so in the name of Guarantor or, in Lender's discretion,
to assign the claim to a nominee and to cause proof of claim to be filed in the
name of Lender's nominee. In all such cases, whether in administration,
bankruptcy or otherwise, the person or persons authorized to pay such claim
shall, upon notice thereof, pay to Lender the full amount thereof and, to the
full extent necessary for that purpose, Guarantor hereby assigns to Lender all
of Guarantor's rights to any payments or distributions to which Guarantor would
otherwise be entitled.
-5-
<PAGE>
10. With or without notice to Guarantor, Lender, in Lender's sole
discretion and at any time and from time to time and in such manner and upon
such terms as Lender deems fit, may: (a) apply any or all payments or recoveries
from Borrower or from any other guarantor or endorser under any other instrument
or realized from any security, in such manner and order of priority as Lender
may determine, to any indebtedness of Borrower to Lender, whether or not such
indebtedness is guaranteed hereby or is otherwise secured or is due at the
timeof such application; or (b) refund to Borrower any payment received by
Lender upon the Indebtedness without affecting in any way Guarantor's obligation
or liability hereunder.
11. The amount of Guarantor's liability and all rights, powers and
remedies of Lender hereunder shall be cumulative and not alternative and such
rights, powers and remedies shall be in addition to all rights, powers and
remedies given to Lender under the Loan Documents and/or otherwise by law.
This Contract of Guaranty is in addition to the guaranty of any other guarantor
of the Indebtedness and/or the other obligations guaranteed hereby.
12. The liability of Guarantor under this Contract of Guaranty shall
be an absolute, direct, immediate and unconditional guarantee of payment and not
of collectibility. The obligations of Guarantor hereunder are independent of the
obligations of Borrower and, in the event of any default hereunder, a separate
action or actions may be brought and prosecuted against Guarantor, whether or
not Borrower is joined therein or a separate action or actions are brought
against Borrower. Lender may maintain successive actions for other defaults.
Lender's rights hereunder shall not be exhausted by its exercise of any of its
rights or remedies or by any such action or by any number of successive actions
until and unless the Indebtedness has been paid in full and the other
obligations guaranteed hereby are satisfied.
13. Notwithstanding the fact that Borrower may be a corporation or a
partnership, Lender is not to be concerned to see or inquire into the powers of
Borrower, its directors, officers, partners, associates or other agents acting
or purporting to act on its behalf, Guarantor hereby representing that such
powers exist, and monies in fact borrowed from Lender in connection with the
Loan in the professed exercise of such powers shall be deemed to form a part of
the liabilities guaranteed, even though the borrowing or obtaining of such
monies be in excess of the powers of Borrower or of the directors, partners,
officers, associates or other agents thereof, or shall be in any way irregular,
defective or informal.
14. Guarantor hereby agrees, as a material inducement to Lender to
make the Loan to Borrower, to furnish to Lender all of the financial reports
required to be delivered pursuant to the provisions of Section 4.1(p) of the
Loan Agreement. Guarantor hereby warrants and represents to Lender that any and
all financial data which have heretofore been given or may hereafter be given to
Lender with respect to Guarantor, Borrower and Tenant (as defined in the Loan
Agreement) did or will at the time of such
-6-
<PAGE>
delivery fairly and accurately present the financial condition of the persons
and entities covered thereby.
15. Guarantor hereby agrees, as a material inducement to Lender to
make the Loan to Borrower, to furnish to Lender all of the documents, opinions
and agreements required to be delivered in connection with any securitization of
the Loan, as outlined in Sections 4.1(r) and (s) of the Loan Agreement.
16. Lender, in its sole discretion, may at any time enter into
agreements with Borrower or with any other person to amend, modify or change any
of the Loan Documents or any document or agreement relating in any way to the
terms and provisions of the Loan Documents, including, without limitation, the
plans and specifications and/or any contracts or subcontracts relating to the
construction, if any, to be performed pursuant to the terms of the Loan
Agreement, or may at any time waive or release any provision or provisions
thereof and, with reference thereto, may make and enter into all such agreements
as Lender may deem proper or desirable, without any notice or further assent
from Guarantor and without in any manner impairing or affecting this Contract of
Guaranty or any of Lender's rights or Guarantor's obligations hereunder.
17. Guarantor hereby agrees to pay to Lender, upon demand, reasonable
attorneys' fees and all costs and other expenses which Lender expends or incurs
in collecting or compromising the Indebtedness or in enforcing this Contract of
Guaranty against Guarantor whether or not suit is filed, including, without
limitation, all costs, attorneys' fees and expenses incurred by Lender in
connection with any insolvency, bankruptcy, reorganization, arrangement or other
similar proceedings involving Borrower and/or Guarantor which in any way affect
the exercise by Lender of its rights and remedies hereunder. Any and all such
costs, attorneys' fees and expenses not so paid shall bear interest at the
Default Rate, as defined in the Note, from the date incurred by Lender until
paid by Guarantor.
18. Should any one or more provisions of this Contract of Guaranty be
determined to be illegal or unenforceable, all other provisions nevertheless
shall be effective.
19. In the event that Guarantor pays any of the Indebtedness prior to
the expiration of any applicable notice and cure period and/or performs any of
the other obligations guaranteed hereby prior to the expiration of any
applicable notice and cure period, said payment and/or performance by Guarantor
shall be deemed to have cured the applicable default under the Loan Documents.
20. No provision of the Contract of Guaranty or right of Lender
hereunder can be waived nor can Guarantor be released from Guarantor's
obligations hereunder except by a writing duly executed by Lender. This
Contract of Guaranty may not be modified, amended, revised, revoked, terminated,
changed or varied in any way whatsoever except by the express terms of a writing
duly executed by Lender and Guarantor.
-7-
<PAGE>
21. When the context and construction so require, all words used in the
singular herein shall be deemed to have been used in the plural, and the
masculine shall include the feminine and neuter and vice versa. The word
"person" as used herein shall include any individual, company, firm,
association, partnership, corporation, trust or other legal entity of any kind
whatsoever.
22. In the event that any/or all of the Indebtedness is assigned by
Lender, this Contract of Guaranty shall automatically be assigned therewith in
whole or in part, as applicable, without the need of any express assignment and
when so assigned. Guarantor shall be bound as set forth herein to the
assignee(s) without in any manner affecting Guarantor's liability hereunder for
any part of the Indebtedness retained by Lender. For all purposes herein the
term "Guarantor" shall mean each of the persons comprising Guarantor,
separately, and/or (as the context requires) all of said persons together (i.e.
all covenants, representations and warranties made by Guarantor hereunder are
jointly and severally made by each and all of the persons comprising Guarantor
and said persons comprising Guarantor shall be jointly and severally liable for
performance of all obligations of Guarantor hereunder) and lender may exercise
any or all of its rights hereunder against all of said persons or any one or
more of same individually, as determined by lender in its sole subjective
discretion, the liability of each such person being for the entire Indebtedness
and the entire other obligations guaranteed hereby.
23. This Contract of Guaranty shall inure to the benefit of and bind
the heirs, legal representatives, administrators, executors, successors and
assigns of Lender and Guarantor.
24. This Contract of Guaranty shall be governed by and construed in
accordance with the laws of the State of Illinois, except to the extent that any
of such laws may now or hereafter be preempted by Federal law, in which case,
such Federal law shall so govern and be controlling.
25. All notices, demands, requests or other communications to be sent
by one party to the other hereunder or required by law shall be in writing and
shall be deemed to have been validly given or served by delivery of same in
person to the addressee or by depositing same with a carrier in the business of
making guaranteed overnight deliveries for next business day delivery or by
depositing same in the United States mail, postage prepaid, registered or
certified mail, return receipt requested, addressed as follows:
If To Lender: Carbon Capital Mortgage Partners, L.P.
11601 Wilshire Boulevard, Suite 2440
Los Angeles, California 90025
Attention: Mitchell Clarfield
With copy to: Battle Fowler LLP
Park Avenue Tower
-8-
<PAGE>
75 East 55th Street
New York, New York 10022
Attention: Alvin J. Sarter, Esq.
If to Guarantor: HOB Entertainment, Inc.
8439 Sunset Boulevard
West Hollywood, California 90069
Attention: Joseph C. Kaczorowski
with copy to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 70205
Attention: Cecil Schenker, P.C.
All notices, demands and requests shall be effective upon such personal
delivery or upon being deposited with the above-referenced overnight carrier or
in the United States mail as required above. However, with respect to notices,
demands or request so deposited with the above-referenced overnight carrier or
in the United States mail, the time period in which a response to any such
notice, demand or request must be given shall commence to fun from the next
business day following any such deposit with the above-referenced overnight
carrier or, in the case of a deposit in the United States mail as provided
above, the date on the return receipt of the notice, demand or request
reflecting the date of delivery or rejection of the same by the addressee
thereof. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall be deemed to be
receipt of the notice, demand or request sent. By giving to the other party
hereto at least 30 days' written notice thereof in accordance with the
provisions hereof, the parties hereto shall have the right from time to time to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
26. The validity of this Contract of Guaranty and the obligations of
Guarantor hereunder shall in no way be terminated, affected or impaired by
reason of the transfer by Borrower of all or any part of Borrower's right, title
and interest in and to the Property or any part thereof or any interest therein
to any other person or by reason of any further encumbering of the Property or
any part thereof or any interest therein.
27. Guarantor hereby agrees that this Contract of Guaranty, the
Indebtedness and all other obligations guaranteed hereby, shall remain in full
force and effect at all times hereinafter until paid and/or performed in full
notwithstanding any action or undertakings by, or against, Lender, Guarantor,
Borrower, any partner in Borrower and/or concerning any collateral securing the
Loan in any proceeding in the United States Bankruptcy Court pursuant to any
Chapter of the Bankruptcy Code or the Rules of Bankruptcy Procedure as same may
be applicable from time-to-time, including, without
-9-
<PAGE>
limitation, any proceeding relating to valuation of collateral and/or to
election or imposition of secured or unsecured claim status upon claims by
Lender.
28. This Contract of Guaranty may be executed in any number of
counterparts, each of which shall be effective only upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effects as if all parties hereto had signed the
same signature page. Any signature page of this Contract of Guaranty may be
detached from any counterpart of this Contract of Guaranty without impairing the
legal effect of any signatures thereon and may be attached to another
counterpart of this Contract of Guaranty identical in form hereto but having
attached to it one or more additional signature pages.
29. The obligations and liabilities of Guarantor under this Contract of
Guaranty are in addition to the obligations and liabilities of Guarantor under
the Other Guaranties (as hereinafter defined). The discharge of Guarantor's
obligations and liabilities under any one or more of the Other Guaranties by
Guarantor or by reason of operations of law or otherwise shall in no event or
under any circumstance constitute or be deemed to constitute a discharge, in
whole or in part, of Guarantor's obligations and liabilities under this Contract
of Guaranty. Conversely, the discharge of Guarantor's obligations and
liabilities under this Contract of Guaranty by Guarantor or by reason of
operation of law or otherwise shall in no event or under any circumstance
constitute or be deemed to constitute a discharge, in whole or in part, of
Guarantor's obligations and liabilities under any of the Other Guaranties. The
term "Other Guaranties" as used herein shall mean any other guaranty of payment,
guaranty of performance, completion guaranty, indemnification agreement or other
guaranty or instrument of personal recourse obligation or undertaking of any
nature whatsoever (other than this Contract of Guaranty) now or hereafter
executed and delivered by Guarantor to Lender in connection with the Loan.
30. (i) In the event either a petition is filed under Title 11 of the
United States Code as now constituted or hereafter amended (herein referred to
as the "Bankruptcy Code") or under any other applicable Federal or state
---------------
bankruptcy law or other similar law in regard to Borrower or an action or
proceeding is commenced for the benefit of the creditors of Borrower, this
Contract of Guaranty shall at all times thereafter remain effective in regard to
any payments or other transfers of assets to Lender received from or on behalf
of Borrower which are or may be held voidable on the grounds of preference or
fraud, whether or not the Debt has been paid in full.
(ii) If at any time any payment, or portion thereof, made by, or for
the account of, the Guarantor on account of the obligations under this Contract
of Guaranty, is set aside by any court or trustee having jurisdiction as a
voidable preference, fraudulent conveyance or otherwise as being subject to
avoidance or recovery under the provisions of the Bankruptcy Code or under any
other applicable Federal or state bankruptcy law or similar law, the undersigned
hereby agrees that this Contract of Guaranty (x) shall continue and remain in
full force and effect or (y) if previously terminated as a result of the
-10-
<PAGE>
Guarantor having fulfilled its obligations hereunder in full or as a result of
Lender having released the Guarantor from its obligations and liabilities
hereunder, shall without further act or instrument be reinstated and shall
thereafter remain in full force and effect, in either case with the same force
and effect as though such payment or portion thereof had not been made, and if
applicable, as if such previous termination had not occurred.
31. GUARANTOR HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, AND
LENDER BY ITS ACCEPTANCE OF THIS CONTRACT OF GUARANTY IRREVOCABLY AND
UNCONDITIONALLY WAIVES, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT
OR COUNTERCLAIM ARISING IN CONNECTION WITH, OUT OF OR OTHERWISE RELATING TO
THIS CONTRACT OF GUARANTY.
32. Notwithstanding anything to the contrary which may be contained
in this Contract of Guaranty, the Guarantor shall not have the right to exercise
any right of subrogation with respect to the Borrower arising out of payments
made under this Contract of Guaranty until three hundred eighty days after the
Indebtedness has been paid in full to Lender.
-11-
<PAGE>
IN WITNESS WHEREOF, Guarantor had executed this Contract of Guaranty
as of the day and year first above written.
GUARANTOR:
HOB ENTERTAINMENT, INC., a
Delaware corporation
By: /s/ Joseph C. Kaczorowski
-----------------------------------
Name: Joseph C. Kaczorowski
Title: Executive Vice President
LENDER:
CARBON CAPITAL MORTGAGE PARTNERS, L.P.,
a Delaware limited partnership
By: Carbon Mesa Partners, L.P., a Delaware
limited partnership, its general partner
By: /s/ Mitchell D. Clarfield
------------------------------
Name: Mitchell D. Clarfield
Title: President
-12-
<PAGE>
STATE OF California)
------------
)ss:
COUNTY OF Los Angeles)
------------
I, Cheryl S. Sims, a Notary Public in and for said County, in the State
---------------
aforesaid, do hereby certify that Joseph Kaczorowski, the Executive Vice
------------------ --------------
President of HOB Entertainment, Inc., a Delaware corporation, who is personally
- ---------
known to me to be the same person whose name is subscribed to the foregoing
instrument appeared before me this day in person and acknowledged that (s)he
signed and delivered the said instrument as his/her own free and voluntary act
and as the free and voluntary act of said partnership, for the uses and purposes
therein set forth.
GIVEN under my hand and notarial seal, this 29/th/ day of April, 1997.
------
/s/ Cheryl S. Sims
----------------------
Notary Public
My Commission Expires:
June 9, 2000 [SEAL]
-13-
<PAGE>
STATE OF California )
--------------
)ss:
COUNTY OF Los Angeles )
-------------
I, S.L Wessendorf, a Notary Public in and for said County, in the
---------------
State aforesaid, do hereby certify that Mitchell D. Clarfield, the President
--------------------- ---------
of Carbon Mesa Management, Inc., a California corporation, the general partner
of Carbon Mesa Partners, L.P., a Delaware limited partnership, the general
partner of Carbon Capital Mortgage Partners, L.P., a Delaware limited
partnership, who is personally known to me to be the same person whose name is
subscribed to the foregoing instrument appeared before me this day in person and
acknowledged that (s)he signed and delivered the said instrument as his/her own
free and voluntary act and as the free and voluntary act of said partnership,
for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal, this 29 day of April, 1997.
----
/s/ S.L. Wessendorf
---------------------------------
Notary Public
My Commission Expires:
[SEAL]
-14-
<PAGE>
EXHIBIT A
Page 1 of 8
PARCEL 1:
ALL THE PROPERTY AND SPACE IN LOT 4 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART
OF BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 7.50 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 124.00 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE
VERTICAL PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
COMMENCING AT THE NORTHWEST CORNER OF LOT 4 IN HARPER'S RESUBDIVISION OF MARINA
CITY, BEING A POINT ON THE EAST LINE OF N. DEARBORN STREET, 90 FEET SOUTH OF THE
NORTHWEST CORNER OF BLOCK 1 OF ORIGINAL TOWN OF CHICAGO AS MEASURED ALONG SAID
EAST LINE OF N. DEARBORN STREET; THENCE SOUTH ON THE EAST LINE OF N. DEARBORN
STREET A DISTANCE OF 209.62 FEET; THENCE EAST PERPENDICULAR TO THE EAST LINE OF
N. DEARBORN STREET, A DISTANCE OF 4.32 FEET TO THE POINT OF BEGINNING OF THE
HORIZONTAL BOUNDARY FOR THE PROPERTY AND SPACE HEREINAFTER DESCRIBED; THENCE
NORTH ALONG THE ARC OF A CIRCLE CONVEX TO THE NORTHWEST, HAVING A RADIUS OF
20.87 FEET, A DISTANCE OF 32.75 FEET TO A POINT, SAID POINT IS 188.74 FEET SOUTH
FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF N.
DEARBORN STREET, AND 25.18 FEET EAST OF SAID EAST LINE OF N. DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE NORTH ALONG A STRAIGHT LINE A DISTANCE OF
3.05 FEET, TO A POINT ON THE NORTH FACE OF A CONCRETE WALL, SAID POINT IS 185.69
FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE
OF N. DEARBORN STREET, AND 25.36 FEET EAST OF SAID EAST LINE OF N. DEARBORN
STREET AS MEASURED PERPENDICULAR THERETO; THENCE EAST ALONG A STRAIGHT LINE,
BEING THE NORTH FACE OF A CONCRETE WALL, A DISTANCE OF 62.26 FEET TO A POINT,
SAID POINT IS 189.38 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED
ALONG SAID EAST LINE OF N. DEARBORN STREET AND 87.51 FEET EAST OF SAID EAST LINE
OF N. DEARBORN STREET AS MEASURED PERPENDICULAR THERETO, BEING THE NORTHEAST
CORNER OF THE HEREINBEFORE MENTIONED CONCRETE WALL; THENCE SOUTH ALONG A
STRAIGHT LINE, A DISTANCE OF 2.00 FEET TO A POINT, SAID POINT IS 191.38 FEET
SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF
N. DEARBORN STREET, AND 87.39 FEET EAST OF SAID EAST LINE OF N. DEARBORN
STREET AS MEASURED PERPENDICULAR THERETO; THENCE EAST ALONG A STRAIGHT LINE
PERPENDICULAR TO THE EAST LINE OF N. DEARBORN STREET, A DISTANCE OF 28.23 FEET
TO A POINT ON THE SOUTH MOST EAST LINE OF LOT 4 IN HARPER'S RESUBDIVISION OF
MARINA CITY; THENCE SOUTH ALONG SAID EAST LINE OF LOT 4 IN HARPER'S
RESUBDIVISION OF MARINA CITY, A DISTANCE OF 76.67 FEET TO AN ANGLE CORNER OF
SAID LOT 4; THENCE WEST ALONG A STRAIGHT LINE, A DISTANCE OF 28.10 FEET TO A
POINT; THENCE SOUTH ALONG A STRAIGHT LINE, A DISTANCE OF 2.05 FEET TO A POINT ON
THE LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA CITY, SAID
POINT IS 88.86 FEET EAST OF THE EAST LINE OF N. DEARBORN STREET, AS MEASURED
ALONG SAID LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA CITY;
THENCE WEST ALONG THE LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF
MARINA CITY, A DISTANCE OF 62.83 FEET TO A POINT; THENCE NORTH ALONG A STRAIGHT
LINE, A DISTANCE OF 3.40 FEET TO A POINT,
<PAGE>
PAGE 2 OF 8
SAID POINT IS 272.21 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED
ALONG THE EAST LINE OF N. DEARBORN STREET, AND 25.75 FEET EAST OF SAID EAST LINE
OF N. DEARBORN STREET AS MEASURED PERPENDICULAR THERETO; THENCE WEST ALONG THE
ARC OF A CIRCLE CONVEX TO THE SOUTHWEST, HAVING A RADIUS OF 20.87 FEET, A
DISTANCE OF 33.33 FEET TO A POINT, SAID POINT IS 251.34 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF N. DEARBORN
STREET, AND 4.32 FEET EAST OF SAID EAST LINE OF N. DEARBORN STREET AS MEASURED
PERPENDICULAR THERETO; THENCE NORTH ALONG A STRAIGHT LINE PARALLEL WITH THE EAST
LINE OF N. DEARBORN STREET. A DISTANCE OF 41.72 FEET TO THE POINT OF BEGINNING,
IN COOK COUNTY, ILLINOIS.
EXCEPTING FROM THE FOREGOING THE FOLLOWING TWO PARCELS:
(1) ALL THAT PROPERTY AND SPACE BELOW A HORIZONTAL PLANE WITH AN ELEVATION OF
33 FEET ABOVE CHICAGO CITY DATUM AND LYING EAST OF THE VERTICAL PROJECTION OF A
LINE DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT WHICH IS 189.22 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT
4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 84.85 FEET EAST
OF SAID EAST LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR THERETO;
THENCE SOUTH ALONG A STRAIGHT LINE, A DISTANCE OF 81.39 FEET TO A POINT ON THE
LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA CITY, SAID POINT
BEING 86.05 EAST OF THE EAST LINE OF NORTH DEARBORN STREET, AS MEASURED ALONG
SAID LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA CITY.
(2) AND ALSO EXCEPTING ALL THAT PROPERTY AND SPACE BELOW A HORIZONTAL PLANE
WITH AN ELEVATION OF 33 FEET ABOVE CHICAGO CITY DATUM AND ABOVE A HORIZONTAL
PLANE WITH AN ELEVATION OF 22 FEET ABOVE CHICAGO CITY DATUM AND LYING EAST OF
THE VERTICAL PROJECTION OF A LINE DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT WHICH IS 188.50 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT
4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 72.78 FEET
EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR
THERETO; THENCE SOUTH ALONG A STRAIGHT LINE, A DISTANCE OF 83.12 FEET TO A POINT
ON THE LINE BETWEEN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA CITY, SAID
POINT BEING 73.95 FEET EAST OF THE EAST LINE OF NORTH DEARBORN STREET, AS
MEASURED ALONG SAID LINE BETWEEN LOTS 3 AND 4 IN HARPER'S SUBDIVISION OF MARINA
CITY.
ALSO:
ALL THE PROPERTY AND SPACE IN LOT 3 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART OF
BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 33 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 100 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE VERTICAL
PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
COMMENCING AT THE MOST WESTERLY NORTHWEST CORNER OF LOT 3 IN HARPER'S
RESUBDIVISION OF MARINA CITY; THENCE EAST ALONG THE NORTH LINE OF SAID LOT 3, A
DISTANCE OF 116.88
<PAGE>
FEET TO AN ANGLE CORNER OF SAID LOT 3, BEING THE POINT OF BEGINNING FOR THE
LAND, PROPERTY AND SPACE HEREIN DESCRIBED; THENCE NORTH ALONG THE LINE BETWEEN
LOTS 3 AND 4 IN SAID HARPER'S RESUBDIVISION OF MARINA CITY, A DISTANCE OF 52.53
FEET TO A POINT; THENCE SOUTH ALONG A STRAIGHT LINE PARALLEL WITH THE EAST LINE
OF NORTH DEARBORN STREET, A DISTANCE OF 76.67 FEET TO A POINT; THENCE EAST ALONG
A STRAIGHT LINE PERPENDICULAR TO THE EAST LINE OF NORTH DEARBORN STREET, A
DISTANCE OF 52.53 FEET TO A POINT; THENCE SOUTH ALONG A STRAIGHT LINE PARALLEL
WITH THE EAST LINE OF NORTH DEARBORN STREET, A DISTANCE OF 76.96 FEET TO A
POINT; THENCE WEST ALONG A STRAIGHT LINE, A DISTANCE OF 51.68 FEET TO THE POINT
OF BEGINNING, EXCEPTING FROM THE FOREGOING THE FOLLOWING: ALL THAT PROPERTY AND
SPACE BELOW A HORIZONTAL PLANE WITH AN ELEVATION OF 45.60 FEET ABOVE CHICAGO
CITY DATAM AND EAST OF THE VERTICAL PROJECTION OF A LINE 154.62 FEET EAST OF AND
PARALLEL WITH THE EAST LINE OF NORTH DEARBORN STREET.
ALSO: (ELEVATOR PARCEL)
ALL THE PROPERTY AND SPACE IN LOT 4 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART OF
BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 7.50 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 33 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE VERTICAL
PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
COMMENCING AT THE SOUTHWEST CORNER OF LOT 4 IN HARPER'S RESUBDIVISION OF MARINA
CITY; THENCE EAST ALONG A SOUTHERLY LINE OF SAID LOT 4, A DISTANCE OF 116.88
FEET TO A CORNER OF SAID LOT 4; THENCE NORTHERLY ALONG A PERIPHERAL LINE OF
SAID LOT 4, A DISTANCE OF 12.58 FEET TO A POINT; THENCE WESTERLY ALONG A LINE
PERPENDICULAR TO THE LAST HEREIN DESCRIBED LINE A DISTANCE OF 4.53 FEET TO THE
POINT OF BEGINNING FOR THE PARCEL HEREINAFTER DESCRIBED; THENCE NORTHERLY ALONG
A LINE PERPENDICULAR TO THE LAST HEREIN DESCRIBED LINE A DISTANCE OF 9.33 FEET
TO A POINT; THENCE WESTERLY ALONG A LINE PERPENDICULAR TO THE LAST HEREIN
DESCRIBED LINE A DISTANCE OF 7.52 FEET TO A POINT; THENCE SOUTHERLY ALONG A LINE
PERPENDICULAR TO THE LAST HEREIN DESCRIBED LINE A DISTANCE OF 9.33 FEET TO THE
POINT; THENCE EASTERLY ALONG A LINE PERPENDICULAR TO THE LAST HEREIN DESCRIBED
LINE A DISTANCE OF 7.52 FEET TO THE POINT OF BEGINNING.
ALSO: (ENTRANCE PARCEL)
ALL THE PROPERTY AND SPACE IN LOTS 3 AND 4 IN HARPER'S RESUBDIVISION OF MARINA
CITY, BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN
SECTION 9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND
PART OF BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE
NORTH FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD
PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS
DOCUMENT NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 33 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 46.50 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE
VERTICAL PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
<PAGE>
BEGINNING AT THE HEREINBEFORE MENTIONED POINT 191.38 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 87.39 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE NORTH ALONG A STRAIGHT LINE, A DISTANCE
OF 2 FEET TO THE HEREINBEFORE MENTIONED POINT 189.38 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 87.51 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE WESTERLY ALONG A STRAIGHT LINE, THE
WESTERLY TERMINUS OF SAID LINE BEING THE HEREINBEFORE MENTIONED POINT 185.69
FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE
OF NORTH DEARBORN STREET, AND 25.36 FEET EAST OF SAID EAST LINE OF NORTH
DEARBORN STREET AS MEASURED PERPENDICULAR THERETO, A DISTANCE OF 2.57 FEET TO A
POINT; THENCE NORTH ALONG A STRAIGHT LINE, A DISTANCE OF 4.16 FEET TO A POINT,
SAID POINT IS 185.07 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED
ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 84.90 FEET EAST OF SAID EAST
LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR THERETO; THENCE EAST
ALONG A STRAIGHT LINE, A DISTANCE OF 61.00 FEET TO A POINT, SAID POINT IS
184.48 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST
LINE OF NORTH DEARBORN STREET, AND 145.90 FEET EAST OF SAID EAST LINE OF NORTH
DEARBORN STREET AS MEASURED PERPENDICULAR THERETO; THENCE SOUTH ALONG A STRAIGHT
LINE, A DISTANCE OF 6.88 FEET TO A POINT, SAID POINT IS 191.35 FEET SOUTH FROM
THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 145.96 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE WEST ALONG A STRAIGHT LINE, A DISTANCE OF
58.57 FEET TO THE POINT OF BEGINNING.
ALSO: (SOUTH STAIRWELL PARCEL)
ALL THE PROPERTY AND SPACE IN LOT 4 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART OF
BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 7.50 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 92.67 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE VERTICAL
PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
BEGINNING AT THE HEREINBEFORE DESCRIBED POINT 272.21 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 25.75 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE WEST ALONG THE HEREINBEFORE DESCRIBED ARC
OF A CIRCLE CONVEX TO THE SOUTHWEST, HAVING A RADIUS OF 20.87 FEET, SAID ARC
TERMINATING AT A POINT 251.34 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS
MEASURED ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 4.32 FEET EAST OF
SAID EAST LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR THERETO, A
DISTANCE OF 19.72 FEET TO A POINT; THENCE WESTERLY ALONG A LINE PARALLEL WITH
THE MOST WESTERLY SOUTHERLY LINE OF LOT 4 IN SAID HARPER'S RESUBDIVISION OF
MARINA CITY A DISTANCE OF 3.86 FEET TO A POINT; THENCE SOUTHERLY ALONG A
STRAIGHT LINE PERPENDICULAR TO THE LAST DESCRIBED LINE, A DISTANCE OF 12 FEET
TO A POINT; THENCE EASTERLY ALONG A STRAIGHT LINE PERPENDICULAR TO THE LAST
DESCRIBED LINE, A DISTANCE OF 20.56 FEET TO A POINT; THENCE NORTHERLY ALONG A
STRAIGHT LINE, A DISTANCE OF 2.40 FEET TO THE POINT OF BEGINNING.
<PAGE>
Page 5 of 8
ALSO: (NORTH STAIRWALL PARCEL)
ALL THE PROPERTY AND SPACE IN LOT 4 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO, IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART OF
BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL
MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE A HORIZONTAL PLANE HAVING
ELEVATIONS OF 7.50 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 92.67 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE VERTICAL
PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
COMMENCING AT THE POINT OF BEGINNING FOR THE FIRST HEREINBEFORE DESCRIBED
PARCEL; THENCE NORTH ALONG THE HEREINBEFORE DESCRIBED ARC OF A CIRCLE CONVEX TO
THE NORTHWEST, HAVING A RADIUS OF 20.87 FEET, SAID ARC TERMINATING AT A POINT
188.74 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST
LINE OF NORTH DEARBORN STREET, AND 25.18 FEET EAST OF SAID EAST LINE OF NORTH
DEARBORN STREET AS MEASURED PERPENDICULAR THERETO, A DISTANCE OF 12.70 FEET TO
THE POINT OF BEGINNING FOR THE PARCEL HEREINAFTER DESCRIBED; THENCE CONTINUING
ALONG SAID ARC OF A CIRCLE, A DISTANCE OF 20.05 FEET TO SAID ARC'S TERMINATING
POINT; THENCE NORTH ALONG THE HEREINBEFORE DESCRIBED STRAIGHT LINE TERMINATING
AT A POINT 185.69 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4, AS MEASURED
ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 25.36 FEET EAST OF SAID EAST
LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR THERETO, A DISTANCE OF
2.05 FEET TO A POINT; THENCE WESTERLY ALONG A STRAIGHT LINE, A DISTANCE OF 20.25
FEET TO A POINT, SAID POINT IS 185.38 FEET SOUTH FROM THE NORTHWEST CORNER OF
LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN STREET, AND 4.82 FEET
EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS MEASURED PERPENDICULAR
THERETO; THENCE SOUTHERLY ALONG A STRAIGHT LINE PERPENDICULAR TO THE LAST
DESCRIBED LINE, A DISTANCE OF 12 FEET TO A POINT; THENCE EASTERLY ALONG A LINE
PERPENDICULAR TO THE LAST DESCRIBED LINE, A DISTANCE OF 3.72 FEET TO THE POINT
OF BEGINNING;
ALSO:
ALL THE PROPERTY AND SPACE IN LOT 4 IN HARPER'S RESUBDIVISION OF MARINA CITY,
BEING A RESUBDIVISION OF PART OF BLOCK 1 IN ORIGINAL TOWN OF CHICAGO IN SECTION
9, TOWNSHIP 39 NORTH, RANGE 14 EAST OF THE THIRD PRINCIPAL MERIDIAN, AND PART OF
BLOCK 1 IN KINZIE'S ADDITION TO CHICAGO, BEING A SUBDIVISION OF THE NORTH
FRACTION OF SECTION 10, TOWNSHIP 39 NORTH, RANGE 14, EAST OF THE THIRD PRINCIPAL
MERIDIAN ACCORDING TO THE PLAT THEREOF RECORDED DECEMBER 15, 1977 AS DOCUMENT
NO. 24238690, IN COOK COUNTY, ILLINOIS, ABOVE THE HORIZONTAL PLANE HAVING
ELEVATIONS OF 7.50 FEET ABOVE CHICAGO CITY DATUM AND BELOW A HORIZONTAL PLANE
HAVING ELEVATIONS OF 33 FEET ABOVE CHICAGO CITY DATUM AND WITHIN THE VERTICAL
PROJECTION OF THE HORIZONTAL BOUNDARY DESCRIBED AS FOLLOWS:
COMMENCING AT THE HEREINBEFORE DESCRIBED POINT 272.21 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 25.75 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE WEST ALONG THE HEREINBEFORE DESCRIBED ARC
OF A CIRCLE CONVEX TO THE SOUTHWEST, HAVING A RADIUS OF 20.87 FEET, SAID ARC
TERMINATING AT A POINT 251.34 FEET SOUTH FROM THE NORTHWEST CORNER OF LOT 4,
MEASURED ALONG THE EAST LINE OF NORTH
<PAGE>
Page 6 of 8
DEARBORN STREET, AND 4.32 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET
AS MEASURED PERPENDICULAR THERETO, A DISTANCE OF 19.72 FEET TO THE POINT OF
BEGINNING FOR THE LAND PROPERTY AND SPACE HEREINAFTER DESCRIBED; THENCE WESTERLY
ALONG A LINE PARALLEL WITH THE MOST WESTERLY SOUTHERLY LINE OF LOT 4 IN SAID
HARPER'S RESUBDIVISION OF MARINA CITY, A DISTANCE OF 3.86 FEET TO A POINT;
THENCE NORTHERLY ALONG A STRAIGHT LINE, A DISTANCE OF 13 FEET TO THE
HEREINBEFORE MENTIONED POINT, SAID POINT BEING 251.34 FEET SOUTH FROM THE
NORTHWEST CORNER OF LOT 4, AS MEASURED ALONG THE EAST LINE OF NORTH DEARBORN
STREET, AND 4.32 FEET EAST OF SAID EAST LINE OF NORTH DEARBORN STREET AS
MEASURED PERPENDICULAR THERETO; THENCE SOUTHEASTERLY ALONG THE HEREINBEFORE
DESCRIBED ARC OF A CIRCLE, CONVEX TO THE SOUTHWEST, HAVING A RADIUS OF 20.87
FEET, A DISTANCE OF 13.61 FEET TO THE POINT OF BEGINNING, ALL IN COOK COUNTY
ILLINOIS.
EASEMENT PARCEL 2:
EASEMENTS FOR THE BENEFIT OF PARCEL 1 AS CREATED BY RECIPROCAL DEVELOPMENT,
OPERATING AND EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB
MARINA CITY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A
DELAWARE CORPORATION AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION, AS
CONTAINED IN JOINDER IN AND AMENDMENT TO RECIPROCAL DEVELOPMENT, OPERATING AND
EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB MARINA CITY
PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A DELAWARE
CORPORATION, AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE
UNDER TRUST AGREEMENT DATED OCTOBER 11, 1994 AND KNOWN AS TRUST NUMBER 118880-05
AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION.:
(a) TO USE THE DRIVEWAYS AND PUBLIC PARKING AREAS SUBJECT TO ANY PARKING
OPERATOR'S AGREEMENT IN EFFECT IN THE "COMMON AREA" (AS DEFINED IN RECIPROCAL
DEVELOPMENT, OPERATING AND EASEMENT AGREEMENT DATED JANUARY 29, 1996
(B) TO PROVIDE UNINTERRUPTED PASSAGE BY MOTOR VEHICLES (PASSENGER AND TRUCK) AND
PEDESTRIANS BETWEEN THE ENTRANCES AND EXITS TO THE "DEVELOPER'S PROPERTY" (AS
DEFINED IN RECIPROCAL DEVELOPMENT, OPERATING AND EASEMENT AGREEMENT NOTED ABOVE)
AND INGRESS AND EGRESS TO THE COMMON AREAS OF THE PARKING FACILITIES ON THE
"PROJECT" (AS DEFINED IN RECIPROCAL DEVELOPMENT, OPERATING AND EASEMENT
AGREEMENT NOTED ABOVE)
(C) TO USE THE VARIOUS WALKWAYS OF THE COMMON AREA.
EASEMENT PARCEL 3:
EASEMENT FOR THE BENEFIT OF PARCEL 1 AS CREATED BY RECIPROCAL DEVELOPMENT,
OPERATING AND EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB
MARINA CITY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A
DELAWARE CORPORATION AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION, AS
CONTAINED IN JOINDER IN AND AMENDMENT TO RECIPROCAL DEVELOPMENT, OPERATING AND
EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB MARINA CITY
PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A DELAWARE
CORPORATION, AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE
UNDER TRUST AGREEMENT DATED OCTOBER 11, 1994 AND KNOWN AS TRUST NUMBER 118880-05
AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION AND PROVIDED IN GRANT MADE
BY MARINA CITY BUILDING CORPORATION, A CORPORATION DELAWARE, TO NORTH MARINA
CITY BUILDING CORPORATION, A CORPORATION OF
<PAGE>
Page 7 of 8
ILLINOIS, RECORDED MARCH 20, 1965 AS DOCUMENT 19419417 OF A PERPETUAL EASEMENT
TO CONSTRUCT, BUILD AND MAINTAIN THAT PORTION OF THE THEATRE BUILDING ERECTED OR
BEING ERECTED BY NORTH MARINA CITY BUILDING CORPORATION ON THE SOUTHWESTERLY
PORTION OF LOT 4 IN SUCH MANNER AS TO OVERHANG, PROJECT AND ENCROACH OVER, UPON
AND ACROSS THAT PART OF LOT 3 DESCRIBED AS FOLLOWS:
BEGINNING AT THE MOST WESTERLY NORTHWEST CORNER OF LOT 3; THENCE NORTH 86
DEGREES, O1 MINUTES, 30 SECONDS EAST 116.88 FEET TO THE POINT OF BEGINNING OF
THE FOLLOWING TRACT OF LAND; THENCE NORTH 0 DEGREES, 00 MINUTES 40 SECONDS EAST,
76.98 FEET TO A POINT ON THE SOUTHERLY LINE OF THE 40.0 FOOT EASEMENT STRIP OF
THE CHICAGO AND NORTHWESTERN RAILWAY COMPANY; THENCE SOUTH 85 DEGREES, 42
MINUTES, 10 SECONDS EAST ALONG SAID SOUTHERLY LINE OF EASEMENT, 2.0 FEET; THENCE
SOUTH 0 DEGREES, 09 MINUTES, 40 SECONDS EAST TO A POINT ON A LINE DRAWN EAST
FROM THE HEREIN DESIGNATED POINT OF BEGINNING; THENCE WEST 2.0 FEET TO SAID
POINT OF BEGINNING, SAID EASEMENT ALSO BEING FOR INGRESS AND EGRESS TO AND FROM
SAID THEATRE AND AUDITORIUM BUILDING AND TO CONSTRUCT AND MAINTAIN THE ROOF OF
SAID THEATRE BUILDING AND STRUCTURAL COMPONENTS OF SAID ROOF IN SUCH MANNER AS
TO OVERHANG AND PROJECT OVER, ON AND ACROSS THE PROPERTY OF MARINA CITY BUILDING
CORPORATION.
EASEMENT PARCEL 4:
EASEMENT FOR THE BENEFIT OF PARCEL 1 AS CREATED BY RECIPROCAL DEVELOPMENT,
OPERATING AND EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB
MARINA CITY PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A
DELAWARE CORPORATION AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION, AS
CONTAINED IN JOINDER IN AND AMENDMENT TO RECIPROCAL DEVELOPMENT, OPERATING AND
EASEMENT AGREEMENT, DATED JANUARY 29, 1996 MADE BY AND AMONG HOB MARINA CITY
PARTNERS, L.P., A DELAWARE LIMITED PARTNERSHIP, HOB CHICAGO, INC., A DELAWARE
CORPORATION, AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE
UNDER TRUST AGREEMENT DATED OCTOBER 11, 1994 AND KNOWN AS TRUST NUMBER 118880-05
AND NIKI DEVELOPMENT CORP., AN ILLINOIS CORPORATION AND PROVIDED IN GRANT MADE
BY MARINA CITY BUILDING CORPORATION, A CORPORATION DELAWARE, TO NORTH MARINA
CITY BUILDING CORPORATION, A CORPORATION OF ILLINOIS, RECORDED MARCH 29, 1965 AS
DOCUMENT 19419417 OF A PERPETUAL EASEMENT FOR INGRESS AND EGRESS AT ALL TIMES BY
FOOT, VEHICLE OR OTHERWISE OVER, UPON AND ACROSS THAT PART OF LOT 4 DESCRIBED AS
FOLLOWS:
BEGINNING AT A POINT IN THE WEST LINE OF BLOCK 1, ORIGINAL TOWN OF CHICAGO
(WHICH IS THE EAST LINE OF NORTH DEARBORN STREET) THAT IS SOUTH 0 DEGREES, 47
MINUTES, 50 SECONDS WEST, 233.93 FEET FROM THE NORTHWEST CORNER OF SAID BLOCK 1
AND RUNNING THENCE SOUTH 85 DEGREES, 42 MINUTES 10 SECONDS EAST, 151.44 FEET;
THENCE SOUTH 87 DEGREES, 15 MINUTES, 10 SECONDS EAST, 49.34 FEET; THENCE SOUTH
89 DEGREES, 29 MINUTES, 10 SECONDS EAST, 48.70 FEET; THENCE NORTH 85 DEGREES, 18
MINUTES, 50 SECONDS EAST, 48.44 FEET; THENCE NORTH 81 DEGREES, 33 MINUTES, 50
SECONDS EAST, 17.98 FEET; THENCE NORTH 78 DEGREES, 32 MINUTES, 50 SECONDS EAST,
53.60 FEET TO A POINT ON A LINE 66 FEET (MEASURED PERPENDICULARLY) WEST FROM AND
PARALLEL WITH THE WEST LINE OF BLOCK 2 IN KINZIE'S ADDITION AFORESAID AS SAID
WEST LINE IS RECOGNIZED IN THE WABASH AVENUE BRIDGE ORDINANCE (SAID WEST LINE OF
BLOCK 2 BEING THE EAST LINE OF NORTH STATE STREET AS OCCUPIED), WHICH POINT IS
SOUTH 0 DEGREES, 9 MINUTES, 40 SECONDS WEST, 227.22 FEET FROM THE INTERSECTION
OF THE ABOVE MENTIONED PARALLEL LINE WITH THE NORTH LINE OF SAID BLOCK 1 IN
KINZIE'S ADDITION AFORESAID; THENCE SOUTH 0 DEGREES, 9 MINUTES, 40 SECONDS WEST
ALONG THE ABOVE MENTIONED PARALLEL LINE A DISTANCE OF 40.84 FEET; THENCE
<PAGE>
SOUTH 78 DEGREES, 32 MINUTES 50 SECONDS WEST, 46.44 FEET, THENCE SOUTH 81
DEGREES, 33 MINUTES, 50 SECONDS WEST, 20.34 FEET THENCE SOUTH 85 DEGREES, 18
MINUTES, 50 SECONDS WEST, 51.56 FEET, THENCE NORTH 89 DEGREES, 29 MINUTES, 10
SECONDS WEST, 51.30 FEET; THENCE NORTH 87 DEGREES, 15 MINUTES, 10 seconds west,
50.56 feet, thence north 65 degrees, 42 minutes, 10 seconds west,149.54 FEET TO
A POINT IN SAID WEST LINE OF BLOCK 1, ORIGINAL TOWN, THAT IS SOUTH 0 DEGREES, 47
MINUTES, 50 SECONDS WEST, 274 FEET FROM SAID NORTH WEST CORNER OF SAID BLOCK 1
AND THENCE NORTH 0 DEGREES, 47 MINUTES, 50 SECONDS EAST ALONG SAID WEST LINE OF
BLOCK 1, A DISTANCE OF 40.07 FEET TO THE POINT OF BEGINNING; EXTENDING UPWARDS
FROM AND ABOVE A HORIZONTAL PLANE BEING A VERTICAL DISTANCE OF 24.5 FEET ABOVE
CHICAGO CITY DATUM.
EASEMENT PARCEL 5:
EASEMENTS FOR THE BENEFIT OF PARCEL 1 AS CREATED BY THE RECIPROCAL DEVELOPMENT,
OPERATING AND EASEMENT AGREEMENT, REFERRED TO ABOVE IN EASEMENT PARCELS 2, 3 AND
4 (RDOEA), AS FOLLOWS:
A-THE EASEMENT TO USE THE DOCKING AREA DESCRIBED IN SECTION 3.4 (a)(ii);
B-THE EASEMENT TO INSTALL, MAINTAIN, REPLACE, RELOCATE, USE AND OPERATE ELECTRIC
LINES AND SIGNS AND NECESSARY INSTALLATIONS, CONDUITS, WIRING AND CONNECTIONS,
AND THE RIGHT OF ACCESS THERETO, AS DESCRIBED IN SECTION 3.4 (d) OF THE RODEA;
C-THE EASEMENT FOR SIGNAGE DESCRIBED IN SECTION 3.4 (d) OF THE RODEA;
D-THE EASEMENT TO ENTER UPON THE ADJOINING PROPERTY FOR THE PURPOSE OF
PERFORMING ANY OBLIGATION WHICH ANOTHER PARTY FAILS OR REFUSES TO PERFORM AS
DESCRIBED IN SECTION 3.6 OF THE RDOEA;
E-THE EASEMENT FOR MAINTAINING, REPAIRING OR RECONSTRUCTING ANY OF THE
FACILITIES AS DESCRIBED IN SECTION 3.7 OF THE RDOEA;
F-THE EASEMENT FOR COMMON UTILITY FACILITIES AS DESCRIBED IN SECTION 3.8 OF THE
RDOEA.
G-THE EASEMENT FOR BUILDING ENCROACHMENTS DESCRIBED IN SECTION 3.12 OF THE
RDOEA.
EASEMENT PARCEL 6:
EASEMENT FOR THE BENEFIT OR PARCEL 1 AS CREATED BY DEVELOPMENT EASEMENT GRANT
DATED AUGUST 2, 1996 AND RECORDED AUGUST 26, 1996 AS DOCUMENT 9665303 BY
CHRISTOPHER A. MARKS AND HOWARD N. GILBERT, AS CO-TRUSTEES OF THE DECLARATION OF
TRUST DATED DECEMBER 30, 1988 ESTABLISHING THE JOHN L. MARKS 1988 GIFT TRUST,
AND AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, AS TRUSTEE UNDER THE
TRUST AGREEMENT DATED OCTOBER 11, 1994 AND KNOWN AS TRUST NUMBER 118880-05, FOR
PLAZA AREA EASEMENT AND SKYWALK EASEMENT FOR THE PURPOSE OF CONSTRUCTING, USING,
AND MAINTAINING THEREIN BUILDINGS AND OTHER IMPROVEMENTS AND/OR STRUCTURES,
INCLUDING THE CANOPY AND OVERHANG EXTENDING FROM PARCEL 1, NOW OR HEREAFTER
ATTACHED TO OR OTHERWISE EXISTING ON OR EXTENDING FROM PARCEL 1.
<PAGE>
EXHIBIT 10.22
TABLE OF CONTENTS
AGREEMENT OF LIMITED PARTNERSHIP
OF
HOB MARINA CITY PARTNERS, L.P.
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I CERTAIN DEFINITIONS............................. 1
ARTICLE II THE PARTNERSHIP................................. 6
Section 2.1 Formation................................ 6
Section 2.2 Name..................................... 6
Section 2.3 Registered Agent......................... 6
Section 2.4 Registered Office........................ 6
Section 2.5 Purposes and Powers...................... 6
Section 2.5 Ownership of Partnership Property; Waiver
Of Partition............................. 6
Section 2.7 Term of Partnership...................... 7
ARTICLE III CONTRIBUTIONS AND LIABILITIES................... 7
Section 3.1 General Partner's Contributions,
Liabilities, Construction and Loans...... 7
(a) Contribution.................................... 7
(b) Construction Loan............................... 7
Section 3.2 Initial and Subsequent Mandatory
Contributions of the Limited Partners.... 8
(a) Niki Contribution............................... 8
(b) Platinum Contribution........................... 9
(c) HOB Contribution................................ 9
Section 3.3 Additional Contributions................. 9
Section 3.4 Interest; Return of Contributions........ 10
Section 3.5 Capital Accounts......................... 10
(a) Separate Capital Accounts....................... 10
(b) Exempt Income................................... 11
(c) Return of Capital............................... 11
(d) Loans Not Capital............................... 11
(e) Negative Balances............................... 11
(f) No Obligations to Third Parties................. 11
(g) Modification of Capital Accounts to Comply
with the Code................................... 11
Section 3.6 Additional Limited Partners.............. 12
ARTICLE IV CASH DISTRIBUTIONS; ALLOCATIONS OF INCOME AND
LOSS............................................ 12
Section 4.1 Distributions of Net Cash Flow.................. 12
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.2 Allocation of Profits and Losses......... 12
Section 4.3 Special Allocations...................... 13
(a) Qualified Income Offset....................... 13
(b) Gross Income Allocation....................... 13
(c) Non-Recourse Deductions....................... 13
(d) Section 754 Adjustments....................... 13
(e) Diverted Cash Flow............................ 14
Section 4.4 Curative Allocations.......................... 14
Section 4.5 Tax Allocations: Code Section 704(c)......... 14
Section 4.6 Allocation and Distributions Among
Limited Partners.............................. 15
Section 4.7 Allocation Upon Transfer...................... 15
Section 4.8 Agreement to Make Changes Required by
Law........................................... 15
ARTICLE V MANAGEMENT.................................... 16
Section 5.1 Participation in Management................... 16
Section 5.2 General Authority of General Partner.......... 16
Section 5.3 Independent Activities........................ 17
Section 5.4 Duties of the General Partner................. 17
Section 5.5 Right of Third Parties to Rely on
Authority of General Partner.................. 18
Section 5.7 Certain Limitations on General Partner
Activities.................................... 18
Section 5.8 Exculpation................................... 21
Section 5.9 Standard of Care.............................. 22
Section 5.10 Indemnity..................................... 22
Section 5.11 Limitation on Liability....................... 22
ARTICLE VI TRANSACTIONS INVOLVING THE GENERAL PARTNER.... 22
ARTICLE VII ACCOUNTING, REPORTING, BEING, AND TAX
MATTERS....................................... 23
Section 7.1 Books of Account.............................. 23
Section 7.2 Reports....................................... 23
Section 7.3 Fiscal Year................................... 23
Section 7.4 Banking....................................... 24
Section 7.5 Tax Election for Basis Adjustment............. 24
Section 7.6 Partnership Returns........................... 24
Section 7.7 Information................................... 24
ARTICLE VIII TRANSFER OF PARTNERSHIP INTERESTS............. 24
Section 8.1 In General.................................... 24
Section 8.2 Transfers..................................... 25
Section 8.3 Additional Conditions to Transfer of
Percentage Interests.......................... 25
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 8.4 Death of a Limited Partner or Spouse of a
Limited Partner.............................. 26
Section 8.5 Purchase of Limited Partnership Interest
By General Partner........................... 26
Section 8.6 Transfer of General Partner's Interests;
Designation of Additional General
Partners..................................... 27
Section 8.7 Consent to Admission of New Partners......... 27
ARTICLE IX RESIGNATION OR REMOVAL OF THE GENERAL PARTNER;
FORFEITURE BY HOB; FORFEITURE BY NIKI........ 27
Section 9.1 Resignation or Removal of the General
Partner...................................... 27
Section 9.2 Bankruptcy or Dissolution of the General
Partner...................................... 28
Section 9.3 Liability of General Partner after
Resignation or Removal; Payment of
Partnership Indebtedness..................... 28
Section 9.4 Bankruptcy Provisions........................ 29
(a) Status of Trustee............................ 29
(b) Assumption of Obligations.................... 29
Section 9.5 Forfeiture of HOB Percentage Interest........ 29
Section 9.5 Forfeiture of Niki Percentage Interest....... 30
ARTICLE X DISSOLUTION AND WINDING UP OF
PARTNERSHIP.................................. 30
Section 10.1 Dissolution.................................. 30
Section 10.2 Election to Continue......................... 31
Section 10.3 Winding Up................................... 31
Section 10.4 Liquidator................................... 32
Section 10.5 Liquidation Statements....................... 33
ARTICLE XI MISCELLANEOUS PROVISIONS..................... 33
Section 11.1 Notices...................................... 34
Section 11.2 Law Governing................................ 34
Section 11.3 Severability................................. 34
Section 11.4 Section Headings and Captions................ 35
Section 11.5 Amendments................................... 35
Section 11.6 Meetings and Means of Voting................. 35
Section 11.7 Binding Nature of Certain Procedures......... 36
Section 11.8 Right to Rely Upon Authority................. 36
Section 11.9 Successors and Assigns....................... 36
Section 11.10 Counterparts................................. 36
Section 11.11 Modification to be in Writing................ 36
Section 11.12 Integrated Agreement......................... 37
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE XII VARIOUS ADDITIONAL RIGHTS OF THE PARTNERS..... 37
Section 12.1 Option of Niki and Platinum to Put Their
Interests..................................... 37
Section 12.2 Option of General Partner to Purchase
The Interests of Niki and Platinum............ 38
(a) Prior to Initial Public Offering.............. 38
(b) After Initial Public Offering................. 39
Section 12.3 Other Acts Relative to the Options............ 40
</TABLE>
iv
<PAGE>
THE LIMITED PARTNERSHIP INTEREST DESCRIBED IN THIS DOCUMENT HAS BEEN ACQUIRED
FOR INVESTMENT AND HAS BEEN ISSUED PURSUANT TO A CLAIM OF EXEMPTION FROM THE
REGISTRATION OR QUALIFICATION PROVISIONS OF THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE. THIS LIMITED PARTNERSHIP INTEREST MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED, EXCEPT ON DELIVERY TO THE PARTNERSHIP OF
AN OPINION OF COUNSEL SATISFACTORY TO THE GENERAL PARTNER OF THE PARTNERSHIP
THAT REGISTRATION IS NOT REQUIRED FOR THE TRANSFER, OR SUCH OTHER EVIDENCE
SATISFACTORY TO THE GENERAL PARTNER THAT THE TRANSFER IS NOT IN VIOLATION OF THE
SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS. THE SALE,
PLEDGE OR OTHER TRANSFER OF THESE SECURITIES IS ALSO SUBJECT TO THE RESTRICTIONS
SET FORTH IN ARTICLE VIII OF THIS DOCUMENT.
AGREEMENT OF LIMITED PARTNERSHIP
OF
HOB MARINA CITY PARTNERS, L.P.
THIS AGREEMENT OF LIMITED PARTNERSHIP OF HOB MARINA CITY PARTNERS, L.P.
(the "Agreement"), is entered into as of the 29th day of January, 1996, by and
among HOB MARINA CITY, INC., a Delaware corporation, as General Partner, and
NIKI DEVELOPMENT, CORP., a Illinois corporation ("Niki"), PLATINUM BLUES
CHICAGO, L.L.C., an Illinois limited liability company ("Platinum") and HOB
CHICAGO, INC., a Delaware corporation ("HOB") as Limited Partners.
ARTICLE I
CERTAIN DEFINITIONS
Certain terms are used in this Agreement with the meanings set forth below:
Act shall mean the Delaware Revised Uniform Limited Partnership Act,
---
as amended from time to time.
Adjusted Capital Account Deficit shall mean, with respect to any
--------------------------------
Partner, the deficit balance, if any, in the Partner's Capital Account as of the
end of the relevant fiscal year, after giving effect to the following
adjustments: (i) crediting to the Capital Account any amounts that the Partner
is obligated to restore or is deemed to be obligated to restore pursuant to the
penultimate sentences of sections 1,704-2(g)(1) and 1,704.2(i)(5) of the
Regulations; and (ii) debiting to the Capital Account of the items described in
sections 1,704-l(b)(2)(ii)(d)(4), (5) and (6) of the Regulations. This
definition of Adjusted Capital Account I Deficit is intended to comply with the
provisions of section 1.704-l(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
1
<PAGE>
Affiliate of any Person shall mean any Person directly or indirectly
---------
controlling, controlled by or under common control with such other Person, and
shall mean any Family Member of a Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of such
corporation, whether through the ownership of voting securities, by contract or
otherwise.
Approval of the Limited Partners or Approved by the Limited Partners means
--------------------------------------------------------------------
the affirmative approval of Limited Partners who hold more than fifty percent
(50%) of the Percentage Interests of the Limited Partners, and who are Partners
then entitled to vote; provided that (i) with respect to decisions to be made by
the Partnership as Landlord under the Lease in connection with (a) a default by
the Tenant under the Lease, (b) the Tenant's right to assign or sublease the
Leased Premises, (c) the termination of the Lease by Landlord due to an
assignment or sublease by the Tenant or the Tenant's discontinuance of
operations of a business in the Leased Premises, (d) the exercise of all
Landlord rights with respect to a default by Tenant under the Lease or approvals
required by the Landlord with respect to the Tenant's obligations under the
Lease (other than in connection with the Work Letter attached thereto), (e) the
exercise by Landlord of all of its rights with respect to enforcement of the
obligations of HOB Entertainment, Inc. under its Guaranty of the Lease, (f) the
execution of any amendment, waiver, or other modification to the Lease, or (g)
the approval of all transactions between the Partnership and any Affiliate of
the General Partner, neither HOB nor any Partner who is an Affiliate of the
Tenant shall have the right to vote in connection with any such decision; and
(ii) with respect to any decision to be made by the Partnership concerning the
obligations of the Developer under the RDOEA (as hereinafter defined), neither
Niki nor any Partner who is an Affiliate of the Developer under the RDOEA shall
have the right to vote in connection with any such decision.
Approved Budget means a pro forma line item budget of all costs and
---------------
expenses anticipated to be incurred in connection with the Partnership to
operate and maintain the Project for the period of time covered by the budget,
that has been Approved by the Limited Partners.
Bankruptcy means, for any Partner, that Partner's taking or acquiescing in
----------
the taking of an action seeking relief under, or advantage of, an applicable
debtor relief, liquidation, receivership, conservatorship, bankruptcy,
moratorium, rearrangement insolvency, reorganization, or similar law affecting
the rights or remedies of creditors generally, as in effect from time to time
(the term "acquiescing" including, without limitation, the failure to file,
within ten (10) days after its entry, a petition, answer, or motion to vacate or
to discharge an order, judgment, or decree providing for any such relief).
Capital Account shall have the meaning set forth in Section 3.4 hereof.
---------------
Capital Contributions shall mean, with respect to any Partner, the amount
---------------------
of all cash and the fair market value of other property contributed by such
Partner (or such Partner's predecessor in interest) to the capital of the
Partnership pursuant to Article III hereof.
Code shall mean the Internal Revenue Code of 1986 as amended.
----
2
<PAGE>
Converted Limited Partner shall mean the General Partner whose interest as
-------------------------
a General Partner has been converted to a Limited Partner's interest in
accordance with Section 9.1.
Family Member shall mean a Person's spouse, siblings, parents and lineal
-------------
descendants (whether by adoption or consanguinity) and shall also mean a trust,
the primary beneficiary of which is the Person's spouse, siblings, parents and
lineal descendants (whether by adoption or consanguinity).
General Partner shall mean HOB MARINA CITY, INC., a Delaware corporation,
---------------
and any successor or additional general partners of the Partnership admitted
into the Partnership pursuant to the terms of this Agreement.
Gross Receipts shall mean all receipts of the Partnership whether received
--------------
by the General Partner or its Affiliates on behalf or for the account of the
Partnership arising from the operation of the Partnership or a sale of
Partnership assets other than a Terminating Capital Transaction.
Initial Public Offering shall mean a firm commitment underwritten public
-----------------------
offering of Common Stock at a public offering price of at least $6.00 per share
(subject to adjustment), for aggregate proceeds to HOB Entertainment, Inc. of at
least $20,000,000.00.
Lease shall mean that certain Lease Agreement between the Partnership as
-----
Landlord and HOB Chicago, Inc., a Delaware corporation as Tenant ("Tenant")
effective September 14, 1995, and any and all modifications and amendments
thereto.
Leased Premises shall mean that portion of the Theatre Building (as
---------------
hereinafter defined) described as follows (the "Leased Premises"):
Area B, Area C, Area D and Area E, together with easements in and to
the Mechanical and Loading Level situated below and serving such Areas,
such portions of the Theatre Building being shown on the Site Plan attached
hereto as Exhibit A-2 and designated and outlined in red on said Exhibit A-
----------- ---------
2, together with any and all improvements and fixtures now or hereafter
-
situated on the Leased Premises and all appurtenances, easements and
privileges pertaining thereto, and the personal property, if any, described
on Exhibit A-3; and together with the rights and interests of Landlord and
-----------
Tenant in and to the use and enjoyment of the Common Areas, as such
easements and rights are more particularly described in the Reciprocal
Development, operating and Easement Agreement.
Limited Partners shall mean Niki, Platinum and HOB and any substituted
----------------
Limited Partner admitted pursuant to Article YIU.
Liquidator shall have the meaning set forth for that term in Section 10.4.
----------
Net Cash Flow shall mean, with respect to any period, the Gross Receipts of
-------------
the Partnership less (i) cash operating expenses, (ii) debt service payments on
or repayments of
3
<PAGE>
Partnership borrowings, and (iii) those reserves which the General Partner
reasonably deems to be advisable for Partnership operations, not to exceed
$10,000.00 per year without the consent of the Limited Partners.
Non-recourse Deductions shall have the meaning set forth in section 1.704-
-----------------------
2(c) of the Regulations.
Partners shall mean the General Partner and the Limited, Partners, and
--------
Partner shall refer to any one of them.
Partnership shall mean HOB MARINA CITY PARTNERS, L.P., a Delaware limited
-----------
partnership.
Partnership Agreement or Agreement shall mean this Agreement of Limited
--------------------- ---------
Partnership of the Partnership.
Partnership Indebtedness shall mean any indebtedness of the Partnership
------------------------
payable to traditional lending institutions, such as banks, savings and loans,
insurance companies, pension funds, and other institutions engaged in the
lending of money.
Percentage Interests shall mean one percent (1%) for the General Partner;
--------------------
thirty-five percent (35%) for Niki, thirty-five percent (35%) for Platinum and
twenty-nine percent (29%) for HOB.
Person shall mean an individual, a partnership, a corporation, a trust, a
------
joint venture, an unincorporated organization, or any other entity.
Profits, and Losses shall mean, for each fiscal year or other period, an
------- ------
amount equal to the Partnership's taxable income or loss for that year or
period, determined in accordance with Code section 703 (a) (for this purpose,
all items of income, gain, loss or deduction required to be stated separately
pursuant to Code section 702 (a) (1) shall be included in taxable income or
loss).
Project shall mean that portion of the real property and improvements known
-------
as Marina City, Chicago, Illinois, which portion is depicted on the Site Plan
attached as Exhibit A-2 hereto, and which portion includes the Theatre Building,
the parking area portion of the two residential condominium towers, the building
anticipated to be redeveloped as a hotel, and the Common Areas as depicted
thereon and further defined in the RDOEA.
Reciprocal Development, Operating and Easement Agreement ("RDOEA") shall
------------------------------------------------------------------
mean the Reciprocal Development, Operating and Basement Agreement pertaining to
the Project entered into among Niki as Developer, the Partnership as Landlord
and HOB as Tenant.
Regulations shall mean the Income Tax Regulations, including Temporary
-----------
Regulations, promulgated under the Code, as those regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
4
<PAGE>
Terminating Capital Transaction shall mean the sale of substantially all of
-------------------------------
the assets of the Partnership as part of' the winding up under Section 10.3
below.
Theatre Building shall mean the real property and improvements described by
----------------
metes and bounds in Exhibit A-1 hereto and depicted on the Site Plan attached
hereto as Exhibit A-2.
ARTICLE 11
THE PARTNERSHIP
Section 2.1 Formation. The General Partner and the Limited Partners
---------
hereby form a partnership pursuant to the Act for the purposes and upon the
terms and conditions set forth in this Agreement. Each Limited Partner shall be
admitted into the Partnership upon the execution hereof and, if later, the
General Partner's causing to be filed in the Office of the Secretary of State of
Delaware a Certificate of Limited Partnership that complies with the Act.
Section 2.2 Name. The name of the Partnership is HOB MARINA CITY
----
PARTNERS, L.P. and all business of the Partnership shall be conducted in such
name, or in such other name or names as the General Partner may determine, with
the consent of the Limited Partners.
Section 2.3 Registered Agent. The registered agent of the Partnership for
----------------
service of process shall be Corporation Service Company, 1013 Centre Road,
Wilmington, Delaware 19895. The General Partner shall give written notice to
each Limited Partner of any change in the Partnership's registered agent.
Section 2.4 Registered Office. The registered office of the Partnership
-----------------
where the books and records of the Partnership shall be kept shall be located at
8439 Sunset Boulevard, Suite 102, Los Angeles, California 90069. The
Partnership may also have such other places of business as the General Partner
deems appropriate and of which it advises the Limited Partners in writing.
Section 2.5 Purposes and Powers. The purpose of the Partnership shall be
-------------------
to acquire and own the Leased Premises and to enter into the Lease and the RDOEA
and perform the obligations of the Landlord thereunder.
Subject to the limitations set forth in Section 5.7 below, in order to
-----------
carry out the Partnership's purposes, the General Partner is empowered and
authorized to do any and all acts and things necessary, appropriate, proper,
advisable, incidental to or convenient for the furtherance and accomplishment of
its purposes and for the protection and benefit of the Partnership.
Section 2.6 Ownership of Partnership Property; Waiver of Partition.
------------------------------------------------------
All Partnership property, both real and personal, presently owned or hereafter
acquired by the Partnership shall be owned by the Partnership and held in the
name of the Partnership. Each
5
<PAGE>
Partner expressly waives any right it might individually have to require a
partition thereof or a dissolution of the Partnership, except as otherwise
specifically provided herein.
Section 2.7 Term of Partnership. The term of the Partnership commenced on
-------------------
the day and date first written above, and shall continue until September 30,
2045, unless sooner dissolved pursuant to Article X; provided, however, that in
---------
the event that the Lease is terminated prior to the Delivery Date as therein
defined, the Agreement shall terminate and be of no further force or effect and
none of the parties shall have any liability pursuant to Article III or
-----------
otherwise with respect to obligations to be performed or payments to be made on
or after the Delivery Date.
ARTICLE III
CONTRIBUTIONS AND LIABILITIES
Section 3.1 General Partner's Contributions, Liabilities, Construction and
--------------------------------------------------------------
Loans.
- -----
(a) Contribution. The General Partner shall contribute, in cash, to
the Partnership the sun of $120,000.00, which contribution shall be made
contemporaneously with the initial Capital Contribution of HOB as set forth in
Section 3.2. The General Partner shall also execute on behalf of the
- -----------
Partnership a Lease Agreement in the form attached as Exhibit A, simultaneous
with the execution of this Agreement and promptly after formation cause the
Landlord and the Tenant to execute the RDOEA.
(b) Construction Loan. On or before the later of (i) March 11, 1996,
or (ii) such later date as the Delivery Date occurs under the Lease, the General
Partner shall loan or cause an Affiliate or third party to loan to the
Partnership the sum of Six Million Dollars ($6,000,000.00) ("Construction Loan")
for purposes of the construction of improvements to the Leased Premises by the
Tenant. The principal amount of the Construction Loan shall include both hard
and soft costs in connection with such construction, including, but not limited
to, construction interest, an origination fee to the lender in the amount of one
percent (1%) of the principal amount of the Construction Loan, closing costs,
bonds, permits, and architectural and engineering fees. The Construction Loan
shall bear interest at the prime rate as quoted in the Wall Street Journal
throughout the term thereof (as the same fluctuates from time-to-time) plus one
percent (1%) per annum, and shall have a maturity date of forty (40) month
following the Delivery Date. The Construction Loan and any refinance of the
Construction Loan shall be nonrecourse to the Limited Partners. The General
Partner shall cause the Partnership to receive title insurance and appropriate
endorsements over new construction during the period from the Delivery Date as
defined in the Lease until the completion of Tenant's Work (as defined in the
Lease) so as to insure that the Leased Premises are free of liens arising from
Tenant's work. The General Partner shall document all improvements to the Leased
Premises funded by Landlord's Contribution as defined in the Lease and permit
the Limited Partner and their agents right to inspect all draws and supporting
documentation under the Construction Loan to assure compliance with the
foregoing. The Construction Loan shall be consistent with the terms and
provisions customary in similar loans from institutional lenders. The
Construction Loan shall not contain any prepayment penalties. The General
Partner shall have the right to refinance,
6
<PAGE>
renew or extend the Construction Loan without the consent of the Partners so
long as the monthly debt service based upon an amortization term of the
principal no greater than 20 years and providing for the full payment of current
interest (i.e., no accruals) and all other fees, charges and required payments
----
which are scheduled and payable prior to maturity in connection therewith do not
exceed the monthly Minimum Rent payments and other payment obligations with
respect to insurance and taxes due by the Tenant under the Lease. In the event
of a forfeiture of the interest of the General Partner and HOB in the
Partnership pursuant to Sections 9.1(c) and 9.5 below at any time during which
the Construction Loan is outstanding to the General Partner or its Affiliate,
the General Partner and HOB shall cause the payment terms and maturity date of
the Construction Loan to be modified or extended, if necessary, to allow for the
Construction Loan to be fully amortized at its then stated interest rate in
monthly payments of principal and interest based upon the Minimum Rent due and
payable under the Lease immediately preceding its termination.
Section 3.2 Initial and Subsequent Mandatory Contributions of the Limited
-------------------------------------------------------------
Partners. The Limited Partners shall contribute the following property and/or
- --------
cash to the Partnership at the times hereinafter specified:
(a) Niki Contribution. On or before the later of (i) March 11, 1996,
-----------------
or (ii) such later date as the Delivery Date shall occur under the Lease, Niki
shall convey the Leased Premises to the Partnership by Special Warranty Deed,
free and clear of any and all liens, encumbrances, conditions, restrictions or
easements, other than (x) the RDOEA; (y) the Lease; and (z) such other easements
or encroachments as ROB shall have approved pursuant to the Lease. In addition,
at the time Niki contributes the Leased Promises to the Partnership,, Niki shall
provide the Partnership with an Owners Title Policy insuring good and marketable
fee simple title in the, Partnership subject to no exceptions other than those
set forth in clauses (x), (y) and (z) above, in the face amount of Five Million
Dollars ($5,000,000.00). For purposes of this Partnership, the value of the Niki
Capital Contribution pursuant to this paragraph shall be deemed to equal
$5,000,000.00, and Niki shall receive credit to its Capital Account in such
amount.
(b) Platinum Contribution. On or before the later of (i) March 11,
---------------------
1996, or (ii) such later date as the Delivery Date shall occur under the Lease,
Platinum shall deliver to the Partnership an unconditional irrevocable letter of
credit in the face amount of Five million Dollars ($5,000,000.00) with an
expiration date of no earlier than one (1) year following the Delivery Date.
The letter of credit shall be issued to the Partnership by a national bank with
offices in Chicago, Illinois having assets in excess of Five Billion Dollars
($5,000,000,000.00), and shall permit the General Partner to draw the entire
face amount thereof upon presentation to the bank of the original letter of
credit together with a written statement signed by the General Partner that
"Platinum Blues Chicago L.L.C. has failed to provide its initial capital
Contribution to the Partnership pursuant to Section 3.2 thereof." Platinum
agrees to allow the Partnership to pledge the letter of credit to the lender
under the Construction Loan and to execute such documents as may be reasonably
required by the lender to enable it to exercise the rights of the General
Partner with respect thereto. Upon request of Platinum and the approval of the
General Partner and Niki, Platinum may provide alternative financial security
for its initial Capital Contribution in lieu of the letter of credit as provided
herein. Within five (5) days following
7
<PAGE>
written notice from the General Partner to Platinum that the cost of
construction of improvements to the Leased Premises exceeds or is anticipated to
exceed within the next thirty (30) days the remaining funds available to the
Partnership under the Construction Loan, Platinum shall make its initial Capital
Contribution to the Partnership in the amount of Five Million Dollars
($5,000,000.00) cash. Upon the Partnership's timely receipt of such initial
Capital Contribution, the General Partner shall return the original letter of
credit described in this Section 3.2(b) to Platinum. If Platinum fails to make
its initial capital Contribution within the time period specified, the General
Partner shall present the letter of credit for payment.
(c) HOB Contribution. Substantially contemporaneously with the
----------------
funding of Ten Million Dollars ($10,000,000.00) of Landlord's Contribution under
the Lease, from the proceeds of the Construction Loan and the Platinum
Contribution, HOB shall make its initial. Capital Contribution to the
Partnership in the amount of One Million Eight Hundred Eighty Thousand and
No/100 Dollars ($1,880,000.00) in cash.
Except for the Limited Partners' Initial Capital Contributions as
described above, the Limited Partners shall not be required to make any
additional contributions to the Partnership and the Limited Partners shall not
be personally liable for any of the debts and obligations of the Partnership.
Section 3.3 Additional Contributions. Provided that Tenant is not in
------------------------
default under the Lease, the General Partner or any Limited Partner, after a
resolution Approved by the Limited Partners, may call on the Partners to make
additional contributions to the capital of the Partnership if the Partnership
cash and reserves, in the reasonable opinion of the General Partner, are not
sufficient for the operation of the Partnership, but neither the General Partner
nor any Limited Partner shall have any obligation to make additional
contributions to the Partnership except as provided in Section 3.5(e) below.
These additional contributions shall be made in proportion to each Partner's
Percentage Interest. Each Partner shall have thirty (30) days from receiving
written notice of an additional contribution to make its pro rata share of the
requested contribution. If any Partner ("Non-Contributing Partner") fails or
refuses to make its entire additional contribution, the other Partners, or any
of them ("Contributing Partners") may loan to the Non-Contributing Partner the
amount required, and such loan shall bear interest from the date advanced until
paid at the prime rate of interest quoted in the Wall Street Journal (as the
same fluctuates from time-to-time) plus three percent (3%) per annum, which loan
shall be payable out of the next distributions payable to the Non-Contributing
Partner pursuant hereto on a pro rata basis with any other such loans
outstanding to the Non-Contributing Partner. Notwithstanding the foregoing,
none of the Partners shall be required or requested to make additional capital
contributions in connection with the construction of improvements to the Leased
Premises, it being the intent of the Partners that the cost of improvements to
the Leased Premises in excess of the sum of the Construction Loan, Platinum's
initial Capital Contribution and HOB's initial Capital Contribution shall be
paid by the Tenant under the Lease.
Section 3.4 Interest; Return of Contributions. Partners shall not be
---------------------------------
entitled to interest on their Capital contributions or to any return of their
Capital Contributions except as provided in this Agreement. No Partner shall
have the right to demand or (except as the Liquidator may determine pursuant to
Section 10.4) receive property other than cash in return for
8
<PAGE>
its Capital Contribution to the Partnership or have priority over any other
Partner, either as to the return of Capital Contributions by the Partnership or
as to distributions from the Partnership. Each Partner shall look solely to the
assets of the Partnership for the return of its Capital Contributions, and if
the assets of the Partnership are insufficient to return its Capital
Contributions, it shall have no recourse against any other Partner for that
purpose.
Section 3.3 Capital Accounts.
----------------
(a) Separate Capital Accounts. Each Partner shall have a separate
-------------------------
Capital Account which shall be increased and decreased in accordance with
Treasury Regulations (S)1.704-1(b)(2)(iv).
(b) Exempt income. The income of the Partnership which is exempt
-------------
from federal income tax and the amount of expenditures of the Partnership
described in Section 705 (a) (2) (B) of the Code shall be allocated to the
Partners as if such items were taxable income or deductible loss allocable
pursuant to Section 4.3 or 4.4, as the case may be.
------------------
(c) Return of Capital. To the extent any property which a Partner is
-----------------
entitled to receive pursuant to any other provision of this Agreement would
constitute a return of capital, each of the Partners consent to the withdrawal
of such capital.
(d) Loans Not Capital. Loans by the Partners to the Partnership (as
-----------------
permitted by this Agreement) shall not be considered Capital Contributions, nor
shall advances or payments on behalf of the Partnership for which the General
Partner is entitled to reimbursement hereunder be considered Capital
Contributions. No repayment of principal or interest on any such loans, or
reimbursement in respect to advances or other payments, or payments of fees to
the General Partner or its Affiliates which are made by the Partnership shall be
considered a return of capital or in any manner affect the General Partner's
Capital Account.
(e) Negative Balances. No Limited Partner with a negative balance in
-----------------
its Capital Account shall have any obligation to any other Partner or to any
other party to restore such negative balance. The General Partner shall
contribute, upon the dissolution and liquidation of the Partnership, an amount
equal to the lesser of (i) the deficit balance in its Capital Account, or (ii)
the excess of 1.01 percent of the total Capital Contributions of the Limited
Partners over the capital previously contributed by the General Partner.
(f) No obligations to Third Parties. No provision of this Agreement
-------------------------------
shall be construed to create an obligation of a Partner to contribute additional
capital to the Partnership for the benefit of any third party.
(g) Modification of Capital Accounts to Comply with the Code. The
--------------------------------------------------------
provisions of this Section 3.5 and other provisions contained in this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
section 1.704-1(b) of the Regulations,, and shall be interpreted and applied in
a manner consistent therewith. If the General Partner determines that it is
necessary or prudent to modify or adjust the manner in which the Capital
Accounts, or any debits or credits to the Capital Accounts, are computed in
9
<PAGE>
order to comply with the Regulations, after obtaining the concurrence of tax
counsel of the other Partners, the General Partner shall make a modification or
adjustment, so long as it is not likely to have a material effect on the amounts
distributable to a Partner pursuant to Section 10.3 on the liquidation of the
------------
Partnership.
Section 3.6 Additional Limited Partners. With the prior written consent
---------------------------
of all of the Limited Partners, the Partnership is authorized to admit
additional Limited Partners at such prices and on such terms as shall be
determined by the General Partner and the Limited Partners. The General Partner
may admit as substituted Limited Partners those persons acquiring Percentage
Interests pursuant to Article, VIII below, and the name, residence address,
-------------
Percentage Interest and amount of Capital Contribution to the Partnership
attributable to each such person shall be reflected in an amendment to this
Agreement.
ARTICLE IV
CASE DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
Section 4.1 Distributions of Net Cash Flow. The General Partner shall
------------------------------
make distributions of Net Cash Flow to the extent available, within a reasonable
time after the end of each fiscal quarter, to the Partners pro rata based upon
their relative Percentage Interests at the time of distribution.
Notwithstanding the foregoing, (a) Niki shall not be entitled to receive any
distributions of Net Cash Flow during any period following (i) the expiration of
three hundred (300) days following the Delivery Date that Landlord's
improvements to the Common Areas and Commercial Areas of the Project (other than
the Leased Premises) have not been substantially completed and/or the two
restaurants to be situated within the Project (other than in the Leased
Premises) have not opened as provided in the RDOEA, or (ii) the expiration of
five hundred forty-five (545) days following the Delivery Date that the hotel to
be situated within the Project has not been completed and opened for business as
provided in the RDOEA; and (b) HOB shall not be entitled to receive any
distributions of Not Cash Flow for the number of days, if any, commencing with
the opening of the Tenant's business that the period between the opening of the
Tenant's business and the Delivery Date under the Lease exceeds 300 days. The
interest of Niki and/or HOB in Net Cash Flow not distributed to them pursuant to
the preceding sentence (the "Diverted Cash Flow") shall be deemed to have been
forfeited by then for all purposes and the amount of such forfeited
distributions shall be divided among the other Partners on a pro rata basis in
accordance with their respective Percentage Interests as of the date of such
forfeiture(s).
Section 4.2 Allocation of Profits and Losses. Other than Profits and
--------------------------------
Losses attributable to a Terminating Capital Transaction, after taking into
account the special allocations set forth in this Article IV, the Profits and
Losses of the Partnership for each calendar year (or portion thereof), shall be
allocated among the Partners pro rata based upon their relative Percentage
interests. Profits and Losses attributable to a Terminating Capital Transaction
or liquidation event shall first be allocated among the Partners so that after
such allocations their respective Capital Account balances are in the same ratio
as their relative Percentage Interests, and thereafter Profits and Losses shall
be allocated among the Partners pro rata based upon their relative Percentage
Interests.
10
<PAGE>
Section 4.3 Special Allocations. If the requisite stated conditions or
-------------------
facts are present, the following special allocations shall be made in the
following order:
(a) Qualified Income Offset. If a Limited Partner who is not also a
-----------------------
General Partner unexpectedly receives any adjustments, allocations or
distributions described in sections 1.704-1(b) (2) (ii) (d) (4), 1.704-
1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of the Regulations, then items of
Partnership income and gain shall be specially allocated to each such Limited
Partner in an amount and manner sufficient to eliminate, to the extent required
by the Regulations, the Adjusted Capital Account Deficit of the Limited Partner
as quickly as possible, provided that an allocation pursuant to this Section 4.3
(a) shall be made if and only to the extent that the Limited Partner would have
an Adjusted capital Account Deficit after all other allocations provided for in
this Article2 IV have been tentatively made without considering this Section
4.3(a).
(b) Gross Income Allocation. If a Limited Partner who is not also a
-----------------------
General Partner has a deficit Capital Account at the end of any Partnership
fiscal year that exceeds the sum of (i) the amount the Limited Partner is
obligated to restore, and (ii) the amount the Limited Partner is deemed to be
obligated to restore pursuant to the penultimate sentences of sections 1.704-2
(g) (1) and 1.704-2 (1) (5) of the Regulations, then each sum Limited Partner
shall be specially allocated item of Partnership income and gain in the amount
of the excess as quickly as possible, provided that an allocation pursuant to
this Section 4.3 (b) shall be made if and only to the extent that the Limited
Partner would have a deficit Capital Account in excess of that sum after all
other allocations provided for in this Article IV have been tentatively made
----------
without considering Section 4.3(a) or Section 4.3(b).
-------------- --------------
(c) Non-Recourse Deductions. Non-recourse Deductions for any fiscal
-----------------------
year or other period shall be allocated to the Partners pro rata based upon
their relative Percentage Interests.
(d) Section 754 Adjustments. To the extent an adjustment to the
-----------------------
adjusted tax basis of any Partnership asset under Code section 734(b) or Code
section 743(b) is required, pursuant to section 1.704-1(b)(2)(iv)(m) of the
Regulations, to be taken into account in determining Capital Accounts, the
amount of the adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the tax basis of the asset) or loss (if the
adjustment decreases the tax basis of the asset) and that gain or loss shall be
specially allocated to the Partners in a manner consistent with the manner in
which their Capital Accounts are required to be adjusted pursuant to that
Section of the Regulations.
(e) Diverted Cash Flow. Notwithstanding anything to the contrary in
------------------
this Agreement, Profits shall first be allocated to the Partners receiving any
Diverted Cash Flow in an aggregate amount equal to such Diverted Cash Flow
received by such Partner.
Section 4.4 Curative Allocations. The "Basic Regulatory Allocations"
--------------------
consist of allocations pursuant to Sections 4.3 (a) and 4.3 (b).
Notwithstanding any other provisions of this Agreement, the Basic Regulatory
Allocations shall be taken into account in allocating items of
11
<PAGE>
income, gain, loss and deduction among the Partners so that, to the extent
possible, the net amount of the allocations of other items and the Basic
Regulatory Allocations to each Partner shall be equal to the net amount that
would have been allocated to each such Partner if the Basic Regulatory
Allocations had not occurred. For purposes of applying the foregoing sentence,
allocations pursuant to this Section 4.4 shall be made only with respect to
allocations pursuant to Section 4.3(d) to the extent that it can reasonably be
determined that those allocations will otherwise be inconsistent with the
economic agreement among the parties to this Agreement.
Section 4.5 Tax Allocations: - Code Section 704(c). In accordance with
--------------------------------------
Code sections 704(b) and (c) and the Regulations thereunder, income, gain, loss
and deduction with respect to property actually or constructively contributed to
the capital of the Partnership shall, solely for taxes purposes, be allocated
among the Partners so as to take account of any variation at the time of the
contribution between the adjusted basis of the property to the Partnership for
federal income tax purposes and its fair market value. If the fair market value
of a Partnership asset is adjusted pursuant to Section 3.5(a), then as provided
--------------
in the Regulations promulgated under Code section 704(b), subsequent allocations
of income, gain, loss and deduction with respect to that Partnership asset shall
take account of any variation between the adjusted basis of the asset for
federal income tax purposes and its fair market value in the same manner as
under Code section 704(c) and the Regulations thereunder. Any elections or
other decisions relating to those allocations shall be made by the General
Partner, after consulting with the Limited Partners and the Partnership's
accountant, in any manner that reasonably reflects the purposes and intent of
this Agreement. Allocations of income, gain, loss and deduction pursuant to
this Section 4.5 are solely for purposes of federal, state and local taxes and
-----------
shall not affect, or in any way be taken into account in computing, any
Partner's Capital Account or share of Profits, Losses or other tax items or
distributions pursuant to any provision of this Agreement.
Section 4.6 Allocation and Distributions Among Limited Partners. Unless
---------------------------------------------------
otherwise provided in this Agreement or in a written communication from the
Limited Partners to the General Partner, all allocations and distributions to
which the Limited Partners are entitled as a class shall be made among the
individual Limited Partners in the proportion that the total Capital
Contributions made by each Limited Partner bears to the total Capital
Contributions made by all the Limited Partners.
Section 4.7 Allocation Upon Transfer. If any interest in the Partnership
------------------------
is transferred, or is increased or decreased by reason of the admission of a new
Partner or otherwise, during any fiscal year of the Partnership, each item of
income, gain, loss, deduction, or credit of the Partnership for such fiscal year
shall be assigned pro rata to each day in the particular period of such fiscal
year to which such item is attributable (i.e., the day on or during which it is
accrued or otherwise incurred) and the amount of each such item so assigned to
any such day shall be allocated to the Partners based upon their respective
interests in the Partnership at the close of such day. For the purpose of
accounting convenience and simplicity, the Partnership shall treat a transfer
of, or an increase or decrease in, an interest in the Partnership which occurs
on or before the fifteenth day of a month as occurring on the first day of such
month. Admissions of Limited Partners and transfers of Interests occurring
between the sixteenth day of the month and the last day of the month shall be
treated as occurring on the first day of the succeeding month.
12
<PAGE>
Section 4.8 Agreement to Make Changes Required by Law. The Partners
-----------------------------------------
acknowledge that Regulations issued under Code section 704(by require that
certain provisions be included in all partnership agreements as a condition to
having the allocations of tax items set forth in the agreements respected for
income tax purposes. The Partners hereby adopt those provisions of the
Regulations that are required to be included in a partnership agreement. The
Partners agree to exercise the utmost good faith in cooperating to amend this
Agreement to effect changes recommended by the Partnership's professional tax
advisers to cause compliance with those Regulations, with input from the tax
advisers of each Partner who desires to have any given in its behalf.
ARTICLE V
MANAGEMENT
Section 5.1 Participation in Management. Except as set forth in Section
---------------------------
5.7 and any other express provision of this Agreement, the Limited Partners
shall not otherwise participate in the management or control of the
Partnership's business nor shall they transact any business for the Partnership,
nor shall they have the power to act for or bind the Partnership, said powers
being vested exclusively in the General Partner. The Limited Partners are
authorized to consult with the General Partner regarding the business of the
Partnership.
Section 5.2 General Authority of General Partner. Subject to the
------------------------------------
limitations of Section 5.7 and any other express limitations of this Agreement,
the General Partner shall have all powers now or hereafter granted to a general
partner of a limited partnership under the Act or which are granted to it, as a
General Partner, under the provisions of this Agreement. Subject to Section 5.7
and any other express limitations of this Agreement, the General Partner shall
have overall responsibility for the affairs of the Partnership and for its
management and control and the General Partner shall have full power and
authority to do all things reasonably deemed necessary or desirable to conduct
the business of the Partnership, including, but not limited to, the following:
(a) to purchase or obtain contracts of liability, casualty, and
other insurance which the General Partner reasonably deems appropriate or
convenient for the protection of the assets and affairs of the Partnership or
for any other purpose beneficial to the Partnership;
(b) to pay any and all fees and expenses incurred in the
organization of the Partnership or the amending of this Agreement pursuant to
its provisions; and after full payment of Landlord's Contribution under the
Lease and payment of Debt Service under the Construction Loan to spend the
capital and income of the Partnership in the exercise of any rights or powers of
the General Partner;
(c) to execute, acknowledge, and deliver any and all instruments,
certificates, and agreements, and take such other steps as are necessary and
appropriate to effectuate the foregoing.
13
<PAGE>
Any third party dealing with the General Partner in connection with
the Partnership shall be entitled to rely upon an affidavit of such General
Partner Approved by the Limited Partners to the effect that it has the authority
to engage in such dealings on behalf of the Partnership.
Section 5.3 Independent Activities. Except as provided below, the General
----------------------
Partner and each Limited Partner may, notwithstanding the existence of this
Agreement, engage in whatever activities they choose independent of the
Partnership or the other Partners, whether the same may be competitive with the
Partnership or otherwise without having or incurring any obligation to offer any
interest in such activities to the Partnership or any other Partner. Neither
this Agreement nor any activity undertaken pursuant hereto shall prevent the
General Partner from engaging in such activities, or require the General Partner
to permit the Partnership or any Limited Partner to participate in any such
activities, and as a material part of the consideration for the General
Partner's execution hereof and admission of such Limited Partner, each Limited
Partner hereby waives any such right or claim of participation ` Notwithstanding
the foregoing, throughout the term of this Partnership, neither the General
Partner nor any Affiliate of the General Partner shall directly or indirectly
operate a House of Blues restaurant and/or entertainment facility within a
twenty (20) mile radius of the Leased Premises without the written consent of
Niki and Platinum.
Section 5.4 Duties of the General Partner.
-----------------------------
(a) The General Partner shall use its reasonable efforts to carry
out the business of the Partnership. The General Partner shall devote itself to
the business of the Partnership to the extent that it reasonably may determine
to be necessary. Whenever reasonably requested by the Limited Partners, the
General Partner shall render a just and faithful account of all dealings and
transactions relating to the business of the Partnership.
(b) The General Partner, upon the Approval of the Limited Partners,,
shall cause the Partnership to perform all of its obligations under the Lease
and the RDOEA and to enforce the respective obligations of the Tenant under the
Lease and of the Developer under the RDOEA. If the Partners owning a majority of
the Percentage Interests in the Partnership determine in good faith that Tenant
should be served with a notice of default under the Lease, such Partners shall
notify the General Partner and in the event the General Partner fails to provide
a notice of default to the Tenant in accordance with the Lease and/or thereafter
fails to pursue the Landlord's remedies against the Tenant within the sooner of
(i) ninety (90) days following notice from such Partners requesting the General
Partner to pursue the Landlord's remedies, against the Tenant for default, or
(ii) such earlier period as may be required to cure a default under the
Construction Loan or a Renewal Loan (as defined in Section 5.7(b) (i)
------------------
resulting from the Tenant's default, the Partners owning a majority of the
Percentage Interests may designate an additional General Partner who may
exercise all rights of the General Partner under this subparagraph 5.4(b) or
elsewhere in this agreement relative to the Lease and the Leased Premises
including the right to collect all rentals, and enforce all provisions of the
Lease and to exercise control over any and all accounts of the Partnership;
provided that the Percentage Interest of the General Partner shall not be
reduced solely as a result thereof.
14
<PAGE>
(c) It is hereby agreed by all Partners that the General Partner
shall be the "tax-matters partner" for the Partnership, as that term is defined
in Section 6231(a)(7) of the Code; provided, however, that prior to exercising
any tax election, the General Partner shall notify each of the Limited Partners
in writing of the General Partner's intent to make such tax elections and in the
event objected to in writing within 10 business days of written notice of such
election, such election will be made only with the approval of the Limited
Partners. All costs and expenses incurred by the tax matters partner, including
reasonably necessary overhead and administrative costs, in connection with the
performance of its duties and privileges as tax matters partner shall be
Partnership expenses.
(d) Upon the request of the Limited Partners, but not more
frequently than once each calendar year, the General Partner shall prepare a
detailed, pro forma line item budget of all costs and expenses anticipated to be
required to operate the Partnership for the period of time covered by the
budget, and shall submit the proposed budget to the Limited Partners. After
discussion and revision, as needed, the budget shall be finalized and on its
Approval by the Limited Partners, shall become the Approved Budget for the
period covered by it. It is understood that the Approved Budget shall reflect
item of income and expense for the Partnership and not the Leased Premises, it
being anticipated that an annual budget for the Leased Premises will be prepared
by the property manager and reviewed and approved by the General Partner on
behalf of the Partnership.
Section 5.5 Right of Third Parties to Rely on Authority of General
------------------------------------------------------
Partner.
- -------
[Intentionally Omitted]
Section 5.6 Expenses of the Partnership. Except as otherwise specifically
---------------------------
provided by this Agreement, all reasonable expenses of the Partnership,
including, but not limited to, organization, offering, and operating expenses,
shall be borne by the Partnership. The General Partner and its Affiliates shall
be entitled to reimbursement from the Partnership for other out-of-pocket
expenses which are attributable to Partnership activities.
Section 5.7 Certain Limitations on General Partner Activities.
-------------------------------------------------
(a) The General Partner shall not do any of the following, without,
in each instance, obtaining the consent of each of the persons or entities who,
at the time in question, is a General Partner or Limited Partner:
(i) do any act in contravention of this Agreement;
(ii) do any act which would make it impossible to carry on
the ordinary business of the Partnership (except for a disposition of
Partnership assets approved pursuant to Section 5.7rbl);
(iii) confess a judgment against the Partnership;
(iv) possess Partnership assets, or assign the rights in
specific Partnership assets for other than a Partnership purpose;
15
<PAGE>
(v) cause the Partnership to issue additional Percentage
Interests other than those issued pursuant to the initial offering of
Percentage Interests; or
(vi) do any other act which the Act specifically requires to
be approved by all Partners; provided, however, that to the extent the
provisions of the Act may be waived by agreement of the Partners, the
provisions of this Agreement providing for less than the unanimous approval
of the Partners shall be fully operative.
(b) Notwithstanding anything to the contrary herein contained, and
as a specific expressed limitation on the authority of the General Partner, the
General Partner shall not do any of the following, without, in each instance,
obtaining the written Approval of the Limited Partners, such Approval not to be
unreasonably withheld:
(i) incur any debt, whether as original financing or as
refinancing of existing debt, except for the Construction Loan from the
General Partner or its Affiliate or third parties (as defined in Section
-------
3.1(b), and any renewal, modification or refinancing thereof ("Renewal
------
Loan") provided that the monthly debt service payable in connection
therewith does not exceed the monthly Minimum Rent payments due by the
Tenant under the Lease; or
(ii) sell, lease, transfer, or otherwise dispose of any of
the Partnership's properties and/or assets with a value of greater than
$25,000.00, or consolidate with or merge into any other entity, or permit
any other entity to merge into or sell, lease, or transfer all or
substantially all of its assets to the Partnership;
(iii) expend funds of the Partnership for items not contained
in the Approved Budget, except in the event of an emergency;
(iv) acquire any land or interest other than the Leased
Premises;
(v) approve plans and specifications of the Leased Premises
on behalf of Landlord;
(vi) execute any guaranty, mortgage, or otherwise obligate
the partnership to any indebtedness in excess of $25,000 in the aggregate
not contemplated by the Approved Budget except for the Construction Loan or
Renewal Loan meeting the criteria of Section 3.1;
(vii) the execution of any agreement between the General
Partner and any Affiliate of the General Partner or between the General
Partner and any Limited Partner or any Affiliate of a Limited Partner not
set forth in the Annual Budget approved by a majority of the disinterested
Limited Partners;
(viii) the hypothecation or pledge of any Partnership asset
except in connection with the Construction Loan or a Renewal Loan;
16
<PAGE>
(ix) the selection of architects, attorneys, accountants or
other professional advisors of the Partnership;
(x) the commencement of any litigation on behalf of the
Partnership or settlement of any actions, claims, and demands against the
Partnership not covered by the Tenant's liability insurance under the
Lease;
(xi) the execution of any agreement which is not cancelable
by the Partnership upon thirty days written notice or which obligates the
Partnership to any liability not set forth in the Approved Budget then in
effect;
(xii) the admission of a new general partner or the admission
of a new Limited Partner;
(xiii) the acquisition of any equity interest by the
Partnership in any other partnership, limited partnership, joint venture,
limited liability company, corporation or other business entity;
(xiv) the making of any loan by the Partnership to any person;
(xv) the establishment of any reserves not contained in the
Annual Budget and the failure to distribute Net Cash Flow in accordance
with this Agreement; and
(xvi) any other act which would divert rentals received by the
Partnership for a purpose other than the payment of the Construction Loan
or any Renewal Loan, the proportionate distribution of Net Cash Flow to the
Partners; or the payment of Partnership expenses contemplated by the
Approved Budget then in effect.
Section 5.8 Exculpation. The General Partner and its authorized
-----------
representatives shall not be liable, responsible, `or accountable in damages or
otherwise to the Partnership or any Partner for any Action taken or failure to
act on behalf of the Partnership if:
(a) The General Partner representatives acted in good faith;
(b) The action or failure to act did not constitute a breach of a
provision of this Agreement;
(c) Reasonably believed:
(i) in the case of conduct in the person's official capacity
as a General Partner, that the person's conduct was in the Partnership's
best interest; and
(ii) in all other cases, that the person's conduct was at
least not opposed to the Partnership's best interests; and
17
<PAGE>
(d) In the case of a criminal proceeding, had no reasonable cause to
believe that the person's conduct was unlawful.
Notwithstanding the foregoing, the General Partner may not be indemnified with
respect to a proceeding in which:
(w) the General Partner fails to obtain the Approval of the Limited
Partners when required and under Section 5.7;
(x) the General Partner has been found liable for willful or
intentional misconduct in the performance of the person's duty to the
Partnership or Limited Partners;
(y) the General Partner is found liable on the basis that the
General Partner or its Affiliates received personal benefit, whether or not the
benefit resulted from an action taken in the General Partner's official
capacity; or
(z) the General Partner is found liable to the Partnership or
Limited Partners.
Section 5.9 Standard of Care. The General Partner shall perform its
----------------
duties under this Agreement with ordinary prudence and in a manner
characteristic of a businessman in similar circumstances, and consistent with
its fiduciary duty to the Limited Partners.
Section 5.10 Indemnity. The General Partner and its authorized
---------
representatives shall be indemnified by the Partnership against any losses,
judgments, liabilities, expenses, penalties, fines, taxes and amounts paid in
settlement of any claims sustained by him or it in connection with the
Partnership, including but not limited to any judgment, award, settlement,
reasonable attorneys' fees, and other costs or expenses incurred in connection
with the defense or settlement of any actual or threatened action, proceeding or
claim, provided that the General Partner or its authorized representative has
met the standard of care contained in Section 5.9 and is entitled to exculpation
-----------
under the criteria set forth in Section 5.8. Anything to the contrary in this
-----------
Section 5.10 notwithstanding, the Partnership shall not be required to
- ------------
indemnify the General Partner for any liability incurred by the General Partner
without the Approval of the Limited Partners to the extent such liability arose
from an act, transaction or agreement requiring such Approval under this
Agreement or from any liability arising from a breach by the General Partner of
its duties hereunder or incurred by the Partnership as a result of the breach by
the Tenant under the Lease.
Section 5.11 Limitation on Liability. Except for the initial Capital
-----------------------
Contributions of the Limited Partners described in Section 3.2 above, unless
-----------
they otherwise agree in a separate writing with a third party creditor of the
Partnership, the Limited Partners have no personal liability whatever, whether
to the Partnership, the General Partner or any creditor of the Partnership, for
the debts, expenses, liabilities, or obligations of the Partnership.
ARTICLE VI
TRANSACTIONS INVOLVING THE GENERAL PARTNER
18
<PAGE>
Subject to the provisions of Section 5.7, the General Partner shall be
-----------
entitled to contract with Affiliates of the General' Partner for management,
construction, leasing, brokerage, janitorial and like services, provided that
such services are provided at an arms-length price which is reflective of and
consistent with market conditions related to comparable properties in the
Chicago, Illinois area.
ARTICLE VII
ACCOUNTING, REPORTING, BEING, AND TAX MATTERS
Section 7.1 Books of Account. The General Partner shall maintain the
----------------
Partnership's books and records and this Agreement at the principal office of
the Partnership, and each Partner shall have access thereto for the purposes of
examination and inspection at reasonable times and on reasonable notice. The
Limited Partners shall have access to and the right to have professional
auditors audit the underlying business and financial records of the Partnership
including the right to review all underlying accounts, checks, invoices. The
cost of such audit shall be borne by the Limited Partners requesting it, unless
the results of the audit indicate an understatement of income or an
overstatement of expenses in excess of three percent (3%) of the amount
reported, in which event the General Partner shall bear the expense of such
audit. The books and records shall be kept in accordance with applicable tax
accounting rules and regulations, applied in a consistent manner, shall reflect
all Partnership transactions, and shall be appropriate and adequate for the
Partnership's business.
Section 7.2 Reports. The General Partner shall cause to be prepared, at
-------
the reasonable expense of the Partnership, the following reports:
(a) within thirty (30) days after the end of each calendar quarter a
quarterly report which shall include a balance sheet together with a profit and
loss statement for the quarter, and for the current year-to-date;
(b) within sixty (60) days after the end of each fiscal year, an
annual report which shall include (i) a balance sheet as of the end of such
fiscal year, together with a profit and loss statement, a statement of source
and application of funds and a statement of changes in Partners' capital for
such year; (ii) a report of the activities of the Partnership for such year; and
(iii) a report on distributions to the Limited Partners for such period,
separately identifying distributions of Net Cash Flow, financing proceeds and
reserves. Such annual report shall also include such other information as is
deemed reasonably necessary by the General Partner to advise the Limited
Partners of the affairs of the Partnership; and (c) within sixty (60) days after
the end of the fiscal year, all Partnership information necessary for the
preparation of the Limited Partners' federal income tax returns.
Section 7.3 Fiscal Year. The fiscal year of the Partnership shall be the
-----------
calendar year.
Section 7.4 Banking. All funds of the Partnership shall be deposited in a
-------
separate account or accounts, not commingled with those of any other person, in
a commercial or other
19
<PAGE>
financial institution insured by an agency of the federal government of the
United States as the General Partner shall determine. All Partnership funds
shall at all times be held in fully-insured accounts. All checks drawn upon said
account or accounts shall be drawn only for Partnership purposes and shall be
signed by the General Partner or an authorized representative of the General
Partner or the Partnership.
Section 7.5 Tax Election for Basis Adjustment. Upon the transfer of
---------------------------------
Percentage Interests or in the event of a distribution of assets of the
Partnership, at the request of the transferee, the Partnership shall elect
pursuant to Section 754 of the Code to adjust the basis of the Partnership's
property as allowed by Section 734(b). Any such election shall be filed with
the Partnership return for the first taxable year to which the election applied.
Section 7.6 Partnership Returns. The General Partner shall for each
-------------------
fiscal year, file, on behalf of the Partnership, a Partnership return and any
other necessary tax returns no less than thirty (30) days before the time
prescribed by law (including extensions) for such filing. The General Partner
shall use reasonable efforts to cause all Partnership tax returns to be prepared
in a timely manner so as to avoid the necessity of the Limited Partners having
to obtain extensions for the filing of their individual tax returns.
Section 7.7 Information. Upon reasonable request, the Partnership will
-----------
supply promptly to any Limited Partner the names and addresses of all Limited
Partners as such information is at the time of request reflected in the records
of the Partnership, and shall further release such information concerning
Partnership operations as shall be required by law or regulation, or order of
any regulatory body having jurisdiction.
ARTICLE VIII
TRANSFER 0F PARTNERSHIP INTERESTS
Section 8.1 In General. A Partner may not sell, transfer, or
----------
encumber (or subject to any lien or security interest) its interest in the
Partnership or any part thereof (including, but not limited to, its right to
receive distributions pursuant to this Agreement), except as permitted in this
Article VIII, and any act in violation of this Article shall be null and void ab
- ------------
initio
Section 8.2 Transfers.
---------
(a) Except as set forth in Section 8.2(b) below, no Partner shall
have the right, without the Approval of the Limited Partners (not to be
unreasonably withheld), to transfer all or any part of its interest in the
Partnership.
(b) Without the Approval of the Limited Partners or the General
Partner, a Limited Partner may transfer its interest in the Partnership to an
Affiliate of the Limited Partner.
(c) Each transferee of any interest in the Partnership shall derive
its interest from the interest in the Partnership of the Partner making such
transfer and, for the purposes of this Agreement, shall be deemed to have a
community of interests and obligations with the
20
<PAGE>
Partner making such transfer. Unless the remaining Partners unanimously agree to
release the transferring Partner from further obligations hereunder, the Partner
making the transfer shall remain liable for its obligations hereunder,
notwithstanding such transfer. No change in ownership of any interest in the
Partnership or rights under this Agreement shall be binding upon any other party
hereto until a copy of all instruments executed and delivered pursuant to or in
connection with such transfer shall have been delivered to the other parties
hereto.
Section 8.3 Additional Conditions to Transfer of Percentage Interests. In
---------------------------------------------------------
addition to the other conditions contained in this Article VIII, a Limited
------------
Partner may sell, transfer, assign or subject to security interest any or all of
the Limited Partner's Percentage Interests owned by him, subject to the
following conditions:
(a) an assignee or transferee of, or holder of a security interest
in, the Percentage Interests of the Limited Partners shall not become a
substituted Limited Partner without the consent of the General Partner, which
may be unreasonably withheld;
(b) such sale, transfer, or assignment may not be made if it would
impair the ability of the Partnership to be taxed as a partnership or if it
would result in a "termination" of the Partnership pursuant to Section 708 of
the Code, as determined by the General Partner in its sole discretion;
(c) such sale, transfer or assignment may not be made if it would
cause the Partnership to register as an investment company under the Investment
Company Act of 1940;
(d) such Partner and its purchaser, transferee, or assignee execute,
acknowledge and deliver to the General Partner such instruments of transfer and
assignment with respect to such transaction as are in form and substance
reasonably satisfactory to the General Partner, including, without limitation,
with respect to a person seeking admission as a substituted Limited Partner, a
written notice delivered to the General Partner requesting such admission and
the written acceptance and adoption by such person of the provisions of this
Agreement;
(e) upon request of the General Partner, such Partner furnishes an
opinion of counsel, the expense of obtaining said opinion to be borne solely by
such Partner, reasonably satisfactory in form and substance to the Partnership's
counsel, to the effect that:
(i) such sale, transfer or assignment will not impair the
ability of the Partnership to be taxed as a Partnership, will not result in
a "termination" of this Partnership pursuant to Section 708 of the Code or
otherwise impair its treatment for federal tax purposes; and
(ii) such sale, transfer or assignment will not violate any
applicable federal or state securities laws, or cause the Partnership to
have to register under the Investment Company Act of 1940;
(f) such Partner pays the Partnership all reasonable expenses of the
Partnership in connection with such transaction; and
21
<PAGE>
(g) the purchaser, transferee, or assignee represents in writing, in
form and substance satisfactory to the General Partner, that it is
acquiring the Limited Partnership interest for its own account for
investment and not with a view to distribution thereof.
If the foregoing conditions are satisfied and all other conditions to
transfer as required by this Agreement are satisfied, and admission as a
substituted Limited Partner has been requested, this Agreement shall be amended
and all other steps shall be taken which, in the opinion of the General Partner,
are reasonably necessary to admit such person as a substituted Limited Partner.
Section 8.4 Death of a Limited Partner or Spouse of a Limited Partner.
---------------------------------------------------------
The death or dissolution of any Limited Partner shall not have the effect of
dissolving the Partnership. Upon the death or dissolution of a Limited Partner,
its estate, devisees, heirs and/or successors shall succeed to its Limited
Partnership interest (as an assignee, not as a substituted Limited Partner) and
shall be bound by the terms and provisions of this Agreement.
Section 8.5 Purchase of Limited Partnership Interest by General Partner.
-----------------------------------------------------------
The General Partner may (but shall not be obligated to) acquire Limited
Partnership interests from any Limited Partner and shall enjoy all rights and be
subject to all of the obligations and duties of a Limited Partner or an
assignee, as the case may be.
Section 8.6 Transfer of General Partners Interests; Designation of
------------------------------------------------------
Additional General Partners. The General Partner may not assign, transfer,
- ---------------------------
sell, give, pledge, encumber, or otherwise dispose of its interest as General
Partner in the Partnership, unless required or permitted to do so by the terms
of Article IX below or this Article. With the consent of all Limited Partners,
----------
or without such consent if necessary to preserve the status of the Partnership
as a partnership for federal income tax purposes, the General Partner may at any
time designate one or more persons to be admitted as additional General
Partners, with such participation in the General Partner's Partnership interests
as the General Partner and the additional General Partners may agree upon,
provided that the interests of the Limited Partners shall not be affected
thereby.
Section 8.7 Consent to Admission of Now Partners. Each Limited Partner
------------------------------------
agrees, by its execution hereof that the consent by the General Partner to (a)
the admission of any assignee or transferee of a Limited Partner's Partnership
interest or interests as a substituted Limited Partner whose admission has been
approved in accordance with Section 8.3(a); (b) the characterization of the
--------------
interest of a former General Partner as a Converted Limited Partner's interest
pursuant to, Article IX and the execution and filing of documents to reflect
----------
such status; and (c) the admission of an assignee of a General Partner's entire
interest as a substitute General Partner pursuant to Article X shall constitute
---------
the consent of such Limited Partner to such admission.
ARTICLE IX
RESIGNATION OR REMOVAL OF THE GENERAL PARTNER;
22
<PAGE>
FORFEITURE BY BOB; FORFEITURE BY NIKI
Section 9.1 Resignation or Removal of the General Partner.
---------------------------------------------
(a) The General Partner may resign from the Partnership by
delivering its written notice of resignation to the Limited Partners. Such
resignation shall not be effective earlier than ninety (90) days after the date
the resigning General Partner delivers its written notice of resignation;
subject to the foregoing and upon the effective date specified in such notice of
resignation, or an earlier date specified by the Approval of the Limited
Partners, a resigning General Partner shall cease to be a General Partner of the
Partnership. A General Partner having resigned shall have no liability to the
Partnership or its creditors or Partners for liabilities and obligations created
after the effective date of the resignation, and the Limited Partners hereby
grant to the General Partner, the full right and authority to execute and file
on behalf of the Partnership and the Limited Partners any documents necessary to
effect the resignation of the General Partner in compliance with this section.
(b) On a vote of a majority-in-interest of the Limited Partners
communicated in writing to the General Partner, the Limited Partners may remove
the General Partner for cause. For purposes hereof, "cause" shall mean either
(i) a persistent and material breach of this Agreement by the General Partner
which is not cured within thirty (30) days following written notice to the
General Partner (or such longer period of time as may be reasonable if such
breach cannot reasonably be cured within thirty (30) days and the General
Partner is diligently pursuing such cure); or (ii) the forfeiture of the Limited
Partnership interest of HOB pursuant to Section 9.5 below; or (iii) the
-----------
dissolution of the General Partner. Upon the effective date of such removal as
specified in the notice to the General Partner, the removed General Partner
shall cease to be a General Partner of the Partnership. A General Partner
having been so removed shall have no liability to the Partnership or its
creditors or partners for liabilities and obligations created after the
effective date of such removal.
(c) Upon the resignation or removal of the General Partner as
provided above, if the Limited Partners elect to continue the business of the
Partnership, the interest of the General Partner shall be divided among the
remaining Limited Partners on a pro rata basis calculated based upon their
respective Percentage Interests, and all interest of the General Partner in the
Partnership shall be deemed to have been forfeited to such remaining Limited
Partners, and a proper amendment to this Agreement shall be made to reflect such
change.
Section 9.2 Bankruptcy or Dissolution of the General Partner.
------------------------------------------------
(a) On a Bankruptcy or dissolution of the General Partner, it shall
cease to be a General Partner of the Partnership.
(b) Upon the occurrence of any of the events specified in Section
-------
9.2(a), if the Limited Partners elect to continue the business of the
- ------
Partnership, the interest of the General Partner shall be automatically (as of
the date of occurrence of such event) subject to Section 9.4. A proper amendment
-----------
to this Agreement shall forthwith be made to reflect such status.
23
<PAGE>
Section 9.3 Liability of General Partner after Resignation or Removal;
----------------------------------------------------------
Payment of Partnership Indebtedness. If the General Partner resigns or is
- -----------------------------------
removed in accordance with the provisions of this Partnership Agreement, its
liability as a General Partner for obligations created after that event and
which do not relate to winding up shall cease in accordance with applicable law.
A removed or resigning General Partner (or its legal representative) shall
execute and deliver all instruments and take all other actions as shall be
necessary and appropriate to install its successor as a General Partner.
Section 9.4 Bankruptcy Provisions.
---------------------
(a) Status of Trustee. On the Bankruptcy of a General Partner, the
-----------------
trustee or debtor- in-possession (collectively, the "trustee") automatically
has the status of an assignee of that General Partner's Partnership Interest
under Section ____ of the Delaware Revised Limited Partnership Act. Therefore,
the trustee would own the Partnership Interest of that General Partner in
Bankruptcy, but would not have any rights with respect to specific property of
the Partnership and would not have any rights with respect to the management of
the Partnership's business or property. Furthermore, that General Partner in
Bankruptcy would have no further rights to participate in the management of the
Partnership or its property, and those managerial rights and duties shall be
vested solely in the General Partner who is not in Bankruptcy (or if none, the
successors of the Partners in Bankruptcy, if the Partnership is reconstituted).
Unless otherwise required by applicable law, it is the intent of the Partners
that a voluntary filing of a case under Chapter 11 of the Bankruptcy Code, 11
U.S.C. (S)101 et seq. by the Partnership or a General Partner not be considered
-- ---
to effect an automatic dissolution of the Partnership under the Act. Rather,
that determination of whether or not to dissolve the Partnership should be made
by the General Partner, subject to Approval of the Partners, on a filing by the
Partnership, and by the Approval of the Limited Partners on a filing by a
General Partner.
(b) Assumption of Obligations. Any entity to which a Partner's
-------------------------
rights are assigned pursuant to the provisions of the Bankruptcy Code, shall be
deemed without further act to have assumed all of the obligations arising under
this Agreement on or after the effective date of the assignment. On demand, any
such assignee shall execute and deliver to each other party to this Agreement an
instrument confirming that assumption. A failure to deliver the assumption
agreement is a default under this Agreement by the assignee.
Section 9.5 Forfeiture of HOB Percentage Interest. Upon the termination
-------------------------------------
of the Lease due to either (i) the Tenant's cessation of operations as provided
in paragraph 6.c.iii thereof, or (ii) the Tenant's desire to assign or sublease
as provided in paragraph 6.f. of the Lease; or (iii) an Event of Default by
Tenant under the Lease which causes the Landlord to terminate Tenant's right to
possession of the Leased Premises, the interest of HOB in and to this
Partnership shall be forfeited to the remaining Limited Partners, in which event
the interest of HOB shall be divided among the remaining Limited Partners on a
pro rata basis calculated based upon their respective Percentage Interests
immediately preceding such forfeiture. The General Partner shall not enter into
any agreement or engage in any other business activity other than the
performance of its obligations under this Partnership Agreement and the General
Partner shall not incur any other indebtedness to third parties. The General
Partner shall not lien or encumber its interest in the Partnership. HOB and the
General Partner acknowledge that the forfeiture of
24
<PAGE>
their interest as set forth herein was in consideration for various other
concessions made by the other Limited Partners and the disproportionate profit
and loss participations which were provided on the expectation by the Limited
Partners that the Tenant would continue to operate the Leased Premises as a
House of Blues themed operation.
Section 2.6 Forfeiture of Niki Percentage Interest. In the event HOB, as
--------------------------------------
Tenant under the RDOEA, elects to perform improvements to the Common Area due to
the failure by Niki to commence the Common Area and Commercial/Retail Area
improvements within one hundred twenty (120) days following the Delivery Date or
to thereafter diligently pursue the completion thereof as provided in the
Inducement Agreement entered into between Niki, ROB and others contemporaneously
herewith, and Niki fails to reimburse HOB for the full amount paid by HOB
together with interest thereon at the Default Rate specified in the Lease ("HOB
Common Area Costs") prior to the date HOB opens its business in the Leased
Premises, the Percentage Interest of Niki shall be reduced and the Percentage
Interest of HOB shall be increased by the pro rata portion of Niki's Percentage
Interest equal to the ratio that the HOB Common Area Costs bears to $5 million.
For example, if the HOB Common Area Costs are $1 million and Niki fails to
reimburse HOB for such amount by the date HOB opens for business in the Leased
Premises, the Percentage Interest of Niki shall be reduced by twenty percent
(20%) to twenty-eight percent (28%) and the Percentage Interest of HOB shall be
increased accordingly to thirty-seven percent (37%). Upon such adjustment, Niki
shall have no further obligation to pay to HOB the HOB Common Area Costs.
ARTICLE X
DISSOLUTION AND WINDING UP OF PARTNERSHIP
Section 10.1 Dissolution. The Partnership shall be dissolved upon the
-----------
first to occur of any of the following events:
(a) the resignation, removal, bankruptcy or dissolution of the
General Partner, pursuant to Article IX;
----------
(b) the sale of substantially all of the assets of the Partnership
and conversion into cash of all proceeds thereof received in a non-cash
form or medium; or
(c) the expiration of the term of the Partnership as stated in
Section 2.7 above.
Section 10.2 Election to Continue. Upon the occurrence of an event
--------------------
causing dissolution of the Partnership pursuant to Section 10.1(a) , 10.1(b) or
----------------------------
10.1(c), the General Partner (or former General Partner), shall promptly give
- -------
notice of dissolution to the Limited Partners, and shall call for a vote of the
Limited Partners to continue the business of the Partnership or to wind up the
Partnership pursuant to Section 11.3 below. If the Limited Partners (exclusive
------------
of any Partner that is an Affiliate of the General Partner) do not, within sixty
(60) days after any such dissolution, unanimously elect to continue the business
of the Partnership, the Partnership shall be wound up pursuant to Section 10.3
------------
of this Agreement. If the Limited Partners elect to
25
<PAGE>
continue the business of the Partnership, and there is then no General Partner,
a substitute General Partner shall be elected on the written Approval of the
Limited Partners, but if no substitute General Partner shall be elected and
commence to serve as such within thirty (30) days after the effective date of
the election to continue, the Partnership shall be wound up under Section 10.3,
------------
notwithstanding the election to continue.
Section 10.3 Winding Up. Upon failure of Limited Partners to elect
----------
to continue the business of the Partnership pursuant to Section 10.2 above, or
------------
upon any other dissolution of the Partnership pursuant to Section 10.1 when
continuation is not provided for, the General Partner or, if the General Partner
has resigned or been removed, a liquidator or liquidating committee elected by
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners outstanding and entitled to be voted (the party or parties conducting
the liquidation are herein called the "Liquidator"), shall take full account of
the Partnership's assets and liabilities, and the assets shall be liquidated as
promptly as is consistent with obtaining the fair market value thereof, and the
proceeds therefrom to the extent sufficient therefor shall be applied and
distributed in the following order:
(a) to the payment and discharge of, or to the making of reasonable
provision for payment of, all of the Partnership's debts and liabilities to
persons other than Partners or former Partners and of the expenses of
liquidation;
(b) to the establishment of any reserves which the Liquidator may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the partnership or of the General partner arising out of or in
connection with the Partnership. Such reserves shall be paid to an escrow agent
to be held for the purpose of disbursing such reserves in payment of any of the
aforementioned contingencies, and, at the expiration of such period as shall be
specified in the instructions to such escrow agent by the Liquidator, to
distribute any balance then remaining as provided below;
(c) to the repayment of any loans or advances that may have been
made by any of the Partners to the Partnership, but if the amount available for
such repayment shall be insufficient, then pro rata (in accordance with the
principal amounts owing) on account thereof;
(d) to all Partners in proportion to the positive balances of their
Capital Accounts; and
(e) to all Partners in accordance with their respective Percentage
Interests.
The Partners' Capital Account balances shall be appropriately adjusted
before any liquidating distributions (i) to reflect sales or other dispositions
of assets, or any other evens giving rise to a Capital Account adjustment and
(ii) to reflect the fair market value at liquidation of any assets to be
distributed in kind to the Partners as if such assets had been sold.
Section 10.4 Liquidator. A Liquidator elected as herein provided shall
receive such compensation for liquidation services as may be agreed by the
Liquidator and Limited Partners holding a majority of the Percentage Interests
of the Limited Partners outstanding and entitled to
26
<PAGE>
be voted, and may be removed at any time by written notice of removal signed by
Limited Partners holding a majority of the Percentage Interests of the Limited
Partners outstanding and entitled to be voted. Upon the death, removal or
resignation of the Liquidator, a successor and substitute Liquidator (who shall
have and succeed to all the rights, powers, and duties of the original
Liquidator) will, within thirty (30) days thereafter, be appointed by vote of a
majority in interest of the Limited Partners evidenced by written appointment
and acceptance. The right to appoint a successor or substitute Liquidator in the
manner provided herein shall be recurring and continuing for so long as the
functions and services of the "Liquidators" are authorized to continue under the
provisions hereof, and every reference herein to the "Liquidator" will be deemed
to refer also to any such successor or substitute Liquidator appointed in the
manner herein provided. Except as expressly provided in this Article X, the
---------
Liquidator appointed in the manner provided herein shall have and may exercise,
without further authorization or consent of any of the parties hereto or their
legal representatives or successors in interest, all of the powers conferred
upon the General Partner under the terms of this Agreement to the extent
necessary or desirable in the good faith judgment of the Liquidator to carry out
the duties and functions of the Liquidator hereunder for and during such period
of time as shall be reasonably required in the good faith judgment of the
Liquidator to complete the liquidation and dissolution of the Partnership as
provided for herein, including, without limiting the generality of the
foregoing, the following specific powers: (i) the power to continue to manage
and operate any business of the Partnership during the period of such
liquidation or dissolution proceedings; (ii) the power to make sales and,
incident thereto, to make deeds, bills of sale, assignments and transfers of
assets; provided, that the Liquidator may not impose personal liability upon any
of the Partners under any warranty of title contained in any such instrument;
(iii) the power to borrow funds as may, in the good faith judgment of the
Liquidator, be reasonable to pay debts and obligations of the Partnership or
operating expenses, and to grant deeds of trust, mortgages, security agreements,
pledges, and collateral assignments upon and encumbering any of the assets as
security for repayment of such loans or as security for payment of any other
indebtedness of the Partnership; provided, that the Liquidator shall not have
the power to create any personal obligation on any of the Partners to repay such
loans or indebtedness other than out of available proceeds of foreclosure or
sales of the property or assets as to which a lien or liens are granted as
security for payment thereof; (iv) the power to settle, compromise or adjust any
claims asserted to be owing by or to the Partnership; and the right to file,
prosecute or defend lawsuits and legal proceedings in connection with any such
matters; (v) the power to make deeds, bills of sale, assignments and transfers
to the respective Partners and their successors in interest incident to final
distribution of the remaining assets (if any) as provided for herein; provided,
the Liquidator may not impose personal liability upon any of the Partners or
their successors in interest under any warranty of title contained in any such
instrument.
If within thirty (30) days following the date of dissolution or other
time period provided in Section 10.1 a Liquidator or successor Liquidator has
not been appointed in the manner provided therein, any interested party shall
have the right to make application to the Senior Judge of the United States
District Court of the District in which the City of Chicago, Illinois is then
situated for appointment of such Liquidator or successor Liquidator, and the
said Judge, acting as an individual and not in his judicial capacity, shall be
fully authorized and' empowered to appoint and designate such Liquidator, or
successor Liquidator who shall have all the powers, duties, rights and
authorities of the Liquidator herein provided.
27
<PAGE>
Section 10.5 Liquidation Statements. Each of the Partners shall be
----------------------
furnished with a statement prepared or caused to be prepared by the Liquidator
which shall set forth the disposition of assets and the discharge of liabilities
of the Partnership pursuant to liquidation. A certification canceling this
Agreement shall be filed reflecting termination of the Partnership.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.1 Notices. Any notice, demand, offer, or communication
-------
required or permitted to be given by any provision of this Agreement shall be
deemed to have been delivered and given for all purposes:
(a) if delivered personally or by courier to the party or to an
officer of the party to whom the same is directed; or
(b) whether or not the same is actually received, if sent by
registered or certified mail or by nationally recognized delivery service such
as Federal Express, postage and charges prepaid, addressed as follows: If to
the General Partner, at the Partnership's respective office or to such other
address as such General Partner may from time to time specify by written notice
to the Limited Partners; and if to a Limited Partner, at such Limited Partner's
address set forth on Schedule A, or to such other address as such Limited
Partner may from time to time specify by written notice to the General Partner.
Any such notice shall be deemed to be given (i) as of the date so delivered, if
delivered personally or by courier to the party, or (ii) as of the second
business day following date on which the same was deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and sent
as aforesaid, or (iii) the next business day following prepaid delivery, with
paid receipt, to a nationally recognized delivery service such as Federal
Express for next business day delivery and sent as aforesaid.
Section 11.2 Law Governing. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE.
Section 11.3 Severability. If any provision of this Agreement is held to
------------
be illegal, invalid, or unenforceable under present or future laws effective
during the term hereof, the legality, validity, and enforceability of the
remaining provisions of this Agreement shall not be affected thereby, and in
lieu of each such illegal, invalid, or unenforceable provisions, there shall be
added automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be legal, valid and
enforceable.
Section 11.4 Section Headings and Captions. Section and other headings
-----------------------------
and captions contained in this Agreement are for reference purposes only and are
in no way intended to describe, interpret, define, amplify, or limit the scope,
extent, or intent of this Agreement or any provision hereof.
28
<PAGE>
Section 11.5 Amendments.
----------
(a) Amendments to this Agreement may be proposed (i) by the General
Partner or (ii) by Limited Partners who are the record holders of more than
fifty percent (50%) of the Percentage Interests of the Limited Partners
outstanding. Any such amendment shall be proposed by submitting to the General
Partner and all of the Limited Partners in writing the proposed amendment and
the written recommendation of the Partner or Partners proposing the amendment.
Subject to the provisions of Sections 11.6 and 11.7 and Subsections (b) and (c)
---------------------- -----------------------
of this Section 11.5, any such amendment shall become effective only upon
------------
affirmative vote or written consent of Limited Partners who are the record
holders of 50% or more of the Percentage Interests of the Limited Partners
outstanding and entitled to be voted and the written consent of the General
Partner.
(b) No amendment (other than one entered into in connection with the
resignation, or removal of a General Partner, or the conversion of a General
Partner's interest to that of a Converted Limited Partner, as shall conform to
the provisions of this Agreement) may be made without the affirmative vote or
written consent of the General Partner affected. No amendment which changes the
limited liability status or participation in income, losses, and distributions
of any Limited Partner may be made without the affirmative vote or written
consent of such Limited Partner. In addition, no amendment shall extend the
term of the partnership beyond January 1, 2050, or shall change the Partnership
from a limited partnership to a general partnership.
Section 11.6 Meetings and Means of Voting. Meetings of the partners may
----------------------------
be called by the General Partner and shall be called upon the written request of
Limited Partners who hold at least 25% of the Percentage Interests of the
Limited Partners outstanding and entitled to be voted. The call shall state the
nature of the business to be transacted. Partners may vote in person or by
proxy at any such meeting, and shall be given written notice in the manner
proscribed in Section 11.1 hereof at least ten (10) days prior to such meeting.
------------
Any Partner may waive notice of or attendance at any meeting of the partners,
and may attend by telephone or any other electronic communication device or may
execute a signed written consent to agree to or effect any action which may be
taken at a meeting.
Section 11.7 Binding Nature of Certain Procedures. By execution of this
------------------------------------
Agreement, or by authorizing its execution on its behalf, each Limited Partner
acknowledges the binding nature of the procedures set forth herein as to the
amendment of this Agreement, dissolution of the Partnership, removal of the
General Partner or successor General Partners (and any additional General
Partners), the election of new General Partners, and sale of all or
substantially all the assets of the Partnership, and further agrees to execute
and deliver all necessary and appropriate instruments and documents and take all
necessary actions, as shall be required to effectuate the vote of the Limited
Partners amending this Agreement, dissolving the Partnership, removing such
General Partner(s), electing such General Partners, or approving the sale of
such assets in each such circumstance, regardless of the manner in which the
Percentage Interests of the Limited Partners held of record by him shall have
been voted in the consideration of such matter(s) by the Limited Partners.
29
<PAGE>
Section 11.8 Right to Rely Upon Authority. If a Limited Partner is a
----------------------------
person other than a natural person, the Partnership and the General Partner: (a)
shall not be required to determine the authority of the person signing this
Agreement, or any amendment hereto, or make any commitment bearing upon the
existence of this authority; (b) shall not be required to see to the application
or distribution of revenues or proceeds paid or credited to the person signing
this Agreement or any amendment hereto on behalf of such entity; (c) shall be
entitled to rely on the authority of the one signing this Agreement or any
amendment hereto with respect to the voting of the interest of such entity and
with respect to the giving of consent on behalf of such entity in connection
with any matter for which consent is permissible or required hereunder; and (d)
shall be entitled to rely upon the authority of any general partner, joint
venturer, co-trustee or successor trustee, or officer (as the case may be) of
any such entity in the same manner as if such person were the person originally
signing this Agreement or any amendment hereto on behalf of such person.
Section 11.9 Successors and Assigns. This Agreement and all the terms and
----------------------
provisions hereof shall be binding upon and (subject to the provisions of
Article VIII of this Agreement) inure to the benefit of the Partners and their
- ------------
respective legal representatives, heirs, successors, and assigns.
Section 11.10 Counterparts. This Agreement may be executed in multiple
------------
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
Section 11.11 Modification to be in Writing. This Agreement constitutes
-----------------------------
the entire understanding of the parties hereto with respect to the subject
matter hereof and no amendment, modification, or alteration of the terms hereof
shall be binding unless the same is Section 11.5 hereof.
------------
Section 11.12 Integrated Agreement. This Agreement constitutes the entire
--------------------
understanding and agreement among the parties hereto with respect to the subject
matter hereof, and there are no agreements, understandings, restrictions,
representations or warranties among the parties other than those set forth
herein or herein provided for.
ARTICLE XII
VARIOUS ADDITIONAL RIGHTS OF THE PARTNERS
Section 12.1 Option of Niki and Platinum to Put Their Interests. In the
--------------------------------------------------
event that at any time following the Delivery Date HOB Entertainment, Inc. or
its voting equity holders (i) sells all or substantially all of its assets to
unrelated third parties; (ii) completes an Initial Public offering; or (iii)
enters into any transaction or series of transactions with a third party or a
third party group acting in concert which transfers voting control of HOB
Entertainment, Inc. or its assets to such third party or such third party group
acting in concert, the General Partner shall notify Niki and Platinum within
five (5) business days of the entry of any agreement implementing such transfers
or offerings together with any prospectus relating to the Initial Public
Offering and provide the Limited Partners with copies of all material agreements
related thereto and any and all information relative to the financial condition
and identity of the
30
<PAGE>
transferees and such other documents as the Limited Partners may reasonably
request ("Inspection Documents"). Niki and Platinum shall, together and not
independently, have ninety (90) days from receipt of the Inspection Documents to
exercise the right to put their respective Limited Partnership interests to the
General Partner (who may designate the transferee) at a price equal to the sum
of:
(a) The amount (or deemed value, with respect to Niki) of their
respective initial Capital Contributions made to the Partnership pursuant to
Sections 3.2(a) and (b), plus any additional amounts contributed by Niki or
- -----------------------
Platinum, respectively. For purposes of this Article XII, all references herein
-----------
to the amount of Niki's initial Capital Contribution to the Partnership shall be
deemed to mean $5,000,000.00 less the amount, if any, that Niki fails to
reimburse HOB for HOB Common Area Costs resulting in a forfeiture of a portion
of Niki's Percentage Interest in accordance with Section 9.6 hereof; and
(b) the greater of:
(i) the amount necessary to provide them with an internal
rate of return of twelve percent (12%) per annum on their respective
initial Capital Contributions made to the Partnership based upon quarterly
payments from the date of their initial Capital Contribution to the date of
payment; or
(ii) An amount equal to thirty-six percent (36%) of their
respective initial Capital Contributions made to the Partnership.
The option price shall be paid respectively to Niki and .Platinum within
thirty (30) days of the written election by Niki and Platinum to collectively
put their respective Limited Partnership interests to the General Partner in
accordance herewith.
Section 12.2 Option of General Partner to Purchase the Interests of Niki
-----------------------------------------------------------
and Platinum.
- ------------
(a) Prior to Initial Public Offering. At any time during the Term of
--------------------------------
this Partnership following the Delivery Date and prior to the completion of an
Initial Public offering by HOB Entertainment, Inc., the General Partner (or a
designee of the General Partner) shall have the option to purchase the Limited
Partnership interests of both Niki and Platinum, but only in whole, for a
purchase price as to the respective interests equal to the sum of (1) the amount
(or deemed value, with respect to Niki) of their respective initial Capital
Contributions made to the Partnership pursuant to Section 3.2(a) and (b) plus
any additional amounts contributed by Niki or Platinum to the Partnership,
respectively, And (2):
(x) with respect to Niki, the greater of:
(i) the amount necessary to provide it with an
internal rate of return of twenty-five percent (25%) per annum based upon
quarterly payments from the date of its initial Capital Contribution and
subsequent Capital Contributions, if any, to the date of payment; or
31
<PAGE>
(ii) an amount equal to seventy-five percent (75%) of
its initial Capital Contribution made to the Partnership; or
(y) with respect to Platinum, the greater of:
(i) the amount necessary to provide it with an
internal rate of return of fifteen percent (15%) per annum based upon
quarterly payments from the date of its initial Capital Contribution and
subsequent Capital Contributions, if any, to the date of payment; or
(ii) an amount equal to forty-five percent (45%) of its
initial Capital Contribution made to the Partnership; or
(b) After Initial Public Offering. At any time during the Term of
-----------------------------
this Partnership following the Delivery Date and following the completion of an
Initial Public offering of HOB Entertainment, Inc., the General Partner (or a
designee of the General Partner) shall have the option to purchase the Limited
Partnership interests of both Niki and Platinum, but only in whole, for a
purchase price as to their respective interests equal to the greater of (1) the
price that would have been payable to Niki and Platinum had the option been
exercised and the price calculated pursuant to Section 12.2(a) above, or (2):
(x) with respect to Niki, the lesser of:
I
(i) the deemed value of its initial Capital Contribution
made to the Partnership pursuant to Section 3.2(a) plus any additional
amounts contributed by Niki to the Partnership and plus the amount
necessary to provide it with an internal rate of return of fifty percent
(50%) per annum based upon quarterly payments from the date of its initial
capital Contribution and subsequent Capital Contributions, if any, to the
date of payment; or
(ii) the trailing twelve-month Minimum and Percentage Rents
due from Tenant (annualized if less than one year from opening) multiplied
times sixty-five percent (65%) of the multiple of HOB Entertainment, Inc.
trailing annual income used to determine the initial offering price of the
publicly traded shares;
(y) with respect to Platinum, the lesser of:
(i) the amount of its initial Capital Contribution made to
the Partnership pursuant to Section 3.2(b) plus any additional amounts
--------------
contributed by Platinum to the Partnership and plus the amount necessary to
provide it with an internal rate of return of fifteen percent (15%) per
annum based upon quarterly payments from the date of its initial Capital
Contribution and subsequent Capital Contributions, if any, to the date of
payment; or
32
<PAGE>
(ii) the trailing twelve-month Minimum and Percentage Rents
due from Tenant (annualized if less than one year from opening) multiplied
times sixty-five percent (65%) of the multiple of HOB Entertainment, Inc.
trailing annual income used to determine the initial offering price of the
publicly traded shares;
The option price to be paid pursuant to Sections 12.2 (a) or (b) shall
be paid within sixty (60) days of the written election %by the General Partner
(or its designee) to purchase the Limited Partnership interests of both Niki and
Platinum in accordance herewith. In the event that within the twelve-month
period immediately following the acquisition of the Limited Partnership
interests of Niki and Platinum pursuant to Section 12.2 (a), HOB Entertainment,
Inc. completes an Initial Public offering of its shares, then the General
Partner shall pay to Platinum and Niki, respectively, the excess, if any, of the
option price that would have been payable to Platinum and Niki as of the date of
the transfer of their Partnership interests to the General Partner had the
General Partner purchased their respective Partnership interests pursuant to
Section 12.2(b), over the option price paid to Niki and Platinum pursuant to
- ---------------
Section 12.2(a).
- ---------------
Section 12.3 Other Acts Relative to the Options. The parties agree to
----------------------------------
execute such additional documents, transfers and otherwise fully cooperate in
the transactions contemplated by the options granted herein. The parties
further agree to execute reasonable confidentiality agreements necessary to
permit the exchange of information, contemplated by this agreement. The parties
further agree not to engage in any transaction or series of transactions
designed to circumvent the options granted herein.
GENERAL PARTNER:
HOB MARINA CITY, INC., a Delaware
corporation
By: /s/ Nathaniel J. Lipman
---------------------------
Name: Nathaniel J. Lipman
-------------------------
Its: Senior Vice President
--------------------------
LIMITED PARTNERS:
NIKI DEVELOPMENT CORP., an Illinois
corporation
By: /s/ John L. Marks
---------------------------
Name: John L. Marks
-------------------------
Its: President
--------------------------
33
<PAGE>
PLATINUM BLUES CHICAGO L.L.C., an Illinois limited
liability company
By:
---------------------------
Name:
-------------------------
Its:
--------------------------
HOB CHICAGO, INC., a Delaware
corporation
By: /s/ Nathaniel J. Lipman
---------------------------
Name: Nathaniel J. Lipman
-------------------------
Its: Senior Vice President
--------------------------
Attachments:
Schedule A - Partners' Initial Capital Contribution
Exhibit A-1 - Property Description
Exhibit A-2 - Site Plan
Exhibit A-3 - Description of Personal Property
34
<PAGE>
PLATINUM BLUES CHICAGO L.L.C., an Illinois limited
liability company
By: /s/ Steven Devick
----------------------------
Name: Steven Devick
--------------------------
Its: Manager
---------------------------
HOB CHICAGO, INC., a Delaware
corporation
By:
----------------------------
Name:
--------------------------
Its:
---------------------------
Attachments:
Schedule A - Partners' Initial Capital Contribution
Exhibit A-1 - Property Description
Exhibit A-2 - Site Plan
Exhibit A-3 - Description of Personal Property
35
<PAGE>
EXHIBIT 10.23
FIRST AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP
---------------------------------------------------
OF HOB MARINA CITY PARTNERS, L.P.
---------------------------------
This First Amendment of Limited Partnership ("First Amendment") is entered
into as of the 20th day of December, 1996, by and among HOB Marina City, Inc., a
Delaware corporation, as General Partner, and Marks Theater Investment, L.L.C.,
an Illinois limited liability company ("Marks"), the successor-in-interest to
Niki Development, Corp., an Illinois corporation ("Niki"), Platinum Blues
Chicago, L.L.C., an Illinois limited liability company ("Platinum") and HOB
Chicago, Inc., a Delaware corporation ("HOB") as Limited Partners.
For and in consideration of one and No/100 Dollar ($1.00) and other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereby recite and agree as follows:
1. Recitals.
--------
(a) Partnership Agreement. The parties hereto formed a partnership
---------------------
pursuant to Agreement of Limited Partnership of HOB Marina City Partners, L.P.
("Partnership Agreement") dated as of January 29, 1996.
(b) Definitions. The capitalized terms contained in this First
-----------
Amendment and not otherwise specifically defined herein shall have the same
meaning as is ascribed to them in the Partnership Agreement. All references in
the Partnership Agreement to Niki shall be deemed to refer to Marks.
(c) Amendment. The parties have agreed to amend the Partnership
---------
Agreement as hereinafter set forth, and are entering into this First Amendment
to effectuate such amendments.
2. Contributions and Liabilities. Article III of the Partnership
-----------------------------
Agreement is hereby amended to delete Sections 3.1 and 3.2 and to substitute the
--------------------
following new Sections 3.1 and 3.2 therefor:
---------------------
Section 3.1 General Partner's Contributions, Liabilities, Construction and
--------------------------------------------------------------
Loans.
-----
(a) Contributions. The General Partner has contributed in cash
-------------
to the Partnership the sum of $700,000.00, which amount constitutes the
initial Capital Contribution of the General Partner to the Partnership.
(b) Construction Loan. The General Partner has loaned, or caused an
-----------------
Affiliate to have loaned, to the Partnership up to $9,000,000.00 ("Construction
Loan") for purposes of the construction of improvements to the Leased Premises,
the amount of the Construction Loan being hereby approved by the Partners. The
Partners hereby authorize the General Partner to consummate a loan with
SunAmerica Life Insurance Company or another lender reasonably acceptable to the
General Partner ("New Loan") to refinance and pay off all amounts owed to the
General Partner or its Affiliate in connection with the Construction Loan, the
New Loan to be substantially on the terms and provisions set forth on Schedule B
----------
hereto and otherwise as the General Partner deems reasonable. Any excess
proceeds from the New Loan remaining after payment in full of the Construction
Loan shall be used by the General Partner to pay construction costs incurred by
the Partnership in connection with the Leased Premises. From and after the
funding of the New Loan, all references in the Partnership Agreement to the
Construction Loan shall be deemed to refer to the New Loan, and any future
refinancing thereof. The New Loan and any refinance of the New Loan shall be
non-recourse to the Limited Partners. The General Partner shall document all
improvements to the Leased Premises funded by Landlord's Contribution as defined
in the Lease and permit the Limited Partners and their agents to inspect all
supporting documentation in connection with the improvements funded by the New
Loan. The General Partner shall have the right to further refinance, renew or
extend the New Loan without the consent of the Partners so long as the monthly
debt service is based upon an amortization term of the principal of no greater
than twenty (20) years; it provides for the full payment of current interest
(i.e., no accruals); and all other fees, charges and required payments which
are scheduled and payable prior to maturity in connection therewith do not
exceed the monthly Minimum Rent payments and other payment obligations with
respect to insurance and
1
<PAGE>
taxes due by the Tenant under the Lease. In the event of a forfeiture of the
interest of the General Partner and HOB in the Partnership pursuant to Sections
--------
9.1(c) and 9.5 below at any time during which the New Loan is outstanding to the
- --------------
General Partner or its Affiliate, the General Partner and HOB shall cause the
payment terms and maturity date of the New Loan to be modified or extended, if
necessary, to allow for the New Loan to be fully amortized at its then stated
interest rate in monthly payments of principal and interest based upon the
Minimum Rent due and payable under the Lease immediately preceding its
termination.
The Partners acknowledge that the New Loan requires that the monthly
Minimum Rent currently payable by HOB as the Tenant under the Lease ("Base
Rent") be increased to an amount equal to 1.25 multiplied times the monthly
payments owed under the New Loan, the amount by which the monthly Minimum Rent
required by the New Loan exceeds Base Rent being referred to herein as "Rental
Excess". The Partners hereby authorize the General Partner to modify the Lease
to increase the Tenant's monthly Minimum Rent as required by the New Loan
(provided that Percentage Rent shall continue to be calculated based upon the
amount by which Gross Sales exceed the Base Rent), and further authorize the
General Partner to pay or cause the holder of the New Loan to pay to HOB or an
Affiliate of HOB as a guaranty fee the amount, if any, by which the Rental
Excess exceeds the Percentage Rent payable under the Lease; such guaranty fee to
be consideration payable to HOB or its Affiliate to induce it to execute any or
all guaranties required of them by the New Loan.
Section 3.2 Initial and Subsequent Mandatory Contributions of the Limited
-------------------------------------------------------------
Partners. The Limited Partners shall contribute the following property and/or
- --------
cash to the Partnership at the times hereinafter specified:
(a) Marks Contribution. Marks has caused Niki to convey the Leased
------------------
Premises to the Partnership by Special Warranty Deed, free and clear of any and
all liens, encumbrances, conditions, restrictions or easements, other than (x)
the RDOEA; (y) the Lease; and (z) such other easements or encroachments as HOB
shall have approved pursuant to the Lease, in full satisfaction of Marks,
obligations to contribute the Leased Premises pursuant to the Partnership
Agreement. Marks has also caused Niki to provide the Partnership with an owners
title policy insuring good and marketable fee simple title in the Partnership
subject to no exceptions other than those set forth in clauses (x), (y) and (z)
above in the face amount of $5,000,000.00. For purposes of this Partnership,
the value of the Marks Capital Contribution pursuant to this paragraph shall be
deemed to equal $5,000,000.00 and Marks has received credit to its Capital
Account in such amount.
(b) Platinum Contribution. Platinum has contributed to the Partnership the
---------------------
cash sum of $5,000,000.00, and shall contribute an additional $1,000,000.00 in
cash contemporaneously with its execution of this First Amendment, which amounts
constitute Platinum's initial Capital Contribution to the Partnership.
(c) HOB Contribution. HOB has contributed to the Partnership the cash
----------------
sum of $6,300,000.00, which amount constitutes HOB's initial Capital
Contribution to the Partnership.
Except for the Limited Partners' initial Capital Contributions as
described above, the Limited Partners shall not be required to make any
additional contributions to the Partnership and the Limited Partners shall not
be personally liable for any of the debts and obligations of the Partnership.
Schedule A of the Partnership Agreement is hereby deleted and Schedule A
---------- ---------
attached hereto is hereby substituted therefor.
3. Distributions of Net Cash Flow. Section 4.1 of the Partnership is
------------------------------ -----------
hereby amended to delete all but the first sentence thereof; it being
acknowledged by the Partners that HOB has satisfied its obligations with respect
to the opening of Tenant's business; and that the Partners have, for purposes of
distributions of Net Cash Flow, waived the obligations of marks with respect to
the completion of improvements to the Common Areas and Commercial Areas of the
Project, the opening of two restaurants in the Project and the completion and
opening of a hotel within the Project.
2
<PAGE>
4. Various Additional Rights of Partners. Section 12.1 of the Partnership
------------------------------------- ------------
Agreement is hereby modified to delete any and all references therein to Marks
and/or Niki, so that Section 12.1 shall only apply to Platinum; and Marks hereby
------------
waives and releases any and all rights it had under the Partnership Agreement to
put its Limited Partnership Interest to the General Partner. This modification
shall not, however, waive or otherwise affect the General Partner's option to
purchase the interest of Marks in the Partnership pursuant to Section 12.2 of
------------
the Partnership Agreement.
5. A new Section 12.4 is hereby added to the Partnership to provide as
------------
follows:
Section 12.4 Third-Party Offers.
-------------------
In the event that at any time following the date that the General Partner
acquires the Limited Partnership interest of Platinum pursuant to Section 12.1
------------
or 12.2 above, the Partnership receives a bona fide offer from a third party who
- -------
is not an Affiliate of the General Partner or the Limited Partners and who is
not a Competitor of HOB (as hereinafter defined) as Tenant under the Lease, for
the purchase of all of the Leased Premises for a cash amount that is at least
equal to the difference between $25,000,000.00 [being (i) the sum of
$5,000,000.00 plus $22,000,000.00 (representing the agreed amount for purposes
of this Section 12.4 of the total cost of construction of improvements to the
Leased Premises by the Partnership and the Tenant, including both hard and soft
costs in connection therewith), and (ii) $2,000,000.001 ("Offer"), which offer
one Limited Partner desires to accept ("Accepting Party") and the other Limited
Partner desires to decline ("Declining Party"), the Accepting Party shall give
written notice to the Declining Party setting out the full details of such
offer, which notice, among other things, shall specify the name of the party
submitting the Offer, the cash price to be paid as well as any and all other
consideration being received or paid in connection with such proposed
transaction, as well as all other material terms, conditions and details of such
Offer. In order to qualify, the Offer must be for cash only (less the amount of
any existing assumable mortgage indebtedness of the Partnership, if any, that
the offeror agrees to assume) and include an earnest money deposit of at least
two percent (2%) of the sales price.
Upon receipt of the Offer Notice, the Declining Party shall have the exclusive
right and option, exercisable by written notice to the Accepting Party and the
Partnership ("Exercise Notice") at any time during a period of thirty (30) days
following the date the Declining Party receives the Offer Notice, to purchase
the Leased Premises from the Partnership at the same price and on the same terms
and conditions as are included in the offer, but excluding any real estate
commission specified therein, but with the closing period as hereinafter
specified. The Exercise Notice shall include an earnest money deposit payable
to a title company in Chicago, Illinois, as escrow agent, in the amount of ten
percent (10%) of the purchase price to be paid by the Declining Party. If the
Declining Party exercises its option as set forth above, the sale of the Leased
Premises to the Declining Party shall be closed within ninety (90) days
following the Declining Party's exercise of the option to purchase the Leased
Premises, and the earnest money deposited by the Declining Party shall be
applied to the purchase price. If the Declining Party does not elect to
exercise the option, the Declining Party shall be deemed to have consented to
the sale of the Leased Premises pursuant to the offer and shall join with the
Accepting Party and the General Partner in causing the Partnership to sell the
Leased Premises pursuant to the Offer, which sale shall be completed strictly
upon the terms, conditions and provisions set forth in the offer. If the
Declining Party delivers the Exercise Notice but thereafter fails to close its
purchase of the Leased Premises, the Accepting Party may cancel the Exercise
Notice and receive the earnest money deposited by the Declining Party with the
Exercise Notice as liquidated damages, and (ii) cause the Partnership and the
General Partner to enter into and close on behalf of the Partnership the sale of
the Leased Premises to the third party submitting the offer in accordance with
the terms and provisions of the Offer, and the Declining Party hereby designates
the Accepting Party as agent for the Partnership in performing such acts and
executing such documents as may be reasonably necessary to consummate such sale
in accordance with the offer without the further consent or execution of
documents by the Declining Party. Notwithstanding anything to the contrary set
forth in this Agreement related to the priorities of distributions of Net Cash
Flow or net proceeds from sale of the Leased Premises among the Partners, upon
any sale of the Leased Premises pursuant to this Section 12.4, the Net Cash Flow
------------
or net proceeds resulting therefrom (after payment and discharge of all of the
Partnership's debts and liabilities and the establishment of reasonable reserves
for any contingent or unforeseen liabilities or obligations of the Partnership
or of the General Partner arising out of or in connection with the Partnership)
shall
3
<PAGE>
be distributed first to Marks in the amount of its Capital Contributions to the
Partnership, second to the General Partner and HOB in the amount of their
Capital Contributions, and then to the Partners in accordance with their
Percentage Interests. For purposes hereof, a "Competitor of HOB11 shall mean any
person or entity providing merchandise, food, drink, multi-media and/or live
pre-recorded entertainment in connection with a "theme oriented" venue such as
"Hard Rock Cafe", "Planet Hollywood", "Harley-Davidson Cafe", "Mo Town Cafe",
"Billboard Cafe", and similar operations.
5. Counterparts. This First Amendment may be executed in multiple
------------
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
6. Other Terms. Except as specifically modified hereby, all other terms,
-----------
conditions and provisions of the Partnership Agreement shall remain in full
force and effect as of the date thereof.
7. Binding Effect. This agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns.
4
<PAGE>
GENERAL PARTNER:
HOB MARINA CITY, INC., a Delaware corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
LIMITED PARTNERS:
MARKS THEATER INVESTMENT, L.L.C.,
an Illinois limited liability company
By:_____________________________________
Name:___________________________________
Title:__________________________________
PLATINUM BLUES CHICAGO, L.L.C., an
Illinois limited liability company
By:_____________________________________
Name:___________________________________
Title:__________________________________
HOB CHICAGO, INC., a Delaware corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
5
<PAGE>
EXHIBIT 10.24
SECOND AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF
HOB MARINA CITY PARTNERS, L.P.
This Second Amendment of Limited Partnership ("Second Amendment") is
entered into as of the ____th day of____, 1997, by and among HOB Marina City,
Inc., a Delaware Corporation, as General Partner, and Marks Theater
Investment, L.L.C., an Illinois limited liability Company ("Marks"), the
successor-in-interest to Niki Development Corp., an Illinois corporation
("Niki"), Platinum Blues Chicago, L.L.C., an Illinois limited liability
company ("Platinum")and HOB Chicago, Inc., a Delaware corporation ("HOB") as
Limited Partners.
For and in consideration of One and No/100 dollars ($1.00) and other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereby recite and agree as follows:
1. Recitals.
--------
(a) Partnership Agreement. The parties hereto formed a partnership
---------------------
pursuant to Agreement of Limited Partnership of HOB Marina City
Partners, L.P. ("Partnership Agreement") dated as of January 29,
1996.
(b) Definitions. The capitalized terms contained in this Second
-----------
Amendment and not otherwise specifically defined herein shall
have the same meaning as is ascribed to them in the Partnership
Agreement. All references in the Partnership Agreement to Niki
shall be deemed to refer to Marks.
(c) Amendment. The parties have agreed to amend the Partnership
---------
Agreement as hereinafter set forth, and are entering into this
Second Amendment to effectuate such amendments.
2. Definition. Article I of the Partnership Agreement is hereby amended
----------
to add the following new definition as follows:
"Single Purpose Entity" shall mean a person, other than an individual,
estate or unincorporated association, which:
(a) has not engaged and shall not engage in any business unrelated
to the management and ownership of the Mortgaged Property (or to the
ownership of a person which owns the Mortgaged Property);
(b) has not owned and will not own any assets other than those
related to the Mortgaged Property (or to the ownership of a person
which owns the Mortgaged Property);
(c) shall not, without the unanimous consent of the Independent
Director, as defined below, file a bankruptcy or insolvency petition or
otherwise institute
<PAGE>
insolvency proceedings;
(d) has not dissolved and shall not dissolve, liquidate,
consolidate, merge, or sell all or substantially all of its assets or
amend the purpose of its organizational documents with respect to its
purpose or any other provision designed to ensure Single Purpose Entity
status;
(e) has had and shall have an Independent Director;
(f) shall not incur any debt, other than accounts and unsecured
obligations incurred with respect to the operation of the Mortgaged
Property in the ordinary course of business;
(g) has corrected and shall correct any known misunderstanding
regarding its separate identity;
(h) has maintained and shall maintain its accounts separate from any
other person;
(i) has maintained and shall maintain its books, records,
resolutions and agreements as official records;
(j) has not commingled and shall not commingle its funds or assets
with those of any other person;
(k) has conducted and shall conduct its own business in its own
name;
(l) has maintained and shall maintain its financial statements,
accounting records and other entity documents separate from any other
person;
(m) has paid and shall pay its own liabilities out of its own funds
or assets;
(n) has observed and shall observe all entity formalities;
(o) has not guaranteed or become obligated and shall not guarantee
or become obligated for the debts of any other person and has not held
and will not hold out its credit as being available to satisfy the
obligations of others;
(p) has not acquired and shall not acquire obligations or securities
of its affiliates;
(q) has allocated and shall allocate fairly and reasonably any
overhead for shared office space and use separate stationery, invoices,
and checks;
2
<PAGE>
(r) has not pledged and shall not pledge its assets for the benefit
of any other person;
(s) has held and shall hold itself out as a separate and distinct
entity under its own name and not as a division or part of any other
person;
(t) has not made and shall not make loans to any person;
(u) has maintained and shall maintain adequate capital for its
normal obligations reasonably foreseeable in a business of its size and
character and in light of its contemplated business operations;
(v) has not identified and shall not identify its owners or any
affiliates as a division or part of it;
(w) has not entered and shall not enter into or be a party to, any
transaction with its owners or its affiliates except in the ordinary course
of its business and on terms which are intrinsically fair and are no less
favorable to it than would be obtained in a comparable arm's-length
transaction with an unrelated third party.
All capitalized terms which are not defined herein shall have the meaning
stated in the Loan Agreement by and between Carbon Capital Mortgage Partners,
L.P., as Lender, and HOB Marina City Partners, L.P., as Borrower, executed May
2, 1997.
3. General Authority of General Partner. Article V of the Partnership
------------------------------------
Agreement is hereby amended to renumber the current subsection (c) of
Section 5.2 to subsection (d) and to add a new subsection (c) as
follows:
(c) to take any and all actions necessary to maintain the
Partnership's status as a Single Purpose Entity.
4. Counterparts. This Second Amendment may be executed in multiple
------------
counterparts, each of which shall be an original, but all of which shall
constitute one instrument.
5. Other Terms. Except as specifically modified hereby, all other terms,
-----------
conditions and provisions of the Partnership Agreement shall remain in
full force and effect as of the date thereof.
6. Binding Effect. This agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and
assigns.
(Signature Page immediately follows.)
3
<PAGE>
GENERAL PARTNER:
HOB MARINA CITY, INC., a Delaware
corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LIMITED PARTNERS:
MARKS THEATER INVESTMENT, L.L.C., an
Illinois limited liability company
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
PLATINUM BLUES CHICAGO, L.L.C.,
an Illinois limited liability company
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
HOB CHICAGO, INC.,
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
(Signature Page for Second Amendment to Agreement of Limited Partnership of HOB
Marina City Partners, L.P.)
4
<PAGE>
EXHIBIT 10.25
THIRD AMENDMENT TO AGREEMENT OF LIMITED
PARTNERSHIP AGREEMENT
OF HOB MARINA CITY PARTNERS, L.P.
This Third Amendment to Agreement of Limited Partnership ("Third
Amendment") of HOB Marina City Partners L.P., a Delaware limited partnership
(the "Partnership"), is executed as of the 5th day of January, 2000 by HOB
Marina City, Inc., a Delaware corporation, as General Partner (the "General
Partner"). Capitalized terms used but not otherwise defined herein shall have
the meanings set forth in the Agreement of Limited Partnership among Platinum
Blues Chicago, L.L.C., an Illinois limited liability company ("Platinum"), HOB
Chicago, Inc., a Delaware corporation ("HOB Chicago"), the General Partner and
Marks Theater Investment, L.L.C., an Illinois limited liability company
("Marks") (and successor-in-interest to Niki Development, Corp.), an Illinois
corporation, dated January 29, 1996, as amended by the First Amendment to the
Agreement of Limited Partnership dated December 20, 1996 and the Second
Amendment to Agreement of Limited Partnership dated as of May 1, 1997 (as
amended, the "Partnership Agreement").
1. Recitals
--------
(a) Platinum desires to sell its entire interest as a Limited
Partner of the Partnership (the "Interests") to HOB Chicago;
(b) the transactions contemplated by that certain Purchase
Agreement in Respect of Limited Partnership Interests dated as of
January 5, 2000 (the "Purchase Agreement"), including this Third Amendment,
have been Approved by the Limited Partners;
(c) The General Partner consented to the substitution of HOB
Chicago as a Limited Partner in respect of the Interests;
(d) HOB Chicago desires to purchase the Interests pursuant to
the Purchase Agreement; and
(e) The General Partner desires to reflect the substitution of
HOB Chicago as a Limited Partner in respect of the Interests by amending the
Partnership Agreement in accordance with Section 3.6 of the Partnership
Agreement.
<PAGE>
2. Amendment. The Partnership Agreement is hereby amended to reflect
---------
that HOB Chicago shall be substituted as a Limited Partner in respect of the
Interests. The address of HOB Chicago shall be 6255 Sunset Boulevard, 16th
Floor, West Hollywood, CA 90028. HOB Chicago's Percentage Interest shall be
64%, which reflects HOB Chicago's original Capital Contribution to the
Partnership along with Platinum's Capital Contribution to the Partnership.
3. Other Terms. Except as specifically modified hereby, all other
-----------
terms, conditions and provisions of the Partnership Agreement shall remain in
full force and effect as of the date hereof.
HOB MARINA CITY, INC.,
as General Partner
By: /s/ Joseph C. Kaczorowski
---------------------------
Name: Joseph C. Kaczorowski
Title:
2
<PAGE>
EXHIBIT 10.26
PURCHASE AGREEMENT
IN RESPECT OF
LIMITED PARTNERSHIP INTERESTS
This agreement (the "Agreement") is entered into as of January 5, 2000
by and between Platinum Blues Chicago, L.L.C., an Illinois limited liability
company ("Seller"), and HOB Chicago, Inc., a Delaware corporation ("Buyer").
Capitalized terms used but not otherwise defined herein shall have the meanings
set forth in the Agreement of Limited Partnership of HOB Marina City Partners,
L.P. (the "Partnership") among Seller, Buyer, HOB Marina City, Inc., a Delaware
corporation (the "General Partner"), and Marks Theater Investment, L.L.C., an
Illinois limited liability company ("Marks") (and successor-in-interest to Niki
Development, Corp., an Illinois corporation), dated January 29, 1996, as amended
by the First Amendment to the Agreement of Limited Partnership dated December
20, 1996 and the Second Amendment to Agreement of Limited Partnership dated as
of May 1, 1997 (as amended, the "Partnership Agreement").
RECITALS
--------
WHEREAS, pursuant to the Partnership Agreement, Seller made a capital
contribution to the Partnership, and the Partnership issued to Seller an
interest as a Limited Partner in the Partnership;
WHEREAS, Seller desires to sell its entire interest as a Limited
Partner of the Partnership (the "Interests") to Buyer and Buyer wishes to
purchase such Interests pursuant to Section 12.1 of the Partnership Agreement;
WHEREAS, the transactions contemplated herein have been Approved by
the Limited Partners in accordance with Section 8.2(a) of the Partnership
Agreement, and such approval is attached hereto as Exhibit A; and
---------
WHEREAS, the General Partner will consent to the substitution of Buyer
as a Limited Partner in respect of such Interests;
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
<PAGE>
AGREEMENT
---------
1. Transfer of Percentage Interests. Seller will sell, assign,
--------------------------------
transfer and deliver to Buyer all of its Interests in consideration of the
payment by the Buyer of the Purchase Price (as defined below), payable in full
on the Closing Date as provided in this Agreement. On the Closing Date, Buyer
will pay to Seller, or to its order, the cash amount of $5,950,037 (the "Cash
Payment") and deliver 802,469 shares of Class D-2 Preferred Stock, $.01 par
value per share of HOB Entertainment, Inc., a Delaware corporation ("HOB
Entertainment"), valued at $1.62 per share (the "HOB Shares"), the Cash Payment
and the HOB Shares representing the full purchase price (the "Purchase Price")
for the Interests calculated in accordance with Section 12.1 of the Partnership
Agreement.
2. Closing and Payment.
-------------------
2.1 Closing Date. The sale and purchase of the Interests
pursuant to this Agreement shall close (the "Closing") in the offices of Latham
& Watkins at 633 West Fifth Street, Suite 4000, Los Angeles, California on
January 5, 2000, or at such other place, time or date as mutually may be agreed
to by Buyer and Seller (the "Closing Date").
2.2 Deliveries at Closing. At the Closing, the following
shall occur:
2.2.1 Seller and Buyer shall execute and deliver to
each other and to the General Partner an Assignment of Partnership Interests in
the form attached hereto as Exhibit B (the "Assignment of Partnership
---------
Interests"), pursuant to which the Interests to be sold hereunder shall be
transferred to Buyer free and clear of all liens and encumbrances, but subject
to the terms and provisions of the Partnership Agreement;
2.2.2 Buyer shall pay to Seller, by wire transfer of
immediately available funds, the Cash Payment;
2.2.3 Buyer shall deliver to Seller, and at Seller's
written direction, Craig Duchossois ("Seller's Designee") certificates
evidencing and representing 185,185 HOB Shares, in the case of Seller, and
617,284 shares, in the case of Seller's Designee, and containing thereon
applicable legends conforming to the requirements of federal and state
securities laws;
2.2.4 Seller and Seller's Designee shall deliver to
Buyer an executed counterpart to HOB Entertainment's Amended and Restated
Stockholder Agreement whereby each of Seller and Seller's Designee becomes a
party to and bound by the HOB Entertainment's Amended and Restated Stockholder
Agreement;
2.2.5 The General Partner shall deliver to Buyer and
Seller its written consent to the substitution of Buyer as a Limited Partner in
respect of the Interests, substantially in a form attached hereto as Exhibit C;
---------
2.2.6 HOB Marina City, Inc. and Seller shall execute
and deliver to each other the Agreement of Settlement and Mutual Release;
2
<PAGE>
2.2.7 The General Partner shall deliver to Buyer and
Seller a Third Amendment to the Partnership Agreement, substantially in the form
attached hereto as Exhibit D and in accordance with Section 3.6 of the
---------
Partnership Agreement, reflecting the substitution of Buyer as Limited Partner
in respect of the Interests; and
2.2.8 HOB Entertainment, Seller and Craig Duchossois
shall execute and deliver to each other the Lock-Up Agreement with respect to
the HOB Shares.
3. Representations and Warranties.
------------------------------
3.1 Of Buyer. Buyer represents and warrants to Seller as
--------
follows:
3.1.1 Buyer is a corporation duly organized and
validly existing under the laws of the State of Delaware, and has full power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder;
3.1.2 HOB Entertainment has taken all actions
necessary to duly authorize the issuance of the HOB Shares which when issued in
accordance with the terms of this Agreement will be validly issued, fully paid
and nonassessable, and free and clear of any liens, claims and encumbrances
except as set forth in the Amended and Restated Stockholders Agreement of HOB
Entertainment, dated as of September 10, 1999;
3.1.3 HOB Entertainment has issued shares of its
Class D-2 Preferred Stock in a private offering on September 10, 1999 and
pursuant to a related preemptive rights offering will issue shares of its Class
D-2 Preferred Stock at a purchase price of $1.62 per share. HOB Entertainment
has made no other issuances of its Class D-2 Preferred Stock;
3.1.4 The execution, delivery and performance of
this Agreement and the transactions contemplated herein have been duly
authorized by all requisite corporate action and no other acts or other
proceedings on the part of the Buyer or its shareholders are necessary to
authorize this Agreement or the transactions contemplated herein. This Agreement
has been duly and validly executed by Buyer and constitutes a legal, valid and
binding obligation of Buyer, enforceable against it in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at law);
3.1.5 Neither the execution and delivery of this
Agreement nor the performance by Buyer of its obligations hereunder will result
in (i) a violation of or conflict with its organizational documents; (ii) a
material breach of or default under any contract, agreement, indebtedness,
lease, commitment, license, franchise, permit, authorization, or concession to
which it is a party or by which it is bound; or (iii) a violation of any
statute, law, ordinance, rule, regulation, order, judgment, or decree;
3.1.6 Any consent, approval, or authorization of, or
declaration, filing, or registration with, any governmental or regulatory
authority, or any other person or
3
<PAGE>
entity, required to be made or obtained by Buyer in connection with the
execution, delivery and performance of this Agreement has been made or obtained;
3.1.7 Buyer is acquiring the Interests to be
acquired by it hereunder solely for its own account, not as a nominee or agent
for any other person or entity, and not with a view to, or for offer or sale in
connection with, any distribution thereof that would be in violation of the
securities laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise dispose of
all or any part of said Interests under the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws, or under any
exemption from such registration available under the Securities Act and other
applicable state securities laws;
3.1.8 Buyer is knowledgeable, sophisticated, and
experienced in business and financial matters such that it is capable of
evaluating the merits and risks of the prospective investment in the Interests
to be acquired by it hereunder, is able to bear the economic risk of an
investment in Interests to be acquired by it hereunder, and is able to afford
the complete loss of such investment;
3.1.9 Buyer is an "accredited investor" as defined
in Regulation D under the Securities Act; and
3.1.10 Buyer acknowledges that the Partnership
Agreement limits the transferability of the Interests, that transfers may be
made only in compliance with applicable provisions of the Partnership Agreement
and applicable federal and state securities laws, and that there is no market
for the sale or trade of the Interests.
3.2 Of Seller. Seller represents and warrants to Buyer as
---------
follows:
3.2.1 Seller is a limited liability company duly
organized and validly existing under the laws of the State of Illinois, and has
full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder;
3.2.2 The execution, delivery and performance of
this Agreement and the transactions contemplated herein have been duly
authorized by all requisite action and no other proceedings on the part of the
Seller are necessary to authorize this Agreement or the transactions
contemplated herein. This Agreement has been duly and validly executed by Seller
and constitutes a legal, valid and binding obligation of Seller, enforceable
against it in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law);
3.2.3 Neither the execution and delivery of this
Agreement nor the performance by Seller of its obligations hereunder will result
in (i) a violation of or conflict with its organizational documents; (ii) a
material breach of or default under any contract, agreement, indebtedness,
lease, commitment, license, franchise, permit, authorization, or
4
<PAGE>
concession to which it is a party or by which it is bound; or (iii) a violation
of any statute, law, ordinance, rule, regulation, order, judgment, or decree;
3.2.4 Any consent, approval, or authorization of, or
declaration, filing, or registration with, any governmental or regulatory
authority, or any other person or entity, required to be made or obtained by
Seller in connection with the execution, delivery and performance of this
Agreement has been made or obtained;
3.2.5 Seller has valid and legal title to the
Interests and the Interests are not subject to any lien or adverse claim;
3.2.6 Each of Seller and Seller's Designee is
acquiring any HOB Shares that may be acquired by it hereunder solely for its own
account, not as a nominee or agent for any other person or entity, and not with
a view to, or for offer or sale in connection with, any distribution thereof
that would be in violation of the securities laws of the United States of
America or any state thereof, without prejudice, however, to its right at all
times to sell or otherwise dispose of all or any part of said HOB Shares under
the Securities Act of 1933, as amended (the "Securities Act"), and applicable
state securities laws, or under any exemption from such registration available
under the Securities Act and other applicable state securities laws;
3.2.7 Each of Seller and Seller's Designee is
knowledgeable, sophisticated, and experienced in business and financial matters
such that it is capable of evaluating the merits and risks of the prospective
investment in the HOB Shares to be acquired by it hereunder, is able to bear the
economic risk of an investment in Interests to be acquired by it hereunder, and
is able to afford the complete loss of such investment;
3.2.8 Each of Seller and Seller's Designee is an
"accredited investor" as defined in Regulation D under the Securities Act; and
3.2.9 Seller acknowledges for itself and on behalf
of Seller's Designee that transfers of the HOB Shares may be made only in
compliance with applicable federal and state securities laws, and that there is
no market for the sale or trade of the HOB Shares.
5
<PAGE>
4. Indemnification. To the extent Seller, as the transferring
---------------
Partner of the Interests is not released from further obligations under the
Partnership Agreement after the Closing (the "Further Obligations"), Buyer
agrees to indemnify and hold harmless Seller and its officers, directors,
employees and agents for any and all liabilities, losses, damages, claims, costs
and expenses, interest, awards, judgments and penalties (including reasonable
attorneys' fees and expenses) actually suffered or incurred by them arising out
of or resulting from any and all Further Obligations. For the avoidance of
doubt, the Further Obligations do not include any obligations of Seller under
the Partnership Agreement prior to the Closing.
5. Seller's Acknowledgment. Seller acknowledges for itself and on
-----------------------
behalf of Seller's Designee that any decision to pursue an initial public
offering of capital stock of HOB Entertainment shall be made by the Board of
Directors of HOB Entertainment and no assurance has been or can be provided
regarding whether or not such a transaction will be pursued or successfully
completed or the timing thereof.
6. Miscellaneous.
-------------
6.1 Expenses. All costs and expenses, including fees and
--------
disbursements of counsel incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses; provided, however, the Buyer shall pay or reimburse the
Partnership for all reasonable expenses of the Partnership in connection with
the transaction contemplated hereby.
6.2 Further Assurances. Each of Seller and Buyer agrees to
------------------
cooperate with one another in executing, delivering and otherwise providing such
additional documents, instruments or items as shall be necessary or appropriate
under and pursuant to the terms of this Agreement to effectuate the sale,
assignment, transfer and delivery, from Seller to Buyer, of the Interests to be
acquired by Buyer hereunder.
6.3 Counterparts. This Agreement may be executed
------------
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same instrument.
6.4 No Assignment; No Third-Party Beneficiaries. No party
-------------------------------------------
shall be entitled to assign its rights or obligations under this Agreement
without the prior written consent of every other party, which consent may be
withheld in each party's sole discretion. This Agreement has been and is made
solely for the benefit of Seller and Buyer and their respective successors and
assigns, and no other person shall acquire or have any right under or by virtue
of this Agreement.
6.5 Attorneys' Fees. In the event of any litigation between
---------------
the parties based upon, arising out of, or in any way relating to this
Agreement, the prevailing party shall be entitled to recover all of its costs
and expenses (including without limitation attorneys' fees) from the non-
prevailing party.
6.6 Entire Agreement; Governing Law. This Agreement
-------------------------------
incorporates the entire understanding of the parties and supersedes all previous
agreements should they exist,
6
<PAGE>
and shall be governed by, and construed in accordance with, the laws of the
State of Delaware, without regard to principles of conflicts of law.
(Signature Page Follows)
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties hereto effective as of the date first written above.
PLATINUM BLUES CHICAGO, L.L.C.
By:
---------------------------
Name:
Title:
HOB CHICAGO, INC.
By:
---------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.27
ADVISORY AGREEMENT
------------------
This ADVISORY AGREEMENT is made and entered into as of this 31st day
of January 2000 (the "Effective Date"), by and between (a) Wm. Christopher Gorog
("Gorog"); (b) HOB Entertainment, Inc. ("HOB"); (c) Chase Capital Partners,
Chase/HOB 1999 Partners (GC), L.L.C., Chase/HOB 1998 Partners (GC), L.L.C., CB
Capital Investors, LLC, and Chase Venture Capital Associates, L.P. (collectively
"Chase"); (d) First Union Investors, Inc. ("First Union"); and (e) J. H. Whitney
& Co., J. H. Whitney III, L.P., Whitney Strategic Partners III, L.P. and J. H.
Whitney Market Value Fund, L.P. (collectively, "Whitney," and Chase, First Union
and Whitney collectively referred to as the "Investors").
WHEREAS, Gorog performed certain advisory and consulting services (the
"Services") for the benefit of HOB and the Investors prior to and in connection
with HOB's acquisition of Universal Concerts, Inc. and certain of its affiliates
(the "UCI Acquisition"); and
WHEREAS, HOB, the Investors and Gorog have agreed to enter into this
Advisory Agreement to compensate Gorog for his provision of the Services.
NOW, THEREFORE, in consideration of the execution and delivery of this
Agreement and the mutual promises contained herein, and other good and valuable
consideration, the parties agree as follows:
1. Compensation. In consideration of the Services rendered by Gorog:
------------
(a) On the Effective Date, Gorog shall be paid an amount equal to
$808,937 in respect of the Services and $153,063 in reimbursement of expenses
incurred by Gorog in connection with the UCI Acquisition, of which (i) HOB shall
pay Gorog $288,600, (ii) Chase shall pay Gorog $306,100, (iii) Whitney shall pay
Gorog $306,100, and (iv) First Union shall pay Gorog $61,200.
(b) On the Effective Date, Gorog and HOB shall also enter into a
stock option agreement, dated as of the date hereof, in the form annexed hereto
as Exhibit A (the "Stock Option Agreement"), pursuant to which Gorog shall
---------
receive options to purchase an aggregate amount of 2,675,000 shares of HOB
Common Stock (the "Stock Options"). The Stock Options are subject solely to the
terms and conditions of the Stock Option Agreement and HOB's 1993 Amended and
Restated Stock Option Plan (the "Plan"). Contemporaneously herewith, Gorog
agrees to become a party to the Amended and Restated Stockholders Agreement,
dated as of September 10, 1999, by and among HOB and the investors listed
therein (as amended from time to time, the "Stockholders Agreement"), and on the
Effective Date, Gorog shall execute a counterpart of the Stockholders Agreement.
Each of the Investors agrees, severally and not jointly, upon any exercise of
the Stock Options by Gorog, to sell to HOB, at the exercise price for such Stock
Options in the Stock Option Agreement and for the same form of consideration
utilized by Gorog, a number of shares of HOB Common Stock equal to the
percentage set forth opposite its name below of the shares of HOB Common Stock
to be received by Gorog upon such exercise:
<PAGE>
Investor Percentage
-------- ----------
Chase 28.126%
Whitney 28.126%
First Union 17.579%
Each Investor agrees to exercise its right to convert into HOB Common Stock
securities convertible into, or exercisable for, HOB Common Stock to the extent
necessary to comply with its obligations in the preceding sentence. No failure
by any Investor to discharge its obligations to HOB under this paragraph 1(b)
will relieve or otherwise affect HOB's obligations to Gorog under the Stock
Option Agreement.
(c) HOB and the Investors shall seek to resolve or eliminate claims
("E&Y Claims") by Ernst & Young International or its agents, subsidiaries,
predecessors, successors or affiliates, including Kenneth Leventhall ("Ernst &
Young"), against Gorog for services allegedly rendered to Gorog in connection
with the UCI Acquisition, and Gorog shall support their efforts to resolve or
eliminate the E&Y Claims. Gorog shall pay fifty percent (50%), HOB shall pay
fifteen percent (15%), Chase shall pay fifteen and 91/100 percent (15.91%),
Whitney shall pay fifteen and 91/100 percent (15.91%), and First Union shall pay
three and 18/100 percent (3.18%), of any resolution of any E&Y Claim(s) which
requires the payment of any monies to Ernst & Young. The terms of any
resolution of any E&Y Claim require the approval of each of Gorog, HOB, Chase,
Whitney and First Union; provided, however, that the parties have pre-approved a
cash settlement of all E&Y Claims for up to one hundred fifty thousand dollars
($150,000), with each of the parties paying the percentage set forth in the
previous sentence of such settlement.
2. HOB Board. At each election of directors of HOB, HOB and the Investors
---------
will consult each other and will vote their respective shares of HOB's voting
stock in favor of the election of Gorog to the Board of Directors of HOB, so
long as (i) Gorog is the record owner or beneficially owns (or has the right to
acquire) at least 500,000 shares of stock of HOB (as such number may be adjusted
to account for stock splits, reverse stock splits and other recapitalizations);
and (ii) Gorog is not otherwise engaged in a concert promotion business in
competition with HOB. While serving as a director of HOB, Gorog will be entitled
to indemnification rights, and coverage under any directors and officers and/or
any errors and omissions insurance policy, and to other rights and benefits
accorded to directors, to the same extent as the other directors of HOB.
Notwithstanding anything in this Agreement to the contrary, the obligations of
HOB and the Investors set forth in this paragraph 2 shall terminate upon the
completion of a Qualified Public Offering or a Qualified Sale (as such terms are
defined in the Stockholders Agreement).
3. Co-Sale. If at any time prior to a Qualified Public Offering or a
-------
Qualified Sale (as such terms are defined in the Stockholders Agreement), any of
the Investors party to that certain Co-Sale Agreement dated as of September 10,
1999 by and among such Investors and certain other stockholders of the Company
(the "Co-Sale Agreement") is an Originating Stockholder (as such term is defined
in the Co-Sale Agreement) with respect to a transaction subject to Section 2 of
the Co-Sale
2
<PAGE>
Agreement, such Investor will afford Gorog the opportunity to participate in
such transaction to the same extent as if Gorog was a Stockholder under the Co-
Sale Agreement; provided, however, that if any party to the Co-Sale Agreement
that is not an Investor under this Agreement elects to participate in such
transaction, the number of shares to be sold by such party shall not be reduced
without such party's consent to be treated as a "Consenting Seller", as set
forth below. Any such party who does not consent to have its participation
reduced is referred to as a "Non-Consenting Seller"; any such party who consents
to have its participation reduced is referred to as a "Consenting Seller". If
Gorog elects to participate in such sale, Gorog, any Investor participating in
such sale and any Consenting Seller shall be entitled to sell its Pro-Rata
Portion of the Available Shares. The term "Pro-Rata Portion" shall mean, with
respect to Gorog, any Investor participating in such sale and any Consenting
Seller, a fraction the numerator of which is the number of Shares (as defined in
the Co-Sale Agreement) held by such person, and the denominator of which is the
aggregate number of Shares held by Gorog, all Investors participating in such
sale and all Consenting Sellers. The term "Available Shares" shall mean the
total number of Shares to be sold in such transaction less the amount to be sold
by all Non-Consenting Sellers.
4. Relationship.
------------
(a) Gorog's status with respect to HOB and each of the Investors is
and was that of an independent contractor rather than an employee of HOB or any
of the Investors and it is understood and agreed that none of HOB or any of the
Investors will withhold any federal, state or local income, Social Security,
unemployment or other taxes on account of payments to Gorog hereunder, but will
remit the full amount of such payments to Gorog and report them on federal tax
form 1099. All estimated tax payments and employment tax obligations arising
from payments hereunder are agreed to be those of Gorog.
(b) Except as may hereafter be agreed upon in writing, Gorog shall
not have the authority to obligate or commit HOB in any manner whatsoever.
5. Gorog Release. Gorog, on behalf of himself and each of the Gorog
-------------
Releasees (as hereinafter defined) (collectively, the "Gorog Releasors"), for
good and valuable consideration the receipt and adequacy of which is hereby
acknowledged, unconditionally and forever releases and discharges HOB, House of
Blues Concerts, Inc. (formerly named Universal Concerts, Inc.), Chase, First
Union, Whitney, and their respective partners, officers, directors,
stockholders, representatives, affiliates, subsidiaries, predecessors,
successors, co-investors, controlling persons, agents and employees, past and
present, and any other person or entity acting by, through, or in concert with
them, or any of them (collectively the "HOB/Investor Releasees") of and from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, rights, obligations, losses, liabilities, costs, expenses,
attorneys' fees, and demands whatsoever, whether known or unknown, contingent or
absolute, suspected or unsuspected, disclosed or undisclosed, asserted or
unasserted, hidden or concealed, matured or unmatured, material or immaterial,
whether individual, class, derivative or representative, whether in law,
admiralty or equity, or of any other type or in any other capacity, against each
of the respective HOB/Investor Releasees,
3
<PAGE>
which the Gorog Releasors or any of them ever had, now have or hereafter can,
shall or may have, for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the Effective Date in any way
arising out of, based upon or related to the UCI Acquisition or any other plans,
discussions or proposals by or among any of the parties hereto with respect to a
possible transaction involving Universal Concerts, Inc., except for any claim
arising out of, based upon or related to this Agreement or the Stock Option
Agreement. The Gorog Releasors, and each of them, intend that this release (and
the covenant not to sue set forth in paragraph 6 of this Agreement) shall be
effective as a full and final accord and satisfaction, and as a bar to all
actions, causes of action, claims, obligations, costs, expenses, attorneys'
fees, damages, losses, liabilities and demands of or against any HOB/Investor
Releasee of any nature, character or kind, known or unknown, suspected or
unsuspected, in any way arising out of, based upon or related to the UCI
Acquisition or any other plans, discussions or proposals by or among any of the
parties hereto with respect to a possible transaction involving Universal
Concerts, Inc., except for any claim pursuant to, arising out of, or for breach
of, this Agreement or the Stock Option Agreement. The Gorog Releasors, and each
of them, represent and warrant that he/she/it/they have not assigned or
transferred any interest in any claim released by this paragraph 5
(collectively, "Released Gorog Claims"), and, further, that any Gorog Releasor
who breaches the foregoing representation and warranty shall indemnify and hold
harmless any and all HOB/Investor Releasees, and each of them, of, from and
against all liabilities, claims, demands, damages, costs, expenses, and
attorneys' fees incurred by such HOB/Investor Releasee as a result of any person
asserting any such assignment or transfer in violation of this paragraph's
representation and warranty. It is the intention of the parties to this
Agreement, and each of them, that this indemnity does not require payment as a
condition precedent to recovery. The Gorog Releasors, and each of them,
acknowledge that they are familiar with Section 1542 of the California Civil
Code, which provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
The Gorog Releasors, and each of them, expressly waive and relinquish any and
all rights and benefits which they may have under, or which may be conferred on
them by, the provisions of Section 1542 of the California Civil Code, as well as
under any other state or federal statute or common law principle of similar
effect, to the fullest extent that they may lawfully waive such rights or
benefits pertaining to the released matters. The Gorog Releasors, and each of
them, intend that this release shall be and will remain in effect as a full and
complete release notwithstanding the discovery or existence of any additional or
different claims or facts arising out of the released matters.
6. Gorog's Covenant Not To Sue. Gorog, on behalf of himself and each of
---------------------------
the Gorog Releasees (as hereinafter defined), covenants and agrees that he and
they will never initiate any suit or action at law or otherwise against any of
the HOB/Investor Releasees, or institute, prosecute, induce, encourage, assist,
participate in or in any way aid any other person or entity to institute or
prosecute any litigation, claim, demand, action or cause of action against any
of the HOB/Investor Releasees, for any relief, including without limitation,
damages, costs, expenses or compensation for
4
<PAGE>
or on account of any damage, loss or injury either to person or property, or
both, or for breach of any agreement, obligation or duty, whether developed or
undeveloped, resulting or to result, known or unknown, which any of the Gorog
Releasors ever had, now has, or which they or their successors or assigns
hereafter can, shall or may have for or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the Effective Date in any way
arising out of, based upon or related to the UCI Acquisition or any other plans,
discussions or proposals by or among any of the parties hereto with respect to a
possible transaction involving Universal Concerts, Inc., excepting only claims
pursuant to, arising out of, or for breach or enforcement of this Agreement or
the Stock Option Agreement. The Gorog Releasees, and each of them, acknowledge
and agree that if he/she/it/they hereafter commence any suit arising out of,
based upon, or relating to any Released Gorog Claim, the Gorog Releasee who
violates the provision of this paragraph 6 shall pay to such HOB/Investor
Releasee, in addition to any other damages caused thereby, all attorneys' fees
and costs incurred by such HOB/Investor Releasee, and each of them, in defending
or otherwise responding to such suit or claim.
7. HOB And The Investors' Release. HOB and the Investors on behalf of
------------------------------
themselves and each of the HOB/Investor Releasees (collectively, the
"HOB/Investor Releasors"), for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, unconditionally and forever release
and discharge Gorog and each of his heirs, successors, representatives,
executors, administrators, affiliates, predecessors, agents and assigns, past
and present and any person or entity acting by, through, or in concert with them
or any of them (collectively, including Gorog, the "Gorog Releasees"), from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, rights, obligations, losses, liabilities, costs, expenses,
attorneys' fees, and demands whatsoever, whether known or unknown, contingent or
absolute, suspected or unsuspected, disclosed or undisclosed, asserted or
unasserted, hidden or concealed, matured or unmatured, material or immaterial,
whether individual, class, derivative or representative, whether in law,
admiralty or equity, or of any other type or in any other capacity, against each
of the Gorog Releasees or any of them, which the HOB/Investor Releasors ever
had, now have or hereafter can, shall or may have, for, upon, or by reason of
any matter, cause or thing whatsoever from the beginning of the world to the
Effective Date in any way arising out of, based upon or related to the UCI
Acquisition, or any other plans, discussions or proposals by or among any of the
parties hereto with respect to a possible transaction involving Universal
Concerts, Inc., except for any claim arising out of, based upon or related to
this Agreement or the Stock Option Agreement. The HOB/Investor Releasors, and
each of them, intend that this release (and the covenant not to sue set forth in
paragraph 8 of this Agreement) shall be effective as a full and final accord and
satisfaction, and as a bar to all actions, causes of action, claims,
obligations, costs, expenses, attorneys' fees, damages, losses, liabilities and
demands of or against any Gorog Releasee of any nature, character or kind, known
or unknown, suspected or unsuspected, in any way arising out of, based upon or
related to the UCI Acquisition or any other plans, discussions or proposals by
or among any of the parties hereto with respect to a possible transaction
involving Universal Concerts, Inc., except for any claim pursuant to, arising
out of, or for breach of, this Agreement or the Stock Option Agreement. The
HOB/Investor Releasors, and each of them, represent and warrant that
he/she/it/they have not assigned or transferred any interest in any claim
released by this paragraph
5
<PAGE>
7 (collectively, "Released HOB/Investor Claims"), and, further, that any
HOB/Investor Releasor who breaches the foregoing representation and warranty
shall indemnify and hold harmless any and all Gorog Releasees, and each of them,
of, from and against all liabilities, claims, demands, damages, costs, expenses,
and attorneys' fees incurred by such Gorog Releasee as a result of any person
asserting any such assignment or transfer in violation of this paragraph's
representation and warranty. It is the intention of the parties to this
Agreement, and each of them, that this indemnity does not require payment as a
condition precedent to recovery. The HOB/Investor Releasors, and each of them,
acknowledge that they are familiar with Section 1542 of the California Civil
Code, which provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.
The HOB/Investor Releasors, and each of them, expressly waive and relinquish any
and all rights and benefits which they may have under, or which may be conferred
on them by, the provisions of Section 1542 of the California Civil Code, as well
as under any other state or federal statute or common law principle of similar
effect, to the fullest extent that they may lawfully waive such rights or
benefits pertaining to the released matters. The HOB/Investor Releasors, and
each of them, intend that this release shall be and will remain in effect as a
full and complete release notwithstanding the discovery or existence of any
additional or different claims or facts arising out of the released matters.
8. HOB And The Investors' Covenant Not To Sue. HOB and the Investors each
------------------------------------------
covenant and agree on behalf of itself and each of its respective HOB/Investor
Releasees that it and they will never initiate any suit or action at law or
otherwise against any of the Gorog Releasees, or institute, prosecute, induce,
encourage, assist, participate in or in any way aid any other person or entity
to institute or prosecute any litigation, claim, demand, action or cause of
action against any of the Releasees, for any relief, including without
limitation, damages, costs, expenses or compensation for or on account of any
damage, loss or injury either to person or property, or both, or for breach of
any agreement, obligation or duty, whether developed or undeveloped, resulting
or to result, known or unknown, which any of the HOB/Investor Releasors ever
had, now has, or which hereafter can, shall or may have for or by reason of any
matter, cause or thing whatsoever from the beginning of the world to the
Effective Date in any way arising out of, based upon or related to the UCI
Acquisition or any other plans, discussions or proposals by or among any of the
parties hereto with respect to a possible transaction involving Universal
Concerts, Inc., excepting only claims pursuant to, arising out of, or for breach
or enforcement of this Agreement or the Stock Option Agreement. The HOB/Investor
Releasees, and each of them, acknowledge and agree that if he/she/it/they
hereafter commence any suit arising out of, based upon, or relating to any
Released HOB/Investor Claim, the HOB/Investor Releasee who violates the
provision of this paragraph 8 shall pay to such Gorog Releasee, in addition to
any other damages caused thereby, all attorneys' fees and costs incurred by such
Gorog Releasee, and each of them, in defending or otherwise responding to such
suit or claim.
6
<PAGE>
9. Regulatory and Filing Obligations. Each party hereto shall separately
---------------------------------
undertake all actions necessary or appropriate to satisfy any regulatory or
filing obligations such party may have resulting from the execution of this
Agreement or the performance of any obligations hereunder. Further, each party
holds harmless and indemnifies the other from and against any liabilities
arising from such party's own failure to properly take such action or actions.
10. Confidentiality.
---------------
(a) Except as may be required by law or as may be specifically
authorized by HOB in writing or in connection with the enforcement of this
Agreement, Gorog shall not directly or indirectly in any way utilize or disclose
any information relating to HOB or its business which he has acquired or
acquires or has been given access to, unless Gorog shall have demonstrated that
such information was, at the time of such utilization or disclosure and not as a
result of any action by Gorog or by any other party in breach of such party's
obligations to HOB, in the public domain.
(b) The parties to this Agreement agree that the terms of this
Agreement shall be held strictly confidential and shall not be divulged to any
non-party to this Agreement, except counsel and accountants and other financial
advisors for the parties hereto. Notwithstanding the foregoing sentence, the
parties hereto may divulge the existence and terms of this Agreement if required
to do so to comply with any legal or regulatory requirements, including any
court order in connection with a judicial proceeding, or if required to do so in
connection with an administrative proceeding (including an audit by the Internal
Revenue Service) or in connection with the filing of tax returns, or in
connection with the enforcement of this Agreement.
11. Assignment. Gorog may not assign any of his rights or delegate any of
----------
his duties or obligations under this Agreement. The rights and obligations of
each of HOB and the Investors under this Agreement shall inure to the benefit of
and shall be binding upon the successors and assigns of each of them. Each of
HOB and each Investor may not assign its rights or obligations under this
Agreement except to an entity that succeeds to all or substantially all of such
entity's assets.
12. Arbitration. ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING TO,
-----------
OR CONCERNING ANY INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF THIS
AGREEMENT, SHALL BE SETTLED BY ARBITRATION TO BE HELD IN LOS ANGELES COUNTY,
CALIFORNIA, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES THEN IN EFFECT
OF THE AMERICAN ARBITRATION ASSOCIATION AS MODIFIED HEREIN. THE PARTY OR
PARTIES SEEKING ARBITRATION SHALL COLLECTIVELY SUBMIT WITH ITS OR THEIR DEMAND
THE NAME, ADDRESS AND TELEPHONE NUMBER OF ONE ARBITRATOR. THE OPPOSING PARTY OR
PARTIES SHALL COLLECTIVELY SUBMIT WITH ITS OR THEIR RESPONSE THE NAME, ADDRESS
AND TELEPHONE NUMBER OF ONE ARBITRATOR. THE TWO SELECTED ARBITRATORS SHALL THEN
CONFER PROMPTLY WITH ONE ANOTHER IN ORDER TO NAME A THIRD DIS-INTERESTED NEUTRAL
ARBITRATOR. IF THE TWO SELECTED ARBITRATORS ARE UNABLE TO AGREE UPON THE
SELECTION OF THE THIRD NEUTRAL ARBITRATOR WITHIN THIRTY DAYS THEN
Page 7
<PAGE>
THE AAA SHALL BE AUTHORIZED TO SELECT A NEUTRAL ARBITRATOR. THE ARBITRATORS MAY
GRANT INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. EXCEPT AS
REQUIRED BY LAW OR TO ENTER OR ENFORCE A DECISION OF THE ARBITRATORS, THE
ARBITRATION SHALL BE MAINTAINED AS STRICTLY CONFIDENTIAL BY ALL PARTIES, THE
ARBITRATORS AND THE AAA. DISCOVERY SHALL BE PERMITTED TO THE EXTENT PERMISSIBLE
IN CIVIL ACTIONS. THE DECISION OF THE ARBITRATORS SHALL BE FINAL, CONCLUSIVE
AND BINDING ON THE PARTIES TO THE ARBITRATION. JUDGMENT MAY BE ENTERED ON THE
ARBITRATORS' DECISION IN ANY COURT HAVING JURISDICTION. THE ARBITRATORS SHALL
HAVE THE AUTHORITY TO INCLUDE, AS AN ITEM OF DAMAGES, THE COSTS OF ARBITRATION,
INCLUDING LEGAL FEES AND EXPENSES, INCURRED BY THE PREVAILING PARTY.
13. Notices. Notices or process required to be given hereunder shall be
-------
sent by certified mail (return receipt requested) and also by first class mail
and shall be deemed given or received 3 days after mailing thereof, to:
If to Gorog:
Wm. Christopher Gorog
4211 Toluca Road
Toluca Lake, CA 91602
with a copy by mail or fax to:
O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067-6035
Fax No.: (310) 246-6779
Attention: Richard R. Ross
If to HOB:
HOB Entertainment, Inc.
6255 Sunset Blvd., 16th Floor
Hollywood, California 90028
Fax No.: (323) 769-4780
Attention: Daniel L. Fishkin
With a copy by mail or fax to:
8
<PAGE>
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Fax No.: 213-891-8763
Attention: John Jameson, Esq.
If to Chase:
Chase Venture Capital Associates, L.P.
108 South Frontage Road, West
Suite 307
Vail, Colorado 81657
Fax No.: 970-476-7900
Attention: David L. Ferguson
If to First Union:
First Union Investors, Inc.
One First Union Center, 5th Floor
301 South College Street
Charlotte, NC 28288-0732
Fax No.:
Attn: Mr. James C. Cook
with a copy by mail or fax to:
Kennedy Covington Lobdell & Hickman, LLP
Bank of America Corp. Ctr.
Suite 4200
100 North Tryon Street
Charlotte, NC 28202-4006
Fax No.: 704-331-7598
Attention: Henry W. Flint, Esq.
If to Whitney:
c/o J. H. Whitney & Co.
177 Broad Street, 15th Floor
Stamford, CT. 06901
Fax No.: (203) 973-1422
Attn: Mr. Peter M. Castleman
Mr. Daniel J. O'Brien
David A. Scherl, Esq.
Kevin Curley, Esq.
9
<PAGE>
with a copy by mail or fax to:
Morrison Cohen Singer & Weinstein LLP
750 Lexington Avenue
New York, New York 10022
Fax No. (212) 735-8708
Attn: Donald H. Chase, Esq.
Andrew M. Arsiotis, Esq.
14. Miscellaneous Provisions.
------------------------
(a) Governing Law. This Agreement shall be governed, construed,
-------------
interpreted, and enforced in accordance with the substantive law of the State of
California applied to agreements entered into and performed entirely within such
State.
(b) Entire Agreement. This Agreement is the complete and exclusive
----------------
statement of the entire agreement and understanding between all the undersigned
parties with respect to the subject matter hereof. No representations, oral or
otherwise, express or implied, other than those specifically set forth in this
Agreement (including the annexed exhibit) have been made by any party to the
other party regarding the subject matter of this agreement.
(c) Titles and Captions. Paragraph titles or captions contained
-------------------
herein are inserted only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of the Agreement or the intent
of any provision.
(d) Further Assurances. Each of the parties shall take such other
------------------
actions and execute such other documents as may be reasonably necessary to
effectuate this Agreement and the undertakings made herein.
(e) Acknowledgment of Receipt of Consideration. Each party
------------------------------------------
acknowledges receipt of legally sufficient consideration for this Agreement.
(f) Parties. This Agreement shall be binding upon, and shall inure
-------
to the benefit of, the parties hereto and their respective heirs, estates,
successors and assigns.
(g) Non-Waiver of Breach. The waiver by any party of any breach of
--------------------
this Agreement shall not be deemed or construed as a waiver of any other breach,
whether prior, subsequent, or contemporaneous, of this Agreement.
(h) Amendments. This Agreement shall not be suspended, waived,
----------
terminated, amended or modified in any manner except in a writing signed by all
parties to be bound.
(i) Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall
10
<PAGE>
constitute one and the same instrument. Telefacsimile transmissions of any
executed original Agreement or document and/or retransmission of any executed
telefacsimile transmission shall be deemed to be the same as the delivery of an
executed original.
(j) Drafter. For purposes of construing this Agreement, each of the
-------
parties hereto shall be deemed the drafter of this Agreement.
(k) No Acknowledgment Of Liability. Neither the execution and
------------------------------
delivery of this Agreement nor any actions taken by any party pursuant to this
Agreement shall be deemed to constitute any acknowledgment of wrongdoing or
liability on the part of any party to this Agreement.
(l) Legal Counsel. The parties hereto have each been represented by
-------------
legal counsel in connection with this Agreement.
(m) Representations and Warranties. Each of HOB and the Investors
------------------------------
hereby severally, but not jointly, represents and warrants as to itself to Gorog
as follows:
(i) Organization, Existence and Power. Such entity (1) is
---------------------------------
duly organized, validly existing and in good standing under the laws of the
applicable state of organization, and (2) has the power and authority to
execute, deliver and perform its obligations under this Agreement, and as to
HOB, the Stock Option Agreement.
(ii) Authorization; No Contravention. The execution, delivery
-------------------------------
and performance of this Agreement by such entity (and as to HOB, the Stock
Option Agreement): (1) has been duly authorized by all necessary action; (2) do
not and will not contravene the terms of any applicable governing documents of
such entity or any applicable laws; (3) do not and will not conflict with,
contravene, result in any violation or breach of or default under (with or
without the giving of notice or the lapse of time or both) any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument or
arrangement to which the entity is bound.
(iii) Binding Effect; Enforceability. This Agreement (and as
------------------------------
to HOB, the Stock Option Agreement) has been duly executed and delivered by such
entity and constitutes the legal, valid and binding obligation of such entity
enforceable against it in accordance with its terms, except as enforceability
may be limited by applicable bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
WM. CHRISTOPHER GOROG
/s/ Wm. Christopher Gorog
-------------------------------------
HOB ENTERTAINMENT, INC.
By: /s/ Gregory A. Trojan
---------------------------------
Name: Gregory A. Trojan
----------------------------
Title:
CHASE CAPITAL PARTNERS
By:
-----------------------------------
Name:
Title:
CHASE/HOB 1999 PARTNERS (GC), L.L.C.
By: CB Capital Investors, L.P.
Its Managing Member
By: CB Capital Investors, Inc.
Its Managing Partner
By:
------------------------------------
Name:
Title:
12
<PAGE>
CHASE/HOB 1998 PARTNERS (GC), L.L.C.
By: Chase Venture Capital Associates, L.P.
Its Managing Member
By: Chase Capital Partners
Its General Partner
By:
------------------------------------
Name:
Title:
CB CAPITAL INVESTORS, LLC
By: Chase Capital Partners
Its Manager
By:
------------------------------------
Name:
Title:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, General Partner
Its General Partner
By:
-----------------------------------
Name:
Title:
13
<PAGE>
FIRST UNION INVESTORS, INC.
By:
--------------------------------------
Name:
Title:
J. H. WHITNEY & CO.
By: Whitney General Partner, L.L.C.,
Its General Partner
By:
------------------------------
Name:
A Managing Member
J. H. WHITNEY III, L.P.
By: J. H. Whitney Equity Partners III, LLC,
Its General Partner
By:
-----------------------------------
Name:
A Managing Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J. H. Whitney Equity Partners III, LLC,
Its General Partner
By:
--------------------------------
Name:
A Managing Member
14
<PAGE>
J. H. WHITNEY MARKET VALUE FUND, L.P.
By: Whitney Market Value GP, Ltd.
Its General Partner
By:
--------------------------------
Name:
A Managing Member
15
<PAGE>
EXHIBIT 10.28
THE OPTION GRANTED PURSUANT TO THIS STOCK OPTION AGREEMENT (THE
"OPTION") AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE OPTION OR THE SHARES UNDER
THE SECURITIES ACT, OR AN OPINION OF COUNSEL, WHICH IS SATISFACTORY TO
THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
HOB ENTERTAINMENT, INC.
STOCK OPTION AGREEMENT
----------------------
This Stock Option Agreement (this "Agreement") is effective as of
January 31, 2000, between HOB Entertainment, Inc., a Delaware corporation (the
"Company"), and Wm. Christopher Gorog (the "Optionee").
In connection with the execution of that certain Advisory Agreement of
even date herewith by and between Optionee, the Company and the other parties
thereto (the "Advisory Agreement"), and the mutual promises contained therein,
and the mutual covenants hereinafter contained, the parties hereto agree as
follows:
1. Grant of Option. On the terms and conditions set forth in this
---------------
Agreement, the Company hereby grants to the Optionee this option ("Option")
which may be exercised from time to time to purchase up to an aggregate of
2,675,000 shares of common stock, $0.0001 par value per share, of the Company
(the "Shares"), which Shares constitute not less than 1.5% of the outstanding
shares of the Company on a fully diluted basis as of the closing of the
Company's acquisition of Universal Concerts, Inc. on September 10, 1999, at a
price of $1.62 per Share (the "Option Price"). This Option is not intended to
qualify as an "incentive stock option" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), and shall be construed accordingly.
2. Right to Exercise.
-----------------
a. Subject to the terms and conditions of this Agreement, 25% of
the Shares subject to this Option shall vest and become exercisable on each of
September 10, 2000, September 10, 2001, September 10, 2002, and September 10,
2003. The percentage of Shares for
<PAGE>
which this Option has become exercisable at any particular time is referred to
as the "Vested Percentage".
b. As used in this Agreement, the term "Investor Common Stock"
shall mean, with respect to each Investor (as defined in the Advisory
Agreement), the shares of the Common Stock of the Company held by such Investor
on the date hereof (assuming for this purpose the conversion and exercise by
such Investor of all securities held by the Investor that are convertible into
or exercisable for shares of Company Common Stock other than the 12% Senior
Redeemable Preferred Stock of the Company and the Senior Convertible Preferred
Stock of the Company). The term "Transferred Percentage" shall mean, with
respect to each Investor, the percentage of Investor Common Stock that has been
transferred, or is subject to a binding agreement to transfer, to a person or
entity other than such Investor or an affiliate of such Investor. If at any time
that this Agreement shall be in effect, an Investor's Transferred Percentage
exceeds the Vested Percentage, the Vested Percentage shall be increased to an
amount equal to such Transferred Percentage.
c. The terms of the Option with respect to vesting are no less
favorable to the Optionee than the terms of the stock option held by Jay
Marciano.
3. No Transfer.
-----------
This Option is not transferable by Optionee except to an inter
vivos trust or similar entity for the benefit of Optionee's family in connection
with estate planning or by will or the laws of descent and distribution. During
the Optionee's lifetime, this Option is only exercisable by Optionee or the
trustee or other representative of the aforementioned trust.
4. Exercise Procedures.
-------------------
a. Notice of Exercise. The Optionee or the Optionee's representative
------------------
may exercise this Option by giving written notice to the Board of Directors of
the Company in the form annexed hereto as Exhibit A. The notice shall specify
---------
the election to exercise this Option, the number of Shares with respect to which
this Option is being exercised and the form of payment. The notice shall be
signed by the person exercising this Option. In the event that this Option is
being exercised by the representative of the Optionee, the notice shall be
accompanied by proof (satisfactory to the Board of Directors of the Company) of
the representative's right to exercise this Option. The Optionee or the
Optionee's representative shall deliver to the Company at the time of giving the
notice, payment in a form provided under Section 5 for the full amount of the
exercise price applicable to that portion of this Option being exercised. If
the Optionee or the Optionee's estate or representative so requests following an
exercise of this Option for less than the full number of Shares purchasable
under this Option, and this Agreement is delivered to the Company at the time of
the request, the Company will register and deliver to the Optionee or the
Optionee's representative a new option agreement that reflects the unexercised
portion of the Shares (but otherwise identical in form), and this Agreement
will be terminated. If the Optionee or the Optionee's representative does not
in any year purchase all or any part of the shares to which the Optionee or the
Optionee's representative is entitled, then the Optionee or the Optionee's
representative has the right
2
<PAGE>
cumulatively thereafter to purchase any Shares not so purchased and such right
shall continue until this Option terminates or expires.
b. Issuance of Shares. After receiving a proper notice of exercise,
------------------
the Company shall cause to be issued a certificate or certificates for the
Shares as to which this Option has been exercised, registered in the name of the
person exercising this Option and bearing such legends, including the legend in
Section 7 below, as may be appropriate. The Company shall cause such
certificate or certificates to be delivered to or upon the order of the person
exercising this Option.
c. Withholding Taxes. In the event that the Board of Directors of
-----------------
the Company determines that the Company is required to withhold foreign,
federal, state or local tax as a result of the exercise of this Option, the
Optionee, as a condition to the exercise of this Option, shall make arrangements
satisfactory to the Board of Directors of the Company to enable the Company to
satisfy all withholding requirements. Any Shares purchased by exercising this
Option shall also be issued subject to condition that the Optionee shall make
the arrangements satisfactory to the Board of Directors of the Company to enable
the Company to satisfy any withholding requirements that may arise in connection
with the disposition of such Shares.
5. Payment for Stock.
-----------------
All or part of the exercise price may be paid in (a) lawful
money of the United States of America; (b) other Shares which (i) in the case of
Shares acquired from the Company, have been owned by the Optionee for more than
six (6) months on the date of surrender, and (ii) have a Fair Market Value (as
defined in the 1993 Amended and Restated Stock Option Plan of the Company (the
"Plan")) on the date of surrender equal to the aggregate exercise price of the
Shares as to which this Option is exercised; (c) following the initial public
offering of the Company's securities, delivery of a notice that Optionee has
placed a market sell order with a broker with respect to Shares then issuable
upon exercise of this Option and that the broker has been directed to pay a
sufficient portion of the net proceeds of the sale to the Company in
satisfaction of this Option exercise price, provided, that payment of such
proceeds is then made to the Company upon settlement of such sale; or (d) any
combination of the foregoing methods of payment.
6. Term and Expiration.
-------------------
a. Term of Option. This Option shall expire on the day before
--------------
the tenth anniversary of the date hereof, and may be exercised during such term
only in accordance with this Agreement. Subject to Section 6(b) hereof, this
Option may be exercised without regard to Optionee's continued service as a
director.
b. Forfeiture for "cause." This Option shall be forfeited
---------------------
immediately upon any event constituting "cause." The term "cause" shall mean
solely any one (or more) of the following: (i) the Optionee 's commission of
any fraud, misappropriation or willful misconduct which causes demonstrable
injury to the Company or a subsidiary or affiliate; or (ii) an act of dishonesty
by
3
<PAGE>
the Optionee resulting or intended to result, directly or indirectly, in gain or
personal enrichment at the expense of the Company or a subsidiary or affiliate.
This Option shall not be forfeited for any reason except as set forth herein.
7. Securities Law and Other Restrictions.
-------------------------------------
a. Restrictions. Regardless of whether the offering and sale of
------------
Shares have been registered under the Securities Act or have been registered or
qualified under the securities laws of any state, the Board of Directors of the
Company at its discretion (so long as the shares held by the Investors and
members of senior management of the Company are similarly treated) may impose
restrictions upon the sale, pledge or other transfer of such Shares (including
the placement of appropriate legends on stock certificates) if, in the judgment
of the Company and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with any agreement to which the Company is a party,
the Securities Act, the securities laws of any state or any other law or with
restrictions imposed on the Company by its underwriters, or otherwise.
b. Investment Representations. In connection with the
--------------------------
issuance of this Option and upon exercise hereof, Optionee represents to the
Company the following:
i. Optionee is acquiring this Option for investment for
Optionee's own account only and not with a view to, or for resale in connection
with, any "distribution" thereof within the meaning of the Securities Act of
1933, as amended (the "Securities Act").
ii. Optionee understands that neither this Option nor the
Shares have been registered under the Securities Act by reason of a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in view of the Securities and Exchange
Commission ("Commission"), the statutory basis for such exemption may not be
present if Optionee's representations meant that Optionee's present intention
was to hold this Option for a minimum capital gains period under applicable tax
statutes, for a deferred sale, for a market rise, for a sale if the market does
not rise, or for a year or any other fixed period in the future.
iii. Optionee acknowledges and understands that this Option
and the Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Optionee understands that the certificates evidencing this Option and the Shares
will be imprinted with legends which prohibit the transfer of this Option or the
Shares unless they are registered or such registration is not required in the
opinion of counsel satisfactory to Company. Optionee further acknowledges that
this Option and the Shares are subject to certain contractual transfer
restrictions contained in the Stockholders Agreement (as defined in the Advisory
Agreement).
iv. Optionee represents that he (A) has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of his investment in the Option; (B) has received from the
Company all the information he has requested
4
<PAGE>
and considers necessary or appropriate for deciding whether to acquire the
Option; (C) has had an opportunity to ask questions and receive answers from the
Company regarding the Company, its business, operations, market potential,
capitalization, financial condition and prospects, and the terms and conditions
of the Option; (D) has the ability to bear the economic risks of his investment
in the Option; and (E) is able, without materially impairing his financial
condition, to hold the Option for an indefinite period of time and to suffer
complete loss on his investment.
v. Optionee represents that he is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
vi. Optionee represents that (A) he is a natural person, (B)
he has provided bona fide services to the Company and (C) the services provided
by Optionee to the Company were not performed in connection with the offer or
sale of securities in a capital-raising transaction, and do not directly or
indirectly promote or maintain a market for the Company's securities.
c. Investment Intent at Exercise. In the event that the sale of
-----------------------------
Shares is not registered under the Securities Act, but an exemption is available
which requires an investment representation or other representation, it shall be
a condition of exercise of this Option that the Optionee shall represent and
agree at the time of exercise that the Shares being acquired upon exercising
this Option are being acquired for investment, and not with a view to the sale
or distribution thereof, and shall make such other representations as are deemed
necessary or appropriate by the Company and its counsel.
d. Legend. All certificates evidencing Shares acquired under this
------
Agreement in an unregistered transaction shall bear the following restrictive
legend (and such other restrictive legends as are required or deemed advisable
under the provisions of any applicable law):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE. THESE SECURITIES MAY
NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT COVERING SUCH SECURITIES UNDER THE SECURITIES ACT OF 1933
AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE AVAILABILITY, IN THE
OPINION OF COUNSEL, OF AN EXEMPTION FROM REGISTRATION THEREUNDER"
5
<PAGE>
e. Administration. Any determination by the Board of Directors
--------------
of the Company, the Company and its counsel in connection with any of the
matters set forth in this Section 7 shall be conclusive and binding on the
Optionee and all other persons.
8. Shares and Adjustments; Additional Rights.
-----------------------------------------
a. General. The number of Shares and the Option Price are subject
-------
to appropriate adjustment in the manner provided for by the Plan for stock
splits, stock dividends, recapitalizations, reorganizations or other similar
events affecting the capital structure of the Company. No adjustment, however,
shall result in or entitle Optionee to receive fractional shares.
b. Come Along, Go Along. If any shareholders of the Company
--------------------
sell or exchange more than 50% of the outstanding voting stock of the Company in
a single or series of related transactions, if requested by Optionee, the
Company shall use its reasonable commercial efforts to cause the purchaser of
such shares to acquire, and the Optionee agrees to sell, Optionee's pro-rata
portion of the Shares for the same price, terms and conditions that are
applicable to the shares of such controlling shareholder(s) to be transferred.
Notwithstanding anything to the contrary in this Section 8, the provisions
hereof shall not apply to: (a) any sale or other transfer of stock between
shareholders of the Company; (b) any repurchase by the Company of any shares of
Common Stock; (c) any transfer of shares of Common Stock to any inter vivos
trust, or in connection with estate planning or the death of any person; or (d)
any sale pursuant to a public offering. This Section 8(b) shall not be deemed to
modify or amend any of Optionee's rights under the Stockholders Agreement.
c. Stock Option Plan. This Option is a non-qualified stock
-----------------
option that has been issued pursuant to the Plan. HOB agrees that, promptly
following any initial public offering of HOB Common Stock pursuant to the
Securities Act, it will prepare, file with the Securities and Exchange
Commission, and use reasonable commercial efforts to cause to become effective,
a registration statement on Form S-8 covering the Shares as well as such other
shares of Common Stock issuable pursuant to the Plan.
d. Information Rights. Until the earliest of the expiration,
------------------
termination, or full exercise of this Option, Optionee shall be entitled to
receive all financial statements and other information distributed to
shareholders of the Company.
e. Notice of Distributions or Transactions. No later than 10
---------------------------------------
business days prior to the date of any dissolution, liquidation, sale of all or
substantially all of the assets of the Company, dividend, change of control
transaction or other distribution with respect to the Common Stock of the
Company, the Company shall deliver written notice to the Optionee, notifying the
Optionee of the distribution or transaction that may affect the Common Stock
issuable upon conversion of the Shares.
f. Reservation of Rights. (i) Except as provided in this
---------------------
Section 8, the Optionee shall have no other rights by reason of (1) any
subdivision or consolidation of shares of
6
<PAGE>
stock of any class, (2) the payment of any dividend or (3) any other increase or
decrease in the number of shares of stock of any class. The grant of this Option
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business or assets.
(ii) The Optionee shall have no rights as a stockholder with
respect to any shares issuable or transferable upon exercise hereof until the
date this option is duly exercised and Optionee becomes a stockholder of the
Company regardless of whether a stock certificate representing such shares is
issued to the Optionee. Except as otherwise expressly provided herein or by the
Board of Directors of the Company, no adjustment shall be made for cash
dividends or other rights for which the record date is prior to the date such
stock certificate is issued.
9. "Lock-Up" Agreement.
--------------------
The Optionee, if so requested by the Board of Directors of the
Company and an underwriter of Common Stock or other securities of the Company,
and provided that all officers, Investors and Directors of the Company are
similarly bound, shall not sell, grant any option or right to buy or sell, or
otherwise transfer or dispose of in any manner, whether in privately-negotiated
or open-market transactions, any Common Stock or other securities of the Company
held by him or which he has the right to acquire during a period of up to a
maximum of 180 days following the effective date of a registration statement of
the Company filed with the Securities and Exchange Commission in connection with
such offering or such shorter period as such underwriter shall have advised the
Company in writing is adequate to permit the successful and orderly distribution
of such Common Stock or other securities; provided, however, that such "lock-up"
agreement shall be in writing and in form and substance satisfactory to the
Board of Directors of the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the shares subject to the foregoing
restrictions until the end of said period. This Section 9 shall survive the
termination or exercise of this Option.
10. Notices.
-------
Notices or process required to be given hereunder shall be sent
by certified mail (return receipt requested) and also by first class mail and
shall be deemed given or received three (3) days after mailing thereof, to:
If to Optionee:
Wm. Christopher Gorog
4211 Toluca Road
Toluca Lake, CA 91602
7
<PAGE>
with a copy by mail or fax to:
O'Melveny & Myers LLP
1999 Avenue of the Stars, Suite 700
Los Angeles, CA 90067-6035
Fax No.: (310) 246-6779
Attention: Richard R. Ross
If to the Company:
HOB Entertainment, Inc.
6255 Sunset Blvd., 16th Floor
Hollywood, CA 90028
Fax No.: Attn: Daniel L. Fishkin
with a copy by mail or fax to:
John Jameson, Esq.
Latham & Watkins
633 West 5th Street
Los Angeles, CA 90071
Fax No.: 213-891-8763
11. Arbitration. ANY DISPUTE OR CONTROVERSY ARISING OUT OF, RELATING
-----------
TO, OR CONCERNING ANY INTERPRETATION, CONSTRUCTION, PERFORMANCE OR BREACH OF
THIS AGREEMENT, SHALL BE SETTLED BY ARBITRATION TO BE HELD IN LOS ANGELES
COUNTY, CALIFORNIA, IN ACCORDANCE WITH THE COMMERCIAL ARBITRATION RULES THEN IN
EFFECT OF THE AMERICAN ARBITRATION ASSOCIATION AS MODIFIED HEREIN. THE PARTY OR
PARTIES SEEKING ARBITRATION SHALL COLLECTIVELY SUBMIT WITH ITS OR THEIR DEMAND
THE NAME, ADDRESS AND TELEPHONE NUMBER OF ONE ARBITRATOR. THE OPPOSING PARTY OR
PARTIES SHALL COLLECTIVELY SUBMIT WITH ITS OR THEIR RESPONSE THE NAME, ADDRESS
AND TELEPHONE NUMBER OF ONE ARBITRATOR. THE TWO SELECTED ARBITRATORS SHALL THEN
CONFER PROMPTLY WITH ONE ANOTHER IN ORDER TO NAME A THIRD DIS-INTERESTED NEUTRAL
ARBITRATOR. IF THE TWO SELECTED ARBITRATORS ARE UNABLE TO AGREE UPON THE
SELECTION OF THE THIRD NEUTRAL ARBITRATOR WITHIN THIRTY DAYS THEN THE AAA SHALL
BE AUTHORIZED TO SELECT A NEUTRAL ARBITRATOR. THE ARBITRATORS MAY GRANT
INJUNCTIONS OR OTHER RELIEF IN SUCH DISPUTE OR CONTROVERSY. EXCEPT AS REQUIRED
BY LAW OR TO ENTER OR ENFORCE A DECISION OF THE ARBITRATORS, THE ARBITRATION
SHALL BE MAINTAINED AS STRICTLY CONFIDENTIAL BY ALL PARTIES, THE ARBITRATORS AND
THE AAA.
8
<PAGE>
DISCOVERY SHALL BE PERMITTED TO THE EXTENT PERMISSIBLE IN CIVIL ACTIONS. THE
DECISION OF THE ARBITRATORS SHALL BE FINAL, CONCLUSIVE AND BINDING ON THE
PARTIES TO THE ARBITRATION. JUDGMENT MAY BE ENTERED ON THE ARBITRATORS' DECISION
IN ANY COURT HAVING JURISDICTION. THE ARBITRATORS SHALL HAVE THE AUTHORITY TO
INCLUDE, AS AN ITEM OF DAMAGES, THE COSTS OF ARBITRATION, INCLUDING LEGAL FEES
AND EXPENSES, INCURRED BY THE PREVAILING PARTY. THE ARBITRATORS' AWARD SHOULD BE
RENDERED WITHIN THIRTY DAYS AFTER THE CLOSE OF HEARINGS.
12. Miscellaneous Provisions.
------------------------
a. Titles and Captions. Paragraph titles or captions contained
-------------------
herein are inserted only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of the Agreement or the intent
of any provision.
b. Entire Agreement; Amendments. This Agreement constitutes the
----------------------------
entire agreement between the parties hereto with regard to the subject matter
hereof. This Agreement may not be amended except by a written instrument signed
by both parties hereto.
c. Choice of Law. This Agreement shall be governed, construed,
-------------
interpreted, and enforced in accordance with the substantive law of the State of
Delaware applied to agreements entered into and performed entirely within such
State.
d. Interpretation and Modification of Agreement. Optionee
--------------------------------------------
acknowledges receipt of a copy of the Plan, the terms of which are incorporated
herein by reference. In the event of any conflict between the terms of this
Agreement and the terms of the Plan, the terms of the Plan shall prevail and be
controlling, except to the extent, and with respect to matters, that the Plan
allows for modifications, in which event this Agreement shall govern. Subject
to the foregoing, this Agreement represents the entire agreement of the parties
with respect to the option evidenced hereby and supersedes all prior written or
oral understandings or agreements with respect thereto. All determinations
under and interpretations of the Plan and this Agreement shall be vested in the
Board of Directors of the Company or committee thereof selected to administer
the Plan (in either case, the "Committee"), whose decisions shall be final,
conclusive and binding on all persons. The Committee shall have the authority
to correct any defect or supply any omission or reconcile any inconsistency in
this Agreement provided that such action does not adversely affect the rights
granted to Optionee hereunder. The Committee shall also have the power (subject
to such consultation as deemed advisable with the Company's principal accounting
officer regarding accounting and tax consequences) to modify or amend this
Agreement, or waive any condition or restriction herein (including, without
limitation, restrictions on periods of exercisability), if such modification,
amendment or waiver would increase Optionee's benefits under this Agreement and
is consistent with the Plan.
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed on its behalf by a duly authorized officer and the Optionee has
personally executed this Agreement.
HOB ENTERTAINMENT, INC.
/s/ Wm. Christopher Gorog
-------------------------- By: /s/ Gregory A. Trojan
WM. CHRISTOPHER GOROG ---------------------------
Name: Gregory A. Trojan
Title: President and
Chief Executive Officer
Optionee's Address:
4211 Toluca Road
Toluca Lake, CA 91602
10
<PAGE>
EXHIBIT A
---------
[Date of Exercise]
HOB Entertainment Inc.
6255 Sunset Blvd.
16th Floor
Hollywood, CA 90028
Attention: Corporate Secretary
Re: Stock Option
Dear Sir/Madame:
I am the holder of a stock option granted to me by HOB Entertainment,
Inc. (the "Company"), pursuant to a Stock Option Agreement dated as of January
31, 2000, to purchase 2,675,000 shares of Common Stock of the Company
("Shares"). I hereby exercise such option with respect to ___________ Shares,
the total purchase price for which is $__________, and [I enclose a certified,
bank cashier's or other acceptable check payable to the order of the Company in
the amount of $_______, representing the total purchase price for the Shares]
The certificate or certificates representing the Shares should be registered in
my name and should be forwarded to me at ________________________________.
Please acknowledge receipt of the exercise of my stock option on the
attached copy of this letter.
Very truly yours,
Wm. Christopher Gorog
RECEIPT ACKNOWLEDGED:
HOB ENTERTAINMENT, INC.
By:
--------------------
Name:
Title:
<PAGE>
EXHIBIT 10.29
CONTRIBUTION AGREEMENT
----------------------
This Contribution Agreement (the "Contribution Agreement") is made and
entered into as of this 31st day of January, 2000 (the "Effective Date"), by and
among (a) HOB Entertainment, Inc. ("HOB"); (b) Chase Capital Partners, Chase/HOB
1999 Partners (GC), L.L.C., Chase/HOB 1998 Partners (GC), L.L.C., CB Capital
Investors, LLC, and Chase Venture Capital Associates, L.P. (collectively
"Chase"); (c) First Union Investors, Inc. ("First Union"); and (d) J. H. Whitney
& Co., J. H. Whitney III, L.P., Whitney Strategic Partners III, L.P. and J. H.
Whitney Market Value Fund, L.P. (collectively, "Whitney," and Chase, First Union
and Whitney collectively referred to as the "Investors").
WHEREAS, Chase, First Union and Whitney (collectively, the
"Investors") participated in the equity financing of HOB's acquisition of
Universal Concerts, Inc. and certain of its affiliates (the "UCI Acquisition");
WHEREAS, as part of the UCI Acquisition, the Investors purchased
certain securities, including, among others, HOB Class D-2 Preferred Stock (the
"Class D-2 Stock") and HOB Common Stock Warrants (the "Warrants") pursuant to a
certain Purchase Agreement for Class D-2 Preferred Stock, 12% Senior Redeemable
Preferred Stock, Senior Convertible Preferred Stock and Common Stock Purchase
Warrants, dated as of July 21, 1999, among HOB Entertainment, Inc., the
Investors and the other investors set forth on Exhibit A-1 and Exhibit A-2
thereof (the "Purchase Agreement");
WHEREAS, the Class D-2 Stock is convertible into shares of HOB Common
Stock ("Common Stock") at the option of the holder;
WHEREAS, the Investors have certain rights, preferences and privileges
concerning the Class D-2 Stock and the Warrants, including certain anti-dilution
rights, as set forth in the Amended and Restated Certificate of Incorporation of
HOB Entertainment, Inc. (the "Certificate of Incorporation") and the Warrants;
WHEREAS, HOB, the Investors and Wm. Christopher Gorog ("Gorog") are
parties to that certain Advisory Agreement dated as of the date hereof (the
"Advisory Agreement");
WHEREAS, in connection with the Advisory Agreement, HOB and Gorog are
entering into a certain Stock Option Agreement dated as of the date hereof (such
agreement as it exists on the date hereof, and without regard to subsequent
amendments thereto, being referred to hereinafter as the "Stock Option
Agreement");
WHEREAS, the parties hereto wish to set forth their certain
obligations with respect to said Advisory Agreement and Stock Option Agreement;
<PAGE>
NOW, THEREFORE, in consideration of the execution of this Contribution
Agreement and the mutual promises contained herein, and other good and valuable
consideration, the parties agree as follows:
1. Advisory Agreement and Stock Option Agreement.
---------------------------------------------
Contemporaneously herewith the parties hereto shall execute the Advisory
Agreement in the form annexed hereto as Exhibit 1, and Gorog and HOB shall enter
---------
into the Stock Option Agreement, in the form annexed to the Advisory Agreement
as Exhibit A.
---------
2. Contributions of HOB Common Stock. Each of the Investors,
---------------------------------
severally but not jointly, hereby grants to HOB the right to purchase a number
of shares of Common Stock from such Investor upon any exercise of the Option by
Gorog equal to the percentage set forth opposite its name below (each a "Share
Percentage") of the total number of shares of Common Stock to be acquired by
Gorog upon such exercise:
Contributor Percentage
----------- ----------
Chase 28.126%
Whitney 28.126%
First Union 17.579%
Each Investor agrees to exercise its right to convert into Common Stock
securities convertible into, or exercisable for, Common Stock to the extent
necessary to comply with its obligations in the preceding sentence. The
purchase price to be paid by HOB for each share of Common Stock shall be the
price per share paid by Gorog upon such exercise (the "Call Price"), and the
form of consideration to be utilized by HOB shall be the same form of
consideration utilized by Gorog in effectuating such exercise. HOB will provide
each Investor with written notice (a "Call Notice") of each exercise of the
Option by Gorog promptly upon receiving notice of Gorog's exercise. The Call
Notice shall designate the number of shares with respect to which the Option was
exercised by Gorog and the number of shares of Common Stock to be purchased by
HOB from each Investor. Within five (5) business days after receipt of a Call
Notice, each Investor shall transfer to HOB such Investor's Share Percentage of
the number of shares of Common Stock with respect to such exercise of the
Option, against payment of the aggregate Call Price therefor by wire transfer to
an account in a bank located in the United States specified by such Investor.
Each Investor covenants, severally but not jointly, that so long as the Option
is outstanding, such Investor will retain ownership of a number of shares of
Common Stock and/or securities convertible into or exercisable for Common Stock
equal to such Investor's Share Percentage of the aggregate number of shares of
Common Stock for which the Option is exercisable (without regard to vesting
requirements). Each Investor hereby waives any rights such Investor may have
under that certain Co-Sale Agreement dated as of September 10, 1999 by and among
certain Investors and other stockholders of HOB with respect to any sales of
Common Stock to HOB pursuant to this paragraph 2.
3. Release. Each of the parties hereto, on behalf of itself and its
-------
respective Releasees as hereafter defined (each a "Releasor"), for good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, unconditionally and forever releases and
2
<PAGE>
discharges each of the other parties and their respective partners, officers,
directors, stockholders, representatives, affiliates, subsidiaries,
predecessors, successors, co-investors, controlling persons, agents and
employees, past and present, and any other person or entity acting by, through,
or in concert with them, or any of them (collectively the "Releasees") from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages, judgments, extents,
executions, claims, rights, obligations, losses, liabilities, costs, expenses,
attorneys' fees, and demands whatsoever, whether known or unknown, contingent or
absolute, suspected or unsuspected, disclosed or undisclosed, asserted or
unasserted, hidden or concealed, matured or unmatured, material or immaterial,
whether individual, class, derivative or representative, whether in law,
admiralty or equity, or of any other type or in any other capacity, against each
of the respective Releasees, which such Releasor ever had, now has or hereafter
can, shall or may, have for, upon, or by reason of any matter, cause or thing
whatsoever from the beginning of the world to the Effective Date in any way
arising out of, based upon or related to Gorog or his role in the UCI
Acquisition, or to any other plans, discussions or proposals by or among any of
the parties with Gorog, or to Gorog's involvement or interest in a possible
transaction involving Universal Concerts, Inc. (the "Released Claims"), except
for any claim pursuant to, arising out of, or for breach of this Contribution
Agreement or the Advisory Agreement. Each Releasor intends that this release
(and the covenant not to sue set forth in paragraph 4 of this Contribution
Agreement) shall be effective as a full and final accord and satisfaction, and
as a bar to all actions, causes of action, claims, obligations, costs, expenses,
attorneys' fees, damages, losses, liabilities and demands of or against any
Releasee of any nature, character or kind, known or unknown, suspected or
unsuspected, arising out of the Released Claims except for any claim pursuant
to, arising out of, or for breach of this Contribution Agreement or the Advisory
Agreement. Each of the Releasors represents and warrants that he/she/it/they
have not assigned or transferred any interest in any claim released by this
paragraph 3, and, further, that any Releasor who breaches the foregoing
representation and warranty shall indemnify and hold harmless any and all
Releasees hereunder, and each of them, of, from and against all liabilities,
claims, demands, damages, costs, expenses, and attorneys' fees incurred by such
Releasee as a result of any person asserting any such assignment or transfer in
violation of this paragraph's representation and warranty. It is the intention
of the parties to this Contribution Agreement, and each of them, that this
indemnity does not require payment as a condition precedent to recovery. Each
Releasor acknowledges that it is familiar with Section 1542 of the California
Civil Code, which provides as follows:
A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor.
Each Releasor expressly waives and relinquishes any and all rights and benefits
which it may have under, or which may be conferred on it by, the provisions of
Section 1542 of the California Civil Code, as well as under any other state or
federal statute or common law principle of similar effect, to the fullest extent
that they may lawfully waive such rights or benefits pertaining to the released
matters. Each Releasor intends that this release shall be and remain in effect
as a full and complete release notwithstanding the discovery or existence of any
additional or different claims or facts arising out of the released matters.
3
<PAGE>
4. HOB And The Investors' Covenant Not To Sue. HOB and the Investors
------------------------------------------
each covenant and agree on behalf of itself and each of its respective Releasees
that it and they will never initiate any suit or action at law or otherwise
against any of the other parties to this Contribution Agreement and the other
Releasees, or institute, prosecute, induce, encourage, assist, participate in or
in any way aid any other person or entity to institute or prosecute any
litigation, claim, demand, action or cause of action against any of the other
Releasees, for any relief, including without limitation, damages, costs,
expenses or compensation for or on account of any damage, loss or injury either
to person or property, or both, or for breach of any agreement, obligation or
duty, whether developed or undeveloped, resulting or to result, known or
unknown, which any of the Releasors ever had, now has, or which hereafter can,
shall or may have for or by reason of any matter, cause or thing whatsoever from
the beginning of the world to the Effective Date in any way arising out of,
based upon or related to the Released Claims except for any claim pursuant to,
arising out of, or for breach of this Contribution Agreement or the Advisory
Agreement. The Releasees, and each of them, acknowledge and agree that if
he/she/it/they hereafter commence any suit arising out of, based upon, or
relating to any Released Claim, the Releasee who violates the provisions of this
paragraph 4 shall pay to the other Releasee(s), in addition to any other damages
caused thereby, all attorneys' fees and costs incurred by such Releasee(s), and
each of them, in defending or otherwise responding to such suit or claim.
5. Confidentiality. The parties to this Contribution Agreement agree
---------------
that the existence and terms of this Contribution Agreement shall be held
strictly confidential and shall not be divulged to any non-party to this
Contribution Agreement, except counsel for the parties hereto. Notwithstanding
the foregoing, the parties hereto may divulge the existence and terms of this
Contribution Agreement if required to do so to comply with any legal or
regulatory requirements, including any court order in connection with a judicial
proceeding, or if required to do so in connection with an administrative
proceeding (including an audit by the Internal Revenue Service) or in connection
with the filing of tax returns, or in connection with the enforcement of this
Contribution Agreement.
6. Disputes. In any action brought to enforce or construe this
--------
Contribution Agreement or arising out of this Contribution Agreement (an
"Action"), the parties each hereby waive trial by jury. Any and all such
Actions shall be brought in the State or Federal Court located in Los Angeles
County, California and shall not be transferred or removed elsewhere. All
parties hereto hereby consent to the exclusive jurisdiction of such courts over
such Actions and agree that in addition to other permitted manners, service of
the summons and complaint in any Action may be made by mailing same to the
address set forth below (or to such other address which any party may notify the
other parties to utilize, by notice given pursuant to this Contribution
Agreement) by certified mail (return receipt requested) and also by first class
mail. In any Action brought to enforce this Contribution Agreement, the
prevailing party shall be entitled to recover costs and reasonable attorneys'
fees and disbursements.
7. Notices. Notices or process required to be given hereunder shall
-------
be sent by certified mail (return receipt requested) and also by first class
mail and shall be deemed given or received 3 days after mailing thereof, to:
4
<PAGE>
If to HOB:
HOB Entertainment, Inc.
6255 Sunset Blvd., 16th Floor
Hollywood, California 90028
Fax No.: (323) 769-4780
Attention: Mr. Daniel L.Fishkin
With a copy by mail or fax to:
Latham & Watkins
633 W. Fifth Street, Suite 4000
Los Angeles, California 90071
Fax No.: 213-891-8763
Attention: John Jameson, Esq.
If to Chase:
Chase Venture Capital Associates, L.P.
108 South Frontage Road, West
Suite 307
Vail, Colorado 81657
Fax No.: 970-476-7900
Attention: David L. Ferguson
If to First Union:
First Union Investors, Inc.
One First Union Center, 5th Floor
301 South College Street
Charlotte, NC 28288-0732
Fax No.:
Attention: Mr. James C. Cook
with a copy by mail or fax to:
Kennedy Covington Lobdell & Hickman, LLP
Bank of America Corp. Ctr.,
Suite 4200
100 North Tryon Street
Charlotte, NC 28202-4006
Fax No.:704-331-7598
Attention: Henry W. Flint, Esq.
5
<PAGE>
If to Whitney:
c/o J. H. Whitney & Co.
177 Broad Street, 15th Floor
Stamford, CT. 06901
Fax NO.:(203) 973-1422
Attn: Mr. Peter M. Castleman
Mr. Daniel J. O'Brien
David A. Scherl, Esq.
Kevin Curley, Esq.
with a copy by mail or fax to:
Morrison Cohen Singer & Weinstein LLP
750 Lexington Avenue
New York, New York 10022
Fax No. (212) 735-8708
Attn: Donald H. Chase, Esq.
Andrew M. Arsiotis, Esq.
8. Miscellaneous Provisions.
------------------------
(a) Governing Law. This Contribution Agreement shall be governed,
--------------
construed, interpreted, and enforced in accordance with the substantive law of
the State of California applied to agreements entered into and performed
entirely within such State.
(b) Entire Agreement. This Contribution Agreement (including the
----------------
annexed exhibits) is the complete and exclusive statement of the entire
agreement and understanding between all the undersigned parties with respect to
the subject matter hereof. No representations, oral or otherwise, express or
implied, other than those specifically set forth in this Contribution Agreement
(including the annexed exhibits) have been made by any party to the other party
regarding the subject matter of this Contribution Agreement. If any of the terms
of this Contribution Agreement shall conflict with any term of the Advisory
Agreement, the terms of this Contribution Agreement shall govern.
(c) Titles and Captions. Paragraph titles or captions contained
-------------------
herein are inserted only as a matter of convenience and for reference and in no
way define, limit, extend or describe the scope of the Contribution Agreement or
the intent of any provision.
(d) Further Assurances. Each of the parties shall take such other
------------------
actions and execute such other documents as may be reasonably necessary to
effectuate this Contribution Agreement and the undertakings made herein.
(e) Acknowledgment of Receipt of Consideration. Each party
------------------------------------------
acknowledges receipt of legally sufficient consideration for this Contribution
Agreement.
6
<PAGE>
(f) Parties. This Contribution Agreement shall be binding upon, and
-------
shall inure to the benefit of, the parties hereto and their respective heirs,
estates, successors and assigns.
(g) No Acknowledgment Of Liability. Neither the execution and
------------------------------
delivery of this Contribution Agreement nor any actions taken by any party
pursuant to this Contribution Agreement shall be deemed to constitute any
acknowledgment of wrongdoing or liability on the part of any party to this
Contribution Agreement.
(h) Legal Counsel. The parties hereto have each been represented by
-------------
legal counsel in connection with this Contribution Agreement.
(i) Non-Waiver of Breach. The waiver by any party of any breach of
--------------------
this Contribution Agreement shall not be deemed or construed as a waiver of any
other breach, whether prior, subsequent, or contemporaneous, of this
Contribution Agreement.
(j) Amendments. This Contribution Agreement shall not be suspended,
----------
waived, terminated, amended or modified in any manner except in a writing signed
by all parties to be bound.
(k) Counterparts. This Contribution Agreement may be executed
------------
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument. Telefacsimile transmissions of any executed original Contribution
Agreement or document and/or retransmission of any executed telefacsimile
transmission shall be deemed to be the same as the delivery of an executed
original.
(l) Drafter. For purposes of construing this Contribution Agreement,
-------
each of the parties hereto shall be deemed the drafter of this Contribution
Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Contribution
Agreement as of the day and year first above written.
HOB ENTERTAINMENT, INC.
By: /s/ Gregory A. Trojan
--------------------------------------------
Name: Gregory A. Trojan
Title: President and Chief Executive Officer
CHASE CAPITAL PARTNERS
By:
---------------------------------------------
Name:
Title:
CHASE/HOB 1999 PARTNERS (GC), L.L.C.
By: CB Capital Investors, L.P.
Its Managing Member
By: CB Capital Investors, Inc.
Its Managing Partner
By:_____________________________________________
Name:
Title:
CHASE/HOB 1998 PARTNERS (GC), L.L.C.
By: Chase Venture Capital Associates, L.P.
Its Managing Member
By: Chase Capital Partners
Its General Partner
By:_____________________________________________
Name:
Title:
8
<PAGE>
CB CAPITAL INVESTORS, LLC
By: Chase Capital Partners
Its Manager
By: _____________________________________________
Name:
Title:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners, General Partner
Its General Partner
By: _____________________________________________
Name:
Title:
FIRST UNION INVESTORS, INC.
By: _____________________________________________
Name:
Title:
J. H. WHITNEY & CO.
By: Whitney General Partner, L.L.C.,
Its General Partner
By: _____________________________________________
Name:
A Managing Member
9
<PAGE>
J. H. WHITNEY III, L.P.
By: J. H. Whitney Equity Partners III, LLC,
Its General Partner
By: _____________________________________________
Name:
A Managing Member
WHITNEY STRATEGIC PARTNERS III, L.P.
By: J. H. Whitney Equity Partners III, LLC,
Its General Partner
By: _____________________________________________
Name:
A Managing Member
J. H. WHITNEY MARKET VALUE FUND, L.P.
By: Whitney Market Value GP, Ltd.
Its General Partner
By: _____________________________________________
Name:
A Managing Member
10
<PAGE>
EXHIBIT 10.31
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. Parties. This Lease, dated, for reference purposes only, APRIL 10,
---------
1992, is made by and between WILLIAM L. PENZNER, Trustee of the William L.
- ---- ---------------------------------------------
Penzner Trust (herein called "Lessor") and RAMA MEDIA INVESTMENTS, INC., a
- --------------------------------------------------------------------------
Tennessee corporation, or Assignee (herein called "Lessee").
- ----------------------------------
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of LOS ANGELES State of CALIFORNIA
----------
commonly known as 8434 Sunset Blvd., West Hollywood, California and described
---------------------------------------------
as SEE ADDENDUM, PARAGRAPH 48
--------------------------
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. Term.
3.1 Term. The term initial of this Lease shall be for ten (10) years
--------------
commencing on April 10, 1992 and ending on May 10, 2002 unless sooner
-------------- ------------
terminated pursuant to any provision hereof. SEE ADDENDUM, Para. 49
3.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall not
pay rent for such period at the initial monthly rates set forth below.
4. Rent.Lessee shall pay to Lessor as rent for the Premises, monthly payments of
$ See Addendum, para. 50, in advance, on the first day of each month of the term
---------------------- -----
hereof, Lessee shall pay Lessor upon the execution hereof $20,000 as rent for
the first full month of the Lease term during which the base rent is payable
- ----------------------------------------------------------------------------
pursuant to paragraph 50 of the Addendum.
- ----------------------------------------
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. Rent shall be payable in
lawful money of the United States to Lessor at the address stated herein or to
such other persons or at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$20,000 as security for Lessee's faithful performance of Lessee's
- -------
obligations hereunder. If Lessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Lease,
Lessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Lessor may become obligated by reason of Lessee's default, or to
compensate Lessor for any loss or damage which Lessor may suffer thereby. If
Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) days after written demand therefor deposit cash with Lessor in
an amount sufficient to restore said deposit to the full amount hereinabove
stated and Lessee's failure to do so shall be a material breach of this Lease.
Lessor shall not be required to keep said deposit separate from its general
accounts. If Lessee performs all of Lessee's obligations hereunder, said
deposit, or so much thereof as has not theretofore been applied by Lessor, shall
be returned, without payment of interest or other increment for its use, to
Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the term hereof, and after Lessee has
vacated the Premises. No trust relationship created herein between Lessor and
Lessee with respect to said Security Deposit. SEE ADDENDUM, para.
6. Use.
6.1 Use. The Premises shall be used and occupied only for SEE ADDENDUM,
------------
para. 52 or any other use which is reasonably comparable and for no other
- --------
purpose.
6.2 Compliance with Law. SEE ADDENDUM, Para. 53
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to
Lessor written notice of the violation of this warranty within six months from
the date that the Lease term commences, the correction of same shall be the
obligation of the Lessee at Lessee's sole cost. The warranty contained in this
paragraph 6.2(a) shall be of no force or effect if, prior to the date of this
Lease, Lessee was the owner or occupant of the Premises, and, in such event,
Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises. SEE ADDENDUM, Para. 53
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession). In
the event that it is determined that this warranty has been violated, then it
shall be the obligation of Lessor, after receipt of written notice from Lessee
setting forth with specificity the nature of the violation, to promptly, at
Lessor's sole cost, rectify such violation. Lessee's failure to give such
written notice to Lessor within thirty (30) days after the Lease commencement
date shall cause the conclusive presumption that Lessor has complied with all of
Lessor's obligations hereunder. The warranty contained in this paragraph 6.3(a)
shall be of no force or effect if prior to the date of this Lease, Lessee was
the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations. SEE ADDENDUM, Para. 55
7.1 Lessee's Obligations. Lessee shall keep in good order, condition and
repair the Premises and every part thereof, structural and non structural,
(whether or not such portion of the Premises requiring repair, or the means of
repairing the same are reasonably or readily accessible to Lessee, and whether
or not the need for such repairs occurs as a result of Lessee's use, any prior
use, the elements or the age of such portion of the Premises) including, without
limiting the generality of the foregoing, all plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities and equipment within
the Premises, fixtures, walls (interior and exterior), foundations, ceilings,
roofs (interior and exterior), floors, windows, doors, plate glass and skylights
located within the Premises, and all landscaping, driveways, parking lots,
fences and signs located on the Premises and sidewalks and parkways adjacent to
the Premises.
7.2 Surrender. On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor, clean and free of
debris. Lessee shall repair any damage to the Premises occasioned.
Initials: ________
________
<PAGE>
by the installation or removal of Lessee's trade fixtures, furnishings and
equipment. Notwithstanding anything to the contrary otherwise stated in this
Lease, Lessee shall leave the air lines, power panels, electrical distribution
systems, lighting fixtures, space heaters, air conditioning, plumbing and
fencing on the premises in good operating condition.
7.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations under
this Paragraph 7, or under any other paragraph of this Lease, Lessor may at its
option (but shall not be required to) enter upon the Premises after ten (10)
days prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on Lessee's
behalf and put the same in good order, condition and repair, and the cost
thereof together with interest thereon at the maximum rate then allowable by law
shall become due and payable as additional rental to Lessor together with
Lessee's next rental installment.
7.4 Lessor's Obligations. Except for the obligations of Lessor under
Paragraph 6.2(a) and 6.3(a)(relating to Lessor's warranty). Paragraph 9
(relating to destruction of the Premises) and under Paragraph 14 (relating to
condemnation of the Premises), it is intended by the parties hereto that Lessor
have no obligation, in any manner whatsoever, to repair and maintain the
Premises nor the building located thereon nor the equipment therein, whether
structural or non structural, all of which obligations are intended to be that
of the Lessee under Paragraph 7.1 hereof. Lessee expressly waives the benefit of
any statute now or hereinafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the premises in good order, condition and repair.
7.5 Alterations and Additions. SEE ADDENDUM, Para. 56
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanics or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of non-
responsibility in or on the Premises as provided by law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend itself and Lessor against the same and shall
pay and satisfy any such adverse judgment that may be rendered thereon before
the enforcement thereof against the Lessor or the Premises, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surety bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph 7.5
(a), all alterations, improvements, additions and Utility Installations (whether
or not such Utility Installations constitute trade fixtures of Lessee), which
may be made on the Premises, shall become the property of Lessor and remain upon
and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.5(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph 7.2.
8. Insurance Indemnity. SEE ADDENDUM, Para. 57
8.2 Liability Insurance. Lessee shall, at Lessee's expense obtain and keep
in force during the term of this Lease a policy of combined Single Limit,
Bodily Injury and Property Damage insurance insuring Lessor and Lessee against
any liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be a combined
single limit policy in an amount not less than $500,000 per occurrence. The
policy shall insure performance by Lessee of the indemnity provisions of this
Paragraph 8. The limits of said insurance shall not, however, limit the
liability of Lessee hereunder.
8.3 Property Insurance.
(b) If the Premises are part of a larger building, or if the Premises
are part of a group of buildings owned by Lessor which are adjacent to the
Premises, then Lessee shall pay for any increase in the property insurance of
such other building or buildings if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
(c) If the Lessor is the insuring party the Lessor will not insure
Lessee's fixtures, equipment or tenant improvements unless the tenant
improvements have become a part of the Premises under paragraph 7, hereof. But
if Lessee is the insuring party the Lessee shall insure its fixtures, equipment
and tenant improvements.
8.4 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". The insuring party
shall deliver to the other party copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with loss
payable clauses as required by this paragraph 8. No such policy shall be
cancellable or subject to reduction of coverage or other modification except
after thirty (30) days prior written notice to Lessor. If Lessee is the insuring
party Lessee shall, at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with renewals or "binders" thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee upon demand. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in Paragraph 8.3. If
Lessee does or permits to be done anything which shall increase the cost of the
insurance policies referred to in Paragraph 8.3, then Lessee shall forthwith
upon Lessor's demand reimburse Lessor for any additional premiums attributable
to any act or omission or operation of Lessee causing such increase in the cost
of insurance. If Lessor is the insuring party, and if the insurance policies
maintained hereunder cover other improvements in addition to the Premises,
Lessor shall deliver to Lessee a written statement setting forth the amount of
any such insurance cost increase and showing in reasonable detail the manner in
which it has been computed.
8.5 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
8.6 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnity and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waivers all claims in respect thereof against Lessor.
SEE ADDENDUM, Para. 58
8.7 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury result from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located. SEE ADDENDUM, Para. 58.
Initials: ------------
------------
-2-
<PAGE>
9. Damage of Destruction
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction to
the Premises to the extent that the cost of repair is less than 50% of the then
replacment cost of the Premises. "Premises Building Partial Damage" shall
herein mean damage or destruction to the building of which the Premises are a
part to the extent that the cost of repair is less than 50% of the then
replacement cost of such building as a whole.
(b) "Premises Total Destruction" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is 50% or more of the then
replacement cost of the Premises. "Premises Building Total Destruction" shall
herein mean damage or destruction to the building of which the Premises are a
part to the extent that the cost of repair is 50% or more of the then
replacement cost of such building as a whole.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 Partial Damage-Insured Loss. Subject to the provisions of paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is an Insured Loss and which falls into the classification of Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor's expense, repair such damage, but not Lessee's fixtures, equipment or
tenant improvements unless the same have become a part of the Premises pursuant
to Paragraph 7.5 hereof as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the above, if the Lessee is
the insuring party, and if the insurance proceeds received by Lessor are not
sufficient to effect such repair, Lessor shall give notice to Lessee of the
amount required in addition to the insurance proceeds to effect such repair.
Lessee shall contribute the required amount to Lessor within ten days after
Lessee has received notice from Lessor of the shortage in the insurance. When
Lessee shall contribute such amount to Lessor. Lessor shall make such repairs
as soon as reasonably possible and this Lease shall continue in full force and
effect. Lessee shall in no event have any right to reimbursement for any such
amounts so contributed.
9.3 Partial Damage-Uninsured Loss. Subject to the provisions of Paragraphs
9.4, 9.5 and 9.6, if at any time during the term of this Lease there is damage
which is not an Insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage, unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense). Lessor may at Lessor's option either (i) repair such
damage as soon as reasonably possible at Lessor's expense, in which event this
Lease shall continue in full force and effect or (ii) give written notice to
Lessee within thirty (30) days after the date of the occurrence of such damage
of Lessor's intention to cancel and terminate this Lease, as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six months of the term of this Lease
there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph9 and shall not commence such repair or
restoration within 90 days after such obligations shall accure. Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes. SEE ADDENDUM, Para. 60
10.4 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. Assignment and Subletting. SEE ADDENDUM, Para. 61
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in this Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligation of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting or
assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof. Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees.
Initials:
-----------
-----------
-3-
<PAGE>
Or Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or sublletting in
connection therewith, such attorneys fees not to exceed $350.00 for each such
request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee:
provided, however, that if the nature of Lessee's default is such that more than
30 days are reasonably required for its cure, then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. (S)101 or any sucessor statute thereto (unless, in the case of a petition
filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachement, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within 30 days. Provided, however, in the
event that any provision of this paragraph 13.19(d) is contrary to any
applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee, shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be etitled to recover from Lessee all damages incurred by Lessor by reason
of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having jurisdiction thereof of the amount by which the unpaid rent for the
balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to Paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws of judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences perfomance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within ten (10) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's default with respect
to such overdue amount, nor prevent Lessor from exercising any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of rent, then rent shall automatically become due and payable
quarterly in advance, rather than monthly, notwithstanding paragraph 4 or any
other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of the
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to
Lessor, upon Lessor's demand, such additional sums necessary to pay such
obligations. All moneys paid to Lessor under this paragraph may be intermingled
with other moneys of Lessor and shall not bear interest. In the event of a
default in the obligations of Lessee to perform under this Lease, then any
balance remaining from funds paid to Lessor under the provisions of this
paragraph may, at the option of Lessor, be applied to the payment of any
monetary default of Lessee in lieu of being applied to the payment of real
property tax and insurance premiums.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
______________________________________________________________________________
___________Licensed real estate broker(s), a fee as set forth in separate
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s) the sum of
$_____________________, for brokerage services rendered by said broker(s) to
Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumberancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within
such time shall be a material breach of this Lease or shall be
Intitials: ______________
______________
-4-
<PAGE>
conclusive upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof. Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably,
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15. i.e. the event of any transfer of such title or interest. Lessor herein
named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements: Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease.
Lessee hereby acknowledges that neither the real estate broker listed in
Paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employees or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or
use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in the effect during the term of this Lease expect as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. Waivers. No waiver by either party or any provision hereof shall be deemed
a waiver of any other provision hereof or of any subsequent breach of the same
or any other provision. Lessor's consent to, or approval of, any act shall not
be deemed to render unnecessary the obtaining of Lessor's consent to or approval
of any subsequent act by Lessee. The acceptance of rent hereunder by Lessor
shall not be a waiver of any preceding breach by Lessee of any provision hereof,
other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect: Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located (Calif.), with venue to be the Los Angeles
-----------------------------------------------
County Superior Court (West District).
- -------------------------------------
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation or security
now or hereafter placed upon the real property of which the Premises are a part
and to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination. Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option. Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, such be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate or rent or liability to Lessee. SEE ADDENDUM, Para. 62
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon. SEE ADDENDUM, Para. 66
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. Options.
39.1 Definition. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of
first refusal to lease other property of Lessor or the right of first offer to
lease other property of Lessor; (3) the right or option to purchase the
Premises, or the right of first refusal to purchase the Premises, or the right
of first offer to purchase the Premises or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
Initials: WP
-----
-----
-5-
<PAGE>
39.2 Options Personal. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.1(d), or 13.1(e)(without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge has become payable under paragraph 13.4 for each of such defaults,
or paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence
to cure a default specified in paragraph 13.1(c) within 30 days after the date
that Lessor gives notice to Lessee of such default and/or Lessee fails
thereafter to diligently prosecute said cure to completion, or (iii) Lessee
commits a default described in paragraph 13.1(a), 13.1(d) or 13.1(e) without any
necessity of Lessor to give notice of such default to Lessee), or (iv) Lessor
gives to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge becomes payable under paragraph 13.4 for each such default, or
paragraph 13.1(c), whether or not the defaults are cured.
40. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make
from time to time for the management, safety, care, and cleanliness of the
building and grounds, the parking of vehicles and the preservation of good order
therein as well as for the convenience of other occupants and tenants of the
building. The violations of any such rules and regulations shall be deemed a
material breach of this Lease by Lessee.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts or third parties.
42. Easements. Lessor reserves to itself the right, from time to time, to grant
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel maps and restrictions, so long as such
easements, rights, dedications. Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount of sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as voluntary payment, and there shall survive the right on the part of
said party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitle to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and
deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution
of this Lease, deliver to Lessor evidence of such authority satisfactory
to Lessor.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Insuring Party. The insuring party under this lease shall be the SEE
---
ADDENDUM, Para. 57
- ------------------
47. Addendum. Attached hereto is an addendum of addena containing paragraphs
48 through 69 which constitutes a part of this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY THE EXECUTION OF THIS LEASE, SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease at the place on the dates specified
immediately adjacent to their respective signatures.
WILLIAM L. PENZNER, Trustee of the
Executed at SANTA MONICA, CALIFORNIA William L. Penzner Trust
------------------------------ -----------------------------------
on May 13, 1992 By /s/ William L. Penzner
--------------------------------------- ---------------------------------
Address 1704 Tropical Avenue, By /s/ William L. Penzner
----------------------------------- ---------------------------------
Beverly Hills, CA 90210 "LESSOR" (Corporate seal)
- ------------------------------------------ RAMA MEDIA INVESTMENTS, INC.,
Executed at Los Angeles A Tennessee Corporation
----------------------------- ----------------------------------
on May 29, 1992 By /s/ Isaac Tigrett, President
- ---------------------------------------- --------------------------------
Address By ISAAC TIGRETT, PRESIDENT
------------------------------------ --------------------------------
- ------------------------------------------ "LESSEE" (Corporate seal)
<PAGE>
ADDENDUM TO LEASE
This Addendum to Lease (the "Addendum") is attached to and made a part of
that certain Standard Industrial Lease -- Net (the "Lease") dated, for reference
purposes only, April , 1992 by and between William L. Penzner, Trustee of the
William L. Penzner Trust ("Lessor") and Rama Media Investments, Inc., a
Tennessee corporation, or Assignee ("Lessee"), for the premises located at 8434
Sunset Boulevard, West Hollywood, California. All capitalized terms used and not
defined in this Addendum shall have the meaning set forth in the Lease. In the
event of any inconsistency between the terms of the Lease and the terms of this
Addendum, the terms of this Addendum shall be controlling.
48. Premises. The leased premises shall be:
--------
A. Premises. The space previously occupied by Barrymore's Restaurant
--------
and located at 8434 Sunset Boulevard, Los Angeles, California, as the same may
be expanded as provided in this Addendum, together with appurtenant non-
exclusive parking rights as described in this Addendum.
B. Square Footage of Premises. Approximately 8,500 square feet.
--------------------------
C. Zone. C-2(A) [1-1/2 F.A.R.; 35 feet height limit -- 3 floors].
----
D. Parcel. The Premises consist of a portion of the improvements
------
located on that certain parcel of real property located at the southeast corner
of Sunset Boulevard and Olive Avenue, which parcel is more fully described on
Exhibit "A" attached hereto (the "Parcel"). The Parcel consists of approximately
49,730 square feet of land. Immediately adjacent to and south of the Parcel are
two parcels of real property, each of which consists of approximately 13,000
square feet (the "Adjacent Parcels"). The Parcel and the Adjacent Parcels are
sometimes herein collectively referred to as the "Property."
49. Option to Renew. Lessor hereby grants to Lessee one (1) option
---------------
("Option") to renew the term of the Lease for an additional period of ten (10)
years (the "Option Term"), provided that Lessee delivers to Lessor written
notice of its election to exercise the Option at least three (3) months prior to
the expiration of the initial term of the Lease.
In the event Lessee elects to exercise the Option, all of the terms
and conditions of the Lease shall remain unmodified and in full force and
effect, except that monthly base rent shall be increased by Two Thousand Dollars
($2,000) over the monthly base rent for the last month of the initial term of
the Lease. The monthly base rent during the Option Term shall be further
increased by Two Thousand Dollars ($2,000) every 24 months thereafter on the
anniversary of the Lease commencement date, such that the rental schedule
described in the Section 50 below shall apply.
50. Rent.
----
A. Initial Base Rent. The monthly base rent for the Premises shall
-----------------
initially be Twenty Thousand Dollars ($20,000) per month (hereinafter sometimes
referred to as "Fixed Rent," "Base Rent" or "Monthly Base Rent").
B. Free Rent. During the first five months of the Lease term,
---------
Lessee's rent, insurance pass throughs, Common Area maintenance charges, propery
tax charges and all other amounts payable under the Lease shall be fully abated;
provided, however, Lessee shall pay Lessor the amounts of $1,500.00 per month
during such five (5) month period in full and complete satisfaction of all of
Lessee's payment obligations under the Lease.
1
<PAGE>
C. Adjustments. On the second anniversary of the commencement of the
-----------
Lease term, and on the same date each 24 months thereafter, monthly base rent
shall be increased by $2,000, as follows:
Initial Lease Term:
------------------
Lease Years Monthly Base Rent
----------- -----------------
Years 1-2 $20,000
Years 3-4 $22,000
Years 5-6 $24,000
Years 7-8 $26,000
Years 9-10 $28,000
Option Term
-----------
Lease Years Monthly Base Rent
----------- -----------------
Years 11-12 $30,000
Years 13-14 $32,000
Years 15-16 $34,000
Years 17-18 $36,000
Years 19-20 $38,000
D. Percentage Rent.
---------------
(i) Quarterly Payment. As additional rent for the Premises, Lessee
-----------------
agrees to pay to Lessor six percent (6%) of the Gross Sales (as defined below)
of food and beverages only made in or upon the Premises during each calendar
year of the Lease term, less the fixed rent paid by Lessee for such year
("Percentage Rent"). Percentage Rent shall be computed each calendar month and,
on or before the twentieth (20) day following the close of each calendar month,
Lessee shall pay to Lessor the amount by which the sum so computed as a
percentage of Gross Sales during such calendar month exceeds the monthly base
rent which became due and was paid by Lessee during such calendar month.
(ii) Annual Adjustment. Within sixty (60) days after the close of
-----------------
each calendar year, there shall be determined the Gross Sales of Lessee during
said year, the total amount paid to Lessor as fixed rent for said calendar year,
and the amounts paid to Lessor as Percentage Rent for said calendar year.
Thereupon an adjustment shall be made with respect to Percentage Rent as
follows: If Lessee shall have paid to Lessor an amount greater than Lessee is
required to pay as Percentage Rent for such calendar year under the terms
hereof, Lessee shall be entitled to a credit against Lessor's next payment(s) of
rent for the amount of such overpayment or, if Lessee shall have paid an amount
less than the Percentage Rent required to be paid hereunder, then Lessee shall
pay such difference to Lessor within twenty (20) days.
<PAGE>
(iv) Statement of Gross Sales. Within twenty (20) days after the end
--------- -- -----------
of each calendar month during the term hereof and after the last month of the
term of the lease, Lessee shall furnish Lessor a statement in writing, certified
by an officer of the Lessee to be correct, showing the total gross sales during
the preceding calendar month. Within sixty (60) days after the end of each lease
year, Lessee shall furnish Lessor a statement in writing, certified by an
officer of the Lessee to be correct, showing the total of gross sales during
said lease year, and shall pay to Lessor the percentage rent due thereon as set
forth in sub-paragraph (ii).
sale, all receipts from sales or other transactions, whether cash or
credit, on sales slips on in a cash register, or in cash registers,
having a cumulative total. Lessee shall keep full and accurate books
of account and records of any exclusions or deductions from Gross
Sales. In addition, upon request of Lessor, Lessee agrees to furnish
to Lessor a copy of Lessee's sales tax returns. Such books and
records shall be kept for a period of at least one (1) year after the
close of each calendar year.
(vi) Audit. Within one (1) year after the receipt of any
-----
statement, Lessor at any time shall be entitled to an audit of Gross
Sales reflected on such statement either by Lessor or by an
accountant to be designated by Lessor. Such audit shall be limited to
the determination of the Gross Sales as defined in this Lease and
shall be conducted, at Lessor's option and upon reasonable notice to
Lessee, during normal business hours at either the Premises or the
principal place of business of Lessee. Any such audit shall be
conducted in such a manner so as not to interfere with Lessee's
business operations. If it shall be determined as a result of such
audit that there has been a deficiency in the payment of Percentage
Rent, then such deficiency shall become immediately due and payable
with interest announced by Bank of America from time to time from the
date when said payment should have been made. In addition, if
Lessee's statement for the pertinent calendar year shall be found to
have understated Gross Sales by more than five percent (5%), then
Lessee shall pay Lessor's reasonable costs and expenses connected
with said audit.
(vii) Definition of Gross Sales. "Gross Sales" of Lessee
-------------------------
shall mean gross receipts of all food and beverages sold in or from
the Premises, whether said receipts be evidenced by check, cash,
credit, credit card system, charge account, or otherwise. Excluded
from Gross Sales shall be: (a) exchanges of merchandise between
Lessee's stores made only for the convenient operation of Lessee's
business and not to consummate a sale made in, at or from the
Premises; (b) returns to suppliers; (c) refunds to customers (but
only to the extent included in Gross Sales); (d) the aggregate amount
of the established discounts deducted by Diner's Club, American
Express, Visa, Master Charge, Discovery or other organizations
issuing credit cards to customers of Lessee, from the amounts charged
to such customers; (e) gratuities and tips to Lessee's employees
which are added to the customer's check; (f) insurance proceeds from
casualty and business losses except for business interruption
insurance or other insurance to the extent that such insurance
compensates Tenant for loss of sales; (g) the proceeds of the sale of
any franchise to operate a restaurant on the Premises, and all fees,
charges or rents charged to or received from any such franchise; (h)
the proceeds of sale from cigarette, telephone
3
<PAGE>
or other coin operated vending machines; (i) meals to employees of
Lessee for which no charge is made or for which a separately registered charge
is made or discounts to employees; (j) complimentary beverages and food; (k) (l)
sales, excise or similar tax imposed by governmental authority and collected
from customers and paid out by Lessee; and (m) sales of any items other than
food or beverages.
51. Security Deposit. Lessee's security deposit shall be credited
----------------
against the monthly base rent owing for the sixtieth (60th) month of the Lease
term.
52. Use.
---
A. Use. The Premises shall be used and occupied for the purpose
---
of operating a full-service restaurant and bar which shall be entitled (but
not required) to serve breakfast or lunch, but is required to serve dinner; a
live music and dancing venue; retail shops; administrative offices; or other
similar use which is reasonably comparable or is incidental to such uses and for
no other purpose. Notwithstanding the other uses permitted hereunder, the
restaurant, bar, live music and dancing use shall be the primary use of the
Premises. Notwithstanding Lessee's proposed use, Lessor warrants only that the
Premises can be used as a restaurant. Lessor does not warrant that the Premises
can be used as a bar, or for live music, or dancing. However, Lessor shall
cooperate in obtaining permits for such extended use.
53. Compliance with Law.
-------------------
A. Zoning. Lessor warrants that the C-2 A zone permits a
------
restaurant on the Premises. Lessor represents that the consumption of alcohol
on the Premises requires a conditional use permit (beverage) from the City of
West Hollywood.
B. Statutes and Ordinances. Subject to the provisions of
-----------------------
Section 53A above, Lessee shall, in the conduct of Lessee's business at Lessee's
expense, comply with and carry out all applicable laws, ordinances, regulations
of any fire insurance underwriters or rating bureaus which effect the Premises.
Lessee shall, at Lessee's expense, cause the Premises to comply with all laws,
ordinances, regulations and orders of public authority as may apply to the
Premises as of the commencement date of the Lease.
C. Permits. Any requirements made upon Lessee in attempting to
-------
get a conditional use permit, live music permit, entertainment permit, dance
permit and/or alcoholic beverage license shall not become the obligation of
Lessor, including, but not limited to, alteration of the Premises, the Common
Areas or provision for additional parking. Lessor shall not be responsible for
nor does Lessor warrant that live entertainment or dancing will be permitted on
the Premises at any time if Lessee attempts to obtain an alcoholic beverage
permit or a conditional use permit (beverage). Lessor shall not be responsible
for any restriction in the granting of an alcoholic beverage permit, live music
permit, entertainment permit, dance permit or conditional use permit, including,
but not limited to, a restriction on a separate bar area maintained for the sole
purpose of the sale of alcoholic beverages directly to patrons, or requiring the
sale of alcoholic beverages to be incidental at all times to the sale of food.
4
<PAGE>
54. Contingencies. The Lease shall be contingent upon the following:
-------------
A. Lessee receiving, within 8 months (the "Contingency Period")
after commencement of the Lease term, all permits, licenses and authorizations
necessary to operate its business on the Premises, including but not limited to
a full liquor license, a conditional use permit for the conduct of Lessee's
business as a restaurant, bar, live entertainment and dance venue and all
licenses and permits to operate a restaurant, bar, dance and live entertainment
venue (collectively the "Permits");
B. Lessee's confirmation and approval, during the Contingency
Period, of the current parking situation on the Property, including but not
limited to the parking rights pertaining to the premises leased by Lessor to
Butterfield's. In this regard, Lessor shall provide Lessee within thirty (30)
days after the execution hereof, with copies of all agreements entered into by
Lessor which grant or affect parking rights on the Property. Lessor warrants
that the other tenants of the Parcel have the non-exclusive use of the parking
lot appurtenant to their leased premises. Lessee shall likewise have the non-
exclusive use of the parking lot adjacent to the Premises in conjunction with
the other tenants of the Parcel. As part of this use, Lessee shall have the
joint responsibility with the other tenants to maintain such parking lot
facilities. Should Lessee, in conjunction with the other tenants, institute a
charge for parking in the parking lot, Lessor will not participate or share in
any revenue therefrom as long as the parking remains exclusive to patrons and
customers of the tenants.
C. Lessee's confirmation during the Contingency Period that the
Premises and the Parcel are free of "Hazardous Materials," as that term is
defined under applicable Federal and state laws. Lessee shall conduct such tests
and studies as Lessee may elect to confirm the absence of Hazardous Materials;
and
D. Lessee's review and approval of title to the Parcel. Lessee shall
have ten (10) days after the execution of the Lease term within which to approve
or disapprove title.
If Lessee (i) disapproves the current parking situation, the environmental
condition of the Parcel or the state of title to the Parcel within the time
periods set forth above, or (ii) if Lessee has not received or is reasonably
certain after all reasonable applications have been submitted that it will not
be granted any of the Permits within the Contingency Period, Lessee may cancel
the Lease upon written notice to Lessor given prior to expiration of the
Contingency Period (the "Cancellation Right"), and each party shall thereupon be
released from its obligations under the Lease provided that (i) Lessee at its
sole cost and expense shall complete any repairs or improvements which Lessee
may have undertaken prior to the expiration of the Contingency Period and (ii)
Lessor shall return to Lessee the first month's rent (unless the cancellation
occurs after the fifth month after the commencement of the Lease term, (less any
appropriate retentions by Lessor) in which event Lessor shall retain the first
month's rent) and security deposit paid by Lessee upon execution of the Lease.
Notwithstanding the foregoing, Lessee shall be obligated to pay all rent owing
under the Lease (subject to the abatement described in Section 50B of this
Addendum) and observe all other conditions of the lease during such Contingency
Period. Lessee shall make all good faith efforts consistent with reasonable
business practices to obtain the Permits within the Contingency
5
<PAGE>
Period. Lessor shall allow and cooperate (including the filing of applications
both prior to and after the expiration of the Contingency Period) with Lessee to
make application for any and all of the Permits.
55. Common Areas Maintenance.
------------------------
A. Common Areas Defined. The term "Common Areas" means all areas
--------------------
and facilities outside the Premises and within the exterior boundary lines of
the Parcel on which the Premises are located that are provided and designated by
Lessor from time to time for the general non-exclusive use of Lessor, Lessee and
the other lesses on the Property, including but not limited to common stairways,
walkways, driveways, roadways, parking areas, landscaping and decorative walls.
Lessee shall not make any changes or modifications to the Common Areas, or
obstruct or limit access thereto, without the prior written consent of Lessor.
Lessor acknwledges that Lessee may add parking structures to the Common Areas
pursuant to the terms of this Addendum, and Lessor agrees that any such
structure shall be deemed to be part of the Common Areas.
B. Common Area Maintenance. Lessor shall keep the Common Areas and
-----------------------
every part thereof in good condition, order and repair. In the event Lessor
fails to perform any repairs or maintenance to the Common Areas within (30) days
after written notice from Lessee of the need for the same, Lessee may perform
such repairs at Lessor's expense and deduct the cost thereof from its next
installment(s) of rent under the Lease.
C. Common Area Operating Expenses.* Lessee shall pay to Lessor during
------------------------------
the term hereof, in addition to the Base Rent, Lessee's share, as hereinafter
defined, of all Commonn Area Operating Expenses, as hereinafter defined, during
each calendar year of the term of this Lease, in accordance with the following
provisions:
1. "Lessee Share" is defined for purposes of this Lease, as the
proportion that the number of square feet in the leased premises on the date the
Lease is executed bears to the total number of square feet in the buildings
located on the parcel of which the Premises are a part on such date. However,
Lessee's proportionate share shall be increased as the Lessee expands the leased
premises in accordance with Lessee's planned improvements to the leased premises
as set forth in Addendum paragraph 56.
2. "Common Area Operating Expenses" is defined, for purposes of this
Lease, as all costs incurred by Lessor, if any, for:
a) The operation, repair and maintenance, in neat, clean, good
order and condition, of the following:
1) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities and fences and
gates;
2) Trash disposal services;
3) Tenant directories and sign maintenance;
4) Fire detection systems including sprinkler system maintenance
and repair;
5) Security services;
6) Any other service to be provided by Lessor that is elsewhere in
this Lease stated to by an "Operating Expense", or a reasonable
operating expense of Lessor.
b) Any deductible portion of an insured loss concerning any of
the items or matters described in this paragraph.
c) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 and Addendum
paragraph 57 hereof.
d) The cost of water, gas and electricity to service the Common
Areas.
<PAGE>
3. The inclusion of the improvements, facilities and services set
forth in paragraph 2 a) of the definition of Common Area Operating Expenses
shall not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the center
already has the same, Lessor already provides the services, or Lessor has agreed
elsewhere in this Lease to provide the same or some of them.
4. Lessee's share of Common Area Operating Expenses shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Areas Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each twelve-month period of the
lease term, on the same days as the Base Rent is due hereunder. In the event
that Lessee pays Lessor's estimate of Lessee's Share of Common Area Operating
Expenses as aforesaid, Lessor shall deliver to Lessee within sixty (60) days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the actual Common Area Operating Expenses incurred
during the preceding year. If Lessee's payments under this paragraph (d) during
said preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be entitled to credit the amount of such overpayment against Lessee's
Share of Common Area Operating Expenses next falling due. If Lessee's payments
under this paragraph during said preceding year were less than Lessee's Share
as indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within thirty (30) days after delivery by Lessor to Lessee of said
statement.
5. Notwithstanding the above provisions, Lessee shall, in conjunction
with the other tenants at the parcel containing the leased premises, keep and
maintain the parking areas adjacent to their respective leased premises in good
repair and condition.
C. Liens. Lesee shall not incur any liens to be filed or enforced
-----
against the Property. Lessee shall provide Lessor with lien releases as the
work of Lessee's subcontractors is completed.
D. Plans and Specifications. Except with respect to the Approved
------------------------
Work, prior to any future construction Lessee shall submit to Lessor plans and
specifications showing Lessee's intended improvements for Lessor's approval.
Moreover, all plans and specifications shall meet the building code for the City
of West Hollywood, and all necessary permits and inspections shall be provided.
Lessor shall cooperate with Lessee to allow access to the Premises and to make
application for any and all permits necessary for Lessee's improvements.
E. Commencement of Work. Lessee shall give Lessor not less than ten
--------------------
days notice prior to the commencement of any work on the Premises and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
as provided by law.
F. Title. All alterations, improvements, additions, and utility
-----
installations which are structural in nature and which may be made on and
permanently affixed to the Premises, shall, upon termination of the Lease,
become the property of Lessor and shall
7
<PAGE>
remain upon and be surrendered with the Premises upon such termination. Lessee
may remove any non-structural items such as equipment and trade fixtures at the
termination of the lease.
G. Responsibility. All of Lessee's improvements shall be done at
--------------
its sole cost. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to 1 1/2 times
the estimated cost of Lessee's improvements, to insure Lessor against any
liability for mechanics and materialman's liens and to insure completion of the
work.
H. Schedule of Initial Improvements.
--------------------------------
(i) During the first six months after the waiver or expiration
of the Cancellation Right, Lessee shall endeavor to make structural and
mechanical improvements to the Premises previously identified by Lessee's
contractor as having an estimated cost of $796,000. The proposed
improvements include, but are not limited to, adding additional seating
capacity, improving heating, air conditioning, ventilation, electrical
systems, and the structure of the restaurant. The architectural rendering
for such improvements has been approved by Lessor prior to execution of the
Lease as set forth in Section 56A above.
(ii) Lessee shall have the right, at any time, to dig out the
basement of the Premises and otherwise expand the Premises to add
additional square footage to the Premises. In this regard, Lessee shall, if
required by the City of West Hollywood, build a deck in the parking lot or
otherwise make such other parking improvements as may be required in order
to comply with increased parking requirements of the City. Lessee estimates
that it will spend at least $783,000 on such improvements, if undertaken.
(iii) Lessee shall install such fixtures and trade equipment as is
necessary to commence operations as a restaurant on the Premises.
57. Insurance.
---------
A. Liability Insurance/Lessee. Lessee will keep in force during the
--------------------------
term of the Lease a policy of combined single limit bodily injury and property
damage insurance insuring Lessee and Lessor against any liability arising out of
the use, occupancy or maintenance of the Premises and the Parcel. Such
insurance shall be an amount not less than $500,000 per occurrence.
B. Liability Insurance/Lessor. Lessor shall obtain and keep in force
--------------------------
during the term of the Lease a policy of combined single limit bodily injury and
property damage insurance insuring Lessor, but not Lessee, against any liability
arising out of the ownership, use and occupancy or maintenance of the Parcel in
an amount not less than $500,000 per occurrence. Lessee shall pay to Lessor,
during the term of the Lease, in addition to the rent, an amount equal to
Lessee's pro rata share of premiums for the insurance required or permitted to
be maintained by Lessor under the Lease. Lessee shall pay such pro rata share to
Lessor within thirty (30) days after receipt by Lessee of a copy of
Lessor's premium statement or other satisfactory evidence of the amount due.
Lessee's pro rata share shall be determined in accordance with the formula set
forth in Section 55C above.
C. Property Insurance. Lessor shall keep in force a policy of
------------------
insurance covering loss or damage to the improvements of the Parcel, but not
Lessee's personal property, fixtures, equipment or Lessee's improvements in an
amount not to exceed the full replacement value thereof providing protection
against all perils included within the classification of fire extended coverage,
vandalism, malicious mischief, flood (in the event same is required
8
<PAGE>
by a lender having a lien on the premises) special extended perils (all risk),
as such term is used by the insurance industry, plate glass insurance and such
other insurance as Lessor deems advisable. Lessee shall pay its pro rata share
of such expenses (determined in accordance with Section 55C above) as billed by
Lessor. Lessee shall not be required to pay the cost of earthquake insurance
maintained by Lessor.
58. Restriction on Indemnity. Notwithstanding Sections 8.6 and 8.7 of the
------------------------
Lease to the contrary, Lessee shall not indemnify or hold harmless Lessor from
or against, nor shall Lessor's exemption from liability under the Lease extend
to, any claims resulting from the acts or omissions of Lessor, its agents,
employees, licensees representatives or contractors.
60. Real Property Taxes. Lessee shall pay, as additional rent, Lessee's
-------------------
pro rata share of the amount of Real Property Taxes (as defined below)
applicable to the Premises.
Lessee's pro rata share shall be based upon the proportion that the
number of square feet in the Premises on the date the Lease in executed bears to
the total number of square feet in the buildings located on the Parcel of which
Premises are a part on such date. Lessee's share shall be increased as set
----------------------------------------
forth in paragraph 55 C.1.
- -------------------------
Such payment shall be made by Lessee in a timely fashion after receipt
of Lessor's written statement setting forth the amount of such Real Property
Taxes and the computation of Lessee's pro rata share thereof. Partial tax years
will be billed on a pro rata basis.
"Real Property Taxes" shall include any form of real estate tax or
assessment, general, special, ordinary or extraordinary and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax imposed upon the
Premises by any authority having the direct or indirect power to tax.
During the first five years of the Lease term, Lessee shall not be
responsible for the payment of any increases in Real Property Taxes attributable
to changes in ownership (as defined in
9
<PAGE>
the California Revenue and Taxation Code) of the Property. During the sixth
year of the Lease term, Lessee shall be responsible for only 20% of its pro rata
share of any increased taxes payable for the then current tax year arising out
of changes of ownership in the then current or prior tax years (the "Increased
Taxes"); during the seventh year of the Lease term, Lessee shall be responsible
for only 40% of its pro rata share of Increased Taxes; during the eighth year of
the Lease term, Lessee shall be responsible for only 60% of its pro rata share
of Increased Taxes; during the ninth year of the Lease term, Lessee shall be
responsible for only 80% of its pro rata share of Increased Taxes; and during
the tenth year of the Lease Term and the Option Term, Lessee shall be
responsible for 100% of its pro rata share of Increased Taxes. Lessee shall pay
in a timely fashion the entirety of any increase in Real Property Taxes assessed
solely by reason of additional improvements placed upon the Premises by Lessee
or at Lessee's request.
Lessee shall pay prior to delinquency all taxes assessed against and
levied upon trade fixtures, furnishings, equipment and other personal property
of Lessee contained in the Premises or elsewhere. If possible, Lessee shall
cause said trade fixtures, furnishings and equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
days after the receipt of a written statement setting forth the taxes applicable
to Lessee's property.Lessor's consent which consent shall not be
unreasonable withheld.
61. Assignment and Subletting. Lessee may assign the Lease or sublease
-------------------------
all or any part of the Premises with Lessor's consent, which consent shall not
be unreasonably withheld. Lessor's consent to an assignment or sublease may be
conditioned upon Lessor's determination that the proposed assignee or sublessee
(i) will conduct a business of a substantially similar restaurant/nightclub use
that is reasonably certain to generate a substantially similar amount of
Percentage Rent and (ii) has a financial ability reasonable satisfactory to
Lessor and no less than that of Lessee at the time of the proposed assignment of
the Lease. Lessor may require any proposed assignee or sublessee to execute a
personal guaranty as consideration for Lessor's consent to the assignment or
sublease. Notwithstanding the foregoing, Lessor's consent shall not be required
for subleases to licenses and concessionaires operating on the Premises so long
as (i) such licensee or concessionaire does not operate the restaurant/nightclub
or (ii) occupy more square footage than the restaurant/nightclub.
62. Lessor's Access. Any entry of the Premises by Lessor shall be
---------------
conducted at a time and in a manner so as not to interfere with the operation of
Lessee's business. Lessor shall not place "For Sale" signs on the building
containing the leased premises except during the last 120 days of the Lease
term. However, this provision shall not limit the Lessor from placing "For
Sale" signs on other buildings on the subject property or elsewhere.
63. Personal Guaranty. Isaac Tigrett shall personally guaranty the first
-----------------
years rental payments under the Lease. Said first year shall commence with the
sixth (6th) month of the Lease term.
64. Parking. Subject to Section 54B above, Lessor shall provide Lessee
-------
with vehicle parking on the Parcel sufficient to meet the requirements of the
City of West Hollywood and the reasonable requirements of Lessee's business.
65. Right to Lease Other Structures. Lessor hereby grants Lessee the
-------------------------------
right of first refusal to lease all other structures (or space therein) on the
Property upon the termination of the existing lease(s) of such structures (or
space therein). As soon as reasonably possible after Lessor determines that any
structure or space therein on the Property ("Refusal Premises") will become
available for lease due to the termination or expiration of the
10
<PAGE>
existing lease for such Refusal Premises, Lessor shall notify Lessee of the same
in writing. If Lessee notifies Lessor within fifteen (15) days of the receipt
of such notice that Lessee desires to lease the Refusal Premises, the parties
shall negotiate in good faith to determine mutually acceptable terms for such
lease. If following a thirty (30) day period of good faith negotiation Lessor
and Lessee are unable to agree upon mutually acceptable terms, Lessor shall
present Lessee with its final best offer (the "Best Offer") in writing. If
Lessee declines to accept the Best Offer, Lessor shall be free to lease the
Refusal Premises to any third party on terms no less favorable to Lessor than
those set forth in the Best Offer. If Lessor determines to lease the Refusal
Premises to a third party on terms less favorable to Lessor than those set forth
in the Best Offer, Lessor shall first offer Lessee the opportunity to lease the
Refusal Premises on such less favorable terms. This process shall be repeated
so long as Lessor continues to make offers to or receive proposals from third
parties on terms less favorable to Lessor than those set forth in the Best
Offer.
66. Use of Billboards; Signs. The small billboard on the Parcel may be
------------------------
used by Lessee at no charge throughout the entire term of the Lease. Lessee
shall have the right of first refusal to lease the large billboards upon the
expiration of termination of the lease for such billboards, upon the terms and
conditions set forth in Section 65 above.
67. Right to Purchase Property. Lessor hereby grants Lessee the right to
--------------------------
first refusal to purchase the Parcel. If Lessor receives any bona-fide third-
party offer (an "Offer") for the Parcel which Lessor is willing to accept,
Lessor shall promptly notify Lessee in writing and provide Lessee with a copy of
the Offer. Lessee shall have fifteen (15) days after receipt of such notice and
a copy of the Offer in which to notify Lessor in writing of its election to
purchase the Parcel on the terms and conditions set forth in the Offer. If
Lessee elects to purchase the Parcel on the terms and conditions set forth in
the Offer, Lessor shall be obligated to sell the same to Lessee on such terms
and conditions. If Lessee does not elect to purchase the Parcel within the
fifteen-day period on the terms set forth in the Offer, Lessor shall have no
further obligation to sell the Parcel to Lessee on such terms. However, if
Lessor thereafter decides to sell the Parcel on terms less favorable to Lessor
than those contained in the Offer, Lessor shall give Lessee the right of first
refusal to purchase the Parcel on the terms set forth in any other bona-fide
third party offer which Lessor is prepared to accept, which right must be
exercised by Lessee giving Lessor notice of its election to purchase on such
terms within fifteen (15) days from Lessee's receipt of written notice and a
copy of such new third party offer. This process shall be repeated so long as
Lessor continues to make or receive offers on terms less favorable to Lessor
than previously presented to Lessee.
68. Personal Benefits. If a "public offering" of interests in the
-----------------
business conducted on the Property is made on any U.S. or foreign stock
exchange, Lessor or his estate will have the right to purchase five percent (5%)
of the shares to be issued to Isaac Tigrett in the offering at the same price as
Isaac Tigrett purchases shares in the offering, subject to any restrictions of
applicable state or federal securities laws. Lessor will also have the right to
purchase a 5% limited partnership interest in the
11
<PAGE>
business located on the Property pari passu with the other limited partners,
subject to applicable federal and state securities laws and to the successful
completion of a limited partnership offering.
69. Hotel Project. Following the expiration of the initial ten year term
-------------
of the Lease, if Lessor receives final approval from the City of West Hollywood
to erect a hotel on the Property and is prepared to erect a hotel, Lessor shall
have the right, upon one year's notice to Lessee given in the ninth year of the
initial Lease term, to terminate the Lease provided that:
A. Lessor constructs in the hotel or as a free standing building,
whichever is permitted but with a preference given to a free standing building,
at Lessor's sole cost and expense, a suitable "shell" for Lessee's use as a
replacement premises which can be used by Lessee as a live music venue,
restaurant and retail shops. The shell shall include all interior walls ready
for application of Lessee's wall coverings; ceilings; floor slab ready for
application of Lessee's floor covering; all partitions; stub out of adequate
electrical, drainage and plumbing at such reasonable locations as requested by
Lessee; operational heating, ventilation and air conditioning system, including
all equipment, ducting, vents and fans; all other mechanical systems to point of
entry; fire safety systems and sprinklers (if required by city ordinance); and
such other items required so that Lessee shall be responsible only for the
finish and installation of equipment and fixtures, and cosmetic aspects of the
new structure. Lessee shall be responsible for the cosmetics of the new
premises, as well as constructing any additional improvements within the shell
to conduct a live music venue, restaurant and retail shops (such as music and
sound system and kitchen equipment). Finally, should Lessor construct a free
standing building, it may be two stories to accommodate Lessee's space
requirements.
B. Such replacement premises shall be constructed in a prominent
location in the hotel or on the grounds thereof (if a free standing building is
constructed) to be determined by mutual agreement. The shell shall be
constructed in accordance with Lessor's overall plans and specifications for the
hotel, with allowances made for reasonable specification provided by lessee for
its use as a live music venue, restaurant and retail shops.
C. The lease term for such replacement premises shall begin upon
commencement of operation of Lessee's business to the public in the replacement
premises, be for a term of 10 years, with a minimum monthly rent of 90% of the
then fair market restaurant rent (as determined in accordance with Section G
below) for similar premises in the area, subject to increases every two years
for changes in the Consumer Price Index. Prior to commencement of the new lease
term, Lessee shall have the privilege to enter upon the Premises for the purpose
of planning, constructing and installing its tenant improvements and trade
fixtures and preparation of occupancy. All other terms of the lease agreement
for the initial term (except the contingency and abatement clauses) to remain
the same as the Lease.
D. All charges under the lease shall abate during the period necessary
for demolition and construction. All minimum base rent shall abate during the
first ten (10) months of the lease term. However, during said ten month period,
Lessee shall pay Percentage Rent on the premises less the fixed rent Lessee
would have been paying without the abatement.
E. The square footage of such replacement premises shall not be less
than the square footage of the Premises immediately prior to demolition, unless
Lessee requests a smaller area.
12
<PAGE>
F. Lessee and Lessor acknowledge that in the event Lessor elects to
terminate the Lease as provided in this Section 69, Lessee shall have the right,
to be exercised in its sole discretion, to elect to proceed with a new lease for
the replacement premises as provided herein or to accept the cancellation of the
existing Lease without extension or replacement thereof. Lessee shall give
notice to Lessor of its election not later than 120 days after receipt by Lessee
of Lessor's notice to terminate the Lease or 15 days after determination of the
fair market rent for the Premises in accordance with Section 69G below,
whichever is later.
G. For purposes of Section 69C above, fair market restaurant rent for
similar premises in the area shall be determined as follows: During the 15 day
period following Lessee's receipt of notice that Lessor intends to terminate the
Lease, Lessee and Lessor shall negotiate in good faith to determine fair market
rent. If within such period Lessee and Lessor are unable to agree upon fair
market rent, each party shall within 20 days after the expiration of such 15 day
period at its sole cost appoint an appraiser having at least five years
experience appraising restaurants in the area in which the Premises are located
and notify the other party of such appointment in writing. If either party fails
to appoint an appraiser within such time period, the single appraiser appointed
shall be the sole appraiser and shall determine the fair market rent. If the two
appraisers are appointed as provided herein, they shall meet promptly and
attempt to determine fair market rent. If they are unable to agree upon the fair
market rent within 30 days after the expiration of the 10 day period provided
for their appointment, they shall appoint a third appraiser meeting the
qualifications provided above within 10 days after the last day the two
appraisers are given to determine the fair market rent. If they are unable to
agree upon a third appraiser within such period, either party to the Lease upon
giving at least 10 days notice to the other party may apply to the presiding
judge of the Los Angeles Superior Court for the selection of a third appraiser
meeting the qualifications provided above. Each of the parties shall bear one-
half of the cost of appointing and paying the third appraiser. The third
appraiser, however selected, shall be a person who has not previously acted in
any capacity for either party. Within 30 days after selection of the third
appraiser, a majority of the appraisers shall determine the fair market rent. If
a majority are unable to agree, the average of the three appraisals shall be the
fair market rent.
"LESSOR"
/s/ WILLIAM L. PENZNER
------------------------------
WILLIAM L. PENZNER, Trustee of
the William L. Penzner Trust
"LESSEE"
RAMA MEDIA INVESTMENTS, INC.,
a Tennessee corporation
By: /s/ ISAAC TIGRETT
---------------------------
Isaac Tigrett, President
13
<PAGE>
LEGAL DESCRIPTION
-----------------
LOTS (4) AND FIVE (5) AND ALL OF THAT PORTION OF LOT THREE (3) OF DEEDS TRACT
1501, IN THE CITY OF WEST HOLLYWOOD, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA,
AS PER MAP RECORDED IN BOOK 23 PAGE(S) 64 OF MAPS, LYING NORTHERLY OF A LINE
COMMENCING AT THE NORTHEAST CORNER OF LOT THREE (3) AND EXTENDING WESTERLY AND
PARALLEL WITH THE SOUTH LINE OF SAID LOT THREE (3) TO THE WESTERLY LINE THEREOF.
ALSO ALL THAT PORTION OF LOT SIX (6) LYING WESTERLY OF A LINE COMMENCING AT THE
SOUTHWESTERLY CORNER OF LOT SIX (6) AND EXTENDING NORTHERLY AND PARALLEL WITH
THE EASTERLY LINE OF SAID LOT SIX (6) TO THE NORTHERLY LINE THEREOF; ALL IN
TRACT 1501, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN
BOOK 23 PAGE 64 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
Exhibit "A"
14
<PAGE>
GUARANTY OF LEASE [LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
WHEREAS WILLIAM L. PENZNER, TRUSTEE OF THE WILLIAM L. PENZNER TRUST,
-----------------------------------------------------------
hereinafter referred to as "Lessor", and ________________________________,
hereinafter referred to as "Lessee" are about to execute a document entitled
"Lease" dated April 27, 1992 concerning the premises commonly known as
--------------
8434 Sunset Boulevard, West Hollywood, California
- -------------------------------------------------------------------------------
wherein Lessor will lease the premises to Lessee and
WHEREAS, Isaac Tigrett
---------------------------------------------------------------
hereinafter referred to as "Guarantors" have a financial interest in Lessee and
WHEREAS, Lessor would not execute the Lease if Guarantors did not execute
and deliver to Lessor this Guarantee of Lease.
NOW THEREFORE, for and in consideration of the execution of the foregoing
Lease by Lessor and as a material inducement to Lessor to execute said Lease.
Guarantors hereby jointly, severally, unconditionally and irrevocably guarantee
the prompt payment by Lessee of one (1) year's rental payments under the Lease,
said one (1) year period to commence with the sixth (6th) month of the Lease
term. Said rental payments shall include all additional rental charges provided
-------------------------------------------------------------------------
for under the lease.
- -------------------
It is specifically agreed and understood that the terms of the foregoing
Lease may be altered, affected, modified or changed by agreement between Lessor
and Lessee, or by a course of conduct, and said Lease may be assigned by Lessor
or any assignee of Lessor without consent or notice to Guarantors and that this
Guaranty shall thereupon and thereafter guarantee the performance of said Lease
as so changed, modified, altered or assigned.
This Guaranty shall not be released, modified or affected by failure or
delay on the part of Lessor to enforce any of the rights or remedies of the
Lessor under said Lease whether pursuant to the terms thereof or at law or in
equity.
No notice of default need be given to Guarantors, it being specifically
agreed and understood that the guarantee of the undersigned is a continuing
guarantee under which Lessor may proceed forthwith and immediately against
Lessee or against Guarantors following any breach or default by Lessee or for
the enforcement of any rights which Lessor may have as against Lessee pursuant
to or under the terms of the within Lease or at law or in equity.
Lessor shall have the right to proceed against Guarantors hereunder
following any breach or default by Lessee without first proceeding against
Lessee and without previous notice to or demand upon either Lessee or
Guarantors.
Guarantors hereby waive (a) notice of acceptance of this Guaranty, (b)
demand of payment, presentation and protest, (c) all right to assert or plead
any statute of limitations as to or relating to this Guaranty and the Lease, (d)
any right to require the Lessor to proceed against the Lessee or any other
Guarantor or any other person or entity liable to Lessor, (e) any right to
require Lessor to apply to any default any security deposit or other security it
may hold under the Lease, (f) any right to require Lessor to proceed under any
other remedy Lessor may have before proceeding against Guarantors, (g) any right
of subrogation.
Guarantors do hereby subrogate all existing or future indebtedness of
Lessee to Guarantors to the obligations owed to Lessor under the Lease and this
Guaranty.
Any married woman who signs this Guaranty expressly agrees that recourse
may be had against her separate property for all of her obligations hereunder.
The obligations of Lessee under the Lease to execute and deliver estoppel
statements and financial statements, as therein provided, shall be deemed to
also require the Guarantors hereunder to do and provide the same relative to
Guarantors.
The term "Lessor" whenever hereinabove used refers to and means the Lessor
in the foregoing Lease specifically named and also any assignee of said Lessor
whether by outright assignment or by assignment for security, and also any
successor to the interest of said Lessor or of any assignee in such Lease or any
part thereof, whether by assignment or otherwise. So long as the Lessor's
interest in or to the leased premises or the rents, issues and profits
therefrom, or in, to or under said Lease, are subject to any mortgage or deed of
trust or assignment for security, no acquisition by Guarantors of the Lessor's
interest in the leased premises or under said Lease shall affect the continuing
obligation of Guarantors under this Guaranty which shall nevertheless continue
in full force and effect for the benefit of the mortgagee, beneficiary, trustee
or assignee under such mortgage, deed of trust or assignment, of any purchase at
sale by judicial foreclosure or under private power of sale, and of the
successors and assigns of any such mortgagee, beneficiary, trustee, assignee or
purchaser.
The term "Lessee" whenever hereinabove used refers to and means the Lessee
in the foregoing Lease specifically named and also any assignee of sublessee of
said Lease and also any successor to the interests of said Lessee assignee or
sublessee of such Lease or any part thereof whether by assignment, sublease or
otherwise.
In the event any action be brought by said Lessor against Guarantors
hereunder to enforce the obligation of Guarantors hereunder, the unsuccessful
party in such action shall pay to the prevailing party therein a reasonable
attorney's fee which shall be fixed by the court.
If this Form has been filled in it has been prepared for submission to your
attorney for his approval. No representation or recommendation is made by the
real estate broker or its agents or employees as to the legal sufficiency,
legal effect, or tax consequences of this Form or the transaction relating
thereto.
/s/ Isaac Tigrett
Executed at ___________________________ _________________________________
ISAAC TIGRETT
on_____________________________________ _________________________________
/s/ Isaac Tigrett
Address________________________________ _________________________________
_______________________________________ "GUARANTORS"
. 1977-American Industrial Real Estate Association.
All rights reserved. No part of these works may be reproduced in any form
without permission in writing.
For these forms write the American Industrial Real Estate Association, 350 S.
Figueroa Street, Los Angeles, California 90071
<PAGE>
EXHIBIT 10.32
FIRST AMENDMENT TO STANDARD INDUSTRIAL
LEASE-NET BETWEEN WILLIAM L. PENZNER,
TRUSTEE OF THE WILLIAM L. PENZNER TRUST,
AS LESSOR, AND RAMA MEDIA INVESTMENTS, INC.,
A TENNESSEE CORPORATION, OR ASSIGNEE, AS LESSEE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is dated as of September
19, 1992, by and between William L. Penzner, Trustee of the William L. Penzner
Trust, as Lessor, and Rama Media Investments, Inc., a Tennessee corporation, or
Assignee, as Lessee and is intended to amend that certain Standard Industrial
Lease-Net between Lessor and Lessee dated, for references purposes only, April
10, 1992, together with the Addendum to Lease attached thereto. The Addendum to
Lease and the Lease are collectively referred to herein as the "Lease". All
capitalized terms used and not defined in this First Amendment shall have the
same meaning as set forth in the Lease. This First Amendment is entered into
with reference to the following background facts:
A. Lessor and Lessee have determined that, as a result of the policies and
practices of the City of West Hollywood and other regulatory agencies, Lessee
shall require additional time in order to determine whether it would be feasible
to obtain all permits, licenses and approvals required for Lessee's proposed use
of the Premises.
B. Lessor and Lessee have agreed, in lieu of Lessee exercising the
Cancellation Right at this time, to extend the term of the Contingency Period,
revise the terms for the payment of Base Rent and modify certain terms
concerning the Contingency Period and the Cancellation Right.
C. Lessor and Lessee have further agreed to modify the terms of the Lease
to provide Lessee with an additional option to extend the terms of the Lease, to
modify certain provisions concerning Common Area Maintenance and to provide
certain limitations upon Lessee's first right of refusal concerning certain of
the Refusal Premises, all on the terms and conditions more fully set forth
hereinbelow.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Recitals. Each and all of the foregoing recitals of background facts are
--------
incorporated herein by this reference as though set forth herein verbatim.
2. Base Rent. Notwithstanding the provisions of Paragraphs 4 and 50 of the
---------
Lease, Lessee shall pay Base Rent in accordance with the following:
(a) For the period September 10, 1992 through October 9, 1992, Base
Rent shall be $20,000, which amount the parties acknowledge has been previously
paid by Lessee to Lessor.
(b) For the period commencing October 10, 1992, and continuing through
and including the lease month ending July 9, 1993, the aggregate Base Rent shall
be $40,000, payable in one lump payment on or before October 10, 1992.
(c) The monthly Base Rent for the lease month commencing July 10, 1993
and ending August 9, 1993 shall be $20,000. Commencing with the lease month
commencing August 10, 1993, and continuing through the lease month ending April
9, 1994, monthly Base Rent shall be $25,000.
1
<PAGE>
(d) Commencing on April 10, 1994, Base Rent shall be payable in
accordance with the provisions of Paragraph 50C of the Lease.
3. Contingencies. Notwithstanding the provisions of Paragraph 54 of
-------------
the Lease to the contrary, the parties agree that the Contingency Period and
Lessee's Cancellation Right shall continue through and including June 30, 1993.
Lessee acknowledges and agrees that any Base Rent paid prior to the exercise of
the Cancellation Right shall be retained by Lessor as consideration for Lessor's
agreement to extend the term of the Contingency Period. Lessor acknowledge and
agrees that, in consideration for Lessee's payment of the Base Rent during the
Contingency Period and Lessor's right to retain such Base Rent in the event
Lessee exercises the Cancellation Right, and in addition to the rights to
exercise the Cancellation Right as set forth in Paragraph 54 of the Lease,
Lessee may exercise the Cancellation Right at any time during the Contingency
Period in the event Lessee, in its sole discretion, determines that Lessee (i)
will be unable to construct and/or remodel the Premises in accordance with
Lessee's intended plans and specifications, (ii) is unable to satisfy itself
that the parking situation concerning the Property (including the dispute
involving the neighboring tenant known as Butterfields) cannot be resolved in a
manner satisfactory to Lessee, or (iii) is unable to obtain any Permits or
approvals reasonably necessary or required to operate the Premises as a "blues"
oriented restaurant, bar, live music, live entertainment and dance venue.
4. Option to Renew. Paragraph 49 of the Lease is deleted in its
---------------
entirety and in lieu thereof shall be inserted the following:
"49. Option to Renew. Lessor hereby grants to Lessee two (2) options
---------------
(individually an "Option" and collectively the "Options") to renew the term
of the Lease. The first option (the "First Option") shall be for an
additional period of ten (10) years (the "First Option Term"), and shall be
exercised by Lessee's delivery to Lessor of written notice of its election
to exercise the First Option at least three (3) months prior to the
expiration of an initial term of the Lease. The second option (the "Second
Option") shall be for an additional period of thirteen (13) years (the
"Second Option Term"), and shall be exercised by Lessee's delivery to
Lessor of written notice of its election to exercise the Second Option at
least three (3) months prior to the expiration of the First Option Term.
The First Option Term and the Second Option Term are sometimes hereinafter
collectively designated the "Option Term".
In the event Lessee elects to exercise the Options, all of the terms
and conditions of the Lease shall remain unmodified and in full force and
effect, except that during the First Option Term the monthly base rent
shall be increased by Two Thousand Dollars ($2,000) over the monthly base
rent for the last month of the initial term of the Lease, and during the
Second Option Term the monthly base rent shall be increased by Two Thousand
Dollars ($2,000) over the monthly base rent for the last month of the First
Option Term. The monthly base rent during each Option shall be further
increased by Two Thousand Dollars ($2,000) every 24 months thereafter on
the anniversary of the Lease Commencement Date, such that the rental
schedule described in Section 50 below shall apply."
<PAGE>
5. Rent. Paragraph 50.C of the Lease shall be modified by the addition
----
of the following at the end of such paragraph:
Second Option Term
------------------
Lease Years Monthly Base Rent
----------- -----------------
Years 21-22 $40,000
Years 23-24 $42,000
Years 25-26 $44,000
Years 27-28 $46,000
Years 29-30 $48,000
Years 31-32 $50,000
Year 33 $52,000
6. Extension Consideration. In consideration for Lessor's grant to Lessee
-----------------------
of the Second Option, Lessee shall pay to Lessor the amount of One Hundred
Thousand Dollars ($100,000) (the "Extension Consideration"). Payment of the
Extension Consideration shall be contingent upon and paid upon the last to occur
of (i) the waiver by Lessee or satisfaction of all of the contingencies set
forth in Paragraph 54 of the Lease and Paragraph 3 of this Addendum, and (ii)
Lessee's receipt of all governmental and regulatory approvals and permits (and
the expiration of all appeal periods pertaining thereto) necessary to permit
Lessee to construct its proposed improvements on the Property. It shall be a
condition to the effectiveness of the Second Option that Lessor shall have
received the Extension Consideration.
7. Common Area Maintenance. Lessor has requested that Lessee manage the
-----------------------
maintenance of the parking areas of the Property. Lessee has agreed to provide
such management for the maintenance of such parking areas provided (i) Lessor,
Lessee and the tenant of the premises commonly known as "Butterfields" (the
"Butterfields Tenant") enter into an agreement substantially in accordance with
the provisions of Paragraph 55 of the Lease which provides for the sharing of
the expense of the maintenance of such parking areas, on a pro rata basis, by
the Butterfields Tenant and Lessee and (ii) the provisions of Paragraph 9 below
are satisfied.
8. Modification of First Right to Lease Other Structures. Paragraph 65 of
-----------------------------------------------------
the Lease provides Lessee with a first right of refusal to lease all other
structures on the Property upon the termination of the existing leases of such
structures. The Butterfields Tenant has requested that Lessor extend the term
of the lease for the premises occupied by Butterfields (the "Butterfields
Premises") so that the expiration of the term of the lease for the Butterfields
Premises, including all options pertaining thereto, shall expire no later than
September 30, 2002. Provided the provisions of Paragraph 9 below are satisfied,
Lessee shall waive its right of first refusal with regard to the Butterfields
Premises only to the extent that Lessee shall permit Lessor to extend the term
of the Butterfields lease, including all options pertaining thereto, so that
such term shall expire no later than September 30, 2002. Such waiver shall not
be deemed a waiver of such right of first refusal with regard to any of the
other Refusal Premises or with regard to the Butterfields Premises for the
period commencing October 1, 2002.
9. Contingency Regarding Butterfields' Cooperation. Lessor and Lessee
-----------------------------------------------
acknowledge that the Butterfields Tenant has undertaken certain actions which
may interfere with Lessee's ability to complete its proposed improvements on
the Premises. Lessor and Lessee further acknowledge that the Butterfields
Tenant has claimed certain rights in the parking areas of the Property in excess
of the parking rights contemplated by Lessor and Lessee. It is expressly
acknowledged and agreed that the provisions of Paragraph 7 above concerning the
modification of Paragraph 55 of the Lease, and provisions of Paragraph 8 above
concerning Lessee's waiver of its right of first refusal to permit an extension
of the term of
3
<PAGE>
the Butterfields lease shall be expressly contingent upon the Butterfields
Tenant, and its affiliated individuals and entities (i) cooperating with and
affirmatively, fully supporting Lessee's proposed improvements to the Premises,
which support shall include the execution of all documents, and the
non-opposition of all applications made by Lessee in connection with such
improvements, and (ii) Lessee and the Butterfields Tenant entering into an
agreement on terms acceptable to Lessee concerning the utilization and
maintenance of the parking areas of the Property.
10. Pull Force and Effect. Except as modified herein, the Lease remains
---------------------
unmodified and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as of
the date and year first above written.
"LESSOR"
/s/ William L. Penzner Trustee (Pres)
------------------------------------------
WILLIAM L. PENZNER, Trustee of the
William L. Penzner Trust
"LESSEE"
RAMA MEDIA INVESTMENTS, INC.,
a Tennessee corporation
By: /s/ Isaac Tigrett
--------------------------------------
Isaac Tigrett, President
<PAGE>
EXHIBIT 10.33
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease ("Second Amendment") is made and
entered into as of the 15th day of June, 1993, by and between William L.
Penzner, Trustee of the William L. Penzner Trust, as Lessor, and House of Blues
Los Angeles Restaurant Corp., a Delaware corporation, as Lessee, and is intended
to amend that certain Standard Industrial Lease - Net between Lessor and
Lessee's predecessor-in-interest, Rama Media Investments, Inc., a Tennessee
corporation ("Rama") dated, for reference purposes only, April 10, 1992, as
previously amended by that certain First Amendment to Lease dated as of
September 19, 1992 (the "First Amendment"). Such Lease, as heretofore amended by
the First Amendment, is hereinafter referred to as the "Lease." This Second
Amendment is entered into with reference to the following background facts:
A. Pursuant to the terms of the Lease, Lessor leased to Rama certain
real property located in the City of West Hollywood, County of Los Angeles,
California, and more fully described in the Lease as the "Premises."
B. Pursuant to that certain Assignment of Interests under Lease
Agreement dated May 12, 1993, Rama assigned its interests in and to the Lease to
House of Blues Los Angeles Restaurant Corp., a Delaware corporation ("Lessee").
Lessor consented to such Assignment pursuant to that certain Consent to
Assignment dated May 28, 1993.
C. Lessor and Lessee have determined that the legal description for the
Premises attached as Exhibit "A" to the Lease is incorrect. Lessor and Lessee
have agreed to amend the Lease to confirm that the legal description of the
Premises shall be the legal description attached hereto as Exhibit "A".
D. Lessor and Lessee have further agreed to extend the Contingency
Period and the deadline for Lessee's Cancellation Right as provided in Paragraph
3 of the First Amendment from June 30, 1993 through and including October 31,
1993.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. Recitals. Each and all of the foregoing recitals of background facts
--------
are incorporated herein by this reference as though set forth herein verbatim.
2. Legal Description. Notwithstanding anything contained in the Lease to
-----------------
the contrary, Lessor and Lessee agree that the legal description of the Premises
shall be the description more fully set
<PAGE>
forth in Exhibit "A" attached hereto and incorporated herein by this reference.
Exhibit "A" currently attached to the Lease shall be superseded and without
force or effect.
3. Contingencies. Lessor and Lessee agree that the June 30, 1993
-------------
deadline for the Contingency Period and Lessee's Cancellation Right shall be
extended through and including October 31, 1993.
4. Full Force and Effect. Except as modified herein, the Lease, as
---------------------
previously modified by the First Amendment, remains unmodified and in full force
and effect.
5. Counterparts. This Second Amendment may be executed in one
------------
or more counterparts, each of which taken together shall be deemed one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed this Second Amendment
as of the date and year first above written.
LESSOR:
/s/ William L. Penzner
--------------------------------------
WILLIAM L. PENZNER, Trustee of the
William L. Penzner Trust
LESSEE:
HOUSE OF BLUES LOS ANGELES
RESTAURANT CORP., a Delaware Corporation
By: /s/ James Dunn
----------------------------------
Its: Executive Vice President-Operations
----------------------------------------
2
<PAGE>
LEGAL DESCRIPTION
-----------------
LOTS 3, 4, 5 OF TRACT NO. 1501 IN THE CITY OF WEST HOLLYWOOD, COUNTY OF LOS
ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 23 PAGE 64 OF MAPS, IN
THE OFFICE OF THE COUNTRY RECORDER OF SAID COUNTY.
ALSO ALL THAT PORTION OF LOT 6 LYING WESTERLY OF THE LINE COMMENCING AT THE
SOUTHWESTERLY CORNER OF SAID LOT 6 AND EXTENDING NORTHERLY AND PARALLEL WITH THE
EASTERLY LINE OF SAID LOT 6 TO THE NORTHERLY LINE THEREOF, OF SAID TRACT NO.
1501.
ALSO THE NORTHERLY 6 FEET OF LOT 2 OF SAID TRACT NO. 1501.
EXHIBIT "A"
<PAGE>
EXHIBIT 10.34
ASSIGNMENT OF INTERESTS UNDER LEASE AGREEMENT
---------------------------------------------
THIS ASSIGNMENT OF INTERESTS UNDER LEASE AGREEMENT ("Assignment") is made
and entered into this 12th day of May, 1993, by and between Rama Media
Investments, Inc., a Tennessee corporation ("Assignor") and House of Blues Los
Angeles Restaurant Corp., a Delaware Corporation ("Assignee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, William L. Penzner, Trustee of the William L. Penzner, Trust, as
lessor, and Rama Media Investments, Inc., a Tennessee corporation or Assignee,
as lessee, did heretofore make and enter into that certain Standard Industrial
Lease-Net, dated April 10, 1992, as amended by that First Amendment to Standard
Industrial Lease--Net, dated as of September 19, 1992 (said Standard Industrial
Lease--Net, as amended (the "Lease")) pursuant to which the said lessee leased
from the said lessor that certain real property situated in the County of Los
Angeles, State of California, commonly known as 8434 Sunset Boulevard, West
Hollywood, California (herein called the "Premises"); and
WHEREAS, Assignor desires to assign and transfer to Assignee all of the
rights and benefits of Assignor in, to and under the said Lease, and in and to
the said Premises, upon the terms here-inafter set forth, and the Assignee
desires to accept and receive such assignment and to assume all obligations
under the Lease and with respect to the Premises arising or accruing from and
after the date hereof;
NOW, THEREFORE, for and in consideration of the above and foregoing
premises and the sum of Ten and No/100 Dollars ($10.00) cash in hand paid,
together with other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, it is hereby agreed as follows:
1. Assignor does hereby ASSIGN, TRANSFER, SET OVER, CONVEY and DELIVER unto
Assignee, and Assignee's successors and assigns, all of the rights, powers,
benefits, privileges and interests of Assignor in, to and under the Lease and in
and to the Premises.
2. By its acceptance hereof, Assignee hereby assumes all obligations of the
Assignor as lessee under the Lease, commencing from and after the date of this
Assignment, and Assignee agrees that it shall thereby become obligated to keep,
fulfill, observe, perform and discharge each and every covenant, duty, debt and
obligation that may accrue and become performable, due or owing from and after
the date hereof by the lessee under the terms, provisions and conditions of the
Lease.
ASSIGNMENT OF INTERESTS
UNDER LEASE AGREEMENTS - Page 1
<PAGE>
3. This Assignment shall be and is binding upon and shall inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
IN WITNESS WHEREOF, the parties hereto have made and executed this
Assignment as of the date first set forth hereinabove.
ASSIGNOR:
--------
RAMA MEDIA INVESTMENTS, INC.,
a Tennessee corporation
By: /s/ Isaac B. Tigrett,
---------------------------
Isaac B. Tigrett, President
ASSIGNEE:
--------
HOUSE OF BLUES LOS ANGELES
RESTAURANT CORP.,
a Delaware corporation
By: /s/ Isaac B. Tigrett,
----------------------------
Isaac B. Tigrett, President
ASSIGNMENT OF INTERESTS
UNDER LEASE AGREEMENTS - Page 2
<PAGE>
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
BEFORE ME, the undersigned, a Notary Public in and for the County and State
aforesaid, on this 12th day of May, 1993, came Isaac B. Tigrett, President of
Rama Media Investments, Inc., a corporation duly organized, incorporated and
existing under and by virtue of the laws of Tennessee, personally known to me to
be the same person who executed, as such officer, the within instrument of
writing on behalf of said corporation, and such person duly acknowledged the
execution of the same to be the act and deed of said corporation.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my notarial
seal the day and year last above written.
/s/ Tracy D. Detherage
-----------------------------
Notary Public, State of Texas
[SEAL]
/s/ Tracy D. Detherage
------------------------------
Printed Name of Notary Public
My Commission Expires:
4-11-97
- ----------------------
ASSIGNMENT OF INTERESTS
UNDER LEASE AGREEMENTS - Page 3
<PAGE>
CONSENT TO ASSIGNMENT
---------------------
The undersigned, as lessor under the Lease (as defined in the above and
foregoing Assignment) does hereby consent to the assignment of interests under
the Lease by Rama Media Investments, Inc. to House of Blues Los Angeles
Restaurant Corp. as set forth in the above and foregoing Assignment and for all
purposes under the Lease.
EXECUTED this 28th day of May, 1993.
/s/ William L. Penzner
------------------------------
William L. Penzner, Trustee of
the William L. Penzner Trust
STATE OF CALIFORNIA (S)
(S)
COUNTY OF LOS ANGELES (S)
This instrument was ACKNOWLEDGED before me on the 28th day of May, 1993, by
William L. Penzner as Trustee of the William L. Penzner Trust.
[S E A L] /s/ Elizabeth H. Maloy
----------------------------------
Notary Public, State of California
Elizabeth H. Maloy
------------------------------
Printed Name of Notary Public
My Commission Expires:
June 2, 1995
- ---------------------- [SEAL]
ASSIGNMENT OF INTERESTS
UNDER LEASE AGREEMENTS - Page 4
<PAGE>
Exhibit 10.35
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
Allen, Matkins, Leck, Gamble & Mallory LLP
515 So. Figueroa Street, 7th Floor
Los Angeles, California 90071
Attn: Michael J. Kiely, Esq.
- --------------------------------------------------------------------------------
RATIFICATION AND MEMORANDUM OF LEASE AGREEMENT
----------------------------------------------
THIS MEMORANDUM OF LEASE AGREEMENT is made effective as of the ___ day of
October, 1998, by and between BEVERLY JANE IVERSON, AS TRUSTEE OF THE PENZNER
IVERSON FAMILY TRUST ESTABLISHED MARCH 11, 1997 ("Lessor"), and HOUSE OF BLUES
LOS ANGELES RESTAURANT CORP., a Delaware corporation ("HOB" or Lessee"), who
agree as follows:
WHEREAS, pursuant to that certain Grant Deed, dated April 15, 1991,
and recorded in the Official Records of the County of Los Angeles on April 25,
1991, as Instrument No 91-593791, William L. Penzner, as Trustee of the William
L. Penzner Trust, transferred to William L. Penzner, a widower, the real
property located on Sunset Boulevard, West Hollywood, California (the
"Property") and described in Exhibit A attached hereto and incorporated herein
---------
by reference.
WHEREAS, pursuant to that certain Standard Industrial Net Lease,
dated April 10, 1992 (as amended through the date hereof, the "Lease"), William
L. Penzner, Trustee to The William L. Penzner Trust, as lessor, leased the
Property to Rama Media Investments, Inc. ("Rama"), as lessee. The Lease was
subsequently amended.
WHEREAS, pursuant to an Assignment of Interests under Lease
Agreement, dated May 12, 1993, Rama assigned its interests in and to the Lease
to HOB.
WHEREAS, pursuant to that certain Quitclaim Deed, dated April 17,
1997, and recorded in the Official Records of the County of Los Angeles as
Instrument No 97-601992, William L. Penzner, a married man, transferred the
Property to William Lion Penzner and Beverly Jane Iverson, Trustees of The
Penzner Iverson Family Trust Established March 19, 1997 ("The Penzner Iverson
Family Trust").
<PAGE>
WHEREAS the parties hereto desire to execute this Ratification and
Memorandum of Lease to ratify and affirm the terms and provisions of the Lease
and provide record notice of the Lease.
1. Acknowledgment and Ratification of Lease. Lessor, in her capacity as
----------------------------------------
Trustee for The Penzner Iverson Family Trust, hereby acknowledges and agrees
that: (a) the Lease was entered into by William L. Penzner, in his capacity as
Trustee of The William L. Penzner Trust, as the owner of the Property; (b) all
of Mr. Penzner's interest in the Property as Trustee of The William L. Penzner
Trust has been transferred to The Penzner Iverson Family Trust, as Lessor; and
(c) the Lease is hereby ratified and affirmed.
2. Terms and Property. Pursuant to the Lease, Lessor leases to Lessee,
------------------
and Lessee leases from Landlord, the Property, for an initial term of ten (10)
years expiring May 10, 2002, with a first extension option term of ten (10)
years and a second option term of thirteen (13) years, subject to the provisions
of the above-described Lease.
3. Purpose of Memorandum of Lease Agreement. This Memorandum of Ground
----------------------------------------
Lease Agreement has been prepared for the purpose of recordation to give notice
of the existence of the Lease, and in the event of any conflict between the
provisions of the Lease and this Memorandum of Lease Agreement, the provisions
of the Lease shall control.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Memorandum
of Lease Agreement as of the day and year first above written.
"Lessor":
------
/s/ Beverly Jane Iverson, Trustee
-------------------------------------------
BEVERLY JANE IVERSON, AS TRUSTEE OF THE
PENZNER IVERSON FAMILY TRUST ESTABLISHED
MARCH 11, 1997
"Lessee":
------
HOUSE OF BLUES LOS ANGELES RESTAURANT
CORP., a Delaware corporation
By: /s/ Joseph C. Kaczorowski
-------------------------------------
Name: Joseph C. Kaczorowski
-------------------------------
Its: Treasurer & Secretary
--------------------------------
-2-
<PAGE>
EXHIBIT 10.36
LEASE AGREEMENT
BY AND BETWEEN
Beni Toledano, as Landlord
AND
House of Blues Partnership
Management Corporation, as Tenant
Effective as of October 14, 1992
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C> <C>
1. PROPERTY; GRANTING CLAUSE.................................................................. 1
1.1. Property.......................................................................... 1
1.2. Demised Premises.................................................................. 1
1.3. Granting Clause................................................................... 1
1.4. Quiet Enjoyment................................................................... 1
2. TERM....................................................................................... 1
2.1. Term.............................................................................. 1
2.2. Renewal Options................................................................... 1
2.3. Right of First Refusal-Lease...................................................... 1
2.4. Right of First Refusal-Sale....................................................... 2
3. RENT....................................................................................... 3
3.1. Fixed Minimum Rent................................................................ 3
(a) First Five Lease Years...................................................... 3
(b) Sixth Lease Year............................................................ 3
(c) Lease Years 7 through 15 - CPI Adjustments.................................. 3
(d) Lease Years 16, 21, 26, and 31 - Market Value Adjustments................... 3
(e) Lease Years 17 through 20, 22 through 25, 27 through 30, and 32
through 35 - CPI Adjustments............................................ 4
(f) CPI......................................................................... 4
(g) Payment of Fixed Minimum Rent............................................... 5
(h) Rent Credits................................................................ 5
3.2. Percentage Rent................................................................... 5
(a) Percentage Rent............................................................. 5
(b) Payment of Percentage Rent.................................................. 6
(c) Definition of Gross Sales................................................... 6
(d) Gross Sales Reports......................................................... 6
(e) Records..................................................................... 6
3.3. Taxes............................................................................. 6
(a) Real Estate Taxes........................................................... 6
(b) Tax Contributions........................................................... 6
(c) Payment of Tax Contributions................................................ 7
(d) Proration of Tax Contributions.............................................. 7
(e) Substitute and Additional Taxes............................................. 7
(f) Personal Property Taxes..................................................... 7
3.4. Insurance Contributions........................................................... 7
(a) Insurance Contributions..................................................... 7
(b) Payment of Insurance Contributions.......................................... 8
(c) Proration of Insurance Contribution......................................... 8
3.5. Late Charges...................................................................... 8
3.6. Place of Payment.................................................................. 8
4. UTILITIES AND SERVICES..................................................................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
5. ENVIRONMENTAL MATTERS .......................................................................................... 9
5.1. Compliance with Environmental Laws .................................................................... 9
5.2. Definition of Hazardous Substances .................................................................... 9
5.3. Environmental Indemnification ......................................................................... 9
5.4. Landlord's Representation and Warranty ................................................................ 9
6. ASSIGNMENT AND SUBLETTING ...................................................................................... 10
6.1. By Tenant .............................................................................................. 10
6.2. By Landlord ............................................................................................ 10
7. USE ............................................................................................................ 11
7.1. Permitted Use .......................................................................................... 11
7.2. Continuous Operations; Maximize Gross Sales ............................................................ 11
7.3. Cancellation of Insurance; Increase in Rates ........................................................... 11
7.4. Compliance with Laws ................................................................................... 11
8. ALTERATIONS, ADDITIONS AND IMPROVEMENTS......................................................................... 11
8.1. Initial Construction ................................................................................... 11
8.2. Elevators .............................................................................................. 12
(a) Joint Use ........................................................................................ 12
(b) Alley Elevator Maintenance and Repairs ........................................................... 12
(c) Access to Alley Elevators ........................................................................ 12
8.3. Stairways. ............................................................................................ 13
(a) Joint Use. ....................................................................................... 13
(b) Maintenance and Repairs. ......................................................................... 13
(c) Access. .......................................................................................... 13
8.4. Alley ................................................................................................. 13
(a) Joint Use ........................................................................................ 13
(b) Maintenance and Repairs .......................................................................... 13
(c) Drainage ......................................................................................... 13
8.5. Utilities ........................................................................................... 13
8.6. Security for Initial Construction ..................................................................... 14
8.7. Other Work ............................................................................................ 14
8.8. Construction Requirements ............................................................................. 14
8.9. Non-Liability of Landlord ............................................................................. 15
8.10. Signs ................................................................................................. 15
8.11. Facade ................................................................................................ 15
9. MAINTENANCE AND REPAIRS ......................................................................................... 15
9.1. As Is Condition........................................................................................ 15
9.2. Responsibility for Maintenance and Repairs. ........................................................... 16
9.3. Assumption of Responsibility........................................................................... 16
10. OPERATIONS ..................................................................................................... 16
10.1. Operations ............................................................................................ 16
10.2. Refuse ................................................................................................ 17
10.3. Assumption of Responsibility By Tenant................................................................. 17
10.4. Idemnity. ............................................................................................. 17
11. INSURANCE ...................................................................................................... 17
11.1. Public Liability and Property Damage Insurance. ....................................................... 17
11.2. Tenant's Fire and Casualty Insurance................................................................... 17
</TABLE>
-ii-
<PAGE>
11.3. [Intentionally Omitted]..............................17
11.4. Landlord's Fire and Casualty Insurance...............18
11.5. Determination of Replacement Value...................18
11.6. Waiver of Subrogation................................18
11.7. Other Insurance Matters..............................18
12. DESTRUCTION.....................................................19
12.1. Destruction Due to Risk Covered by Insurance.........19
12.2. Destruction Due to Risk Not Covered By Insurance.....19
12.3. Extent of Landlord's Obligation to Restore...........19
12.4. Abatement of Reduction of Rent.......................19
12.5. Destruction During Last Part of the Term.............19
12.6. Tenant Shall Reopen..................................19
13. CONDEMNATION....................................................20
13.1. Total Taking.........................................20
13.2. Partial Taking.......................................20
13.3. Rebuilding...........................................20
13.4. Ownership of Award...................................20
14. DEFAULT.........................................................20
14.1. Events of Default/Notice Required....................20
14.2. Events of Default/No Notice Required.................20
14.3. Rights and Remedies..................................21
14.4. Security Agreement...................................22
14.5. Default by Landlord..................................23
14.6. Arbitration - Selected Issues........................23
15. ACCESS TO DEMISED PREMISES......................................23
16. TERMINATION OF LEASE............................................23
16.1. Termination of Lease.................................23
16.2. Holding Over.........................................24
17. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT....................24
17.1. Subordination........................................24
17.2. Nondisturbance.......................................24
17.3. Attornment...........................................24
17.4. Subordination of Landlord's Lien.....................24
18. ESTOPPEL CERTIFICATES...........................................25
19. NOTICES.........................................................25
20. MISCELLANEOUS...................................................25
20.1. Exculpation..........................................25
20.2. No Waiver............................................25
20.3. Recording............................................26
20.4. Partial Invalidity...................................26
20.5. Broker's Commissions.................................26
20.6. Successors...........................................26
20.7. Miscellaneous........................................26
-iii-
<PAGE>
<TABLE>
<S> <C>
20.8 Landlord and Tenant ............................................................ 26
20.9 Governing Law ............................................................ 27
20.10 Time of the Essence ............................................................ 27
20.11 Light and View ............................................................ 27
20.12 Gender and Number ............................................................ 27
20.13 Headings ............................................................ 27
Exhibit:
Exhibit A - Legal Description of the Property
Exhibit B - Approved Plans
Exhibit C - Description of the Exhibit C Work
</TABLE>
-iv-
<PAGE>
LEASE AGREEMENT
This Lease Agreement is entered into on this 15th day of October,
1992, by and between Beni Toledano, as Landlord, and House of Blues Partnership
Management Corporation, a Delaware corporation, as Tenant. The effective date of
this Lease is October 14, 1992.
1. PROPERTY; GRANTING CLAUSE
1.1 Property. Attached hereto as Exhibit A is a legal description of the
--------
property located at 215-25 Decatur Street, New Orleans, Louisiana (the
"Property"). Attached hereto as Exhibit B are the plans for the renovation and
improvement of the Property prepared by Billes/Manning Architects, project
number 9203.00, consisting of Sheet No. 1, dated 9/4/92, revised 9/21/92,
9/25/92, 9/30/92 and 10/1/92 and Sheet No. 2, dated 10/1/92 (the "Approved
Plans"). Attached hereto as Exhibit C is a description of the structural,
exterior and infrastructure improvements to the Building required to be
performed by Tenant (the "Exhibit C Work"). for the purpose of this Lease, the
Property, excluding the buildings and improvements, is referred to herein as the
"Land." Furthermore, for the purposes of this Lease, the principal building on
the Land is referred to herein as the "Building."
1.2 Demised Premises. The "Demised Premises" consists of (a) all of the
----------------
first two floors of the Building, including mezzanine areas located therein, but
excluding the area to be occupied by the street elevator and street lobby
identified on Sheet No. 1 of the Approved Plans as the "Excluded Area", (b) the
portion of the Land consisting of the existing alley on the north side of the
Building and the currently unimproved area in the rear of the Building, and (c)
an area 14 feet by 20 feet on the roof of the Building (the "Roof Pad"), the
location of which will be determined by Landlord and Tenant during Initial
Construction (as defined in Section 8.1). Subject to the approval of applicable
governmental authorities, if such approval is required, Landlord consents to the
use by Tenant of the municipal address 225 Decatur Street as the municipal
address of the Demised Premises.
1.3 Granting Clause. Subject to and on the terms and conditions of this
---------------
Lease, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
the Demised Premises.
1.4 Quiet Enjoyment. Provided Tenant promptly and strictly pays and
---------------
performs all of its liabilities and obligations under this Lease, Landlord
warrants in favor of Tenant the quiet and peaceable possession of the Demised
Premises in accordance with La. Civil Code Article 2692(3) during the term of
this Lease in accordance with the terms and conditions of this Lease.
2. TERM
2.1 Term. The term of this Lease shall begin on the date of this Lease
----
and shall continue for a period of thirty-five (35) years. If the term does not
begin on the first day of a month, then the number of days in the first partial
calendar month shall be added to and become part of the term. The first Lease
Year shall begin on the date of this Lease and shall include the first partial
calendar month, if any, and the next twelve consecutive calendar months
thereafter. Each succeeding Lease Year shall be a period of twelve consecutive
calendar months beginning at the end of the preceding Lease Year.
2.2 Renewal Options. There are no renewal options.
---------------
2.3 Right of First Refusal-Lease. Tenant shall have a right of first
----------------------------
refusal to lease all or any portion of the remainder of the Building in
accordance with the terms of this section 2.3. If Landlord desires to lease all
or any portion of the remainder of the Building, Landlord shall first give to
Tenant a notice (the "First Refusal Notice") stating that Landlord desires to
lease all or a portion of the remainder of the Building and stating the terms
and conditions upon which Landlord is willing to grant
<PAGE>
a new lease (the "Proposed Terms"). The First Refusal Notice shall constitute an
offer by Landlord to Tenant to enter into a new lease on the Proposed Terms.
Landlord may send a First Refusal Notice whether or not there is a prospective
new tenant. Tenant may accept the offer and agree to enter into a new lease on
the Proposed Terms by delivering to Landlord within 14 days after receipt of the
First Refusal Notice Tenant's unqualified written acceptance of the offer. If
Tenant accepts the offer, the terms of the new lease between Landlord and Tenant
shall be the same as the terms of this Lease except as otherwise modified by the
Proposed Terms and Landlord and Tenant shall enter into the new lease within 14
days after the date of Tenant's acceptance. If Tenant does not accept Landlord's
offer, Landlord may enter into a new lease with any other person or entity on
terms and conditions that are no more favorable financially to the new tenant
than the Proposed Terms (considering both as a whole rather than comparing
specific individual terms) at any time within 180 days after the expiration of
Tenant's 14 day first refusal option period. Before entering into the new lease,
Landlord shall deliver to Tenant for Tenant's review a copy of the new lease.
Landlord may delete from the copy delivered to Tenant the name of the proposed
new tenant, if known, and any other confidential information (such as proposed
use) that is not relevant to Tenant's comparison of the financial terms of the
new lease to the Proposed Terms. If Tenant fails to notify Landlord within 14
days after receipt of the new lease that the new lease, as a whole, is more
favorable financially to the new tenant than the Proposed Terms, then any
objection Tenant may have to the new lease shall be deemed waived.
The provisions of the section 2.3 shall automatically terminate and
Tenant shall not have first refusal rights with respect to any lease if the
effective date of the lease is after the earlier to occur of (a) the termination
of this Lease for any reason, or (b) the expiration of the fifteenth (15th)
Lease Year. Furthermore, Tenant's right of first refusal shall not apply to any
lease for residential and/or office purposes.
2.4. Right of First Refusal-Sale. Tenant shall have a right of first refusal
---------------------------
to purchase the Property in accordance with the terms of this Section 2.4. If
Landlord desires to sell the Property, Landlord shall first give to Tenant a
notice (the "First Refusal Notice") stating that Landlord desires to sell the
Property and stating the terms and conditions upon which Landlord is willing to
sell (the "Proposed Terms"). The First Refusal Notice shall constitute an offer
by Landlord to Tenant to sell the Property to Tenant on the Proposed Terms.
Landlord may send a First Refusal Notice whether or not there is a prospective
purchaser. Tenant may accept the offer and agree to purchase the Property on the
Proposed Terms by delivering to Landlord within 14 days after receipt of the
First Refusal Notice Tenant's unqualified written acceptance of the offer. If
Tenant accepts the offer, Tenant shall purchase the Property from Landlord in
accordance with the Proposed Terms. If Tenant does not accept Landlord's offer,
Landlord may sell the Property to any other person or entity on terms and
conditions that are no more favorable financially to the prospective purchaser
than the Proposed Terms (considering both as a whole rather than comparing
specific individual terms) at any time within 180 days after the expiration of
Tenant's 14 days first refusal option. Before entering into the sale, Landlord
shall deliver to Tenant for Tenant's review a copy of the proposed sale.
Landlord may delete from the copy delivered to Tenant the name of the proposed
purchaser, if known, and any other confidential information that is not relevant
to Tenant's comparison of the financial terms of the proposed sale to the
Proposed Terms. If Tenant fails to notify Landlord within 14 days after receipt
of the proposed sale that the proposed sale, as a whole, is more favorable
financially to the prospective purchaser than the Proposed Terms, then any
objection Tenant may have to the proposed sale shall be deemed waived.
The provisions of this Section 2.4 shall automatically terminate and
Tenant shall not have any first refusal rights with respect to a sale of the
Property if the effective date of the sale is after the earlier to occur of (a)
the termination of this Lease for any reason, or (b) the expiration of the
fifteenth (15th) Lease Year. After the expiration of the fifteenth (15th) Lease
Year, Landlord agrees that as long as the Lease remains in effect Landlord will
give Tenant a written notice of Landlord's
-2-
<PAGE>
intention to sell before entering into a binding agreement to sell, although
this agreement to give notice is not a right of first refusal.
Notwithstanding the foregoing, Tenant's right of first refusal shall
not apply to a sale or other transfer (a) between or among the persons or
entities who constitute Landlord, (b) to one or more of the relatives (as
defined below) of one or more of the persons who constitute Landlord, (c)to one
or more trusts in which the principal beneficiaries are one or more of the
persons described in clauses (a) and (b) above, (d) to one or more legal
entities (i. e., partnership, corporation, limited liability company or like
entity) in which the majority of the voting interests is owned by one or more of
the persons described in clauses (a) and (b) above, or (e) to a judicial sale in
execution of a mortgage affecting the Property now or hereafter granted by
Landlord or a dation en palement to a mortgagee in lieu of foreclosure. A
------ -- --------
"relative" as used above in clause (b)means any ascendant, descendant, sibling
or spouse.
3. RENT
3.1. Fixed Minimum Rent.
------------------
(a) First Five Lease Years. During the first five Lease Years, the
----------------------
fixed minimum rent shall be Twelve Thousand One Hundred and no/100 Dollars
($12,100.00) per month.
(b) Sixth Lease Year. The monthly fixed minimum rent payable in
----------------
the sixth Lease Year shall be the amount payable in the fifth (5th) Lease Year
increased proportionately with the increase in the CPI (as defined below) over
the previous five year period in accordance with the following formula. The
monthly fixed minimum rent in the sixth Lease Year shall be equal to the amount
determined by multiplying (i) Twelve Thousand One Hundred and no/100
($12,100.00) by (ii) a fraction, the numerator of which is the CPI for the month
that is two months before the beginning of the sixth Lease Year and the
denominator of which is the CPI for the month that is two months before the
beginning of the term of this Lease. Notwithstanding the foregoing, the monthly
fixed minimum rent in the sixth Lease Year shall never be less than the monthly
fixed minimum rent payable in the fifth Lease Year.
(c) Lease Years 7 through 15 -- CPI Adjustments. During the
-------------------------------------------
seventh through fifteenth Lease Years, the monthly fixed minimum rent shall
increase annually at the beginning of each Lease Year proportionately with the
increase in the CPI over the immediately preceding Lease Year in accordance with
the following formula. The monthly fixed minimum rent in each of Lease years
seven through fifteen shall be equal to the amount determined by multiplying (i)
the monthly fixed minimum rant payable in the immediately preceding Lease Year
by (ii) a fraction, the numerator of which is the CPI for the month that is two
months before the beginning of the then current Lease Year and the denominator
of which is the CPI for the month that is two months before the beginning of the
immediately preceding Lease Year. For example, if the monthly fixed minimum rent
in the eighth Lease Year is $15,000.00, the CPI for the month that is two months
before the beginning of the ninth Lease Year is 150 and the CPI for the month
that is two months before the beginning of the eighth Lease Year is 140, then
the monthly fixed minimum rent in the ninth Lease Year would be $ 16,071.43
($15,000.00 X 150/140 = $16,071.43). Notwithstanding the foregoing, the monthly
fixed minimum rent payable in any Lease Year shall never be less than the
monthly fixed minimum rent payable in the immediately preceding Lease Year.
(d) Lease Years 16, 21, 26 and 31 -- Market Value Adjustments. The
---------------------------------------------------------
monthly fixed minimum rent in Lease Years 16, 21, 26 and 31 shall be the then
current fair market rental value of the Demised Premises determined without
consideration of the improvements to the Demised Premises made by Tenant
(hereafter the "FMRV w/o Improvements"). Upon written request from Tenant deli-
-3-
<PAGE>
vered to Landlord not more than one year and not less than nine months before
the beginning of Lease Year 16, 21, 26 or 31, Landlord and Tenant agree to
negotiate in good faith in an attempt to determine the FMRV w/o Improvements. If
Landlord and Tenant are unable to agree on the FMRV w/o Improvements, Tenant
may, by delivering written notice to Landlord not less than eight months before
the beginning of Lease Year 16, 21, 26 or 31, elect to determine the FMRV w/o
Improvements by appraisal. If Tenant initiates the appraisal process, Landlord
and Tenant shall each appoint an appraiser and the two appraisers shall select a
third appraiser. Each of the three appraisers shall independently determine the
FMRV w/o Improvements. The monthly fixed minimum rent for Lease Year 16, 21, 26
or 31 shall be the average of the amounts determined by the three appraisers;
provided, however, the monthly fixed minimum rent shall never be less than the
amount payable in the previous Lease Year. Each appraiser shall be a member in
good standing of the Appraisal Institute (or its successor organization) having
at least seven years experience in the valuation of commercial real estate in
New Orleans, Louisiana and must be unaffiliated with and independent from
Landlord and Tenant. Each party shall be responsible for the fees and expenses
of the appraiser selected by it, and the fees and the expenses of the third
appraiser shall be split equally between Landlord and Tenant.
(e) Lease Years 17 through 20, 22 through 25, 27 through 30,
--------------------------------------------------------
and 32 through 35--CPI Adjustments. The monthly fixed minimum rent in Lease
- ----------------------------------
Years 17 through 20, 22 through 25, 27 through 30 and 32 through 35 shall
increase annually at the beginning of each Lease Year proportionately with the
increase in the CPI over the immediately preceding Lease Year in accordance with
the following formula. The monthly fixed minimum rent in Lease Years 17 through
20, 22 through 25, 27 through 30 and 32 through 35 shall be equal to the amount
determined by multiplying (i) the monthly fixed minimum rent payable in the
immediately preceding Lease Year by (ii) a fraction, the numerator of which is
the CPI for the month that is two months before the beginning of the then
current Lease Year and the denominator of which is the CPI for the month that is
two months before the beginning of the immediately preceding Lease Year. For
example, if the monthly fixed minimum rent in Lease Year 33 is $20,000.00, the
CPI for the month that is two months before the beginning of Lease Year 34 is
200 and the CPI for the month that is two months before the beginning of Lease
Year 33 is 190, then the monthly fixed minimum rent in Lease Year 34 would be
$21,052.63 ($20,000.00 X 200/190 = $21,052.63). Notwithstanding the foregoing,
the monthly fixed minimum rent payable in any Lease Year shall never be less
than the monthly fixed minimum rent payable in the immediately preceding Lease
Year.
(f) CPI. As used in this Section 3.1 the CPI means the
---
unadjusted monthly Consumer Price Index for All Urban Consumers (CPI-U), U.S.
City Average (All Items) (1982-84 = 100) published by the Bureau of Labor
Statistics of the U.S. Department of Labor. If the CPI is discontinued, the
most relevant and comparable index or data published by the United States
government (or other party if no relevant and comparable index or data is
published by the United States government) shall be used in its place.
For the purpose of calculating the increases in the fixed
minimum rent under section 3.1 (b), (c) and (e), the maximum CPI percentage
increase shall not exceed 6% plus one-half of the excess over 6% per Lease Year.
For example, if the percentage increase in CPI from the beginning of Lease Year
7 to the beginning of Lease Year 8 is 10%, then the percentage increase in the
CPI for the purpose of determining the fixed minimum rent for Lease Year 8 shall
be limited to 8% (6% plus one-half of the excess over 6%). For the purpose of
determining the increase in the fixed minimum rent from Lease Year 1 to Lease
Year 6, the limitation on the percentage increase in the CPI shall apply
separately each Lease Year from Lease Year 1 through the beginning of Lease Year
6. For example, if the percentage increases in the CPI for each Lease Year from
Lease Year 1 through the beginning of Lease Year 6 are 4%, 6%, 8%, 10% and 8%,
then the percentage increases in the CPI for the purpose of determining the
increase in the fixed minimum rent for Lease Year 6 shall be limited to 4%, 6%,
7%, 8% and 7%.
-4-
<PAGE>
(g) Payment of Fixed Minimum Rent. Fixed minimum rent shall be
-----------------------------
payable in monthly installments, in advance. The first payment shall be due and
payable on the fourth monthly anniversary of the commencement date of this Lease
(the first four months are rent free). If the commencement date is not on the
first day of a month, then the first installment shall be prorated based on the
number of days remaining in that month. Thereafter, the payments shall be due
and payable on the first day of each calendar month during the term of this
Lease. Fixed minimum rent shall be paid without prior notice or demand and
without deduction or setoff.
(h) Rent Credits. Prior to the effective date of this Lease,
------------
Tenant paid to Landlord the amount of $20,000.00 (the "Option Price") as
consideration for Landlord granting to Tenant an option to lease the Demised
Premises. In accordance with the terms of the Option to Lease, the Option Price
shall be credited against the monthly fixed minimum rent payable in the first
Lease Year. Therefore, the eight full installments of fixed minimum rent in the
first Lease Year (the first four months are rent free and the first installment;
if the commencement date is not on the first of a month, is a prorated partial
installment) shall be reduced by $2,500 per month (1/8 of $20,000).
Subject to the requirements in Section 8.1, Landlord has agreed to
provide Tenant with an additional rental credit of $61,000.00. This additional
rental credit for the Exhibit C Work shall be amortized over a period of 30
months. Accordingly, if the requirements in Section 8.1 are satisfied, the first
thirty full installments of fixed minimum rent (excluding the first prorated
partial installment, if any) shall be reduced by $2,033.33 per month (1/30 of
$61,000).
As a result of the first four months of free rent and the two
rental credits described above (the Option Price rental credit and the Exhibit C
Work rental credit), the monthly installments of fixed minimum rent in the first
three Lease Years shall, notwithstanding the terms of Section 3.1(a), be as
follows:
===============================================================================
Lease Year Monthly Installments Amount per month
- -------------------------------------------------------------------------------
1 1-4 -O-
- -------------------------------------------------------------------------------
5-12 $7,566.67
- -------------------------------------------------------------------------------
2 1-12 $10,066.67
- -------------------------------------------------------------------------------
3 1-10 $10,066.67
- -------------------------------------------------------------------------------
11-12 $12,100.00
===============================================================================
Beginning with the eleventh monthly installment in the third Lease
Year and continuing thereafter, the amount of the fixed minimum rent shall be as
otherwise provided in Section 3.1.
3.2. Percentage Rent.
---------------
(a) Percentage Rent. In addition to fixed minimum rent, Tenant
---------------
shall pay to Landlord as percentage rent for each Lease Year a sum equal to four
percent (4%) of the amount by which Gross Sales during the Lease Year exceeds
the Breakpoint. The Breakpoint for the first five (5) Lease Years shall be Eight
Million and no/100 ($8,000,000) Dollars per Lease Year. The Breakpoint for each
Breakpoint for the immediately preceding Lease Year
-5-
<PAGE>
increased by the same percentage as the increase, if any, in the fixed minimum
rent over the same period.
(b) Payment of Percentage Rent. Percentage rent for each Lease
--------------------------
Year shall be due and payable within sixty (60) calendar days after the end of
each Lease Year. Percentage rent shall be paid without prior notice or demand
and without deduction or setoff. Each Lease Year shall be considered an
independent accounting period for the purpose of computing percentage rent. The
amount of Gross Sales for one period shall not be carried over into any other
period.
(c) Definition of Gross Sales. The term Gross Sales means the
-------------------------
aggregate dollar amount of ail sales of food and beverages (including
alcoholic) by Tenant and ail assignees, licensees, concessionaires, subtenants,
and others at or from the Demised Premises. Gross Sales shall not include the
amount of sales, use or gross receipts tax imposed by any governmental
authority. No franchise or capital stock tax and no income or similar tax based
on income or profits shall be deducted from Gross Sales.
(d) Gross Sales Reports. Tenant shall submit to Landlord within
-------------------
thirty (30) days after the end of each calendar quarter a written statement
certified by Tenant to be true, correct and complete, showing in reasonably
accurate detail the amount of Gross Sales during the previous quarter and Lease
Year to date. The Gross Sales report shall be delivered even if no percentage
rent is due or anticipated.
(e) Records. Tenant shall prepare and keep at the Demised Premises
-------
for a period of not less than two years following the end of each Lease Year
adequate records pertaining to the calculation of Gross Sales. The acceptance by
Landlord of payment of percentage rent shall be without prejudice to the right
of Landlord to examine Tenant's books and records to verify or determine the
amount of Gross Sales. Landlord and Landlord's authorized representatives shall
have the right to examine Tenant's books and records during regular business
hours. Furthermore, upon not less than forty-eight (48) hours prior written
notice to Tenant, Landlord may cause to be made a complete audit of Tenant's
business books and records, and Tenant shall make all books and records
available for the audit at the Demised Premises. If the results of the audit
show that Tenant's statement of Gross Sales for any Lease Year has been
understated by five (5%) percent or more, then Tenant shall pay to Landlord the
cost of the audit in addition to any required additional payment of percentage
rent.
3.3. Taxes.
-----
(a) Real Estate Taxes. Landlord shall pay to the appropriate
-----------------
taxing authority on or before the delinquency date all real estates taxes and
general and special assessment ("real estate taxes") levied and assessed against
the Property, including real estate taxes levied and assessed against the
Building and/or the Land.
(b) Tax Contributions. Tenant shall pay to Landlord annually
-----------------
during the term of this Lease tax contributions consisting of Tenant's
proportionate share of all real estate taxes levied and assessed against the
Property, including real estate taxes levied and assessed against the Building
and/or the Land. Tenant's proportionate share of the real estate taxes shall be
redetermined as of the first day of each Lease Year and shall consist of a
fraction, the numerator of which is the fair market rental value of the Demised
Premises and the denominator of which is the sum of the fair market rental value
of the Demised Premises and the fair market rental value of the remainder of the
Property (excluding the Demised Premises). The fair market rental values shall
be determined as of the first day of each Lease Year and shall be based on the
then existing condition of the respective properties unburdened by this or any
other lease. Landlord and Tenant agree to negotiate in good faith in an attempt
to determine the fair market rental values. If after good faith and diligent
efforts Landlord and
-6-
<PAGE>
Tenant are unable to determine the fair market rental values, either Landlord or
Tenant may initiate the appraisal process, whereby Landlord and Tenant shall
each appoint an appraiser and the two appraisers shall select a third appraiser.
Each of the three appraisers shall independently determine the fair market
rental value of the respective properties. The fair market rental values of the
respective properties for that Lease Year shall be the average of the amounts
determined by the appraisers. Each appraiser shall be a member in good standing
of the Appraiser Institute (or its successor organization) having at least seven
years experience in the valuation of commercial real estate in New Orleans,
Louisiana and must be unaffiliated with and independent from Landlord and
Tenant. Each party shall be responsible for the fees and expenses of the
appraiser selected by it, and the fees and expenses of the third appraiser shall
be split equally between Landlord and Tenant.
(c) Payment of Tax Contributions. Landlord shall deliver to Tenant
----------------------------
a copy of each real estate tax bill. Tenant shall pay to Landlord Tenant's
proportionate share of the real estate tax bill without deduction or set-off
within thirty (30) days after receipt or within 10 days after Tenant's
proportionate share is determined, whichever is later. If Tenant's proportionate
share has not been determined on or before twenty (20) days before the taxing
authority's delinquency date, Tenant shall pay to Landlord no later than ten
(10) days before the delinquency date Tenant's estimated proportionate share of
the real estate tax bill using the same percentage that was used in the
immediately preceding year (or 60% for the first year). Within ten (10) days
after Tenant's proportionate share is finally determined, Tenant shall pay to
Landlord the remaining balance due if the estimated amount paid by Tenant is
insufficient or Landlord shall reimburse Tenant for any excess amounts paid.
(d) Proration of Tax Contributions. Tenant's liability for tax
------------------------------
contributions shall be prorated to account for any fractional portion of a
fiscal tax year included in the term at its commencement and expiration.
(e) Substitute and Additional Taxes. If at any time during the
-------------------------------
term this Lease, there is levied or assessed against Landlord a tax, fee, or
excise on (1) Rents, (2) the area of the Demised Premises, (3) the act of
entering into this Lease, or (4) the occupancy by Tenant, or there is levied or
assessed against Landlord any other tax, fee, or excise, however described,
including without limitation a so-called value added tax, as a direct
substitution in whole or in part for, or in addition to, any real estate tax,
Tenant shall pay to Landlord before delinquency Tenant's proportionate share of
that tax, fee, or excise. Tenant's proportionate share shall be the same as
Tenant's proportion share of real estate taxes.
(f) Personal Property Taxes. Tenant shall pay to the appropriate
-----------------------
taxing authority on or before the delinquency date ail taxes, assessments,
license fees and other charges that are levied and assessed against the
merchandise, inventory, furniture, fixtures and other movable property installed
or located in or on the Demised Premises.
3.4. Insurance Contributions.
-----------------------
(a) Insurance Contributions. Tenant shall pay to Landlord annually
-----------------------
during the term of, this Lease insurance contributions consisting of Tenant's
proportionate share of the insurance premiums on the insurance policies required
to be maintained by Landlord pursuant to section 11.4. Tenant's proportionate
share of the insurance premiums shall be equal to Tenant's proportionate share
for that Lease Year as determined above in section 3.3(c) for real estate taxes
as further adjusted to take into account a fair apportionment of the insurance
premises between the Demised Premises and the remainder of the Property
(excluding the Demised Premises)as a result of the differences in values,
businesses, activities and other pertinent factors. Landlord and Tenant agree to
negotiate in good faith in an attempt to determine this further adjustment of
Tenant's proportionate share. If after good faith
-7-
<PAGE>
and diligent efforts arts Landlord and Tenant are unable to determine the
further adjustment, either Landlord or Tenant may initiate the appraisal process
whereby Landlord and Tenant shall each appoint an appraiser and the two
appraisers shall select a third appraiser. Each of the three appraisers shall
independently determine the appropriate adjustment to Tenant's proportionate
share. Tenant's proportionate share of the insurance premiums for that Lease
Year shall be the average of the amounts determined by the three appraisers.
Each appraiser shall be a reputable insurance company, agent or broker
unaffiliated with and independent from Landlord and Tenant and qualified to make
the appropriate determinations. Each party shall be responsible for the fees and
expenses of the appraiser selected by it, and the fees and expenses of the third
appraiser shall be split equally between Landlord and Tenant.
(b) Payment of Insurance Contributions. Landlord shall deliver to
----------------------------------
Tenant a copy of each insurance premium invoice. Tenant shall pay to Landlord
Tenant's proportionate share of the insurance premium invoice without deduction
or set-off within 30 days after receipt or within 10 days after Tenant's
proportionate share is determined, whichever is later. If Tenant's proportionate
share has not been determined on or before twenty (20) days before the due date
of the insurance premium as indicated on the invoice, Tenant shall pay to
Landlord no later than ten (10) days before the due date Tenant's estimated
proportionate share of the insurance premium using the same percentage that was
used in the immediately preceding year (or 60% for the first year). Within ten
(10) days after Tenant's proportionate share is determined, Tenant shall pay to
Landlord the remaining balance due if the estimated amount paid by Tenant was
insufficient or Landlord shall reimburse Tenant for any excess amounts paid.
(c) Proration of Insurance Contribution. Tenant's liability to pay
-----------------------------------
insurance contributions shall be prorated to account for any fractional portion
of a period covered by an insurance policy included in the term at its
commencement and expiration.
3.5. Late Charges. If Tenant fails to pay when due any installment of
------------
fixed minimum rent, percentage rent, tax contribution or insurance contribution
(collectively called "Rent") the unpaid amount shall bear interest from the due
date to the date of payment at the rate that is the lesser of (a) one and one
half (1-1/2%) percent per month or (b) the maximum interest rate permitted by
law. The late charge shall be due on demand, or if no demand, together with the
payment of the past due Rent. Notwithstanding the accrual of late charges, the
nonpayment or late payment shall also be a default. In addition to Landlord's
right to collect late charges, Landlord shall also have all of the rights and
remedies described in Section 14 as a result of the default.
3.6. Place of Payment. All Rent shall be payable to Landlord at
----------------
Landlord's address specified in Section 19 or to any other party and to any
other address designated in writing by Landlord.
4. UTILITIES AND SERVICES
4.1. Tenant, at Tenant's expense, shall make arrangements for all
necessary utilities and services to conduct its operations. Without limiting the
generality of the foregoing, Tenant shall obtain all necessary utility permits,
accounts and meters, make all necessary utility deposits, and pay for all
connection charges necessary to conduct its operations. If additional utility
facilities are required, the additional facilities shall be installed by Tenant
at Tenant's expense and only after receipt by Tenant of Landlord's approval in
writing of the plans and specifications therefor, which approval shall not be
withheld unreasonably.
4.2. Tenant shall pay directly to the provider of the utility or service
all charges for the use or consumption of sewer, water, gas, telephone,
electricity, trash collection and other utilities and services provided to or
used at the Demised Premises.
-8-
<PAGE>
4.3. Landlord is not responsible for supplying any utilities or services
and is not responsible for the condition of the utility facilities. Landlord
shall not be liable or responsible for the unavailability, insufficiency or
interruption in the supply of any utility or service.
5. ENVIRONMENTAL MATTERS
5.1. Compliance with Environmental Laws. Tenant shall comply with all
----------------------------------
local, state, and federal laws, regulations, ordinances and orders
(collectively, "Hazardous Substances Laws") relating to industrial hygiene,
environmental protection, or the use, analysis, generation, manufacture,
storage, disposal or transportation of any Hazardous Substances. Tenant shall
not install or permit the installation of any underground storage tanks at the
Demised Premises. Upon the termination of this Lease, Tenant shall cause all
Hazardous Substances in the Demised Premises as a result of any action or
inaction by Tenant or any of Tenant's partners, directors, officers, employees,
sublessees, licensees, agents, contractors, representatives or invitees to be
removed from the Demised Premises and to be transported off site for use,
storage or disposal in accordance and compliance with all applicable Hazardous
Substances Laws.
5.2. Definition of Hazardous Substances. As used in this Section 5,
----------------------------------
"Hazardous Substance" means (a) a "hazardous waste" as defined by the Resource
Conservation and Recovery Act of 1976, as amended from time to time, and
regulations promulgated thereunder; (b) a "hazardous substance" as defined by
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, and regulations promulgated thereunder; (c)
petroleum, including crude oil or any fraction thereof; (d) asbestos and
asbestos containing materials; or (e) a similar substance that is or becomes
regulated by federal, state, or local governmental authority.
5.3. Environmental Indemnification. Tenant shall indemnify, defend (by
-----------------------------
counsel acceptable to Landlord), protect and hold harmless Landlord and each of
Landlord's partners, directors, officers, employees, agents, attorneys,
successors and assigns, from and against any all claims, liabilities, penalties,
fines, judgments, losses, costs, and expenses (including attorneys' fees,
consultant fees and expert fees), arising from or caused in whole or in part,
directly or indirectly, by (a) the presence in, on, under or about the Demised
Premises, or any discharge or release in or from the Demised Premises, of
Hazardous Substances as a result of any action or inaction during the term of
this Lease by Tenant or any of Tenant's partners, directors, officers,
employees, sublessees, licensees, agents, contractors, representatives or
invitees, (b) the use, storage, transportation, disposal, release, threatened
release, discharge, or generation of Hazardous Substances to, in, on, under,
about or from the Demised Premises during the term of this Lease by Tenant or
any of Tenant's partners, directors, officers, employees, sublessees, licensees,
agents, contractors, representatives or invitees, or (c) Tenant's failure to
comply with Tenant's obligations in this Section 5. Tenant's obligations in this
Section 5, including the indemnity obligations in this Section 5.3, shall
survive the termination of this Lease for acts or events that occurred during
the term of this Lease.
5.4. Landlord's Representation and Warranty. Landlord hereby represents
--------------------------------------
and warrants to Tenant that Landlord has no actual knowledge of any Hazardous
Substances in, on or under the Demised Premises as of the date of this Lease,
except Hazardous Substances that may be located, used or stored at the Demised
Premises in compliance with all applicable Hazardous Substances Laws. Landlord
has informed Tenant of the existence of one or more abandoned underground
storage tanks (USTs) somewhere under the rear yard of the Property. As between
Landlord and Tenant, Landlord shall be responsible for, and agrees to indemnify
Tenant against, any and all obligations and liabilities arising out of federal,
state or local laws pertaining to the USTs and any contamination caused by
releases from the USTs. Landlord shall be responsible for the closure of the
USTs in accordance with applicable environmental laws and Landlord will provide
Tenant with a copy of the clearance from the Louisiana Department of
Environmental Quality (DEQ) of the closure. If permitted by DEQ, Landlord
-9-
<PAGE>
intends to close the USTs by filling the USTs with an inert solid material.
Landlord will remove the USTs only if leaving the USTs in place prevents Tenant
from obtaining permits for the Initial Construction (as defined in Section 8.1)
or for the occupancy or operation of Tenant's business or if the USTs
interfere in more than an incidental fashion with the Initial Construction.
6. ASSIGNMENT AND SUBLETTING
6.1 By Tenant. Tenant shall not voluntarily assign or encumber, or
----------
permit an assignment to occur voluntarily, involuntarily or by operation of law
of, Tenant's interest in this Lease or in the Demised Premises, or sublease all
or any part of the Demised Premises, or allow any other person or entity (except
Tenant's authorized representatives) to occupy or use all or any part of the
Demised Premises, without Landlord's prior written consent, which consent shall
not be unreasonably withheld. Any assignment or sublease without Landlord's
prior written consent shall be voidable and, at Landlord's election, shall
constitute a default. No consent to an assignment or sublease shall constitute a
further waiver of the provisions of this Section 6.1.
Landlord acknowledges that Tenant's interest in the Lease may be
assigned to a new entity as part of an overall reorganization of the ownership
of the House of Blues enterprises. Notwithstanding the foregoing, this
assignment shall not require Landlord's prior written consent if Isaac Tigrett
remains involved in a meaningful way with the operation of the business of
Tenant and as an owner, directly or indirectly, of an interest in Tenant;
provided, Landlord shall be notified in writing of the occurrence of this
permitted assignment.
If Tenant is an entity (i.e. corporation, partnership, limited
liability company, etc.), any dissolution, merger, consolidation or other
reorganization of Tenant, or the sale or other transfer (in one or more
transactions) of at least 51% of the equity interests of Tenant, or the sale or
other transfer (in one or more transactions) of at least 51% of the value of the
assets of Tenant, shall be deemed an assignment of this Lease for the purposes
of this Section 6.1 and shall be a default by Tenant if Landlord's prior written
consent is not obtained; however, notwithstanding the foregoing, these
transactions shall not be considered an assignment of this Lease for the
purposes of this section 6.1 if Isaac Tigrett remains involved in a meaningful
way with the operation of the business of Tenant and as an owner, directly or
indirectly, of an interest in Tenant. This paragraph shall not apply to a
corporation the stock of which is publicly traded on a recognized national
security exchange or quoted on the NASDAQ National Market System.
The Gross Sales (as defined in Section 3.2(c)) of each sublessee,
concessionaire or licensee shall in all cases be a part of Tenant's Gross Sales
for the purpose of determining any percentage rent payable by Tenant to
Landlord.
Notwithstanding a transfer, assignment, sublease, concession or
license, Tenant shall not be released and shall remain primarily liable for
Tenant's obligations under this Lease.
6.2. By Landlord. Landlord may assign, transfer, grant a security
------------
interest in, sell or mortgage this Lease, Landlord's interest therein, the
Property, or any portion thereof (including either a transfer of title or a
transfer for security purposes), all without Tenant's consent but subject to
this Lease. If Landlord sells the Property and the purchaser assumes Landlord's
obligations under this Lease arising after the date of the sale, (a) Landlord
shall be released from any further obligations under this Lease arising after
the date of the sale and Tenant shall look solely to the successor in interest
of Landlord for performance of these obligations, and (b) the purchaser shall
have no liability for any obligations or liabilities that arose prior to the
date of the sale and Tenant shall look solely to Landlord for the satisfaction
of these obligations and liabilities.
-10-
<PAGE>
7. USE
7.1. Permitted Use. Subject to applicable zoning and other legal
-------------
requirements, the Demised Premises shall be used only for the permitted purposes
of a restaurant, offices, live music club, nightclub, retail, radio and
television broadcast and productions, museum exhibits and residential.
Notwithstanding the foregoing, the Demised Premises shall not be used for (a)
casino or other forms of gambling (except video poker machines and lottery
ticket sales are permitted if only incidental to other non-gambling uses) or (b)
nude dancing, strip tease or other similar forms of entertainment. Also, the
rooftop pad may be used only for placement of Tenant's mechanical and electronic
equipment, subject to applicable zoning and other legal requirements. The
Demised Premises shall not be used for any other purpose without Landlord's
prior written consent, which consent shall not be unreasonably withheld.
7.2. Continuous Operations; Maximize Gross Sales. Tenant shall open the
-------------------------------------------
Demised Premises for business on or before thirty (30) days after substantial
completion of the Initial Construction (as defined below in section 8.1). Tenant
shall open and continuously operate the Demised Premises during regular business
hours for similar establishments at least six (6) days per week, every week.
Tenant shall at all times use its best efforts to maximize Gross Sales.
7.3 Cancellation of Insurance; Increase in Rates. Tenant shall not do,
--------------------------------------------
bring, or keep anything in or on the Demised Premises that will cause a
cancellation of the insurance covering the Demised Premises. If the rate of
insurance carried by Landlord is increased as a result of Tenant's use, Tenant
shall pay to Landlord within ten (10) days before the date Landlord is obligated
to pay a premium on the insurance, or within ten (10) days after Landlord
delivers to Tenant a statement from Landlord's insurance carrier stating that
the rate increase was caused solely by an activity of Tenant on the Demised
Premises, whichever date is later, a sum equal to the difference between the
original premium and the increased premium.
7.4 Compliance with Laws. Tenant shall comply with all laws
--------------------
concerning the Demised Premises or Tenant's use thereof, including without
limitation the obligation at Tenant's cost to alter, maintain or restore the
Demised Premises in compliance and conformity with all laws relating to the
condition, use or occupancy of the Demised Premises during the term of this
Lease.
8. ALTERATIONS, ADDITIONS AND IMPROVEMENTS
8.1. Initial Construction. Tenant, at Tenant's sole cost and expense
--------------------
and at no cost or expense to Landlord, shall be responsible for the construction
and improvement of the Building in accordance with the Approved Plans (the
"Initial Construction"). Within 30 days after the effective date of this
Lease, Tenant shall enter into a construction contract for the Initial
Construction. The Initial Construction shall begin no later than 60 days after
the effective date of this Lease, shall be continuously performed thereafter and
shall be substantially completed no later than one year after the effective date
of this Lease.
The Initial Construction includes the Exhibit C Work. These
improvements are to or for the benefit of the Building (outside of the Demised
Premises). Tenant shall be entitled to the rental credit described above in
Section 3.1(h) for the Exhibit C Work if:
(a) The Exhibit C Work and the remainder of the Initial Construction
are completed within one year after the effective date of this
Lease;
-11-
<PAGE>
(b) The Exhibit C Work and the remainder of the Initial Construction are
performed in a first class manner in accordance with standards of good
workmanship;
(c) There are no liens against the Demised Premises or the Property
arising out of the Exhibit C Work or the remainder of the Initial
Construction;
(d) Tenant has opened for business no later than 30 days after substantial
completion of the Initial Construction; and
(e) There is no event of default (as defined in either Section 14.1 or
Section 14.2).
The Initial Construction shall be performed generally in accordance
with the Approved Plans. Landlord's consent is not required for a change in the
Approved Plans, except Landlord's consent shall be required for (a) a major
change in the design or scope of the work or (b) any change (including minor) to
the Exhibit C Work.
8.2. Elevators.
---------
(a) Joint Use. As part of the Initial Construction, Tenant shall
---------
construct and install two (2) elevators (the street and alley elevators) in the
Building in the locations designated in the Approved Plans and as described in
Exhibit C. The alley elevator shall provide service not only to the Demised
Premises but also to the remainder of the Building. Landlord and Landlord's
other tenants and the employees, agents, customers, invitees and other
authorized personnel of Landlord and Landlord's other tenants shall be entitled
to unlimited and unrestricted use of the alley elevator (including the elevator
lobbies and landings), without charge, at all times during the entire term of
this Lease. Either Landlord or Tenant or both may install or institute security
devices or procedures to prevent unauthorized access to their respective
portions of the Building, and each party agrees to respect and to cause their
respective personnel to respect the other party's restricted access areas. The
street elevator is available for use only by Landlord and Landlord's authorized
personnel, except Tenant shall have the limited right to use the street elevator
for handicap patrons only but not for any other purpose. Landlord is the owner
of and is responsible for all maintenance and repairs pertaining to the street
elevator.
(b) Alley Elevator Maintenance and Repairs. Tenant, at Tenant's
--------------------------------------
expense, shall procure and maintain ail appropriate permits and licenses for the
alley elevator and shall at ail times during the entire term of this Lease
maintain, preserve and operate the alley elevator and systems related thereto
and components thereof, including portions located and/or servicing other
portions of the Building, in a first class condition. Tenant, at Tenant's
expense, shall (1) provide all routine service and maintenance for the alley
elevator, (2) repair the alley elevator as and when necessary to maintain the
alley elevator in a first class condition, including preventative maintenance
and repairs, and (3) replace the alley elevator or portions thereof as and when
necessary to maintain a first class alley elevator in the Building at all times
during the term of this Lease. Tenant assumes full responsibility for the alley
elevator and ail components thereof. Landlord shall have no obligation
whatsoever during the term of this Lease for the alley elevator or any component
thereof and Tenant hereby releases Landlord from all obligations and liabilities
pertaining to the maintenance, repairs, replacement, defects in or condition of
the alley elevator or any component thereof, whether such condition exists now
or arises at any time during the term of this Lease.
(c) Access to Alley Elevator. Landlord and Landlord's other tenants
------------------------
and the employees, agents, customers, invitees and other authorized personnel of
Landlord and Landlord's other tenants shall, to the extent necessary, have
access, without charge, through the portions of the Demised Premises necessary
to afford access to the alley elevator.
-12-
<PAGE>
8.3. Stairways.
---------
(a) Joint Use. As part of the Initial Construction, Tenant shall
---------
construct two (2) stairways (including the stairway lobbies and landings) in the
Building in the locations designated in the Approved Plans and as described in
Exhibit C. The stairways shall provide access not only to the Demised Premises
but also to the remainder of the Building. Landlord and Landlord's other tenants
and the employees, agents, customers, invitees and other authorized personnel of
Landlord and Landlord's other tenants shall be entitled to unlimited and
unrestricted use of these stairways, without charge, at all times during the
entire term of this Lease. Either Landlord or Tenant may install or institute
security devices or procedures to prevent unauthorized access to their
respective portions of the Building, and each party agrees to respect and to
cause their respective personnel to respect the other party's restricted access
areas.
(b) Maintenance and Repairs. Notwithstanding the joint rights to
-----------------------
use the portion of the stairways within the Demised Premises, these areas shall
remain part of the Demised Premises and shall be maintained and repaired by
Tenant in the same manner as the remainder of the Demised Premises.
(c) Access. Landlord and Landlord's other tenants and the
------
employees, agents, customers, invitees and other authorized personnel of
Landlord and Landlord's other tenants shall, to the extent necessary, have
access, without charge, through the portions of the Demised Premises necessary
to afford access to the stairways.
8.4. Alley.
-----
(a) Joint Use. As part of the Initial Construction, Tenant shall
---------
improve the alley on the north side of the Building in accordance with the
Approved Plans. Landlord and Landlord's other tenants (including the other
tenants in the Building and the tenants in 216-218 Chartres Street) and the
employees, agents, customers, invitees and other authorized personnel of
Landlord and Landlord's other tenants shall have the right to use the alley
(including an extension of the alley through the courtyard to an opening in the
rear courtyard wall), without charge, for pedestrian access to and from 216-218
Chartres Street and Decatur Street during the entire term of this Lease. To
facilitate this pedestrian access, Landlord, at Landlord's expense, shall have
the right to open and maintain open a pedestrian access passageway in the rear
courtyard wall separating the rear courtyard of the Demised Premises from the
rear courtyard of Landlord's other property at 216-218 Chartres Street. The
opening in the courtyard wall shall be at a location acceptable to both Landlord
and Tenant. Tenant shall not block or unreasonably inhibit this pedestrian
access. Notwithstanding the foregoing, either Landlord or Tenant may install or
institute security devices or procedures to prevent unauthorized access to their
respective areas, and each party agrees to respect and to cause their respective
personnel to respect the other party's restricted access areas.
(b) Maintenance and Repairs. Notwithstanding the joint rights to use
-----------------------
the alley (including an extension of the alley through through courtyard to an
opening in the rear courtyard wall) these areas shall remain part of the
Demised Premises and shall be maintained and repaired by Tenant in the same
manner as the remainder of the Demised Premises.
(c) Drainage. Landlord, at Landlord's expense, shall have the right
--------
to tie into and use, without charge, the underground storm water drainage lines
under the Demised Premises to receive storm water drainage from 216-218 Chartres
Street.
8.5. Utilities. As part of the Initial Construction, Tenant shall
---------
construct and install the utility lines and facilities described in Exhibit C.
The utility lines and facilities shall have the capacities
-13-
<PAGE>
described in Exhibit C. The utility lines and facilities shall be made
available for connection by Landlord, without charge, in the locations described
in Exhibit C. Landlord, at Landlord's expense, shall have the right to connect
and tie into the utility lines and facilities for use in the remainder of the
Building. Tenant shall be responsible for the utility lines and facilities
located in the Demised Premises, and Landlord shall be responsible for the
utility lines and facilities located in the remainder of the Building (outside
of the Demised Premises). The utilities for the Demised Premises will be
separately metered from the remainder of the Building. Tenant is responsible
for the cost of the utilities used in the Demised Premises only, except the
first floor street elevator lobby shall be connected to Tenant's HVAC system and
these areas, at Tenant's expense, shall be heated and cooled along with and at
the same times as the Demised Premises.
Landlord and Landlord's other tenants in the remainder of the Building
shall have the right to use the trash chute described in Exhibit C. After
Landlord and/or Landlord's other tenants in the Building begin to use the trash
chute, the cost of trash removal shall be shared by Landlord and Tenant in a
fair and equitable manner to be determined by Landlord and Tenant at that time.
8.6. Security for Initial Construction. Isaac Tigrett does hereby
---------------------------------
personally guarantee that Tenant will spend no less than One Million and no/100
($1,000,000) Dollars of hard construction costs (labor and material costs only,
excluding soft costs such as professional fees, interest, taxes, insurance,
etc.) in the Demised Premises to improve the Demised Premises in accordance with
the Approved Plans. If $1,000,000 of hard construction costs is not spent on the
Demised Premises within one year after the date of this Lease or before the date
of termination of this Lease, whichever occurs first, then Isaac Tigrett hereby
personally and unconditionally agrees to pay to Landlord the difference between
$1,000,000 and the actual hard construction costs spent. This amount shall
constitute stipulated damages, shall be payable without deduction or set off and
shall not be credited against any rent, charges or damages paid or payable by
Tenant.
8.7. Other Work. Except as otherwise provided above in Section 8.1 with
----------
respect to the Initial Construction, Tenant shall not have the right to
construct any buildings or improvements, demolish any buildings or improvements
or make any alterations, additions or improvements, without Landlord's prior
written consent, which shall not be unreasonably withheld. Notwithstanding the
foregoing, Tenant shall have the right, without Landlord's consent, to make
nonstructural alterations, additions or improvements. Whether or not Landlord's
consent is required, Tenant shall submit to Landlord written plans and
specifications showing in reasonable detail the changes proposed to be made by
Tenant. If Landlord's consent is required for the work, Landlord shall have the
right to approve the plans and specifications, which approval shall not be
unreasonably withheld.
8.8. Construction Requirements. All of Tenant's work, whether or not
-------------------------
Landlord's consent is required and including the Initial Construction, shall at
all times comply with the following requirements:
(a) The work shall be first class and shall be performed in
accordance with standards of good workmanship.
(b) Landlord and Landlord's authorized representatives shall have
the right to inspect all work while it is being performed and
after completion to ensure compliance with the approved plans
and specifications and the terms of this Lease, although
Landlord has no obligation to conduct inspections or to report
to Tenant any of Landlord's observations. Upon request by
Landlord, Tenant shall promptly remedy any defective work or any
work that is not in compliance with the approved plans and
specifications or the terms of this Lease.
-14-
<PAGE>
(c) Tenant shall comply with all applicable federal, state, city and
other governmental building codes, rules and regulations with
respect to the work. Tenant shall obtain ail federal, state, city
and other governmental permits and licenses necessary for the
performance of the work.
(d) Any work exceeding $100,000.00 in cost shall be performed by
a contractor licensed in the State of Louisiana under a written
and recorded contract that is bonded for the full amount of the
contract by a corporate commercial surety authorized to do
business in Louisiana. The notice of contract, with the bond
attached, shall be filed and recorded with the Recorder of
Mortgages for the Parish of Orleans before the commencement of
any work. The bonding requirement described in this Section
8.8(d) shall not apply to the Initial Construction.
(e) Tenant shall not cause or permit any liens to be recorded against
the Property or the Demised Premises and shall indemnify Landlord
against all loss arising out of the existence of any liens.
Within fifteen (15) days after notice, Tenant shall discharge by
payment or bond all liens against the Property or the Demised
Premises or any interest or items therein arising out of work
performed by or on behalf of Tenant or arising out of any action
or inaction by or on behalf of Tenant.
(f) Tenant, at Tenant's sole cost and expense and at no cost or
expense to Landlord, shall be responsible for the entire cost of
all work.
8.9. Non-Liability of Landlord. Notwithstanding the existence of
-------------------------
Landlord's approval or other rights hereunder or Landlord's exercise or failure
to exercise those rights, (a) Landlord shall have no responsibility for the cost
of any of the work now or hereafter performed in, on or at the Demised Premises,
(b) Landlord shall have no responsibility to Tenant or any third party for any
defects now or hereafter in, on or at the Demised Premises, and (c) Landlord
shall have no responsibility for loss or damage suffered by Tenant or any third
party as a result of any defects in, on or at the Demised Premises.
8.10. Signs. Subject to applicable zoning and other laws and
-----
regulations, Tenant at its cost shall have the right to place, construct, and
maintain on the interior of the Demised Premises and the exterior of the
Building one or more signs advertising Tenant's business at the Demised
Premises. Tenant may not place, construct and maintain on the Demised Premises
any signs that are not related to Tenant's business and operations at the
Demised Premises. Tenant's signs shall comply with all laws, and Tenant shall
obtain all appropriate permits and approval before erecting the signs. Landlord
makes no representation with respect to Tenant's ability to obtain the permits
and approvals.
8.11. Facade. Subject to applicable zoning and other laws and
------
regulations, Tenant shall have the right to approve the color, design, signage
and look of the exterior front facade of the Building. Tenant shall be
responsible for all maintenance and repairs of the exterior front facade of the
Building.
9. MAINTENANCE AND REPAIRS
9.1. As Is Condition. Tenant accepts the Demised Premises as is and in
---------------
its current condition as of the date of this Lease. Tenant shall be responsible
for the condition of the Demised Premises and all components thereof, including
any defects or problems with the structure, electrical, plumbing,
-15-
<PAGE>
water, air ventilating, heating, air conditioning, sewerage, elevator and other
equipment and systems. Tenant shall be responsible for the continued
maintenance, repair and upkeep of the Demised Premises and all components
thereof. Tenant shall not be entitled to any maintenance, alterations, repairs
or services from Landlord. Landlord shall have no obligations whatsoever with
respect to the Demised Premises.
9.2. Responsibility for Maintenance and Repairs. During the entire term
------------------------------------------
of this Lease, Tenant shall maintain, preserve and operate the Demised Premises
in a first class condition. This obligation includes, but is not limited to, the
obligation, in accordance with a standard that would be generally expected of
prudent owners of similar property in New Orleans:
(a) to abide by and comply with all applicable laws, ordinances,
regulations, orders, rules and codes of any governmental or quasi-governmental
authority having jurisdiction over the Demised Premises;
(b) to replace, repair and maintain in good working order all
portions of the Demised Premises, including capital improvements and all systems
and equipment in or sewing the Demised Premise, including but not limited to any
and all elevators, plumbing, heating, air conditioning and air ventilating
systems, and water, electricity and gas systems; and
(c) to make all routine, day-to-day maintenance and repairs.
Without limiting the generality of the foregoing, Tenant, at Tenant's sole cost
and expense, shall perform all maintenance, repairs and replacements to the
Demised Premises (whether ordinary or extraordinary)(foreseen or unforeseen)that
may be or becomes necessary or desirable at any time during the term of this
Lease. The Demised Premises and all components thereof shall at all times be
kept in good order, condition and repair by Tenant and shall be kept in clean,
sanitary and safe condition, at the sole cost and expense of Tenant. Tenant
hereby releases Landlord from any and all obligations and liabilities pertaining
to the maintenance, repair, replacement, defects or condition of the Demised
Premises or any component thereof, whether such condition or event exists now or
arises at any time during the term of this Lease.
9.3. Assumption of Responsibility. In accordance with La. R.S.
----------------------------
9:3221, Tenant hereby assumes full responsibility for the condition of the
Demised Premises and all components thereof. Accordingly, Landlord shall have no
liability for injury caused by any defect therein to Tenant or anyone on the
Demised Premises who derives his right to be thereon from Tenant. Tenant agrees
to defend, indemnify and hold harmless Landlord against all liability, loss,
expense, attorneys' fees, court costs, cost of defense and other costs in
connection with all suits and claims arising directly or indirectly out of any
occurrence on or about the Demised Premises, any of Tenant's operations on,
about or from the Demised Premises or the occupancy or use of the Demised
Premises, whether by Tenant or others. The obligations of Tenant to Landlord
under this Section 9.4 shall not be dependent in any way upon the existence of
fault or negligence, except that Tenant does not assume responsibility for any
liability, loss or damage or associated costs resulting from gross negligence or
intentional misconduct on the part of Landlord.
10. OPERATlONS
10.1 Operations. Tenant shall: (a) comply with all governmental laws,
----------
ordinances, orders, and regulations affecting the Demised Premises and all
business conducted thereon, whether now existing or arising hereafter; (b)
comply with all rules, requirements and regulations of the fire department,
board of fire underwriters, Landlord's and Tenant's insurance companies, and
other
-16-
<PAGE>
organizations establishing insurance rates; (c) not suffer, permit or commit any
waste or nuisance; (d) maintain the Demised Premises in a clean, sanitary and
safe condition; and (e) comply with Landlord's reasonable requests with respect
to the foregoing.
10.2. Refuse. Tenant shall cause its refuse and debris to be removed
------
from the Demised Premises at regular intervals. Tenants shall not bum any trash
or garbage at the Demised Premises.
10.3. Assumption of Responsibility By Tenant. Tenant shall store its
--------------------------------------
property in and shall occupy the Demised Premises at Tenant's own risk. Tenant
acknowledges that Landlord has no obligation to provide security for the Demised
Premises. Any security required by Tenant shall be provided by Tenant at
Tenant's expense. Landlord shall not be responsible or liable at any time for
loss or damage to Tenant's merchandise, inventory, equipment, fixtures or other
property or to Tenant's business, except only in the event of Landlord's gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, Landlord shall not be responsible or liable for any injury, loss or
damage to any person or property caused by or resulting from any of the
following: (a) bursting or breakage of pipes; (b) leakage, steam, snow or ice;
(c) running, backing up, seepage, or the overflow of water or sewer; (d) acts of
God or the elements; or (e) theft, vandalism, robbery, assault or other crimes.
10.4. Indemnity. Tenant shall defend, indemnify and hold harmless
---------
Landlord from and against any and all suits, actions, damages, loss, liability
and expenses (including reasonable attorneys' fees and court costs)(a) arising
from or out of an occurrence in, upon or about the Demised Premises or the
occupancy or use thereof or any part thereof, or (b) occasioned, wholly or in
part by any act or omission by Tenant, its agents, contractors, employees,
servants, invitees, licensees or concessionaires, in, upon or about the Demised
Premises.
11. INSURANCE
11.1. Public Liability and Property Damage Insurance. Tenant at its
----------------------------------------------
cost shall maintain public liability and property damage insurance and products
liability insurance with a single combined liability limit of Five Million and
No/100 Dollars ($5,000,000) and property damage limits of no less than Five
Hundred Thousand and No/100 Dollars ($500,000), insuring against, all liability
of Tenant and its authorized representatives arising out of or in connection
with Tenant's use or occupancy of the Demised Premises. All public liability
insurance, products liability insurance, and property damage insurance shall
insure performance by Tenant of the indemnity provisions of Section 10.4. Both
Tenant and Landlord shall be named as additional insureds under the policies and
the policy shall contain crossliability endorsements.
If in the reasonable opinion of the insurance broker retained by
Landlord the amount of public liability and property damage insurance coverage
maintained by Tenant is not adequate, Tenant shall from time to time (but no
more frequently than every three years) increase the insurance 'coverage as
required by Landlord's insurance broker.
11.2. Tenant's Fire and Casualty Insurance. Tenant at its cost shall
------------------------------------
maintain on all of Tenant's merchandise, inventory, furniture, fixtures,
equipment and improvement in, on, or about the Demised Premises, a policy of
standard, fire and extended coverage insurance, with vandalism and malicious
mischief endorsements, to the extent of their full replacement value. The
proceeds from this policy shall be used by Tenant for the replacement of the
property and the restoration of Tenant's improvements or alternations.
11.3. [Intentionally Omitted]
-----------------------
-17-
<PAGE>
11.4. Landlord's Fire and Casualty Insurance. Landlord shall maintain
--------------------------------------
on the Building (excluding contents) a policy of standard fire and extended
coverage insurance, with vandalism and malicious mischief endorsements, to the
extent of its full replacement value. The policy shall include coverage for loss
of rents for a period of up to two (2) years after the date of a casualty.
Landlord shall also maintain on the Building (excluding contents) a flood
insurance policy in an amount determined by Landlord to be appropriate. The
insurance policies described in this section 11.4 shall be issued in the name of
Landlord, and the proceeds shall be made payable to Landlord and Landlord's
mortgagee, if any, as their interests may appear.
11.5. Determination of Replacement Value. The "full replacement
----------------------------------
value" of the Building and other property to be insured under this Section 11
shall be determined by the company issuing the policy at the time the policy is
initially obtained. Not more frequently than once every three years, either
party shall have the right to notify the other party that it elects to have the
replacement value redetermined by an insurance company. The redetermination
shall be made promptly and in accordance with the rules and practice of the
board of fire underwriters, or a like board recognized and generally accepted by
the insurance company, and each party shall be promptly notified of the results
by the company. The insurance policy shall be adjusted according to the
redetermination.
11.6. Waiver of Subrogation. Each party (the "Waiving Party") waives
---------------------
all claims that it may have against the other party for any loss suffered by the
Waiving Party to the extent that (a) the loss is recoverable and is recovered
under insurance policies maintained by the Waiving Patty and (b) the existence
of this waiver does not prevent the Waiving Party from recovering for the loss
under the policies maintained by it. Each party shall cause each insurance
policy obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by the policy. If any insurance policy cannot be obtained with a
waiver of subrogation or is obtainable only by the payment of an additional
premium charge above that charged by insurance companies issuing policies
without waiver of subrogation, the party undertaking to obtain the insurance
shall notify the other party of this fact. The other party shall have a period
of fifteen (15) days after receiving the notice either to place the insurance
with a company that is reasonably satisfactory to the other party and that will
carry the insurance with a waiver of subrogation, or to agree to pay the
additional premium if such a policy is obtainable at additional costs. If the
insurance cannot be obtained or the party in whose favor a waiver of subrogation
is desired refuses to pay the additional premium charge, the other party is
relieved of the obligation to obtain a waiver of subrogation rights with respect
to the particular insurance involved.
11.7. Other Insurance Matters. All insurance policies required under
-----------------------
this Lease shall:
(a) be issued by insurance companies authorized to do
business in the State of Louisiana, with the financial
rating of at least A status in the most recent edition of
Best's Insurance Reports;
(b) be issued as a primary policy; and
(c) contain an endorsement requiring thirty (30) days' prior
written notice from the insurance company to both parties
before cancellation or change in the scope or amount of
the policy.
Each policy, or a certificate of the policy, together with evidence of payment
of premiums, shall be deposited with the other paw at the beginning of this
Lease and on renewal of the policy not less than twenty (20) days before
expiration of the term of the policy.
-18-
<PAGE>
12. DESTRUCTION
12.1. Destruction Due to Risk Covered by Insurance. If the Demised
--------------------------------------------
Premises is totally or partially destroyed from a risk covered by the insurance
described in Section 11.4, rendering the Demised Premises totally or partially
inaccessible or unusable, Landlord shall restore the Demised Premises to
substantially the same condition it was in immediately before the destruction.
The destruction shall not terminate this Lease. If the then existing laws do not
permit the restoration, either party can terminate this Lease by giving written
notice to the other party.
If the cost of the restoration exceeds the amount of the
insurance proceeds received by Landlord for the restoration and not required to
be applied to the reduction of indebtedness secured by a mortgage covering the
Demised Premises, Landlord may elect to terminate this Lease by giving notice to
Tenant within thirty (30) days after determining that the restoration costs will
exceed the insurance proceeds received. If Landlord elects to terminate this
Lease as a result thereof, Tenant, within thirty (30) days after receiving
Landlord's notice to terminate, may elect to pay to Landlord the difference
between the amount of insurance proceeds received and the cost of restoration,
in which case Landlord shall restore the Demised Premises. After the
restoration, Landlord shall give Tenant satisfactory evidence ,that all sums
contributed by Tenant as provided by this Section 12.1 have been expended by
Landlord in paying for the cost of restoration.
12.2. Destruction Due to Risk Not Covered By Insurance. If the
-------------------------------------------------
Demised Premises is totally or partially destroyed from a risk not covered by
the insurance required by Section 11.4, then Landlord may terminate this Lease.
If Landlord does not terminate this Lease, Landlord shall restore the Demised
Premises to substantially the same condition they were in immediately before the
destruction. If Landlord elects to restore the Demised Premises the destruction
shall not terminate this Lease.
If Landlord elects to terminate this Lease as permitted in this Section
12.2, Tenant, within thirty (30) days after receiving Landlord's notice of
termination, may elect to pay to Landlord the actual cost of restoration, in
which case Landlord shall restore the Demised Premises and Landlord's notice of
termination shall be rescinded. After the restoration, Landlord shall give
Tenant satisfactory evidence that all sums contributed by Tenant have been
expended by Landlord in paying the cost of restoration.
12.3. Extent of Landlord's Obligation to Restore. If Landlord is
-----------------------------------------
required or elects to restore the Demised Premises as provided above, Landlord
shall not be required to restore any of Tenant's merchandise, inventory,
furniture, fixtures, and other property, which excluded items are the sole
responsibility of Tenant to restore.
12.4. Abatement or Reduction of Rent. If there is a destruction,
------------------------------
there shall be an abatement or reduction of the fixed minimum rent between the
date of destruction and the date of completion of Landlord's restoration, based
on the extent to which the destruction interferes with Tenant's use of the
Demised Premises. There shall be no abatement or reduction of any other payments
due by Tenant, including but not limited to percentage rent, except the
percentage rent Breakpoint shall be reduced during the abatement or reduction
period in the same proportion as the reduction in the fixed minimum rent.
12.5. Destruction During Last Part of the Term. If the destruction
----------------------------------------
occurs during the last two years of the term, Landlord may, at its option, elect
to terminate this Lease by giving notice to Tenant not more than sixty (60) days
after the destruction.
12.6. Tenant Shall Reopen. If after a destruction Landlord restores
-------------------
the Demised Premises as provided in this Section 12, Tenant immediately
thereafter shall replace its merchandise, inventory,
-19-
<PAGE>
furniture, equipment, fixtures and other property and reopen the Demised
Premises for business not later than thirty (30) days after Landlord
substantially completes Landlord's restoration.
13. CONDEMNATION
13.1. Total Taking. If all of the Demised Premises is taken in a
------------
condemnation, eminent domain, or similar proceeding for a public taking or
agreement in lieu thereof (a "Taking"), then this Lease shall terminate as of
the date that possession is taken.
13.2. Partial Taking. if there is a Taking of only part of the
--------------
Demised Premises, and the partial Taking renders that portion not taken
unsuitable for Tenant's business, then this Lease shall terminate as of the date
possession is taken. If the partial Taking does not render the remainder of the
Demised Premises unsuitable for Tenant's business, then this Lease shall
continue in effect, except that the fixed minimum rent (and the percentage rent
Breakpoint) shall be reduced in the same proportion that the value of the
portion taken bears to the total value of the Demised Premises immediately
before the Taking.
13.3. Rebuilding. If there is a Taking and this Lease is not
----------
terminated as a result thereof, then Landlord shall, upon receipt of proceeds
from the Taking make all necessary repairs or alterations to the Demised
Premises. Landlord shall not in any event be required to spend for the work an
amount in excess of the amount received by and made available to Landlord for
that purpose and not required to be applied to the reduction of indebtedness
secured by a mortgage covering the Demised Premises. However, Landlord shill not
be required to restore any of Tenant's merchandise, inventory, furniture,
fixtures, and other property, which excluded items are the sole responsibility
of Tenant.
13.4. Ownership of Award. Tenant shall not be entitled to and
------------------
expressly waives all claims to an award or similar compensation for a Taking,
although Tenant shall have the right if Landlord's award is not reduced, to make
a separate claim from the condemnor, but not from Landlord, for compensation as
may be recoverable by Tenant in its own right for damage to Tenant's property
and leasehold interests.
14. DEFAULT
14.1 Events of Default/Notice Required. If either (a) Tenant fails
---------------------------------
to make a payment of fixed minimum rent, percentage rent, tax contribution or
insurance contribution (collectively called "Rent") under this Lease promptly
when due and the failure to pay Rent is not cured by Tenant within ten (10)
working days after written notice to Tenant; or (b) Tenant fails to perform or
is otherwise in default under any of the other terms, covenants or conditions of
this Lease and the default is not cured by Tenant within thirty (30) calendar
days after written notice to Tenant; then, and in either case, Landlord may at
its option exercise any one or more of the rights and remedies specified in
section 14.3 hereof.
14.2. Events of Default/No Notice Required. Notwithstanding the
------------------------------------
provisions of section 14.1, if:
(a) Tenant fails to make a payment of Rent under this Lease
promptly when due and during the previous twelve
(12) month period Landlord has given Tenant three
notices of default;
(b) There is a filing against Tenant in a court pursuant to
a statute of either the United States or any state of a
petition in
-20-
<PAGE>
bankruptcy or insolvency or for reorganization or for
the appointment of a receiver or trustee and the suit is
not dismissed within thirty (30) calendar days after the
date of filing;
(c) Tenant files a petition in bankruptcy or insolvency or
for the reorganization or for the appointment of a
receiver or trustee, or a general assignment for the
benefit of creditors, or enters. into any arrangement
for the relief of debtors;
(d) Tenant begins or continues any work, improvements, or
alteration to the Demised Premises not permitted
hereunder;
(e) Tenant vacates or abandons the Demised Premises or fails
to open the Demised Premises as required in this Lease
or Tenant fails to operate the Demised Premises for five
(5) consecutive calendar days (except during periods of
bona fide remodeling or reconstruction);
(f) Tenant at any time uses the Demised Premises or any
portion thereof for any illegal or unlawful purpose, or
commits or permits the commission therein of any act
made punishable by fine or imprisonment; or
(g) There is an issuance of any execution or attachment
whereby the Demised Premises, any portion thereof or any
item therein is seized and the execution or attachment
is not dismissed, challenged or discharged within thirty
(30) calendar days after the issuance thereof;
then, Landlord may exercise the rights and remedies set forth in section 14.3
hereof without notice or an opportunity to cure.
14.3. Rights and Remedies. The rights and remedies available to
-------------------
Landlord in the event of a default on the part of Tenant are as follows:
(a) Landlord may collect past due Rent and all other past
due obligations.
(b) Landlord may collect its "Costs", which include: (i) all
costs and expenses incurred by Landlord in collecting
any amount due or enforcing any obligation hereunder,
including reasonable attorneys' fees; (ii) all costs and
expenses in releasing the Demised Premises; and (iii)
all costs and expenses of repairs, remodeling,
maintenance, security, brokerage fees, and other related
costs.
(c) Landlord may terminate this Lease.
(d) Landlord may accelerate the rent and declare immediately
due and payable the sum of: (i) the Rent for the entire
unexpired term of this Lease including any additional
renewal period for which Tenant has become obligated,
plus (ii) an amount equal to the percentage rent for the
Lease Year immediately preceding the
-21-
<PAGE>
default multiplied by the number of years remaining in
the Lease term including any additional renewal periods
for which Tenant has become obligated (or if the default
occurs in the first Lease Year, the average monthly
percentage rent for the month preceding the default
multiplied by the number of months remaining in the
Lease term including any additional renewal periods for
which Tenant has become obligated).
(e) Landlord may demand specific performance or a mandatory
or prohibitory injunction requiring Tenant to perform
its obligations, or both.
(f) Landlord may exercise any of the rights and remedies
provided or permitted by the La. UCC (as defined in
section 14.4) with respect to the security interest in
and to the collateral granted pursuant to section 14.4.
(g) Landlord may cure the default and demand from Tenant
immediate repayment of ail amounts expended or advanced
by Landlord in connection therewith, plus, (i) fifteen
percent (15%) of the actual cost thereof for overhead
expense, and (ii) interest thereon in the amount of
1.5% per month on the whole amount due.
(h) Landlord may repossess the Demised Premises and may at
any time and from time to time release the Demised
Premises as agent for Tenant upon such terms and
conditions as may be satisfactory to Landlord.
(i) Landlord may remove or cause to be removed all effects
from the Demised Premises and store the same in
Landlord's or Tenant's name, but at the cost and expense
of Tenant without liability to Landlord for loss or
injury thereto, and without prejudice to the lessor's
lien and privilege.
(j) Landlord may exercise any other right or remedy
permitted by law.
All amounts due hereunder, including but not limited to all Rents and Costs,
shall be secured by the lessor's lien and privilege. Any one or more of the
rights or remedies specified in this section 14.3 shall be available to Landlord
upon an event of default. Landlord's election of a right or remedy shall not be
irrevocable. If Landlord elects one or more rights or remedies in respect of a
default, it may at any time thereafter elect one or more different rights or
remedies in respect of the default. Tenant specifically waives all notices to
vacate, including but not limited to the notice to vacate specified in Louisiana
Code of Civil Procedure Article 4701, or any successor provision of law.
14.4. Security Agreement. As security for the payment and performance of
------------------
all liabilities and obligations of Tenant under this Lease and all amendments
hereto, whether now due or hereafter arising, Tenant does hereby grant to
Landlord a continuing security interest in and to the following, whether now
existing or hereafter arising (the "Collateral"): (a) all Equipment in all its
forms now or hereafter located at the Demised Premises, all Fixtures and all
parts thereof and all Accessions thereto; (b) all inventory in all its forms now
or hereafter located at the Demised Premises and all Accessions thereto and
Products thereof and Documents therefor; and (c) all Proceeds of the foregoing
Collateral.
-22-
<PAGE>
Upon the occurrence of an event of default under this Lease, Landlord shall have
the rights and remedies provided or permitted by the applicable provisions of
La. R.S. 10:9-101 et seq. (the "La. UCC"). This security interest, as it affects
-- ---
any particular item of Collateral, shall automatically be released if the item
of Collateral is removed from the Demised Premises in the ordinary course of
business of Tenant and prior to the occurrence of an event of default; provided,
the security interest shall remain against the remainder of the Collateral.
Contemporaneously with the execution of this Lease (and at any time hereafter
upon request by Landlord), Tenant shall execute and deliver to Landlord
financing statements in sufficient form so that when filed the security interest
granted herein shall be perfected. The security interest granted herein is in
addition to Landlord's statutory lien and privilege. All capitalized terms used
in this section 14.4 shall have the meanings ascribed to them in the La. UCC.
14.5. Default by Landlord. If Landlord defaults in the performance of a
-------------------
provision of this Lease, Tenant shall furnish written notice thereof to
Landlord. Landlord shall have thirty (30) calendar days after receipt of the
notice within which to cure the default or to commence and thereafter diligently
attempt to cure the default. If the default is not thereafter cured, Tenant may
cancel this Lease or Tenant may exercise any other right or remedy permitted by
law. In addition to any other right or remedy, Tenant shall have the right to
seek injunctive relief without the necessity of proving irreparable harm.
14.6. Arbitration - Selected Issues. Any dispute between the parties
-----------------------------
relating to the interpretation and enforcement of their rights and obligations
under sections 8.1 through 8.5, including but not limited to the Exhibit C Work
and the remainder of the initial Construction, shall be resolved solely by
mandatory and binding arbitration in accordance with the provisions of this
section 14.6. The arbitration shall be conducted in New Orleans, Louisiana by
the American Arbitration Association in accordance with the Commercial
Arbitration Rules of the American Arbitration Association, as then in effect.
The arbitration panel shall consist of three arbitrators. The arbitrators must
be former or retired judges, attorneys with at least ten years' experience in
real estate and commercial matters, or non-attorneys with like experience in the
area of dispute. The prevailing party shall be awarded reasonable
attorneys' fees, expert and non-expert witness costs and expenses, and other
costs and expenses incurred in connection with the arbitration, unless the
arbitration panel for good cause determines otherwise. Costs and fees of the
arbitrators shall be borne by the non-prevailing party, unless the arbitration
panel for good cause determines otherwise. The award or decision of the
arbitration panel shall be final and judgment may be entered in any court having
jurisdiction thereof. Except as otherwise specifically provided in this section
14.6, all other disputes and questions shall be resolved judicially.
15. ACCESS TO DEMISED PREMISES
Landlord shall have the right to enter upon the Demised Premises
(a) in the event of an emergency to protect, preserve or repair the Demised
Premises, provided Landlord has no obligation to do so, (b) to inspect the
Demised Premises, or (c) to display the Demised Premises to actual or
prospective purchasers, lenders, or tenants.
16. TERMINATION OF LEASE
--------------------
16.1. Termination of Lease. Upon the termination of this Lease by
--------------------
expiration of the term or otherwise, Tenant shall surrender the Demised Premises
broom clean and in good condition, excepting only deterioration caused by
ordinary wear and tear or fire and other casualty. Tenant shall deliver to
Landlord all keys and combinations to locks, safes and vaults. Within ten
(10) days prior to the
-23-
<PAGE>
expiration of the Lease, Tenant may remove from the Demised Premises all its
movable property and Tenant shall repair any damage to the Demised Premises
caused by the removal. All alterations, additions and improvements to the
Demised Premises, whether made by or on behalf of Landlord or Tenant, that are
incorporated into or permanently attached to the Building so as to become a cam
ponent part thereof, specifically including but not limited to all elevators,
shall at the termination of this Lease become the property of Landlord, and
Tenant shall not be entitled to remove them or any compensation therefor.
Furthermore, Landlord shall have the option (a) to declare that any movable
property remaining on or in the Demised Premises after the termination of this
Lease shall be deemed to have been abandoned by Tenant and shall become the
property/of Landlord, and Tenant shall not be entitled to any compensation
therefor, or (b) to require the Tenant to remove the property and repair all
damage resulting from its installation or removal. If Tenant fails to surrender
the Demised Premises upon the termination of this Lease, Tenant shall indemnify
and hold Landlord harmless from all loss or liability resulting from the failure
to vacate the Demised Premises.
16.2. Holding Over. A holding over after the termination of this Lease
------------
with Landlord's consent shall be construed as an extension of this Lease from
month to month at a rental rate equal to 200% of the monthly fixed minimum rent
at the expiration of the last Lease Year and shall otherwise be on the same
terms herein specified as far as applicable.
17. SUBORDINATION, NONDISTURBANCE AND ATTORNMENT
17.1. Subordination. At Landlord's option, but subject to the
-------------
nondisturbance requirements of Section 17.2, this Lease and the Tenant's rights
and interests hereunder shall be subordinate to any mortgage now existing or
hereafter placed by Landlord against the Demised Premises. This subordination
shall be self-operative and no further instrument shall be required. However,
upon Landlord's request, from time to time, Tenant shall execute instruments to
confirm that this Lease is subordinate to the lien of a mortgage. If Tenant
fails to execute the subordination within ten (10) days after Landlord's written
request, Tenant does hereby make, constitute and irrevocably appoint Landlord as
Tenant's attorney in fact and in its name, place and stead to do so.
17.2. Nondisturbance. Notwithstanding the foregoing, the subordination of
--------------
this Lease to any current or future mortgage is and shall be expressly subject
to the execution by Tenant and the mortgagee of a nondisturbance and attornment
agreement in form and substance reasonably acceptable to Tenant and the
mortgagee. The nondisturbance and attornment agreement shall provide, in
substance, that as long as Tenant performs Tenant's obligations under this
Lease, no foreclosure of, or deed given in lieu of foreclosure of, or sale under
the encumbrance, and no steps or procedures taken under the encumbrance shall
affect Tenant's rights under this Lease.
17.3. Attornment. Tenant shall, in the event of the sale or assignment of
----------
Landlord's interest in the Demised Premises, or in the event of any proceedings
brought for foreclosure, or in the event of conveyance in lieu of foreclosure,
attorn to the purchaser, assignee, or foreclosing mortgagee and recognize the
purchaser, assignee or foreclosing morgagee as landlord under this Lease. At the
option of the purchaser, assignee or foreclosing mortgagee, Tenant will execute
a new lease with the party on the same terms and conditions of this Lease except
that the term of the new lease shall be for the balance of the term of this
Lease.
17.4. Subordination of Landlord's Lien. If Tenant grants a conditional
--------------------------------
sales contract, chattel mortgage, vendor's lien, security interest or other
security agreement with respect to any movable property placed upon the Demised
Premises, Landlord agrees to execute and deliver to a bona fide unaffiliated
secured creditor of Tenant, a written subordination of the lessor's lien granted
to the Landlord by operation of law and the security interest granted pursuant
to section 14.4. The
-24-
<PAGE>
subordination agreement shall be in form and substance reasonably satisfactory
to Landlord and the secured creditor.
18. ESTOPPEL CERTIFICATES
From time to time and within ten (10) calendar days after notice
from Landlord, Tenant shall execute and deliver to Landlord or a designee of
Landlord a written declaration: (a) ratifying this Lease; (b) expressing the
commencement and termination dates; (c) certifying that this. Lease is in full
force and effect and has not been assigned, modified, supplemented or amended
(except by the writings as shall be stated); (d) certifying that all conditions
under this Lease to be performed by Landlord have been satisfied (except the
conditions as shall be stated); (e) certifying that there are no defenses or
offsets against the enforcement of this Lease by the Landlord (or stating those
claimed by Tenant); (f) certifying the amount of advance rental, if any, paid by
Tenant; (g) certifying the date to which rental has been paid; (h) certifying
the amount of any security deposit held by Landlord; and (i) such additional
items reasonably requested by Landlord.
19. NOTICES
Any notice, demand, request, or other communication required or
permitted to be given under this Lease shall be in writing. The parties current
addresses are as follows:
If to Landlord:
c/o Beni Toledano
405 Gretna Blvd., Suite 110
Gretna, Louisiana 70053
If to Tenant, at the Demised Premises, or:
Randy Roberts and Chief Executive Officer of
House of Blues Partnership Management Corporation
c/o Winston, Sechrest, Minick
1201 Elm Street, Suite 5400
Dallas, Texas 75270
Either party may designate a substitute address by written notice to the other.
20. MISCELLANEOUS
20.1. Exculpation. Notwithstanding anything in this Lease to the
-----------
contrary, Tenant agrees that it shall look solely to the interest of Landlord in
the Property for the collection of any judgment (or other judicial
process) arising out of a default or breach, except only gross negligence or
willful misconduct by Landlord, with respect to any of the terms, covenants and
conditions of this Lease to be observed and/or performed by Landlord, and that
no other assets of Landlord or any of its partners, shareholders, officers,
directors or employees shall be subject to levy, execution or other process.
20.2. No Waiver. Failure of Landlord to insist upon the strict
---------
performance of a provision or to exercise an option or to enforce a rule and
regulation shall not be construed as a waiver for the future of the same. The
receipt by Landlord of rent with knowledge of the breach of a provision of this
Lease shall not be a waiver of the breach. No provision of this Lease shall be
waived by Landlord unless the waiver is in writing and signed by Landlord. One
or more waivers of any covenant, term,
-25-
<PAGE>
or condition or this Lease by either party shall not be construed as a
continuing waiver of the same or any other covenant, term, or condition. The
consent or approval by either party to or of any act by the other party
requiring such consent or approval shall not be deemed to waive or render
unnecessary consent to or approval of any subsequent similar act.
20.3. Recording. Tenant shall not record this Lease. Upon the request of
---------
Landlord or Tenant, the other party shall join in the execution of a memorandum
of this Lease for the purpose of recordation. The memorandum shall not disclose
the rents or other financial information. The cost of preparation and
recordation of the memorandum shall be paid by the requesting party. If a
memorandum is recorded, Tenant shall sign and deliver to Landlord a recordable
instrument evidencing the termination of this Lease no later than 30 days after
the date of termination.
20.4 Partial Invalidity. If a provision of this Lease or application
------------------
thereof to a person or circumstance is invalid or unenforceable, the remainder
of this Lease or the application of the provision to persons or circumstances
ether than those as to which it is held invalid or unenforceable shall not be
affected thereby and each provision of this Lease shall be valid and enforceable
to the fullest extent permitted by law.
20.5. Broker's Commissions. Tenant shall be responsible for all brokerage
--------------------
and leasing commissions due in connection with this Lease.
20.6. Successors. Except as otherwise expressly provided, all provisions
----------
herein shall be binding upon and shall inure to the benefit of the parties
hereto and their heirs, executors, legal representatives, successors,
successors-in-title, and assigns; provided, nothing in this section shall permit
an assignment otherwise prohibited by section 6.
20.7. Miscellaneous. This Lease and the exhibits, riders, and/or addenda,
-------------
if any, set forth the entire agreement between the parties. Any prior and
contemporaneous conversations or writings are merged herein and extinguished. No
subsequent amendment to this Lease shall be binding upon Landlord or Tenant,
unless reduced to writing and signed by Landlord and Tenant. Both Tenant and
Landlord acknowledges that it has not relied upon any oral or written
representations, warranties or agreements in connection with this Lease other
than those expressly written in this Lease.
20.8. Landlord and Tenant. The relationship established by this Lease is
-------------------
that of landlord and tenant. None of the language or terminology of this Lease
shall be construed to create a partnership, fiduciary relationship or any other
form of relationship between Landlord and Tenant other than that of landlord and
tenant.
-26-
<PAGE>
20.9. Governing Law. The laws of the State of Louisiana shall govern the
-------------
validity, performance and enforcement of this Lease.
20.10. Time of the Essence. Time is of the essence in the performance of
-------------------
the obligations under this Lease and the observance of the time limitations set
forth herein.
20.11. Light and View. This Lease does not entitle Tenant to rights of
--------------
light or view and Tenant shall not be entitled to terminate this Lease, reduce
the rent or exercise any other right or remedy by reason of the deprivation
thereof.
20.12. Gender and Number. Words of any gender used in this Lease shall be
-----------------
held to include any other gender and words in the singular shall be held to
include the plural when the sense requires.
20.13. Headings. The headings in this Lease are used for convenience and
--------
they are not to be construed as a part of this Lease or as affecting the scope
of the. sections to which they refer.
Landlord and Tenant have executed this Lease in multiple original
counterparts on the date first set forth above, but effective as of October 14,
1992.
LANDLORD:
/s/ Beni Toledano
------------------------------
Beni Toledano
TENANT:
HOUSE OF BLUES PARTNERSHIP
MANAGEMENT CORPORATION
By: /s/ Isaac Tigrett
----------------------------
Isaac Tigrett, President
FOR THE PURPOSES OF SECTION 8.6 ONLY:
/s/ Isaac Tigrett
----------------------------------
Isaac Tigrett, Individually
-27-
<PAGE>
EXHIBIT 10.37
AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement (the "Amendment") is entered into
effective as of December 20, 1993 between Beni Toledano and Jacqueline G.
Toledano (collectively, the "Landlord") and House of Blues New Orleans
Restaurant Corp. (the "Tenant"), formerly known as House of Blues Partnership
Management Corporation.
INTRODUCTION
A. Beni Toledano, as Landlord, and House of Blues Partnership
Management Corporation, as Tenant, entered into that certain Lease Agreement
(the "Lease") dated October 15, 1992, and pertaining to a portion of the
property located at 215-225 Decatur Street in New Orleans, Louisiana.
B. Landlord and Tenant have agreed to amend the Lease in accordance
with the terms of this Amendment.
In consideration of the terms of this Amendment, the Landlord and
Tenant do hereby amend the Lease as follows:
AMENDMENT
1. Name Of Tenant. Tenant represents that it has changed its name
--------------
from House of Blues Partnership Management Corporation to House of Blues New
Orleans Restaurant Corp. and that its employer identification number is
75-2454653. Accordingly, the name of Tenant for purposes of the Lease shall be
"House of Blues New Orleans Restaurant Corp."
<PAGE>
2. Landlord. Jacqueline G. Toledano hereby executes the Lease as
--------
Landlord. Accordingly, the term "Landlord" as used in the Lease shall mean Beni
Toledano and Jacqueline G. Toledano.
3. Assignment by Landlord. The second sentence in Section 6.2 of the
----------------------
Lease is hereby deleted and the following is inserted in its place:
"If Landlord sells or otherwise transfers the Property and the
transferee assumes Landlord's obligations under this Lease arising
after the date of the transfer, (a) Landlord shall be released from
any further obligations under this Lease arising after the date of the
transfer and Tenant shall look solely to the successor in interest of
Landlord for performance of these obligations, and (b) the transferee
shall have no liability for any obligations or liabilities that arose
prior to the date of the transfer and Tenant shall look solely to
Landlord for the satisfaction of these obligations and liabilities."
4. Completion of Initial Construction. Section 8.1 of the Lease
----------------------------------
obligates Tenant to complete the Initial Construction no later than October 14,
1993. Landlord and Tenant have agreed to extend the completion date until April
15, 1994. Accordingly, the second and third sentences of the first paragraph of
Section 8.1 are hereby deleted and the following is inserted in their place:
"The Initial Construction began before the effective date of this
Amendment. The Initial Construction itemized in the Approved
Plans shall be substantially completed on April 15, 1994."
Also, subparagraph (a) in the second paragraph of Section 8.1 is hereby deleted
and the following is substituted in its place:
"(a) The Exhibit C Work itemized in the Approved Plans and the
remainder of the Initial Construction itemized in the Approved Plans
are substantially completed in accordance with the Approved Plans no
later than April 15, 1994;".
-2-
<PAGE>
4A. Definition of Initial Construction. The term "Initial
----------------------------------
Construction" shall mean the demolition, construction and improvement of the
Property in accordance with the Approved Plans and shall also specifically
include all of the Exhibit C Work.
5. Substantial Completion. The phrases "substantially completed"
----------------------
and "substantial completion" as used in this Lease shall mean the Initial
Construction is sufficiently complete in accordance with the Approved Plans so
Tenant can occupy or utilize the Demised Premises for its intended use.
6. Rental Credit for Exhibit C Work. Section 3.1(h) provides for a
--------------------------------
rental credit in the amount of $61,000.00 for the Exhibit C Work (the "Exhibit C
Rental Credit"). Section 3.1(h) also provides that Tenant is entitled to the
Exhibit C Rental Credit only if the requirements in Section 8.1 are satisfied.
Tenant has already taken a portion of the Exhibit C Rental Credit even though
all requirements in Section 8.1 have not yet been satisfied. Landlord and
Tenant have agreed that Tenant may continue to take the Exhibit C Rental Credits
during the period of Initial Construction and that if the requirements in
Section 8.1, as amended hereby, are not satisfied, Tenant will reimburse
Landlord for the amount of the Exhibit C Rental Credits previously taken.
Accordingly, the following is added at the end of the second paragraph of
Section 3.1(h):
"Tenant may utilize the rental credits for the Exhibit C Work in
accordance with this schedule even though a portion of the rental
credit may be taken before the requirements in Section 8.1 are
satisfied. If a requirement in Section 8.1 is not satisfied within 30
days after receipt by Tenant of a written notice from Landlord of
Tenant's failure to comply with its obligations, Tenant shall not he
entitled to any further rental credits for the Exhibit C Work and
Tenant shall pay to Landlord within five (5) days after expiration
of the 30-day cure period the full amount of the rental credits for
-3-
<PAGE>
the Exhibit C Work previously taken by Tenant plus interest at the
legal rate (as defined in Louisiana Civil Code Article 2924B(3)) from
the date the rental credit was taken until paid."
7. Security for Initial Construction. Section 8.6 is hereby deleted
---------------------------------
and the following is substituted in its place:
"If the Lease terminates for any reason before substantial completion
of the Initial Construction, specifically including the Exhibit C
Work, Isaac Tigrett does hereby agree to pay to Landlord the lesser of
(a) $l,000,000, or (b) the cost to complete the Infrastructure (as
hereafter defined)in the Building in accordance with the Approved
Plans and the requirements of Section 8.8. The Infrastructure means
the following portions of the Initial Construction: (i) All foundation
and structural work; (ii) All utilities, including electric, gas and
water; (iii) All mechanical, including plumbing; (iv) All sprinkler
and fire protection systems; and (v) All ingress and egress, including
elevators and stairways. The amount due shall be payable on the date
of termination of the Lease and shall bear interest from and after
that date at the legal rate (as defined in Louisiana Civil Code
Article 2924B(3)). If the parties are unable to agree on the amount
due, the amount shall be determined by arbitration in accordance with
the terms of Section 14.6 of the Lease. The amount payable by Isaac
Tigrett shall constitute stipulated damages, shall be payable without
deduction or set-off and shall not be credited against any rent,
charges or damages paid or payable by Tenant."
8. Tax and Insurance Contributions. Sections 3.3 and 3.4 of the
-------------------------------
Lease obligate Tenant to pay to Landlord tax and insurance contributions based
on Tenant's proportionate share of the real estate taxes and insurance premiums.
Landlord and Tenant have agreed that for the years 1992, 1993 and 1994 Tenant's
proportionate share for the purposes of Sections 3.3 and 3.4 shall be 85%.
9. Release and Indemnity. For and in consideration of the execution
---------------------
of this Amendment, Tenant does hereby release, waive and forever discharge
Landlord and Landlord's
-4-
<PAGE>
employees, agents, representatives, attorneys, consultants, successors and
assigns of and from any and all claims, causes of action, damages, obligations
and liability, whether now known or unknown, whether accrued or contingent,
based on acts or omissions on or before the date of this Amendment and arising
out of, pertaining to or in any way related to the Lease, the Property or the
Initial Construction, including but not limited to any claim for loss of income
or any claim for interference with or delay in the performance of the Initial
Construction.
Contemporaneously with execution of this Amendmendment, Tenant shall
obtain and deliver to Landlord releases from CAFCO, CT Management, Inc. and
Eckert Construction Company in the form attached hereto as Exhibits A-l through
A-2.
Tenant does hereby agree to defend, indemnify and hold harmless
Landlord and Landlord's partners, shareholders, officers, directors, employees,
agents, consultants, representatives, insurers, attorneys, successors and
assigns (collectively, the "Indemnitees") from and against any and all claims,
causes of action, demands, damages and liabilities, including but not limited to
any claim for loss of income or any claim for interference with or delay in the
performance of the Initial Construction, whether now known or unknown, whether
accrued or contingent, based on acts or omissions on or before the date of
this Amendment and arising out of, pertaining to or in any way relating to the
Lease, the Property or the Initial Construction and asserted now or hereafter by
CAFCO, CT Management, Inc., and/or Eckert Construction Company (collectively,
"Tenant's Agents"). Expenses incurred in defending an action, suit or
proceeding by one or more of Tenant's Agents against one or more of the
Indemnitees and arising out of, pertaining to or in any way related to the
Lease, the Property or the Initial Construction shall be paid by Tenant in
advance of the final disposition thereof upon receipt of
-5-
<PAGE>
an undertaking by the Indemnitee to repay the amount if it is ultimately
determined that the Indemnitee is not entitled to indemnification by Tenant.
10. Gross Sales. The definition of Gross Sales for the purpose of
-----------
determining percentage rent was intended to include all Gross Sales from food
and beverage (includiing alcoholic) generated by the business. The Approved
Plans indicate the business may be expanded to the building located at 229
Decatur St. (hereafter the "Werlein's Building"). Landlord does hereby approve
the expansion of the business to the Werlein's Building. The plans and
specifications for the connection(s) between the Werlein's Building and the
Demised Premises to accommodate this expansion shall be subject to Landlord's
approval, which approval shall not be unreasonably withheld. In consideration
of the foregoing Tenant agrees that, if a business in the Werlein's Building is
an expansion of the business conducted in the Demised Premises, the Gross Sales
from food and beverages (including alcoholic) from the Werlein's Building will
be added to the Gross Sales from the Demised Premises for the purpose of
determining percentage rent. Accordingly, the first sentence of Section 3.2(c)is
hereby deleted and the following is substituted in its place:
"The term Gross Sales means (a) the aggregate dollar amount of all
sales of food and beverages (including alcoholic) by Tenant and all
assignees, licensees, concessionaires, subtenants and others at or
from the Demised Premises, plus (b) if a business in the property
located at 229 Decatur Street is an expansion of the business
conducted in the Demised Premises, the aggregate dollar amount of all
sales of food and beverages (including alcoholic) by Tenant and all
assignees, licensees, concessionaires, subtenants and others at or
from such business located in the property at 229 Decatur Street."
-6-
<PAGE>
11. Approved Plans. The last paragraph of Section 8.1 of the Lease
--------------
is hereby deleted and the following is substituted in its place:
"Landlord has reviewed and does hereby approve the plans for the
renovation and improvement of the Demised Premises described on
Exhibit B attached hereto (the "Approved Plans"). Each sheet of the
Approved Plans has been initialed by Landlord and Tenant. These plans
shall hereafter be the "Approved Plans" for the purposes of the Lease.
The Initial Construction shall be performed in accordance with the
Approved Plans.
Landlord shall have the right to review and approve the following
changes to the Approved Plans (the "Material Changes"):
(a) Change to the Exhibit C Work, whether or not the change is
material; or
(b) The change, either separately or together with other changes, is
a material change to the structural, mechanical or electrical
documents.
The term "material" as used in subparagraphs (a) and (b) above means
having real importance or great consequences to Landlord's interest in
either (a) the remainder of the Building outside of the Demised
Premises, or (b) the structural, mechanical or electrical integrity of
the Demised Premises after termination of this Lease by default or
expiration of the Term.
Landlord has no interest in and has no right to review and approve
changes to the Approved Plans that are not Material Changes.
Landlord's approval of a Material Change shall be in writing.
Landlord shall not unreasonably withhold its consent to a proposed
Material Change.
Tenant shall submit to Landlord in writing a proposed Material Change
to the Approved Plans as soon as the proposed change is available.
Tenant shall deliver the proposed Material Change to Landlord's
designated representative. Until Landlord provides written notice to
Tenant of a change concerning its representative, Landlord's
designated representative for this purpose shall be Landlord's
architect, John C. Williams, whose address for the purposes of
delivering notices hereunder is One Canal Place, 365
-7-
<PAGE>
Canal Street, Suite 2900, New Orleans, Louisiana 70130 and whose
facsimile number is (504) 566-0897. Landlord shall have 4 business
days (Monday through Friday, excluding legal holidays in the City of
New Orleans) within which to approve or disapprove the proposed
Material Change. Landlord shall deliver its response to Tenant's
designated representative by personal delivery, facsimile, courier or
other similar form of delivery. Until Tenant provides written notice
to Landlord of a change concerning its representative, Tenant's
designated representative shall be Tom Clark, whose address for the
purposes of delivering notices hereunder is at the Demised Premises
and whose facsimile number is (504) 524-8209. If Landlord fails to
deliver its response within the required 4 business days, the proposed
Material Change to the Approved Plans shall be deemed to have been
approved by Landlord. If Landlord disapproves a proposed Material
Change, Landlord shall deliver to Tenant along with the notice of
disapproval Landlord's reasons for the disapproval plus a reasonable
alternative, if a reasonable alternative is then known, to the
rejected proposed Material Change.
Tenant shall, to the extent feasible, obtain Landlord's approval to a
proposed Material Change before performing the work. There may,
however, be situations in which it is not feasible to obtain
Landlord's consent to a Material Change before the work is performed.
In these cases, Landlord recognizes Tenant's legitimate scheduling and
construction requirements and acknowledges that this approval process
cannot delay the performance of the work. In these cases, Tenant may
perform the work prior to obtaining Landlord's prior approval to the
Material Change, provided, however, Tenant must still submit the
proposed Material Change to Landlord for its approval. If Landlord
subsequently disapproves the proposed Material Change, Tenant shall
either invoke the arbitration provisions contained in the following
paragraph or make the necessary changes to the Initial Construction to
make the work conform to the Approved Plans without the disapproved
Material Change.
If Landlord disapproves a proposed Material Change to the Approved
Plans, Tenant may at any time thereafter initiate an arbitration
proceeding to contest Landlord's decision. The arbitration shall be
conducted in accordance with the terms of Section 14.6 of this Lease.
If the arbitrator(s) determine that Landlord has unreasonably withheld
its approval for the proposed
-8-
<PAGE>
Material Change, the arbitrator(s) may overrule Landlord's decision
and grant the requested approval for the proposed Material Change. If
the arbitrator(s) determine that Landlord did not unreasonably
withhold its approval, Tenant shall not make the proposed Material
Change or, if already made, make the necessary changes to the Initial
Construction to make the work conform to the Approved Plans without
the disapproved Material Change.
Within 60 days after substantial completion of the Initial
Construction, Tenant shall deliver to Landlord a complete reproducible
set of as-built plans of the Initial Construction.
Notwithstanding Landlord's right to review and approve the Approved
Plans and any Material Changes thereto, Landlord and its consultants
and representatives shall have no liability for a failure to discover
and/or disclose a defect, deficiency, error or omission in the
Approved Plans or any changes thereto or for the non-compliance of the
Approved Plans or any changes thereto with the terms of this Lease or
applicable laws, building codes or regulations.
Tenant shall assign to Landlord all warranties and guarantees from the
elevator manufacturer, installer and others pertaining to the street
and alley elevators. The assignment of the warranties and guarantees,
for the street elevator shall be effective as of the completion of
installation of the elevator. The assignment of the warranties and
guarantees for the alley elevator shall be effective as of the date of
termination of this Lease.
Landlord and Tenant acknowledge that the Approved Plans do not include
plans for all of the Exhibit C Work. Tenant remains obligated to
perform all of the Exhibit C Work. Approval by Landlord of the
Approved Plans shall not modify Tenant's obligation to complete all of
the Exhibit C Work. With respect to the portion of the Exhibit C Work
that is not included in the Approved Plans, Tenant shall prepare and
submit to Landlord for Landlord's approval plans and specifications
for the work, which approval shall not be unreasonably withheld. When
these additional plans and specifications are approved by Landlord,
these plans and specifications shall become part of the Approved
Plans.
Without limiting the generality of the foregoing, the Approved Plans
do not include plans for the following major items in Exhibit
-9-
<PAGE>
C: (a) completion of the street and alley elevators from the fourth
floor to the fifth floor as required by paragraphs C(1) and (2) of
Exhibit C (the "Elevators Extension"); (b) completion of the stairs
from the fourth floor to the fifth floor as required by paragraph
C(4)of Exhibit C (the "Stairs Extension"); and (c) the sound
separation as required by paragraph C(15) of Exhibit C (the "Sound
Separation"). Tenant shall begin the Elevators Extension and the
Stairs Extension as soon as possible after notice by Landlord but in
no event later than ninety (90) days after a notice to proceed from
Landlord. Tenant shall complete the Elevators Extension and the
Stairs Extension within ninety (90) days after the date of
commencement of this work.
Notwithstanding anything to the contrary in this Lease, the
construction contract or contracts for the Elevators Extension, the
Stairs Extension and the Sound Separation shall each include a bond
for the full amount of the contract (which bond shall name Landlord as
an additional insured and shall comply with the requirements of
La. R. S. 9:4801 et. seq.) and shall be filed (with the bond attached)
in the Office of the Recorder of Mortgages for the Parish of Orleans
prior to commencement of work under the contract.
As of the date of this Amendment, Landlord and Tenant have not agreed
upon the appropriate sound separation required by paragraph C(15) of
Exhibit C. Tenant contends that the sound separation provided or
proposed to be provided by Tenant satisfies Tenant's obligations under
the Lease. Landlord contends that additional and/or alternative sound
separation is required to be provided by Tenant. In an effort to
accommodate the timely opening of Tenant's business, Landlord and
Tenant have agreed to reserve all rights with respect to the sound
separation issue and defer resolution of this dispute until after the
opening of Tenant's business in accordance with the following. Within
forty-five (45) days after the public opening of Tenant's business,
Landlord and Tenant shall complete their review of the actual results
of the sound separation provided by Tenant and attempt to resolve this
dispute. If Landlord and Tenant are unable to resolve the dispute
within this 45-day period, either Landlord or Tenant may initiate
arbitration in accordance with the terms of Section 14.6 of the Lease,
to resolve the dispute."
-10-
<PAGE>
12. Construction Requirements. The following is added at the end of
-------------------------
subparagrahp 8.8(b):
"Notwithstanding Landlord's inspection of the work, Landlord and its
consultants and representatives shall have no liability for a failure
to discover and/or disclose a defect, deficiency, error or omission in
the work or for the non-compliance of the work with the terms of this
Lease, the approved plans and specifications or applicable building
laws, building codes or regulations."
13. Werlein's Building - Kitchen. Landlord has reviewed and does
----------------------------
hereby approve the plans for Tenant's kitchen as described in the Approved
Plans, which kitchen is located in both the Demised Premises and the Werlein's
Building. In addition to Landlord's right to review and approve Material
Changes to the Approved Plans, Landlord shall have the right to review and
approve proposed changes to the kitchen, which approval shall not be
unreasonably withheld. For these purposes, Landlord's approval rights shall be
limited to ascertaining whether the kitchen in the Demised Premises constitutes
sufficient space and infrastructure facilities capable of allowing future
tenants or Landlord to service the patrons of the business in the Demised
Premises.
Landlord acknowledges that Tenant has kitchen facilities in the rear
of the building located at the Werlein's Building. Landlord hereby consents to
two (2) openings in the wall separating the kitchen in the Demised Premises from
the ancillary kitchen facilities in the Werlein's Building in accordance with
the Approved Plans. The connection between the kitchen in the Demised Premises
and the ancillary kitchen facilities in the Werlein's Building shall be used
only to connect the two kitchen facilities. It shall be used only by kitchen
personnel and other employees of Tenant utilizing the kitchen facilities. It
shall not be used by patrons of the
-11-
<PAGE>
business except for fire or other hazard exit if required by any applicable
code. Tenant's right to use the openings described above in this Section 13
shall terminate on the earlier to occur of (a) the permanent termination of the
use of Werlein's Building as ancillary facilities or (b) the termination of this
Lease. Upon the termination of Tenant's right to use the openings, Tenant shall
reinstall the brick infill and close the openings in accordance with the
requirements described below in Section 27.
14. Division of Werlein's Building Lease. Tenant is the lessee of
------------------------------------
the Werlein's Building under that certain Lease Agreement (the "Werlein's
Lease") dated April 30, 1993, by and between Jules Cahn, James Cahn and Michael
Wilkinson, as landlord. Contemporaneously with the execution of this Amendment,
Tenant shall cause the owners of the Werlein's Building to agree to split the
Werlein's Lease into the following two leases in the event of an uncured default
or termination of this Lease or the Werlein's Lease:
(a) A lease of the area(s) where the HVAC equipment will be located
(the "HVAC Pad Portion"); and
(b) A lease of the remainder of the Werlein's Building, excluding the
HVAC Pad Portion.
The HVAC equipment for the Demised Premises (as described below in Section 19 of
this Amendment) shall be in the portion of the premises covered by the HVAC Pad
Portion of the Werlein's Lease.
15. Werlein's Building - Option to become Assignee. Tenant does
----------------------------------------------
hereby irrevocably grant to Landlord the option to become the assignee of the
entire Werlein's Lease or the lessee under a separate lease of the HVAC Pad
Portion of the Werlein's Lease. Landlord
-12-
<PAGE>
shall only have the right to exercise this option upon the occurrence of one of
the following events: (a) termination of this Lease; or (b) default by Tenant
under the Werlein's Lease, which default is not cured by Tenant five (5) working
days before expiration of the cure period. In the event of an occurrence of one
of these events, Landlord may exercise its option by providing a written
exercise notice to Tenant and to the owners of the Werlein's Building no later
than 60 days after the termination of this Lease if this Lease is terminated or
before the termination of the Werlein's Lease if there is an uncured default
thereunder. Upon the exercise of this option and without any further action,
Landlord shall become the assignee of the entire Werlein's Lease or the lessee
under a separate lease of the HVAC Pad Portion of the Werlein's Lease. If
Landlord elects to become the lessee under a separate lease of the HVAC Pad
Portion of the Werlein's Lease, the separate lease shall be on the same terms
and conditions as the current form of the Werlein's Lease, except (a) the rent
for the HVAC Pad shall be $500 per year, (b) the tenant under the separate lease
for the HVAC Pad shall have the continuing option to terminate the lease by
forfeiting any prepaid rent, and (c) the tenant under the separate lease of the
HVAC Pad shall not be responsible for any portion of the taxes, insurance and
maintenance of the land, buildings or any portion thereof. The provisions of
this Section 15 shall survive the termination of the Lease.
16. Werlein's Building - Option to Purchase. Pursuant to Article
---------------------------------------
XXXIV of the Werlein's Lease, Tenant has the option to purchase the Werlein's
Building. If Tenant does not exercise its option to purchase the property prior
to June 30, 1994, Tenant does hereby irrevocably assign to Landlord the right to
exercise the option to purchase the Werlein's Building in Landlord's own name
provided that Landlord exercises the option on or before August 31,
-13-
<PAGE>
1994. If Landlord fails to exercise its option by August 31, 1994, Landlord's
right to exercise the option shall thereupon terminate. If Landlord buys the
Werlein's Building, Landlord agrees to purchase the building subject to the
Werlein's Lease, as amended.
17. Werlein's Building - Right of First Refusal. If Tenant becomes the
-------------------------------------------
owner of the Werlein's Building at any time during the Term of this Lease,
Landlord shall have a right of first refusal to purchase the Werlein's Building
in accordance with the terms of this Section 17 of this Amendment. If Tenant
purchases and thereafter desires to sell the Werlein's Building at any time
during the Term of this Lease, Tenant shall first give to Landlord a notice
("First Refusal Notice") stating that Tenant desires to sell the Werlein's
Building and stating the terms and conditions upon which Tenant is willing to
sell (the "Proposed Terms"). The First Refusal Notice shall constitute an offer
by Tenant to Landlord to sell the Werlein's Building to Landlord on the Proposed
Terms. Tenant may send a First Refusal Notice whether or not there is a
prospective purchaser. Landlord may accept the offer and agree to purchase the
Werlein's Property on the Proposed Terms by delivering to Tenant within fourteen
(14)days after receipt of the First Refusal Notice Landlord's unqualified
written acceptance of the offer. If Landlord accepts the offer, Landlord shall
purchase the Werlein's Building from Tenant in accordance with the Proposed
Terms. If Landlord does not accept Tenant's offer, Tenant may sell the Werlein's
Building to any other person or entity on terms and conditions that are no more
favorable financially to the prospective purchaser than the Proposed Terms
(considering both as a whole rather than comparing specific individual items) at
any time within 180 days after the expiration of Landlord's 14-day first refusal
option. Before entering into the sale, Tenant shall deliver to Landlord
for Landlord's review a copy of the terms of the proposed sale, which copy
-14-
<PAGE>
if so designated by Tenant may constitute a new First Refusal Notice within the
meaning of the following paragraph. Tenant may delete from the copy delivered to
Landlord the name of the proposed purchaser, if known, and any other
confidential information that is not relevant to Landlord's comparison of the
financial terms of the proposed sale to the Proposed Terms. If Landlord fails
to notify Tenant within fourteen (14) days after receipt of the proposed sale
that the proposed sale, as a whole, is more favorable financially to the
prospective purchaser than the Proposed Terms, then any objection Landlord may
have to the proposed sale shall be deemed waived.
If at any time during the 180-day period described in the previous
paragraph Tenant proposes to sell the Werlein's Building on terms and conditions
that are more favorable financially to the prospective purchaser than the
Proposed Terms, then Tenant shall first re-offer the Werlein's Building to
Landlord on the new terms and conditions. The re-offer shall be made by sending
to Landlord a new First Refusal Notice containing the new Proposed Terms.
Landlord may accept the new offer and agree to purchase the Werlein's Property
on the new Proposed Terms by delivering to Tenant within fourteen (14) days
after receipt of the new First Refusal Notice Landlord's unqualified written
acceptance of the new offer. If Landlord accepts the new offer, Landlord shall
purchase the Werlein's Building from Tenant in accordance with the new Proposed
Terms. If Landlord does not accept Tenant's offer, Tenant may sell the Werlein's
Building to any other person or entity on terms and conditions that are no more
favorable financially to the prospective purchaser than the new Proposed Terms
(considering both as a whole rather than comparing specific individual items) at
any time within 180 days after the expiration of Landlord's 14-day first refusal
option.
-15-
<PAGE>
18. Werlein's Building - Donation of Dog-Leg Portion. If Tenant
------------------------------------------------
becomes the owner of the Werlein's Building and if Tenant desires to sell or
otherwise transfer the Werlein's Building to a third party not affiliated with
Tenant or its affiliates or Landlord or its affiliates or if the Lease
terminates, Tenant shall prior to the sale or other transfer or within 30 days
after the termination of the Lease donate to Landlord the property (land and
improvements) covered by the one-story structure in the rear of the Werlein's
Building (the "Dog-Leg Portion"). If a resubdivision of the Werlein's Building
is required by applicable governmental authorities as a condition to the
donation, Landlord shall obtain the resubdivision at its own cost and expense.
Tenant shall cooperate with Landlord, including but not limited to executing the
application for resubdivision. If a resubdivision cannot be obtained, then,
instead of a donation, Tenant shall grant to Landlord a perpetual predial
servitude to use the property covered by the Dog-Leg Portion.
19. Werlein's Building - HVAC Pad. Landlord and Tenant intend to
-----------------------------
locate on the roof of the Werlein's Building their respective HVAC equipment for
the Building. Landlord and Tenant have approved this arrangement subject to the
following conditions.
Tenant's HVAC equipment for the Demised Premises ("Tenant's HVAC
Equipment")shall be located on the roof of the Werlein's Building in the area
covered by the HVAC Pad Portion of the Werlein's Lease. Tenant shall be
obligated to maintain and repair Tenant's HVAC Equipment on the Werlein's
Building roof in accordance with the maintenance and repair obligations in
Section 9 of the Lease as if the equipment were located on the Demised
Premises
-16-
<PAGE>
During the entire term of the Werlein's Lease and at no charge to
Landlord, Landlord's HVAC Equipment for the remainder of the Building outside of
the Demised Premises ("Landlord's HVAC Equipment") may also be located in the
area covered by the HVAC Pad Portion of the Werlein's Lease. Tenant shall have
the right to review and approve Landlord's plans for Landlord's HVAC Equipment
on the roof of the Werlein's Building, which approval shall not be unreasonably
withheld. The installation, maintenance and repair of Landlord's HVAC Equipment
on the roof of the Werlein's Building shall be performed by or on behalf of
Landlord at Landlord's expense.
Upon the earliest to occur of (a) the termination of this Lease or any
extension or renewal hereof, (b) the termination of the Werlein's Lease as a
result of a default by Tenant, or (c) the exercise of Landlord's option under
Section 15 of this Amendment to become the lessee under a separate lease of the
HVAC Pad, all equipment and other items located on the premises covered by the
HVAC Pad Portion of the Werlein's Lease, including all HVAC equipment, shall
without any further action, become the property of Landlord without compensation
to Tenant.
As a result of the HVAC Pad arrangement, the Roof Pad will no longer
be needed by Tenant. Accordingly, the first sentence of Section 1.2 of the Lease
is hereby amended to read as follows:
The "Demised Premises" consists of (a) all of the first two floors of
the Building, including mezzanine areas located therein, but excluding
the area to be occupied by the street elevator and street lobby and
identified as the "Excluded Area" on sheet 1 of the plans attached
hereto as Exhibit B, and (b) the portion of the Land consisting of the
existing alley on the north side of the Building and the currently
unimproved area in the rear of the Building.
-17-
<PAGE>
20. Werlein's Building - Vault. Tenant has informed Landlord that it
--------------------------
will locate a vault in the Werlein's Building. The vault will contain
transformers supplied by NOPSI. The electrical service for the Building will be
provided from these transformers. If necessary to ensure reliable electrical
service to the Building, including the portions of the Building outside of the
Demised Premises, Tenant shall obtain from NOPSI and/or the owners of the
Werlein's Building a servitude or other appropriate arrangement for the benefit
of the Building. Landlord consents to one opening in the wall separating the
Building and the Werlein's Building for the electrical line to provide
electrical service from the transformer vault to the Building. Tenant's right to
use this opening shall terminate on the earlier to occur of (a) the termination
of this Lease, or (b) when electrical service for the Building is obtained from
a location other than through this opening. Upon the termination of Tenant's
right to use this opening, Tenant shall close the opening in accordance with
the requirements described below in Section 27.
21. Windows. Landlord intends to create up to eight (8) new windows in
-------
the wall above the Demised Premises facing the Werlein's Building. To the extent
Tenant's consent is required under the Lease or as tenant of the Werlein's
Building, Tenant does hereby grant its consent to the creation of these windows
as long as this work does not jeopardize Landlord's or Tenant's tax credit for
the rehabilitation of the Building. Tenant shall make a good faith best effort
attempt to obtain a similar consent from the owners of the Werlein's Building at
no cost to Tenant.
22. Tax Credit. Landlord and Tenant shall coordinate their respective
----------
work in the Building in an attempt to qualify for the tax credit for their
respective projects. Landlord
-18-
<PAGE>
and Tenant shall make a good faith best effort attempt to qualify for the tax
credit for their respective work. Neither Landlord nor Tenant shall take any
action that jeopardizes the tax credit for the other party.
23. Landlord's Expenses. Contemporaneously with the execution of this
-------------------
Amendment, Tenant has paid to Landlord the sum of $25,000 to reimburse Landlord
for its architectural, engineering and legal fees incurred in connection with
the modification of the structural plans and the negotiation of this Amendment.
Landlord hereby acknowledges receipt of the sum of $25,000 in full payment and
satisfaction of any and all claims Landlord may have against Tenant in
connection with the modification of the structural plans and the negotiation of
this Amendment, including but not limited to architectural, engineering and
legal fees.
24. Arbitration. The first sentence of Section 14.6 of the Lease is
-----------
hereby deleted and the following is substituted in its place:
"Any dispute between the parties relating to the interpretation and
enforcement of their rights and obligations under Sections 8.1 through
8.6, including but not limited to the Exhibit C Work and the remainder
of the Initial Construction, shall be resolved solely by mandatory and
binding arbitration in accordance with the provisions of this Section
14.6."
25. Temporary Use of Roof Pad. From time to time during the Term of
-------------------------
the Lease, Tenant shall have the right to use the roof of the Building to locate
equipment used for broadcast or transmission of events, shows or productions
staged at the Demised Premises. The equipment shall be located in an area on the
roof designated by Landlord, which area shall be no larger than a square
measuring ten (10) feet on each side. Tenant may use the roof for this purpose
no more than seven (7) times each calendar year for a period of no more than
five (5)
-19-
<PAGE>
days each time, unless otherwise approved by Landlord. Tenant shall notify
Landlord in writing no less than five (5) days before each use of the roof for
this purpose.
26. Werlein's Building - Additional Office and Storage Facilities.
-------------------------------------------------------------
Landlord acknowledges that Tenant has additional office and storage facilities
on the second floor of the Werlein's Building. Landlord hereby consents to two
openings in the wall between the Demised Premises and the Werlein's Building to
connect these additional office and storage facilities to the Demised Premises.
The openings shall be on the second floor of the Demised Premises at a location
reasonably acceptable to Landlord. Landlord approves the location for the
opening either in the "green room" or in the internal stairway that connects the
first and second floors only of the Demised Premises. The openings shall not be
in either of the two Building stairways. The connection between the Demised
Premises and the Werlein's Building permitted pursuant to the terms of this
Section 26 shall be used only by Tenant's employees and the nightclub musicians
and other performers. It shall not be used by patrons of the business except for
fire or other hazard exit if required by any applicable code. Tenant's right to
use these openings shall terminate on the earlier to occur of (a) the permanent
termination of the use of the Werlein's Building as ancillary facilities or
(b) the termination of this Lease. Upon the termination of Tenant's right to use
these openings, Tenant shall close the openings in accordance with the
requirements described below in Section 27.
27. Werlein's Building - Wall Openings. Other than the two openings
----------------------------------
for the additional office and storage facilities described above in Section 26,
the one opening for the electrical line described above in Section 20 and the
two openings to connect the kitchen facilities described above in Section 13,
Tenant shall not make any openings in the wall
-20-
<PAGE>
separating the Building and the Werlein's Building without Landlord's prior
written consent, which consent shall not be unreasonably withheld. All openings
made by Tenant in the wall separating the Building and the Werlein's Building
shall be equipped with doors required by applicable law. Upon the termination of
Tenant's right to use an opening in accordance with the terms of Sections 13, 20
or 26, Tenant, at its sole cost and expense, shall reinstall the brick infill,
provide appropriate safety and building code separations between the buildings
and perform all other work required by governmental authorities as a condition
to obtaining permits and other approvals for the elimination of the openings,
including work necessitated by building codes. The provisions of this Section 27
shall survive the termination of the Lease.
28. Parking Lot Access. The alley on the north side of the Building
------------------
adjoins the rear of a surface parking lot with an entrance on Iberville Street.
Landlord shall have the right to open and maintain a gate or some other similar
pedestrian access passageway in the fence separating the parking lot from the
alley. The location of the gate shall be subject to Tenant's approval, which
approval shall not be unreasonably withheld. Landlord and Landlord's other
tenants in the Building and their respective authorized guests shall have the
right to use the gate, without charge, for pedestrian access to and from the
Building and the parking lot. Tenant shall not block or unreasonably inhibit
this pedestrian access. Landlord, at its expense, shall install or institute
security devices or procedures to prevent unauthorized access from the parking
lot to the Demised Premises.
29. Trash Chute. The Approved Plans provide that the trash chute will
-----------
end on the second floor of the Demised Premises. This makes the trash room
inaccessible to Landlord. Consequently, Tenant has agreed to be responsible for
the removal of the trash for
-21-
<PAGE>
as long as the trash room remains inaccessible to Landlord. Accordingly, the
second paragraph in Section 8.5 of the Lease is hereby deleted and the following
is inserted in its place:
"Landlord and Landlord's other tenants in the remainder of the
Building shall have the right to use the trash chute described in
Exhibit C. Tenant, at Tenant's expense, shall be responsible for the
removal and disposal of the trash deposited in the trash chute,
including the trash from Landlord and Landlord's other tenants in the
remainder of the Building, as long as the termination of the trash
chute remains in the location depicted on the Approved Plans or in any
other location that is not reasonably accessible to Landlord. If the
termination of the trash chute is moved to a location that is
reasonably accessible to Landlord, the cost of trash removal shall be
shared by Landlord and Tenant in a fair and equitable manner to be
determined by Landlord and Tenant at that time. Furthermore, if the
trash compactor is owned by Tenant or an affiliate of Tenant, the
trash compactor shall become the property of Landlord at the
termination of the Lease without compensation to Tenant therefor."
30. Default. Section 14.1 of the Lease is hereby deleted and the
-------
following is inserted in its place:
"If Tenant fails to make a payment of fixed minimum rent, percentage
rent, tax contribution or insurance contribution (collectively, the
"Rent")under this Lease promptly when due, Tenant shall have ten (10)
working days after written notice of the default within which to cure
the default. If Tenant fails to perform or is otherwise in default
under any of the other terms, covenants or conditions of this Lease
other than payment of the Rent, Tenant shall have thirty (30) calendar
days after written notice to Tenant within which to cure the default
if the default can reasonably be cured within thirty (30) days
(without consideration of financial ability to cure the default). If a
default other than payment of the Rent cannot reasonably be cured
within thirty (30) days (without consideration of financial ability to
cure the default), Tenant shall begin to cure the default within the
thirty (30) day period and shall thereafter diligently and
continuously continue to prosecute the cure to completion as soon as
reasonably possible.
If Tenant fails to cure a default specified above within the cure
period specified above, Landlord may exercise one or more of the
rights and remedies specified in Section 14.3 hereof."
-22-
<PAGE>
31. Miscellaneous. Attached hereto are certified resolutions of Tenant
-------------
authorizing Isaac Tigrett to enter into this Amendment on behalf of Tenant. The
parties hereby confirm and ratify the Lease, as amended by this Amendment.
Except as otherwise amended by this Amendment, the Lease shall remain in full
force and effect. Terms that are not otherwise defined in this Amendment shall
have the meaning ascribed to them in the Lease. References in this Amendment to
sections are meant to be sections of the Lease unless otherwise indicated in
this Amendment.
LANDLORD:
/s/ Beni B. Toledano
---------------------------------
Beni B. Toledano
/s/ Jacqueline G. Toledano
---------------------------------
Jacqueline G. Toledano
TENANT:
HOUSE OF BLUES NEW ORLEANS
RESTAURANT CORP
By: /s/ Isaac Tigrett
------------------------------
Isaac Tigrett, President
FOR PURPOSES OF SECTION 7 OF THIS AMENDMENT ONLY
/s/ Isaac Tigrett
---------------------------------
Isaac Tigrett, Individually
Attachments - Certified Resolutions of Tenant
Exhibits A-1 through A-2 - Releases
Exhibits B - Description of Approved Plans
-23-
<PAGE>
EXHIBIT 10.38
SECOND AMENDMENT TO LEASE AGREEMENT
This Second Amendment to Lease Agreement (the "Second Amendment") is
entered into effective as of January 20, 1994 between Beni Toledano and
Jacqueline G. Toledano (collectively, the "Landlord") and House of Blues New
Orleans Restaurant Corp. (the "Tenant"), formerly known as House of Blues
Partnership Management Corporation.
INTRODUCTION
A. Beni Toledano, as landlord, and House of Blues Partnership Management
Corporation, as tenant, entered into that certain Lease Agreement (the "Lease")
dated October 15, 1992 and effective October 14, 1992, and pertaining to a
portion of the property located at 215-225 Decatur Street in New Orleans,
Louisiana.
B. The Lease has been amended by that certain Amendment to Lease Agreement
(the "First Amendment") dated and effective as of December 20, 1993.
In consideration of the terms of this Second Amendment, Landlord and Tenant
do hereby further amend the Lease as follows:
AMENDMENT
1. Waiver by Landlord. Section 14 of the First Amendment obligates Tenant
------------------
to obtain a division of the Werlein's Lease into two leases. Tenant has made a
good faith effort to obtain the requested division, but the owners of the
Werlein's Building have refused to grant it. Accordingly, Landlord hereby waives
the requirements of Section 14 of the First Amendment, and Section 14 is hereby
deleted.
<PAGE>
2. Werlein's Building - Option to Become Assignee. As a result of the
----------------------------------------------
waiver by Landlord of the requirements of Section 14 of the First Amendment,
Section 15 of the First Amendment is hereby amended in its entirety to read as
follows:
"Tenant does hereby irrevocably grant to Landlord the option to become the
assignee of the Werlein's Lease. Landlord shall only have the right to
exercise this option upon the occurrence of one of the following events:
(a) termination of the Lease; or (b) default by Tenant under the Werlein's
Lease, which default is not cured by Tenant five (5) working days before
expiration of the cure period. In the event of an occurrence of one of
these events, Landlord may exercise its option by providing a written
exercise notice to Tenant and to the owners of the Werlein's Building. The
exercise notice must given no later than (i) if the Lease is terminated, 60
days after the termination of the Lease, or (ii) before the termination of
the Werlein's Lease if there is an uncured default thereunder. Upon the
exercise of this option and without any further action, Landlord shall
become the assignee of the Werlein's Lease. This option shall survive the
termination of the Lease."
3. Werlein's Building - HVAC Pad. As a result of the waiver by Landlord of
------------------------------
the requirements of Section 14 of the First Amendment, Section 13 of the First
Amendment is hereby amended in its entirety to read as follows:
"Landlord and Tenant intend to locate on the roof of the Werlein's Building
their respective HVAC equipment for the Building. Landlord and Tenant have
approved this arrangement subject to the following conditions.
The HVAC equipment for the Demised Premises ("Tenant's HVAC Equipment")
shall be located on the roof of the Werlein's Building. Tenant shall be
obligated to maintain and repair Tenant's HVAC Equipment in accordance with
the maintenance and repair obligations of Section 9 of the Lease as if the
equipment were located on the Demised Premises.
Upon the earliest to occur of (a) the termination of the Lease, (b) the
termination of the Werlein's Lease, or (c) the exercise of Landlord's
option under Section 15 of the First Amendment, as
-2-
<PAGE>
amended by this Second Amendment, to become the assignee of the Werlein's
Lease, Tenant's HVAC Equipment shall without further action become the
property of Landlord without compensation to Tenant.
As a result of the location of Tenant's HVAC Equipment on the roof of the
Werlein's Building, the Roof Pad will no longer be needed by Tenant.
Accordingly, the first sentence of Section 1.2 of the Lease is herby
amended to read as follows:
The "Demised Premises" consists of (a) all of the first two floors
of the Building, including mezzanine areas located therein, but
excluding the area to be occupied by the street elevator and street
lobby and identified as the "Excluded Area" on sheet 1 of the plans
attached as Exhibit B to the Lease, and (b) the portion of the Land
consisting of the existing alley on the north side of the Building
and the currently unimproved area in the rear of the Building.
At no charge to Landlord, Landlord shall have the right to install and
maintain on the roof of the Werlein's Building the HVAC equipment for the
remainder of the Building outside of the Demised Premises ("Landlord's HVAC
Equipment"). Tenant shall provide, or shall cause to be provided by the
owner of the Werlein's Building (other than Landlord), these rights to
Landlord for the entire term of the Lease. Tenant shall have the right to
review and approve Landlord's plans for Landlord's HVAC Equipment on the
roof of the Werlein's Building, which approval shall not be unreasonably
withheld. The installation, maintenance and repair of Landlord's HVAC
Equipment on the roof of the Werlein's Building shall be performed by or on
behalf of Landlord at Landlord's expense.
If Tenant (or any other person or entity other than Landlord to which the
option to purchase the Werlein's Building is assigned) becomes the owner of
the Werlein's Building, Tenant shall grant, or shall cause to be granted,
to Landlord a lease of the roof of the Werlein's Building (the "Werlein's
Roof Lease"). The Werlein's Roof Lease shall grant to Landlord the right to
install, maintain and repair Landlord's HVAC Equipment on the roof of the
Werlein's Building. The Werlein's Roof Lease shall be executed as soon as
possible after the acquisition of the Werlein's Building by Tenant or an
affiliate of Tenant. The term of the Werlein's
-3-
<PAGE>
Roof Lease shall begin if and only if the Lease terminates before the
expiration of its term. If the Lease continues until the expiration of its
term, the Werlein's Roof Lease shall terminate without ever having begun.
If the Lease terminates before the expiration of its term, the term of the
Werlein's Roof Lease shall begin on the date of the termination of the
Lease and shall continue until October 13, 2027 (the scheduled expiration
date). The rent shall be $500.00 per year beginning if and when the term of
the Werlein's Roof Lease begins. The tenant under the Werlein's Roof Lease
shall have the continuing option to terminate the Werlein's Roof Lease by
forfeiting any prepaid rent. Furthermore, the tenant under the Werlein's
Roof Lease shall not be responsible for any maintenance or repairs of the
Werlein's Building (other than maintenance and repairs of Landlord's HVAC
Equipment) and shall not be responsible for any portion of the taxes,
insurance and maintenance of the land, buildings or any portion thereof."
4. Miscellaneous. The parties hereby confirm and ratify the Lease, as
-------------
amended by the First Amendment and this Second Amendment. Except as otherwise
amended by the First Amendment and this Second Amendment, the Lease shall remain
in full force and effect. Terms that are not otherwise defined in this Second
Amendment shall have the meaning ascribed to them in the Lease and the First
Amendment.
WITNESSES: LANDLORD:
/s/ Peggy Field /s/ Beni B. Toledano
- ------------------------------ ---------------------------------
Beni B. Toledano
[SIGNATURE ILLEGIBLE]
- ------------------------------ /s/ Jacqueline G. Toledano
---------------------------------
/s/ Peggy Field Jacqueline G. Toledano
- ------------------------------
TENANT:
[SIGNATURE ILLEGIBLE] HOUSE OF BLUES NEW ORLEANS
- ------------------------------ RESTAURANT CORP.
[SIGNATURE ILLEGIBLE] By: /s/ Isaac Tigrett, President
- ------------------------------ ---------------------------------
Isaac Tigrett, President
[SIGNATURE ILLEGIBLE]
- ------------------------------
-4-
<PAGE>
EXHIBIT 10.39
THIRD AMENDMENT TO LEASE AGREEMENT
This Third Amendment to Lease Agreement (the "Third Amendment") is entered
into effective as of November 26th, 1997, between Beni Toledano and Jacqueline
G. Toledano (collectively, the "Landlord") and House of Blues New Orleans
Restaurant Corporation (the "Tenant") formerly known as House of Blues
Partnership Management Corporation.
INTRODUCTION
A. Beni Toledano, as Landlord, and House of Blues Partnership Management
Corporation, as Tenant, entered into that certain Lease Agreement (the "Lease")
dated October 15, 1992 and effective October 14, 1992, and pertaining to a
portion of the property located at 215-225 Decatur Street in New Orleans,
Louisiana.
B. The Lease has been amended by that certain Amendment to Lease Agreement
(the "First Amendment") dated and effective as of December 20, 1993, and that
certain Second Amendment to Lease Agreement (the "Second Amendment") dated and
effective as of January 20, 1994.
In consideration of the terms of this Third Amendment, Landlord and Tenant
do hereby further amend the Lease as follows:
AMENDMENT
1. Werlein's Building - Additional Facilities. Section 26 of the First
------------------------------------------
Amendment permits Tenant to create two openings in the wall on the second floor
between the Demised Premises and the Werlein's Building to connect Tenants'
office and storage facilities to the Demised Premises. Tenant now instead
desires to develop additional dining, bar and club facilities (the "Foundation
Room") on the second floor of the Werlein's Building. Accordingly, Section 26 of
the First Amendment is deleted and the following is substituted in its place:
"26. Werlein's Building - Wall Openings for Access to
-----------------------------------------------------
Foundation Room. Landlord acknowledges that Tenant intends
---------------
to develop additional dining, bar and club facilities (the
<PAGE>
"Foundation Room") on the second floor of the Werlein's Building.
Landlord hereby consents to two door-sized openings in the wall
between the Demised Premises and the Werlein's Building to connect
the Foundation Room facilities to the Demised Premises. The openings
shall be on the second floor of the Demised Premises and shall not be
in either of the two Building stairwells. The locations, plans and
specifications for the two openings shall be subject to Landlord's
approval, which approval shall not be unreasonably withheld. The
connection between the Demised Premises and the Werlein's Building
permitted pursuant to the terms of this Section 26 may be used
without restriction by all persons at the Demised Premises, including
without limitation, Tenant's patrons, employees and the nightclub
musicians and other performers. Tenant's right to use these openings
shall terminate on the earlier to occur of (a) the permanent
termination of the use of the Werlein's building as ancillary
facilities or (b) the termination of this Lease. Upon the termination
of Tenant's right to use these openings, Tenant shall close the
openings in accordance with the requirements described below in
Section 27."
2. Werlein's Building - Wall Openings. Section 27 of the First Amendment
----------------------------------
addresses the two openings originally contemplated by Tenant for office and
storage facilities. The two openings will now be used for the Foundation Room
facilities. Accordingly, Section 27 of the First Amendment is deleted and the
following is substituted in its place:
"27. Werlein's Building - Wall Openings. Other than the two openings
---------------------------------------
for the Foundation Room facilities described above in Section 26, the
one opening for the electrical line described above in Section 20 and
the two openings to connect the kitchen facilities described above in
Section 13, Tenant shall not make any openings in the wall separating
the Building and the Werlein's Building without Landlord's prior
written consent, which consent shall not be unreasonably withheld.
All openings made by Tenant in the wall separating the Building and
the Werlein's Building shall be equipped with doors if and as
required by applicable law. Upon the termination of Tenant's right to
use an opening in accordance with the terms of Sections 13, 20 or 26,
Tenant, at its sole cost and expense, shall reinstall the brick
infill, provide appropriate safety and building code separations
between the buildings and perform all other work required by
governmental authorities as a condition to obtaining permits and
other approvals for the elimination of the openings, including work
necessitated by building codes. The provisions of this Section 27
shall survive the termination of the Lease."
2
<PAGE>
3. Utilities: Paragraph 2 of Section 8.5 of the Original Lease contemplates
---------
the installation of a trash chute. Due to changes in the architectural
plans of Tenant, a trash chute was not installed as originally
contemplated. Additionally, Landlord requires space to install a water
pressure pump within the Demised Premises. Accordingly, Paragraph 2 of
Section 8.5 of the Original Lease is deleted and the following are
substituted in its place:
"Landlord and Landlord's other tenants in the remainder of the
Building shall have the right to dispose of their trash in the alley
elevator, on a daily basis between the hours of 6:00 a.m. and noon,
by placing it inside a container designated for that purpose by the
House of Blues. The responsibility and cost of the daily trash
removal and for the cleanliness and maintenance of the container
shall be borne by Tenant.
Tenant shall provide Landlord with a space within Tenant's gas meter
room to install Landlord's water pressure pump. Water pressure pump
is to be installed at Landlord's expense."
4. Exhibit C: The following amendments are made to Exhibit C:
---------
a) Paragraph C (14) of Exhibit C is deleted.
b) Paragraph C (15) of Exhibit C is supplemented with the following:
"Tenant agrees to install the following additional sound attenuation
measures:
The soundproofing caulking at the perimeter of the suspended ceiling
above the "Club" area, shall be examined and if necessary, cut out
and re-caulked with a soundproofing, non-hardening type of caulking,
to fill in all openings and cracks which may be a source of "flanking
path" sound generation.
Tenant shall permanently shut the windows in the green room and
catwalk areas by installing either another set of windows or
plexiglass.
Tenant shall install a rubber material to sound isolate all audio
speakers and audio monitors throughout the Demised Premises
(including those on the stage) in order to prevent them from
transmitting sound and vibrations to the wooden columns."
3
<PAGE>
5. Miscellaneous. The parties hereby confirm and ratify the Lease, as amended
-------------
by the First Amendment, the Second Amendment and this Third Amendment. Except as
otherwise amended by the First Amendment, the Second Amendment and this Third
Amendment, the Lease shall remain in full force and effect. Terms that are not
otherwise defined in this Third Amendment shall have the meaning ascribed to
them in the Lease, the First Amendment or the Second Amendment, as the case may
be.
WITNESS: LANDLORD:
/s/ Esther White /s/ Beni Toledano
- ---------------------- ---------------------------------
Beni Toledano
[ILLEGIBLE SIGNATURE] /s/ Jacqueline G. Toledano
- ---------------------- ---------------------------------
Jacqueline G. Toledano
WITNESS: TENANT:
House of Blues New Orleans
Restaurant Corporation
[ILLEGIBLE SIGNATURE]
- ----------------------
By: /s/ Bob Baxter
[ILLEGIBLE SIGNATURE] ------------------------------
- ----------------------
Title: Vice President
---------------------------
4
<PAGE>
EXHIBIT 10.40
LEASE AGREEMENT
---------------
This Lease Agreement ("Lease") is between HOB Marina City Partners, L.P.,
-------------------------------
a Delaware limited partnership ("Landlord") and HOB Chicago, Inc. a Delaware
- ------------------------------ ----------------------------
corporation ("Tenant"). For valuable consideration the parties agree and act as
- -----------
follows:
1. Definitions. The following terms have the meanings set forth below:
-----------
a. Affiliate. The Affiliate of any person shall mean any person
---------
directly or indirectly controlling, controlled by or under common control with
such other person, and shall mean any family member of a person. A person shall
be deemed to control a corporation if such person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such corporation, whether through the ownership of voting
securities, by contract or otherwise.
b. Common Areas. All portions of the Project (as hereinafter
------------
defined) described as Common Areas in the Reciprocal Development, Operating and
Easement Agreement (as hereinafter defined).
c. Delivery Date. March 11, 1996 (plus the Extension, as
-------------
hereinafter defined); provided that the Delivery Date is subject to extension as
provided in the RDOEA.
d. Developer. Niki Development Corp., an Illinois corporation,
---------
and American National Bank and Trust Company of Chicago, as Trustee under Trust
Agreement dated October 11, 1994, and known as Trust No. 118880-05.
e. Effective Date. January 29, 1996.
-------------- ----------------
f. Fiscal Year. For the purposes of this Lease, the term
-----------
"fiscal year" shall mean the calendar year.
g. Landlord's Contribution. The sum of Thirteen Million Dollars
-----------------------
($13,000,000.00), or such lesser amount as provided in subparagraph 2.i. below,
-----------------
to be disbursed to Tenant by Landlord in partial payment of the cost of Tenant's
Work in accordance with Exhibit F attached hereto.
h. Lease Year. Each twelve (12) month period commencing on the
----------
first day of the first full month of the Primary Term of this Lease (as defined
in paragraph 2.b. below), or anniversary of such date.
--------------
i. Leased Premises. That portion of the Theatre Building (as
---------------
hereinafter defined) described as follows (the "Leased Premises"):
<PAGE>
Area B, Area C, Area D and Area E, together with easements in and
to the Mechanical and Loading Level situated below and serving such Areas, such
portions of the Theatre Building being shown on the Site Plan attached hereto
as Exhibit A-2 and such premises are designated and outlined in red on said
------------
Exhibit A-2, together with any and all improvements and fixtures now or
- -----------
hereafter situated on the Leased Premises and all appurtenances, easements and
privileges pertaining thereto, and the personal property, if any, described on
Exhibit A-3; and together with the rights and interests of Landlord and Tenant
- -----------
in and to the use and enjoyment of the Common Areas, as such easements and
rights are more particularly described in the Reciprocal Development, Operating
and Easement Agreement.
The foregoing notwithstanding, Tenant has determined that its planned roof
modification is not feasible and that an elevator will need to be installed
extending from the Marina Level through the Theatre Building to serve the Leased
Premises. Accordingly, Landlord agrees that the legal description of the Leased
Premises shall be revised to include fee title in and to an area comprising a
part of the Common Area and the Theatre Building sufficient in size to
accommodate the elevator shaft and access thereto. Tenant shall bear the cost
of revising the survey and plat of subdivision of the Leased Premises to include
this additional area. The parties agree in good faith to determine such
addition to the Leased Premises as soon as possible. The Extension is defined
as zero days.
j. Limited Partnership Agreement. The Agreement of Limited
-----------------------------
Partnership of HOB Marina City Partners, L.P. by and between HOB Marina City,
Inc., as General Partner, and Niki Development Corp., Platinum Blues Chicago,
L.L.C. and HOB-Chicago, Inc., as Limited Partners.
k. Permittees. All partners, officer, director, employees, agents,
----------
contractors, customers, visitors and invitees of a party to this Lease.
l. Project. That portion of the real property and improvements
-------
known as Marina City, Chicago, Illinois, which portion is depicted on the Site
Plan attached as Exhibit A-2 hereto, and which portion includes the Theatre
-----------
Building, the parking area portion of the two residential condominium towers,
the building anticipated to be redeveloped as a hotel, and the Common Areas as
depicted thereon and further defined in the RDOEA.
m. Project Architect. Elias Pappageorge and Betrand Goldberg, or
-----------------
another architect reasonably acceptable to Tenant.
n. Reciprocal Development, Operating and Easement Agreement or
-----------------------------------------------------------
"RDOEA". The Reciprocal Development, Operating and Easement Agreement described
- ------
in paragraph 2.g. below, to be entered
--------------
-2-
<PAGE>
into among Developer, Landlord and Tenant. The RDOEA is attached hereto as
Exhibit G and incorporated herein.
- ---------
o. Rental Commencement Date. That date which is the earlier to
------------------------
occur of (i) the first day of the month following the expiration of three
hundred (300) days after the Delivery Date; or (ii) the date the Tenant opens
the Leased Premises for business to the public.
p. Tenant's Work. All improvements to be performed by Tenant to
-------------
the Leased Premises pursuant to the Work Letter attached as Exhibit F hereto.
---------
q. Theatre Building. The real property and improvements depicted
----------------
on the Site Plan attached hereto as Exhibit A-2.
-----------
2. Demise, Term.
------------
a. Demise. Landlord hereby leases to Tenant and Tenant accepts from
------
Landlord the Leased Premises under the provisions of this Lease. Landlord and
Tenant acknowledge that Landlord is in the process of acquiring title to the
Leases Premises and that this Lease is conditioned upon Landlord acquiring title
to the Leased Premises in accordance with Section 14.2(d) of the RDOEA.
b. Term. The Preliminary Term of this Lease will commence on the
----
Effective Date of this Lease and expire on the Rental Commencement Date. The
original term of this Lease ("Primary Term") shall commence as of the Rental
Commencement Date and shall expire on the last day of the two hundred fortieth
(240th) month following the Rental Commencement Date. The Preliminary Term, the
Primary Term and any extensions thereof exercised pursuant to subparagraph 2.c.
----------------
below are hereinafter referred to as the "Term."
c. Options. Tenant shall have the right to extend the Term
-------
("Extension Option(s)") for three (3) consecutive ten (10) year periods
("Renewal Terms") upon the same terms, conditions and provisions set out herein
for the Primary Term. There shall be no obligation of Landlord to perform or
pay for any improvements or to grant any rent concessions to Tenant at the
beginning of the Renewal Term and Tenant shall have no further options to renew
or extend the Lease Term following the expiration of the third Renewal Term.
The first Renewal Term shall commence on the expiration of the Primary Term and
the second Renewal Term and the third Renewal Term shall commence upon the
expiration of the immediately preceding Renewal Term. Each option to renew
shall be exercised by Tenant by written notice to Landlord at least two hundred
seventy (270) days prior to the expiration of the Primary Term with respect to
the first Renewal Term and two hundred seventy (270) days prior to the
expiration of the existing Renewal Term with respect to the second Renewal Term
and
-3-
<PAGE>
the third Renewal Term. Notwithstanding the foregoing, in each case, the
exercise of the Extension Option for each Renewal Term shall be effective, at
Landlord's option, only if no Event of Default by Tenant has occurred and is
continuing beyond the expiration of any applicable cure period and this Lease is
in effect at the time of the exercise of the Extension Option and at the time of
the commencement of the Renewal Term in question. Once given by Tenant, a
notice of the exercise of an Extension Option shall be irrevocable. Further,
neither Landlord nor Tenant desire an automatic termination of the Extension
Options in the event Tenant fails to provide written notice of its election to
extend the Term as set forth above. Consequently, it is agreed that prior to the
cancellation of any such Extension Option, Landlord shall deliver written notice
to Tenant that Tenant has failed to provide the written notice to extend the
Term, whereupon Tenant shall have thirty (30) days following its receipt of such
notice in which to notify Landlord that Tenant elects to exercise the Extension
Option to extend the Term as provided herein. Failure by Tenant to so notify
Landlord shall constitute Tenant's election not to extend the Term.
d. Quiet Enjoyment. Upon Tenant's payment of all rent hereunder and
---------------
observance and performance of all of the covenants, terms and conditions to be
observed and performed by Tenant pursuant to this Lease, Tenant shall have
throughout the Term the peaceful, quiet and undisturbed use and possession of
the Leased Premises and all rights and privileges appertaining thereto, subject
to the terms, conditions and provisions of this Lease.
e. Landlord's Title, Subordination, Nondisturbance. Landlord
-----------------------------------------------
covenants as follows:
i Title. Each party hereby represents and warrants to the other
-----
that it has full right and authority to make this Lease. This Lease shall not be
recorded; however, to establish the status of Landlord's title and to establish
the priority of Tenant's Lease as a condition of title, Landlord and
Tenant shall execute a Memorandum of this Lease in the form attached hereto as
Exhibit C which may be recorded by Tenant in Tenant's sole discretion. Landlord
- ---------
shall, at its expense and as a condition to Tenant's obligations hereunder,
provide Tenant with an Owner Policy of Title Insurance (with Leasehold
Endorsement) in the amount of the cost of Tenant's Work (as certified to by
Tenant) covering the Leased Premises and reflecting no exceptions other than
those approved by Tenant pursuant to subparagraph f.v. below or liens securing
----------------
payment of the Construction Loan as described in the Limited Partnership
Agreement and any renewal, replacement or refinancing thereof or of any other
Mortgage or Ground Lease permitted hereby.
ii. Subordination, Nondisturbance. The Leased Premises is at
-----------------------------
this time and will at the time of the recording of the
-4-
<PAGE>
Memorandum of Lease (provided the same is promptly recorded after the Delivery
Date) be free from liens except those approved in writing by Tenant and
otherwise permitted hereby. Within twenty (20) days following the Effective
Date, Landlord will furnish Tenant evidence reasonably satisfactory to Tenant
that any permitted mortgagee or any other party with priority liens in and to
the Leased Premises as of the date thereof (which shall not be removed as
provided below) has either subordinated its liens to this Lease or has entered
--------------------------------------------------------------
into a Subordination, Attornment and Nondisturbance Agreement in substantially
- ------------------------------------------------------------------------------
the form attached hereto as Exhibit D or another form reasonably acceptable to
- -------------------------------------
Tenant. Landlord agrees to use reasonable efforts to obtain such lenders' full
execution of such a Subordination, Attornment and Nondisturbance Agreement at
Landlord's sole cost and expense; provided that if Landlord fails to obtain such
full execution thereof, Tenant's sole recourse shall be to terminate this Lease,
whereupon neither party shall have any further rights or liability hereunder.
iii. Permits. Landlord shall provide full support and cooperation
-------
to Tenant, and assist Tenant in causing the Developer to provide full support
and cooperation to assist Tenant, at Tenant's expense, in attempting to obtain
all governmental permits, licenses and/or approvals as may be necessary to
permit Tenant's operation at the Leased Premises of a "House of Blues" full
service live entertainment facility.
f. Documents Related to Leased Premises and Review. Landlord and Tenant
-----------------------------------------------
agree as follows:
i. Title Commitment. Within thirty (30) days after the Effective
Date, Landlord, at Landlord's sole cost and expense, shall cause the Chicago
Title Insurance Company ("Title Company") to issue and deliver to Tenant (i) a
-----
title commitment for Leasehold Title Policy (the "Title Commitment") setting
- -------------------------------------------
forth the status of title of the Leased Premises, and showing all liens, claims,
encumbrances, conditions, restrictions, easements, rights of way, encroachments
and all other matters of record affecting the Leased Premises (including the
Common Areas under the RDOEA), accompanied by two copies of all documents
referred to in the Title Commitment, and (ii) reports from Lexis Document
Services or, at Landlord's option, another qualified company of searches made of
the Uniform Commercial Code Records of Cook County, Illinois, and those
maintained in the office of the Secretary of State of the State of Illinois (the
"UCC Reports") setting forth the status of title to the fixtures, personal
property and, to the extent Lexis Document Services or such other company issues
such a report, intangible property, if any, situated in the Leased Premises
which are revealed by such searches.
ii. Survey. Within thirty (30) days after the Effective Date,
Landlord, at Landlord's sole cost and expense, shall
-5-
<PAGE>
also cause to be delivered to Tenant a current survey (the "Survey") of the
Leased Premises prepared by a duly licensed land surveyor reasonably acceptable
to Tenant. The Survey shall:
(a) Set forth an accurate metes and bounds or other
description of the Leased Premises which shall contain the gross square
footage of the Leased Premises;
(b) Locate all existing easements and rights-of-way (setting
forth the recording number of all recorded instruments creating the same),
alleys, streets, and roads;
(c) Show all existing improvements;
(d) Show all dedicated public streets providing access to the
Leased Premises and whether such access is paved to the property line of
the Leased Premises; and
(e) Contain the Surveyor's certification in a form which would
be reasonably acceptable to an institutional lender.
iii. Environmental Report. By February 16, 1996, Tenant will
--------------------
obtain, at its expense, a current environmental study of the Leased Premises
("Environmental Report") prepared by such qualified engineering firm as may be
acceptable to Tenant and reasonably acceptable to Landlord, which shall detail
such matters as Tenant may reasonably desire, including but not limited to the
existence, if any, on, or in, the Leased Premises of asbestos, PCB's (including
those existing in adjacent power transformers) radon, underground storage tanks
or other hazardous substances. The expense of such report shall be borne by
Tenant. Landlord agrees to disclose to Tenant promptly upon execution hereof all
information which Landlord has regarding the presence and location on the Leased
Premises of asbestos, PCB transformers, or other toxic, hazardous or
contaminated substances, and underground storage tanks in, on or about the
Leased Premises.
iv. Structural Assessment. By February 16, 1996, Tenant may
---------------------
obtain a structural assessment of the building situated on the Leased Premises
("Structural Assessment") prepared by such qualified engineering or
architectural firm as may be acceptable to Tenant and reasonably acceptable to
Landlord. The expense of the Structural Assessment shall be borne by Tenant.
v. Approval. Tenant shall have until February 16, 1996
--------
("Approval Period"), to review and approve the matters contained in the Title
Commitment, U.C.C. Report, Survey, Environmental Report and Structural
Assessment, except that the Approval Period with respect to the Title Commitment
and Survey is extended to the and
-6-
<PAGE>
including the later of February 16, 1996 and twenty (20) days after the date on
which the Title Commitment and Survey revised to incorporate any changes caused
by the addition to the Leased Premises as provided above are delivered to
Tenant). If Tenant objects to any such matter, Tenant shall notify Landlord of
such objection prior to the expiration of the Approval Period and Landlord shall
thereupon have until March 7, 1996 ("Cure Period") to cure Tenant's objections;
provided, however, that Landlord is not obligated to cure any such objections,
and provided further that the Cure Period with respect to the Title Commitment
and the Survey is extended to and including the later of March 7, 1996 and
twenty (20) days after the date on which Tenant raises any objections to the
Title Commitment and/or Survey permitted hereby during the Approval Period as
the Approval Period may be extended with respect to the Title Commitment and
Survey as hereinabove provided. Tenant may only object to such matters for the
following reasons.
A. With respect to the Title Commitment or the UCC Reports, if they
disclose any recorded documents or other exceptions to title that would
have a material, adverse affect on Tenant's permitted use and enjoyment of
the Leased Premises hereunder, other than liens and encumbrances of a
definite or ascertainable amount which may be removed by the payment of
money and which Developer agrees in writing to remove promptly after the
time Tenant has waived all of its remaining contingencies contained in this
subparagraph 2.f. (any such unpermitted exceptions being hereinafter
-----------------
referred to as "Unpermitted Exceptions");
B. With respect to the Survey, if it discloses any survey defects
which render the title to the Leased Premises unmarketable or which in
Tenant's reasonable determination would have a material adverse impact on
Tenant's permitted use and enjoyment of the Leased Premises hereunder (a
"Survey Defect");
C. With respect to the Structural Assessment, if it discloses any
structural or other material defect in the Leased Premises that would, in
Tenant's reasonable determination, have a material adverse impact on
Tenant's permitted use and enjoyment of the Leased Premises hereunder; and
D. With respect to the Environmental Report, if it discloses any
environmental contamination other than the asbestos which is to be removed
or remediated by Developer pursuant to the RDOEA, which would, in Tenant's
reasonable determination, have a material adverse impact on Tenant's
permitted use and enjoyment of the Leased Premises hereunder.
With regard to any Unpermitted Exception or Survey Defect, Landlord may
cure the same by causing the same to be removed from the
-7-
<PAGE>
Title Commitment or UCC Reports or to otherwise correct such Survey Defects or
to have the Title Company commit to insure against loss or damage that may be
occasioned by such Unpermitted Exceptions or Survey Defects. In the event
Landlord fails or is unable or unwilling to cure such objections within the Cure
Period as provided herein (or, if not specifically provided, then to the
reasonable satisfaction of Tenant) then Tenant may terminate this Lease by
written notice to Landlord within five (5) days after the expiration of
Landlord's Cure Period, whereupon this Lease shall be terminated and neither
party shall have any further rights or liabilities hereunder. Failure by Tenant
to terminate this Lease within the time period specified herein shall constitute
Tenant's waiver of any objection to the matters reflected in the Title
Commitment, UCC Report, Survey, Environmental Report, and Structural Assessment
(which waiver, anything contained herein to the contrary contained herein
notwithstanding, with respect to the Title Commitment, UCC Report and Survey
shall also be for the benefit of Developer under the RDOEA). Anything to the
contrary contained in this Lease notwithstanding, any notice by Tenant to
Landlord to terminate or cancel this Lease under subparagraph 2.f. or
-----------------
subparagraph 2.g. below shall be by delivery or facsimile.
- -----------------
vi. Tenant's Due Diligence, Insurance and Repairs Relating to
---------------------------------------------------------
Inspections. Tenant agrees as follows:
- -----------
(a) Throughout the period of time that Tenant has to
satisfy the contingencies set forth in this subparagraph 2.f. and subparagraph
---------------- ------------
2.g. below, Tenant shall make good faith reasonable and diligent efforts to
- ---
satisfy such contingencies by such dates. Tenant shall notify Landlord as soon
as reasonably possible if it discovers a matter to which it intends to object as
provided in subparagraph 2.f. above. From and after the Effective Date, upon
----------------
reasonable advance notice to Landlord, which notice, anything to the contrary
contained herein notwithstanding, only need be telephonic notice to John Marks
or Marc Munaretto at the telephone number provided in Section 11(a) for John
Marks, Tenant, its employees, agents and designated representatives (the persons
or entities performing the environmental audit and structural assessment as
herein contemplated being included within "designated representatives" under
this subparagraph 2.f.6.), shall have the right to enter upon the Leased
-------------------
Premises, at times reasonably acceptable to Developer during normal business
hours, for the purpose of making the Environmental Report and Structural
Assessement, both of which shall be performed in a professional manner, provided
that:
(I) none of Tenant or its employees, agents and designated
representatives shall unreasonably interfere with the present use of the
Project; and
-8-
<PAGE>
(II) Tenant hereby agrees to indemnify, defend (with counsel
reasonably acceptable to Landlord and Developer) and hold harmless Landlord
and the Landlord Related Parties (as hereinafter defined) and their
respective agents, liability, cost, or expense (including reasonable
attorneys' fees) arising out of the Tenant or its employees, agents and
designated representatives being on the Project, or the acts or omissions of
Tenant or its employees, agents and designated representatives with respect
to the performance of the Environmental Report and Structural Assessment;
(b) Tenant shall, prior to it or its employees, agents or
designated representatives going upon the Project, provide Landlord with a
certificate of insurance and at all pertinent times maintain in full force and
effect a good and sufficient policy or policies of insurance reasonably
acceptable to Landlord insuring Landlord, Developer and the National Bank of
Greece against any loss arising out of injury to persons or damage to property
resulting from Tenant or its employees', agents' or designated representatives'
being on the Project or their acts or omissions with respect to the
Environmental Report and Structural Assessment, in the amount of not less than
One Million Dollars ($1,000,000.00) per occurrence, naming Landlord, Developer
and National Bank of Greece as additional insureds on said certificates and
showing same to be prepaid for at least the period of time during which Tenant
is allowed to obtain the Structural Assessment and Environmental Report
hereunder and providing that the same shall not be cancelled or changed upon
less than thirty (30) days prior notice to Landlord, Developer and National Bank
of Greece; and
(c) Tenant shall repair any damage caused by Tenant or its
agents, employees and its designated representatives to the Leased Premises
or the Project so as to restore the same to substantially its condition prior to
such damage; and
(d) To hold the non-public information gained from its
investigations pursuant to subparagraphs 3.f.iii. and iv. above in confidence,
------------------------------
except as may be disclosed (A) to Tenant or its Affiliates, or any of their
agents, engineers, architects or attorneys, (B) to any mortgagee of Tenant as
permitted hereby, (C) as required by law, (D) to any bona fide third party
potential purchaser of Tenant or any interest therin or assignee or subleasee of
the Lease or the Leased Premises or part thereof, or (E) as necessary or
appropriate in any litigation between the parties, and to deliver a copy of the
Environmental Report and Structural Assessment to Landlord
-9-
<PAGE>
promptly after its receipt by Tenant. The provisions of this subparagraph
------------
2.f.6.d. shall survive the termination of this Lease.
- -------
g. Reciprocal Development, Operating and Easement Agreement.
--------------------------------------------------------
Contemporaneously with the execution hereof, Landlord, Tenant and Niki
Development Corp. shall enter into the Reciprocal Development, Operating and
Easement Agreement in the form attached hereto as Exhibit G, which RDOEA shall
---------
specify the terms, conditions and provisions applicable to Tenant's use of the
Common Areas and other rights and obligations of the parties with respect to
the Project. The RDOEA shall impose restrictions against the use or occupancy of
any portion of the Project (other than the Leased Premises) for any use which
would compete with Tenant's use and occupancy of the Leased Premises,
substantially in the same form as is set forth in paragraph 6.d. below. The
-------------
RDOEA shall also set forth the scheme for the vertical subdivision and ownership
of the Theatre Building and the various easements or licenses, restrictions and
obligations regarding the use, maintenance, operation and development of the
Project and shall be binding upon, and inure to the benefit of, Developer,
Landlord and Tenant, as well as the owner(s) of the other portions of the
Project, and their tenants, licensees, successors and assigns. It is
contemplated that the Leased Premises will be conveyed to Landlord upon the
vertical subdivision of the Leased Premises from the remainder of the Theatre
Building as provided in the RDOEA and the Limited Partnership Agreement of
Landlord, provided the other conditions to such conveyance therein provided have
been satisfied as provided in the RDOEA. The RDOEA shall also impose
development and leasing obligations on Developer with respect to the Common Area
and the Project as provided in subparagraphs g.iii. below. Pursuant to the
-------------------
RDOEA, Tenant acknowledges that Landlord shall provide the necessary easements,
licenses and access over and upon portions of the Leased Premises for the
benefit of the owner(s), tenants and invitees of the remainder of the Project
outside the Leased Premises as currently utilized or as reasonably necessary or
appropriate given the modifications to the Project contemplated by this Lease or
reasonably necessary or appropriate for the development or improvement of the
remainder of the Project outside the Leased Premises. The RDOEA shall provide
the following rights and/or interests that the Developer grants to Tenant on the
terms, conditions and consideration applicable to Tenant's use in connection
therewith as specified in the RDOEA: (i) the right to use that portion of that
one (1) certain boat docking area (the "Docking Area") situated perpendicular to
the existing boat slips as designated and outlined in yellow on Exhibit A-4
-----------
attached hereto, for periods not to exceed thirty (30) minutes each occurring no
more often than once every one and one-half hours throughout the Term of this
Lease, for purposes of loading and unloading passengers from one or more boats
operated by or for the benefit of Tenant and its Permittees; and (ii) the right
of first refusal throughout the Term
-10-
<PAGE>
of this Lease to match the terms of any bona fide, arms-length offer received by
the Developer from a third party for the use of the Docking Area for a boat or
boats to be used for entertainment purposes. The RDOEA shall also include the
following obligations of Developer, the satisfaction of which shall be
conditions to Tenant's obligations hereunder:
i. Vertical Subdivision, Zoning and Governmental Permits. It is
-----------------------------------------------------
acknowledged that Developer is the current owner of the Project, including the
Leased Premises. The RDOEA shall provide that Developer shall have until the
Delivery Date, as such date may be extended as therein and in the Limited
Partnership Agreement of Landlord provided, to cause the Leased Premises to be
vertically subdivided so as to be a separate parcel from the balance of the
Theatre Building without the imposition of any conditions, restrictions or
easements that would materially impair Tenant's use and occupancy of the Leased
Premises as a House of Blues. If Developer is not prepared to so convey the
Leased Premises by such date as provided in the RDOEA and the Limited
Partnership Agreement, without Developer defaulting under the RDOEA or the
Limited Partnership Agreement, then this Lease shall terminate and neither
Landlord nor Tenant shall have any further rights or liabilities hereunder;
provided that Developer shall not thereby be relieved of its obligation to
reimburse Tenant for its out-of-pocket expenses as provided in the RDOEA to the
extent, if any, therein provided. Tenant shall have until March 10, 1996 to
obtain (i) a building permit for Tenant's Work and any other necessary permits,
licenses or approvals to commencing construction of Tenant's Work, and (ii) any
other governmental permit which is not conditioned upon substantial completion
or occupancy (the "Governmental Approvals"). Landlord agrees to cooperate with
Tenant in Tenant's efforts to obtain the Governmental Approvals and to submit
such documents and file and process such applications at Tenant's expense as may
be reasonably requested in connection therewith. In the event all Governmental
Approvals are not obtained by March 10, 1996, at Tenant's option, this Lease
shall be canceled and neither party shall have any further rights or liability
hereunder, provided that Developer shall not thereby be relieved of its
obligation to reimburse Tenant for its out-of-pocket expenses as provided in the
RDOEA to the extent, if any, therein provided.
ii. Common Area Plans. Landlord and Tenant agree that the Common
-----------------
Areas shall be constructed and maintained in a first-class condition
substantially in compliance with the standards shown on the Common Area plans
and specifications attached hereto as Exhibit H, provided that Developer may
---------
change such Common Area Plans without Landlord's or Tenant's consent as long as
such standards are maintained.
-11-
<PAGE>
iii. Development and Leasing Obligations. The RDOEA shall impose
-----------------------------------
on Developer the obligation, by the Delivery Date, to (i) enter into two (2)
restaurant leases, (ii) obtain and accept a loan commitment for an amount not
less than Twenty-Five Million Dollars ($25,000,000.00) for certain Common Area
and Commercial/Retail Improvements, (iii) remove or remediate all asbestos and
other hazardous materials from the Leased Premises, all as provided in the
RDOEA, (iv) cause the Leased Premises to be vertically subdivided into a
separate parcel from the balance of the Theatre Building, and (v) deliver the
Leased Premises free and clear of any and all liens, encumbrances, restrictions
or easements, other than (a) this Lease, (b) the RDOEA and (c) such other
restrictions or easements as are approved by Tenant pursuant to this Lease.
h. Conditions Subsequent. Tenant's obligations under this Lease are
---------------------
expressly contingent upon satisfaction (or waiver by Tenant) of the conditions
stated in subparagraphs 2.g.i. and g.iii. above.
-------------------- ------
i. Landlord's Contribution. Anything to the contrary contained herein
-----------------------
notwithstanding:
i. Landlord's Contribution shall be equal to the amount of all
monetary contributions by the General Partner and Limited Partners pursuant
to the Limited Partnership Agreement, plus the proceeds of the Construction
Loan, as therein defined, less the actual out-of-pocket costs and expenses
of Landlord incurred during the period between the Delivery Date and Rent
Commencement Date in connection with the ownership of the Leased Premises
including all loan fees, construction period interest and other costs paid
in connection with such Construction Loan, but only to the extent such
costs and expenses are not covered by net cash flow pursuant to the Limited
Partnership Agreement or funds otherwise available to Landlord.
ii. Landlord shall own any tangible real property or fixtures
(including trade fixtures but excluding any trade fixtures, trademarks,
and/or trade dress unique to the House of Blues concept) that is purchased
with or the cost of the purchase of which is reimbursed to Tenant by
Landlord's Contribution, including those items shown on the Draw Requests
provided pursuant to Exhibit F attached hereto ("Landlord's Fixtures").
---------
This Lease shall constitute a bill of sale from Tenant to Landlord for such
Landlord's Fixtures, but Tenant agrees to execute any additional
documentation and take such additional actions reasonably requested by
Landlord to evidence such ownership interest in Landlord, including the
execution of and filing with the appropriate authorities informational
U.C.C. financing statements with respect thereto. Landlord does not
-12-
<PAGE>
waive or subordinate any of its ownership interest or rights thereto and
will not be required to for any Tenant mortgagee and Tenant may not assign
or mortgage any interest in Landlord's Fixtures.
3. Rent. Tenant shall pay Landlord the following amounts as rent
----
("Rent"):
a. Minimum Rent. Commencing on the Rental Commencement Date as
------------
defined in paragraph 1.o. above and continuing throughout the Primary Term,
--------------
Tenant shall pay to Landlord the minimum rent ("Minimum Rent"), which shall be
an amount equal to the monthly payments which are necessary to amortize Six
Million Dollars ($6,000,000.00) over twenty (20) years in monthly installments
of principal and interest at an interest rate equal to one percent (1%) per
annum above the Prime Rate, as hereinafter defined. The term "Prime Rate" shall
mean that rate of interest per annum published, quoted and defined from time to
time in the Wall Street Journal in its Money Rate Section as the Prime Rate and
-------------------
which is currently defined as the base rate on corporate loans posted by
seventy-five percent (75%) of the nation's thirty (30) largest banks. In the
event the Wall Street Journal should cease to publish a definition of Prime
-------------------
Rate, then the rate announced from time to time by Chase Manhattan Bank as its
prime lending rate shall be the Prime Rate hereunder. The interest is calculated
on a 360-day factor applied on a 365-day year, or a 366-day year, in the event
that the year is a leap year, on the unpaid principal to the date of each
installment paid and the payment made credited first to the discharge of the
interest accrued and the balance to the reduction of the principal. Provided,
however, that in the event the interest rate reaches the maximum rate allowed by
applicable law, said maximum legal rate shall be computed on a full calendar
year 365/365 days basis or on a 366/366 days basis, in the event that the year
is a leap year. Such monthly installments shall be adjusted as and when such
Prime Rate fluctuates. The Minimum Rent shall be paid in equal monthly
installments in advance on the first day of each calendar month during the
Primary Term and any Renewal Terms at the address set forth below, or to such
other parties as Landlord may from time to time designate, without any set-off,
deduction, demand or billing whatsoever, except as may be specifically otherwise
provided in this Lease.
b. Increases in Minimum Rent. The Minimum Rent shall increase
-------------------------
during the Renewal Terms to equal the amounts set forth below:
i. Commencing on the first day of the first Renewal
Term and continuing throughout the first Renewal Term, the yearly
Minimum Rent shall be equal to eighty five percent (85%) of the yearly
average of the total of Minimum Rent and Percentage Rent for the
immediately preceding three
-13-
<PAGE>
Lease Years, but in no event less than the Minimum Rent in the last Lease Year
of the Primary Term, payable in equal monthly installments;
ii. Commencing on the first day of the second Renewal Term and
continuing throughout such second Renewal Term, the Minimum Rent shall be equal
to eighty five percent (85%) of the yearly average of the total of Minimum Rent
and Percentage Rent for the immediately preceding three Lease Years, but in no
event less than the Minimum Rent in the last Lease Year of the Primary Term,
payable in equal monthly installments;
iii. Commencing on the first day of the third Renewal Term and
continuing throughout such third Renewal Term, the Minimum Rent shall be equal
to eighty five percent (85%) of the yearly average of the total of Minimum Rent
and Percentage Rent for the Immediately preceding three Lease Years, but in no
event less than the Minimum Rent in the last Lease Year of the Primary Term,
payable in equal monthly installments.
If the monthly Minimum Rent for a Renewal Term cannot be determined as of the
beginning of such Term, because the actual amount of Percentage Rent for the
last Lease Year before the commencement of such Renewal Term has not been
finally determined pursuant to subparagraph 3.c. below, Tenant shall pay the
-----------------
monthly Minimum Rent as reasonably estimated by Landlord until such time as the
actual Minimum Rent for such Renewal Term can be determined, at which time the
parties shall make an adjustment in the same manner as provided in subparagraph
------------
3.e.ii. below. If there is an adjustment in the amount of Percentage Rent due
- -------
for a Lease Year comprising one of the Lease Years used in the calculation of
Minimum Rent for a Renewal Term after the Minimum Rent for such Renewal Term has
been adjusted as provided in the immediately preceding sentence, the Minimum
Rent for such Renewal Term shall be readjusted in the same manner as provided in
subparaghraph 3.f. below.
- ------------------
c. Percentage Rent.
---------------
i. In addition to Minimum Rent, Tenant shall pay Landlord
percentage rent ("Percentage Rent") for each Lease Year following the Rental
Commencement Date (and for any partial month between the Rental Commencement
Date and the First Lease Year ("Partial Lease Year;) equal to the amount by
which the sum of the following percentages of the components of Gross Sales as
described below, if any, during any Lease Year or Partial Lease Year during the
Term exceeds the Minimum Rent for such Lease Year or Partial Lease Year:
-14-
<PAGE>
(a) Fifteen percent (15%) of that portion of Gross Sales
derived from the sale of retail merchandise from the Leased Premises or the
Blues Brothers Boat or other vessel using the Docking Area pursuant to the
RDOEA (after deduction of all royalties or similar payments payable
pursuant to a license agreement or similar agreements between Tenant or its
Affiliates and any third party);
(b) Ten percent (10%) of that portion of Gross Sales derived
from the sale of alcoholic beverages from the Leased Premises or the Blues
Brothers Boat or other vessel using the Docking Area pursuant to the RDOEA;
(c) Five percent (5%) of that portion of Gross Sales derived
from the sale of food from the Leased Premises or the Blues Brothers Boat
or other vessel using the Docking Area pursuant to the RDOEA;
(d) Fifteen percent (15%) of that portion of Gross Sales
received by Tenant from computer networks such as the Internet, Microsoft,
America On-Line, CompuServe or similar or succeeding networks for the live
broadcast of any show from the Leased Premises or the broadcast of any show
from the Leased Premises within six (6) hours after such show has
concluded, after deduction of any and all costs and expenses paid by Tenant
to third parties related to or arising out of the broadcast of such show,
including, without limitation, the cost of performers, technical staff,
staging and production costs and equipment costs; and
(e) Five percent (5%) of that portion of Gross Sales
received by Tenant from parking proceeds paid by Tenant's customers.
ii. Provided, however, and notwithstanding the foregoing, in the
event the Minimum Rent is increased during any Renewal Term pursuant to
subparagraph 3.b. above, the calculation of "Gross Sales" pursuant to
-----------------
subparagraph 3.d. below for such Renewal Term shall be limited to eighty-
-----------------
five percent (85%) of the total of such Gross Sales.
The percentages in subparagraphs 3.c.i.(a) through 3.c.i(e) above, both
----------------------- --------
inclusive, are hereinafter referred to as the "Applicable Percentage(s)".
(d.) Gross Sales. The term "Gross Sales," as used herein, shall
-----------
include the actual sales prices of all goods, services, wares and merchandise,
if any, sold, leased or delivered and the actual charges for all services
performed by Tenant, subtenant, licensee or concessionaire in, at from or
arising out of the use of the Leased
-15-
<PAGE>
Premises, the Blues Brothers Boat or other vessel using the Docking Area
pursuant to the RDOEA or the seating area or another portion of the Project
pursuant to the RDOEA; whether delivery or performance is made therefrom or some
other place and including all sales which Tenant or any subtenant, licensee,
concessionaire or other person in the normal and customary course of its
business, would credit or attribute to its operations therefrom; whether for
wholesale, retail, cash or credit, whether made or performed by mail, delivery
service, telephone or made or performed via the Internet, Microsoft, America On-
Line or similar or succeeding networks as provided above; and whether made or
performed by means of mechanical or other vending devices, without reserve or
deduction for inability or failure to collect except to the extent of bad debt
written off as hereinafter provided, with the exception of all of the following:
i. proceeds from the sale of tickets or other admission charges in
connection with entertainment events at the Leased Premises or elsewhere
(provided that the same will not be construed to negate or limit Landlord's
rights to receive the Applicable Percentage of Gross Sales under
subparagraph 3.c.i.(d) above);
----------------------
ii. credits or refunds to customers for merchandise returned or
exchanged in an amount not to exceed the amount originally included in
Gross Sales;
iii. transfers of merchandise from the Leased Premises to other
stores or warehouse of Tenant or its Affiliates where such exchange is made
solely for the convenient operation of Tenant's business and not for the
purpose of depriving Landlord of the benefit of a sale which would
otherwise be made in or at the Leased Premises;
iv. any sales taxes or other taxes imposed under any laws,
ordinances, orders or regulations, whether now or hereafter in force, upon
or based upon the gross receipts of Tenant or the sale or sale price of
food, liquor or merchandise and which must be paid by Tenant;
v. returns of merchandise to shippers or manufacturers;
vi. merchandise or other things of value issued in redemption of
proofs of purchase coupons or other evidences of value, or issued in
connection with any sales promotion program of Tenant;
viii. fees received for check cashing, extension of credit, deferred
payment, or financial processing;
-16-
<PAGE>
viii. income from minor non-entertainment vending machines,
telephones or postage stamp dispensers (but Gross Sales shall include
pinball, pool, video games and other entertainment machines or devices);
ix. the actual amount of bad debt written off by Tenant with respect
to sales from the Premises; and
x. the amount derived from catalogue sales, except to the extent the
items of merchandise sold contain the logo of House of Blues-Chicago or
other similar specific reference exclusively to the Leased Premises.
Landlord agrees to hold in confidence all non-public sales and related
information furnished by Tenant pursuant to subparagraph 3.f. below except as
----------------
may be disclosed (A) to Landlord or its partners, or any of their agents,
accountants or attorneys, (B) to Mortgagees and Ground Lessors (as those terms
are hereinafter defined) or bona fide potential Mortgagees or Ground Lessors,
(C) as required by law, (D) to any bona fide arms-length potential purchaser of
Landlord or any interest therein or part thereof, or (E) as necessary or
appropriate in any litigation between the parties. Any deposit not refunded
shall be included in Gross Sales. No franchise or capital stock tax and no
income or similar tax based on income or profits shall be deducted from Gross
Sales. Tenant neither makes any express or implied covenant to operate in the
Leased Premises, nor does it make any representation or warranty as to the sales
which it expects to make therein; provided, however, that this sentence shall
not be construed to abate Tenant's obligation to open the Leased Premises
pursuant to subparagraph 6.c.i. below.
------------------
e. Quarterly and Annual Statement, Payment.
---------------------------------------
i. Tenant shall deliver to Landlord within 15 days after the end of each
quarter or part thereof during any Fiscal Year or part thereof occurring during
the Term a written report, certified to be correct by Tenant or an authorized
officer or agent of Tenant, showing Gross Sales for the preceding Fiscal quarter
or part thereof.
ii. Tenant shall pay to Landlord within fifteen days after the end of
each quarter or part thereof during each Fiscal Year or part thereof during the
Term hereof, the quarterly installment of Percentage Rent due for the quarter or
part thereof in question, which installment shall be calculated by multiplying
the applicable portion of Gross Sales for the quarter or part thereof in
question by the Applicable Percentage.
iii. Within 60 days after the end of each Fiscal Year or part thereof during
the Lease Term, Tenant shall deliver to Landlord
-17-
<PAGE>
a statement of Gross Sales for such Fiscal Year or part thereof certified to be
correct by Tenant or an authorized officer or agent of Tenant which shall
conform to and be in accordance with generally accepted accounting principles.
Concurrently, Tenant shall pay to Landlord the balance, if any, of Percentage
Rent due for such Fiscal Year or part thereof. If the installments of
Percentage Rent paid by Tenant during any Fiscal Year or part thereof exceed the
Percentage Rent due for such Fiscal Year or part thereof, the excess shall, at
Landlord's option, be credited against the next monthly installments for
Percentage Rent which are due or refunded promptly to Tenant.
f. Records. Tenant shall keep and maintain at the Leased Premises or
-------
at Tenant's corporate headquarters a complete and accurate set of books,
records, documents, sales tax returns, income tax returns, papers, files, cash
register receipts and other supporting evidence which shall conform to and be in
accordance with the standard accounting methods used and adopted by House of
Blues Entertainment, Inc. and its Affiliates ("Records") from which Gross Sales
and all revenue derived from the conduct of business upon or from the Leased
Premises and the Blues Brothers Boat or other vessel using the Docking Area
pursuant to the RDOEA may be determined. The Records shall be kept for at least
twenty-four (24) months after the expiration of the Fiscal Year to which they
pertain. Landlord and its agents and accountants may at its expense at any
reasonable time during normal business hours within twenty-four (24) months
after the expiration of the Fiscal Year inspect and/or audit any or all of the
Records for the Fiscal Year; provided that Landlord notified Tenant of any such
inspection or audit not less than five (5) business days prior to the date
thereof. If Landlord inspects and/or audits Tenant's statement for such Fiscal
Year, the Records shall be kept until such inspection and/or audit shall have
been concluded. At Landlord's request, Tenant shall make all Records available
for Landlord's inspection either at the Leased Premises or at Tenant's
headquarters offices during normal business hours. If Landlord makes an audit
for any Fiscal Year, and if the Gross Sales shown by Tenant's annual statement
for the Fiscal Year are found to be understated by three percent (3%) or
more, Tenant shall pay to Landlord the reasonable cost of such audit. If it is
determined by such audit that any statement previously delivered to Landlord by
Tenant was not accurate, an adjustment shall be made and the owing party shall
pay to the other party upon demand such sums as may be necessary so that the
correct amount of Percentage Rent shall have been paid by Tenant to Landlord,
and any amounts due to Landlord or Tenant, as the case may be, shall bear
interest at the corporate base rate of interest announced from time to time by
The First National Bank of Chicago or its successor, such rate to change when
and as such corporate base rate changes. Should any such liability for
Percentage Rent equal or exceed three percent (3%) of the Percentage Rent
previously paid for such Fiscal Year on three or more occasions and such excess
is the result of a misstatement in the same category
-18-
<PAGE>
of Gross Sales on such occasions, then Tenant shall pay Landlord upon demand One
Hundred Fifty percent (150%) of the shortfall due to Landlord on any succeeding
occasion after the third occasion, plus interest as aforesaid.
g. Tax Cost. Commencing on the Delivery Date, Tenant shall pay
--------
Landlord (or directly to the applicable taxing entity if the Leased Premises are
separately assessed as hereinafter provided) as tax cost ("Tax Cost") during the
Term: (i) the real property taxes and assessments, both general and special,
assessed or imposed against the Leased Premises for each tax year or part
thereof during the Term; (ii) transit taxes; (iii) taxes based upon leases or
the receipt of rent which are in substitution for and in lieu of any item or
portion thereof described in (i) and (ii) above, and (iv) reasonable fees and
expenses incurred by Landlord with Tenant's prior written consent, which consent
shall not be unreasonably withheld or delayed, to obtain a reduction of or a
limit on the increase in any of items (i) through (iii) above, but not to exceed
the amount of savings actually derived therefrom and the reasonable cost of any
appraisal performed in connection with a tax protest (all of the amounts
described in (i) through (iv), both inclusive, being included in the definition
of "Tax Cost"). However, the Tax Cost shall not include any penalties or fees
charged for late payment of taxes provided that Tenant pays its share of the Tax
Cost in accordance with the terms of this subparagraph 3.g. Tax
----------------
Cost shall be paid by Tenant when due, unless the Leased Premises are not
separately assessed, then as provided below. Tax Cost for any partial tax year
during which the Delivery Date occurs or the Term ends shall be prorated.
Landlord will send Tenant copies of assessed values and statements promptly
after receipt by Landlord and, provided no Event of Default by Tenant exists
hereunder, Tenant shall have the right, at its own expense, in good faith, after
notifying Landlord, to contest any such values, taxes or payments in lieu of
taxes by appropriate proceedings and with reasonable diligence and to take such
action as may be permitted by applicable law to defer or pay under protest the
taxes as are contested in order to preserve Tenant's right to an abatement or
reduction during the period of contest and any appeal therefrom, provided that
if such tax or payments in lieu of taxes are not paid when initially due:
A. such contest or appeal shall have the effect of preventing the
collection of the tax or payments in lieu of taxes so contested and the sale or
forfeiture of the Leased Premises or any part thereof or interest therein to
satisfy the same; and
B. Tenant has notified Landlord of the intention of Tenant to contest
or appeal the same before any taxes or payments in lieu of taxes have been
increased by any interest, penalties or costs.
-19-
<PAGE>
In the event Tenant fails to prosecute such contest or appeal in good faith
and with reasonable diligence or fails to pay the taxes or payments in lieu of
taxes plus any interest and penalties finally determined to be due upon the
conclusion of such contest or appeal, Landlord, after at least ten (10) days
prior written notice to Tenant, may, at its option, pay the same, together with
all penalties and interest thereon, and Tenant shall reimburse Landlord for such
amount on demand. Tenant shall indemnify, defend and hold harmless Landlord
from any losses as the result of the contest or appeal. If Landlord defaults in
the timely payment of taxes on the Leased Premises it is obligated to pay
hereunder, Tenant, in addition to its other rights, may pay the taxes and deem
the payment in excess of Tax Cost, together with interest thereon at the Default
Rate (as hereinafter defined), to be prepaid Percentage Rent and designate the
portion of the Percentage Rent which is prepaid. Landlord shall be responsible
for payment of any and all taxes attributable to the rent to be paid by Tenant
or otherwise based on Landlord's income derived therefrom, and such amounts
shall under no circumstances constitute part of the Tax Cost, unless the same
are in lieu of taxes as provided above, and Landlord shall indemnify and hold
harmless Tenant from and against the payment of any such taxes.
As of the Effective Date, the Leased Premises and the remainder of the
Project (the Leased Premises and the remainder of the Project being hereinafter
referred to as the "Combined Parcel") are assessed, for real estate tax
purposes, as two tax parcels which have not been divided between the Leased
Premises and the remainder of the Project. Landlord and Tenant will cooperate
with Developer pursuant to the RDOEA to cause the Leased Premises to be assessed
separately for real estate tax purposes. Until such time, Tenant shall pay
twenty-five percent (25%) of such taxes. However, in the event the Leased
Premises are not separately assessed for real estate tax purposes within
eighteen (18) months after the Effective Date, Tenant shall thereafter have the
right to contest the designation of twenty-five percent (25%) as Tenant's
equitable portion of the taxes by means of obtaining an appraisal performed by
an MAI appraiser reflecting the appraised value of the Leased Premises in
comparison to the appraised value of the entire Project. Until such time as the
Leased Premises are separately assessed for real estate tax purposes, Landlord
shall promptly after receipt thereof by Landlord deliver to Tenant a copy of the
tax bill for the Combined Parcel together with Landlord's computation of the
amount of tax due from Tenant for the Leased Premises (the "Tenant's Tax
Share"). No later than fifteen (15) days after the receipt of such statement
and bill from Landlord, Tenant shall pay a sum equal to the Tenant's Tax Share,
it being understood and agreed that (a) provided that Tenant shall pay to
Landlord a sum equal to the Tenant's Tax Share as aforesaid, Landlord shall pay
or cause to be paid by Developer pursuant to the RDOEA all taxes due and payable
for the Leased Premises on or before the same shall be due and payable and,
anything to the contrary contained herein, Landlord
-20-
<PAGE>
shall have the right, but not the obligation, to pay or cause to be paid such
taxes under protest and/or proceed to contest or appeal the same as herein
provided or cause the Developer to contest or appeal the same pursuant to the
RDOEA. In the event that Landlord or Developer shall succeed in any contest or
appeal of the real estate tax assessment of the Combined Parcel, or any portion
thereof including the Leased Premises, the amount of any tax reduction shall be
allocated by re-computing the amount of real estate taxes due as provided above
and each party shall pay its pro rata share of the costs and expenses incurred
in achieving such reduction based on its proportionate share of such reduction.
If Tenant disputes the amount of Tenant's Tax Share, in good faith, it shall
promptly notify Landlord. In any event, Tenant shall timely pay the undisputed
portion and the parties shall promptly and in good faith resolve any such
dispute.
All amounts due from Tenant hereunder are included in the definition of
Rent as used in this Lease, unless the context requires otherwise. Landlord
makes no representation whatsoever to Tenant as to the amount of Tax Cost or
Insurance Charges or the amount of any item comprising Common Area Charges.
Taxes "for" a year shall mean Taxes payable during that year. Delay in computing
any item of Tax Cost or Common Area Charges shall neither be deemed a default by
Landlord or a waiver of the right to collect the item of Tax Cost or Common Area
Charges in question.
h. Insurance Charge. Tenant shall pay as an insurance charge ("Insurance
----------------
Charge") each Lease Year during the Term following the Delivery Date (and the
time between the Delivery Date and the beginning of the first Lease Year) an
amount equal to the cost of maintaining casualty and liability insurance
coverage on the Leased Premises as required by paragraph 7.b. of this Lease.
-------------
i. Common Area Charge. Tenant shall pay as common area charge ("Common
------------------
Area Charge") each Lease Year and the Partial Lease Year during the Term
following the Rental Commencement Date an amount equal to Landlord's share of
annual costs payable under the RDOEA for Common Area expenses.
4. Improvements, Signs, Additions and Repairs.
------------------------------------------
a. Delivery of Possession for Tenant's Work. Landlord covenants that
----------------------------------------
actual possession of the Leased Premises shall be delivered to Tenant ready for
Tenant's Work as defined in Exhibit F attached hereto on the Delivery Date. To
---------
the extent Developer makes the Leased Premises available for Tenant's Work prior
to the Delivery Date, Tenant shall comply with all of the terms of the Work
Letter, as though the Delivery Date had occurred, and pay all utilities consumed
in the performance of such Tenant's Work (subject to reimbursement as part of
Landlord's Contribution to the extent
-21-
<PAGE>
otherwise included therein), provided, however, that Landlord shall not have the
obligation to make any payments of Landlord's Contribution or to pay for
Tenant's Owner Policy of Title Insurance (with Leasehold Endorsement) in the
amount of the cost of Tenant's Work until the Delivery Date, if at all.
b. No Alterations or Additions. Except to the extent otherwise
---------------------------
specifically herein provided, Landlord shall not, without Tenant's prior written
consent, make alterations or additions to the Leased Premises, build additional
stories on the Leased Premises or construct any new structures thereon.
Furthermore, Landlord shall not consent to any additions or alteration of the
Common Area under the RDOEA, except as provided in the RDOEA, without the prior
written consent of Tenant.
c. Tenant's Work. Tenant shall, at its expense except for Landlord's
-------------
Contribution, perform repairs and improvements to the Leased Premises following
the Delivery Date as provided in the Work Letter attached hereto as Exhibit F
---------
and made a part hereof for all purposes.
d. Signs.
-----
i. Pylon Sign. Tenant shall have the exclusive right in accordance
----------
with the RDOEA to use the space at the top of the two (2) pylon signs
situated in the Common Area at the locations on Dearborn and State Street
depicted on the Site Plan attached hereto as Exhibit A-2, for its signage,
-----------
provided the same is professionally produced, subject to all applicable
City of Chicago ordinances and any other applicable laws, and to place
such other signage and promotional material in the Common Area as may be
permitted by the RDOEA, if any. Tenant's portion of the pylon signs shall
be the most prominent portion of such signs and shall constitute not less
than forty percent (40%) of the total space of such pylon signs. The use of
the pylon signs by other tenants shall be limited to no more than three (3)
other retail tenants and such other tenants' portions shall not interfere
with the Tenant's portion. In addition, Tenant shall have the exclusive use
of the marquee portions of all pylon signs. Tenant shall pay for the
fabrication and installation of its portion of the pylon signage and
shall use Developer's contractor for the installation. In addition,
Landlord agrees to cooperate with Tenant in accordance with the RDOEA in
causing Developer to permit Tenant (i) to erect a theme sign at the
marina level of the Project, (ii) to install directional signage within the
Common Area, and (iii) to use the top space on any future pylon signs as
may be erected on the Project, and to cause Developer to maintain the pylon
signs as part of the Common Area Charge. Landlord agrees to cooperate with
Tenant in causing the Developer to cooperate with Tenant to assist Tenant
-22-
<PAGE>
in attempting to obtain all necessary consents and permits required for the
placing of Tenant's professionally produced signage on such pylon signs, as well
as Tenant's placement of other signage and promotional materials in the Common
Area as permitted by the RDOEA.
ii. Tenant Signs. Tenant may place its signage,
------------
logos and promotional materials on the exterior of the Leased
Premises to the maximum extent allowed by the City of Chicago and
any other applicable laws and the RDOEA, and Landlord agrees to
cooperate with Tenant in assisting Tenant in attempting to obtain
all governmental approvals required in connection therewith. To the
extent allowed by the RDOEA to the extent the same are located on
the exterior of the Leased Premises or are visible from the Common
Area, Tenant may also install, at its expense, signs on the interior
or exterior of any display windows of the Leased Premises, as well
as easel, placard, or illuminated frame signs within the entrance or
on sidewalks immediately in front of the Leased Premises. Tenant
shall be entitled to use in or on the Leased Premises the grand
opening banners or other similar items to facilitate and recognize
the grand opening of its business in the Leased Premises.
iii. Interior Signs. Tenant shall have the right to
--------------
install and maintain such signs as it may desire on the interior of
the Leased Premises to the extent allowed by City of Chicago
ordinance and other applicable law, and nothing in this paragraph
shall restrict Tenant's rights to maintain signs on the interior of
the Leased Premises.
e. Alterations. In addition to Tenant's Work, provided no
-----------
Event of Default by Tenant has occurred and is continuing, Tenant may from
time-to-time make such alterations, additions or changes to the interior or
exterior of the building or other portions of the Leased Premises
("Alterations") as Tenant may deem necessary or suitable in Tenant's sole
discretion; provided, however, that any such Alterations shall be subject to
the following:
i. Such Alterations shall not structurally weaken the
building;
ii. Tenant's right to make such Alterations shall not be
construed to permit Tenant to build additional stories on the Leased
Premises or construct any new buildings or structures outside of the
Leased Premises on the Leased Premises without the prior written
consent of Landlord;
iii. All such work shall be performed in a good and
workmanlike manner using good grades of materials and shall be
performed only by bondable licensed contractors, covered by a
-23-
<PAGE>
collective bargaining agreement with the appropriate trade union(s);
provided, however, that Tenant shall have the right to use non-union labor
provided that such use does not result in any type of labor problems or
unrest in connection with the Project;
iv. Such Alterations shall not violate any Permitted Exceptions
applicable to the Leased Premises, and shall be in compliance with the
RDOEA and all applicable building codes, rules, regulations and ordinances
affecting construction of such alterations, additions and changes;
v. Tenant shall be responsible for the payment when due of all costs
attributable to the Alterations made by Tenant, and shall indemnify, defend
and hold harmless Landlord, the Landlord Related Parties, and their
respective agents and the Project from and against any mechanic's or
materialmen's liens attributable thereto and all other costs, damages,
liens and expenses related thereto;
vi. Tenant shall, prior to commencing any Alterations, furnish
Landlord with (A) insurance against liabilities which may arise out of the
Alterations, and (B) copies of the plans and specifications and permits
necessary for the Alterations; and
vii. All Alterations visible from the Common Areas or other portions
of the Project shall be architecturally compatible in color, materials and
design with the other buildings in the Project.
Any Alterations, whether prior to or subsequent to the Delivery Date (other than
Tenant's Work as described in Exhibit F, which shall be governed thereby), shall
---------
be completed at Tenant's expense by contractors reasonably satisfactory to
Landlord which are employed by Tenant. From time to time during and upon
completion of such Alterations, Tenant shall deliver to Landlord evidence of
payment, contractors' affidavits and partial and full and final waivers of all
liens for labor, services or materials and such other supporting documentation
as Landlord may reasonably require, all in form reasonably satisfactory to
Landlord. At all times, Tenant shall cause contractors and other performing
Alterations for Tenant to work in harmony with the contractors, agents and
employees performing work in the Project, for Landlord or others. Anything to
the contrary contained in this Lease notwithstanding, any Alterations to or
visible from the exterior of the Leased Premises (other than signage) shall be
subject to the provisions of the RDOEA.
f. Repairs. Prior to the Delivery Date, Tenant shall have no obligations
-------
with respect to the repair or maintenance of the
-24-
<PAGE>
Leased Premises except as otherwise expressly provided in this Lease; it being
understood between Landlord and Tenant that except for those obligations
expressly imposed on Tenant pursuant to this Lease, the Developer shall be
obligated pursuant to the RDOEA to repair and maintain the Leased Premises in
substantially its present condition prior to the Delivery Date, and Developer's
environmental remediation work to the Leased Premises pursuant thereto.
Landlord shall not be responsible for any maintenance, repairs or replacements
of the Leased Premises or any part thereof, other than the payment of
Landlord's Contribution in connection with Tenant's Work as provided in Exhibit
------
F. Following the Delivery Date and without limiting Tenant's right to perform
--
Tenant's work, Tenant shall, at its cost, and with reasonable diligence,
perform all ordinary and extraordinary maintenance, repairs and replacements
necessary to keep the Leased Premises in a good condition and in compliance
with all laws at all times, reasonable wear and tear and damage by casualty or
condemnation (to the extent Tenant is not obligated to restore the same as
provided in paragraph 8 below) and Developer's obligation to perform the
-----------
removal and remediation of hazardous materials as provided in the RDOEA
excepted, including maintenance, repair and replacement of the structural
elements of the Leased Premises, the roof, foundation (if part of the Leased
Premises), walls, floors, parking area and utility facilities situated in the
Leased Premises, as well as all broken glass, doors, windows, moldings, the
interior of the Leased Premises, plumbing pipes within the Leased Premises,
plumbing fixtures, water heaters, HVAC systems, and light and electric fixtures
situated within the Leased Premises. If the Tenant does not do so, or if Tenant
shall fail to pay taxes, Insurance Charge, utilities or any other amount due
hereunder in a timely manner, Landlord may, but need not, perform or make any
maintenance, repairs, replacements, installations, alterations, improvements
and additions which the Tenant is obligated to make, or pay such amounts, and
Tenant shall pay to Landlord the cost thereof, and shall also pay to Landlord
an amount reasonably sufficient to reimburse Landlord for all overhead, general
conditions, fees and other costs or expenses arising from the involvement of
Landlord with such repairs and replacements, the foregoing payments to be made
by Tenant forthwith upon Tenant being billed for same. If Tenant fails to
perform its repair obligations pursuant hereto, Landlord and Landlord's agents,
may, but shall not be required to, enter the Leased Premises at all reasonable
times following reasonable notice to Tenant to perform or make such
maintenance, repairs, replacements, installations, alterations, improvements
and additions to the Leased Premises as Landlord shall reasonably deem
necessary for the safety or preservation thereof. Tenant has no authority or
power to cause or permit any lien or encumbrance of any kind whatsoever,
whether created by act of Tenant, operation of law or otherwise, to attach to
or be placed upon Landlord's or any other party's title or interest in the
Project or the Leased Premises, except to the extent otherwise herein
-25-
<PAGE>
specifically provided, and any and all liens and encumbrances created by Tenant
shall attach to Tenant's interest only. Tenant covenants and agrees not to
suffer or permit any lien of mechanics or materialmen or others to be placed
against the Project or the Leased Premises or Tenant's interest in the Leased
Premises with respect to work or services claimed to have been performed for or
materials claimed to have been furnished to Tenant or the Leased Premises, and,
in case any such lien attaches, or claim of lien is asserted, Tenant covenants
and agrees to cause such lien or claim of lien to be immediately released and
removed of record. In the event such lien or claim of lien is not immediately
released and removed, and Tenant does not otherwise provide security reasonably
acceptable to Landlord and contest the same in good faith and with due
diligence, causing the lien or claim therefor to be promptly released at the end
of such contest, either by payment, settlement or adjudication, Landlord, at its
sole option and in addition to any other available rights or remedies, may take
all action necessary to release and remove such lien or claim of lien (it being
agreed by Tenant that Landlord shall have no duty to investigate the validity
thereof) and Tenant shall promptly upon notice reimburse Landlord for all sums,
costs and expenses (including reasonable attorney's fees) incurred by Landlord
in connection with such lien or claim for lien. Any work performed by Tenant
pursuant to this subparagraph 4.f. shall be subject to the provisions of
-----------------
subparagraph 4.e. above as if such work constituted Alterations.
- -----------------
g. Parking. Tenant shall have non-exclusive parking rights for the
-------
benefit of itself and its Permittees in and to all parking facilities situated
on the Project, to the extent such rights are granted to Landlord pursuant to
the RDOEA. In addition, should Tenant determine at any time that the parking
facilities within the Project are insufficient or unsatisfactory for Tenant's
operations, Tenant may, at its expense, contract for parking outside the Project
subject to the conditions imposed by the RDOEA.
5. Utilities.
---------
a. Service. To the extent provided in the RDOEA, Tenant shall have
-------
the right to provide to the Leased Premises such utility facilities as are
necessary for water, gas, electricity, telephone and sewage service to be
furnished for Tenant's intended use. Other than as may be provided in the RDOEA,
if at all, Landlord shall have no obligation to furnish utility services to the
Leased Premises. Other than as may be provided in the RDOEA, if at all, Tenant
agrees that Landlord shall not be liable in damages, by abatement of Rent or
otherwise, for failure to furnish or delay in furnishing any service, or for any
diminution in the quality or quantity thereof, when such failure or delay or
diminution is occasioned, in whole or in part, by failure or delay or diminution
is occasioned, in whole or in part, by governmental rule, regulation or
guideline (whether or not having the force of law), by repairs, renewals,
or improvements, by any strike,
-26-
<PAGE>
lockout or other labor trouble, by inability to secure electricity, gas, water,
or other fuel at the Building after reasonable effort so to do, by any accident
or casualty whatsoever, by at or default of Tenant or other parties, or by any
other cause; and no such failure or delay or diminution shall be deemed to
constitute an eviction of Tenant or disturbance of the Tenant's use and
possession of the Leased Premises nor shall any such failure or delay relieve
the Tenant from the obligation to pay Rent or perform any of its obligations
under this Lease. Landlord agrees to use reasonable efforts to assist in the
restoration of services in the event of any failure, delay or diminution
described in this subparagraph 5.a.
----------------
b. Utility Charges. Commencing on the Delivery Date, Tenant shall
---------------
arrange with the appropriate utility suppliers for services to the Leased
Premises, pay all connection, meter and service charges and deposits required to
connect utilities to the Leased Premises, and pay such utility suppliers
directly for such services. If for some reason the Leased Premises cannot be
separately metered, Tenant shall pay Developer's cost of any such utilities
which are not metered to the Leased Premises by the provider of such service
within ten (10) days after demand for payment by Developer.
6. Use, Transfers or Assignments.
-----------------------------
a. Tenant's Use. Tenant may use the Leased Premises as a House of Blues
------------
or other entertainment, restaurant and/or bar facility and for related uses
including, without limitation, recording, retail, broadcast, on-line network and
similar uses, and for no other use unless Tenant obtains Landlord's prior
written consent, such consent not to be unreasonably withheld. Tenant further
agrees:
i. To occupy the Leased Premises in a safe and careful manner and in
compliance with all laws, ordinances, rules, regulations and orders of any
governmental bodies having jurisdiction over the Leased Premises and the
requirements of insurance rating agencies with respect to the Leased Premises,
and without committing or permitting waste;
ii. Maintain in good repair and promptly remove and repair any
damage caused by any permitted signs, subject to the other provisions of this
Lease regarding Alterations;
iii. To place no merchandise, sign or other thing of any kind in the
vestibule or entry of the Leased Premises or on the sidewalks or other areas
adjacent thereto or elsewhere on the exterior of the Leased Premises except to
the extent otherwise specifically provided in this Lease or the RDOEA;
-27-
<PAGE>
iv. To (aa) keep any refuse in proper containers in the
interior of the Leased Premises or elsewhere at the locations designated in the
RDOEA until the same is removed, (bb) permit no refuse to accumulate around the
exterior of the Leased Premises, and (cc) keep the Leased Premises in a clean,
orderly, and sanitary condition and free of insects, rodents, vermin and other
pests;
v. To neither load, unload nor permit the loading or
unloading of merchandise, equipment or property except during hours permitted by
the RDOEA, and to use its reasonable efforts to prevent the parking or standing
of vehicles and equipment within the loading areas serving the Project except
when actually engaged in loading or unloading unless deliveries are made through
service corridors abutting the Leased Premises;
vi. To conduct no auction, fire or going out-of-business sale
without the prior written consent of Landlord;
vii. To permit Landlord free access to the Leased Premises at
all reasonable times and upon reasonable notice for the purpose of examining the
same or making such alterations or repairs to the Leased Premises as Landlord
may deem necessary for the safety or preservation thereof;
viii. To solicit no business in the areas of the Project outside
the Leased Premises, nor distribute handbills or other advertising matter in
such areas, except as permitted by the RDOEA, if at all; and
ix. To at all times comply with the terms and provisions of
the RDOEA as the same are applicable to the Leased Premises.
b. Use of Docking Area. To the extent provided in the RDOEA, Tenant
-------------------
may use the Docking Area for the temporary docking, loading and unloading of
"House of Blues" entertainment boat(s), and for such other purposes, if any, as
may be permitted by the RDOEA. However, such use shall be subject to all
applicable size restrictions are required governmental permits.
c. Duty to Open; Right to Close.
----------------------------
i. Duty to Open. Tenant covenants and agrees that within three
hundred sixty-five (365) days after the Delivery Date, Tenant will open or will
cause to open a House of Blues for business in the entirety of the Leased
Premises (open for business as used in this subparagraph 6.c. meaning fully
-----------------
fixtured, stocked and staffed as a House of Blues and open during its normal
business hours).
-28-
<PAGE>
ii. Right to Close. After opening a House of Blues for business in
the Leased Premises pursuant to the provisions of subparagraph c.i. above,
-----------------
Tenant shall have the right, after no less than sixty (60) days prior
written notice to Landlord at any time and from time to time, to cease
operations and to discontinue the conducting of business in the Leased
Premises; provided that Tenant shall nevertheless remain obligated to
perform all covenants and agreements under this Lease including payment of
Rent. The written notice required in this subparagraph shall be given as
promptly as is practicable following the date Tenant actually determines
that it will cease operations. If (other than in the case of "Expected
Discontinuances" as herein defined) Tenant ceases operations in the Leased
Premises, Landlord shall have the right to terminate this Lease in
accordance with the provisions of subparagraph c.iii. below. In the event
------------------
Tenant ceases operation of a House of Blues in the Leased Premises prior to
the expiration of the Term or upon other termination of this Lease for
cause, Tenant shall not open another House of Blues within a twenty (20)
mile radius of the Leased Premises for a period of twenty (20) years
following the date of such cessation.
iii. Right to Terminate.
(a) If at any time during the term of this Lease, Tenant (or any
subtenant or assignee of Tenant, as the case may be) shall cease
operating a business permitted hereunder in the entirety of the Leased
Premises (other than in the case of "Expected Discontinuances") for a
period of one hundred eighty (180) consecutive days, from the one
hundred eighty-first (181st) day following such cessation and
continuing thereafter until Tenant shall have given Landlord a "Notice
of Reopening" (as defined below in subparagraph iii.b. below),
------------------
Landlord shall have the right, upon thirty (30) days written notice
("Notice of Termination"), to terminate this Lease. If Landlord elects
to terminate, within ten (10) days after the effective date of
termination, Landlord shall pay Tenant an amount equal to the
Unamortized Value of the Leasehold Improvements (but not including
any soft costs or the trade fixtures and trade dress removed by Tenant
from the Leased Premises), provided no Event of Default by Tenant has
occurred and is continuing in which event any damages incurred by
Landlord as a result of such Event of Default shall first be deducted
from such amount.
(b) Notwithstanding any term or provision contained to the
contrary in subparagraph iii(a) above, and subject to the provisions
-------------------
of this paragraph governing use of the Leased Premises, Tenant shall
have the right, at any
-29-
<PAGE>
time prior to the date Landlord gives Tenant a Notice of Termination, to reopen
in the entirety of the Leased Premises or, alternatively, to give Landlord
written notice to the effect that Tenant (or Tenant's sublessee or assignee, as
the case may be) will reopen in the entirety of the Leased Premises within
ninety (90) days of such written notice ("Notice of Reopening"). Time is of the
essence, and in the event that Tenant fails to give Landlord a Notice of
Reopening prior to the date Landlord gives a Termination Notice, Tenant shall
not have any further right to operate in the Leased Premises. In the event that
Tenant timely gives Landlord a Notice of Reopening but thereafter (other than in
the case of "Excepted Discontinuances") Tenant (or Tenant's assignee or
sublessee, as the case may be) either fails to open within ninety (90) days from
the date of the Notice of Reopening or, having opened within such ninety (90)
day period, fails to remain open for at least one hundred eighty (180)
consecutive days, subparagraph iii (d) shall control.
--------------------
(c) It is agreed and understood that (other than in the case of
"Excepted Discontinuances"), Landlord may give Tenant a Notice of Termination
pursuant to this subparagraph iii. only at a time during which a business
----------------
permitted hereunder is not being operated in the entirety of the Leased
Premises. In the event that Tenant (or Tenant's assignee or sublessee, as the
case may be) reopens prior to Landlord's giving a Notice of Termination, then
except as provided to the contrary in subparagraph iii(d) below, Landlord shall
-------------------
not have any termination right pursuant to this subparagraph iii. unless and
-----------------
until operations in the entirety of the Leased Premises shall again cease for a
period of at least one hundred eighty (180) consecutive days, in which case the
rights of the parties with respect to any such subsequent cessation shall be
determined as though it were the initial cessation.
(d) In the event that Tenant timely gives Landlord Notice of
Reopening in accordance with the terms of subparagraph iii(b) above and
-------------------
thereafter, other than in the case of "Excepted Discontinuances", Tenant (or its
assignee or sublessee, as the case may be) subsequently either (a) fails to open
for business in the entirety of the Lease Premises within ninety (90) days of
the date of the Notice of Reopening, or (b) does open within such ninety (90)
day period but thereafter fails to remain open for at least one hundred eighty
(180) consecutive days, then in either such event, and until a business
permitted hereunder shall actually open for business in the entirety of the
Leased Premises, Landlord shall have the continuing
-30-
<PAGE>
right to terminate this Lease by giving written notice to Tenant, in which
event this Lease shall terminate thirty (30) days from the date of
Landlord's notice. In such event, and within ten (10) days of the effective
date of termination, Landlord shall pay Tenant an amount equal to the
Unamortized Value of the Leasehold Improvements (but not including any soft
costs or the trade fixtures and trade dress removed by Tenant from the
Leased Premises), provided no Event of Default by Tenant has occurred and
is continuing, in which event any damages incurred by Landlord as a result
of such Event of Default by Tenant shall first be deducted from such
amount.
Notwithstanding the foregoing, Landlord shall not have the right
to terminate the Lease if the cessation of operations or discontinuance of
business: (i) results from Force Majeure as herein defined; or (ii) is a
temporary cessation of discontinuance (not exceeding sixty (60) days in
duration) occurring in connection with an assignment or sublease as
permitted hereunder and by the expiration of such sixty (60) days, such
assignee or sublessee commences business operations in the Leased Premises;
or (iii) is a temporary cessation or discontinuance for civil or religious
holidays, or death of personnel; or (iv) is a temporary cessation of
discontinuance made in order to permit repair, maintenance or renovation of
work and does not exceed the time reasonably required to complete such work
in the exercise of due diligence; all of which are referred to herein as
"Expected Discontinuances."
d. Landlord's Use.
---------------
i. Exclusives. Landlord has not and, so long as this Lease shall
----------
be in effect, will not directly or indirectly lease, rent, occupy or permit to
be occupied or used any part of the Project, or any other property owned or
controlled by Landlord or its Affiliates within a one (1) mile radius of the
Leased Premises (other than the Leased Premises) for the purpose of providing
merchandise, food, drink, multi-media and/or live or pre-recorded entertainment
in connection with a "theme oriented" venue such as "Hard Rock Cafe", "Planet
Hollywood", "Harley-Davidson Cafe", "Mo Town Cafe", "Billboard Cafe", and
similar operations. This exclusive shall not prohibit the operation of
restaurants, retail shops and/or music stores that are not a "theme-oriented"
venue similar to the types of operations listed in the immediately preceding
sentence, nor shall it prohibit live or recorded incidental or background music
in conjunction with the operation of a full service sitdown restaurant not
prohibited hereby. In addition, Tenant hereby agrees that the list of proposed
uses attached hereto as
-31-
<PAGE>
Exhibit I are not prohibited by the terms of this subparagraph d.i. Tenant
- --------- -----------------
further agrees that during the Term it shall not make changes to its menu that
would (a) violate any exclusive use existing in favor of any other tenant in the
Project at that time or (b) result in the Leased Premises being operated
primarily as an ethnic restaurant.
ii. Covenants Run With Land, Enforcement. The aforesaid exclusive
------------------------------------
use covenants shall run with the land hereby restricted for the Term of this
Lease, and Landlord shall furnish to Tenant an appropriate recorded instrument
or instruments to evidence compliance with the covenants during the Term when
requested to do so by Tenant. Tenant or its successors and assigns shall have
the sole right to release or waive such covenant so long as this Lease is in
effect. In the event of the breach of these covenants, Tenant shall be entitled
to cancel this Lease or to obtain relief by injunction or any other modes
provided by law, at Tenant's option, and Tenant's remedies shall be cumulative
rather than exclusive.
iii. Exclusive in RDOEA. Landlord and Tenant acknowledge and agree
-------------------
that provisions substantially the same as those set forth in subparagraphs d.i.
-----------------
and d.ii will be included in the RDOEA and impose the same obligations on
- --------
Developer with respect to the Project as are imposed on Landlord with respect to
the Leased Premises, and Landlord agrees to cooperate with Tenant in causing
Developer to comply with its obligations under the RDOEA with respect thereto.
e. Assignment, Subletting. Subject to the provisions of subparagraph
---------------------- ------------
6.f. below, and provided no Event of Default by Tenant has occurred and is
- ----
continuing, Tenant may voluntarily assign all or any part of this Lease or
sublet all or any part of the Leased Premises without Landlord's consent;
provided, however, that such right to assign or sublet shall not apply to any
involuntary transfer or assignment and Tenant shall not be released from
liability hereunder upon any such assignment or sublease. In the event of any
such assignment or sublease of the Leased Premises, Tenant shall provide prior
written notice to Landlord of such assignment or sublease, which notice shall
include the name, address and telephone number of the assignee or subtenant.
f. Right of Termination. In the event that Tenant voluntarily elects to
--------------------
assign this Lease or sublease the Leased Premises or any part thereof or
interest therein to an entity which is not an Affiliate of Tenant (unless a
transfer in control, as hereinafter defined, in Tenant occurs) (and is not
prohibited from doing so because of an existing Event of Default by Tenant):
-32-
<PAGE>
i. Not less than forty five (45) days prior to the proposed
effective date of the contemplated transaction, Tenant will give Landlord
written notice ("Tenant's Notice"), setting forth the name, address and
telephone number of the proposed assignee or sublessee (if applicable), the date
of the proposed assignment or sublease, together with a statement of the
Unamortized Value of the Leasehold Improvements (as defined in paragraph g.
-----------
below) of the Leased Premises or portion thereof being subleased, the proposed
use intended to be made of the Leased Premises, and including a true and
complete copy of the proposed sublease or assignment. Tenant shall also promptly
deliver any other information reasonably requested by Landlord with respect
thereto. If Landlord in good faith disputes the amount of the Unamortized Value
of the Leasehold Improvements, then the parties shall use the undisputed amount
for purposes of the calculations hereof if such dispute is not resolved by the
time any payment is due and promptly thereafter in good faith resolve any
dispute with regard to the remainder.
ii. Landlord shall have the right and option to (a) terminate the
Lease with respect to space proposed to be assigned or sublet; or (b) permit
Tenant to assign or sublet such space. Landlord shall give Tenant written notice
of Landlord's election within thirty (30) days of Tenant's notice described in
subparagraph f.i. above. Failure of Landlord to give written notice of
- -----------------
Landlord's election within such thirty (30) day period shall constitute
Landlord's consent to the proposed transaction. If Landlord elects to terminate,
within ten (10) days of the effective date of termination, Landlord shall pay
Tenant an amount equal to the Unamortized Value of the Leasehold Improvements.
If Landlord shall elect to give the aforesaid notice of termination with respect
to the entire Leased Premises, then the Lease Term shall expire and end on the
date stated in Tenant's Notice as fully and completely as if the date had been
herein definitely fixed for the expiration of the Lease Term. If, however, this
Lease is terminated pursuant to the foregoing with respect to less than the
entire Leased Premises, the Rent then in effect shall be prorated on the basis
of the number of rentable square feet retained by Tenant in proportion to the
original rentable area of the Leased Premises, and this Lease as so amended
shall continue thereafter in full force and effect. In such event, Tenant shall
perform the Alterations necessary and pay the cost of erecting demising walls
and making other required modifications to physically separate the portion of
the Leased Premises remaining subject to the Lease from the rest of the Leased
Premises promptly. Anything to the contrary contained in this Lease
notwithstanding, Tenant's right to assign the Lease shall not apply to any
assignment by operation of law or any general assignment for the benefit of
creditors. In the case of any
-33-
<PAGE>
assignment or sublease permitted hereunder or approved by Landlord, the
provisions of subparagraphs iii., and v. of this paragraph shall apply.
iii. Notwithstanding any assignment or sublease hereunder, Tenant
shall remain primarily and directly liable for payment of rent and
performance of all the covenants and obligations to be performed by Tenant
under this Lease.
iv. Any such assignment hereunder shall be made by a written
instrument in recordable form executed by the assignor and by the assignee;
such instrument to provide that the assignor shall remain primarily and
directly liable in accordance with the foregoing provisions and that the
assignee expressly assumes the obligations of Tenant hereunder and agrees to
attorn to Landlord; and a counterpart original of such instrument shall be
furnished to Landlord.
v. Any such sublease hereunder shall be consistent with and
subject to all terms and provisions of this Lease and shall be made in the
form of a written instrument executed by Tenant (or its assignee) as
sublessor and by the sublessee, and a counterpart original of such instrument
shall be furnished to Landlord.
In the event of any assignment of the Lease or subleasing of the Leased
Premises, 100% of all profit received by Tenant from time to time from such
assignment or subletting after a return to Tenant of the Unamortized Value of
the Leasehold Improvements (not excluding the contribution by Tenant's Affiliate
in the amount of $2,000,000.00) with respect to any space so subleased or
assigned, shall be payable to Landlord, such profit to be computed in accordance
with generally accepted accounting principles consistently applied. Tenant shall
furnish Landlord with a sworn statement, certified by Tenant or an authorized
officer or agent of Tenant, setting forth in detail the computation of profit,
and Landlord or its representatives shall have access to the books, records and
papers of Tenant in relation thereto, and the right to make copies thereof. If a
part of the consideration for such assignment or subletting shall be payable
other than in cash, the payment to Landlord shall be payable in accordance with
the foregoing percentage of the cash and other non-cash considerations in such
form as is reasonably satisfactory to Landlord. Such percentage of Tenant's
profits shall be paid to Landlord promptly by Tenant upon Tenant's receipt from
time to time of periodic payments from such assignee or subtenant or at such
other time as Tenant shall realize Tenant's profits from such assignment or
sublease.
Anything to the contrary contained herein notwithstanding, if Tenant is a
corporation, any transaction or series of transactions
-34-
<PAGE>
(including, without limitation, any dissolution, merger, consolidation or other
reorganization of Tenant, or any issuance, sale, gift, transfer or redemption of
any capital stock of Tenant, whether voluntary, involuntary or by operation of
law, or any combination of any of the foregoing transactions) resulting in the
transfer of control of Tenant, other than by reason of death or to an Affiliate
of Tenant (which Affiliate was an Affiliate prior to such transfer of control),
shall be deemed to be a voluntary assignment of this Lease by Tenant subject to
the provisions of this subparagraph 6.f. If Tenant is a partnership, any
-----------------
transaction or series of transactions (including without limitation any
withdrawal or admittance of a partner or any change in any partner's interest in
Tenant, whether voluntary, involuntary or by operation of law, or any
combination of any of the foregoing transactions) resulting in the transfer of
control of Tenant, other than by reason of death or to an Affiliate of Tenant
(which was an Affiliate prior to such transfer of control), shall be deemed to
be a voluntary assignment of this Lease by Tenant subject to the provisions of
this subparagraph 6.f. The term "control" as used in this subparagraph 6.f.
----------------- -----------------
means the power to directly or indirectly direct or cause the direction of the
management or policies of Tenant.
g. Reimbursement of Unamortized Value of Leasehold Improvements.
------------------------------------------------------------
For purposes hereof, the "Unamortized Value of the Leasehold Improvements" shall
mean the value, at the time the payment will be due as provided in
subparagraphs 6.c.iii. and 6.f.i. above or otherwise as provided herein, of (i)
- ---------------------- ------
such improvements to the Leased Premises and any non-removable fixtures and
equipment (which are not Landlord's property as provided in subparagraph 2.i.)
-----------------
carried on Tenant's books for federal income taxes, (ii) the property purchased
with Landlord's Contribution which is considered Landlord's property as provided
in subparagraph 2.i. above carried on Landlord's books for federal income taxes,
-----------------
exclusive of (x) all amounts actually paid by Landlord to or for the benefit of
Tenant as the Landlord's Contribution (including the Construction Loan or any
refinancing thereof to the extent of the outstanding principal balance thereof),
and (y) any improvements and non-removable fixtures and equipment, which are not
Landlord's property as aforesaid, which Landlord requests that Tenant remove and
Tenant does not so remove; provided, however, that any portion of Landlord's
Contribution that was paid by Landlord out of funds contributed (but not loaned)
by Tenant or an Affiliate of Tenant to Landlord pursuant to the Limited
Partnership Agreement of Landlord (provided Tenant's and/or its Affiliates'
equity interest in Landlord has been terminated without payment) shall not be
considered as a part of Landlord's Contribution for the purposes of this
subparagraph 6.g. pursuant hereto. In case of termination of this Lease as to
- -----------------
less than the entire Leased Premises, the amount payable by Landlord shall be
reduced by the amount the Unamortized Value of the Leasehold Improvements for
improvements and fixtures not located in that portion of the Leased Premises as
to
-35-
<PAGE>
which the Lease is terminated or, if such improvements and fixtures are located
in or serve both the portion of the Leased Premises as to which the Lease is
being terminated and the remainder of the Leased Premises, proportionately
reduced. Upon written request from Landlord, Tenant will provide Landlord with
such reasonable information as Landlord may require to evidence the current
Unamortized Value of the Leasehold Improvements. In no event will Landlord be
required to reimburse Tenant for any sums attributable to Tenant's removable
trade dress, trade fixtures, and equipment (not owned by Landlord as herein
provided) or any other item(s) that Tenant removes from the Leased Premises upon
or prior to the expiration of the Term of this Lease pursuant to paragraph 11.e.
---------------
below.
h. Transfer, Mortgage by Landlord. If Landlord or Tenant should
-------------------------------
convey or mortgage, or propose to convey or mortgage, all or part of any
interest in the Leased Premises or Landlord or Tenant, to the extent the same is
not prohibited hereby, Landlord and Tenant shall execute the following:
i. Attornment. Tenant shall execute an agreement in recordable form
----------
to attorn to any successor or assignee of Landlord so long as such successor or
assignee agrees to perform the obligations of Landlord hereunder and executes a
Subordination, Attornment and Nondisturbance Agreement in favor of Tenant in the
form attached hereto as Exhibit D or another form reasonably acceptable to
---------
Tenant.
ii. Estoppel Certificate. Each party shall, from time-to-time within
--------------------
two (2) weeks after notice, execute and deliver to the other party and/or to the
other party's lender or other interested party a certificate in recordable form
stating (i) whether this Lease is in full force and effect and, if modified, the
substance of such modification, (ii) the dates to which the Rent has been paid,
(iii) whether, to such party's knowledge, either party is in default in
performance of any provision of this Lease, and if there is a default, the
reason therefor, (iv) as to the existence of any offsets, counterclaims or
defenses hereto on the part of Tenant, to the best of Tenant's knowledge and (v)
any other matters reasonably requested and within the other party's knowledge.
It is intended that any such statements and certificates may be relied upon by
any interested party to whom it is addressed.
i. Prohibited Uses. Anything to the contrary contained in this
---------------
Lease notwithstanding, neither Landlord nor Tenant shall use or permit the use
of any portion of the Leased Premises for any of the Prohibited Uses specified
in the RDOEA.
-36-
<PAGE>
7. Indemnification, Insurance.
--------------------------
a. Indemnification.
---------------
i. By Tenant. Tenant shall indemnify, defend and hold harmless
Landlord and the Landlord Related Parties and their respective agents,
successors and assigns, from and against all injury, loss, claims or damage,
including reasonable attorneys' fees, and disbursements to any person or
property arising from, related to, or in connection with, Tenant's use,
occupancy, construction or repair of the Leased Premises or the negligent or
willful misconduct of Tenant (whether or not such misconduct constitutes a
violation of applicable law or of this Lease) and its servants, agent,
employees, contractors, suppliers, workers and invitees; except to the extent
such injury., loss, claims or damage is caused by the negligence or willful
misconduct of Landlord.
ii. By Landlord. Landlord shall indemnify, defend and hold harmless
-----------
Tenant and its agents, successors and assigns, from and against all injury,
loss, claims or damage, including reasonable attorney's fees, and disbursements
to any person or property arising from, related to, or in connection with the
negligent or willful misconduct of Landlord (whether or not such misconduct
constitutes a violation of applicable law or of this Lease) and its servants,
agents, employees, contractors, suppliers, workers and invitees; except to the
extent such injury, loss, claims or damage is caused by the negligence or
willful misconduct of Tenant.
iii. Environmental Indemnities. Landlord shall indemnify, defend and
-------------------------
hold harmless Tenant from and against any cost, liability or expense arising out
of or attributable to any claims, demands, causes of action, fines, penalties,
liability or expenses (including reasonable attorney's fees and court costs) for
any remediation, clean-up or removal of any asbestos, PCBs, underground storage
tanks, or other toxic or hazardous substances or materials situated on the
Leased Premises as of the Effective Date which exists to the actual knowledge of
Landlord or thereafter caused by Landlord, its agents or representatives. Tenant
shall indemnify, defend and hold harmless Landlord from and against any cost,
liability or expense arising out of or attributable to any claims, causes of
action, fines, penalties, liability or expense (including reasonable attorneys'
fees and court costs) for any remediation, clean-up or removal of any asbestos,
PCB's underground storage tanks or other toxic or hazardous substances or
materials placed or permitted to be placed on the Leased Premises by Tenant, its
agents, employees or contractors following the Effective Date (or during any
entry by Tenant, its agents, employees or
-37-
<PAGE>
contractors prior to the Effective Date). For purposes hereof, the phrase
"toxic or hazardous substances or materials" shall include items covered by
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C.(s)(s)9601-75(1986), as amended by the Superfund Amendment
and Reauthorization Act, Pub. L. No. 99-499, 100 Stat. 1613 (1986)
("CERCLA"), The Toxic Substances Control Act, 15 U.S.C. (s)2601 et seq.,
-- ---
The Clean Water Act, 33 U.S.C. (s)1251 et seq., The Safe Drinking Water
-- ---
Act, 42 U.S.C. (s)(s)300(f)-300(j), and other federal, state and local laws
governing the existence, removal or disposal of toxic or hazardous
substances or materials.
b. Tenant's Insurance. Tenant shall maintain in effect insurance
------------------
policies covering the Leased Premises, with companies licensed to do business in
the State or Illinois, which insurance companies and insurance policy forms
shall be reasonably acceptable to Landlord, described as follows:
Type Amount
(1) Comprehensive General Combined single
Public Liability insurance to limit of not less
include all endorsement custo- than $1,000,000.00
mary for improvements and uses of
the type found on the
Leased Premises, including
broad form property damage and
contractual liability coverage.
(2) Comprehensive automobile Combined single limit
liability insurance covering all of not less than
owned, non-owned and hired $1,000,000.00
automobiles of Tenant including
loading and unloading of any
automobile.
(3) Property Insurance ("all risk") Coverage for full
coverage for the Leased replacement cost,
Premises with appropriate without depreciation,
coverage for the cost of clearing of the improvements
all damaged improvements from situated on the
the Leased Premises, including Leased Premises.
comprehensive boiler and
machinery coverage (including
indirect loss) and rent loss or
business interruption insurance
in an amount necessary to pay
Rent for at least 180 consecutive
days and a joint loss clause.
-38-
<PAGE>
(4) Builders Risk Insurance for Coverage for the full
all risk of physical loss insurable value of
during the term of a improvements constructed
construction contract related and materials stored at
to improvements to the Leased the Leased Premises
Premises to be constructed by by Tenant.
Tenant until work is complete,
and with appropriate coverage for
the cost of clearing all damaged
improvements from the Leased
Premises, on a completed value,
non-reporting replacement cost,
without depreciation, basis.
All policies of insurance to be maintained by Tenant hereunder may be maintained
by way of "blanket policies" insuring the Leased Premises and other premises
and/or property owned or operated by Tenant or its Affiliates, provided that a
Priority Claim Endorsement for the Leased Premises is included in such policy.
All liability insurance shall include $5,000,000,.00 of additional umbrella
coverage and be subject to increase from time to time as Landlord may reasonably
request. All physical damage insurance shall not be subject to the application
of any coinsurance clauses or requirements, and, with respect to any
improvements which are or are to become the property of Landlord at the end of
the Lease Term, shall include a loss payable clause in favor of and reasonably
acceptable to Landlord, providing that the insurance shall not be invalidated by
any act or neglect of Tenant. All insurance carried by Tenant shall have
deductibles reasonably acceptable to Landlord and all liability insurance shall
be on an "occurrence" basis. Prior to engaging in the sale of alcoholic liquor,
and prior to keeping such liquor on the Leased Premises, and at all times that
alcoholic liquors are sold or given away on the Leased Premises, Tenant shall
maintain a policy or policies of dram shop insurance in the same amounts as the
comprehensive general liability insurance referenced above. Tenant shall
purchase and maintain insurance during the entire Term for physical damage
insurance comparable to that required to be carried by Tenant with regard to the
Leased Premises for all Alterations and other improvements to the Leased
Premises and all furniture, trade fixtures, equipment, merchandise and all other
items of Tenant's property on the Leased Premises. The "Landlord Related
Parties" shall mean: (i) Landlord and the partners in Landlord, (ii) Developer
(for purposes of insurance only) and any other owner or owners of the Project if
such are other than Developer or Landlord and Tenant is given notice of such
fact, (iii) the beneficiary or beneficiaries of Landlord, if Landlord is a land
trust and (iv) upon notice from Landlord, any Mortgagee or Ground Lessor of
Landlord. Anything to the contrary contained herein notwithstanding, (A)
property insurance proceeds with regard to the Leased Premises shall be payable
to Landlord or Tenant, as their interests appear herein;
-39-
<PAGE>
(B) each party may assign that right to a mortgagee of Tenant's leasehold
interest, in the case of Tenant, and a Mortgagee or Ground Lessor, in the case
of Landlord, but Tenant shall be entitled to receive only proceeds for property
it owns (not including any property which is owned by Landlord as herein
provided) and any other Unamortized Value of the Leasehold Improvements; (C)
insurance proceeds which are payable to a party as aforesaid shall be settled,
adjusted or compromised by that party; and (D) if repair or replacement of the
Leased Premises is to be made hereunder, then any such proceeds shall be used
for such purpose.
c. Scope. Each policy to be provided by Tenant hereunder
-----
shall name Landlord and the Landlord Related Parties as additional insured and
shall also contain a provision whereby the insurer agrees that such policy shall
not be changed or canceled except after thirty (30) days' written notice to
Landlord or its designee. The insurance policies or duly executed certificates
thereof reasonably acceptable to Landlord, together with satisfactory evidence
that the premium has been paid at least one (1) year in advance, shall be
delivered to Landlord on the date hereof; and, thereafter, evidence of
continuing insurance and premium payment shall be delivered to Landlord not
less than thirty (30) days following Landlord's request therefor.
d. Waiver of Subrogation. Neither Landlord nor Tenant shall be liable
---------------------
by way of subrogation or otherwise to the other party or to any insurance
company insuring the other party for any loss or damage to any of the property
of the Landlord or Tenant covered by insurance even though such loss or damage
might have been occasioned by the negligence of the Landlord or Tenant or their
respective Permittees. This release shall be in effect only so long as the
applicable insurance policies shall contain a clause or endorsement to the
effect that the waiver shall not affect the right of the insured to recover
under such policies. Each party shall use its best efforts, including payment of
any additional premium, to have its insurance policies contain the standard
waiver of subrogation clause. In the event Landlord's or Tenant's insurance
carrier declines to include in such carrier's policies a standard waiver of
subrogation clause, Landlord or Tenant shall promptly notify the other party.
8. Destruction, Condemnation.
-------------------------
a. Destruction.
-----------
i. Cancellation. In the event twenty-five percent (25%) or more
------------
of the Leased Premises has been damaged or destroyed and the Leased Premises
cannot be completely restored within two hundred seventy (270) days after the
date of destruction, Tenant or Landlord may, by notifying the other party within
thirty (30) days after such date of damage or
-40-
<PAGE>
destruction, terminate this Lease. If, during the last two (2) Lease Years the
Leased Premises shall be damaged so that it is reasonable determined that the
cost would make restoration infeasible, Tenant or Landlord may terminate this
Lease within thirty (30) days after the damage.
ii. Restoration. In the event less than twenty-five percent (25%)
-----------
of the Leased Premises has been damaged or destroyed, or this Lease is not
terminated as provided in sub-paragraph 8.a.i., Tenant shall, at its expense to
-------------------
the extent of available insurance proceeds and any deductibles, proceed with the
repair or restoration of the Leased Premises within thirty (30) days following
such damage or destruction or such later date as the insurance proceeds are
available therefor, and once commenced shall be diligently prosecuted to
completion. Landlord agrees to make available to Tenant any insurance proceeds
(subject to the rights of any Mortgagee or Ground Lessor) payable to Landlord
attributable and to be used for to the restoration and repair of the Leased
Premises as herein provided. All work of restoration by Tenant shall restore
the Leased Premises to as good a condition as existed prior to the casualty.
Landlord shall have no liability to Tenant, and Tenant shall not be entitled to
terminate this Lease by virtue of any delays in completion of repairs and
restoration, except to the extent caused by Landlord.
iii. Abatement of Rent. If the casualty or reconstruction
-----------------
necessitated thereby shall render the Leased Premises untenantable in whole or
in part, to the extent Landlord receives proceeds of rent loss or business
interruption insurance: (i) Minimum Rent shall be paid pro rata for the part of
the Lease Year in which the Leased Premises are tenantable, and (ii) during the
part of the Lease Year the Leased Premises and untenantable, Rent shall be
equitably abated.
iv. Insurance Proceeds. All insurance proceeds payable as a
------------------
result of any damage or destruction which are to be used by Tenant for such
repairs and restoration shall be payable to Tenant and used by Tenant for
payment of the cost of repairs and restoration required hereby. Payments by
Landlord under its insurance shall be payable as provided in Section 2 of
Exhibit F as if the same constituted part of Landlord's Contribution and any
- ---------
work performed by Tenant is effecting such repairs and restoration shall be
considered Alterations.
b. Condemnation.
------------
i. Taking of Leased Premises. In the event of a taking by the
-------------------------
power of eminent domain or conveyance in lieu thereof ("Taking") of the whole or
any material part of the
-41-
<PAGE>
Leased Premises, either party shall have the right to terminate this Lease
upon notice to the other within thirty (30) days after receiving notice of
the intended Taking. If either party elects to terminate this Lease, the
Term shall cease as of the day the public authority takes physical
possession. If following a Taking this Lease shall continue in effect as to
any portion of the Leased Premises, all Rent shall be reduced by the
proportion which the portion of the Leased Premises taken bears the total
area of the Leased Premises prior to the Taking.
ii. Awards. All compensation awarded for any Taking shall be
------
apportioned equitably between Landlord and Tenant. Landlord shall be
entitled to that portion of the award attributable to the land and
improvements (except the Unamortized Value of the Leasehold Improvements),
and Tenant shall be entitled to claim, prove and receive in the Taking
proceedings such awards as may be allowed for the then present worth of the
excess, if any, of the fair market rental value of the leasehold estate
over the value of the Rent and other consideration required to be paid
under this Lease, the Unamortized Value of the Leasehold Improvements,
trade fixtures or for loss of business, goodwill, depreciation or injury to
and cost of removal of stock-in-trade.
iii. Restoration. If there is a Taking of part of the Leased
-----------
Premises and the Lease is not terminated, Landlord, at its sole expense, to
the extent Taking awards are made available to Landlord for such purpose,
shall restore and rebuild the Leased Premises with due diligence, so far as
practicable, so that it is a complete and useful space comparable in
quality and character to the space immediately prior to the Taking. All
amounts awarded to Landload by the condemning authority for the Taking
attributable to the restoration of the Leased Premises shall be applied to
the restoration if such application is otherwise herein stipulated, and
Tenant shall provide to Landlord any amounts awarded to Tenant with respect
to its interest in the Leased Premises, to the extent such funds are
required by Landlord to restore and rebuild the Leased Premises.
9. Default.
-------
a. Events of Default. The following are events of default ("Events
-----------------
of Default"):
i. Rent. Tenant fails to pay when due any installment of Rent
----
and such failure continues for ten (10) days after Tenant's receipt of written
notice from Landlord (provided, in no event, however, shall Landlord be
obligated to give notice in excess of two times during any consecutive twelve
month period which is attributable to the nonpayment of Rent).
-42-
<PAGE>
ii. Other Obligations. Either party fails to perform any
-----------------
obligation, covenant or condition or to comply with any provisions of the
Lease (other than the payment of Rent by Tenant) and such failure continues
for thirty (30) days after written notice from the nondefaulting party,
unless said default requires more than thirty (30) days to cure and the
defaulting party commences a cure within thirty (30) days after written
notice and thereafter maintains a diligent effort to complete the cure.
iii. Bankruptcy. Either party files in any court pursuant to any
----------
statute a petition in bankruptcy or insolvency or for reorganization or
arrangement or makes an assignment for the benefit of creditors or any such
petition is filed against a party and a receiver or trustee of all or any
portion of that party's property is appointed and such proceeding is not
dismissed or the trusteeship discontinued within thirty (30) days after such
appointment (provided that a bankruptcy by Landlord or Tenant shall not be an
Event of Default so long as, in the case of Tenant, Tenant continues to
timely pay Rent and perform its other obligations as required by this Lease
and, in the case of Landlord, Landlord continues to timely perform its other
obligations as required by this Lease), if the interest of Tenant in this
Lease shall be levied on under execution or other legal process or Tenant
admits in writing its inability to pay its debts generally as they become due
or if Tenant abandons the Leased Premises. This is a "shopping center" lease
as contemplated by Section 365(f)(2) of the U.S. Bankruptcy Code, as the same
may be amended from time to time, and such provisions thereof as are
applicable to shopping center leases are applicable to this Lease.
b. Landlord's Remedies. Upon the occurrence of an Event of Default by
-------------------
Tenant, Landlord shall have one or more of the following remedies:
i. Termination. Landlord may terminate this Lease by written
-----------
notice to Tenant, in which event the Term and all right, title and interest
of Tenant hereunder shall end on the date stated in such notice. No re-entry
or other act performed or omitted by Landlord shall be deemed to have
terminated this Lease or any obligation of Tenant for payment of money or
otherwise unless Landlord shall expressly notify Tenant in writing that
Landlord has elected to terminate this Lease.
ii. Terminate Right to Possession. Landlord may terminate the
-----------------------------
right of Tenant to possession of the Leased Premises without terminating this
Lease, by giving written notice to Tenant that Tenant's right of possession
shall end on the date stated in such notice, whereupon the right of Tenant to
-43-
<PAGE>
possession of the Leased Premises or any part thereof shall cease on the date
stated in such notice.
iii. Other Remedies. Landlord may enforce the provisions of
--------------
this Lease and may enforce and protect the rights of Landlord hereunder by a
suit or suits in equity or at law for the specific performance of any covenant
or agreement contained herein, and for the enforcement of any other appropriate
legal or equitable remedy, including without limitation (aa) injunctive relief,
(bb) recovery of all moneys due or to become due from Tenant under any of the
provisions of this Lease, and (cc) any other damages incurred by Landlord by
reason of Tenant's default under this Lease.
iv. Re-Entry. If Landlord exercises any of the remedies
--------
provided for in subparagraphs i. or ii. above, Tenant shall surrender possession
-----------------------
of and vacate the Leased Premises and immediately deliver possession thereof to
Landlord, and Landlord may re-enter the Leased Premises and take complete and
peaceful possession of the Leased Premises, and cause Tenant to be removed with
legal process.
v. Tenant's Obligations; Reletting. If Landlord terminates the
-------------------------------
right of Tenant to possession of the Leased Premises without terminating this
Lease, such termination of possession shall not release Tenant, in whole or in
part, from Tenant's obligation to pay the Rent hereunder for the full Term to
the extent the same is due and is not received from third parties. Landlord
shall have the right from time to time, to recover from Tenant, and Tenant shall
remain liable for, all Rent not theretofore paid pursuant to the foregoing
sentence and any other sums thereafter accruing as they become due under this
Lease during the period from the date of such notice of termination of
possession to the end of the Term, to the extent the same is due and is not
received from third parties. Landlord shall exercise reasonable efforts to
mitigate Tenant's liability by attempting in good faith to relet the Leased
Premises or any part thereof in the name of the Landlord or the Tenant for a
term or terms which may, at Landlord's option, be less than the period which
would otherwise have constituted the balance of the Term, and Landlord may
charge such rent and grant such concessions as are reasonable.
vi. Damages. In the event of the termination of this Lease by
-------
Landlord as provided for above in subparagraph b.i., Landlord shall be entitled
to recover from Tenant all damages and other sums which Landlord is entitled to
recover under any provision of this Lease or at law or equity, including but not
limited to, all the fixed dollar amounts of Rent accrued and unpaid for the
period up to and including such termination date,
<PAGE>
as well as all other additional sums payable by Tenant, including without
limitation, Percentage Rent, or for which Tenant is liable or in respect of
which Tenant has agreed to indemnify Landlord under any of the provisions
of this Lease, which may be then owing and unpaid, and all costs and
expenses, including, without limitation, court costs and reasonable
attorney's fees incurred by Landlord in the enforcement of its rights and
remedies hereunder and, in addition, any damages provable by Landlord as a
matter of law, including, without limitation, an amount equal to the
present value (calculated at a discount rate equal to the prime rate in
effect on the date of termination of this Lease as quoted by the Wall
----
Street Journal) of the excess of the Rent (exclusive of Percentage Rent)
--------------
provided to be paid for the remainder of the Term over the fair market
rental value of the Leased Premises (determined at the date of termination
of this Lease) after deduction of all anticipated expenses of reletting.
vii. Bankruptcy. In the event that Tenant shall file for protection
----------
under the Bankruptcy Code now or hereafter in effect, or a trustee in
bankruptcy shall be appointed for Tenant, Landlord and Tenant agree, to the
extent permitted by law, to request that the debtor-in-possession or
trustee-in-bankruptcy, if one shall have been appointed, either assume or
reject this Lease within sixty (60) days after such appointment.
viii. Expenses. Landlord may recover from Tenant all reasonable
--------
expenses incurred by Landlord in re-entering and reletting of the Leased
Premises, including reasonable attorney's fees, together with interest on
all delinquent unpaid amounts at the Default Rate from the date accrued.
ix. Waiver of Landlord's Lien. It is expressly understood and
-------------------------
agreed that Landlord shall have no contractual or statutory landlord's lien
or security interest of any kind applicable to Tenant's furniture,
fixtures, equipment, inventory, or other personal property located within
the Leased Premises, and Landlord hereby waives and relinquishes any such
contractual or statutory landlord's lien applicable to Tenant's personal
property located within the Leased Premises.
c. Tenant's Remedies. Upon the occurrence of the Event of Default by
-----------------
Landlord, Tenant shall have the right to perform the applicable obligations not
performed by Landlord on behalf of and at the expense of Landlord, and seek
reimbursement from Landlord for all such reasonable expenses incurred in
connection therewith, together with interest thereon at the Default Rate from
the date such expenses are incurred, and Landlord agrees to reimburse Tenant for
such expenses, with interest, on or before thirty (30) days from Tenant's
written demand therefor, accompanied by reasonable supporting
-45-
<PAGE>
documentation evidencing such expenditures (with a copy of such demand being
also sent to Landlord's Mortgagee and/or Ground Lessor). In the event Landlord
fails to timely pay Tenant for the amounts properly demanded, Tenant shall, then
and only then, have the right to offset the delinquent amount properly due
Tenant from Tenant's next installment or installments of Percentage Rent.
d. Remedies Cumulative. No remedy herein conferred upon or
-------------------
reserved to Landlord or Tenant shall exclude any other remedy herein or by law
provided, unless the same is expressly exclusive pursuant to the terms hereof,
but each shall be cumulative and in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
10. Tenant's Mortgagee Requirements.
-------------------------------
a. Tenant's Property. All furniture, trade dress, trade fixtures,
-----------------
inventory, stock-in-trade and related equipment installed by Tenant in the
Leased Premises (which is not the property of Landlord as herein provided) shall
be and remain the property of Tenant throughout and upon termination of this
Lease. At Tenant's request, Landlord shall execute such reasonable documents as
Tenant and/or any mortgagee having an interest in Tenant's property may request
waiving any rights or claims of Landlord to such property of Tenant throughout
the Term and thereafter.
b. Right to Encumber. In addition to the other rights and
-----------------
obligations set forth in this paragraph 10, notwithstanding any other provision
------------
of this Lease to the contrary, provided Tenant is not in default hereunder,
Tenant shall have the right, at any time and from time to time, to encumber the
leasehold estate created by this Lease and/or any of its fixtures, furniture of
equipment (which is not the property of Landlord as herein provided) to any
bank, thrift institution, insurance company, or other institutional lender or
institutional third party without the consent of Landlord, but, in the case of
an encumbrance of the leasehold interest, with prior notice to Landlord,
provided that Tenant is not at that time in default under the provisions of this
Lease. Notwithstanding any other provisions of the Lease to the contrary, any
Landlord's statutory lien for rent or any security interest granted to Landlord
in Tenant's furniture, fixtures or equipment (which is not owned by Landlord as
herein required) is hereby waived in its entirety. With resect to any such
mortgagee of Tenant's leasehold interest and/or personal property (which is not
owned by Landlord as herein provided) and notwithstanding any other provisions
of this Lease to the contrary, to the extent Landlord has been provided with
notice of the existence of such mortgagee and its address, Landlord agrees to
give such mortgagee written notice of any default by Tenant and grants to such
mortgagee an opportunity to cure any such default within the same time periods
specified in this Lease for Tenant to cure any such
-46-
<PAGE>
default. Any such notice shall be sent to Tenant's mortgagee at the most recent
address as to which Tenant or Tenant's mortgagee shall have notified Landlord in
writing, and such notices shall be deemed given to such mortgagee if given to
such mortgagee at such address in the manner described in subparagraph 11.a.
------------------
below. In the event of any assignment of such a leasehold mortgage or in the
event of a change of address of such mortgagee, notice of the new name and
address shall be provided promptly to Landlord. Any such mortgagee of Tenant
shall sign a reasonable and recordable form of agreement recognizing that it has
no interest in Landlord's fee interest in the Leased Premises or the other
property of Landlord as herein provided in recordable form, if requested by
Landlord.
11. General Provisions.
------------------
a. Notice. "Notice" shall mean any notice, notification,
------
consent, approval, request, designation, submission, specification, election or
other communication required or permitted under this Lease. All notices shall
be in writing and shall be deemed to have been given and received the earlier of
(1) the date the notice is delivered by one party to the other party personally
or delivered to the party's address by a party or by a delivery service which
records delivery dates, (2) three (3) days after the notice is placed in the
mail addressed to the other party at the party's address, properly stamped,
certified or registered mail, return receipt requested, or (3) the date the
notice is faxed as provided below and confirmed and followed by a mailing of
such notice by regular mail on the same day. Nothwithstanding anything to the
contrary contained herein, a notice to Tenant from Developer pursuant to Section
14.3 (a) of the RDOEA shall be sent by facsimile to Nathaniel J. Lipman or his
designated substitute at facsimile number (213) 650-0482 (and if he is out of
the country then Developer shall make reasonably diligent efforts to
communicate with him by telephone). A party's address shall be as follows or as
set forth in a notice to the other party:
Landlord: HOB Marina City Partners, L.P.
-------- 8439 Sunset Boulevard, Suite 107
West Hollywood, California 90069
ATTN: Chief Executive Officer
With copy to: McBride Baker & Coles
------------ 500 West Madison Street, 40th Floor
Chicago, Illinois 60601
Attn: Elias N. Matsakis, Esq.
Telephone No. (312) 715-5700
Facsimile No. (312) 993-9350
-47-
<PAGE>
With copy to: Mark IV Realty Group, Inc.
------------ 400 North Franklin Street
Chicago, Illinois 60610
Attn: John Marks
Telephone No. (312) 923-9000
Facsimile No. (312) 923-1930
Tenant: c/o HOB Entertainment, Inc.
------ 8439 Sunset Blvd.,
Suite 102
W. Hollywood, California 90069
Attn: Chief Executive Officer
Facsimile No. (213) 650-0482
With copy to: Akin, Gump, Strauss, Hauer &
------------ Feld, L.L.P.
1500 NationsBank Plaza, 300 Convent
San Antonio, Texas 78205
Attn: Cecil Schenker, Esq.
Facsimile No. (210) 224-2035
With copy to: Mr. Nathaniel J. Lipman
------------ c/o HOB Entertainment, Inc.
8439 Sunset Blvd.,
Suite 102
W. Hollywood, California 90069
Facsimile No. (213) 650-0482
b. Entire Agreement. Tenant acknowledges that neither Landlord nor
----------------
any one on Landlord's behalf has made any representation, warranty or promise
with respect to the Leased Premises except as expressly set forth in this Lease.
This Lease together with the RDOEA, Limited partnership Agreement and the
documents contemplated hereby and thereby, embody the entire agreement and
understanding between the parties as to the Leased Premises and supersedes all
prior negotiations, agreements and understandings.
c. Brokerage Commission. Landlord and Tenant acknowledge and agree
--------------------
that neither party has engaged the services of any real estate broker in
connection with this Lease. Tenant and Landlord shall indemnify and hold the
other harmless against any other commission, payment, interest or participation
claimed on account of this Lease under any alleged agreement or understanding
entered into between or on that party's behalf with the person or entity
claiming the commission, payment, interest or participation.
d. Force Majeure. Each party shall be excused from performing an
-------------
obligation or undertaking provided for in this Lease for so long as such
performance is prevented, delayed, retarded or hindered by an Act of God, fire,
earthquake, flood, explosion, action of the elements, war, invasion,
insurrection, riot, mob violence, sabotage, strike, lockout, action of labor
unions, requisitions,
-48-
<PAGE>
laws, or orders of government or civil or military authorities, provided that
none of the foregoing may be used to delay or excuse the timely payment of money
under this Lease, including but not limited to the payment of Rent.
e. Surrender. Upon the expiration of the Term or earlier termination
---------
of this Lease, Tenant shall surrender the Leased Premises to Landlord. Tenant
may remove all trade dress, trade fixtures, inventory, stock-in-trade, furniture
and other personal property ("Tenant's Property") installed by Tenant, and not
the property of Landlord as otherwise herein provided, and shall remove the same
at the expiration or earlier termination of the Lease Term. Provided that no
Event of Default by Tenant has occurred and is continuing, in addition, Tenant
may remove any and all installments, improvements and/or alterations made by
Tenant on the Leased Premises, not the property of Landlord as herein provided,
and if an Event of Default by Tenant has occurred and is continuing, or Landlord
requires Tenant to remove the same pursuant to paragraph 6.f. above, if Landlord
--------------
so elects, Tenant shall or, at Landlord's option, Landlord, at Tenant's expense,
shall remove such installments, improvements and/or alterations, provided that,
in any instance that Tenant removes the same, Tenant shall restore the Leased
Premises to the condition the Leased Premises were in as of the time of
completion of Tenant's Work (not including any property which is not Landlord's
property as herein provided), reasonable wear and tear and damage by casualty or
condemnation (to the extent Tenant is not obligated to restore the same as
provided in paragraph 8 above) excepted. Any property which Tenant is obligated
-----------
to remove under this subparagraph not promptly removed by Tenant under the
provisions of this subparagraph may, at Landlord's option, be deemed to have
been abandoned by Tenant and may be retained by Landlord without any claim by
Tenant. With regard to any personal property not so promptly removed by Tenant,
Landlord may at its option accept the title to such property or at Tenant's
expense may (i) remove the same or any part in any manner that Landlord shall
choose, repairing any damage to the Leased Premises caused by such removal, and
(ii) store, destroy or otherwise dispose of the same without incurring liability
to Tenant or any other person. In the event Landlord incurs any storage or
other costs by reason of Tenant's failure to remove any property which Tenant
is obligated to remove under this paragraph 11.e., Tenant upon demand shall pay
---------------
to Landlord the amount of reasonable costs so incurred. Tenant shall in any
event repair any damage to the Leased Premises caused by the removal of Tenant's
Property or other property removed by Tenant. Upon the expiration of the Term
or Tenant's right to possession, Tenant shall return all keys to Landlord and
shall disclose to Landlord the combination of any safes, cabinets or vaults
left in the Leased Premises.
f. Holding Over. If Tenant does not surrender possession of the
------------
entire Leased Premises upon the expiration of the Term or
-49-
<PAGE>
earlier termination of this Lease, Tenant, at the option of the Landlord, shall
thereafter either become a tenant at sufferance or, if expressed in a written
notice from Landlord, become a Tenant from month-to-month, in either case at a
monthly rental equal to one hundred fifty percent (150%) of the sum of the
monthly Rent, subject to all other conditions, provisions and obligations of
this Lease insofar as they are applicable to a month-to-month tenancy or tenancy
at sufferance, as the case may be, provided that Landlord shall not have any
obligations hereunder. In absence of such a written notice, Tenant shall be
deemed to be a tenant at sufferance as aforesaid. Tenant also shall pay all
damages sustained by Landlord, whether direct or consequential, on account of
Tenant's holding over. The provisions of this subparagraph 11.f. shall not be
------------------
deemed to limit or constitute a waiver of any other rights or remedies of
Landlord provided herein or at law.
g. Applicable Law, Construction. The laws of the State of Illinois
----------------------------
shall govern the validity, performance and enforcement of this Lease, without
reference to any choice or conflict of law provisions. The invalidity of
unenforceablity of any provision of this Lease shall not affect or impair any
other provison. If any provision of this Lease is capable of two constructions,
one of which would render the provision invalid and the other of which would
make the provision valid, the provision shall have the meaning which renders it
valid. The submission of this document for examination does not constitute an
offer to lease, this document being effective only upon execution and delivery
by Landlord, Tenant and any guarantors.
h. Time of the Essence. Time is of the essence with respect to each
-------------------
provison, term and covenant of this Lease.
i. Captions. The captions are for convenience and do not limit or
--------
define the provisions of this Lease.
j. Gender, Number. Whenever the sense of this Lease requires it, the
--------------
use of (1) the singular number shall be deemed to include the plural, (2) the
masculine gender shall be deemed to include the feminine or neuter gender, and
(3) the neuter gender shall be deemed to include the masculine and feminine
gender.
k. Binding Effect. All provisions of the Lease shall be binding upon
--------------
and inure to the benefit of the parties and their respective personal
representatives, heirs, successors and assigns.
l. Interpretation. Neither this Lease nor any uncertainty or ambiguity
--------------
herein shall be construed or resolved against Landlord or Tenant, whether under
any rule of construction or otherwise, due to the fact that one or the other has
drafted the document. On the contrary, each party has had independent counsel
-50-
<PAGE>
prepare and review this Lease and, accordingly, this Lease shall be construed
and interpreted according to the ordinary meaning of the words used so as to
fairly accomplish the purpose and intentions of all parties hereto.
m. Counterparts. This Lease may be executed in any number of
------------
counterparts and by different parties on separate counterparts each of which,
when executed and delivered, shall be deemed to be an original and all of which,
when taken together, shall constitute but one and the same agreement.
n. Further Assurances. Landlord and Tenant agree to take any and
------------------
all actions and to execute and deliver any and all documents that may be
necessary to fairly accomplish the purposes and intentions of all parties
hereto.
o. Modifications. Neither this Lease nor any provision hereof may
-------------
be waived, modified, amended, discharged or terminated except by an instrument
in writing signed by the party against whom the enforcement of such waiver,
modification, amendment, discharge, or termination is sought, and then only to
the extent set forth in such instrument.
p. Indemnification. Any provisions of this Lease to the contrary
---------------
notwithstanding, any provision by which a party agrees to indemnify, defend
and/or hold harmless the other and/or the Landlord Related Parties and their
respective agents, employees and/or contractors shall include reasonable
attorneys' fees and court costs, survive the termination of this Lease and if a
party agrees to defend the other and/or the Landlord Related Parties, the same
shall be by counsel reasonably acceptable to the party being indemnified.
q. Attorneys' Fees and Costs. If either party brings any suit or
-------------------------
other proceedings with respect to the subject matter or the enforcement of this
Lease, or if either party becomes involved in any litigation in which the other
party causes such party, without such party's fault, to become involved, the
prevailing party (as determined by the court, agency or other authority before
which such suit or proceeding is commenced), in addition to such other relief
as may be awarded, shall be entitled to recover reasonable attorneys' fees,
expenses and costs of suit actually incurred. If a party partially so prevails
in any such suit or other proceedings, in addition to such other relief as may
be awarded, it shall be entitled to recover an equitable portion of reasonable
attorneys' fees, expenses and costs of suit actually incurred.
r. Nonwaiver. No waiver of any provision of this Lease shall be
---------
implied by any failure of either party to enforce any remedy on account of the
violation of such provision, even if such violation be continued or repeated
subsequently, and no express waiver shall
-51-
<PAGE>
affect any provision other than the one specified in such waiver and that one
only for the time and in the manner specifically stated. No receipt of monies by
one party from another after the termination of this Lease shall in any way
alter the length of the Term or of Tenant's right of possession hereunder or
after the giving of any notice shall reinstate, continue or extend the Term or
affect any notice given to either party prior to the receipt of such moneys, it
being agreed that after the service of notice or the commencement of a suit or
after final judgment for possession of the Leased Premises, Landlord may
receive and collect any Rent or other sum due, and the payment of said Rent or
other sum shall not constitute a waiver of or affect said notice, suit or
judgment.
s. Rights of Mortgagees and Ground Lessors. Landlord may have
---------------------------------------
heretofore encumbered the Leased Premises with a Mortgage and may hereafter
encumber the Leased Premises, or any interest therein with additional mortgages,
may sell and lease back the Leased Premises, or any part thereof, and may
encumber the leasehold estate under such a sale and leaseback arrangement with
one or more mortgages. (Any such mortgage is herein called a "Mortgage" and the
holder of any such mortgage is herein called a "Mortgagee". Any such lease of
the Leased Premises is herein called a "Ground Lease" and the lessor under any
such lease is herein called a "Ground Lessor".) To the extent Landlord complies
with subparagraph 2.e.ii. above, this Lease and the rights of Tenant hereunder
-------------------
shall be and are hereby expressly made subject to and subordinate at all times
to each Mortgage and to any Ground Lease (it being agreed by Tenant that in the
case of a Ground Lease Tenant's right to possession shall be as a subtenant) now
or hereafter existing, and to all amendments, modifications, renewals,
extensions, consolidations and replacements of each of the foregoing, and to all
advances made or hereafter to be made upon the security thereof. The
subordination expressed in the preceding sentence shall be automatic and shall
require no further action by Landlord or Tenant for its effectiveness. However,
Tenant agrees to execute and deliver to Landlord such further instruments
consenting to or confirming the subordination of this Lease to any Mortgage
referred to and to any Ground Lease and containing such other provisions which
may be requested in writing by Landlord within two weeks after Tenant's receipt
of such written request.
Tenant agrees to give any Mortgagee or Ground Lessor written notice of any
default by Landlord and grants to such Mortgagee or Ground Lessor an opportunity
to cure any such default within the same time periods specified in this Lease
for Landlord to cure any such default or such additional reasonable period of
time as may be requested by the Mortgagee or Ground Lessor. Tenant shall accept
such performance by or at the instigation of such Mortgagee or Ground Lessor as
if the same had been done by Landlord. Any such notice shall be sent to the
Mortgagees and Ground Lessor at the most recent address as to which Landlord or
such Mortgagees or Ground Lessor
-52-
<PAGE>
shall have notified Tenant in writing, and such notices shall be given in the
manner described in subparagraph 11.a. above.
------------------
If any Mortgage is foreclosed, or Landlord's interest under this Lease is
conveyed or transferred in lieu of foreclosure, or if any Ground Lease is
terminated:
i. No person or entity which as the result of any of the foregoing
has succeeded to the interest of Landlord in this Lease (any such person or
entity being hereafter called a "Successor") shall be liable for any
default by Landlord or any other matter which occurred prior to the date
such Successor succeeded to Landlord's interest in this Lease nor shall
such Successor be bound by or subject to any offsets or defenses which
Tenant may have against Landlord or any other predecessor in interest to
such Successor and shall be liable under the Lease, to the extent so
liable, if at all, only for so long as such Successor is the owner of the
leasehold estate;
ii. Upon request of any Successor, Tenant will attorn, as Tenant
under this Lease, subject to the provisions of this Lease, to such
Successor and will execute and deliver such instruments as may be
reasonably necessary or appropriate to evidence such attornment within two
weeks after receipt of a written request to do so; and
iii. No Successor shall be bound to recognize any prepayment by more
than 30 days of Rent or Additional Charges.
Notwithstanding anything to the contrary contained herein, any Mortgagee or
Ground Lessor may subordinate, in whole or in part, its Mortgage or Ground Lease
(as the case may be) to this Lease by sending Tenant notice in writing
subordinating such Mortgage or Ground Lease to this Lease, and Tenant agrees to
execute and deliver to such Mortgagee or Ground Lessor such further instruments
consenting to or confirming the subordination of such Mortgage or Ground Lease
to this Lease and containing such other provisions which may be requested in
writing by such Mortgagee or Ground Lessor within two weeks after notice to
Tenant of such request.
Whether or not any Mortgage is foreclosed or any Ground Lease is
terminated, or any Successor succeeds to any interest of Landlord under this
Lease, no Mortgagee or Ground Lessor or Successor shall have any liability to
Tenant for any security deposit paid to Landlord by Tenant hereunder, unless
such security deposit has actually been received by such Mortgagee or Ground
Lessor or Successor.
Should any prospective Mortgagee or Ground Lessor require execution of a
short form of lease for recording (containing, among
-53-
<PAGE>
other customary provisions, the names of the parties, a description of the
Leased Premises and the term of this Lease), Tenant agrees to execute such short
form of Lease and deliver the same to Landlord within two weeks following the
request therefor.
t. Certain Rights Reserved by Landlord. Landlord and its Affiliates
-----------------------------------
shall have the following rights, each of which may be exercised by Landlord only
with reasonable advance notice to Tenant, except in the event of emergency, and
the exercise of any such rights shall not be deemed to constitute an eviction or
disturbance of Tenant's use or possession of the Leased Premises nor shall such
exercise give rise to any claim for set-off or abatement of rent or any other
claim provided Landlord shall cause the least interference that is practical to
Tenant's business:
i. To show the Leased Premises to prospective tenants and purchasers
at reasonable times, and if vacated or abandoned, to show the Leased
Premises at any time and to prepare the Leased Premises for re-occupancy or
sale.
ii. To enter the Leased Premises at reasonable times to inspect the
Leased Premises and to make repairs, alterations, improvements and
additions either required or permitted to be made by Landlord under this
Lease or advisable to preserve the integrity, safety, and good order of
part or all of the Leased Premises.
u. Late Payments.
-------------
i. All payments becoming due under this Lease and remaining unpaid
when due shall bear interest until paid at a rate per annum equal to the
greater of (A) twelve percent (12%) per annum, and (B) 3% per annum plus
the corporate base rate of interest announced from time to time by The
First National Bank of Chicago or its successor, such rate to change when
and as such corporate base rate changes, (but in no event at a rate which
is more than the highest rate which is at the time lawful in the State of
Illinois) (the "Default Rate").
ii. Tenant recognizes that late payment of Rent or any other sum due
hereunder will result in administrative expenses to Landlord, the extent of
which additional expenses are extremely difficult and economically
impractical to ascertain. Tenant therefore agrees that when Rent or any
other sum is due and payable from Tenant to Landlord pursuant to the terms
of this Lease, and such amount remains unpaid fifteen (15) days after such
amount is due, the amount of such unpaid Rent or other sum shall be
increased by a late charge to be paid to Landlord by Tenant equal to the
greater of (a) $100.00 and (b) five percent (5%) of the unpaid Rent or
other sum.
-54-
<PAGE>
iii. The provisions of this subparagraph 11.v. shall in no way
------------------
relieve Tenant of the obligation to pay Rent or other payments on or before
the date on which they are due, nor shall the collection by Landlord of any
amount under either subparagraph hereof impair (a) the ability of Landlord
to collect the amount charged under the other subparagraph hereof or (b)
Landlord's remedies set forth in subparagraph 9.b. of this Lease.
-----------------
v. No Air Rights. No rights to any view or to light or air over any
-------------
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease, to the extent not contained in the RDOEA, if at all.
w. Only Landlord/Tenant Relationship. Nothing contained in this
---------------------------------
Lease shall be deemed or construed by the parties hereto or by any third party
to create the relationship or principal and agent, partnership, joint venturer
or any association between Landlord and Tenant, it being expressly understood
and agreed that neither the method of computation of Rent nor any act of the
parties hereto shall be deemed to create any relationship between Landlord and
Tenant other than the relationship of landlord and tenant.
x. Application of Payments. Landlord shall have the right to apply
-----------------------
payments received from Tenant pursuant to this Lease after an Event of Default
(regardless of Tenant's designation of such payments) to satisfy any obligations
of Tenant hereunder, in such order and amounts, as Landlord in its sole
discretion, may elect.
y. Partial Invalidity. If any term, provision or condition contained
------------------
in this Lease shall, to any extent, be invalid or unenforceable, the remainder
of this Lease (or the application of such term, provision or condition to
persons or circumstances other than those in respect of which it is invalid or
unenforceable) shall not be affected thereby, and each and every other term,
provision and condition of this Lease shall be valid and enforceable to the
fullest extent possible permitted by law.
z. Certain Words and Phrases. Unless the context indicates
-------------------------
otherwise, (i) when the words "including," "included" or "includes" are used in
this Lease, they will be interpreted in a non-exclusive manner as though the
words "without limitation," immediately followed the same; (ii) "herein" and
similar terms shall mean this Lease as a whole, (iii) a "party" shall mean
either Landlord or Tenant, and the "parties" shall mean Landlord and Tenant, and
(iv) "paragraph" or "subparagraph" shall mean the entire section referred to and
not just a grammatical paragraph or other portion thereof. The Exhibits
attached hereto are made a part hereof.
-55-
<PAGE>
aa. No Third Party Beneficiary. Nothing in this Lease, express or
--------------------------
implied, is intended to confer any rights or remedies upon any person or entity
other than the parties hereto, and the Developer to the extent herein
specifically provided, and, subject to any restrictions on assignment herein
contained, the parties' respective successors and assigns.
bb. No Merger. The estate of Landlord and Tenant hereunder shall not
---------
be deemed merged because of the fact that Tenant is or may be a partner or an
Affiliate of a partner in Landlord.
cc. Guaranty. A Guaranty is attached hereto and made a part hereof.
--------
EXECUTED as of this 29th day of January, 1996.
TENANT: LANDLORD:
- ------ --------
HOB-CHICAGO, INC., HOB MARINA CITY PARTNERS, L.P., a
a Delaware corporation a Delaware limited partnership
BY: /s/ Nathaniel Lipman BY: /s/ Nathaniel Lipman
-------------------------------- -------------------------------
NAME: Nathaniel Lipman NAME:
------------------------------ -----------------------------
TITLE: S.V.P. TITLE:
----------------------------- ----------------------------
-56-
<PAGE>
EXHIBITS:
- --------
Exhibit A-1 - Intentionally Omitted
Exhibit A-2 - Site Plan
Exhibit A-3 - Personal Property
Exhibit A-4 - Docking Area
Exhibit B - Permitted Exceptions
Exhibit C - Memorandum of Lease - to be agreed upon in
good faith by the parties
Exhibit D - Subordination, Attornment, Nondisturbance
Agreement
Exhibit E - Intentionally Omitted
Exhibit F - Tenant's Work
Exhibit G - Form of RDOEA
Exhibit H - Common Area Plans
Exhibit I - Tenant's list of proposed uses not
prohibited by Paragraph 6.d.i.
<PAGE>
EXHIBIT 10.41
AMENDMENT TO LEASE AGREEMENT
This Amendment to Lease Agreement (this "Agreement") is made as of August
20, 1996, by and among HOB Marina City Partners, L.P., a Delaware limited
partnership, having an address at 8431 Sunset Boulevard, Suite 107, W.
Hollywood, California 90069 ("Landlord"), and ROB Chicago, Inc., a Delaware
corporation having an address at c/o HOB Entertainment, Inc., 8439 Sunset Blvd.,
Suite 102, W. Hollywood, California 90069 ("Tenant").
WHEREAS, the parties have previously entered into that certain Lease
Agreement dated as of January 29, 1996 (the "Lease") for a portion of the real
property commonly known as Marina City, 300 North State Street, Chicago,
Illinois.
WHEREAS, the parties desire to amend the Lease in the following respects
and only in the following respects.
NOW THEREFORE, for valuable consideration, Landlord and Tenant amend the
Lease as follows:
1. The foregoing recitals are incorporated herein to the same extent as
if set out in full in this Section 1.
2. Parts of this Agreement are portions of the Lease that the parties
intend remain unmodified. Other portions of this Agreement incorporate changes
to the Lease. Those portions of the Lease that remain unmodified shall remain
in full force and effect. To the extent that a conflict exists between any
terms, covenants and provisions of this Agreement and any terms, covenants and
provisions of the Lease, the parties intend that the terms, covenants and
provisions of this Agreement shall control. Whenever possible, the term of this
Agreement shall be given an interpretation that is not inconsistent with the
Lease so long as such interpretation does not conflict with this Agreement.
3. Definitions used herein shall have the same meanings as set forth in
the Lease, except to the extent otherwise defined herein and except that the
following terms shall be substituted for the definition thereof as provided in
the Lease:
(a) "Leased Premises" means that property, including the buildings and
improvements erected thereon, described in Exhibit A attached hereto, together
with all improvements and fixtures now or hereafter situated an the Leased
Premises and all appurtenances, easements and privileges pertaining thereto, and
together with the rights and interest of Landlord and Tenant in and to the use
and enjoyment of the Common Areas, as such easements and rights are more
particularly described in the RDOEA. The second grammatical paragraph of
Section 1.i. of the Lease is hereby deleted in its entirety.
(b) "Reciprocal Development, Operating and Easement Agreement" or "RDOEA"
means the Reciprocal Development, Operating and Easement Agreement described in
paragraph 2.g. of the Lease, as joined in by American National Bank Aid Trust
Company of Chicago not personally but solely as Trustee under Trust Agreement
dated October 11, 1994, and known as
-1-
<PAGE>
Trust No. 118880-05, and amended by that certain Joinder in and Amendment to
Reciprocal Development, operating and Easement Agreement dated as of August __,
1996 (the "RDOEA Amendment"). The RDOEA Amendment is by this reference
incorporated in Exhibit G to the Lease, as amended hereby.
4. The first address at the top of page 48 of the Lease is hereby changed
to:
with a copy to: Mark IV Realty Group, Inc.
-------------- 333 Dearborn Street
Suite 606
Chicago, Illinois 60610
Attention: John Marks
Telephone: 312-923-9000
Fax: 312-923-1930
By: Its: Printed Name:
By: Its: Printed Name:
2
<PAGE>
IN WITNESS WHEREOF, this Agreement is entered into by the parties hereto as
of the day and year first above stated.
TENANT:
HOB-CHICAGO, INC.,
a Delaware corporation
By: /s/ Isaac B. Tigrett
-------------------------------------
Its: President
------------------------------------
Printed Name: Isaac B. Tigrett
---------------------------
LANDLORD:
HOB MARINA CITY PARTNER; L.P.,
a Delaware limited partnership
By: /s/ Isaac B. Tigrett
-------------------------------------
Its: President
------------------------------------
Printed Name: Isaac B. Tigrett
---------------------------
3
<PAGE>
EXHIBIT 10.42
SECOND AMENDMENT TO LEASE AGREEMENT
-----------------------------------
This Second Amendment to Lease Agreement (this "Agreement") is made as of
May 1, 1997, by and among HOB Marina City Partners, L.P., a Delaware limited
partnership, having an address at 8439 Sunset Boulevard, Suite 107, W.
Hollywood, California 90069 ("Landlord"), and HOB Chicago, Inc., a Delaware
corporation having an address at c/o HOB Entertainment, Inc., 8439 Sunset Blvd.,
Suite 102, W. Hollywood, California 90069 ("Tenant").
WHEREAS, the parties have previously entered into that certain Lease
Agreement dated as of January 29, 1996, for a portion of the real property
commonly known as Marina City, 300 North State Street, Chicago, Illinois.
WHEREAS, the parties amended such Lease Agreement pursuant to that certain
Amendment To Lease Agreement dated August 20, 1996 (the "Amendment") .
WHEREAS, the aforesaid Lease Agreement and the Amendment shall hereinafter
collectively be referred to as the "Lease."
WHEREAS, the parties desire to further amend the Lease in the following
respects and only in the following respects.
NOW THEREFORE, for valuable consideration, Landlord and Tenant amend the
Lease as follows:
1. The foregoing recitals are incorporated herein to the same extent as
if set out in full in this Section 1.
2. The following provision is hereby added as paragraph 2.j. to the
Lease:
j. Net Lease.
---------
(i) Notwithstanding anything to the contrary which may be contained
in this Lease, this Lease is an absolutely net lease to Landlord and the Minimum
Rent, Percentage Rent and all other sums payable hereunder by Tenant shall be
paid without notice or demand, and without set-off, counterclaim, abatement,
suspension, deduction or defense of any kind whatsoever, except as may otherwise
be expressly provided in paragraph 8.b. of this Lease.
--------------
(ii) Notwithstanding anything to the contrary which may be contained
in this Lease, except as may otherwise be expressly provided in paragraph 8.b.
--------------
of this Lease, this Lease shall not terminate, nor shall Tenant be entitled to
- -------------
the abatement of any rent hereunder or any reduction thereof, nor shall the
obligations of Tenant under this Lease be otherwise affected, by reason of: (1)
any damage to or the destruction of all or any part of the Leased Premises from
whatever cause, or the taking of the Leased Premises or any portion thereof by
condemnation, requisition or otherwise for any reason whatever, (2) prohibition,
limitation or restriction of Tenant's use of all or any part of the Leased
Premises, or the interference with or prevention of such use by any person, (3)
any title defect or encumbrance or any eviction by paramount title or
<PAGE>
otherwise, (4) any default on the part of Landlord under this Lease or under any
other agreement to which Landlord and Tenant may be parties, or (5) any other
cause whether similar or dissimilar to the foregoing, any present or future law
to the contrary notwithstanding, it being the intention of the parties hereto
that the obligations of Tenant hereunder shall be separate and independent
covenants and agreements, that the Minimum Rent, Percentage Rent and all other
sums payable by Tenant hereunder shall continue to be payable in all events, and
the obligations of Tenant hereunder shall continue to be payable in all events,
and the obligations of Tenant hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall have been terminated pursuant to
the express provisions of paragraph 8.b. of this Lease.
-------------
(iii) Notwithstanding anything to the contrary which may be contained
in this Lease, Tenant covenants and agrees that it will remain obligated under
this Lease in accordance with its terms, and that Tenant will not take any
action to terminate, rescind, or avoid this Lease, notwithstanding the
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other proceeding affecting Landlord or any assignee
of Landlord in any such proceeding, and, notwithstanding any action with respect
to this Lease which may be taken by any trustee or receiver of Landlord or any
assignee of Landlord in any such proceeding, or by any court in any such
proceeding.
(iv) Notwithstanding anything to the contrary which may be contained
in this Lease, except as otherwise expressly provided in paragraph 8.b. of this
-------------
Lease, Tenant waives all rights which may now or hereafter be conferred by law
(1) to quit, terminate or surrender this Lease or the Leased Premises or any
part thereof, or (2) to any abatement, suspension, deferment or reduction of the
Minimum Rent, Percentage Rent or any other sums payable under this Lease.
3. Paragraph 3.a. of this Lease is hereby revised to read as follows:
a. Minimum Rent. Commencing on the Rental Commencement Date as
------------
defined in paragraph 1.o. above and continuing throughout the Primary Term,
-------------
Tenant shall pay to Landlord the minimum rent ("Minimum-Rent") the sum of
One Hundred Seventeen Thousand Five Hundred Two and 47/100 Dollars
($117,502.47) per month, subject to adjustment in the manner otherwise
described in Section 3 of the Lease. The Minimum Rent shall be paid in
equal monthly installments in advance on the first day of each calendar
month during the Primary Term and any Renewal Terms at the address set
forth below, or to such other parties as Landlord may from time to time
designate, without any set-off, deduction, demand or billing whatsoever.
4. The following provision is hereby added as paragraph 4.h. to the
Lease:
h. Compliance with Laws.
--------------------
(i) Tenant shall at its sole cost and expense promptly (1)
comply with and shall cause the Leased Premises to comply with all federal,
state, county, municipal and other governmental and quasi-governmental
statutes, laws, codes, rules, acts, permits, licenses, judgments, decrees,
orders, regulations, injunctions and ordinances and the provisions of
insurance policies affecting the Leased Premises or any part thereof or the
<PAGE>
use thereof, including those which require the making of any structural
unforeseen or extraordinary changes, whether or not any such statutes,
laws, codes, rules, acts, permits, licenses, judgments, decrees, orders,
regulations, injunctions or ordinances which may be hereafter enacted
involve a change of policy on the part of the governmental body enacting
the same, and (2) procure, maintain and comply with all permits,
authorizations, licenses and other authorizations required for each use of
the Leased Premises or any part thereof then being made. Tenant shall at
its sole cost and expense comply with the requirements of all policies of
insurance which at any time may be in force with respect to the Leased
Premises. Tenant shall at its sole cost and expense comply with the
provisions of any contracts, agreements and restrictions binding on
Landlord, Tenant or the Leased Premises and affecting the Leased Premises
or any party thereof or the ownership, occupancy or use thereof to which
this Lease is subordinate, and which may exist on the date hereof or which
may hereafter exist which have not been caused or created by Landlord, or
which have come into being by reason of any act or omission of Landlord if
such act or omission was caused by Landlord with the consent of Tenant.
(ii) Tenant shall, at its sole cost and expense, comply with
all covenants, terms and conditions of all presently existing documents
which are (or notice of which is) recorded in the land records in Cook
County, Illinois and affect the Leased Premises or the use thereof or any
interest therein and any such documents which hereafter come into
existence, provided in the latter case that Tenant is either a party to
such document or has given its written consent to the substance thereof.
(iii) Upon failure so to comply with any of the foregoing
requirements, the Landlord may after thirty (30) days written notice to the
Tenant or in the event of emergency, immediately, comply with the same for
other account of the Tenant and the cost of such compliance, together with
interest thereon at the Default Rate, shall be paid to the Landlord upon
demand.
5. The following provision is hereby added as paragraph 7.a.iv. of the
Lease:
iv. Termination of Landlord's Indemnities. Notwithstanding
-------------------------------------
anything to the contrary contained in this paragraph 7.a., Tenant and
--------------
Landlord hereby acknowledge and agree that in the event of a foreclosure of
the Leased Premises by a permitted mortgagee or the conveyance of the
Leased Premises by a deed in lieu of foreclosure or otherwise, the
indemnities by Landlord set forth in paragraphs 7.a.ii. and 7.a.iii above
------------------------------
shall automatically terminate and shall be of no further force or effect
upon such foreclosure or conveyance.
6. The following provision is hereby added as paragraph 7.a.v. of the
Lease:
v. No Offset. Tenant acknowledges and agrees that in no event
---------
shall any of the indemnities imposed on Landlord pursuant to this paragraph
7.a. entitle Tenant to any right of set-off, rebate or reduction of any
rent payable hereunder.
7. Paragraph 8.a. of the Lease is hereby revised to read as follows:
<PAGE>
a. Destruction. If during the Term the Leased Premises or any part
-----------
thereof shall be damaged or destroyed by fire or other casualty, Tenant
shall promptly notify Landlord and Mortgagee of such destruction or damage,
and Tenant with reasonable promptness and diligence shall rebuild, replace
and repair any damage or destruction to the Leased Premises, at its sole
cost and expense, in conformity with the requirements of Paragraph 4.e. of
-------------
this Lease, so that after the completion of such repairs the affected
portion of the Leased Premises shall be, as nearly as possible, in a
condition as good as and having a value as great as the condition and value
thereof immediately prior to such damage or destruction. From time to time
after the commencement of any such replacement, repairing or rebuilding but
not more often than twice in any period of 30 calendar days, Tenant may by
notice request that Landlord pay to Tenant from the insurance proceeds an
amount sufficient to reimburse Tenant for the unreimbursed cost and expense
of such restoration, replacement or rebuilding and, upon receipt by
Landlord of a certificate, dated currently and signed by an officer of
Tenant setting forth in reasonable detail the aggregate amount of such cost
and expense actually incurred f or the account of Tenant, and containing a
statement by Tenant that no event of default has happened and is continuing
hereunder, then Landlord shall promptly pay to Tenant the amount so
certified, less the amount of all previous reimbursements to Tenant on
account of such restoration, replacement or rebuilding, but only from and
to the extent of the proceeds of any insurance received by Landlord by
reason of such casualty, less any expenses incurred in collecting such
proceeds (such net proceeds being herein called the "Net Proceeds"), and
remaining after such prior reimbursements. If the cost of such repairs
required to be made by Tenant pursuant to this subparagraph shall exceed
the amount of such Net Proceeds, the difference shall be paid by Tenant if
there is a balance of Net Proceeds remaining after the final payment for
such work or repair, such balance shall be paid over to Tenant. No payment
of any amount shall be made to Tenant pursuant to this subparagraph if any
default shall have happened and be continuing hereunder unless and until
such default shall have been cured or removed. There shall be no abatement
of Minimum Rent, Percentage rent or any other sums payable hereunder by
Tenant as a result of any such fire or other casualty.
8. Paragraph 8.b. of the Lease is hereby revised to read as follows:
b. Condemnation.
-------------
(i) Subject to the rights of Tenant set forth in this paragraph 8.b.,
--------------
Tenant hereby irrevocably assigns to Landlord any award or payment to which
Tenant may be or become entitled with respect to the taking of the Leased
Premises or any part thereof, by condemnation or other eminent domain
proceedings pursuant to any law, general or special, or by reason of the
temporary taking of the use or occupancy of the Leased Premises or any part
thereof, by any governmental authority, civil or military, whether the same
shall be paid or payable in respect of Tenant's leasehold interest
hereunder or otherwise. Landlord shall be entitled to participate in any
such proceeding and the expenses thereof (including counsel fees and
expenses) shall be paid by Tenant.
<PAGE>
Notwithstanding the foregoing, Tenant shall be entitled to any separate
award allowable for business interruption and/or moving expenses.
(ii) If during the Term (1) the entire Leased Premises shall be
taken by or on account of any actual or threatened condemnation or other
eminent domain proceeding pursuant to any law, general or special or (2) if
a portion of the Leased Premises is taken and said taking renders the
remaining premises unsuitable and uneconomic for the continued use or
occupancy in the business of the Tenant, in the good faith judgment of the
Tenant, then Tenant shall promptly deliver a Purchase Offer (the "Purchaser
Offer") to Landlord specifying a termination date (the "Termination Date")
occurring not less than ninety (90) nor more than one hundred eighty (180)
days after the delivery of such Purchase Offer and this Lease shall
continue in full force and effect without any abatement of Minimum Rent,
Percentage Rent or other sums payable by Tenant hereunder, notwithstanding
any taking, until the Termination Date. The Purchase offer shall be
accompanied by a certificate from Tenant stating that the conditions set
forth either in clause (1) or (2) of this paragraph 8.b. have been
--------------
fulfilled. If the conditions set forth in clause (1) or (2) of this
paragraph 8.b. are fulfilled and if Tenant shall have failed to deliver a
-------------
Purchase Offer as required above, Tenant conclusively shall be presumed to
have made a Purchase Offer on a date which is one hundred twenty (120) days
after any such taking (or such later date as is agreed to in writing by
Landlord), and in the event Tenant is so presumed to have made a Purchase
Offer, the termination date shall be deemed to be one hundred fifty (150)
days after such Purchase Offer is presumed to have been made; but nothing
in this sentence shall relieve Tenant of its obligation actually to deliver
such Purchase Offer. Any purchase of the Leased Premises pursuant to this
paragraph 8.b. shall be accomplished in accordance with the provisions of
--------------
paragraph 8.c. of this Lease.
--------------
(iii) If during the Term, (1) a portion of the Leased Premises shall
be taken by condemnation or other eminent domain proceedings, which taking
is not sufficient to require that Tenant give a Purchase Offer or (2) the
use or occupancy of the Leased Premises or any part thereof shall be
temporarily taken by any governmental authority; then this Lease shall
continue in full effect without abatement or reduction of Basic Rent,
Percentage Rent or other sums payable by Tenant hereunder notwithstanding
such partial or temporary taking. Tenant shall, promptly after any such
temporary taking ceases, at its expense, repair any damage caused thereby
in conformity with the requirements of paragraph 4.e. of this Lease so
---------
that, thereafter, the Leased Premises shall be, as nearly as possible, in a
condition as good as the condition thereof immediately prior to such
taking. In the event of any such partial taking, Landlord shall make the
Net Award available to Tenant to make such repair but, if such Net Award
shall be in excess of $50,000, only against certificates of Tenant
delivered to Landlord from time to time as such work or repair progresses,
each such certificate describing the work or repair for which Tenant is
requesting payment and the cost incurred by Tenant in connection therewith
and stating that Tenant has not theretofore received payment for such work.
Any Net award remaining after such repairs have been made shall be retained
by Landlord and applied in reduction of the principal amount of the
indebtedness secured by any Mortgage then outstanding at Landlord's sole
option. If Landlord retains any such amount the Minimum
<PAGE>
Rent payable after such retention shall be reduced equitably, but in no
event shall the Minimum Rent be reduced lower than the monthly debt
payments due under any Mortgage. In the event of any such temporary taking,
Tenant shall be entitled to receive the entire Net Award payable by reason
of such temporary taking or portion of such temporary taking occurring
during the term hereof, less any costs incurred by the Landlord in
connection therewith. If the cost of any repairs required to be made by
Tenant pursuant to this paragraph 8.b. shall exceed the amount of the Net
--------------
Award, the deficiency shall be paid by Tenant. Notwithstanding anything
therein to the contrary, no payments shall be made to Tenant pursuant to
this paragraph 8.b. if any default or event of default shall have happened
--------------
and shall be continuing under this Lease.
(v) For the purpose of this Lease the term "Net Award" shall mean:
(1) all amounts payable as a result of any condemnation or other eminent
domain proceeding, less all expenses for such proceeding not otherwise paid
by Tenant in the collection of such amounts plus (2) all amounts payable
pursuant to any agreement with any condemning authority (which agreement
shall be deemed to be a taking) which has been made in settlement of or
under threat of any condemnation or other eminent domain proceeding
affecting the Leased Premises, less all expenses incurred as a result
thereof not otherwise paid by Tenant and the collection of such amounts.
9. The following provision is hereby added as paragraph 8. to the Lease.
c. Procedure Upon Purchase.
------------------------
(i) If Landlord shall reject any Purchase offer not later than
the tenth (10th) day prior to the Termination Date or purchase date
specified in such Purchase Offer, this Lease shall terminate on such date
(except with respect to obligations and liabilities of Tenant under this
Lease, actual or contingent, which have arisen on or prior to such
termination), upon payment by Tenant of the Minimum Rent, Percentage Rent
and all other sums then due and payable hereunder to and including the date
of termination without offset or deduction for any reason. No rejection of
an offer shall be effective for any purpose unless consented to in writing
by each Mortgagee. Upon a purchase of the Leased Premises pursuant to
paragraph 8.b. and the payment to the Landlord of the Purchase Price in an
--------------
amount equal to the greater of (x) the purchase price originally paid by
Landlord for Landlord's acquisition of the Leased Premises or (y) the
outstanding amount due under each Mortgage, Landlord shall convey the
Leased Premises and all its right, title and interest in and to the Net
Award (whether or not such Award shall have been received by Landlord) to
Tenant or its designee.
(ii) If the Leased Premises or any part thereof shall be
purchased by Tenant pursuant to any provision of this Lease, Landlord need
not transfer and convey to Tenant or its designee any better title thereto
than existed on the Commencement Date of this Lease. Tenant shall accept
such title, subject to such liens, encumbrances, charges, exceptions and
restrictions on, against or relating to the Leased Premises (including
those arising pursuant to the terms of this Lease) and to all applicable
laws, regulations and ordinances, but free of the Mortgage and all other
mortgages, liens, encumbrances,
<PAGE>
charges, exceptions and restrictions which shall have been created by or
resulted from acts of Landlord.
(iii) on the date fixed for any such purchase, Tenant shall pay
to Landlord, at any place designed by Landlord, the Purchase Price in an
amount equal to the greater of (x) the purchase price originally paid by
Landlord for Landlord's acquisition of the Leased Premises or (y) the
outstanding amount due under each Mortgage, together with all installments
of Minimum Rent, Percentage Rent and all other sums then due under this
Lease and unpaid to and including the date of purchase without offset or
deduction for any reason, and Landlord shall deliver to Tenant a warranty
deed conveying title to the Leased Premises and describing the Leased
Premises or portion thereof being sold and conveying the title thereto,
together with such instruments as shall be necessary to transfer to Tenant
or its designee any other property then required to be transferred by
Landlord pursuant to this Lease. Tenant shall pay all charges incident to
such conveyance and transfer, including counsel fees, escrow fees,
recording fees, title insurance premiums and all applicable federal, state
and local taxes (other than any income or franchise taxes levied upon or
assessed against Landlord) which may be incurred or imposed by reason of
such conveyance and transfer.
(iv) Upon the completion of such purchase, but not prior
thereto (whether or not any delay in the completion of, or the failure to
complete, such purchase shall be the fault of Landlord) , this Lease and
all obligations hereunder (including the obligations to pay Minimum Rent
and Percentage Rent) shall terminate, except with respect to (1)
obligations and liabilities of Tenant, actual or contingent, under this
Lease which arose on or prior to such date of purchase, (2) those
obligations of Tenant contained in paragraph 7.c. hereof or (3) any other
--------------
obligations of Tenant which are intended to survive a termination of this
Lease.
10. Paragraph 10.b. of the Lease is hereby deleted in its entirety.
IN WITNESS WHEREOF, this Second Amendment is entered into by the parties
hereto as of the day and year first above stated.
TENANT:
HOB CHICAGO, INC.,
a Delaware corporation
By: /s/ Joseph C. Kaczorowski
------------------------------
Name: Joseph C. Kaczorowski
----------------------------
Title: Chief Financial Officer
---------------------------
LANDLORD:
HOB MARINA CITY PARTNERS, L.P.,
<PAGE>
a Delaware limited partnership
By: HOB Marina City, Inc., its
General Partner
By: /s/ Joseph C. Kaczorowski
-------------------------------
Name: Joseph C. Kaczorowski
-----------------------------
Title: Chief Financial Officer
----------------------------
<PAGE>
EXHIBIT 10.47
================================================================================
AGREEMENT BY AND BETWEEN
THE CITY OF ATLANTA,
a municipal corporation ("City"),
AND
MCA CONCERTS, INC.,
a California corporation ("MCA")
Dated as of October 10, 1988
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
DEFINITIONS AND EXHIBITS
Page
<S> <C>
1.1 Definitions................................................................................. 2
1.2 Exhibits.................................................................................... 2
ARTICLE II
NON-DISTURBANCE, ATTORNMENT, RECOGNITION,
AND RELATED MATTERS
2.1 Non-Disturbance............................................................................ 2
2.2 Attornment and Recognition................................................................. 4
2.3 Master Lease Defaults...................................................................... 5
2.4 Warranties by City......................................................................... 6
2.5 Warranties by MCA.......................................................................... 7
2.6 Approval of Sublease by City............................................................... 8
2.7 Other Instruments.......................................................................... 8
ARTICLE III
PROVISIONS CONCERNING CERTAIN
MASTER LEASE PROVISIONS
3.1 Extension of Sublease...................................................................... 8
3.2 Removal of Existing Improvements........................................................... 9
3.3 Removal of MCA's Property.................................................................. 10
3.4 Equal Employment Opportunity and Minority Business Enterprise Goals........................ 10
3.5 Casualty and Condemnation.................................................................. 15
3.6 Use of Project Area........................................................................ 15
3.7 Generality of Other Provisions............................................................. 16
ARTICLE IV
CONSTRUCTION OF AMPHITHEATRE PROJECT BY MCA
AND OTHER OBLIGATIONS OF CITY
4.1 Construction by MCA........................................................................ 16
4.2 Construction by City....................................................................... 17
4.3 Access and Soil Condition.................................................................. 18
4.4 Security and Traffic Control............................................................... 20
4.5 Permits and Approvals...................................................................... 21
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.6 Consent to Sale of Liquor and Other Goods and Services..................................... 22
4.7 Sound Requirements......................................................................... 22
4.8 Termination and Reimbursement.............................................................. 23
4.9 City Use of Amphitheatre................................................................... 25
4.10 Tickets for City Use....................................................................... 29
4.11 Benefits to Community...................................................................... 29
ARTICLE V
GENERAL MATTERS
5.1 Assignment and Binding Effect.............................................................. 31
5.2 Severability............................................................................... 32
5.3 Further Documents.......................................................................... 32
5.4 Applicable Law............................................................................. 32
5.5 Controlling Provisions..................................................................... 32
5.6 Waiver..................................................................................... 33
5.7 Multiple Counterparts...................................................................... 33
5.8 Interpretation of Agreement................................................................ 33
5.9 No Third Party Beneficiary................................................................. 33
5.10 Entire Agreement........................................................................... 33
5.11 Notices.................................................................................... 34
5.12 Captions................................................................................... 35
5.13 Number and Gender.......................................................................... 35
5.14 Rights Are Cumulative...................................................................... 35
5.15 Injunctive Relief.......................................................................... 35
5.16 "Affiliate(s)" Defined..................................................................... 36
5.17 "Person(s)" Defined........................................................................ 36
5.18 "Midnight" Defined......................................................................... 36
5.19 "Business Day(s)" Defined.................................................................. 36
5.20 Estoppel Certificates...................................................................... 36
5.21 Confidentiality............................................................................ 37
5.22 Survival of Certain Provisions............................................................. 37
5.23 MCA Insurance.............................................................................. 37
5.24 Memorandum of Agreement.................................................................... 38
SIGNATURES AND SEALS .............................................................................. 39
</TABLE>
EXHIBIT A MASTER LEASE
EXHIBIT B SUBLEASE
EXHIBIT C DESCRIPTION OF AMPHITHEATRE PROJECT
EXHIBIT D CITY WORK
<PAGE>
AGREEMENT BETWEEN THE CITY OF ATLANTA
AND MCA CONCERTS, INC.
THIS AGREEMENT is made and entered into as of the 10th day of October,
1988, by and between THE CITY OF ATLANTA, a municipal corporation chartered
pursuant to the law of the State of Georgia ("City"), and MCA CONCERTS, INC., a
California corporation ("MCA").
WHEREAS, City and MCA make the following recitals of fact:
A. City is the fee owner of an approximately 117-acre parcel commonly
known as Lakewood Fairgrounds ("Lakewood"). Filmworks U.S.A., Inc., a
Georgia corporation ("Sublessor") is the lessee of Lakewood under that
certain Amended Indenture of Lease between City and Sublessor, dated
February 2, 1984, and recorded in Book 8831, Page 185 of the Records of
the Clerk of the Superior Court of Fulton County, Georgia, as amended by
that certain Amendment dated October 10, 1988 (the "Master Lease"). Those
tracts or parcels of land comprising Lakewood are described in Exhibit "C"
of the Master Lease.
B. Sublessor and MCA have entered into that certain Agreement Regarding
Sublease, dated as of January 20, 1988, as amended by that certain First
Amendment To Agreement Regarding Sublease, dated as of January 21, 1988,
by that certain Second Amendment to Agreement Regarding Sublease, dated as
of April 19, 1988, and by that certain Third Amendment to Agreement
Regarding Sublease, dated as of September 15, 1988 (said Agreement
Regarding Sublease, as so amended by said First Amendment To Agreement
Regarding Sublease, said Second Amendment To Agreement Regarding Sublease,
and said Third Amendment to Agreement Regarding Sublease, being
hereinafter referred to as the "Preliminary Agreement") and, pursuant and
subject to the Preliminary Agreement, have entered into that certain
Sublease dated as of January 20, 1988, as amended by that certain First
Amendment To Sublease, dated as of January 21, 1988 (the "First
Amendment"), by that certain Second Amendment To Sublease, dated as of
April 19, 1988 (the "Second Amendment"), and by that certain Third
Amendment to Sublease, dated as of September 15, 1988 (the "Third
Amendment") (said Sublease, as so amended by the First Amendment, the
Second Amendment, and the Third Amendment, being hereinafter referred to
as the "Sublease").
<PAGE>
C. City and MCA believe that it will be to their mutual benefit (i) for
MCA to sublease a portion of Lakewood from Sublessor, (ii) for MCA to
construct and operate the outdoor commercial concert facility described in
Exhibit C (the "Amphitheatre Project") on a long-term basis at Lakewood
under the terms and conditions of the Sublease, (iii) for City and MCA to
undertake and perform their respective covenants and agreements under this
Agreement, the execution and delivery of which constitute a condition
precedent to the effectiveness of the Sublease, unless said condition
precedent is waived by MCA.
NOW THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
in hand paid by MCA to City and for and in consideration of the foregoing
recitals and the covenants and agreements set forth herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, City and MCA do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS AND EXHIBITS
1.1. Definitions. For purposes of this Agreement, initially capitalized
terms used in this Agreement shall have the meanings ascribed to such terms in
the Sublease, unless the context hereof clearly indicates to the contrary.
1.2. Exhibits. The following exhibits are attached hereto and by this
reference incorporated herein:
(a) Exhibit A: Master Lease;
(b) Exhibit B: Sublease;
(c) Exhibit C: Description of Amphitheatre Project; and
(d) Exhibit D: Description of City Work.
ARTICLE II
NON-DISTURBANCE, ATTORNMENT,
RECOGNITION, AND RELATED MATTERS
2.1. Non-Disturbance. City covenants and agrees that MCA's possession of
the Project Area, together with all
- 2 -
<PAGE>
easements and other rights appurtenant thereto, and MCA's rights and interest
under the Sublease (including, without limitation, any renewal or extension
thereof), and MCA's right to use, enjoy, and occupy the Project Area shall not
be terminated, disturbed, interfered with, diminished, or otherwise impaired by
any actions taken or proceedings initiated under the provisions of the Master
Lease (as currently existing or as hereafter amended) or otherwise by City.
Without limiting the generality of the foregoing provisions of this Section 2.1,
City covenants and agrees that unless an Event of Default under the Sublease has
occurred and is continuing:
(a) City shall not join MCA as a party defendant in any action or
proceeding for the purpose of terminating Sublessor's interest under the
Master Lease or for any other purpose, provided, however, that if MCA or
any person claiming by, through, or under MCA is deemed a necessary party
by a court of competent jurisdiction in any action or proceeding brought
by or on behalf of City pursuant to the Master Lease, MCA or such other
person may be so named or joined but such naming or joinder shall not
otherwise be in derogation of the rights of MCA as set forth in this
Agreement.
(b) If any "Event of Default" as defined in the Master Lease or any
other event, action, or inaction which would, with the lapse of time, the
giving of notice, or otherwise, give rise to any right of City to
terminate the Master Lease (any and all such "Events of Default," as
defined in the Master Lease, and any and all such other events, actions,
and inactions being hereinafter collectively referred to as "Master Lease
Defaults") shall occur, and City is entitled to take, or does take any
action against Sublessor on account of one or more Master Lease Defaults,
City shall not take any such action the result of which may be that either
MCA or any person claiming by, through, or under MCA will be dispossessed
or evicted from the Project Area (or any portion thereof), or the rights
or interest or possession of MCA pursuant to the Sublease or of any person
claiming by, through, or under MCA will be terminated, disturbed,
interfered with, diminished, or otherwise impaired or adversely affected
in any way by reason of any default, event of default, violation, or other
breach under the Master Lease or by reason of any termination or
modification of the Master Lease; provided that nothing in this Section
2.1(b) shall bar City from dispossessing or evicting Sublessor from
Lakewood in accordance with the Master Lease and applicable law.
- 3 -
<PAGE>
2.2. Attornment and Recognition. If either expiration, termination or
invalidation of the Master Lease occurs for any reason (including without
limitation a judicial determination that the Master Lease is void, or voidable
by either party thereto) prior to the expiration or termination of the Sublease
in accordance with the provisions of the Sublease, then:
(a) The Sublease shall not terminate.
(b) MCA shall attorn to City under all terms and conditions of the
Sublease as if the Sublease were a direct lease between City and MCA,
provided, however, that MCA shall be under no obligation under this
Agreement to pay any rent to, or to perform any other obligations in favor
of, City unless and until MCA receives written notice from City that
either expiration or termination of the Master Lease has occurred and that
City has become the substitute Sublessor under the Sublease.
(c) City shall accept such attornment by MCA and shall recognize MCA
as the Sublessee under the Sublease as if the Sublease were a direct lease
between City and MCA.
(d) Without the further act or writing of any party, City shall be
deemed to be bound, as substitute Sublessor, by all terms and conditions
of the Sublease and shall be deemed to have assumed all obligations of
Sublessor under the Sublease.
(e) MCA shall retain all rights existing under the Sublease as of
the time of any such expiration or termination of the Master Lease; and
any such expiration or termination of the Sublease shall not prejudice MCA
in any manner with respect to any rights of MCA existing under the
Sublease as of the time of any such termination of the Master Lease.
(f) In addition to the First Amendment, the Second Amendment, and
the Third Amendment to which City has already consented and by which City
is already bound in accordance with this Agreement, City shall be bound by
any further Sublease amendment to which City consents, and City shall not
unreasonably withhold, delay, or condition any such consent. If City does
not consent to any further Sublease amendment with respect to which City
is entitled to withhold its consent, City shall not be bound by such
further Sublease amendment
- 4 -
<PAGE>
but shall nevertheless be bound by the Sublease and any and all other Sublease
amendments to which City has consented or to which City was obligated to
consent. All references in this Agreement to the "Sublease" shall include all
Sublease amendments to which City has consented or to which City is hereafter
obligated to consent.
2.3. Master Lease Defaults. City agrees as follows:
(a) City shall deliver to MCA, in accordance with Section 5.11 of
this Agreement and at the same time that any such notice is given to
Sublessor, a copy of any notice given under the Master Lease. As soon as
known by City, City shall give to MCA notice of any attempted or purported
rejection of the Master Lease by a trustee in bankruptcy of Sublessor or
by Sublessor as debtor in possession, whether pursuant to Section 365 of
the United States Bankruptcy Code (11 U.S.C. Section 365) or pursuant to
any similar federal or state law in any bankruptcy proceeding of
Sublessor. Neither any termination of the Master Lease or of Sublessor's
right of possession of any portion of Lakewood nor any reletting of any
portion of Lakewood by City, which termination or reletting is predicated
on City's giving of any notice to Sublessor, shall be effective unless
City gives to MCA notice (or a copy of the notice to Sublessor) as
required by this Subsection 2.3(a).
(b) If the Sublease is rejected under Section 365 of the United
States Bankruptcy Code (11 U.S.C. ss. 365) or any similar federal or state
law in any bankruptcy proceeding of Sublessor, then City, within thirty
(30) days after receiving a written request therefor, which request shall
be given within sixty (60) days after such rejection, shall execute and
deliver to MCA a new direct lease between City and MCA for the remainder
of the Lease Term as defined in the Sublease, which new direct lease shall
contain the same covenants, agreements, terms, provisions, and limitations
as are contained in the Sublease. Any such new direct lease made pursuant
to this Subsection 2.3(b) shall have the same priority as the Sublease;
and all liens, charges, or other consensual encumbrances which are created
by City with respect to the interest of City in the Project Area shall
contain express provisions to the effect that (i) such lien, charge, or
encumbrance shall be subject to any such new direct lease to the same
extent as such lien, charge, or encumbrance was or would have been
- 5 -
<PAGE>
subject to the Sublease and (ii) the beneficiary or other holder of such
lien, charge, or encumbrance shall, upon request by MCA, give MCA (and any
other person reasonably designated by MCA, including, without limitation,
any Registered Mortgagee) written confirmation of such status.
(c) MCA may exercise any rights, powers, or remedies under the
Sublease (or any direct lease made between City and MCA pursuant to this
Agreement) without regard to whether any Master Lease Default has been
cured or is continuing. Without limiting any other provisions of this
Agreement, MCAs rights under this Section 2.3 are cumulative and may be
exercised in addition to, and not merely in lieu of, MCA's rights under
the other provisions (including, without limitation, Section 2.2) of this
Agreement. If MCA cures, or causes to be cured, any Master Lease
Default(s) at any time and from time to time, then, except to the extent
that MCA specifies otherwise in writing: (i) such cure shall constitute a
cure by or on behalf of Sublessor, (ii) Sublessor shall be deemed to have
cured such Master Lease Default(s), and (iii) Sublessor shall be relieved
of any liabilities or losses arising from such Master Lease Default(s);
provided, however, that nothing in this Agreement shall limit Sublessor's
liability, if any, to MCA, which liability arises from the fact that MCA
has so cured, or has so caused to be cured, such Master Lease Default(s).
2.4. Warranties by City. City hereby represents, warrants, and covenants
in favor of MCA as follows:
(a) Exhibit A constitutes a true, correct, and complete copy of the
Master Lease; and the Master Lease has not been modified, changed,
altered, or amended in any respect except as set forth in Exhibit A.
(b) City holds all right, title, and interest as "Lessor" under the
Master Lease; and the Master Lease is the only lease or agreement between
City and Sublessor with respect to Lakewood or otherwise.
(c) The Master Lease is in full force and effect and is enforceable
in accordance with its terms; and to the best of City's knowledge, no
Master Lease Defaults currently exist. No default, breach, or violation by
City under the Master Lease currently exists.
- 6 -
<PAGE>
(d) Upon execution and delivery of this Agreement by City and MCA,
this Agreement will be in full force and effect as to City and will be
enforceable against City in accordance with the terms of this Agreement.
(e) The development and construction of the Amphitheatre Project,
the operation of the Amphitheatre Project for the purposes referenced in
Section 3.6 hereof and for purposes of food and beverage sales, liquor
sales, souvenir and other retail sales, parking, and related activities,
and any other use of the Project Area in accordance with this Agreement
and the Sublease (i) do not and will not conflict with or violate any City
laws, rules, regulations, or other legal requirements applicable to said
project, subject, however, to MCA's obtaining permits in accordance with
Section 4.5 of this Agreement, (ii) are and will be within the scope of
use as described in Section 7.1.1 of the Master Lease, and (iii) are
expressly authorized by O.C.G.A. ss. 36-37-6.1, as the same currently
exists. The warranty and covenant set forth in this Subsection 2.4(e) as
to the development and construction of the Amphitheatre Project shall not
extend to activities beyond the scope of the Amphitheatre Project and the
warranty and covenant set forth in this Subsection 2.4(e) as to the
operation of the Amphitheatre Project shall not extend to purposes which
are not in accordance with this Agreement and the Sublease.
2.5. Warranties by MCA. MCA hereby represents, warrants, and covenants in
favor of City as follows:
(a) Exhibit B constitutes a true, correct, and complete copy of the
Sublease; and the Sublease has not been modified, changed, altered, or
amended in any respect except as set forth in Exhibit B.
(b) MCA holds all right, title, and interest as "Tenant" under the
Sublease, subject to assignment obligations to MCA/Pace Amphitheatres
Group, L.P.; and the Sublease and the Preliminary Agreement are the only
agreements between MCA and Sublessor with respect to Lakewood or
otherwise.
(c) The Sublease is in full force and effect and is enforceable in
accordance with its terms; and no Event of Default under the Sublease
currently exists.
- 7 -
<PAGE>
To the best knowledge of MCA, no default, breach, or violation by
Sublessor under the Sublease currently exists.
(d) Upon execution and delivery of this Agreement by City and MCA,
this Agreement will be in full force and effect as to MCA and will be
enforceable against MCA in accordance with the terms of this Agreement.
2.6. Approval of Sublease by City. City, acting through its governing
body, hereby approves the Sublease (including, without limitation, those
Sublease provisions referenced in Article III of this Agreement) for purposes of
Section 11.2 of the Master Lease and for any and all other purposes whatsoever.
City further consents to the development, construction, and operation of the
Amphitheatre Project, subject to MCA's obtaining Permits in accordance with
Section 4.5 of this Agreement.
2.7. Other Instruments. Although, except as otherwise specifically
provided in this Agreement, the attornment, recognition, and other provisions of
this Agreement shall be effective and self-operative without the execution of
any other instruments on the part of any party hereto and without the taking of
any other actions on the part of any other party hereto, the parties hereto
agree that, at the request of either City or MCA, each party hereto shall
execute and deliver to the other party such other instruments (in recordable
form, if requested) as either party shall reasonably request in order to
evidence such attornment, recognition and other matters.
ARTICLE III
PROVISIONS CONCERNING
CERTAIN MASTER LEASE PROVISIONS
3.1. Extension of Sublease. If, for any reason, Sublessor does not
exercise, or is not permitted to exercise, Sublessor's right to extend the
Master Lease for an additional period of fifteen (15) years pursuant to Section
2.3 of the Master Lease, then MCA shall have the separate and independent right
to extend the term of the Sublease to 12:00 midnight on December 31, 2033 and,
upon expiration of the Master Lease, to become the direct lessee of City in
accordance with Section 2.2 of this Agreement. If, for any reason, Sublessor
does not exercise, or is not permitted to exercise, Sublessor's right to extend
the Master
- 8 -
<PAGE>
Lease pursuant to Section 2.3 of the Master Lease, then City shall give MCA
notice of such fact within thirty (30) days after such fact is made known to
City but in all events not later than October 3, 2018. MCA shall be entitled to
exercise its right to extend the Sublease pursuant to this Section 3.1 by giving
City written notice which specifies that MCA has elected to exercise said right
and which is given to City at or before the later of either 12:00 midnight on
December 31, 2018, or 12:00 midnight on the ninetieth (90th) day after MCA's
receipt of said notice from City. If MCA exercises its right to extend the
Sublease pursuant to this Section 3.1, then MCA and City, both acting in good
faith, shall seek to renegotiate the rights and obligations of MCA under
Sections 3.4, 4.8, 4.9, and 4.11, provided that, in any such renegotiation: (a)
MCA's obligations under said Sections shall not be decreased; (b) MCA's
obligations under Section 3.4 shall not be less than then-current City MBE/EEO
requirements for lessees and contractors of City; (c) MCA's obligations under
Sections 4.9 and 4.11 shall not be increased by more than 100%; (d) City's
obligations under Section 4.8 shall not be increased; and (e) such renegotiation
shall not be a condition of such extension of the Sublease.
3.2. Removal of Existing Improvements. MCA shall have the right at any
time during the Lease Term under the Sublease to remove any improvements
existing (as of the date of this Agreement) on the Project Area, except MCA may
not remove any improvements located on the Easement Areas which serve or benefit
facilities within Lakewood beyond the Site if such removal would materially
adversely affect Sublessor, unless MCA takes appropriate action to avoid such
result. City, acting through City's governing body, hereby gives City's approval
of any material alteration and/or demolition of any buildings or other
improvements now located at Lakewood, provided that any such material alteration
and/or demolition is performed by or on behalf of MCA in accordance with the
Sublease and provided further that nothing in this Agreement shall be in
derogation of any rights of City, under Section 7.3.1 of the Master Lease, to
any salvage from the five (5) structures specified in Section 7.3.1 of the
Master Lease (i.e., the four main exhibit buildings and grandstand existing, as
of the date of this Agreement, at Lakewood) and provided further that none of
said five (5) structures shall be demolished by MCA without City's prior
written approval, which shall not be unreasonably withheld, delayed, or
conditioned as to said grandstand.
- 9 -
<PAGE>
3.3. Removal of MCA's Property. Notwithstanding any provisions to the
contrary under Section 7.6 of the Master Lease or any other portion of the
Master Lease, MCA and other persons claiming by, through, or under MCA shall
have the right to remove from the Project Area any or all of the temporary
buildings, temporary facilities, personal property of any kind, sound equipment,
lighting equipment, stage equipment, kitchen and commissary equipment,
non-permanent seating and benches (e.g., picnic tables and portable chairs),
concessionaire kiosks, and similar installations and trade fixtures, whether any
or all of the foregoing items are attached or affixed. The removal of such
items, to the extent that MCA elects to do so, may be accomplished at any time
and from time to time during the Lease Term of the Sublease (or during the
period of effectiveness of any direct lease made between City and MCA pursuant
to this Agreement) and/or within sixty (60) days after the termination or
expiration of the Lease Term of the Sublease (or within sixty (60) days after
the termination or expiration of the period of effectiveness of any direct lease
made between City and MCA pursuant to this Agreement).
3.4. Equal Employment Opportunity and Minority Business Enterprise Goals.
As a party to this Agreement, MCA hereby agrees with City that MCA shall be
bound by the valid laws of the United States, the State of Georgia and all valid
ordinances and laws of the City of Atlanta, Georgia with reference to
prohibitions against discrimination on the basis of race, religion, color, sex
or national origin.
(a) MCA acknowledges that MCA has been made fully aware of Sections
5-5131 through 5-5159 of the Code of Ordinances of the City of Atlanta, as
in force on the date hereof. City and MCA acknowledge that MCA is not a
"contractor" as the term is used in Sections 5-5154 and 5-5157 of said
Code. MCA nonetheless agrees that during the term of this Agreement:
(i) MCA shall not discriminate against any employee, or
applicant for employment, because of race, religion, color, sex or
national origin. As used here, the words 'shall not discriminate'
shall mean and include without limitation the following: Recruited,
whether by advertising or other means; compensated, whether in the
form of rates of pay, or other forms of compensation; selected for
training, including apprenticeship; promoted; upgraded; demoted;
downgraded; transferred; laid off; and terminated. MCA agrees to and
shall post
- 10 -
<PAGE>
in conspicuous places, available to employees and applicants for
employment, notices to be provided by the contracting officers
setting forth the provisions of the EEO clause.
(ii) MCA shall, in all solicitations or advertisements for
employees, placed by or on behalf of the contractor, state that all
qualified applicants will receive consideration for employment
without regard to race, religion, color, sex or national origin.
(iii) MCA shall send, or require its contractors to send, to
each labor union or representative of workers with which the
contractor may have a collective bargaining agreement or other
contract or understanding a notice advising the labor union or
workers' representative of MCA's commitments under the equal
employment opportunity program of City and under the Code of
Ordinances and shall post copies of the notice in conspicuous places
available to employees and applicants for employment.
(iv) MCA shall furnish all information and reports required by
the Contract Compliance Officer pursuant to the Code of Ordinances,
and shall permit access during normal business hours by the Contract
Compliance Officer to the books, records, and accounts of MCA
pertaining to the Amphitheatre Project or the Project Area for the
purpose of investigation so as to ascertain compliance with this
Subsection 3.4(a).
(v) MCA shall file, or require its contractors to file,
compliance reports at reasonable times and intervals with City in
the form and to the extent prescribed by the Contract Compliance
Officer. Compliance reports filed at such times directed shall
contain information as to employment practices, policies, programs
and statistics of MCA and its contractors.
(vi) MCA shall include the provisions of this Subsection
3.4(a)[l-5] of this equal employment opportunity clause in every
subcontract or purchase order so that such provisions will be
binding upon each subcontractor or vendor.
- 11 -
<PAGE>
(b) MCA acknowledges that MCA has been made fully aware of City of
Atlanta Administrative Order 84-5, dated December 6, 1984. Although City
and MCA acknowledge that the Amphitheatre Project (as defined in this
Agreement) is not an "Eligible Project" as defined in said Administrative
Order, MCA nonetheless agrees to make all good faith, best efforts to meet
the goals set forth in Subsection 3.4(c) of this Agreement by making
available opportunities for minority and female business enterprise
participation in any and all contracts of MCA pertaining to architectural
and design contracts, construction contracts, and contracts for the
operation or maintenance of the Project Area (all such contracts,
exclusive of contracts for performing artists, being herein collectively
referred to as "Eligible Contracts") and shall take the following actions
as part of its good faith, best efforts:
(i) Notification to community organizations that MCA has
contracting opportunities available and maintenance of records of
the organization's response.
(ii) Maintenance by MCA of a file of the names and addresses
of each minority and female business referred to it and action taken
with respect to each such referred business.
(iii) Dissemination of MCA's minority and female business
enterprise policy externally by informing and discussing it with all
management and technical assistance sources; by advertising in news
media specifically including minority news media; and by notifying
and discussing it with all subcontractors and suppliers.
(iv) Specific and continuing personal (both written and oral)
recruitment efforts directed at minority and female contractor
organizations, minority and female recruitment organizations and
minority and female business assistance organizations.
(v) Subdivision of the Eligible Contracts into as many
segments as practical to allow the greatest opportunity for
participation by MBEs and FBEs.
- 12 -
<PAGE>
(vi) Increasing where possible the number of aggregate
purchase items so as to eliminate the requirement of front-end
purchases of material for as many MFBE subcontractors as possible.
(vii) Adoption of the MBE and FBE participation program
described in this Agreement.
(viii) Submission of participation reports on the forms and to
the extent required by the Contract Compliance Officer, which
summarize the number and dollar amounts of awards made during the
term of this Agreement. This report shall be submitted to the
Contract Compliance Officer on the last day of each month following
the award of Eligible Contracts.
(ix) MCA shall designate a representative who shall be
responsible for preparing and submitting reports in accordance with
this Subsection 3.4(b) and for coordinating with City's Contract
Compliance Officer.
(c) MCA agrees to adopt equal employment opportunity goals of
twenty-five percent (25%) minority manpower and three percent (3%) female
manpower utilization in the initial construction, any future capital
improvements, and the management of facilities within the Project Area.
MCA agrees to adopt a goal of thirty-five percent (35%) certified Minority
Business Enterprise ("MBE") participation with respect to all contracts
for construction and for capital improvements to be made within the
Project Area. In seeking to achieve said MBE participation goal, MCA
agrees to maximize minority business participation through the promotion
of joint ventures which include a minimum of thirty-five percent (35%) MBE
participation in such joint ventures and which involve the major
categories of general construction contract and architectural contract
(including most engineering work and interior design). MCA agrees to adopt
a goal that thirty-five percent (35%) of all expenditures for operations
expenses (exclusive of contracts for performing artists) in connection
with its operations within the Project Area shall consist of purchases to
be made from vendors who are certified Minority Business Enterprises. In
respect to contracts for performing artists, services and personnel that
are the responsibility of the performing artist to engage directly under
such contracts shall be
- 13 -
<PAGE>
excluded from City's MBE requirements. MCA further agrees to adopt a goal
that thirty-five percent (35%) of concessions within the Project Area
which are awarded by contract shall be awarded to certified Minority
Business Enterprises. "Certified Minority Business Enterprise" shall be
defined as those businesses which have been certified as Minority Business
Enterprises by City's Office of Contract Compliance.
(d) MCA acknowledges the right of City, through its Office of
Contract Compliance, to monitor the efforts of MCA to achieve the goals
set forth in Subsections 3.4(b) and (c). MCA agrees to submit such reports
to City, as may be reasonably required, to monitor compliance with
Subsections 3.4(b) and (c). Upon MCA's request City shall provide
technical assistance from City's Office of Contract Compliance in
identifying Certified Minority Business Enterprises and in forming joint
ventures and subcontractor arrangements with Certified Minority Business
Enterprises for Eligible Contracts. To that end, the Office of Contract
Compliance will provide to MCA, upon MCA's request, a list of certified
Minority and Female Business Enterprises. If MCA, or any bidder on an
Eligible Contract, proposes to utilize a Minority Business Enterprise not
currently certified by the Office of Contract Compliance, the Office of
Contract Compliance agrees to expedite the certification process and make
a certification decision within ten (10) business days of the receipt of a
complete Affidavit of Minority Business Enterprise, along with the
required supporting documents.
(e) MCA acknowledges and agrees that the provisions of Subsection
3.4(b) shall be included in all Eligible Contracts.
(f) City and MCA acknowledge and agree that nothing in this
Agreement or elsewhere shall obligate, or shall be construed to obligate,
MCA or MCA's Affiliates [i] to enter into any joint venture or partnership
with any Person(s) or any category or classification (on the basis of
race, religion, color, sex, national origin or otherwise) of Person(s) or
[ii] to permit any Person(s) on any category or classification (on the
basis of race, religion, color, sex, national origin, or otherwise) of
Person(s) to own or otherwise hold, directly or indirectly, any equity
interest whatsoever in MCA, in any Affiliate of MCA, or in any successor
to or assigned of MCA's interest under the Sublease.
- 14 -
<PAGE>
(g) Due to the special requirements arising out of MCA's operations
in serving the public as well as the needs of performing artists whose
appearance at the Amphitheatre are often part of larger scale tours of
facilities across the country, City and MCA acknowledge and agree that the
operation of the Amphitheatre Project requires special qualifications in
certain areas such as but not limited to stagecraft, lighting, sound
amplification, electronic ticketing, advertising (both print and
electronic), and food and beverage procurement. MCA will make a good faith
effort to use Certified Minority Business Enterprises (including, wherever
practicable, the use of joint ventures involving Certified Minority
Business Enterprises) in these areas.
(h) City and MCA further acknowledge and agree that nothing in this
Section 3.4 shall be deemed to impose upon MCA, MCA's Affiliates, MCA's
contractors or subcontractors, any requirement, obligation or expectation
to employ or contract with any person or entity deemed unqualified in the
sole discretion of MCA, MCA's Affiliates, MCA's contractors or
subcontractors.
(i) City acknowledges and agrees that compliance by MCA with the
terms and conditions of this Section 3.4 shall be deemed compliance with
Section 14.12 of the Master Lease, and that the requirements of this
Section 3.4 are clarification of, and not in addition to, said Section
14.12.
3.5. Casualty and Condemnation. In the event of any casualty or
condemnation affecting or involving any or all of MCA's interest under the
Sublease (including, without limitation, the Project Area and improvements
currently or hereafter located thereon), all insurance proceeds and condemnation
awards (including, without limitation, any monies paid in connection with any
sale or other transfer made in lieu of or under threat of condemnation) relating
to the Project Area and/or any improvements currently or hereafter located
thereon shall be held and applied only in accordance with Section 10 of the
Sublease, notwithstanding provisions, if any, to the contrary in the Master
Lease.
3.6. Use of Project Area. City hereby consents to MCA's use and enjoyment
of the Project Area for any and all purposes consistent with Section 2.1 of the
Sublease. Without derogating from the generality of the immediately preceding
sentence, City agrees and acknowledges that the
- 15 -
<PAGE>
project contemplated by the Sublease may be used as a commercial outdoor concert
facility operated in a manner consistent with other commercial outdoor concert
facilities nationwide. Without derogating from the generality of the immediately
preceding sentence, City agrees and acknowledges that the project contemplated
by the Sublease may be used for performing, with or without amplified sound,
popular and contemporary music, rock and roll, pyrotechnic shows, and other
similar sound-intensive and light-intensive activities. Nothing in this Section
3.6 shall be deemed or construed to limit the provisions of Section 4.7 of this
Agreement.
3.7 Generality of Other Provisions. The foregoing provisions of this
Article III shall in no event be deemed or construed to be in derogation of the
generality of Section 2.6 and Section 5.5 of this Agreement.
ARTICLE IV
CONSTRUCTION OF AMPHITHEATRE PROJECT
BY MCA AND OTHER OBLIGATIONS OF CITY
4.1. Construction by MCA. MCA shall commence, or shall cause commencement
of, on-site construction of the Amphitheatre Project in accordance with and
subject to the terms and conditions of the Sublease and the Preliminary
Agreement, subject, however, to the provisions of Section 4.3 of this Agreement.
Following such commencement and subject to Section 4.3 hereof, MCA agrees to
exercise its reasonable best efforts in order to complete said construction of
the Amphitheatre Project in order to open for the summer 1989 season and further
agrees to complete said construction in order to open for the summer 1990
season, subject, however, to being delayed or hindered in or prevented from so
completing said construction of the Amphitheatre Project by reason of fire,
catastrophe, acts of God, strikes, lockouts, labor troubles, inability to
procure materials, failure of power, retroactive governmental laws or
regulations, riots, insurrection, civil commotion, war, or any other reason of a
like nature not the fault of MCA. MCA agrees that, as part of the construction
and development of the Amphitheatre Project, MCA shall expend the sum of Thirty
Thousand Dollars ($30,000.00) for the aesthetic enhancement of the Amphitheatre
Project, which expenditure shall include any costs of commissioning or acquiring
works of art, designing artistic architectural design features, and the
placement or construction thereof. MCA shall consult with the City's
- 16 -
<PAGE>
Commissioner of Parks and Recreation in determining the nature of this
expenditure for aesthetic enhancement; provided, however, MCA reserves the
right, in its sole discretion, to make the final decision on the most
appropriate form and method of such aesthetic enhancement. Prior to and during
construction of the Amphitheatre Project, MCA shall regularly meet and confer
with the City's Commissioner of Public Works and the City's Commissioner of
Parks and Recreation concerning the design and construction of the Amphitheatre
Project. MCA will develop detailed design plans, specifications, construction
sequencing, and timetables for all on-site City Work, the cost of developing
such plans and specifications to be borne solely by MCA. Any divergence from
these plans and specifications will be mutually approved by the City and MCA,
such approval not to be unreasonably withheld. The scheduling of all City Work
will be coordinated with MCA's construction work on the Amphitheatre Project, so
that the City Work will proceed concurrently with, and not substantially in
advance of, MCA's construction work.
4.2. Construction by City. City shall perform, or shall cause to be
performed, all of the construction, repairs, and other work described in and in
accordance with Exhibit D (collectively, the "City Work") at no cost or expense
to MCA. The timely completion of the work in accordance with Exhibit D is of the
essence of this Agreement, and the failure of the City so to perform such work
shall constitute a breach of this Agreement. In the event of such breach, MCA
shall have the right (but no obligation) to perform, or to cause to be
performed, part or all of the City Work and shall further be entitled to pursue
any and all other rights and remedies available at law or in equity. In the
event that City fails to perform in accordance with this Section 4.2 and MCA
elects to perform, or to cause to be performed, part or all of the City Work,
City shall reimburse MCA for all costs of performance of such work within sixty
(60) days following receipt by City of documentation (including copies of all
relevant invoices) from MCA fully supporting the amount of costs for which
reimbursement is being sought; and in such event, City shall further pay MCA
interest on the amount of such costs from and including the date which is sixty
(60) days following the date of City's receipt of such documentation through and
including the date on which City reimburses MCA for such costs and pays MCA any
and all interest due under this Section 4.2. Said interest shall accrue at the
floating interest rate described in Section 15.9 of the Sublease.
Notwithstanding any other provision to the contrary in this
- 17 -
<PAGE>
Section 4.2, MCA shall not be entitled to perform, or to cause to be performed,
part or all of the City Work pursuant to this Section 4.2 unless and until the
following conditions have been satisfied:
(a) MCA has given City written notice of City's failure to achieve
timely completion of the City Work in accordance with Exhibit D, which
notice (the "First Noncompletion Notice") shall comply with Section 5.11
of this Agreement and shall also be given to City's Commissioner of Public
Works.
(b) Within ten (10) days following City's receipt of the First
Noncompletion Notice, City either has failed to achieve completion of the
City Work or has not otherwise satisfied MCA with respect to completion of
the City Work by City.
(c) MCA has given City a second written notice that the condition
set forth in Subsection 4.2(b) hereof has been satisfied, which notice
(the "Second Noncompletion Notice") shall comply with Section 5.11 of this
Agreement and shall also be given to City's Commissioner of Public Works.
(d) Within five (5) days following City's receipt of the Second
Noncompletion Notice, City either has failed to achieve completion of the
City Work or has not otherwise satisfied MCA with respect to completion of
the City Work by City.
4.3. Access and Soil Condition.
(a) City shall, in good faith, exercise its absolute best efforts to
cause the Georgia Department of Transportation to expand both the on-ramp
to the Lakewood Freeway and the off-ramp from the Lakewood Freeway,
which ramps serve the Lakewood area, from one (1) lane to two (2) lanes.
(b) City agrees to bear fifty percent (50%) of the costs of any and
all soil tests pertaining to Lakewood and heretofore or hereafter
performed by a duly licensed engineering or soil testing firm on behalf of
Sublessor, MCA, or any actual or potential Registered Mortgagee up to an
amount which, together with direct expenditures of City in accordance with
Section 4.2 of this Agreement equals an aggregate amount of One Million
Dollars ($1,000,000.00).
- 18 -
<PAGE>
(c) City covenants and agrees that in the event that (i) part or all
of the soil at Lakewood is found by any local, state, or federal entity to
contain chemicals or substances which may be harmful and (ii) such entity
orders either the removal of such chemicals or substances or the cessation
or curtailment of activities at Lakewood because of such chemicals or
substances, then City shall, at City's sole cost and expense, take any and
all actions which are legally required (including, without limitation, any
and all actions which are necessary or appropriate in order to remove all
such chemicals or substances) unless City elects to terminate this
Agreement in accordance with Subsection 4.3(e) of this Agreement or MCA
elects to terminate this Agreement in accordance with Subsection 4.3(f) or
Subsection 4.3(g) of this Agreement; provided, however, that City shall
only be required under this Subsection 4.3(c) to spend up to One Million
Dollars ($1,000,000.00) for such actions.
(d) City further covenants and agrees that in the event of chemical
or substance removal in accordance with Subsection 4.3(c) of this
Agreement, City shall reimburse MCA for the costs of replacing, repairing,
or restoring any improvements, fixtures, or equipment damaged or adversely
affected by such removal activities and shall further pay MCA, in each
instance, interest on the amount of such costs from and including the date
which is sixty (60) days following receipt by City of MCA's invoice for
such costs through and including the date on which City reimburses MCA for
such costs and pays MCA the interest due under this Subsection 4.3(d).
Said interest shall accrue at the floating interest rate described in
Section 15.9 of the Sublease.
(e) In the event that chemical or substance removal is required in
accordance with Subsection 4.3(c) of this Agreement and that the total
costs which would be incurred by City under Subsection 4.3(c) hereof
exceed One Million Dollars ($1,000,000.00), then City shall have the
option to terminate this Agreement upon payment to MCA of the
Reimbursement Amount and interest, if any, thereon, in accordance with
Section 4.8 of this Agreement.
(f) MCA shall have the right to terminate this Agreement and to
require City to pay the Reimbursement Amount and interest thereon in
accordance with Section 4.8 of this Agreement in the event that, at any
point from the date hereof to the date of substantial completion of both
the City Work (as defined in
- 19 -
<PAGE>
Exhibit D) and the Amphitheatre Project, MCA determines, in its exercise
of good faith discretion, that the presence of chemicals or other
substances in the Project Area would substantially and materially impair,
hinder, or otherwise adversely affect MCA's use of the Project Area. MCA
may exercise said termination right by giving written notice of such
termination to City.
(g) If, following substantial completion of the City Work and the
Amphitheatre Project, chemicals or other substances are required to be
removed in accordance with Subsection 4.3(c) of this Agreement, and such
removal by City cannot be completed or is not completed, in the reasonable
and good faith business judgment of MCA, within a period of time which
would not materially and substantially adversely affect the business of
MCA at the Amphitheatre Project, then and in that event MCA shall have the
right to terminate this Agreement and to require City to pay the
Reimbursement Amount and interest thereon in accordance with Section 4.8
of this Agreement. MCA may exercise said termination right by giving
written notice of such termination to City.
4.4. Security and Traffic Control. In order to ensure adequate security
and traffic control in connection with Amphitheatre Project events, City shall
exercise City's best efforts to provide, at no cost or expense to MCA, uniformed
police officers in accordance with the following:
(a) For the one (1)-hour period prior to each Amphitheatre Project
event and for the one (1)-hour period following each Amphitheatre Project
event, at least one (1) uniformed police officer shall be so provided, for
purposes of traffic control and public safety and security, at each of the
following intersections and other locations:
(i) Lakewood Avenue/Lakewood Way-Macon Drive;
(ii) Pryor Road/Fair Drive-Parking Access;
(iii) Pryor Road/Lakewood Way;
(iv) Lakewood Avenue at the entrance to the Amphitheatre parking;
and
(v) Lakewood Avenue east of the Amphitheatre parking entrance (to
merge westbound traffic into a single lane if a new eastbound
left turn lane is not constructed).
- 20 -
<PAGE>
(b) MCA acknowledges that, in the event of an unusual and
unanticipated public emergency, City may not be able to provide the police
officer services described in this Section 4.4. In such event, MCA shall
hire off-duty police officers to provide such services.
(c) MCA shall be required to provide appropriate police personnel to
handle crowd and traffic control according to a plan approved by the Chief
of Police or his/her designee.
4.5. Permits and Approvals. City shall assist MCA and shall cooperate
fully with MCA in securing from City and any and all other appropriate
governmental authorities all approvals, actions, commitments, permits, and
similar authorizations (collectively, "Permits") which MCA reasonably requires
in order to assure itself that the project contemplated by the Sublease can be
developed, constructed, and operated in accordance with MCA's contemplated plan,
provided that MCA shall be responsible for paying standard and customary fees
for such Permits. Such Permits may include, without limitation, building
permits, commitments to MCA from the appropriate governmental entities for
vehicular traffic flow improvement such as freeway off-ramps and other traffic
mitigation measures, liquor licenses, and other licenses and approvals from
appropriate regulatory agencies with reference to environmental regulations,
zoning, land use regulations, and licensing. Without limiting the foregoing
provisions of this Section 4.5, City agrees to cooperate fully in, and to
exercise its absolute best efforts in, obtaining any Permits or other actions
from the United States Army Corps of Engineers, which Permits or other actions
may be necessary or appropriate in connection with the Project as contemplated
by the Sublease. City hereby agrees and acknowledges that MCA, in entering into
the Sublease and this Agreement and in undertaking the project contemplated by
the Sublease, is expressly relying upon currently applicable ordinances, laws,
rules, regulations, and other legal requirements with respect to the zoning
classification, the building and other permit requirements, liquor regulation,
vehicular traffic requirements, environmental regulations, land use regulations,
licensing requirements, and other Permit-related matters; and City hereby
covenants and agrees, to the full extent permitted by applicable law, that no
such Permit-related requirements and no other legal or administrative
requirements within City's control shall hereafter be modified or otherwise
changed in any manner detrimental to MCA, MCA's interest under the Sublease, or
MCA's project contemplated by the Sublease.
- 21 -
<PAGE>
4.6. Consent to Sale of Liquor and Other Goods and Services. City hereby
agrees and acknowledges that MCA shall be entitled to sell, or to cause or
permit to be sold, within Lakewood, any and all lawful goods, articles, and
services of any nature and that this Section 4.6 of this Agreement shall
constitute written permission from the Mayor of City or his designee for such
sales of goods, articles, and services within Lakewood. City hereby further
agrees and acknowledges that such sales may include the sale of spirituous,
vinous, and/or malt liquors, provided that such sale of liquors are undertaken
as otherwise provided by applicable ordinance other than Section 10-2014 of the
Atlanta City Code, the requirements of said Section 10-2014 being satisfied by
this Section 4.6.
4.7. Sound Requirements. City hereby covenants and agrees to amend Section
17-3103(c) of the Atlanta City Code by adding the words "or at any amphitheatre
constructed upon the Lakewood Fairgrounds" immediately following the words
"Chastain Park Amphitheatre" in said Section 17-3103(c). City covenants and
agrees that the use and operation of any loudspeaker systems, sound amplifiers,
or other similar devices at the Amphitheatre Project shall be governed by this
Agreement, which constitutes a contract for purposes of said Section 17-3103(c).
MCA shall be entitled to use or operate any loudspeaker system, sound amplifier,
or other similar device in conjunction with the Amphitheatre Project between the
hours of 10:00 a.m. and midnight on Fridays and Saturdays and on days before
legal holidays, and between the hours of 10:00 a.m. and 11:00 p.m. on other days
(except that on Sundays, events shall not begin prior to 2:00 p.m.), subject
only to complying with the following provisions of this Section 4.7 in the
initial design and construction of the Amphitheatre Project and in the operation
of the Amphitheatre Project. MCA shall have the right to operate the
Amphitheatre Project for any and all purposes consistent with this Agreement or
the Sublease, including without limitation, the purpose of rock and roll
concerts. To minimize noise impact in neighboring communities, MCA shall design
the "house" sound system of the Amphitheatre Project to include directional
loudspeakers designed specifically to concentrate sound within the seating area
of the Amphitheatre Project; provided, however, the foregoing shall not prohibit
the use by artists of their own sound systems in addition to that of the
Amphitheatre Project. Additionally, sound containment walls and/or berms shall
be included in the initial design and construction of the Amphitheatre Project
in order to minimize noise impact in the adjacent areas. MCA covenants that,
during concerts presented at the Amphitheatre
- 22 -
<PAGE>
Project, the "equivalent sound level" over a thirty (30)-minute period (from
both MCA's and the performer's sound equipment) at the residential property
lines adjacent to the Amphitheatre Project shall not exceed 65 dBA. Any MCA
Amphitheatre Project concert at which the covenant set forth in the immediately
preceding sentence is breached by MCA is hereinafter referred to as a "Sound
Violation." As liquidated damages for Sound Violations, MCA shall pay City the
following:
(a) With respect to each operating season at the Amphitheatre
Project, $250.00 per Sound Violation which occurs after the first five (5)
Sound Violations and prior to the eleventh Sound Violation during such
season;
(b) With respect to each operating season at the Amphitheatre
Project, $500.00 per Sound Violation which occurs after the first ten (10)
Sound Violations and prior to the sixteenth Sound Violation during such
season; and
(c) With respect to each operating season at the Amphitheatre
Project, not more than $1,000.00 (as may be imposed by City's Commissioner
of Parks, Recreation, and Cultural Affairs) per Sound Violation which
occurs after the first fifteen (15) Sound Violations during such season.
MCA's compliance with the noise limitations set forth in this Section 4.7 shall
constitute compliance with and full satisfaction of any and all ordinances and
other legal requirements relating to noise and/or sound levels, whether or not
such ordinances or other legal requirements currently exist or are hereafter
enacted.
4.8 Termination and Reimbursement. In the event of any or all of (a)
failure of any material conditions to this Agreement, which failure is not
caused by MCA's breach of this Agreement, (b) breach of any warranties or
covenants by City, or (c) any changes in permit or other legal requirements by
City notwithstanding Section 4.5 of this Agreement, which changes substantially
and materially adversely affect the ability of MCA to conduct the business
contemplated by this Agreement, then and in that event MCA shall be entitled to
terminate this Agreement by giving City written notice of such termination. In
the event of such termination by MCA pursuant to this Section 4.8 or
termination of this Agreement by MCA pursuant to Subsection 4.3(f) or
Subsection 4.3(g) of this Agreement or
- 23 -
<PAGE>
in the event of termination of this Agreement by City pursuant to Subsection
4.3(e) of this Agreement, then and in any such event City shall pay to MCA an
amount (the "Reimbursement Amount") which, except as provided in the last
sentence of this Section 4.8, shall be equal to the total amount of Unamortized
Developmental and Investment Costs (as hereinafter defined), not to exceed Seven
Million Dollars ($7,000,000.00), related to the Project Area and incurred by MCA
as of the date of such termination. Developmental and Investment Costs shall
mean and include documented third-party payments, costs, expenses, and
disbursements related to (i) capital construction, non-maintenance repair, or
renovation, (ii) architectural design, engineering, and testing, (iii) costs for
travel, lodging, entertainment, and food incurred in the planning, development,
and construction of the Amphitheatre Project (including, without limitation,
expense reimbursements by MCA to its own employees and to its consultants), (iv)
fixtures or equipment, (v) delay costs or termination costs associated with any
contract pending as of the date of such termination, (vi) interest costs and
other costs related to financing, and (vii) attorneys' fees and consultants'
fees pertaining to the planning, development, and construction of the
Amphitheatre Project; provided that [A] the amount includable in Developmental
and Investment Costs for purposes of calculating the Reimbursement Amount shall
be fifty percent (50%) of the lesser of either the aggregate costs and expenses
described in clauses (iii) and (vii) of this Section 4.8 or an amount equal to
five percent (5%) of the total amount of Developmental and Investment Costs, [B]
the Developmental and Investment Costs shall not include any items for which MCA
has already received reimbursement from City, and [C] the Developmental and
Investment Costs shall not include salary and wage payments by MCA to its own
employees other than any salary and wage payments by MCA to any employee(s)
residing in the metropolitan Atlanta area during and in connection with
construction of the Amphitheatre Project. The Unamortized Developmental and
Investment Costs shall mean an amount equal to the Developmental and Investment
Costs (determined in accordance with the immediately preceeding sentence) less
the amount of amortization of the Developmental and Investment Costs if the
Developmental and Investment Costs were amortized on a monthly, straight-line
basis over a term of twenty (20) years (x) commencing, with respect to
Developmental and Investment Costs incurred on or prior to the date of issuance
of a final certificate of occupancy for the Amphitheatre Project, on the earlier
of the date of issuance of said certificate of occupancy or the date that is the
last day of the calendar month immediately before the
- 24 -
<PAGE>
date of termination of this Agreement, and commencing, with respect to
Developmental and Investment Costs which are incurred after the date of issuance
of said certificate of occupancy and which are properly includable under
generally accepted accounting principles on the basis of a tangible asset, on
the earlier of the date that such asset is placed in service or the date that is
the last day of the calendar month immediately before the date of termination of
this Agreement, and commencing, with respect to Developmental and Investment
Costs which are incurred after the date of issuance of said certificate of
occupancy and which are not so includable, on the date incurred and (y) ending
on the last day of the calendar month immediately before the date of termination
of this Agreement. For purposes of this Section 4.8, all assets placed in
service and all costs incurred in a calendar month shall be deemed to have been
placed in service or incurred, respectively, on the first day of such month.
City shall further pay MCA interest on the Reimbursement Amount from and
including the date which is sixty (60) days following the date of City's receipt
of MCA's documentation of the Reimbursement Amount through and including the
date on which City pays the Reimbursement Amount to MCA and pays MCA any and all
interest due under this Section 4.8. Said interest shall accrue at the floating
interest rate described in Section 15.9 of the Sublease. Notwithstanding any
other provision to the contrary in this Agreement, in the event that termination
by MCA pursuant to this Section 4.8, termination of this Agreement by MCA
pursuant to Subsection 4.3(f) of this Agreement, or termination of this
Agreement by City pursuant to Subsection 4.3(e) of this Agreement occurs prior
to substantial completion of the Amphitheatre Project, then and in any such
event the Reimbursement Amount to be paid by City to MCA in accordance with this
Agreement shall be equal to the lesser of [X] the Reimbursement Amount
calculated in accordance with the foregoing provisions of this Section 4.8 or
[Y] the sum of One Million Dollars ($1,000,000.00).
4.9. City Use of Amphitheatre.
(a) MCA and City acknowledge and agree that MCA shall permit City,
through City's Bureau of Cultural Affairs, to utilize the Amphitheatre
Project for cultural events on a maximum of twelve (12) days each calendar
year. City shall request in writing any such date at least sixty (60) days
but not more than one hundred eighty (180) days in advance thereof. With
respect to each and every such cultural event and on or before the date
which is sixty (60) days prior to the
- 25 -
<PAGE>
scheduled date for any such cultural event, MCA shall have the right to
decline City's request in the event MCA has scheduled other activities
which conflict with such date. In the event MCA declines any such date due
to a conflict, MCA shall confer with City regarding an alternate date and
shall, acting on the basis of MCA's business judgment (including, among
other factors, giving reasonable consideration to City's suggestions),
select and confirm an alternate date, which may not be cancelled by MCA
and which may be less than sixty (60) days after such confirmation. With
respect to one (1) of the twelve (12) dates each calendar year requested
by City in accordance with this Subsection 4.9, MCA agrees to confirm such
date one hundred twenty (120) calendar days in advance thereof unless MCA
has, as of the date for confirmation, already scheduled other activities
which conflict with the requested date; provided that (i) the agreement in
this sentence shall not apply to dates between and including July lst-7th
of each year, and (ii) if MCA so declines to confirm such date originally
requested by City under the agreement in this sentence, MCA shall confer
with City regarding an alternate date and shall, acting on the basis of
MCA's business judgment (including, among other factors, giving reasonable
consideration to City's suggestions), select and confirm an alternate date
in lieu of such date originally requested by City, which alternate date
may not be cancelled by MCA. MCA shall not charge City any rental for the
use of the Amphitheatre Project on such dates. However, City [A] shall pay
all expenses and costs related to use of the Amphitheatre Project by City
pursuant to this Section 4.9, [B] shall have no right to or interest in
any proceeds of parking, merchandise sales, facilities maintenance
charges, or concession sales at the Amphitheatre Project (except as
permitted under Section 4.9(b) or Section 4.9(c) hereof) or in any other
income or revenue other than the proceeds of ticket sales (exclusive of
such facilities maintenance charges) for City's events at the
Amphitheatre Project, and [C] shall undertake, by written contract having
form and content reasonably satisfactory to MCA, any and all obligations
(exclusive of the payment of rental) customarily undertaken by other
lessees, licensees, and users of the Amphitheatre Project.
(b) With respect to any event for which City uses the Amphitheatre
Project pursuant to this Section 4.9 and for which tickets are free of
charge, City and MCA agree as follows:
- 26 -
<PAGE>
(i) MCA shall not charge patrons for parking at the
Amphitheatre Project.
(ii) City shall be entitled to sell, and to retain all
proceeds from the sale of, any and all merchandise produced or
purchased by City, including the sale of any food, beverage, or
other perishable items at the Amphitheatre Project.
(c) With respect to any event for which City uses the Amphitheatre
Project pursuant to this Section 4.9 and for which tickets are not free of
charge, City and MCA agree as follows:
(i) MCA shall not charge patrons for parking at the Amphitheatre Project
unless City notifies MCA, at least fifteen (15) days prior to the
applicable City event, that MCA shall charge patrons fifty percent (50%) of
the then standard rate of parking fees for events at the Amphitheatre
Project and that MCA shall remit to City fifty percent (50%) of such
parking fees collected by MCA at such City event.
(ii) City shall be entitled to dell, and to retain all
proceeds from the sale of, any and all merchandise produced or
purchased by City, including the sale of any food, beverage, or
other perishable items at the Amphitheatre Project.
(iii) City shall be entitled to retain all revenues from
City's ticket sales; provided, however, that the then-standard
facilities maintenance charge included in ticket prices for events
at the Amphitheatre Project shall be included in the price of each
ticket for City's event, with MCA being entitled to the total amount
of such facilities maintenance charges for all tickets sold for
City's event.
(iv) City's event may not utilize any "headline" entertainment
act that is committed to perform, during the period from May 1
through October 31 (inclusive) of the calendar year in which such
event occurs, on eight (8) or more dates at outdoor amphitheatre
facilities having 4,000 or more seats in each facility. City's
event may utilize any "headline" entertainment act that is not
prohibited under the immediately preceding
- 27 -
<PAGE>
sentence, may utilize any "headline" act that MCA has considered for
a performance to be given at the Amphitheatre Project during said
period and has decided not to engage for any such performance, and
may utilize any non-"headline" entertainment act. Furthermore, City
may use any act for a benefit concert (i.e., a concert for which the
performer has donated his or her services and from which the
proceeds are donated to a charitable purpose) which does not compete
with MCA (e.g., and without limitation, by selling or advertising
tickets for the City event before tickets have been sold for an MCA
concert with the same act in a sufficient number to enable MCA to
cover its costs and expenses for such MCA concert).
(d) With respect to any event for which City uses the Amphitheatre
Project, City and MCA agree as follows:
(i) Admission to all events at the Amphitheatre Project shall
be by ticket only, whether or not tickets are free of charge.
(ii) At no charge to City, MCA shall provide on-site
management during City's event if City's event occurs during MCA's
regular summer season at the Amphitheatre Project and shall exercise
reasonable best efforts to assist City in talent acquisition for
City's event, including advancing deposits on behalf of City for
purposes of booking entertainment acts, provided that [A] MCA shall
not be obligated to advance any such deposit until the date for the
applicable event of City has been confirmed by MCA in accordance
with Section 4.9(a) hereof, [B] City shall reimburse MCA for such
deposits, and [C] MCA shall not be obligated under this Agreement to
assume any risk for the economic success or failure of City's event.
(iii) If City elects to use or credit any promoter or
co-promoter in conjunction with any City event, City shall not, in
any manner whatsoever, use or credit any promoter or co-promoter
other than MCA (or MCA's designee) in conjunction with such event.
City shall be entitled to engage a corporate sponsor or
governmental body in conjunction with any of City's events, provided
that a business enterprise of such
- 28 -
<PAGE>
corporate sponsor or of any Affiliate of such corporate sponsor is
not the promotion of live entertainment in Georgia.
(iv) Notwithstanding any other provision to the contrary in
this Section 4.9, City shall be entitled to sell, and to retain all
proceeds from the sale of, any and all merchandise, food, beverages,
and perishable items which are produced or purchased by City and
which are vended by City from facilities and equipment brought by
City to the Amphitheatre Project for the applicable City event;
provided, however, that only MCA or its designee shall be entitled
to sell, and to retain the proceeds from the sale of, any performing
artist's merchandise. If City undertakes such sale of merchandise,
food, beverages, and perishable items for a City event at the
Amphitheatre Project, then City shall elect whether or not the
MCA-controlled concessions at the Amphitheatre Project shall be
operated during such City event and shall give MCA written notice of
such election at least fifteen (15) days prior to the date of such
City event; and MCA shall abide by such election. If City elects for
the MCA-controlled concessions to be operated during such City
event, then MCA shall be entitled to any and all proceeds from the
operation of such concessions during such City event.
4.10. Tickets for City Use. MCA shall provide, at no cost or expense to
City, forty-six (46) tickets to City for each event which is held at the
Amphitheatre Project.
4.11. Benefits to Community. In furtherance of, and to the extent
consistent with, the obligations of MCA under Section 3.4 of this Agreement, MCA
agrees: (a) to give preference consistent with City's First Source Jobs Policy
ordinance, throughout the Lease Term under the Sublease, to individuals residing
in the City of Atlanta for purposes of employment for MCA's operations at the
Amphitheatre Project, with MCA's specific goal under this Section 4.11(a) being
that at least seventy-five percent (75%) of MCA's employees for the Amphitheatre
Project will be residents of the City of Atlanta; and (b) to conduct job
fairs/skills workshops in conjunction with the surrounding communities, the
Southside Council for Jobs, and the Atlanta Area Vocational Technical School for
purposes of (i) informing the residents of the surrounding communities of the
employment and subcontract
- 29 -
<PAGE>
opportunities which may be available in connection with the development and
operation of the Amphitheatre Project and (ii) facilitating the qualification
and application process for prospective Amphitheatre Project employees residing
in the City of Atlanta. In connection with the first season of MCA's operations
at the Amphitheatre Project, MCA shall conduct at least three (3) such job
fairs/skills workshops. MCA shall meet periodically with duly appointed
representatives of the surrounding communities in order to discuss the
development and implementation of the programs described in this Section 4.11
and in order to discuss other aspects of the development of the Amphitheatre
Project. MCA shall contribute twenty-five cents ($0.25) to Metropolitan Atlanta
Community Foundation for each ticket sold by MCA at the Amphitheatre Project
during each calendar year in excess of 125,000 tickets in such year, said
proceeds to be distributed within communities impacted by the development within
a three (3)-mile radius of the facility. During the first year of MCA's
operations at the Amphitheatre Project, MCA shall contribute $100,000.00 to such
fund or association as an advance against (and not in addition to) the
contribution contemplated under the immediately preceding sentence. MCA's
performance under this Section 4.11 shall be monitored by City's Office of
Contract Compliance; and MCA shall, on or before June 1 and December 1 of each
year, submit written reports to City's Office of Contract Compliance regarding
such performance. Furthermore, in the event that MCA has not achieved or is not
maintaining the seventy-five percent (75%) goal set forth in Section 4.11(a)
hereof during operation of the Amphitheatre Project, then MCA shall request and
utilize the assistance of City's Office of Contract Compliance in achieving or
maintaining said goal. MCA shall, in good faith, facilitate the hiring of
residents of the City of Atlanta by MCA's general contractor and subcontractors
in connection with construction of the Amphitheatre Project. Without limiting
MCA's liability for City ad valorem property taxes relating to MCA's
improvements at the Amphitheatre Project, MCA also agrees that MCA shall pay, or
shall cause to be paid, any and all City ad valorem property taxes properly and
duly levied with respect to MCA's improvements at the Amphitheatre Project
during a five (5)-calendar year period commencing with the first calendar year
in which such taxes are so levied, regardless of whether the operation of the
Amphitheatre Project is continuing during said five (5)-calendar year period or
any portion thereof.
- 30 -
<PAGE>
ARTICLE V
GENERAL MATTERS
5.1. Assignment and Binding Effect.
(a) City may assign its rights under this Agreement to any party that
has succeeded to City's right, title, and interest in Lakewood and City's
right, title, and interest under the Master Lease, provided, however, that
no such assignment by City shall reduce, mitigate, or otherwise limit in
any manner any obligations of City under this Agreement, including, without
limitation, City's obligations under Article IV of this Agreement.
(b) Subject only to disapproval by City in accordance with this
Subsection 5.1(b) (which right of disapproval shall not apply in situations
described in Subsection 5.1(c) of this Agreement), MCA may assign, in whole
or in part, MCA's rights under this Agreement to any successor, assignee or
transferee with respect to any or all of MCA's interest under, the
Sublease. Whenever MCA proposes to assign or transfer all or substantially
all of its rights under this Agreement together with all or substantially
all of MCA's rights and interests under the Sublease, MCA shall provide
written notice to City of the proposed assignment and the proposed
assignee. City shall have a period of sixty (60) days from the date of
receipt of such notice in which to disapprove, by resolution or ordinance
adopted by its governing body, such proposed assignee. Disapproval by City
may be based upon a good faith determination that the proposed assignee
either: (i) is debarred or suspended in accordance with Section 5-5112 of
the Atlanta City Code, as the same currently exists; or (ii) lacks the
financial resources to perform the obligations of MCA in accordance with
this Agreement; or (iii) is unable to perform in the best interest of City.
Failure of City to disapprove such proposed assignment in accordance
herewith shall be deemed a waiver of City of its right to disapprove such
assignee.
(c) Without the consent of City, MCA may assign, in whole or
in part, absolutely or as collateral, MCA's rights under this
Agreement to any Affiliate(s) of MCA or to any partnership, joint
venture or other entity in which MCA or an Affiliate of MCA retains
an equity interest.
- 31 -
<PAGE>
(d) Any or all of MCA's rights under this Agreement may be
assigned, without the consent of City, upon notice to City, to or by
any Registered Mortgagee or its nominee, as collateral or pursuant
to foreclosure or similar proceedings, pursuant to the sale,
assignment, or other transfer of MCA's interest under the Sublease
in lieu of foreclosure or similar proceedings, or pursuant to the
exercise of any other right, power, or remedy of any Registered
Mortgagee.
(e) This Agreement shall be binding upon City and MCA and
their respective successors and assigns and shall inure to the
benefit of City and MCA and their respective permitted successors
and assigns.
5.2. Severability. The provisions of this Agreement shall be deemed
severable in accordance with this Section 5.2. If any provision of this
Agreement, the deletion of which would not adversely affect the receipt of any
material benefit by any party hereunder and would not substantially increase the
burden on any party hereto, shall be held to be invalid or unenforceable to any
extent, then (a) the same shall not affect in any respect whatsoever the
validity or enforceability of the remainder of this Agreement, (b) the remainder
of this Agreement shall remain in full force and effect, and (c) such invalid or
unenforceable provision shall -be reformed so as to give maximum legal effect to
the intention of the parties as expressed in such provision.
5.3. Further Documents. Each of the parties hereto agrees to sign such
other and further documents as may be consistent with the terms hereof and
appropriate to carry out the intentions expressed in this Agreement.
5.4. Applicable Law. It is the parties' express intention that this
Agreement is made pursuant to and shall be governed by and construed under the
laws of the State of Georgia.
5.5. Controlling Provisions. In the event of any inconsistency between any
provisions of the Master Lease and the provisions of this Agreement, then the
provisions of this Agreement shall be controlling. In the event of any
inconsistency between any provisions of the Master Lease and the provisions of
the Sublease, then the provisions of the Sublease shall be controlling.
- 32 -
<PAGE>
5.6. Waiver. This Agreement may not be changed, waived, discharged, or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge, or termination is
sought. The waiver by either party of any breach of any term, covenant, or
condition herein contained shall not be deemed to be a waiver of such term,
covenant, or condition or any subsequent breach of the same or any other term,
covenant, or condition herein contained.
5.7. Multiple Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
complete set of which, when so executed and delivered by all parties, shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
5.8. Interpretation of Agreement. Should any provision of this Agreement
require interpretation or construction in any judicial, administrative, or other
proceeding or circumstance, it is agreed that the parties hereto intend that the
court, administrative body, or other entity interpreting or construing the same
shall not apply a presumption that the provisions hereof shall be more strictly
construed against one party by reason of the rule of construction that a
document is to be construed more strictly against the party who itself or
through its agent prepared the same, it being agreed that the agents of both
parties hereto have fully participated in the preparation of all provisions of
this Agreement.
5.9. No Third Party Beneficiary. No individual or entity that is not a
signatory to this Agreement (other than successors and assigns of the
signatories to this Agreement) shall have any rights or privileges under or
arising out of this Agreement, nor shall any person or entity that is not a
signatory to this Agreement otherwise be deemed a third party beneficiary of
this Agreement.
5.10. Entire Agreement. This Agreement sets forth all the covenants,
promises, agreements, conditions, and understandings between City and MCA, oral
or written, relating to the subject matter of this Agreement. Neither party has
made any representations or promises not expressly contained in this Agreement.
No subsequent alterations, amendment, change, or addition to this Agreement
shall be binding upon City and MCA unless reduced to writing and signed by both
parties hereto.
- 33 -
<PAGE>
5.11. Notices.
(a) All notices, demands, invoices, and requests required or permitted
to be given under this Agreement shall be in writing and shall be delivered
by personal service, by express courier, or by certified or registered
mail, postage prepaid, return receipt requested, to the parties at the
addresses set forth hereinbelow or such other address as either party may
from time to time designate in writing to the other party.
The current addresses for notices are as follows:
If to City: Department of Parks, Recreation &
Cultural Affairs
City of Atlanta
236 Forsyth Street, S.W.
Atlanta, GA 30303
Attn: The Honorable Betsy C. Baker
Commissioner
With a concurrent
copy to: City of Atlanta
Office of City Attorney
City of Atlanta
Suite 1100, South Tower
1 CNN Center
Atlanta, GA 30303-2705
Attn: Marva Jones Brooks, Esq.
If to MCA:
MCA Concerts, Inc.
100 Universal City Plaza
Universal City, CA 91608
Attn: Mr. Marc Bension
With a concurrent
copy to:
MCA Music Entertainment Group
70 Universal City Plaza
Universal City, CA 91608
Attn: Senior Vice President,
Business and Legal Affairs
- 34 -
<PAGE>
(b) All notices, demands, invoices, and requests shall be effective and
shall be deemed to have been given on the date of actual delivery by personal
service or by express courier or, if mailed, on the fourth (4th) Business Day
following the date of mailing, provided that the mailing occurs in a major
metropolitan area within the United States.
(c) All approvals and consents given by any party pursuant to this
Agreement shall be in writing, and neither party shall rely upon an approval or
consent given by the other party which is not in writing. No party shall
unreasonably delay acting upon a request by the other party for a consent or
approval contemplated by this Agreement.
5.12. Captions.
(a) The captions, section numbers, article numbers, exhibit titles, and
table of contents appearing in this Agreement are inserted only as a matter
of convenience and shall in no way define, limit, construe, or describe the
scope or intent of any section or article, nor in any way affect this
Agreement, nor in any manner be considered in the construction or
interpretation of this Agreement.
(b) Reference to section and article numbers are references to sections
and articles within this Agreement, unless the context clearly indicates
otherwise.
5.13. Number and Gender. Whenever the singular or plural number or
masculine, feminine, or neuter gender is used in this Agreement, it shall
equally apply to, extend to, and include the other.
5.14. Rights Are Cumulative. The rights and remedies conferred upon either
party in this Agreement and by law and equity are cumulative, unless and to the
extent inconsistent with the provisions of this Agreement.
5.15. Injunctive Relief. In the event of a breach or threatened breach of
any of the covenants or provisions of this Agreement by either party hereto,
the other party shall, in addition to any rights and remedies expressly
mentioned in this Agreement, have the right of injunction, the remedy of
specific performance, and the right to invoke any remedy allowed at law or in
equity.
-35-
<PAGE>
5.16. "Affiliate(s)" Defined. The term "Affiliate(s)" herein means any
Person which, directly or indirectly, is controlled by, is in control of, or is
under common control with, the Person with reference to which the term
"Affiliate" is used. Ownership of 50% of more of the voting or decision making
power with respect to any Person shall be deemed control, although ownership of
less than 50% shall not necessarily negate control.
5.17. "Person(s)" Defined. The term "Person(s)" herein means any person,
corporation, partnership, firm, association, trust, or other entity.
5.18. "Midnight" Defined. For purposes of this Agreement, references to
"12:00 midnight" on any day shall mean the last point in time on said day.
5.19. "Business Day(s)" Defined. The term "Business Day(s)" herein means
any day(s) other than any Saturday, any Sunday, and any holiday on which
national banking associations or the municipal governmental offices of City are
closed.
5.20. Estoppel Certificates. At any time and from time to time, upon not
less than fifteen (15) Business Days' prior request by either party hereto, City
and MCA, respectively, shall execute, acknowledge, and deliver to the other a
written estoppel certificate certifying (a) that this Agreement (in the form
attached to the certificate) is unmodified and is in full force and effect or,
if there have been modifications, that the same is in full force and effect as
modified and identifying the modifications, (b) that, to the best knowledge of
the certifying party, there is not any uncured Master Lease Default or any
uncured Event of Default under the Sublease or any act or omission which, with
the lapse of time, the giving of notice, or otherwise, will ripen into a Master
Lease Default or an Event of Default under the Sublease, other than any
specified in the certificate, and (c) that, to the best knowledge of the
certifying party, there is no default, breach, or violation by the lessor under
the Master Lease or by the sublessor under the Sublease, other than any
specified in the certificate. The party requesting the estoppel certificate may
accompany its request with a proposed certificate to be executed by the other
party; and if the other party does not execute and deliver either the estoppel
certificate tendered by the requesting party or such other party's own version
of the estoppel certificate to the requesting party within said fifteen
(15)-Business Day period, then the estoppel certificate
-36-
<PAGE>
prepared by the requesting party shall be conclusively deemed to have been
executed and delivered by such other party and shall be binding on such other
party as if executed and delivered by such other party. Estoppel certificates
may be relied upon by any Person proposing to acquire City's or MCA's interest
hereunder, or any portion thereof or interest therein, as the case may be, and
by any mortgagee or encumbrancer or prospective mortgagee or encumbrancer (or
any assignee thereof) now or hereafter having any present or prospective
interest in the right, title, or interest of City or MCA.
5.21. Confidentiality. City shall not use for its own benefit, and shall
hold in confidence, all information concerning MCA and its Affiliates that City
learns from MCA, from MCA's Affiliates, or from any officers, agents, licensees,
employees, or concessionaires of MCA, MCA's Affiliates, or City, provided that
City and MCA acknowledge the possibility that some information may be subject to
official Code of Georgia Annotated ss. ss. 50-18-70,71,72, and 73, as amended.
City shall not violate the confidentiality imposed in this Section 5.21 without
first obtaining the written consent of MCA unless pursuant to court order or
pursuant to written legal opinion issued by the City Attorney to City and MCA.
5.22. Survival of Certain Provisions. Notwithstanding any termination of
this Agreement pursuant to Subsection 4.3(e), Subsection 4.3(f), Subsection
4.3(g), or Section 4.8 of this Agreement, the provisions of Section 3.3, Section
4.8, and Article V (excluding Section 5.23) of this Agreement shall survive.
5.23. MCA Insurance. For the benefit of City but not for the benefit of
Sublessor or any other person, MCA agrees as follows:
(a) The public liability insurance to be maintained by MCA pursuant to
Section 9.1 of the Sublease, shall have combined single limits of not less
than Five Million Dollars ($5,000,000.00) per injury and occurrence with
respect to any insured liability, whether for death, bodily injury, or
property damage, subject to a reasonable deductible amount.
(b) The insurance which MCA is required to purchase and maintain by
virtue of the reference in Section 9.1 of the Sublease to Section 8.4 of
the Master Lease shall be fire, lightning, extended coverage,
-37-
<PAGE>
windstorm, and malicious mischief and casualty insurance, including
vandalism on the Amphitheatre Project (and not on any of the five (5)
buildings specified in Section 7.3.1 of the Master Lease) in the amount of
the full insurable replacement cost of the Amphitheatre Project.
(c) In performing under the last sentence of Section 9.1 of the
Sublease, MCA shall comply with Subsection 8.6 of the Master Lease, so
that, for purposes of complying' with said Subsection 8.6 under Section 9.1
of the Sublease, MCA shall be deemed to be "Lessee" (as said term is used
in said Subsection 8.6), Sublessor shall be deemed to be "Lessor" (as said
term is used in said Subsection 8.6), and any instrument whereby MCA grants
any rights or interest of MCA under the Sublease shall be deemed a
"Sublease" (as said term is used in said Subsection 8.6).
(d) MCA's right to employ self-insurance under Section 9.2 of the
Sublease shall be subject to the written approval of City's Commissioner of
Finance, which approval shall be based upon said Commissioner's review of
any specific self-insurance plan hereafter submitted to City and shall not
be unreasonably withheld, delayed, or conditioned by said Commissioner or
by City. Said Commissioner's failure to deliver to MCA any written
disapproval (setting forth the specific reasons for such disapproval) of a
proposed self-insurance plan within sixty (60) days after MCA's submittal
of such plan shall be deemed to constitute said Commissioner's approval of
such plan for purposes of this Agreement.
(e) The confirmation to be made to Sublessor under Section 9.2(ii)
of the Sublease shall also be made to City.
5.24. Memorandum of Agreement. Simultaneously with execution and delivery
hereof, City and MCA shall execute and deliver a recordable short-form
memorandum of this Agreement. MCA shall be entitled to record said memorandum at
MCA's expense.
[Remainder of this page intentionally left blank]
-38-
<PAGE>
IN WITNESS WHEREOF, City and MCA, acting through their respective duly
authorized officers or representatives, have duly executed this Agreement under
seal as of the day and year first above written.
Signed, sealed, and delivered MCA CONCERTS, INC.,
this 17th day of October, 1988, a California corporation
in the presence of:
/s/ [Illegible] By /s/ Marc Bension
- ------------------ -----------------------------
Unofficial Witness Name Marc Bension
--------------------------
Title President
/s/ Linda Jo Brown --------------------------
- ------------------------
Notary Public Attest /s/ Robert Biniaz
-----------------------------
My commission expires: Name Robert Biniaz
------------------------------
July 10, 1992 Title Vice-President
- ------------------------ ------------------------------
[Notary Seal]
[CORPORATE SEAL]
====================================
LINDA JO BROWN
[SEAL] NOTARY PUBLIC CALIFORNIA
CITY AND COUNTY OF [Signatures continued on next page]
LOS ANGELES
My Commission Expires July 10, 1992
====================================
-39-
<PAGE>
Signed, sealed, and delivered CITY OF ATLANTA,
this 25 day of October 1988, a municipal corporation
in the presence of: of the State of Georgia
By /s/ [Illegible]
/s/ [Illegible] -----------------------------
- --------------------------------------- Name /s/ Andrew Young
Unofficial Witness ---------------------------
Title Mayor
--------------------------
/s/ [Illegible]
- --------------------------------------- Recommended:
Notary Public
My commission expires: /s/ [Illegible]
Notary Public, Gwinnett County, Georgia -----------------------------------
My Commission Expires Apr. 9, 1992 Chief Administrative 0fficer
- ---------------------------------------
[Notary Seal] Attest /s/ Jessy C. Bearden
----------------------------
Name /s/ Jessy C. Bearden
----------------------------
Title Dep. Clerk
---------------------------
[CORPORATE SEAL]
Recommended:
/s/ [Illegible]
--------------------
Commissoner of Parks,
Recreation and Cultural
Affairs
Recommended:
/s/ [Illegible]
-------------------
Commissioner of Finance
Recommended:
/s/ [Illegible]
-------------------
Commissioner of Public Works
Approved as to form on
behalf of City of Atlanta:
/s/ [Illegible]
-------------------
Assistant City Attorney
-40-
<PAGE>
EXHIBIT A
MASTER LEASE
THIS AMENDED INDENTURE OF LEASE, made this 2nd day of February, 1984,
between THE CITY OF ATLANTA, a Municipal corporation chartered pursuant to the
laws of the State of Georgia, Party of the First Party (hereinafter defined as
"Lessor"), and FILMWORKS U.S.A., INC., a Georgia corporation created pursuant to
the laws of the State of Georgia, Party of the Second Part (hereinafter defined
as "Lessee"), pursuant to assignment and transfer of the Indenture between
Lessor and Atlanta Lakewood Enterprises, Ltd., dated May 1, 1979, which
assignment and transfer were authorized by order of Judge A. D. Kahn, United
States Bankruptcy Court, Northern District of Georgia, dated January 16, 1984,
Case No. 80-03317A.
WHEREAS, the Council of the City Of Atlanta, Georgia by ordinance approved
January 3, 1984, has authorized the Amendment of this Lease, said ordinance
being attached hereto as Exhibit "A"; and
WHEREAS, the parties desire to restate the Indenture of Lease as Amended,
such restatement being set forth herein;
NOW, THEREFORE, in consideration of ten dollars ($10.00) paid by Lessee to
Lessor and the mutual covenants herein contained, Lessor and Lessee hereby
convenant and agree as hereinafter provided:
1. DEFINITIONS. For the purposes of this Agreement, the following defined
terms shall have the meanings ascribed hereto in this Article 1.
1.1. "Affiliate" means, in the context of Lessee, any other entity of
which two percent (2%) or more of the ownership interest therein is owned,
directly or indirectly, by Lessee or by the holders of more than two percent
(2%) of the stock of Lessee. Such ownership interests owned by members of the
immediate families of the shareholders of Lessee shall be ascribed to such
shareholders for the purpose of the foregoing definition.
1.2. "Agreement" means this Indenture of Lease.
1.3. "Demised Premises" means the Property, the Improvements (including
the Existing Improvements) and all rights, easements and appurtenances
appertaining thereto.
<PAGE>
1.4. "Entity" means any person, corporation, partnership (general or
limited), joint venture, association, joint stock company, trust or other
business entity or organization.
1.5. "Event of Default" means those events, occurrences and circumstances
so designated in Section 10.2 of Article 10 of this Agreement.
1.6. "Existing Improvements" means those buildings, structures and other
facilities located upon the Property on the date of this Agreement and more
particularly described in Exhibit "B" attached hereto and by reference made a
part hereof.
1.7. "Gross Revenues" means the entire amount of all revenues received by
Lessee during the term of this lease with respect to the following:
(a) Admission charges, ticket sales, or any and all income derived
from sporting events, automobile races, and any and all other entertainment
events or tours where the Lessee charges admission, or is otherwise compensated.
(b) All revenues received by Lessee from occupancy leases as defined
in Section 1.18 hereof, or subleases as described in Section 1.22 hereof.
(c) All revenues received from charges made for vehicular parking on
the demised premises.
1.8. "Impositions" means any and all lawful impositions of ad valorem
taxes, special assessments for public improvements, street and sewer levies and
utility charges upon the Property or any portion thereof.
1.9. "Improvements" means all buildings, (other than temporary buildings),
structures and other facilities at any time and from time to time affixed to the
Property, including, but not by way of limitation, the Existing Improvements;
provided, however, that Improvements shall only include property which is a
- 2 -
<PAGE>
building or similar structure which is intended by Lessee to become a part of
the Property as a permanent improvement thereof; and further provided that
Improvements shall not include trade fixtures, sets of scenery, displays and
similar property used in filming. Lessee shall notify Lessor within thirty (30)
calendar days after completion of construction of any structure intended by
Lessee to be an Improvement.
1.10. "Insurance Trustee" means the trustee appointed herein or by the
requirements of any mortgagee holding a mortgage on Lessee's interest in the
Demised Premises or any portion thereof, for the purpose of receiving, investing
and paying Net Insurance Proceeds. Any mortgagee holding a mortgage on Lessee's
interest in the Demised Premises or any portion thereof may elect itself to act
as insurance trustee. If an insurance trustee is not otherwise designated, the
Commissioner of Finance of Lessor shall perform the functions of the insurance
trustee.
1.11. "Lease Term" means the period of time specified in Section 2.2 of
Article 2 of this Agreement.
1.12. "Lessee" means Filmworks U.S.A., Inc., a Georgia corporation, the
assignee of Atlanta Lakewood Enterprises, Ltd., a corporation created pursuant
to the laws of the State of Georgia, and its successors and assigns of the
leasehold estate and interest in the Demised Premises under this Agreement (but
excluding any sub-lessees, occupancy-lessees, tenants and concessionaires).
1.13. "Lessor" means the City of Atlanta, a municipal corporation
chartered pursuant to the Laws of the State of Georgia. Whenever a provision of
this Lease requires approval, agreement, or action by Lessor, such provision
shall be construed to mean approval agreement or action by the governing body of
said Lessor, unless otherwise stated.
1.14. "Mortgage" (in singular) and "Mortgages" (in the plural) means any
deed to secure debt, deed of trust, mortgage, security agreement or other
instrument in the nature thereof at
- 3 -
<PAGE>
any time and from time to time constituting a lien upon Lesses's interest in the
Demised Premises or any portion thereof, or collectively, two (2) or more of
such.
1.15. "Mortgagee" (in the singular) and "Mortgagees" (in the plural) means
the holder or, collectively, the holders of a Mortgage or Mortgages.
1.16. "Net Insurance Proceeds" means, in the context of any insurance
required pursuant to this Agreement, the gross proceeds from the insurance with
respect to which such term has reference (that is, the gross proceeds arising by
virtue of any insured loss in respect to the Demised Premises or any
Improvements) remaining after payment of all expenses (including, but not by way
of limitation, attorneys' fees and any extraordinary expenses of the Insurance
Trustee) incurred in the collection of such gross proceeds.
1.17. "Notice" means a written advice or notification required or
permitted by this Agreement to be served by Lessor or Lessee upon the other, or,
in the circumstances defined in Article 13 of this Agreement, upon or by the
Insurance Trustee or Mortgagees.
1.18 "Occupancy Lease" means any and all rental agreements in all or any
portions of the Demised Premises between Lessee as landlord thereunder and
others, as tenants thereunder for a term of twenty-four (24) months or less,
including the term of all options to renew.
1.19. "Operating Year" means that calendar year through the lease term,
except for the first operating year, which commences on the date of execution of
this Agreement and terminates at the and of the day on December 31, 1984.
1.20. "Property" means those tracts or parcels of land in the County of
Fulton, State of Georgia, more particularly described in Exhibit "C" attached
hereto and by reference made a part hereof and shall include all portions
thereof as to which the Lessor subsequently acquires title.
- 4 -
<PAGE>
1.21. "Rent" means all amounts payable by Lessee to Lessor as rental for
the Demised Premises, as more particularly described in Article 5 of this
Agreement. Rent does not include impositions or other items payable by Lessee
under this Agreement which are not designated as rental for the Demised
Premises.
1.22. "Sub-Lease" means any and all instruments creating usufructs or
subleasehold estates in all or any portion of the Demised Premises, between
Lessee as landlord or lessor thereunder and others, as tenants or lessees
thereunder for a term in excess of twenty-four (24) months, as set forth in
Section 11.2 to this Agreement.
1.23. "Zoning and Other Encumbrances" means those matters, other than
Impositions, affecting title to the Property and the Existing Improvements which
are more specifically set forth in Exhibit "D" attached hereto and incorporated
herein.
2. PREMISES AND TERM
2.1. Premises. Lessor, for and in consideration of the rents, covenants,
agreements and stipulations hereinafter mentioned, reserved and contained, to be
paid, kept and performed by Lessee, has demised, leased and rented, and by these
presents does demise, lease and rent, unto Lessee, and Lessee hereby agrees to
lease and take upon the terms and conditions which hereinafter appear, the
Demised Premises, subject only to the Impositions and zoning and other
Encumbrances. As of the date of this Agreement, the Demised Premises consist of
the Property and the Existing Improvements. Title to the Improvements during
the Lease Term shall be in Lessee. Notwithstanding such title to the
Improvements, the terms and conditions of this Agreement shall govern the use
and operation of the improvements and the exercise of all Lessee's rights with
respect thereto and Lessee's estate, right, title and interest in and to the
improvements, which,
-5-
<PAGE>
except for Subleases and Occupancy Leases, shall not be separable from the
leasehold estate granted Lessee hereunder. Except for termination pursuant to
Article 12 of this Agreement, upon termination of the Lease Term, whether by
expiration of time or otherwise, title to the Improvements shall, subject to the
rights of any Mortgagee, vest in and become the full and absolute property of
Lessor without need of any further action being taken by Lessee or Lessor, and
Lessee shall immediately surrender possession of the Improvements, subject to
the rights of any Mortgagee, Sub-Lessee or Occupancy Lessee.
2.2. Lease Term. The Lease Term under this Amended indenture shall
commence on the date of execution as not forth above and shall expire midnight,
local time in the City of Atlanta, State of Georgia, on the date which is
thirty-five (35) years from January 1, 1984, subject to being sooner terminated
as provided in this Indenture of Lease, as amended.
2.3. Option. Lessee, if not in default at the expiration of this lease,
and if it has faithfully performed its obligations during the term of the Lease,
shall, upon notice to Lessor, have the right to extend the lease for an
additional period of fifteen (15) years upon the same terms and conditions as
herein. Said notice shall be in writing from Lessee to Lessor no less than 120
days prior to end of the initial thirty-five (35) year term of the lease.
2.4. Interest Conveyed By This Lease. The Interest conveyed by this lease
consists of a limited and restricted interest (said limitations and restrictions
being set forth in this lease) and said conveyed interest does not include an
estate in real property.
3. CONVENANTS AND WARRANTIES BY LESSOR.
3.1. Quiet Enjoyment. Lessee paying the Rent hereby reserves, and fully
performing and observing the covenants, duties and obligations by Lessee to be
performed, observed and kept, may
- 6 -
<PAGE>
peaceably possess, hold, enjoy and use the Demised Premises with the exclusive
control, possession and enjoyment thereof during the Lease Term.
3.2 Title. Lessor has fee simple title to the Property and the Existing
improvements and the Property and the Existing Improvements will be delivered to
Lessee free and clear of all claims, demands, obligations, mortgages, liens and
encumbrances of any nature or kind, except for Impositions and Zoning and Other
Encumbrances set out on Exhibit "D". Lessor warrants that the Demised Premises
are, as of the effective date of this Amendment to Indenture of Lease, zoned
M1-C, and such zoning permits the use of the Demised Premises for the use and
purposes herein specified, which zoning shall, unless otherwise requested by
Lessee, continue during the Term of this Amended Lease. As of the effective date
of this Amendment, Lessor warrants that it has fee simple title to the Demised
Premises, the Property and the Existing Improvements which is free and clear of
all claims, demands, obligations, mortgages, liens, reversions and encumbrances
of every nature, kind and description, except only for those Impositions, Zoning
and other Encumbrances which are set forth on Exhibit "D", attached hereto and
Incorporated herein by reference. Lessor warrants that Lessor's fee simple title
and the leasehold estate Amendment are marketable and insurable by such title
insurance company, licensed to do business in the State of Georgia, as Lessor or
Assigns may select, without exception other than those matters specifically set
forth in Exhibit "D". The expense of obtaining any title policy shall be borne
by Lessee.
3.3. Public Records. Pursuant to the provisions of Sections 50-18-70, et
seq, of the Official Code of Georgia Annotated, Lessor hereby agrees to make
available to Lessee any public records concerning the Demised Premises or any
other matter directly or indirectly involving the Demised Premises or any
portion thereof.
- 7 -
<PAGE>
4. ENCROACHMENTS.
4.1. Removal. Lessor shall take any reasonable action necessary, including
instituting legal proceedings for the purpose of protecting the title to the
Demised Premises and Lessee's quiet enjoyment thereof against any adverse
claims, uses, occupancies and encroachments on the Property. Lessee will, if and
when requested by Lessor, join with Lessor and become a party to any judicial or
other proceedings that may be instituted by or on behalf of Lessor for the
purpose of protecting and preserving Lessor's title to the Property and Lessee's
enjoyment thereof pursuant to this Lease.
4.2. Use. Lessor and Lessee further understand and agree that when such
encroachments, adverse uses and occupancies shall have been removed by judicial
proceedings or otherwise, the use of the same for the remaining period of the
Lease Term shall inure to the benefit of Lessee to the same extent as the other
portions of the Demised Premises herein leased shall inure to Lessee under the
provisions, covenants, terms and conditions of this Agreement.
5. RENT.
5.1. Minimum Rent.
5.1.1. Lessee shall pay to Lessor the sum of $100,000.00 for each of the
first three Operating Years, and thereafter in the fourth and fifth Operating
Years the sum of $150,000.00 per year. Thereafter, Lessee shall pay to Lessor a
minimum rent of $150,000.00 per annum during the continuance of this Lease,
subject to the rental adjustment provided in Section 5.1.2. Any rent payable for
less than a full Operating Year shall be prorated in the proportion that such
period of less than a full Operating Year bears to a full Operating Year.
5.1.2. Rental Adjustments. The minimum amount of Rent payable by Lessee to
Lessor with respect to the sixth Operating Year and for each Operating Year
thereafter shall be One Hundred Fifty Thousand Dollars ($150,000.00) multiplied
by a fraction, the numerator of which fraction is the Consumer Price Index
number for
- 8 -
<PAGE>
the Current Month applicable to the Operating Year and the denominator of which
fraction is the Consumer Price Index number for the Base Month, provided that
the increase in minimum rent in any given operating year shall not exceed six
percent (6%) of the minimum rent for the previous Operating Year.
5.2. Computation of Rent. Commencing with the sixth Operating Year and
subject to the provisions of Section 5.1 of this Article 5, Lessee shall, within
sixty (60) calendar days after the close of each Operating Year, pay to Lessor
three percent (3%) of its Gross Revenues received for each Operating Year, or
portion thereof, during the Lease Term. The amount due Lessor under this Section
5.2 shall be reduced by any Minimum Rent paid by Lessee to Lessor with respect
to such Operating Year, provided however, that under no circumstances shall the
amount of Rent paid to Lessor be less than the Minimum Rent due under Section
5.1.1 and 5.1.2.
The term "Consumer Price Index" means the Consumer Price index for
Atlanta, Georgia for Urban Wage Earners and Clerical Workers [1967=100], as
published by the Bureau of Labor statistics of the United States Department of
Labor. If the publishing of the "Consumer Price Index" shall cease, then the
most comparable and similar index published by any department or agency of the
United States government shall be used.
The term "Current Month" number which is applicable to the Operating Year
means the Consumer Price Index number published for the last month of the last
Operating Year which immediately precedes the beginning of the then current
Operating Year (and if no Consumer Price Index is published for said month, then
the number published for the most recent month prior thereto shall be used.
The term "Base Month" number means the Consumer Price Index number
published for the last month of the fifth Operating Year (and if no Consumer
Price Index is published for the last month of the fifth Operating Year, then
the number published for the most recent month prior thereto shall be used).
- 9 -
<PAGE>
5.3. Payment of Rent. Lessee shall pay rent to Lessor in monthly
installments, in advance, on or before the first day of each and every calendar
month during the entire Lease Term. The amount of each such monthly installment
shall be equal to one-twelfth (1/12th) of the amount of the Minimum Rent with
respect to the applicable Operating Year as provided in Section 5.2 of this
Article 5. (The parties recognize that the first Operating Year [1984] shall not
be a complete year and rentals shall be prorated for such year.)
Within sixty (60) calendar days following the end of each Operating Year,
Lessee shall submit to Lessor its annual audited financial statement showing the
determination of Gross Revenues with respect to such Operating Year, and for the
sixth Operating Year and each Operating Year thereafter in the event that three
percent (3%) of the Gross Revenues for such sixth Operating Year and thereafter
shall exceed the amount of Rent paid for such Operating Year pursuant to this
Section, then Lessee shall remit and pay to Lessor the balance of the Rent due
in accordance with Section 5.1.2.
5.4. Books and Records. During the Lease Term, Lessee shall maintain
complete and accurate records, in accordance with generally accepted accounting
principles consistently applied, of all Gross Revenues received and earned with
respect to the Demised Premises by Lessee during each Operating Year, and such
other records, data and facts necessary to determine Gross Revenues hereunder as
Lessor say reasonably require.
Lessor expressly reserves the right to examine and audit all of said
records, including sales, entertainment, business and occupation tax reports to
the extent that said records and reports contain information relating to Gross
Revenues derived by Lessee from the Demised Premises. The right of examination
and audit may be exercised at any time during normal business hours. If Lessee
fails to make the aforesaid records available to Lessor in Atlanta, Georgia,
then Lessee shall pay all reasonable expenses incurred by Lessor to examine and
audit said records in the place where they are located and maintained.
- 10 -
<PAGE>
Lessee agrees to keep, maintain and preserve for four (4) years following
the expiration of each Operating Year all records required under this Section,
or adequate photostatic copies thereof. In the event Lessor shall dispute the
amount of Gross Revenues during said four-year period, Lessee agrees to preserve
all such records until such dispute is resolved; and if Lessor shall not, within
said four-year period, dispute the accuracy of the statement of Gross Revenues
furnished by Lessee to Lessor, then such statement shall be conclusive on Lessor
and Lessee with respect to the amount of Gross Revenues received by Lessee with
respect to such Operating Year.
6. TAXES AND OTHER IMPOSITIONS.
6.1. Payment. Lessee shall bear and pay to the public officer charged with
the collection thereof, before the same shall become delinquent, and shall
indemnify, save and hold harmless Lessor from the payment of, any and all taxes,
assessments, license fees, excises, imposts, fees and charges of every sort,
nature and kind, which during the Lease Term are levied, assessed, charged or
imposed upon or against the Demised Premises (including any Improvements) during
the Lease Term for which the Lessee is liable at law, to the extent of all
installments becoming due in connection therewith during the term of the Lease.
The parties, however, recognize the restricted and limited interest conveyed by
the lease as described in Section 2.4 above.
6.2. Contest. If any Imposition (including without limitation, any tax,
assessment, license fee, excise, impost, fee or charge) shall be deemed by
Lessee to be improper, illegal or excessive, Lessee may, at no cost or expense
to Lessor and in Lessee's own name, dispute and contest the same and, in such
case, such item need not be paid only if and to the extent that the laws or
regulations governing such contest permit postponement of payment; provided,
however, that Lessee shall first furnish to Lessor, if requested by Notice to
Lessee from Lessor, reasonable security for the payment of such item so
contested. Unless so
- 11 -
<PAGE>
contested by Lessee, all such Impositions shall be paid by Lessee within the
time provided by law, and if contested, any such Imposition shall be paid before
the issuance of an execution on the final judgment.
6.3. Receipts. After all payments are made by Lessee pursuant to and in
conformity with Sections 6.1 and 6.2 of this Article 6, Lessee shall at once
furnish to Lessor duplicate receipts or other satisfactory evidence of such
payment.
6.4. Utilities. Lessee is to be responsible for and shall pay all water,
sanitation, gas, heat, light, power, steam and telephone services and any and
all other services supplied to the Demised Premises.
6.5. Performance by Lessor. If Lessee fails to procure insurance, as
hereinafter provided, or wrongfully fails to pay any Impositions (including
taxes, assessments, license fees, excises, imposts and fees), utility charges or
premiums of insurance, Lessor may, at Lessor's option, after ten (10) days
following Notice to Lessee by Lessor, and an behalf of Lessee, procure any such
insurance and make any such payment or payments as may be reasonably necessary.
6.6. Reimbursement. Any reasonable amount paid or expended by Lessor under
the provisions of Section 6.5 of this Article 6 shall be reimbursed and paid to
Lessor by Lessee on demand.
7. USE OF DEMISED PREMISES.
7.1. Purposes and Compliance With Laws.
7.1.1. Lessee agrees that the dominant theme in the development of the
Demised Premises shall be in connection with the entertainment field, production
of film and television programming and complimentary uses and activities, as now
exist or as may be developed in the future.
Lessor acknowledges and agrees that the Demised Premises may be used
for any lawful purpose or use connected with
- 12 -
<PAGE>
or related to the production of motion pictures, television programming and
similar or related entertainment, commercial and production activities, and all
sorts and types of visual and sound recording, copying, producing and
processing, and for retail stores, lodging, office buildings and complexes and
related entertainment and commercial activities. Such uses, purposes and
facilities for which the Demised Premises may be used shall include, without
limitation, studios, sound stages, outdoor lots, recording studios, studio
manufacturing, film processing laboratories, educational facilities for
vocational and academic training, auditoriums, theatres and exhibition halls,
lodging, office buildings and complexes, retail stores, food, beverage and
entertainment facilities, parking, warehouses, fairs and special events, public
tours, and entertainment facilities and parks. Further, the Demised Premises may
he used for public entertainment, including, without limitation, such events as
automobile and motorcycle races, expositions, demonstrations, trade shows, and
any and all other presentations and performances which are lawful; and such
other uses and purposes as shall from time to time be approved by Lessor upon
application of Lessee. Lessee expressly covenants not to operate horse racing,
dog racing, or any other events or undertakings involving wagering in connection
with horse racing or dog racing without the express consent of Lessor.
7.1.2. At all times, Lessee shall conform to, obey and comply with all
present and future laws and ordinances, and all lawful requirements, rules and
regulations of all legally constituted authorities, existing at the commencement
of the Lease Term, or at any time during the continuance of the Lease Term,
which in any way affect the Demised Premises or the use of the Demised Premises,
or any repair, replacement, demolition, renovation, construction, restoration or
excavation being done on or to the Demised Premises, or in any way affecting
this Agreement. The right to contest the validity thereof in good faith, at
Lessee's
- 13 -
<PAGE>
sole cost and expense and in Lessee's own name, is hereby reserved to Lessee.
7.2. Condition of Demised Premises. Lessor shall not be liable or
responsible for the condition of the Demised Premises, or for maintenance of the
Demised Premises, or for the safety and suitability of the Demised Premises for
any uses for which the Demised Premises may be employed by Lessee; nor shall
Lessor be liable or responsible for any loss, damage or injury which may occur
from any cause whatsoever to Lessee, or the property, agents, employees,
patrols, exhibitors, licensees or concessionaires of Lessee, or any other person
whatsoever, occurring on the Demised Premises or in or about the Improvements.
Lessee hereby acknowledges that Lessee has inspected and is familiar with the
condition of the Demised Premises including the terrain features of the property
and the Existing Improvements located thereon, and accepts such in the present
condition thereof. Provided, however, that Lessee accepts the premises subject
to the agreement of Lessor that Lessor will maintain the dam and related
facilities located on the Premises and the drainage of water from the lake
impounded by such dam. Provided further, however, that the Lessor, recognizing
Lessee's desire to relocate the dam, lake and drainage system now in place to
accommodate better uses of the race track facilities on the Demised Premises
agrees to have its Department of Environment and Streets study possible
alternatives to the present lake and dam, with a view toward cooperating with
Lessee in this regard if it is determined to be both economically and
environmentally feasible.
7.3. 0ptional Improvements and Demolition of Improvements.
7.3.1. If Lessee desires to undertake any material alteration or
demolition of the grandstand, or of any of the four main exhibit buildings now
located on the premises, Lessee must first obtain approval of such action by
Lessor, acting through Lessor's
- 14 -
<PAGE>
governing body. In the event that material alteration or demolition of any of
these five (5) specified structures is approved by Lessor, any salvage from
these specified structures shall belong to Lessor.
7.3.2. Lessee may, at no cost or expense to Lessor, either add to,
renovate or construct anew any of the Existing Improvements and to construct new
Improvements, or remove or demolish any of the Existing Improvements or any
other Improvements (at any time and from time to time during the Lease Term)
including, but not limited to, the destruction of the racetrack and grandstands
on the Demised Premises to permit the use of all of the Demised Premises as in
accordance with Section 7.1.1. for such other or additional uses or construction
as Lessee may determine and desire, except that approval by Lessor must be
obtained with regard to the five (5) structures specified in Section 7.3.1
above. No prior approval shall be required as to other alterations or
demolitions. Any salvage resulting from any such additions, renovations,
construction or demolition during the Term of the Lease shall belong to Lessee,
except the salvage from the five (5) specified structures in Section 7.3.1. Any
Existing Improvements (excluding the lake, racetrack and grandstands) which are
demolished by Lessee shall be replaced by new Improvements of equal or greater
value in accordance with Lessor's development plan for the Demised Premises. As
long as any law, rule or regulation shall require that the lake on the Demised
Premises must be maintained, Lessor agrees to maintain, repair, restore and
rebuild (if necessary) the lake, dam and all facilities related thereto. If
Lessee shall become aware of any condition of this lake which may require any
action by Lessor, Lessee agrees to give Lessor written notice thereof. At such
time as the lake is no longer required to be maintained as aforesaid, Lessee may
drain the lake and demolish the dam and related facilities for the purpose of
- 15 -
<PAGE>
using the area comprising the lake for such purposes as are permitted under
Section 7.1.1. hereof.
7.3.3. Lessee's Development Plan. Lessee pledges its good faith efforts
throughout the term of this lease to implement a development plan for capital
improvements on the Demised Premises, substantially along the lines of the
proposed plan set forth in Exhibit "E" to this Agreement. It is understood and
agreed between the parties that in the event that economic necessity or
legitimate business considerations require alterations in the plan as set forth,
such alterations shall not be grounds for declaring Lessee in default under this
Agreement, in the absence of actual fraud or manifest bad faith.
7.4. Protection of Adjacent Property. While any excavation, demolition or
construction is being performed on the Demised Premises or any portion thereof,
Lessee shall protect all adjacent property.
7.5. Liens. Lessee shall permit no Liens to attach to the reversionary
estate of Lessor in the Demised Premises as a result of any excavation,
demolition or construction upon the Demised Premises or any portion thereof,
unless Lessee shall remove such Liens, within ninety (90) days from and after
recordation thereof, by discharge, bonding or other proceeding; provided that
this Section 7.5 shall not, and shall not be deemed to, authorize or empower
Lessee to cause or permit any lien whatsoever to attach to Lessor's reversionary
estate in tbe Demised Premises, which shall always remain superior to Lessee's
interest hereunder.
7.6. Title. Any Improvements constructed by Lessee shall become a part of
the Demised Premises, but the legal title to the same shall not vest in Lessor
until the termination of this Agreement, whether by expiration of the Lease Term
or otherwise. Title to all Improvements, facilities and betterments of any sort
whatsoever which are constructed hereafter or placed upon any portion of the
Demised Premises, and any and all depreciation and
- 16 -
<PAGE>
investment Tax Credit generated thereby or available in connection therewith
shall belong to and accrue to the benefit of Lessee during the Lease Term.
7.7. Removal of Property. Lessee and all other persons and entities shall
have the right to remove from the Demised Premises all temporary buildings,
temporary facilities, trade fixtures and personal property of any kind which
belong to Lessee or any other person or entity which have been placed upon the
Demised Premises by Lessee or by such persons or entities. The removal thereof
shall be made within sixty (60) days from and after the termination of this
Agreement, or at any time prior thereto.
7.8. Subleases and Occupancy Leases. The voluntary, involuntary or other
surrender or termination of this Agreement during the term of this Agreement
shall not terminate or affect any then existing Subleases, but such Subleases
shall continue in full force and effect according to their terms and shall be
binding on Lessor, provided the person or entity holding any portion of the
Demised Premises under such Sublease is not then in default thereunder and shall
promptly and faithfully thereafter perform all covenants and agreements
contained therein and shall, in writing, agree to attorn to the Lessor with
respect to such SubLeases. No Sublease shall extend beyond the Lease Term
specified in Section 2.2 of Article 2, or, as extended pursuant to Section 2.3.
In the event of such termination of this Agreement, outstanding occupancy leases
shall also be honored by Lessor as to terms and conditions relating to occupancy
of the premises and rentals, but any other terms or conditions must be expressly
ratified by Lessor, provided the person or entity holding such occupancy Lease
is not then in default, and agrees in writing to attorn to Lessor herein. No
term in such Occupancy Lease which has not been expressly ratified by Lessor may
bind Lessor to expend monies in excess of rental due from the holder of said
Occupancy Lease.
- 17 -
<PAGE>
7.9. Repair. Lessee shall, at all times during the Lease Term, at Lessee's
sole cost and expense, keep and maintain the Demised Premises in good and
sanitary order, condition and repair.
7.10. Future Requirements. In the event, at any time during the Lease
Term, any alteration, demolition, renovation, repair, replacement or other work
of any nature, structural or otherwise, shall be required or ordered or becomes
necessary on account of any governmental rule or regulation now in effect or
hereafter adopted which affects the Demised Premises or with respect to any and
all other buildings, other structures, alterations or improvements that may
thereafter be constructed, located on, in or made a part of the Demised
Premises, the entire cost and expense thereof (regardless of when the same shall
be incurred or become due) shall be the liability of Lessee and in no event
shall Lessor be called upon to contribute thereto or to do or pay for any work
performed, materials furnished or obligations incurred by Lessee, except as
otherwise provided in this Lease.
8. INSURANCE.
8.1. Public Liability Insurance. Lessee shall purchase and maintain public
liability insurance with responsible insurance companies authorized to do
business in the State of Georgia, having a duly designated agent or agents upon
whom process in any suit or action in the courts of the State of Georgia or of
the United States of America can be served, insuring Lessee against liability
for injuries to persons (including death) and property caused by Lessee's
negligent use and occupancy of the Demised Premises or otherwise caused by the
negligence of Lessee on the Demised Premises, the policy limits thereof to be in
an amount of not less than Five Hundred Thousand Dollars ($500,000.00) for any
one person and not less than Three Million Dollars ($3,000,000.00) for any one
occurrence involving injury (including death), to more than one person and an
amount of not less than One Hundred Thousand Dollars ($100,000.00) for property
damage
- 18 -
<PAGE>
resulting from any one occurrence. The Lessor shall be an additional named
insured in all such policies.
8.2. Motor Vehicle Liability Insurance. Lessee shall purchase and maintain
during the term of this Agreement motor vehicle liability insurance on all motor
vehicles owned, leased or otherwise used by Lessee upon the Demised Premises in
an amount of not less than Three Hundred Thousand Dollars ($300,000.00) for
injury (including death) to any one person and an amount of not less than One
Million dollars ($1,000,000.00) for any one occurrance involving injury
(including death) to more than one person, and in an amount of not less than
Twenty-five Thousand Dollars ($25,000.00) for property damage resulting from any
one occurrence.
8.3. Worker's Compensation Insurance. Leasee shall provide for and
maintain adequate Workmen's Compensation Insurance for all of Lessee's employees
upon the Demised Premises, as required by statute, and employer's liability
insurance for protection of such of Lessee's employees upon the Demised Premises
as cannot be covered by Worker's Compensation in an amount not less than One
Hundred Thousand Dollars ($100,000.00).
8.4. Improvement Insurance. Lessee shall purchase and maintain fire,
lightning, extended coverage, windstorm and malicious mischief and casualty
insurance, including vandalism, on the five (5) buildings specified in Section
7.3.1 above in the amount of their full, insurable value. The determination of
full, insurable value shall be made by Lessee at least once every other
Operating Year during the Lease Term, and the insurance coverage shall be
adjusted to reflect such valuations. Lessee shall pay the expense of such
determination.
8.5. Insurance Polices. Leasse shall furnish to Lessor a photostatic copy
of all policies of insurance obtained pursuant to this Article 8. With respect
to the first of such policies obtained, Lessee shall furnish Lessor copies of
binders evidencing
- 19 -
<PAGE>
that such coverage is in force within fifteen (15) calendar days after the date
of this Agreement and shall furnish copies of all such policies within sixty
(60) calendar days after the date of this Agreement. Such policies shall provide
that the coverage shall not be amended to decrease the protection below the
limits specified herein or be subject to cancellation without at Least thirty
(30) calendar days advance notice to the Commissioner of Finance of Lessor and,
if desired by Lessee, to Lessee and any mortgagee. Such policies obtained in
accordance with Sections 8.1 and 8.4 of this Article 8 shall also include in
addition to Lessee, Lessor as an additional named insured and, if desired by
Lessee, any Mortgagee.
8.6. Coverage by Others. Lessee shall require that all persons and
entities occupying any portion of the Demised Premises under any Sublease shall
provide and maintain during such person's use or occupancy of the Demised
Premises liability insurance with limits of liability of not less than
$300,000.00 for any injury (including death) to any one person, not less than
$1,000.000.00 for injuries (including death) to more than one person in any one
occurrence and not less than $25,000.00 for property damage in any one
occurrence. Lessee and Lessor, and, if desired by Lessee, any Mortgagees, shall
appear as additional named insureds on all such policies. Unless Lessor shall
object to the valuations as determined by Lessee within thirty (30) days from
receipt of notice from Lessee of such determination, the same shall be deemed to
have been agreed to by Lessor.
8.7. Indemnification. Notwithstanding the foregoing, Lessee shall
indemnify and hold Lessor and the officers, agents and employees of Lessor
harmless against any and all claims of any kind or character resulting from
negligent acts or omissions of Lessee or the officers, agents, exhibitors,
licensees, employees or concessionaires of Lessee in the use and occupancy of
the
- 20 -
<PAGE>
Demised Premises, or resulting from the failure of Lessee to perform any of
Lessee's obligations hereunder or to comply with any of the terms thereof, or
otherwise resulting from the negligence of Lessee or the officers or employees
of Lessee. The obligation of Lessee to hold Lessor and the officers, agents and
employees of Lessor harmless shall not be restricted to the limits of the
liability insurance required to be purchased pursuant to this Article 8.
8.8. Insurance Trustee. If required by any Mortgagee, the Net Insurance
Proceeds of payment for any loss under the policies described in Section 8.4 of
this Article 8 shall be paid to the Insurance Trustee, for the benefit of Lessor
and Lessee, to the end that the Insurance Trustee shall be entitled to collect
for the use and benefit of such Mortgagee, Lessor and Lessee the Net Insurance
Proceeds in the event of and by reason of the loss or damage of any
Improvements. Lessor and Lessee hereby authorize and direct any carrier of such
insurance to so pay the Insurance Proceeds to the Insurance Trustee.
8.9. Damage, Destruction and Restoration. If at any time any Improvements
are destroyed or damaged (in whole or in part) by fire or other casualty, Lessee
shall promptly give Notice thereof to the Insurance Trustee, and Lessee shall
give all notices required under insurance policies and shall prosecute all
claims to the extent it deems it economically feasible to do so, and Lessor
shall cooperate with Lessee in such prosecution of claims. All Net Insurance
Proceeds of insurance resulting from such claims for Lessee shall be paid to and
held by the Insurance Trustee in a separate trust account. Lessee, upon request
of the Insurance Trustee, shall apply the Net Insurance Proceeds to repair the
Improvements or to construct new Improvements which shall approximate in value
the damaged or destroyed Improvements; provided, however, in the event such
- 21 -
<PAGE>
damage or destruction affects a material portion of the Improvements, then
Lessee shall have the option to cancel this Agreement, whereupon all Net
Insurance Proceeds shall be paid over to Lessor and become the sole property of
Lessor. The foregoing option must be exercised by Lessee, if at all, by Notice
to Lessor from Lessee within ninety (90) calendar days from and after the event
of such damage or destruction.
8.10. Application of Net Insurance Proceeds. All Net insurance Proceeds,
whether held by Lessor, Lessee or the Insurance Trustee, shall be made available
to Lessee for the purpose of any repair, rebuilding or restoration by Lessee
pursuant to Section 8.9 of this Article 8. Upon completion by Lessee during the
Lease Term of the repair, restoration or construction of such Improvements, any
unexpended portion of the Net Insurance Proceeds shall inure to Lessee and any
Mortgagee, as their interests may appear.
8.11. Termination. In the event of the termination of this Agreement by
reason of an Event of Default before the expenditure of the full amount of the
Net Insurance Proceeds, any unexpended balance remaining thereof, including any
interest previously earned by such balance, shall inure to and become the sole
property of Lessor, subject to the rights of any Mortgagee having an interest
therein.
8.12. Investments. Any moneys held by the Insurance Trustee under the
provisions of Section 8.8 of this Article 8 shall, at the written request of
Lessee, be invested or reinvested by the Insurance Trustee as specified by
Lessee in such request, or in the absence of such specification, in such
investments as the Insurance Trustee shall deem proper.
8.13. Evidence of Payment. Lessee shall promptly furnish to Lessor
duplicate receipts or satisfactory evidence of the payment of all premiums on
any and all insurance required to be carried by Lessee in accordance with this
Agreement.
- 22 -
<PAGE>
8.14. Invalidation. Lessee agrees and covenants that Lessee will not do or
permit to be done in, to, or about the Demised Premises, any act or thing which
will invalidate any insurance pertaining to any Improvements; and, further,
Lessee will not permit any Improvements at any time to be put, kept or
maintained on the Demised Premises in such condition that the same cannot be
insurable in the amount of the full insurable value thereof.
9. MORTGAGES.
9.1. Encumbrances. Lessee shall have the right to encumber by Mortgage (or
Mortgages) all or any portion of Lessee's rights and interests hereunder
including, without limiting the generality of the foregoing, all or any portion
of Lessee's rights and interests in and to all Improvements on the Demised
Premises. In all respects, however, any Mortgagee's interests shall be
subordinate, inferior and junior to Lessor's rights, title, privileges, liens
and interests as provided in this Agreement, subject to the rights of any such
Mortgagee to cure any Event of Default by Lessee as herein provided. Lessee
shall not have the right to, in any way, burden or encumber Lessor's fee simple
title and reversionary interest in and to the Demised Premises.
9.2. Notices to Mortgagees. If, at any time after the execution and
recording in the Office of the Clerk of the Superior Court of Fulton County,
Georgia, of any Mortgage, the Mortgagee thereunder shall notify Lessor in
writing that such mortgage has been given and executed by Lessee, and shall at
the same time furnish Lessor with a copy of such Mortgage certified as true and
correct by the said Clerk, and the address to which such Mortgagee desires
Notices and copies of suits as hereinbelow provided to be mailed, Lessor hereby
agrees that Lessor will mail to such Mortgagee, as a notice, duplicate copies of
any and all suits filed by Lessor against Lessee and such Notices as Lessor has
agreed to provide to Mortgagees under Section 10.4
- 23 -
<PAGE>
of Article 10 of this Agreement. Notification by any Mortgagee shall cease to be
effective upon written notice by such Mortgagee to Lessor of the satisfaction of
the Mortgage held by such Mortgagee.
9.3. Cure by Mortgagees. To the extent that Lessee grants such right to
any Mortgagee, such Mortgagee may, at the option of such Mortgagee, at any time
before Lessor shall have terminated this Agreement as provided in Section 10.4
of Article 10 of this Agreement, pay any amount or do any act or thing required
of Lessee by the terms of this Agreement. All payments so made and all acts or
things so done and performed by any such Mortgagee shall be as effective to
prevent a forfeiture of the rights and interests of Lessee hereunder as the same
would have been if done and performed by Lessee instead of any such Mortgagee.
Lessor shall not modify, terminate, cancel or surrender this Lease without the
prior written consent of any Mortgagee entitled to Notice under Section 9.2,
except upon the occurrence of an Event of Default as defined in Section 10.2 and
then only if all conditions and provisions of Articles 9 and 10 have been fully
complied with by Lessor and such Event of Default continues and has not been
cured pursuant to the provisions of Article 10.
9.4. Subrogation. Any Mortgage given by Lessee may be so conditioned as to
provide that as between Lessee and any Mortgagee under such Mortgage, such
Mortgagee, on curing any circumstances which might ripen into an Event of
Default, shall be thereby subrogated to any and all of the rights of Lessee
under the provisions, covenants, terms and conditions of this Agreement.
10. DEFAULT AND TERMINATION.
10.1. Interest Conditional. The Lessee's interest created by this
Agreement is granted on the condition that should any Event of Default occur and
be continuing, then Lessor
- 24 -
<PAGE>
may, subject to all of the terms, conditions and provisions hereof, terminate
this Agreement and such Lessee's interest as provided in this Article 10.
10.2. Events of a Default. The following conditions and events shall
constitute Events of Default for purposes of this Agreement:
a. Lessee fails to make or pay any fees, charges or other payments
required hereunder when due to City within fifteen (15) days after receipt
of written notice from Commissioner of Finance of Non-payment thereof;
b. Forty-nine percent (49%), or more, of the ownership of Lessee is in any
calendar year transferred, passes to or devolves upon (by operation of law
or otherwise) any other person, firm or corporation without the written
consent of the Lessor, unless such transfer of interest is approved or
permitted under Articles 3, 9, or 11;
c. Lessee fails to keep, perform and observe each and every promise,
covenant and condition set forth in this Agreement on its part to be kept,
performed or observed for thirty (30) days after receipt of written notice
of default from Comissioner of Finance, except where fulfillment of such
obligation requires activity over a period of time and Lessee has
commenced to perform whatever may be required within thirty (30) days
after receipt of such notice from the Comissioner of Finance and continues
such perfomances without interruption except for causes beyond its
control;
d. The levy of any attachment or execution, or the appointment of any
receiver, or the execution of any other process of any court of competent
jurisdiction which is not vacated, dismissed or set aside within a period
of ninety (90) days and which does, or as a
- 25 -
<PAGE>
direct consequence of such process will, interfere with Lessee's use of
the Demised Premises or with its operations under this Agreement;
e. Lessee 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 reorganization, or for readjustment of
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 located within the Demised Premises;
f. By order or decree of court, Lessee is adjudged bankrupt, or an order
is made approving a petition filed by any of the creditors or stockholders
of Lessee seeking the 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;
g. A petition under any part of the federal bankruptcy laws, or an action
under any present or future solvency law or statute is filed against
Lessee and is not dismissed within one hundred twenty (120) days;
h. By, pursuant to or under authority of (1) any legislative act,
resolution or rule, or (2) any 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 Lessee, and such possession or control continues in effect for
a period of one hundred twenty (120) days;
i. Any lien is filed against the Demised Premises because of any act or
omission of Lessee or a sub-tenant and such lien is not removed, enjoined
or a bond for
- 26 -
<PAGE>
satisfaction of such lien is not posted within sixty (60) days after
Lessee has actual knowledge of the filing of such lien; or
j. Lessee voluntarily abandons, deserts or vacates the Demised Premises.
10.2.1. Lessee's Right to Contest and Effect of Acceptance.
a. Nothing in this Section 10.2 shall prohibit Lessee from contesting in
good faith any governmental authority's requirements or its duty to pay
any tax, lien, claim, charge or demand, but Lessee shall comply with all
laws, ordinances, rules, regulations, orders and other governmental
directives until and unless relieved from doing so by a court of
competent jurisdiction.
b. No acceptance by Lessor of the fees and charges or other payments
specified herein, in whole or in part, and for any period or periods,
after a default in complying with any of the terms, covenants and
conditions to be performed, kept or observed by Lessee shall be deemed a
waiver of any right on the part of Lessor to cancel or terminate this
Agreement on account of such default, so long as such default continues.
10.2.2. Lessor's Rights of Re-Entry. Subject to the provisions of Article
9 and Section 10.3 through 10.9, Lessor shall, as a non-exclusive remedy, upon
the giving of written notice of cancellation or termination as above provided,
have the right to re-enter the Demised 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 may regain and resume possession
either with or without the institution of summary or legal proceedings or
otherwise. Such re-entry, however, shall not in any manner affect, alter or
diminish any of the obligations of Lessee under this Agreement.
- 27 -
<PAGE>
10.2.3. Additional Rights of Lessor. Lessor, upon termination or
cancellation of this Agreement, or upon re-entry, regaining or resumption of
possession of the Demised Premises, pursuant to 10.2 hereof, may occupy said
premises and shall have the right to permit any person, firm or corporation to
enter upon the Demised Premises and use the same. Such occupation by others may
be of only a part of said Premises, or the whole thereof or a part thereof
together with other premises, and for a period of time the same as or different
from the balance of the term remaining hereunder, and on terms and conditions
the same as or different from those set forth in this Agreement. Lessor shall
also have the right to repair or to make such structural or other changes in the
Demised Premises as are necessary in its judgment to maintain the suitability
thereof for uses and purposes similar to those granted under this Agreement
without affecting, altering or diminishing the obligations of Lessee hereunder.
10.2.4. Survival of Lessee's Obligations. In the event this Agreement is
terminated or cancelled by Lessor pursuant to the provisions of this Agreement,
or in the event Lessor re-enters, regains or resumes possession of the Demised
Premises, Lessor shall be entitled to recover damages to be computed in the
following manner: Subject to Lessor's obligation to mitigate damages, Lessor
shall be entitled to recover the amount or amounts of fees and charges which
would have been due and payable to Lessor to the same extent, at the same time
or times, and in the same manner as if no termination, cancellation, re-entry,
regaining or resumption of possession had taken place. Lessor shall have the
responsibility to diligently seek mitigation of damages in the event of such
termination, cancellation or resumption of possession.
10.2.5. Waiver of Redemption and Damages. Lessee hereby waives any and all
rights of redemption and damages granted by or under any present or future law
or statute in the
- 28 -
<PAGE>
event it is dispossessed by reason of an uncured default, and Lessor obtains or
retains possession of the Demised Premises in any lawful manner.
10.3 Force Majeure. For the purpose of any of the provisions of this
Agreement, neither Lessor nor Lessee, as the case may be, nor any successor in
interest, shall be considered in breach of, or default in, the obligations
thereof with respect to this Agreement in the event of enforced delay in the
performance of such obligations due to unforeseeable causes beyond the control
and without the fault or negligence thereof, including, but not restricted to,
acts of God, acts of the public enemy, acts of the Federal Government, acts of
the other party, fires, floods, epidemics, quarantine restrictions, strikes,
freight embargoes, unusually severe weather or delays of any contractor or
subcontractors due to such causes; it being the purpose and intent of this
Section 10.3 that in the event of the occurrence of any such enforced delay, the
time or times for perfomance of the obligations of Lessor or Lessee, as the case
may be, with respect to this Agreement shall be extended for the period of the
enforced delay; provided that the party seeking the benefit of the provisions of
this Section 10.3 shall, within ten (10) calendar days after the beginning of
any such enforced delay, have first notified the other party thereof by Notice,
and of the cause of causes thereof, and requested an extension for the period of
the enforced delay.
10.4. Remedies. If an Event of Default has occurred and is continuing,
Lessor may, at Lessor's option, upon giving sixty (60) calendar days prior
Notice to any Mortgagee entitled to such Notice as provided In Section 9.2 of
Article 9 of this Agreement of the circumstances which may ripen into any such
Event of Default (which Notice may be given concurrently with any Notice to
Lessee from Lessor required pursuant to Section
- 29 -
<PAGE>
10.2 of the Article l0), except as otherwise provided in Section 10.5 of this
Article 10, unless such Mortgagee is in compliance with either Section 10.4 or
Section 10.5 of this Article 10, in good faith instituted proceedings necessary
to secure such possession and if Mortgagee proceeds with due diligence to cure
the circumstances which may ripen into such Event of Default, Lessor will not
terminate this Agreement provided Mortgagee, for the period from the inception
to the cure of such circumstances, pay all Rent and other monetary sums due
Lessor under this Agreement and otherwise performs all the other obligations
required by this Agreement to be performed by Lessee, which Mortgagee is able to
perform under the circumstances.
10.5. Foreclosure by Mortgagee. If the nature of the circumstances which
may ripen into an Event of Default (as declared by Lessor under Section 10.4 of
this Article 10) is such that the same cannot be cured by Mortgagee, then if
Mortgagee, after receiving Notice of such circumstances and prior to the
expiration of the first thirty (30) days of the sixty (60) calendar days grace
period in Section 10.4 of this Article 10, promptly institutes foreclosure
proceedings to foreclose the Mortgage held by such Mortgagee, and proceeds with
due diligence to prosecute such foreclosure proceedings to a conclusion, Lessor
will not terminate this Agreement provided Mortgagee, for the period from the
inception of such circumstances until such foreclosure proceedings are
concluded, pays all Rent and other monetary sums due Lessor under this Agreement
and otherwise performs all other obligations required by this Agreement to be
performed by Lessee, which Mortgagee is able to perform under the circumstances.
Such Mortgagee, following foreclosure thereby upon any interest of Lessee under
this Agreement and Mortgagee's purchase of Lessee's interest at such
foreclosure, shall be obligated as the successor to Lessee under this Agreement
for such obligations as mature under the terms of this Agreement only during the
time that the title to the Lessee's interest is and remains vested in such
Mortgagee.
- 30 -
<PAGE>
Any purchaser at any foreclosure sale shall not have the right to
transfer, sell, convey and assign the interest and title purchased at such sale
without the approval or consent of Lessor. Said approval or consent shall not be
unreasonably withheld.
10.6. New Lease. If any Mortgagee shall effect a cure of circumstances
which may ripen into an Event of Default, as allowed by Sections 10.4 and 10.5
of this Article 10, such Mortgagee, at its option, shall have the right to
notify Lessor by Notice within ten (10) calendar days after such Mortgagee shall
have effected such cure that such Mortgagee is desirous of assuming this
Agreement for the remainder of the Lease Term, provided such Mortgagee in said
Notice obligates itself to immediately (i) pay to Lessor all unpaid Rent and
other monetary sums which are due, or which except for such termination would
otherwise be due, under this Agreement up to and including the date of
commencement of the term following such assumption of this Agreement; and (ii)
pay to Lessor all expenses and reasonable attorney's fees incurred by Lessor in
connection with any such circumstances which might have ripened into an Event of
Default.
10.7. Operation by Lessor. Lessor agrees that after a circumstance which
may ripen into an Event of Default until the assumption of this Agreement as
contemplated by Section 10.6 of this Article l0, Lessor will do nothing which
would give rise to any liens against the Demised Premises, and Lessor shall have
the right, but not the obligation, to operate the Demised Premises. If Lessor
shall elect to operate the Demised Premises, then Lessor shall pay over to
Mortgagee the net income or rental received by Lessor, if any, derived from the
operation of the Demised Premises from the date Lessor commenced such operation,
or Mortgagee shall pay over to Lessor the net deficit to Lessor from such
operation, both determined in accordance with an audit prepared for and
certified to Lessor and Mortgagee by an independent certified
- 31 -
<PAGE>
public accountant registered and licensed in the State of Georgia and approved
in writing by Lessor and Mortgagee. The cost and expense of the said audit shall
be borne by Mortgagee.
10.8. Possession. If any Mortgagee shall become entitled to possess the
Demised Premises, whether by reason of foreclosure, succession to the Lessee's
interests, by assumption of this Agreement or otherwise, Lessor shall, at the
request, cost and expense of Mortgagee take all appropriate steps and action to
remove any persons from possession and to put Mortgage (or its assigns) in
possession of the Demised Premises, but Lessor shall not be liable to Mortgagee
or to any person for any damages resulting from any delay in delivering
possession of Demised Premises, and there shall be no abatement of rental under
any new Lease Agreement or otherwise by reason of any delay.
11. ASSIGNMENTS, SUBLEASES AND OCCUPANCY LEASES.
11.1. Assignments and Transfers. Lessee shall not sell, assign or
otherwise convey its title and interest in the Demised Premises or any part
thereof except as permitted by Section 9.1, 11.2 and 11.3 of this Agreement or
as may otherwise be approved by Lessor, which approval shall not be reasonably
withheld. There shall be no transfer within any calendar year of forty-nine
percent (49%) or more of the ownership of Lessee to any person, firm or entity
(excluding transfers to the immediate family and trusts for the immediate family
of the transferor) without approval by Lessor, which approval shall not be
unreasonably withheld.
11.2. Occupancy Leases and Subleases. Lessee may enter into Occupancy
Leases as defined herein for the whole or any portion of the Demised Premises
and/or Improvements without reference to or approval by the Lessor.
Lessee may enter into subleases as defined herein for the whole or any
portion of the Demised Premises and/or Improve-
- 32 -
<PAGE>
ments after obtaining approval by Lessor, acting through its governing body. All
such subleases must contain language concerning nondiscrimination as required by
Section 14.12 infra.
11.3. Effect of Termination. All Occupancy Leases and all Subleases shall
be subordinate to this Agreement (subject to the provisions of Paragraph 7.8)
and shall contain a covenant on the part of the tenant thereunder to the effect
that neither the termination of this Agreement nor the institution of any suit,
action, or proceeding by Lessor to recover possession of the Demised Premises
shall by operation of law, or otherwise, result in the cancellation or
termination of such Occupancy Leases or Subleases (or of any of the obligations
of tenant therein or thereunder) so long as no uncured default exists
thereunder, and if such tenant shall attorn to Lessor or Lessor's successor in
interest. The requirements of any Mortgagee holding a Mortgage, with respect to
any of such Subleases or Occupancy Leases shall govern the relative priorities
of such Mortgage and such Occupancy Leases and such Subleases and the rights of
such Mortgagee concerning such Occupancy Leases and such Subleases which are not
inconsistent with these provisions.
12. CONDEMNATION.
12.1. Condemnation Proceedings. If, during the Lease Term, the Demised
Premises or any portion thereof be condemned and taken by the United States of
America, the State of Georgia or by other body having power of eminent domain
thereover, then the provisions of this Section 12.1 shall apply.
12.1.1. The amount of any awards from any condemnation shall be made
separately to Lessor and Lessee to adequately compensate Lessor and Lessee for
the fair market value of each of their respective interests in the Demised
Premises without reference to or consideration of any termination of this Lease
or the obligations hereunder relating to the portion of the Demised Premises
condemned.
- 33 -
<PAGE>
12.1.2. If all of the Demised Premises is condemned, or such portion
thereof is condemned so that the residue has substantially no commercial value
to Lessee, then the obligations of Lessee to pay Rent which would accrue after
the date that condemnor takes possession of the condemned property shall
terminate. If, after a condemnation occurs, the residue of the Demised Premises
has commercial value to Lessee, then Lessor and Lessee shall mutually select a
qualified, independent real estate appraiser who shall, as expeditiously as
possible, determine the commercial value to Lessee of the residue of the
property remaining after such condemnation. If Lessor and Lessee are unable to
agree in their selection of such appraiser, then an appraiser shall be appointed
by the presiding judge of the Superior Court of Fulton County, Georgia, and the
appraiser so selected shall determine the commercial value to Lessee of said
residue of such Demised Premises. The Minimum Rent, as adjusted, and the
percentage rent payable under the provisions of Article 5 of this Agreement
shall be reduced to that percentage thereof which the value of said residue (as
so determined), bears to the sum of said value and the amount paid by award to
Lessor and Lessee under Section 12.1.1 hereof.
12.1.3. No Acknowledgement. This Article 12 shall not constitute an
acknowledgment or be construed as constituting an acknowledgment by Lessor or
Lessee or either or both of them that Lessor's rights as an entity of government
in and to the reversionary fee simple estate in the Demised Premises are in any
manner subject to any power of eminent domain vested in any government or other
body.
13. NOTICES.
13.1. Notices. All Notices provided for or permitted to be given pursuant
to this Agreement must be in writing and shall be deemed to have been properly
given or served by depositing such in the United States Mail, postpaid and
registered
- 34 -
<PAGE>
or certified return receipt requested, and addressed as hereinafter provided.
All Notices shall be effective upon being deposited in the united states mail,
however, the time period in which a response to any Notice must be given, if
any, shall commence to run from the date of receipt on the return receipt of the
Notice by the addressed thereof. Rejection or other refusal to accept or the
inability to deliver because of changed address of which no notice was given
shall be deemed to be receipt of the notice. In the event that registered or
certified mail is not being accepted for prompt delivery, notices may then be
served by personal service on the person to whose attention notices are to be
addressed as herein provided. By giving at least thirty (30) days notice
thereof, Lessor, Lessee, the Insurance Trustee and any Mortgagee shall have the
right from time to time and at any time during the term of this Agreement to
change their respective addresses and each shall have the right to specify as
its address any other address within the United States of America.
13.2. Address. Notices shall be addressed as provided in Subsections
13.2.1 and 13.2.2 of this Section 13.2. This Section 13.2 shall from time to
time be supplemented by Lessor and Lessee as required to add hereto the
addresses for Notice to the Insurance Trustee and Mortgagees, and to reflect
changes in the address of the parties.
13.2.1. A11 Notices to Lessor shall be addressed to:
City of Atlanta
68 Mitchell Street, S.W.
Atlanta, Georgia 30303
Attention: The Commissioner of Finance
13.2.2. All notices to Lessee shall be addressed to:
Filmworks U.S.A., Inc.
2000 Lakewood Way, S.E.
Atlanta, Georgia 30315
14. MISCELLANEOUS.
14.1 Inspection. Lessor or the agents of Lessor may, but shall be under no
duty to, enter the Demised Premises at
- 35 -
<PAGE>
reasonable time and hours and without unreasonable interference with the use of
the Demised Premises, to inspect the Demised Premises in order to determine
whether or not Lessee is complying with the undertakings, duties and
obligations of Lessee under this Agreement and Lessor shall indemnify Lessee
from any loss or damage sustained as a result of inspections.
14-2. Zoning. Without limiting the covenants and warranties of Lessor set
forth in Section 3.2 of Article 3 of this Agreement, Lessee takes the Demised
Premises subject to all zoning regulations and ordinances now in force,
including but not limited to, those as to building line and setback. Upon
written request of Lessee, Lessor shall initiate appropriate zoning proceedings
necessary to allow uses of the property contemplated by this Agreement at no
cost to Lessee. Lessee agrees to assist and participate in such proceedings at
no cost to Lessor. In the event such rezoning has not occurred within five (5)
months after initiated, Lessee shall have the option to terminate this
Agreement, and thereafter stand relieved of any and all responsibilities, duties
and obligations to Lessor. Lessee at Lessee's own expense may, in good faith,
contest and litigate as to validity of any ordinance, rule, regulation,
resolution or statute of any govermental body affecting the Demised Premises at
Lessee's use or occupancy thereof if said ordinance, rule, regulation,
resolution or statute is considered by Lessee to be invalid.
14.3. Holding Over. Lessee shall not use or remain in possession of the
Demised Premises after the expiration of the Lease Term. Any holding over, or
continued use and/or occupancy by Lessee, after the expiration of the Lease
Term, without written consent of Lessor, shall not constitute a tenant at will
interest in behalf of Lessee; but Lessee shall become a tenant at sufferance at
the annual rate of Rent for the last year of the Lease Term set out above. If
Lessor accepts Rent from Lessee as a tenant at sufferance, such tenancy shall be
terminable by
- 36 -
<PAGE>
either Lessor or Lessee upon one hundred eighty (180) days prior notice to the
other. There shall be no renewal whatsoever of this Agreement by operation of
law.
14-4. Non-Waiver. No failure of Lessor to exercise any power given Lessor
hereunder or to insist upon strict compliance by Lessee with the undertakings,
duties and obligations of Lessee hereunder, and no custom or practice of Lessor
and Lessee at variance with the terms hereof shall constitute a waiver of
Lessor's right to demand exact compliance with the provisions, covenants, terms
and conditions of this Agreement.
14.5. Rights Cumulative. All rights, powers and privileges conferred
herein upon both Lessor and Lessee shall be cumulative.
14.6. Successors and Assigns. It is mutually covenanted, understood and
agreed by and between Lessor and Lessee that each of the stipulations,
expressions, phrases, provisions, covenants, terms and conditions of this
Agreement shall apply, extend to, be binding upon and inure to the benefit or
detriment not only of the parties hereto, but to the legal representatives,
successors and assigns of Lessor and Lessee, and shall be deemed and treated as
covenants real running with the Demised Premises during the Lease Term.
Whenever a reference to the parties hereto is made, such reference shall be
deemed to include the legal representatives, successors and assigns of said
party, the same as if in each case expressed.
14.7. Governing Law. It is mutually covenanted, understood and agreed by
and between Lessor and Lessee that this Agreement and the leasehold estate
created hereby shall be governed, construed, performed and enforced in
accordance with the laws of the State of Georgia.
14.8. Termination. The words "terminate" or "termination" as used herein
shall refer to the end of the Lease
- 37 -
<PAGE>
Term whether due to the expiration thereof or the earlier end of this Agreement
by reason of an Event of Default.
14.9. Terminology. Whenever the singular or plural number, or masculine,
feminine, or neuter gender is used in this Agreement, it shall equally apply to,
extend to and include the other. The headings of Articles and Sections herein
are included only for convenience of reference, and shall not be considered in
the interpretation of this Agreement.
14.10. Estoppel Certificates. Lessor and Lessee agree that at any time and
from time to time upon not less than ten (10) days prior notice by the other,
Lessor or Lessee will execute, acknowledge and deliver to the other a statement
in writing certifying (a) that this Agreement is unmodified and in full force
and effect or if there have been modifications that the same is in full force
and affect as modified and identifying the modifications, (b) the date to which
the Rent and other charges have been paid, and (c) that so far as the certified
knows, there is no default (regardless of whether such shall have ripened into
an Event of Default, specifying the nature of same. Estoppel Certificates may be
relied upon by any person or entity proposing to acquire Lessor's or Lessee's
interests hereunder, or any portion thereof or interest therein, as the case may
be, and by any Mortgagee or prospective Mortgagee (or any Assignee thereof) now
or hereafter having any present or prospective interest in the right, title or
Interest of Lessor or Lessee created hereby or existing hereunder.
14.11. Time of the Essence. All time limits stated in this Agreement are
of the essence.
14.12. Non-Discrimination. As a contractor with Lessor, Lessee hereby
agrees with Lessor that Lessee shall be bound by the valid laws of the United
States, the State of Georgia and all valid ordinances and laws of the City of
Atlanta, Georgia
- 38 -
<PAGE>
with reference to prohibitions against discrimination on the basis of race,
religion, color, sex or national origin, and specifically, Lessee acknowledges
that Lessee has been made fully aware of the provisions of Section 5-5153
through 5-5154 of the Code of Ordinances of the City of Atlanta, and that Lessee
shall be bound by the provisions thereof as the same exist upon the date of the
execution of this Agreement. Said provisions are attached hereto marked Exhibit
F and incorporated herein by reference. In any event, at a minimum, Lessee
pledges that with respect to all capital improvements made upon the Demised
Premises at least twenty-five percent (25%) of all expenditures during each
Operating Year for such capital improvements shall be made in connection with
contracts awarded to certified minority or joint venture contractors approved by
the Contract Compliance officer of the City of Atlanta. Provided however, that
foe Purposes of this section interest payments made on loans for capital
improvements shall not be included in the computation hereunder.
Furthermore, Lessee pledges that at least twenty-five percent (25%) of all
expenditures during each Operating Year for operating expenses in connection
with its operations on the Demised Premises shall consist of purchases made from
vendors who are certified as approved minority or joint-venture vendors by the
Contract Compliance Officer of the City of Atlanta.
For purposes of this Section, compliance with the percentage requirements
herein shall be determined annually conmencing with the first Operating Year.
For purposes of determining compliance with this section Lessor shall have
the right at any time to request production of any and all information available
to Lessee concerning its expenditures within the meaning of this section.
All Subleases entered into pursuant to this Agreement shall contain
language similar in substance to this Section 14.12 with regard to the
obligations of the Subleases.
- 39 -
<PAGE>
14.13. Lessee acknowledges that Lessee has been fully informed concerning
Code of Ordinances of the City of Atlanta requirements relating to equal
employment opportunity provisions of public contracts of the City of Atlanta,
and Lessee declares its intention and obligation under the terms of this
Agreement to fully comply with all of the provisions of said Code of Ordinances.
14.14. Complete Agreement. This Agreement constitutes the full, complete
and entire agreement between and among Lessor and Lessee concerning the Demised
Premises; no agent, officer or representative of Lessor or Lessee has authority
to make, or has made, any statement, agreement, representation or
contemporaneous agreement, oral or written, in connection herewith modifying,
adding to or changing the provisions, convenants, terms and conditions hereof.
No modification or amendment of this Agreement shall be binding unless such
modification or amendment shall be in writing and signed by both Lessor and
Lessee.
14.13. Transactions with Affiliates.
14.15.1. All transactions between Lessee and any Affiliate of Lessee with
respect to the use or occupancy of the Demised Premises or any portion thereof
shall be entered into upon an "arms-length" basis such that the rentals or other
charges payable to Lessee are as if the same space or services had been leased
by an Entity having no common ownership with Lessee. Lessee and Lessor
acknowledge and agree that the purpose of the foregoing is to assure that for
such transaction the Gross Revenues of Lessee, upon which percentage rental is
due Lessor pursuant to this Agreement, are not less than such Gross Revenues
would have been if Lessee had dealt with an independent Entity instead of with
such Affiliate.
14.15.2. Lessee shall, within sixty (60) calendar days followinq the end
of each Operating Year, deliver to Lessor a schedule of all transactions with
respect to the use of the
- 40 -
<PAGE>
Demised Premises between Lessee and any Affiliate of Lessee entered into during
the preceeding Operating Year, listing the amount paid Lessee with respect to
each such transaction.
14.16. UDAG Application. Lessor has been requested by Lessee to prepare
and file an application for an Urban Development Action Grant with the
Department of Housing and Urban Development of the United States Government for
assistance in the development of the Demised Premises. The parties agree to seek
such grant by cooperating with one another in approval of the application.
14.17. Industrial Development Bonds. The parties recognize that it is the
intention of Lessee to seek approval by the Fulton County Development Authority
of an Industrial Revenue Bond Issue by said Authority for the purpose of
financing certain improvements of the Demised Premises. Lessor agrees to
cooperate fully with Lessee in connection with the procedures required to obtain
such approval and the issuance of said bonds.
14.18. Historic Designation of Demised Premises. The parties agree that
certain structures and areas on the Demised Premises may be eligible for
inclusion on the National Register of Historic Places or for other designations
as historic places or historic structures by a governmental entity.
Either party may request assistance from the other in preparing and
processing an application for such historic designation, and the other party
will provide assistance as reasonably requested in making such application. Such
assistance shall include, but not necessarily be limited to, staff assistance
and access to records necessary to promote the application.
14.19. Existing Leases and Subleases. Lessor agrees to transfer all
existing leases and subleases now in force upon the Demised Premises to Lessee
and to prorate rentals as of the date of this Instrument.
- 41 -
<PAGE>
14.20. Survey. Lessee, at it option, or Lessor, at its option, may at any
time cause to be prepared a certified survey of the property (including but not
limited to a definition of the Park Parcel) by a Georgia Registered Surveyor and
shall furnish a copy of any such survey to the other party hereunder.
14.21. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original and all of which
together shall comprise but a single instrument.
IN WITNESS WHEREOF, Lessor and Lessee, acting through their respective
proper and duly authorized officers, have executed this Agreement on the day and
year hereinabove first written.
ATTEST: CITY OF ATLANTA, a Municipal
Corporation Chartered Pursuant to
the Laws of the State of Georgia
("Lessor")
/s/ [Illegible] /s/ [Illegible]
- ---------------------------- --------------------------------------
Clerk of Council Mayor
Recommended:
/s/ [Illegible]
--------------------------------------
Chief Administrative Officer
As to the Mayor, Deputy City Approved as to form on behalf of
Clerk and Chief Administrative the City of Atlanta:
Officer, signed, sealed and
delivered in the presence of:
/s/ [Illegible]
- ---------------------------- --------------------------------------
Unofficial Witness Commissioner, Parks, Recreation
and Cultural Affairs
/s/ [Illegible] /s/ [Illegible]
- ---------------------------- --------------------------------------
Notary Public [Illegible] Commissioner of Finance
Approved as to form on behalf of
the City of Atlanta:
/s/ [Illegible]
--------------------------------------
Assistant City Attorney
CORP.
SEAL
As to Filmworks U.S.A., Inc. FILMWORKS U.S.A., INC.
and the execution by its
officers, signed, sealed and
delivered in the presence of: By: /s/ [Illegible]
----------------------------------
/s/ [Illegible] President
- ----------------------------
Unofficial Witness
/s/ [Illegible]
----------------------------------
/s/ [Illegible] Secretary
- ----------------------------
Notary Public [Illegible]
<PAGE>
[ILLEGIBLE]
A SUBSTITUTE ORDINANCE BY COUNCILMEMBERS
DEBBY McCARTY, BARBARA ASHER, ROBB PITTS
AND DOZIER SMITH:
AN ORDINANCE TO AUTHORIZE THE ACCEPTANCE AND
APPROVAL ON BEHALF OF THE CITY OF ATLANTA OF A
MODIFIED PLAN IN BANKRUPTCY COURT IMPLEMENTING
THE TRANSFER AND ASSIGNMENT OF THE PRESENT LEASE
HELD BY ATLANTA LAKEWOOD ENTERPRISES, LTD., TO
FILMWORKS USA, INC., AND TO AUTHORIZE THE MAYOR
TO EXECUTE AN AMENDED LEASE WITH SAID FILMWORKS
USA, INC., FOR THE PURPOSE OF DEVELOPING THE
COMPLEX AT LAKEWOOD FAIRGROUNDS AS A MOVIE
PRODUCTION FACILITY, AND FOR OTHER PURPOSES.
WHEREAS, in May, 1979, the City of Atlanta entered into a contract with Atlanta
Lakewood Enterprises, Ltd., whereby the City leased Lakewood Fairgrounds for the
purpose of developing a movie production facility; and
WHEREAS, the said Atlanta Lakewood Enterprises, Ltd., never paid any rent,
thereby defaulting on its lawful obligations to the City; and
WHEREAS, the said Atlanta Lakewood Enterprises, Ltd., filed petition in
bankruptcy on September 19, 1980, and the court entered an order preventing the
City from terminating the leases at that time; and
WHEREAS, the aforesaid bankrupt, Atlanta Lakewood Enterprises, Ltd., submitted
to the bankruptcy court a plan of reorganization whereby the bankrupt would
transfer and assign its only asset, to wit: the aforementioned lease for
Lakewood Fairgrounds, to a new purchaser if one were found and approved, with
the stipulation that the funds realized in the purchase and assignment of the
lease would pay a certain percentage of the debts of the bankrupt corporation;
and
WHEREAS, said plan of reorganization was approved by the Honorable David A.
Kahn, Bankruptcy Judge in the United States District Court for the Northern
District of Georgia, in March, 1981; and
WHEREAS, after numerous appeals said order approving the plan of reorganization
finally became effective in December, 1982; and
WHEREAS, due to the high cost of funding the reorganization plan approved by
Judge Kahn no potential purchaser has been able or willing to pay into
bankruptcy court the sum of money necessary to implement the transfer of the
lease; and
WHEREAS, the practical result of the continued existence of the reorganization
plan unfulfilled has been to make virtually useless a valuable asset belonging
to the City of Atlanta, to wit: Lakewood Fairgrounds; and
WHEREAS, a potential new purchaser has approached the bankrupt company with a
proposal for a modification of the original plan in bankruptcy, under which
modification the potential new purchaser of the lease proposes to pay the sum of
$100,000 into bankruptcy court to fund the modified plan in exchange for the
liquidation of all encumbrances against the bankrupt company's lease and the
transfer and assignment of the lease on Lakewood Fairgrounds to the potential
new purchaser; and
WHEREAS, the bankrupt company, Atlanta Lakewood Enterprises, Ltd., has agreed
with the potential new purchaser on the proposal for the modification of the
plan in bankruptcy; and
WHEREAS, on November 21, 1983, Atlanta Lakewood Enterprises, Ltd., filed a
petition in bankruptcy court setting forth the agreed-upon proposed modification
of the plan, a copy of which petition setting forth the modified plan is
attached hereto as Exhibit "A" to this ordinance; and
WHEREAS, the aforesaid potential new purchaser, a Georgia corporation known as
Filmworks USA, Inc., has proposed pursuant to the modified plan shown here as
Exhibit "A" to take an assignment of the Atlanta Lakewood Enterprises, Ltd.,
lease and thereupon to amend the lease in accordance with the terms set forth in
the proposed amended lease, a copy of which is attached hereto as Exhibit "B" to
this ordinance; and
WHEREAS, the potential new purchaser, Filmworks USA, Inc., appears to have the
resources, energy and ability necessary to make viable the plan as modified; and
WHEREAS, Lakewood Fairgrounds is potentially a valuable asset to the people and
to the economy of this City and should be utilized to its fullest for the
betterment of the citizenry;
<PAGE>
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF ATLANTA, GEORGIA:
SECTION ONE. THAT the City Attorney be, and she hereby is, authorized to consent
in the United States Bankruptcy Court for the Northern District of Georgia to an
order setting aside the previous order of that Court confirming a reorganization
plan and instituting a modified plan of reorganization in substantially the form
as set forth in Exhibit "A", to this ordinance;
SECTION TWO. THAT the Mayor be, and he hereby is, authorized on behalf of the
City of Atlanta to execute an amended lease with Filmworks USA, Inc., for the
lease of Lakewood Fairgrounds as a movie production facility for a term of
thirty-five (35) years with an option to extend for an additional fifteen (15)
years in substantially the from as the proposed amended lease attached hereto as
exhibit "B" to this ordinance and incorporated herein by reference;
SECTION THREE. THAT in exchange for the leasing of the Lakewood Fairgrounds the
lease shall provide that Filmworks USA, Inc., shall pay as rent during the term
of the lease certain sums of money according to the following schedule:
Base Rent. Subject to the subsequent provision
herein for a Minimum Rent, Filmworks USA, Inc.,
shall pay a base rental of three (3%) percent of
its annual gross revenues, commencing with the
Sixth Operating Year.
Minimum Rent. In any event, Filmworks USA, Inc.,
shall pay as a minimum rent annually the sum of
$100,000 during the first three (3) operating
years of the amended lease term; the sum of
$150,000 during the fourth (4th) and fifth (5th)
operating years; and for the sixth (6th)
operating year and thereafter Filmworks USA,
Inc., shall pay a minimum annual rental equal to
the sum of $150,000 multiplied by a fraction the
numerator of which is the Consumer Price Index
for the Current Month immediately prior to the
commencement of the Operating Year in question
and the denominator of which is the Consumer
Price Index for the Base Month, which Base Month
is defined as the last month immediately
preceding the end of the fifth (5th) operating
year for which a Consumer Price Index is
reported; and
SECTION FOUR. THAT the lease, as amended, between the City of Atlanta and
Filmworks USA, Inc., shall be in substantially the same from as the proposed
lease attached hereto as Exhibit "B" to this ordinance; THAT it shall be
approved as to form by the City Attorney prior to its execution by the Mayor;
THAT it shall not be executed until all conditions precedent as set forth in the
proposed modified plan (Exhibit "A") have been satisfied; and THAT the lease
shall not be effective and binding upon the City of Atlanta until it shall have
been executed by the Mayor and an executed copy delivered to Filmworks USA,
Inc.; and
SECTION FIVE. THAT all ordinances in conflict herewith are hereby repealed to
the extent of said conflict, PROVIDED, HOWEVER, that nothing in this repealer
shall be construed as a repeal, implied or otherwise, of those portions of that
certain Ordinance No. 1983-52, approved by Council and signed into law by the
Mayor on the 21st day of July, 1983, relative to the equality of participation
of women and minorities in the performance of City of Atlanta contracts and
subcontracts in connection therewith, which relevant part of said ordinance is
codified at Section 5-5153 and 5-5154 of the Code of Ordinances of the City of
Atlanta.
0-83-054
A true copy ADOPTED by City Council Jan 3, 1984
/S/ [ILLEGIBLE] APPROVED by the Mayor Jan 3, 1984
Filed in U.S. Bankruptcy Court
Atlanta, Georgia
DEC. 8, 1983
Johnny [ILLEGIBLE], Clerk
By: /s/ [ILLEGIBLE]
-----------------------------
Deputy Clerk
RECEIVED
DEC 16, 1983
<PAGE>
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
IN THE MATTER OF: : CASE NUMBER
:
ATLANTA LAKEWOOD ENTERPRISES, : 80-03317A
LTD., :
: IN PROCEEDINGS UNDER
: CHAPTER 11 OF THE
DEBTOR. : BANKRUPTCY CODE
ORDER AND NOTICE APPROVING DISCLOSURE STATEMENT
AND FIXING TIME FOR FILING ACCEPTANCE OR REJECTION OF SECOND
MODIFIED PLAN, AND NOTICE OF CONFIRMATION HEARING,
AND NOTICE OF THE TIME FIXED FOR FILING OBJECTIONS TO
TO CONFIRMATION OF THE SECOND MODIFIED PLAN
A disclosure statement under Chapter 11 of the Bankruptcy Code, 11
U.S.C. ss.101 et seq., having been filed by the Debtor in the above-styled case
on November 21, 1983, referring to a second modified plan under Chapter 11 of
the Code, also filed by the Debtor on November 21, 1983; and
It having been determined after hearing on notice that the
disclosure statement contains adequate information;
IT IS ORDERED, AND NOTICE IS HEREBY GIVEN THAT:
A. The disclosure statement filed by the Debtor in the above-styled
case, dated November 21, is approved.
B. January 5, 1984, is fixed as the last day for filing written
acceptances or rejections of the plan referred to above.
C. Within 4 days after the entry of this order, the plan, the
disclosure statement, and a ballot conforming to Official Form No. 30, shall be
transmitted by mail to creditors, equity security holders and other parties in
interest, as provided in Rule 3017 (d).
D. January 11, 1984, is fixed for the hearing on confirmation of the
plan. Said hearing shall be held at 2:30 o'clock P.M., in Courtroom 1707, of the
United States Courthouse, 75 Spring Street, S.W., Atlanta, Georgia, before the
undersigned. Said hearing may be adjourned from time to time by announcement
made in open court without further written notice to parties in interest.
E. January 5, 1984, is fixed as the last day for filing and serving
pursuant to Rule 302 [ILLEGIBLE] written objections to confirmation of the
plan. Any such objections shall be filed with the Clerk, United States
Bankruptcy Court, Room 1340, United States Courthouse, 75 Spring Street, S.W.,
Atlanta, Georgia 30303.
IT IS SO ORDERED.
At Atlanta, Georgia, this 6 day of December, 1983.
/s/ A.D. Kahn
------------------------------------
A. D. KAHN
UNITED STATES BANKRUPTCY JUDGE
Filed in U.S. Bankruptcy Court
Atlanta, Georgia
NOV 21 1983
Johnny [ILLEGIBLE], Clerk
By: /s/ [ILLEGIBLE]
-----------------------------
Deputy Clerk
<PAGE>
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
RECEIVED
DEC 16, 1983
LAW DEPARTMENT
IN RE: : CHAPTER 11
:
ATLANTA LAKEWOOD ENTERPRISES, : CASE NO. 80-03317A
LTD., :
:
:
Debtor :
DISCLOSURE STATEMENT
FOR SECOND MODIFIED PLAN OF REORGANIZATION
I.
INTRODUCTION
Atlanta Lakewood Enterprise, Ltd., the Debtor, provides this
Disclosure Statement for all of its known holders of a claim or interest in
order to disclose that information deemed by the Debtor to be material,
important, and necessary for the holders of a claim or interest to arrive at an
informed decision in exercising their right to vote for acceptance of the Second
Modified Plan of Reorganization (hereinafter "the Plan") which has been filed by
the Debtor. A copy of the Plan accompanies this Statement.
At a later date the Court, by Order, will fix a date for a hearing
on the acceptance of the Plan. Creditors may vote on the Plan by filling out and
mailing the Acceptance form, which will be attached to the Order, to the Clerk,
Bankruptcy Court, Room 1240, 75 Spring Street, S.W., Atlanta, Georgia 30335, or
may attend such hearing and present the Acceptance in person at that time.
NO REPRESENTATIONS CONCERNING THE DEBTOR OR THE PLAN ARE AUTHORIZED
BY THE DEBTOR OTHER THAN AS SET FORTH IN THIS STATEMENT. ANY REPRESENTATION OR
INDUCEMENTS MADE TO SECURE YOUR ACCEPTANCE WHICH ARE OTHER THAN AS CONTAINED IN
THIS STATEMENT SHOULD NOT BE RELIED UPON BY YOU IN ARRIVING AT YOUR DECISION.
II.
BACKGROUND
Debtor is a Georgia corporation formed in February, 1979.
The corporation was formed for the purpose of acquiring a lease from
the City of Atlanta on the property known generally as Lakewood Fairgrounds. On
May 1, 1979, debtor did become a Lessee of the property.
It was the intention of Debtor to develop the leased property into a
facility for the production of films and related entertainment activities.
Although the Debtor operated in this fashion, it has been unable to develop the
enterprise to the extent necessary to become a profitable operation and on
September 19, 1980 this Chapter 11 case was instituted by the Debtor. At that
time Debtor was in arrears on the lease liabilities to the City of Atlanta, and
the City had advised that it intended to terminate the lease.
Debtor had determined that it was not capable of reorganizing itself
in order to continue business and had submitted its Modified Plan of
Reorganization filed with the court January 19, 1981, which was subsequently
confirmed by the Court; however, that Plan required funds in excess of
$300,000.00 and Debtor has been unable to find an Acquiring Party willing to pay
that sum. Through the efforts of Debtor's principals an Acquiring Party willing
to pay $100,000.00 for Debtor's assets has been found and your Debtor has
submitted its Second Modified Plan of Reorganization.
As reflected in the Schedule of Assets and Liabilities, as amended,
filed with the Court, Debtor had general obligations of approximately
$230,000.00, claims of holders of Debtor's Five (5) Year ten (10%) percent
Registered Debentures Notes in the amount of $200,000.00 plus interest, an
unknown sum due the City of Atlanta for accrued rentals, and an amount less than
$1,000.00 owed to taxing authorities. Additionally there may be a liability of
Debtor of approximately $100,000.00 for a security deposit made by a third party
to the City of Atlanta.
The Assets of the Debtor at this time consists only of the Indenture
of Lease to the City of Atlanta.
<PAGE>
III.
PLAN OF REORGANIZATION
The Plan is a liquidation Plan and provides for distribution to the
creditors of all funds to be received for the transfer of all of Debtor's
Assets.
The Plan will be funded by the assignment of Debtor assets to an Acquiring
Party for the sum of one Hundred Thousand ($100,000.00) Dollars, to be paid in
cash upon Confirmation of the Plan.
The Plan provides for the divisions of creditors into classes. Class I and
Class II creditors, administrative and tax liabilities, are entitled to priority
in payment under the Bankruptcy Code and they are to be paid in full when the
Orders allowing such claims become non-appealable and the assets are
transferred.
Class III consists of secured creditors. With the exception of
utility companies and leasing entities holding deposits, the Debtor knows of no
secured creditors. Under the Plan the parties holding deposits will be allowed
to offset these deposits against the amounts owed to them and any balance due
and owing will become a Class VI claim.
Class IV is comprised of creditors holding $200,000.00 of five (5)
year, ten percent (10%) registered debenture notes, together with accrued, but
unpaid interest, computed to the date of Confirmation. These creditors, along
with the Class VI creditors, shall receive all the sums received from the
Acquiring Party after the satisfaction of Class I, Class II, and Class III
creditors, it being anticipated that the dividend to Class IV and Class VI
creditors shall be between 17% and 19% of their allowed claim.
Class V consists solely of the City of Atlanta with regard to all
delinquent obligations under the existing lease between the City as Lessor and
the Debtor as Lessee. At the time of transfer of the Lease, the City of Atlanta
will, after applying all security deposits placed with it pursuant to the
Indenture of Lease by or on behalf of the Debtor and after accounting for
post-filing receipts and disbursements, withdraw all claims against the Debtor.
Class VI creditors are all other holders of claims against the
Debtor, including claims which may arise out of the rejection of executory
contracts, and including claims of secured creditors to the extent that the
Court finds the same to be unsecured in whole or in part. These creditors, along
with the Class IV creditors, shall receive all the sums received from the
Acquiring Party after the satisfaction of Class I, Class II, and Class III
creditors, it being anticipated that the dividend to Class IV and Class VI
creditors shall be between 17% and 19% of their allowed claim.
Class VII is comprised of the ownership interests of the stockholders of
Debtor. As the sums to be received for the transfer of Debtor's assets will be
insufficient to pay all creditors in full, the stockholders will receive nothing
for their ownership interests.
<PAGE>
IV.
MEANS FOR EXECUTION
OF THE PLAN
All funds to be paid to creditors will be obtained from the
Acquiring Party of Debtor's assets. However, the obligation to pay these funds,
and thereby consummate this Plan, is subject to:
(a) The Lease between Debtor and City of Atlanta dated May 1, 1979,
being amended in the manner to be specified by Acquiring Party; and
(b) Approval of the Council of the City of Atlanta to the assignment
of said Lease by Debtor to Acquiring Party; and
(c) A Court Order which is not appealed approving the transfer of
the Lease as amended; and
(d) Confirmation of the Plan; and
(e) All of which shall occur within seventy-five (75) days after the
filing of this Plan.
Debtor believes these conditions can be met.
V.
CONCLUSION
It is the intention of the Debtor that upon the transfer of its
assets and distribution to creditors and the closing of the Chapter 11 case, the
Debtor will cease to operate.
This Plan has been approved by the Board of Directors of Debtor,
none of whom are officers, directors, shareholders, or employees of the
Acquiring Party.
This 21st day November, 1983.
ATLANTA LAKEWOOD ENTERPRISES, LTD.
BY: /s/ [ILLEGIBLE]
-------------------------------------
Richard P. Perry, President
Of Counsel to Debtor
Filed in U.S. Bankruptcy Court
Atlanta, Georgia
NOV 21 1983
Johnny [ILLEGIBLE], Clerk
By: /s/ [ILLEGIBLE]
-----------------------------
Deputy Clerk
<PAGE>
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
RECEIVED
DEC 16, 1983
LAW DEPARTMENT
IN RE: : CHAPTER 11
:
ATLANTA LAKEWOOD ENTERPRISES, : CASE NO. 80-03317A
LTD., :
:
Debtor :
SECOND MODIFIED
PLAN OF REORGANIZATION
ATLANTA LAKEWOOD ENTERPRISES, LTD., Debtor, proposes this Plan of
Reorganization.
DEFINITIONS
The following terms, when used in this Plan of Reorganization shall,
unless the context otherwise requires, have the following meanings,
respectively:
Debtor: Atlanta Lakewood Enterprises, Ltd., a Georgia Corporation.
Chapter 11: Chapter 11 of the Bankruptcy Code.
Reorganization Case: The case for the reorganization of the Debtor
commenced by voluntary petition under Chapter 11 on September 19, 1980, and now
pending in this Court as styled above.
Court: The United States Bankruptcy Court for the Northern District
of Georgia, Atlanta Division, acting in this case.
Plan: This Plan of Reorganization.
Assets: All of the assets of the Estate of Debtor.
Acquiring Party: The entity taking assignment of the Assets.
Stock: The common stock and convertible preferred stock of Debtor.
Confirmation of the Plan: The entry by this Court of an Order
confirming the Plan in accordance with Chapter 11.
Effective Date: The date on which the transfer provided in the Plan
occurs which shall be one day after the later of (1) the date on which the Order
of Confirmation of the Plan becomes non-appealable with no appeal having been
filed; or (2) if an appeal is filed the date on which all appeal orders
affirming confirmation become non-appealable.
ARTICLE I
CLASSIFICATION OF CLAIMS AND INTERESTS
1.1 Class I - Costs and expenses of administration as defined in the
Bankruptcy Code for which application for allowance or a claim is filed prior to
the Effective Date, as the same are allowed and ordered paid by the Court.
1.2 Class II - Claims entitled to priority by sections 507(a)(3)
and 507(a)(6) of the Bankruptcy Code, as the same are allowed and ordered paid
by the Court.
1.3 Class III - Claims of secured creditors.
1.4 Class IV - Claims of creditors arising from Debtor's 5 year 10%
Registered Debenture Notes and claims of creditors arising by virtue of any
security deposits made on behalf of the Debtor.
1.5 Class V - Claims of the City of Atlanta arising out of the Lease
between the City of Atlanta and Debtor dated May 1, 1979.
1.6 Class VI - Claims of all other creditors of the Debtor,
excluding those in classes I, II, III, IV, and V, as the same are allowed and
ordered paid by the Court, including, but not limited to creditors whose claims
may arise out of the rejection of executory contracts and secured creditors to
the extent that the Court finds the same unsecured in whole or in part.
<PAGE>
1.7 Class VII - The interests of the holders of Stock of the Debtor.
ARTICLE II
CLAIMS AND INTERESTS NOT IMPAIRED UNDER THE PLAN
2.1 Class I shall be paid in full on the later of the Effective Date
or the Date on which the Orders allowing such claims become non-appealable.
2.2 Class II shall be paid in full on the later of the Effective
Date or the date on which the Orders allowing such claims become non-appealable.
2.3 Class III shall be paid in full on the Effective Date of the
Plan to the extent of the value of the collateral unless other terms are agreed
to by the parties; to the extent any such claim exceeds the value of the
collateral such excess shall be a Class VI claim.
2.4 Class VII shall receive nothing as the assets of Debtor are
insufficient to pay all creditors in full.
These classes are not impaired under the Plan.
ARTICLE III
TREATMENT OF CLASSES THAT ARE IMPAIRED
UNDER THE PLAN
3.1 Class V shall withdraw all claims against the Debtor as of the
Effective Date after giving credit for any security deposits placed with Class V
Creditor by or on behalf of the Debtor and including all claims for post-Chapter
11 filing receipts and disbursements.
3.2 Creditors in class IV and Class VI which receive, after the
payment of claims and interests to Class I, Class II, and Class III Creditors,
the balance of the sum to be paid by Acquiring Party to the Debtor pursuant to
Section 4.1 hereof.
ARTICLE IV
CONDITIONS OF AND
MEANS FOR EXECUTION OF THE PLAN
4.1 Assets of Debtor shall be transferred to Acquiring Party for a
sum of One Hundred Thousand ($100,000.00) Dollars, payment by Acquiring Party to
be made as follows:
(a) Fifteen Thousand ($15,000.00) Dollars shall be deposited by
Acquiring Party with the Clerk of the United States Bankruptcy Court on or
before the 5th day of December, 1983, to be held pursuant to the terms of
Section 4.3 hereof and, in the event of Confirmation of this Plan, applied
to the sums to be delivered to Debtor pursuant hereto or in the event of
default of Acquiring Party delivered over to the Debtor as liquidated
damages for such default; and
(b) The balance of said sum to be paid by Acquiring Party to Debtor
within ten (10) days next following the day on which Order of Confirmation
becomes non-appealable.
4.2 Acquiring Party's obligation to acquire Assets and make payment
is conditioned upon:
(a) The Lease between Debtor and City of Atlanta dated May 1, 1979,
being amended in the manner to be specified by Acquiring Party; and
(b) Approval of the Council of the City of Atlanta of the assignment
<PAGE>
of said Lease by Debtor to Acquiring Party; and
(c) A Court Order, which is not appealed, approving the transfer of
the Lease as amended; and
(d) Confirmation of the Plan; and
(e) all of which shall occur within seventy-five (75) days after the
filing of this Plan.
Acquiring Party may waive any of the foregoing conditions in its sole
discretion.
4.3 Any and all sums deposited with the Clerk of the United States
Bankruptcy Court pursuant hereto by Acquiring Party, as a condition to
Confirmation, shall remain the property of Acquiring Party and all of said sums,
together with any earnings thereon, shall, provided Acquiring Party is not in
default hereunder, be returned to Acquiring Party if the Assets are not
transferred to Acquiring Party in accordance with the terms hereof; it is an
express provision hereof that there shall be no invasion of sums deposited or
earnings thereon for any purpose, other than as liquidated damages for Acquiring
Party's default, if the transfer of Assets is not consummated in accordance with
the terms of this Plan.
ARTICLE V
PROVISIONS FOR ASSUMPTION AND REJECTION
OF LEASES AND EXECUTORY CONTRACTS
5.1 The Lease between Debtor and the City of Atlanta is assumed
subject to the provisions of Article IV.
5.2 All existing Leases between Debtor as Lessor and tenants as Lessees are
assumed, subject to the provisions of paragraph 5.1, unless rejected prior to
Confirmation of the Plan.
5.3 All other contracts which exist between Debtor and any
individual or entity, whether such contracts be in writing or oral, which have
not heretofore been rejected or heretofore been approved by orders of the Court
are hereby specifically rejected.
ARTICLE VI
GENERAL PROVISIONS
6.1 Upon distribution of all funds of the Estate of Debtor as
provided in this Plan, Debtor shall have no further business.
6.2 The Court shall retain jurisdiction to hear and determine all
claims against the Debtor and to enforce all causes of action which may exist on
behalf of the Debtor, and until the case is closed, the Court shall retain
jurisdiction of the Reorganization Case for all purposes to insure that the
purpose and intent of this Plan are fulfilled.
DATED: November 21, 1983 ATLANTA LAKEWOOD ENTERPRISES, LTD.
BY: /s/ Richard P. Perry
-------------------------------------
Richard P. Perry, President
and of Counsel to the Debtor
<PAGE>
EXHIBIT "B"
[Description of Existing Improvements]
All buildings, structures, lakes, ponds, parking areas, rail tracks and other
railroad installations, roads, driveways, racetracks, gatehouses, gates, fences,
plazas, paved areas and other improvements existing upon the Property as of the
date of the Indenture of Lease to which this Exhibit "B" is attached, including
(but not by way of limitation) the Benton Administration Building, the Home
Building, the Agriculture-Education Building, the Commerce Building, the Rabbit
House, Gatehouse No. 1, Gatehouse No. 2, Gatehouse No. 3, Gatehouse No. 4, the
Municipal Building-Fire Station, the Georgia Livestock Exhibition Building, the
Livestock Feeder, the Office (rear of Livestock Feeder), the Grandstand and the
Press Box.
BOOK 8831 PAGE 316
<PAGE>
EXHIBIT "C"
[Description of the Property]
All that tract or parcel of land lying and being in Land Lots 58, 71 and 72 of
the 14th District of Fulton County, Georgia and being more particularly
described as follows:
BEGINNING at a nail placed in the intersection formed by the centerline of South
Pryor Road (abandoned on June 4, 1958) and the southwest line of the
right--of--way of Claire Drive (being a 50 foot right-of-way); running thence
southeasterly along the southwest line of the right-of-way of Claire Drive, and
following the curvature thereof, a distance of 1379.3 feet to an iron pin
placed; running thence south 35 degrees 48 minutes west a distance of 481.9 feet
to an iron pin placed; running thence south 51 degrees 17 minutes 00 seconds
east a distance of 1096.0 feet to an iron pin placed; running thence south 45
degrees 14 minutes 30 seconds east a distance of 220.0 feet to an iron pin
placed; running thence south 74 degrees 29 minutes east a distance of 320.0 feet
to the center of a manhole; running thence south 46 degrees 29 minutes east a
distance of 326.3 feet to an iron pin placed on the northwest line of the
right-of-way of Lakewood Avenue (being a 60 foot right-of-way), said iron pin
placed being at a point 518.0 feet southwest, as measured along the northwest
line of the right-of-way of Lakewood Avenue, from the intersection formed by the
northwest line of the right-of-way of Lakewood Avenue and the southwest line of
the right-of-way of Shadydale Avenue; running thence southwesterly along the
northwest line of the right-of-way of Lakewood Avenue, and following the
curvature thereof, a distance of 1733.1 feet to an iron pin placed; running
thence north 84 degrees 50 minutes west a distance of 56.6 feet to an iron pin
placed; running thence south 29 degrees 45 minutes west a distance of 33.6 feet
to an iron pin placed; running thence in a westerly and northwesterly direction,
along the arc of a curve having a chord bearing north 65 degrees 22 minutes west
for 967.8 feet, a distance of 970.8 feet to an iron pin placed; running thence
south 87 degrees 46 minutes west along the north line of the right-of-way of
Lakewood Way (being a 60 foot right-of-way) a distance of 1176.2 feet to an iron
pin found in the intersection formed by the north line of the right-of-way of
Lakewood Way and the east line of the right-of-way of Pryor Road (being a 50
foot right-of-way); running thence north 00 degrees 32 minutes east along the
east line of the right-of-way of Pryor Road a distance of 1598.7 feet to a nail
placed in the intersection formed by the east line of the right-of-way of Pryor
Road and the centerline of South Pryor Road (abandoned June 4, 1958); running
thence in a northeasterly, easterly, southeasterly, northeasterly and northerly
direction along the centerline of South Pryor Road and following the curvature
thereof a distance of 2796.3 feet to the POINT OF BEGINNING (said course of
2796.3 feet being comprised of the arcs of the following chords: begin at the
nail placed in the intersection formed by the east line of the right-of-way of
Pryor Road and the centerline of South Pryor Road and run thence north 63
degrees 34 minutes east for 251.9 feet, run thence north 88 degrees 47 minutes
east for 357.8 feet, run thence north 89 degrees 44 minutes east for 272.2 feet,
run thence south 74 degrees 27 minutes east for 458.1 feet, run thence north 55
degrees 49 minutes east for 353.8 feet, run thence north 00 degrees 14 minutes
east for 569.8 feet and run thence north 00 degrees 00 minutes west for 563.4
feet to the nail placed in the intersection formed by the centerline of South
Pryor Road and the southwest line of the right-of-way of Claire Drive); being
property depicted as 132.62 acres on that certain blueprint of survey, to which
reference is made for all purposes, prepared by Watts & Browning, Engineers,
dated May 20, 1970, and bearing the certification of A. W. Browning, Georgia
Registered Land Surveyor No. 490.
TOGETHER WITH all other property, if any, owned by the City of Atlanta in Land
Lots 58, 71 and 72 of the 14th District of Fulton County, Georgia, within the
area which is bounded on the west by the above
BOOK 8831 PAGE 317
<PAGE>
described property, on the south by Lakewood Avenue, on the east by Shadydale
Avenue and on the north by Claire Drive, BUT NOT INCLUDING the rights of the
City of Atlanta in and to (i) the right-of-way of any road, street or highway
dedicated to public use or (ii) any utility easements or installations.
TOGETHER WITH all rights, members and appurtenances (except as hereinabove
expressly limited) pertaining to the above described property.
LESS AND EXCEPT that portion of the above-described property lying and being in
Land Lot 71 of the 14th District of Fulton County, Georgia and being more
particularly described as follows:
BEGINNING at an iron pin found in the intersection formed by the east line of
the right-of-way of Pryor Road and the north line of the right-of-way of
Lakewood Way and running thence north 00 degrees 49 minutes 17 seconds west
along the east line of right-of-way of Pryor Road a distance of 27.80 feet to an
iron pin found in the intersection formed by the east line of the right-of-way
of Pryor Road and the southeast side of Lakewood Park Entrance Road; running
thence north 62 degrees 40 minutes 00 seconds east along the southeast side of
Lakewood Park Entrance Road a distance of 299.83 feet to an iron pin found;
running thence in a southeasterly, easterly and northeasterly direction, along
the arc of a curve having a chord running north 82 degrees 47 minutes 17 seconds
east for 156.00 feet, a distance of 173.40 feet to an iron pin set; running
thence north 61 degrees 21 minutes 01 seconds east a distance of 92.00 feet to
an iron pin found on the south side of Lakewood Park Entrance Road; running
thence south 86 degrees 17 minutes 01 seconds east along the south side of
Lakewood Park Entrance Road a distance of 277.56 feet to an iron pin found;
running thence south 82 degrees 22 minutes 59 seconds east along the south side
of Lakewood Park Entrance Road a distance of 230.00 feet to an iron pin set;
running south 39 degrees 14 minutes 49 seconds east along the southwest side of
Lakewood Park Entrance Road a distance of 45.00 feet to an iron pin set; running
thence south 57 degrees 45 minutes 17 seconds east along the southwest side of
Lakewood Park Entrance at a distance of 125.00 feet to an iron pin found;
running thence south 05 degrees 25 minutes 06 seconds west along the west side
of Lakewood Park Entrance Road a distance of 25.05 feet to an iron pin found in
the intersection formed by the west side of Lakewood Park Entrance Road and the
north line of the right-of-way of Lakewood Way; running thence south 86 degrees
31 minutes 57 seconds west along the north line of the right-of-way of Lakewood
Way a distance of 1,119.33 feet to an iron pin found; running thence north 57
degrees 14 minutes 39 seconds west along the northeast line of the right-of-way
of Lakewood Way a distance of 24.92 feet to the POINT OF BEGINNING; being
property depicted as 3.80 acres on that certain blueprint of survey, to which
reference is made for all purposes, prepared by and bearing the certification of
Donald K. Stokes, Georgia Registered Land Surveyor No. 1896, dated April 1977;
being property developed as the Southeast Atlanta Neighborhood Facility pursuant
to a Resolution proposed by the Human Resources Committee under date of August
3, 1976, adopted by the Council of the City of Atlanta on August 16, 1976 and
approved by the Mayor on August 20, 1976.
BOOK 8831 PAGE 318
<PAGE>
EXHIBIT "C" (continued)
LESS AND EXCEPT that portion of the above-described property lying and being in
Land Lot 72 of the 14th District of Fulton County, Georgia and being an area of
5.42 acres as shown on General Site Plan of the Lakewood Substation as attached
hereto and made a part hereof and also filed in the Office of Engineering,
Department of Environment and Streets, City of Atlanta.
EXHIBIT "C" (continued)
BOOK 8831 PAGE 319
<PAGE>
EXHIBIT "D"
[Description of Zoning and Other Encumbrances]
The Property is not subject to any Zoning restrictions, and there are no other
Zoning and Other Encumbrances.
EXHIBIT "D"
BOOK 8831 PAGE 320
<PAGE>
1
LAKEWOOD FAIRGOUNDS
CASH FLOW ANALYSIS
Most Likely
($000) 1st Year 2nd Year 3rd Year 4th Year 5th Year
-------- -------- -------- -------- --------
Revenues $ 60 $1,037 $1,250 $1,500 $1,750
Expenses 1,764 3,416 3,453 3,552 2,248
Net Profit (Loss) (1,704) (2,379) (2,203) (2,052) (498)
Less Depreciation 494 1,840 1,840 1,840 494
Cash Flow (1,210) (539) (363) (212) (4)
(Before Tax)
Tax Credits
- -Corporate Income 852 1,190 1,102 1,026 249
- -ITC 1,063 425 -- -- --
Cash Flow 705 1,076 738 814 245
Cumulative
Cash Flow 705 1,781 2,519 3,333 3,578
Exhibit "E"
(Development Plan)
BOOK 8831 PAGE 285
<PAGE>
LAKEW00D FAIRGROUNDS 2
REVENUE PLAN
PHASE I - YEAR #1
* Assume $60,000.00 from present tenants and miscellaneous revenues.
LAKEWOOD FAIRGROUNDS
REVENUE PLAN
PHASE I - YEAR #2
<TABLE>
<CAPTION>
BUILDING D
<S> <C> <C>
1) Sound Stage
@ $500/day x 150 days $ 75,000
2) Screening Room @ $800/day x 150 days
capacity 120,000
3) Offices
4,000 sq. ft. x 10.00 sq. ft. 40,000
---------
TOTAL $ 235,000
=========
BUILDING A
1) Video Tape Studio
@ $2,400/day x 150 days $ 360,000
2) Sound Recording Studio
@ $100/hr. x 20 hrs. x 30 wks. 60,000
3) Miscellaneous Income
@ 20% of $405,000 101,250
---------
TOTAL $521,250
=========
</TABLE>
BUILDING E
<TABLE>
<CAPTION>
Studio Service Space
<S> <C> <C>
@ 36,000 sq. ft. x 250 sq. ft. $90,000
=======
MISCELLANEOUS INCOME
1) Backlot Shooting $100/day
x 150 days/yr. $15,000
2) Parking Lot Storage or
Staging of Equipment, Vehicles,
other 25,000
3) Current Tenants 60,000
-------- ---------
TOTAL $97,000 $943,250
======= =========
+ Error Factor $ 93,750
---------
$1,037,000
==========
</TABLE>
3rd - 5th Years
* Assume 20% Escalation
BOOK 8831 PAGE 286
<PAGE>
3
LAKEWOOD FAIRGOUNDS
FIVE YEAR EXPENSE FORECAST
Expense 1 2 3 4 5
------- ------ ------ ------ ------ ------
1. Operating Personnel $ 223 $ 445 $ 467 $ 498 $ 523
2. Lease of Land & Buildings 100 100 100 150 150
3. Insurance 15 25 28 31 34
4. Maintenance & Repair 35 39 43 47 52
5. Utilities 50 100 112 123 135
6. Office Expenses 42 46 51 56 62
7. Marketing Expense 95 103 113 124 136
8. Depreciation 494 1,840 1,840 1,840 494
9. Interest on Debt 480 660 660 660 660
10. Interest on Working Capital 130 58 39 23 2
11. City of Atlanta -
Bankruptcy Payment 100 -- -- -- --
Total Expense $1,764 $3,416 $3,453 $3,552 $2,248
BOOK 8831 PAGE 287
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
LAKEWOOD FAIRGOUNDS 4
Operating Expenses
</TABLE>
1. Operating Personnel
a. First Year -- Pre-Construction and Construction Phase
<TABLE>
<CAPTION>
<S> <C> <C>
o Administrative (1) @ $30,000 $ 30,000
o Accounting (1) @ 25,000 25,000
o Marketing (1) @ 36,000 36,000
o Maintenance (2) @ 15,000 30,000
o Security (5) @ 13,000 65,000
--------
$186,000
Fringe @ 20% 37,200
--------
$223,200
b. 2nd -- 5th Years
o Administrative (2) @ $35,000 & 18,000 $ 53,000
o Accounting (2) 1 @30,000 & 12,000 42,000
o Marketing (1) @ 40,000 40,000
o Maintenance (5) @ 15,000 45,000
o Security (5) @ 14,300 71,500
--------
$371,500
Fringe @ 20% 74,300
--------
$445,800
</TABLE>
Escalation @ 5% 3rd - 5th years
2. Lease of Land and Buildings
o 1st year - 100,000
o 2nd year - 100,000
o 3rd year - 100,000
o 4th year - 150,000
o 5th year - 150,000
BOOK 8831 PAGE 288
<PAGE>
Operating Expenses (continued)
<TABLE>
<CAPTION>
1st year 2nd year 3 - 5 years
-------- ----------------
<S> <C> <C>
3. Insurance
$15,000 $25,000
-------
$15,000 $25,000 + 10% Escalation
</TABLE>
4. Maintenance and Repairs
o Estimated @ $35,000, increasing 10% per year
5. Utilities
o $50,000 estimate -- 1st year
o $ 8,350 monthly 2nd year
o + 10% increase 3rd -- 5th year
6. Office Expense
o $3,500/mo. x 12 = $42,000 yr. + 10% yearly increase
7. Marketing Expense
1st Year
o Advertising $10,000
o Brochures 2,500
o Travel 75,000
o Promotions 5,000
o Miscellaneous 2,500
-------
$95,000 + 10% yearly Escalation
BOOK 8831 PAGE 289
6
<PAGE>
Operating Expenses (continued)
6. Depreciation
o Use 15 year straight line for Real Property
o Use 5 year straight line for Personal Property
1st year
o Real Property
$4,250,000 (less 1/2 x $1,062,500 = $531,250 = $3,718,750
$1,230,000 / 15 years = $ 247,916
o Personal Property
$1,230,000 / 5 years = 246,000
---------
$ 493,916
2nd year - 5th year
o Real Property - Equipment
$4,250,000 (less 1/2 $ 425,000 = $212,500) = $4,037,500
$4,037,500 / 3 = $1,346,000 $1,346,000
----------
$1,346,000
+ 1st year 493,916
----------
$1,839,916
Investment Tax Credit
o Historic -- Must Be Assigned Dept. of Interior Project Number
o Basis 25% of Capital Improvements for Real Property
o 1st year $4,250,000 x .25 = $1,062,500
o Equipment $4,250,000 x .10 = $ 425,000
Income Tax Credit
o 50% of operating loss is credited back as income tax savings
9. Interest on Debt
Debt Service Basis
o Investment Funds = $5,500,000 - 12% - 20 yrs.
1st year $4,000,000 debt x 12% = $ 480,000
2nd year $5,500,000 debt x 12% = $ 660,000
3rd - 5th year $ 660,000 Estimated
BOOK 8831 PAGE 290
7
<PAGE>
Operating Expenses (continued)
10. Interest on Working Capital
o 1st year
Expenses $1,634,000
less Depr. 494,000
-----------
$1,140,000
less Revenue 60,000
-----------
Cash Flow Loss ($1,080,000)
Cost of Work Capital $1,080,000 x 12% = $129,600
o 2nd year
Expenses $3,358,000
less Depr. 1,840,000
-----------
$1,518,000
less Revenue 1,037,000
-----------
Cash Flow Loss ($ 481,000)
Cost of Work Capital $ 481,000 x 12% = $ 57,720
o 3rd year
Expenses $3,414,000
less Depr. 1,840,000
-----------
$1,574,000
less Revenue 1,250,000
-----------
Cash Flow Loss ($ 324,000)
Cost of Work Capital $ 324,000 x 12% = $ 38,880
o 4th year
Expenses $3,529,000
less Depr. 1,840,000
-----------
$1,689,000
less Revenue 1,500,000
-----------
Cash Flow Loss ($ 189,000)
Cost of Work Capital $ 189,000 x 12% = $ 22,680
BOOK 8831 PAGE 291
8
<PAGE>
Operating Expenses (continued)
o 5th year
Expenses $2,246,000
less Depr. 494,000
-----------
$1,752,000
Less Revenue 1,750,000
-----------
Cash Flow Loss ($ 2,000)
Cost of Work Capital $ 2,000 x 12% = $ 240
11. Start Up Expense
o $100,000 - Required to clear up existing bankruptcy.
BOOK 8831 PAGE 292
9
<PAGE>
LAKEWOOD FAIRGROUNDS
Budget Allowances - Total
Phase I Development
Soft Costs ( Arch., Electrical, Mechanical) $ 300,000
Roofing 296,500
Plaster & Stucco 163,750
Landscaping 252,000
Electrical 250,000
Painting 184,000
Paving 25,000
Glass & Glazing 140,000
Building E Interior 544,000
Building D Interior 1,037,500
Building A Interior 1,077,187
Lake and Raceway 62,500
Overhead @ 15% 649,866
Profit @ 10% 498,230
----------
Total $5,480,533
==========
BOOK 8831 PAGE 293
10
<PAGE>
LAKEWOOD FAIRGROUNDS
PHASE I CONSTRUCTION BUDGET DETAIL
INTERIORS ONLY
PRIORITY #1
- --------------------------------------------------------------------------------
Cost/ Budget
Building Level Use Sq. Ft. Estimate
- --------------------------------------------------------------------------------
D-#4 Main Floor Sound Stage 10,200 $70.00 $714,000.00
D-#4 Main Floor Screening Room 1,100 55.00 60,500.00
D-#4 2nd Floor Offices 4,000 25.00 100,000.00
D-#4 -- Cat Walk 2,460 50.00 123,000.00
D-#4 Main Conference 1,600 25.00 40,000.00
------------
$1,037,500.00
============
PRIORITY #2
- --------------------------------------------------------------------------------
Cost/ Budget
Building Level Use Sq. Ft. Estimate
- --------------------------------------------------------------------------------
A-#2 1) Main Floor Video-Tape Studio 12,375 $40.00 = $495,000.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 2) Main Floor Sound Recording Studio 6,750 40.00 = 270,000.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 3) Main Floor Post Production 5,625 25.00 = 140,625.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 4) 2nd Floor Post Production 5,625 25.00 = 140,625.00
A-#2 5) Main Sound Truck Storage 1,125 10.00 = 11,250.00
------------
$1,077,187.50
============
BOOK 8831 PAGE 294
11
<PAGE>
LAKEWOOD FAIRGROUNDS 11
PHASE I - CONSTRUCTION BUDGET
<TABLE>
<CAPTION>
PRE-CONSTRUCTION
CONSTRUCTION
- ----------------------------------------------------------------------------------------------------------------------
Prio
# 1 2 3 4 5 6 7 8 9
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 37,500 163,012 175,212 194,112 169,212 140,140 142,140 132,267 73,880
2 95,000 95,000 205,000 205,000 205,000
3 75,000 100,000 225,000 225,000
4 61,200 90,000 112,164 112,164
5 18,750 18,750 18,750
- -----------------------------------------------------------------------------------------------------------------
T.C. 37,500 163,012 175,212 194,112 282,962 390,090 555,890 674,431 616,044
O.15 5,625 24,451 26,282 29,117 42,444 58,514 83,384 101,165 92,406
P.10 4,313 18,746 20,149 22,323 32,541 44,860 63,927 77,560 70,845
- -----------------------------------------------------------------------------------------------------------------
T. 47,438 206,209 221,643 245,552 357,947 493,464 703,201 853,156 779,295
C. 47,438 253,647 475,290 720,842 1,078,789 1,572,253 2,275,454 3,128,610 3,907,905
</TABLE>
CONSTRUCTION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Prio
<S> <C> <C> <C> <C> <C> <C> <C> <C>
# 10 11 12 13 14 15 16 TOTALS
- ---------------------------------------------------------------------------------------------------------
1 21,250 82,025 12,500 10,000 10,000 10,000 40,000 1,413,250
2 105,000 95,000 41,250 116,250 1,162,500
3 225,000 95,000 90,168 115,019 1,150,187
4 60,000 54,072 54,400 544,000
5 6,250 62,500
- ---------------------------------------------------------------------------------------------------------
T.C. 417,500 326,097 143,918 64,400 241,269 10,000 40,000 4,332,437
O.15 62,625 48,915 21,588 9,660 36,190 1,500 6,000 649,866
P.10 48,013 37,500 16,551 7,406 27,746 1,150 4,600 498,230
- ---------------------------------------------------------------------------------------------------------
T. 528,138 412,512 182,057 81,466 305,205 12,650 50,600 5,480,533
C. 4,436,043 4,848,555 5,030,612 5,112,078 5,417,283 5,429,933 5,480,533
</TABLE>
#1 Site Development
2 Building D (incl. 125,000 Elect)
3 Building A (incl. 73,000 Elect)
4 Building E
5 Lake, Grandstand, Raceway
BOOK 8831 PAGE 295
<PAGE>
LAKEWOOD FAIRGROUNDS
FINANCIAL PLAN
PHASE I DEVELOPMENT
REVENUE PLAN:
The Phase I plan as detailed on page 2 addresses itself to the phased
occupancy of Building D, Building A, and Building E. Assumptions are based upon
50% occupancy at a prevailing rate comparable to our competition in Charlotte,
N.C. and Dallas, Texas. The rates are approximately 50% of those charged by
Hollywood, California studios. Other general rates for office, storage, and
industrial type space are based on the local Atlanta metro market.
EXPENSE FORECAST:
The Phase I operating costs are detailed for five years. Escalations range
from 5% to 10% per year. A review of the significant criteria of each expense
category is detailed as follows:
-Operating Personnel - a staff of 7 is anticipated the first year with 15
the second year.
-Lease of Land & Buildings - Assumes a favorable 50 year lease that
- -begins with $100,000 annual payments for years one through three, escalating to
$150,000 per annum in years four and five.
-Maintenance and Repairs - Costs are material only with labor being
provided by operating personnel.
-Depreciation - Straight line was used although ACRS could be used thus
giving a large buildup of depreciation during the first five years.
BOOK 8831 PAGE 296
<PAGE>
LAKEWOOD
FINANCIAL PLAN
PAGE 2
-Interest on Debt - Assumes the annual carry on 5,500,000.00 will be 12%.
Other sources of financing are being addressed and include but are not limited
to joint ventures and limited partnerships combined with IRB's.
-Investment Tax Credit - Due to the historical nature of the buildings, an
assumption was used that the investors are entitled to a 25% tax credit of the
capital rehabilitation improvements against corporate income taxes.
-Interest on Working Capital - Due to the negative cash flow during the
first five years, there will be a cost of working capital until tax credits can
be realized.
BOOK 8831 PAGE 297
<PAGE>
LAKEWOOD FAIRGROUNDS
OUTLINE
SCOPE OF WORK
PHASE I DEVELOPMENT
ENGINEERING:
Provide an allowance Of 8 to 9% for the cost of engineering,
architectural, and special consulting fees.
ROOFING:
Repair and replace as necessary roof flashing, membrane, planking, gutter,
downspouts to Buildings 1, 2, 3, & 4. Spray two coats of fibrated aluminum paint
on Buildings 5 & 5A. Reroof Firehouse Building with asphalt shingles.
PLASTER & STUCCO:
Repair all plaster and stucco damage to Buildings 1, 2, 3, 4, and
Firehouse. Add stucco facade to front and sides of Buildings 5 & 5A matching
existing architectural design.
LANDSCAPING:
Landscape the area immediately located around Buildings 1, 2, 3, 4, and
the Lakewood Avenue entry. Included work is removal of existing shrubs and
trees, metal fences and planting tubs. Establish a planted median strip dividing
the entry road and parking lots, remove areas of paving to allow for additional
planting. Planting will include azaleas, pear trees, dogwood trees, and crepe
myrtle all of large caliber and maturity.
BOOK 8831 PAGE 298
<PAGE>
LAKEWOOD
SCOPE OF WORK
PHASE I DEVELOPMENT
PAGE 2
ELECTRICAL:
Repair and renovate electrical power supplies in and around Buildings 1,
2, 3, & 4 including the removal of surplus power lines, poles, and transformers.
PAINTING:
Paint entry structure, Buildings 1, 2, 3, 4, 5, 5A and Firehouse with two
coats of masonry paint. Paint finish will be in two hues of tan or buff with the
finish colors on all exposed surfaces including the terra cotta roof tiles.
PAVING:
Repair and reseal all bituminous drive and parking areas including
striping and directional indicators.
GLASS & GLAZING:
Replace all broken and cracked lites. Supply and install bronze aluminum
and bronze plate glass structures in selected arched openings in Buildings 1, 2,
& 3.
METAL BUILDINGS:
Rehabilate Buildings 5 & 5A to house motor pool and carpentry shops.
Included will be concrete floors, new lighting, bathroom, office, and inventory
control space. The Kirby Building sited next to these metal buildings is to be
relocated to an alternative site as directed.
BOOK 8831 PAGE 299
<PAGE>
LAKEWOOD
SCOPE OF WORK
PHASE I DEVELOPMENT
PAGE 3
BUILDING "4":
Build offices, catwalks, conference room, screening room within Building
#4. Add electrical supply and controls adequate for film production.
BUILDING "2":
Build soundproof interior within Building #2 to house pre & post
production.
LAKE AND RACEWAY:
Drain lake and clean of muck and vegetation, relocate dam and overflow,
replace valve and mechanical overflow, and grade track to half-mile
configuration.
BOOK 8831 PAGE 300
<PAGE>
LAKEWOOD FAIRGROUNDS
REVENUE PLAN
PHASE I - YEAR #1
* Assume $60,000.00 from present tenants and miscellaneous revenues.
LAKEWOOD FAIRGROUNDS
REVENUE PLAN
PHASE I - YEAR #2
BUILDING D
1) Sound Stage
@ $500/day x 150 days $ 75,000
2) Secreening Room
@ $800/day x 150 days
capacity 120,000
3) Offices
4,000 sq. ft. x 10.00 sq. ft. 40,000
---------
TOTAL $ 235,000
=========
BUILDING A
1) Video Tape Studio
@ $2,400/day x 150 days $ 360,000
2) Sound Recording Studio
@ $100/hr. x 20 hrs. x 30 wks. 60,000
3) Miscellaneous Income
@ 20% of $405,000 101,250
---------
TOTAL $ 521,250
=========
BUILDING E
<TABLE>
<CAPTION>
Studio Service Space
<S> <C>
@ 36,000 sq. ft. x 250 sq. ft. $90,000
=======
MISCELLANEOUS INCOME
1) Backlot Shooting $100/day
x 150 days/yr. $15,000
2) Parking Lot Storage or
Staging of Equipment, Vehicles,
other 25,000
3) Current Tenants 60,000
-------
TOTAL $97,000 $ 943,250
======= ==========
+ Error Factor $ 93,750
----------
$1,037 000
==========
</TABLE>
3rd - 5th Years
* Assume 20% Escalation
BOOK 8831 PAGE 301
3
<PAGE>
LAKEWOOD FAIRGOUNDS
FIVE YEAR EXPENSE FORECAST
Expense 1 2 3 4 5
------- ----- ----- ----- ----- -----
1. Operating Personnel $ 223 $ 445 $ 467 $ 498 $ 523
2. Lease of Land & Buildings 100 100 100 150 150
3. Insurance 15 25 28 31 34
4. Maintenance & Repair 35 39 43 47 52
5. Utilities 50 100 112 123 135
6. Office Expenses 42 46 51 56 62
7. Marketing Expense 95 103 113 124 136
8. Depreciation 494 1,840 1,840 1,840 494
9. Interest on Debt 480 660 660 660 660
10. Interest on Working Capital 130 58 39 23 2
11. City of Atlanta -
Bankruptcy Payment 100 -- -- -- --
Total Expense $1,764 $3,416 $3,453 $3,552 $2,248
4
<PAGE>
LAKEWOOD FAIRGOUNDS
Operating Expenses
1. Operating Personnel
a. First Year - Pre-Construction and Construction Phase
<TABLE>
<CAPTION>
<S> <C> <C>
o Administrative (1) @$30,000 $ 30,000
o Accounting (1) @ 25,000 25,000
o Marketing (1) @ 36,000 36,000
o Maintenance (2) @ 15,000 30,000
o Security (5) @ 13,000 65,000
--------
$186,000
Fringe @ 20% 37,200
--------
$223,200
b. 2nd - 5th Years
o Administrative (2) @ $35,000 & 18,000 $ 53,000
o Accounting (2) @ $30,000 $ 12,000 42,000
o Marketing (1) @ 40,000 40,000
o Maintenance (5) @ 15,000 45,000
o Security (5) @ 14,300 71,500
--------
$371,500
Fringe @ 20% 74,300
--------
$445,800
</TABLE>
Escalation @ 5% 3rd - 5th years
2. Lease of Land and Buildings
o 1st year - 100,000
o 2nd year - 100,000
o 3rd year - 100,000
o 4th year - 150,000
o 5th year - 150,000
5
<PAGE>
Operating Expenses (continued)
1st year 2nd year 3 - 5 years
-------- -------- -----------
3. Insurance $15,000 $25,000
------- -------
$15,000 $25,000 + 10% Escalation
4. Maintenance and Repairs
o Estimated @ $35,000, increasing 10% per year
5. Utilities
o $50,000 estimate - 1st year
o $8,350 monthly 2nd year
o + 10% increase 3rd - 5th year
6. Office Expense
o $3,500/mo. x 12 = $42,000 yr. + 10% yearly increase
7. Marketing Expense
1st year
o Advertising $10,000
o Brochures 2,500
o Travel 75,000
o Promotions 5,000
o Miscellaneous 2,500
-------
$95,000 + 10% yearly Escalation
6
<PAGE>
Operating Expenses (continued)
8. Depreciation
o Use 15 year straight line for Real Property
o Use 5 year straight line for Personal Property
1st year
o Real Property
$4,250,000 (less 1/2 x $1,062,500 = $531,250 = $3,718,750
$1,230,000 / 15 years = $247,916
o Personal Property
$1,230,000 / 5 years = 246,000
--------
$493,916
2nd year - 5th year
o Real Property - Equipment
$4,250,000 (less 1/2 $425,000 = $212,500) = $4,037,500
$4,037,500 / 3 = $1,346,000 1,346,000
----------
$1,348,000
+ 1st year 493,916
----------
$1,839,916
Investment Tax Credit
o Historic - Must Be Assigned Dept. of Interior Project Number
o Basis 25% of Capital Improvements for Real Property
o 1st year $4,250,000 x .25 = $1,062,500
o Equipment $4,250,000 x 10 = $ 425,000
Income Tax Credit
o 50% of operating loss is credited back as income tax savings
9. Interest on Debt
Debt Service Basis
o Investment Funds = $5,500,000 - 12% - 20 yrs.
1st year $4,000,000 debt x 12% = $480,000
2nd year $5,500,000 debt x 12% = $660,000
3rd - 5th year $660,000 Estimated
7
<PAGE>
Operating Expenses (continued)
10. Interest on Working Capital
o 1st year
Expenses $ 1,634,000
less Depr. 494,000
-----------
$ 1,140,000
less Revenue 60,000
-----------
Cash Flow Loss $(1,080,000)
Cost of Work Capital $ 1,080,000 x 12% = $129,600
o 2nd year
Expenses $ 3,358,000
less Depr. 1,840,000
-----------
$ 1,518,000
less Revenue 1,037,000
-----------
Cash Flow Loss $ (481,000)
Cost of Work Capital $ 481,000 x 12% = $57,720
o 3rd year
Expenses $ 3,414,000
less Depr. 1,840.000
----------
$ 1,574,000
less Revenue 1,250,000
----------
Cash Flow Loss $ (324,000)
Cost of Work Capital $ 324,000 x 12% = $38,380
o 4th year
Expenses $3,529,000
less Dept. 1,840,000
----------
$ 1,689,000
less Revenue 1,500,000
----------
Cash Flow Loss $ (189,000)
Cost of Work Capital $ 189,000 x 12% = $22,160
8
<PAGE>
Operating Expenses (continued)
o 5th year
Expenses $ 2,246,000
less Depr. 494,000
-----------
$ 1,752,000
Less Revenue 1,750,000
----------
Cash Flow Loss $ (2,000)
Cost of Work Capital $ 2,000 x 12% = $240
11. Start Up Expense
o $100,000 - Required to clear up existing bankruptcy.
9
<PAGE>
LAKEWOOD FAIRGROUNDS
Budget Allowances - Total
Phase I Development
Soft Costs (Arch., Electrial, Mechanical) $ 300,000
Roofing 296,500
Plaster & Stucco 163,750
Landscaping 252,000
Electrical 250,000
Painting 184,000
Paving 25,000
Glass & Glazing 140,000
Building E Interior 544,000
Building D Interior 1,037,500
Building A Interior 1,077,187
Lake and Raceway 62,500
Overhead @ 15% 649,866
Profit @ 10% 498,230
----------
Total $5,480,533
==========
10
<PAGE>
LAKEWOOD FAIRGROUNDS
PHASE I CONSTRUCTION BUDGET DETAIL
INTERIORS ONLY
PRIORITY #1
- --------------------------------------------------------------------------------
Cost/ Budget
Building Level Use Sq. Ft. Sq. Ft. Estimate
- --------------------------------------------------------------------------------
D-#4 Main Floor Sound Stage 10,200 $ 70.00 $ 714,000.00
D-#4 Main Floor Screening Room 1,100 55.00 60,500.00
D-#4 2nd Floor Offices 4,000 25.00 100,000.00
D-#4 -- Cat Walk 2,460 50.00 123,000.00
D-#4 Main Conference 1,600 25.00 40,000.00
-------------
$1,037,500.00
=============
PRIORITY #2
- --------------------------------------------------------------------------------
Cost/ Budget
Building Level Use Sq. Ft. Sq. Ft. Estimate
- --------------------------------------------------------------------------------
A-#2 1) Main Floor Video-Tape Studio 12,375 $40.00 = $495,000.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 2) Main Floor Sound Recording Studio 6,750 40.00 = 270,000.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 3) Main Floor Post Production 5,625 25.00 = 140,625.00
A-#2 Interior Sound Wall 1,875 3.50 = 6,562.50
A-#2 4) 2nd Floor Post Production 5,625 25.00 = 140,625.00
A-#2 5) Main Sound Truck Storage 1,125 10.00 = 11,250.00
-------------
$1,077,187.50
=============
11
<PAGE>
LAKEWOOD FAIRGROUNDS
PHASE 1 - CONSTRUCTION BUDGET
CONSTRUCTION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
7 8 9 10 11 12 13 14 15 16 TOTALS
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
,140 132,267 73,880 21,250 82,025 12,500 10,000 10,000 10,000 40,000 1,413,250
,000 205,000 205,000 105,000 95,000 41,250 -- 116,250 -- -- 1,162,500
,000 225,000 225,000 225,000 95,000 90,168 -- 115,019 -- -- 1,150,187
,000 112,164 112,164 60,000 54,072 -- 54,400 -- -- -- 544,000
,750 -- -- 6,250 -- -- -- -- -- -- 62,500
- ----------------------------------------------------------------------------------------------------------------------------
,890 674,431 616,044 417,500 326,097 143,918 64,400 241,269 10,000 40,000 4,332,437
,384 101,165 92,406 62,625 48,915 21,588 9,660 36,190 1,500 6,000 649,866
,927 77,560 70,845 48,013 37,500 16,551 7,406 27,746 1,150 4,600 498,230
- ----------------------------------------------------------------------------------------------------------------------------
,201 853,156 779,295 528,138 412,512 182,057 81,466 305,205 12,650 50,600 5,480,533
,454 3,128,610 3,907,905 4,436,043 4,848,555 5,030,612 5,112,078 5,417,283 5,429,933 5,480,533
</TABLE>
<PAGE>
LAKEWOOD
SCOPE OF WORK
PHASE I DEVELOPMENT
PAGE 2
ELECTRICAL:
Repair and renovate electrical power supplies in and around Buildings 1,
2, 3, & 4 including the removal of surplus power lines, poles, and transformers.
PAINTING:
Paint entry structure, Buildings 1, 2, 3, 4, 5, 5A and Firehouse with two
coats of masonry paint. Paint finish will be in two hues of tan or buff with the
finish colors on all exposed surfaces including the terra cotta roof tiles.
PAVING:
Repair and reseal all bituminous drive and parking areas including
striping and directional indicators.
GLASS & GLAZING:
Replace all broken and cracked lites. Supply and install bronze aluminum
and bronze plate glass structures in selected arched openings in Buildings 1, 2,
& 3.
METAL BUILDINGS:
Rehabilitate Buildings 5 & 5A to house motor pool and carpentry shops.
Included will be concrete floors, new lighting, bathroom, office, and inventory
control space. The Kirby Building sited next to these metal buildings is to be
relocated to an alternative site as directed.
<PAGE>
LAKEWOOD
SCOPE OF WORK
PHASE I DEVELOPMENT
PAGE 3
BUILDING "4":
Build offices, catwalks, conference room, screening room within Building
#4. Add electrical supply and controls adequate for film production.
BUILDING "2":
Build soundproof interior within Building #2 to house pre & post
production.
LAKE AND RACEWAY:
Drain lake and clean of muck and vegetation, relocate dam and overflow,
replace valve and mechanical overflow, and grade track to half-mile
configuration.
<PAGE>
LAKEWOOD FAIRGROUNDS
FINANCIAL PLAN
PHASE I DEVELOPMENT
REVENUE PLAN:
The Phase I plan as detailed on page 2 addresses itself to the phased
occupancy of Building D, Building A, and Building E. Assumptions are based upon
50% occupancy at a prevailing rate comparable to our competition in Charlotte,
N.C. and Dallas, Texas. The rates are approximately 50% of those charged by
Hollywood, California studios. Other general rates for office, storage, and
industrial type space are based on the local Atlanta metro market.
EXPENSE FORECAST:
The Phase I operating costs are detailed for five years. Escalations range
from 5% to 10% per year. A review of the significant criteria of each expense
category is detailed as follows:
-Operating Personnel - a staff of 7 is anticipated the first year with 15
the second year.
-Lease of Land & Buildings - Assumes a favorable 50 year lease that begins
with $100,000 annual payments for years one through three, escalating to
$150,000 per annum in years four and five.
-Maintenance and Repairs - Costs are material only with labor being
provided by operating personnel.
Depreciation - Straight line was used although ACRS could be used thus
giving a large buildup of depreciation during the first five years.
<PAGE>
LAKEWOOD FAIRGROUNDS
OUTLINE
SCOPE OF WORK
PHASE I DEVELOPMENT
ENGINEERING:
Provide an allowance of 8 to 9% for the cost of engineering,
architectural, and special consulting fees.
ROOFING:
Repair and replace as necessary roof flashing, membrane, planking, gutter,
downspouts to Buildings 1, 2, 3, & 4. Spray two coats of fibrated aluminum paint
on Buildings 5 & 5A. Reroof Firehouse Building with asphalt shingles.
PLASTER & STUCCO:
Repair all plaster and stucco damage to Buildings 1, 2, 3, 4, and
Firehouse. Add stucco facade to front and sides of Buildings 5 & 5A matching
existing architectural design.
LANDSCAPING:
Landscape the area immediately located around Buildings 1, 2, 3, 4, and
the Lakewood Avenue entry. Included work is removal of existing shrubs and
trees, metal fences and, planting tubs. Establish a planted median strip
dividing the entry road and parking lots, remove areas of paving to allow for
additional planting. Planting will include azaleas, pear trees, dogwood trees,
and crepe myrtle all of large caliber and maturity.
<PAGE>
LAKEWOOD
FINANCIAL PLAN
PAGE 2
-Interest on Debt - Assumes the annual carry on 5,500,000.00 will be 12%.
Other sources of financing are being addressed and include but are not limited
to joint ventures and limited partnerships combined with IRB's.
-Investment Tax Credit - Due to the historical nature of the buildings, an
assumption was used that the investors are entitled to a 25% tax credit of the
capital rehabilitation improvements against corporate income taxes.
-Interest on Working Capital - Due to the negative cash flow during the
first five years, there will be a cost of working capital until tax credits can
be realized.
<PAGE>
LAKEWOOD FAIRGOUNDS
CASH FLOW ANALYSIS
Most Likely
($000) 1st Year 2nd Year 3rd year 4th Year 5th Year
-------- -------- -------- -------- --------
Revenues $ 60 $ 1,037 $ 1,250 $ 1,500 $ 1,750
Expenses 1,764 3,416 3,453 3,552 2,248
Net Profit (Loss) (1,704) (2,379) (2,203) (2,052) (498)
Less Depreciation 494 1,840 1,840 1,840 494
Cash Flow (1,210) (539) (363) (212) (4)
(Before Tax)
Tax Credits
- -Corporate Income 852 1,190 1,102 1,026 249
- -ITC 1,063 425 -- -- --
Cash Flow 705 1,076 738 814 245
Cumulative
Cash Flow 705 1,781 2,519 3,333 3,578
5-5151 Atlanta City Code 5-104
<PAGE>
ARTICLE L
Equal Employment Opportunity
Cross Reference: See also ch. 6 of this part.
Section 5-5151 Application.
Section 5-5153 Requirements for execution of city contracts.
No contract shall be executed on behalf of the City of Atlanta unless at
least one (1) of the following requirements is met:
(1) Fifteen or More Employees - Workforce Reflects Local Labor Pool
Demographics: The contractor has demonstrated that its workforce, if consisting
of 15 or more employees, reflects the demographic characteristics of the
available pool of labor skills normally utilized by the contractor,
Supp. No. 20, 7-83
<PAGE>
5-105 Administrative Services 5-5154
according to the United States Equal Employment Opportunity Commission ("EEOC")
and Office of Federal Contract Compliance Program ("OFCCP") guidelines, as they
may be amended, and that each subcontractor with 15 or more employees has met
one (1) of the requirements of this section. If a contractor or subcontractor
has an Atlanta-area workforce of 15 or more employees, it shall meet this
requirement if its Atlanta-area workforce reflects local demographic
characteristics of the available pool of labor skills.
(2) Affirmative Action Program: The contractor has demonstrated good
faith efforts to comply with the contractual requirement of section 5-5055
(Equal Employment Opportunity Clause Requirement) and section 5-5154 (Equal
Employment Opportunity Clause). Such good faith is to be demonstrated by an
existing affirmative action program, including but not limited to training
programs, advertising, recruitment efforts, and goals and timetables, to be
approved by the contract compliance officer. The contractor must demonstrate
that each subcontractor has met one (1) of the requirements of this section. An
affirmative action program shall be approved if it is pursuant to an order of a
federal court with jurisdiction over the contractor's employment practices, or
if it meets the standard of the EEOC or OFCCP guidelines, as they may be
amended; provided, that certification by the EEOC or OFCCP shall be accepted as
fulfillment of this requirement only when issued within 30 days of the
submission of the contractor's program to the city.
(3) Emergency or Sole Source Contract: The contract has been determined by
the mayor, the mayor's designee or the purchasing agent to be an emergency
procurement, pursuant to section 5-5047, or to be available only through a sole
source, pursuant to section 5-5046.
(4) Fourteen or Less Employees: The contractor and all subcontractors, if
any, have workforces of 14 or less employees. (Ord. No. 1983-52, Sec. 1,
7/21/93)
Section 5-5154 Equal employment opportunity clause.
The equal employment opportunity ("EEO") clause required in all city
contracts, pursuant to section 5-5055, shall read as follows:
"During the performance of this agreement, said contractor agrees as
follows:
"(a) The contractor shall not discriminate against any employee, or
applicant for employment, because of race, religion, color, sex or national
origin. As used here, the words 'shall not discriminate' shall mean and include
without limitation the following:
"Recruited, whether by advertising or other means; compensated, whether in
the form of rates of pay, or other forms of compensation; selected for training,
including apprenticeship; promoted; upgraded; demoted; downgraded; transferred;
laid off; and terminated.
"The contractor agrees to and shall post in conspicuous places, available
to employees and applicants for employment, notices to be provided by the
contracting officers setting forth the provisions of the EEO clause.
"(b) The contractor shall, in all solicitations or advertisements for
employees, placed by or on behalf of the contractor, state that all qualified
applicants will receive consideration for employment without regard to race,
religion, color, sex or national origin.
"(c) The contractor shall send to each labor union or representative of
workers with which the contractor may have a collective bargaining agreement or
other contract or understanding a notice advising the labor union or workers'
representative of the contractor's commitments under the equal employment
opportunity program of the City of Atlanta and under the Code of Ordinances and
shall post copies of the notice in conspicuous places available to employees and
applicants for employment. The contractor shall register all workers in the
skilled trades who are below the journeyman level with the U.S. Bureau of
Apprenticeship and Training.
"(d) The contractor shall furnish all information and reports required by
the Contract Compliance Officer pursuant to the Code of Ordinances, and shall
permit access to the books, records, and accounts of the contractor during
normal business hours by the Contract Compliance Officer for the purpose of
investigation so as to ascertain compliance with the program.
"(e) The contractor shall take such action with respect to any
subcontractor as the City may direct as a means of enforcing the provisions of
Supp. No. 20, 7-83
<PAGE>
5-5154 Atlanta City Code 5-106
paragraphs (a) through (h) herein, including penalties and sanctions for
noncompliance; provided, however, that in the event the contractor becomes
involved in or is threatened with litigation as a result of such direction by
the City, the City will enter into such litigation as is necessary to protect
the interest of the City and to effectuate the equal employment opportunity
program of the City; and, in the case of contracts receiving federal assistance,
the contractor or the City may request the United States to enter into such
litigation to protect the interests of the United States.
"(f) the contractor and its subcontractors, if any, shall file compliance
reports at reasonable times and intervals with the City in the form and to the
extent prescribed by the Contract Compliance Officer. Compliance reports filed
at such times directed shall contain information as to employment practices,
policies, programs and statistics of the contractor and its subcontractors.
"(g) The contractor shall include the provisions of paragraphs (a) through
(h) of this equal employment opportunity clause in every subcontract or purchase
order so that such provisions will be binding upon each subcontractor or vendor.
"(h) A finding, as hereinafter provided, that a refusal by the contractor
or subcontractor to comply with any portion of this program as herein provided
and described, may subject the offending party to any or all of the following
penalties:
"(1) Withholding from the contractor in violation all future payments
under the involved contract until it is determined that the contractor or
subcontractor is in compliance with the provisions of the contract;
"(2) Refusal of all future bids for any contract with the City of Atlanta
or any of its departments or divisions until such time as the contractor or
subcontractor demonstrates that there has been established and there shall be
carried out all of the provisions of the program as provided in the Code of
Ordinances;
"(3) Cancellation of the public contract.
"(4) In a case in which there is substantial or material violation, of the
compliance procedure herein set forth or as may be provided for by the contract,
appropriate proceedings may be brought to enforce those provisions, including
the enjoining, within applicable law, of contractors, subcontractors or other
organizations, individuals or groups who prevent or seek to prevent directly or
indirectly compliance with the policy as herein provided."
(Ord. No. 1983-52, Sec. 1, 7/21/83)
Section 5-5155 Notice to and requirements of bidders and offerors.
Supp. No. 20, 7-83
<PAGE>
AMENDMENT TO LEASE AGREEMENT
GEORGIA, FULTON COUNTY:
In accordance with the provisions of an Ordinance adopted by the Council
of the City of Atlanta, Georgia ("CITY") on the 3rd day of October, 1988,
approved by the Mayor on the 7th day of October, 1988, and approved by
resolution of the Board of Directors of FILMWORKS U.S.A., INC., ("FILMWORKS") on
the 26th day of April, 1988, CITY and FILMWORKS, for and in consideration of the
CITY's approval of the Sublease between FILMWORKS and MCA and for and in
consideration of FILMWORKS' agreements and covenants contained herein, do by
this Agreement entered into as of the 10th day of October, 1988, hereby amend
the "Amended Indenture of Lease" ("LEASE") between them entered into as of the
2nd day of February, 1984, as follows:
1.
<PAGE>
The LEASE is hereby amended by adding a new section, Section 7.3.4, to the
original LEASE as now written:
"7.3.4. Capital Improvements Program.
"FILMWORKS (Lessee) shall devote at least fifty percent of its gross
rental income each year received pursuant to that certain Sublease Agreement
between FILMWORKS, U.S.A., INC., and MCA CONCERTS, INC., as executed on January
20, 1988, commencing with the execution of this (1988) amendment to the
completion of that definite and certain list of capital improvements attached
hereto as EXHIBIT A, subject to the following conditions:
"(a) A portion of the rental income in the first three years of the life
of the Sublease with MCA shall be excluded from the 50% pledge, to wit: $150,000
in the first year and $75,000 in each of the second and third years;
"(b) 50% of the rental revenues subject to the foregoing limitations shall
continue to be pledged until an amount equivalent to the CITY's expenditures, as
documented, pursuant to Section 4.2 of that certain agreement between the CITY
OF ATLANTA and MCA CONCERTS, INC., dated as of October 10, 1988, not to exceed a
cumulative total of $1.5 million, has been expended by FILMWORKS as
improvements;
"(c) The improvements associated with the 50% pledge are to be completed
within the first six months of the year following the year in which the rental
proceeds are received by FILMWORKS;
"(d) If expenditures in excess of 50% of rental revenues are expended in
any one calendar year, such excess will be credited to subsequent years; and
"(e) The 50% pledge is to be devoted and dedicated exclusively to capital
improvements that will restore and preserve the Exhibit Halls and Fire Station
at the Demised Premises as described in the attached EXHIBIT A."
2.
<PAGE>
Section 8.6 of the LEASE ("Coverage by others") is hereby amended by
adding the following paragraph to the section as it is now written:
"In the event that there should be residual payments made to Lessee
(FILMWORKS) by virtue of any insurance policy carried upon the premises, either
by FILMWORKS or by its sublessees, which residual payments are defined as that
portion of insurance proceeds over and above the amounts actually paid to
sublessees or used to replace or rebuild casualty losses, then such residual
payments shall be devoted by FILMWORKS (Lessee) exclusively to capital
improvements to the Demised Premises as approved by the CITY's Department of
Parks, Recreation and Cultural Affairs."
3.
<PAGE>
Section 8.7 of the Lease ("Indemnification") is hereby amended by adding
the following paragraph to the section as now written:
"Notwithstanding the foregoing paragraph, to the extent that the CITY's
(Lessor's) interest may appear in the same, Lessee (FILMWORKS) hereby and for a
valuable consideration (the approval of the Sublease with MCA) assigns its
interest in the indemnity given FILMWORKS by MCA in the Sublease to the CITY
(Lessor)."
IN WITNESS WHEREOF, CITY and FILMWORKS, acting through their duly
authorized officers, have executed this AMENDMENT TO LEASE under seal, as of the
10th day of October, 1988.
ATTEST: CITY OF ATLANTA, a Municipal
Corporation of the State of
Georgia ("Lessor")
/s/ Olivia Parks By: /s/ Andrew J. Young
- ---------------------------- -------------------------------------
Deputy Clerk of Council ANDREW J. YOUNG, Mayor
SEAL
Recommended:
/s/ [ILLEGIBLE]
-----------------------------------------
Chief Administrative officer
As to the Mayor, Clerk of Approved:
Council and Chief
Administrative Officer,
signed, sealed and delivered /s/ [ILLEGIBLE]
in the presence of: -----------------------------------------
Commissioner of Finance
/s/ [ILLEGIBLE]
-----------------------------------------
/s/ [ILLEGIBLE] Commissioner of Parks,
- ---------------------------- Recreation & Cultural Affairs
Unofficial Witness
November 8, 1988
/s/ [ILLEGIBLE]
-----------------------------------------
Commissioner of Public Works
/s/ [ILLEGIBLE]
- ----------------------------
Notary Public Approved as to Form on Behalf
of the City of Atlanta:
Notary Public, Gwinnett
County, Georgia /s/ [ILLEGIBLE]
My Commission Expires -----------------------------------------
Apr 9, 1992 Assistant City Attorney
(SIGNATURES CONTINUED)
4
<PAGE>
As to Filmworks, U.S.A., FILMWORKS, U.S.A., INC.
Inc., and the execution by
its officers, signed,
sealed, and delivered in By: /s/ [ILLEGIBLE]
the presence of -------------------------------------
President
SEAL
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- --------------------------- -------------------------------------
Unofficial Witness Chairman of the Board of
Directors
/s/ [ILLEGIBLE]
- ----------------------------
Notary Public
Notary Public, Gwinnett County, Georgia
My Commission Expires Mar. 7, 1992
5
<PAGE>
EXHIBIT A
Program for Improvements
The 50% pledge is to be invested in capital improvements on the following
structures:
Exhibit Halls 1, 2, 3, and 4
Fire House
The improvements include the following major categories of work:
(1.) Roofing Systems -- Replacement of roofing, or repair of roofing where
appropriate. Includes decking, eaves, gutters, down spouts, soffets, facia
boards, etc.
(2.) Bathrooms -- Renovation of bathroom area and surroundings replacement of
fixtures, and elimination of hazardous electrical and plumbing conditions.
(3.) Structural cracks -- Repair and replacement of surfaces on interior and
exterior walls.
(4.) Paint -- Renewal of interior and exterior wall surfaces in combination
with the other types of improvements stated above.
On an annual basis, a representative from Filmworks U.S.A., Inc. is to present a
capital improvements plan (based on the previous calendar year's 50% pledge) to
the City's Department of Parks, Recreation and Cultural Affairs and Department
of Finance for approval by these departments. So long as this plan will help
accomplish the general purpose of this arrangement, restoration and preservation
of the major historical buildings at the site, the City's approval cannot be
withheld.
In order to assess the scope and structural needs of this restoration effort,
consultants will be hired to evaluate the condition of the buildings. The
consultants' reports will be included as part of the presentation to City
representatives as support for the capital improvements plan proposed by
Filmworks.
Should sufficient funds be available or additional needs arise, Filmworks can
propose, subject to approval by the City's Department of Parks, Recreation, and
Cultural Affairs and Department of Finance, that the work program deviate from
the four major categories of work described herein.
<PAGE>
EXHIBIT B
SUBLEASE
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Grant and Term ......................................................... 1
1.1 Demising Agreement.............................................. 1
1.2 Easements....................................................... 1
1.3 Project Area.................................................... 3
1.4 Adjustments of Project Area..................................... 3
1.5 Interest Conveyed............................................... 3
1.6 Lease Term...................................................... 3
1.7 Termination by Tenant........................................... 4
1.8 Quiet Enjoyment................................................. 4
2. Use; Restrictions on Sublessor.......................................... 4
2.1 Tenant's Use of Site............................................ 4
2.2 Tenant's Exclusive Use.......................................... 4
2.3 Restrictions on Sublessor....................................... 5
2.4 Sublessor Co-operation.......................................... 5
3. Construction............................................................ 5
3.1 Amphitheatre and Primary Parking Area........................... 5
3.2 Tenant to Complete Initial Construction......................... 6
3.3 Extension of Utilities.......................................... 6
3.4 Removal of Existing Improvements................................ 6
3.5 Improvements.................................................... 6
3.6 Alterations and New Construction................................ 6
3.7 Protection of Adjacent Property................................. 7
3.8 Liens........................................................... 7
3.9 Removal of Property............................................. 7
4. Rent ................................................................... 7
</TABLE>
i.
<PAGE>
<TABLE>
<S> <C> <C>
4.1 Consumer price index............................................ 7
4.2 Minimum Rent.................................................... 8
4.3 Percentage Rent................................................. 10
5. Sublessor Purchase Options.............................................. 15
5.1 Percentage Rent - Short Fall Option............................. 15
5.2 11th and 21st Lease Year Options................................ 18
6. Parking................................................................. 20
6.1 Operation of Primary Parking Area............................... 20
6.2 Parking Area Taxes and Costs.................................... 21
6.3 Indemnification and Liability Insurance For Parking Area........ 21
6.4 Conflict with Other Sublease Provisions......................... 22
7. Taxes and Other Impositions............................................. 22
7.1 Taxes Based Upon the Project Area............................... 22
7.2 Taxes Based Upon Amphitheatre................................... 22
7.3 Taxes Arising with Respect to Business.......................... 22
7.4 Tax Contest..................................................... 23
8. General Requirements Upon Tenant........................................ 23
8.1 Compliance with Laws............................................ 23
8.2 Repair.......................................................... 23
8.3 Utilities....................................................... 23
8.4 Costs and Expenses.............................................. 23
8.5 Event Tickets................................................... 23
9. Insurance and Indemnification........................................... 24
9.1 Tenant Insurance Requirements................................... 24
9.2 Tenant Self-Insurance........................................... 24
9.3 Indemnification by Tenant....................................... 24
</TABLE>
ii.
<PAGE>
<TABLE>
<S> <C> <C>
9.4 Sublessor Waiver................................................ 24
10. Casualty and Condemnation............................................ 25
10.1 Casualty........................................................ 25
10.2 Condemnation.................................................... 25
11. Mortgages.............................................................. 26
11.1 Tenant's Right to Encumber...................................... 26
11.2 Mortgagee Requested Modifications............................... 27
11.3 Mortgage Protection............................................. 27
11.4 Rent Assignment................................................. 30
11.5 Possession...................................................... 30
11.6 No Merger....................................................... 30
11.7 Limitation on Liability of Mortgagee Parties.................... 31
11.8 Mortgage Benefitted............................................. 31
12. Tenant Default......................................................... 31
12.1 Interest Conditional............................................ 31
12.2 Events of Default............................................... 31
12.3 Sublessor's Rights of Re-Entry.................................. 33
12.4 Additional Rights of Sublessor.................................. 33
12.5 Survival of Tenant's Obligations................................ 33
13. Tenant First Refusal and Consultant Rights............................. 34
13.1 First Refusal................................................... 34
13.2 Sublessor Consultation.......................................... 35
14. Tenant Concessions and Subletting; Assignment.......................... 35
14.1 Concessions and Subletting...................................... 35
14.2 Assignments by Tenant........................................... 35
15. Miscellaneous.......................................................... 36
15.1 Waiver.......................................................... 36
</TABLE>
iii.
<PAGE>
<TABLE>
<S> <C> <C>
15.2 No Benefits to Others........................................... 36
15.3 Entire Agreement................................................ 36
15.4 Force Majeure................................................... 36
15.5 Notices; Approvals and Consents................................. 37
15.6 Captions and Section Numbers.................................... 38
15.7 Construction of Language........................................ 38
15.8 Broker's Commission............................................. 38
15.9 Interest........................................................ 38
15.10 Persons Indemnified............................................. 39
15.11 Georgia Law Applies............................................. 39
15.12 Rights are Cumulative........................................... 39
15.13 Saving Clause................................................... 39
15.14 Attorney's Fees................................................. 39
15.15 Injunctive Relief............................................... 39
15.16 Affiliate Defined............................................... 39
15.17 Person Defined.................................................. 39
15.18 Estoppel Certificates........................................... 40
15.19 Confidentiality................................................. 40
16. Non-Discrimination..................................................... 40
17. Successors and Assigns................................................. 40
18. Recording of Lease..................................................... 40
</TABLE>
iv.
<PAGE>
<TABLE>
<CAPTION>
GLOSSARY OF TERMS
Page
----
<S> <C>
1. Affiliate........................................................ 39
2. Amphitheatre..................................................... 5
3. City............................................................. 1
4. CPI.............................................................. 7
5. CPI Escalation................................................... 8
6. Cure Period...................................................... 28
7. Direct Cost...................................................... 11
8. Easement Areas................................................... 2
9. Escalation Avoidance Payment..................................... 9
10. Events of Default................................................ 31
11. Exclusive Party.................................................. 20
12. Existing Minimum Value........................................... 6
13. Gross receipts from all other sources............................ 12
14. Gross receipt from sponsorships.................................. 11
15. Improvements..................................................... 6
16. Initial Date..................................................... 1
17. Lakewood......................................................... 1
18. Lease Term....................................................... 3
19. Lease Year....................................................... 3
20. Master Lease..................................................... 1
21. Minimum Rent Excess.............................................. 13
22. Mortgage......................................................... 27
23. Mortgagee........................................................ 27
24. Mortgagee Party.................................................. 30
25. Net Revenues..................................................... 19
</TABLE>
v.
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
26. Net Ticket Receipts ............................................. 11
27. Opening Date .................................................... 3
28. Option Avoidance Payment ........................................ 16
29. Option Exercise Notice .......................................... 15
30. Option Segment .................................................. 15
31. Parking Area .................................................... 1
32. Permitted Activities ............................................ 5
33. Person .......................................................... 39
34. Percentage Rent Earned .......................................... 14
35. Prepayment Date ................................................. 8
36. Project Area .................................................... 2
37. Registered Mortgagee ............................................ 27
38. Rental Arrangements ............................................. 11
39. Rental Net ...................................................... 11
40. Requesting Party ................................................ 20
41. Site ............................................................ 1
42. Start Date ...................................................... 3
43. Stub Period ..................................................... 3
44. Sublessor ....................................................... 1
45. Substantial Completion .......................................... 5
46. Tenant .......................................................... 1
47. Voluntary Payments .............................................. 10
</TABLE>
vi.
<PAGE>
SUBLEASE
This Sublease is executed as of 1/20, 1988 (the "Initial Date") between
Filmworks U.S.A., Inc. ("Sublessor") and MCA Concerts, Inc. ("Tenant").
This Sublease is entered into with reference to the following facts:
A. The City of Atlanta (the "City") is the fee owner of an approximately
117 acre parcel commonly known as Lakewood Fairgrounds ("Lakewood"). Sublessor
is the lessee of Lakewood under a lease with the City dated February 2, 1984
(the "Master Lease") which, together with the legal description of Lakewood, is
attached as Exhibit A. Sublessor represents and warrants to Tenant that: Exhibit
A is a true and complete copy of the Master Lease; there are no amendments to
the Master Lease; the Master Lease is in full force and effect; there are no
uncured defaults by Sublessor under the Master Lease; there are no occurrences,
omissions, or states of fact that with the passage of time will constitute a
default by Sublessor under the Master Lease; the City has made no claim contrary
to any of the above; to the best of Sublessor's knowledge there are no uncured
defaults by the City under the Master Lease and no occurrences, omissions or
states of fact that with the passage of time will constitute a default by the
City under the Master Lease.
B. The parties believe it to be to their mutual benefit for Sublessor to
sublease a portion of Lakewood to Tenant to enable Tenant to construct and
operate an outdoor commercial concert facility on a long-term basis.
Therefore, the parties agree as follows:
Section 1. Grant and Term.
1.1 Demising Agreement. For and in consideration of the covenants, terms
and conditions contained in this Sublease, Sublessor hereby demises, subleases
and rents to Tenant, and Tenant hereby agrees to lease and take upon the terms
and conditions hereinafter contained, the following premises:
1.1.1 The "Site," the legal description of which is attached as
Exhibit B.
1.1.2 The "Parking Area," the legal description of which is attached
as Exhibit C.
1.2 Easements. Upon and subject to the terms and conditions contained in
this Sublease, Sublessor does hereby grant, bargain, sell and convey unto
Tenant, its successors and assigns, a non-exclusive easement, for the benefit of
Tenant, its successors and assigns, and also for the benefit of all
Subsublessees, licensees, invitees, guests and occupants of the
1.
<PAGE>
Project Area (as hereinafter defined) or any portion or portions thereof, and
also for the benefit of any and all persons or entities providing the utility
services referenced in Subsection 1.2.1 hereinafter set forth, in, over,
through, beneath and across those portions of Lakewood, the legal descriptions
of which are attached as Exhibit E, and any structures or improvements now or
hereafter erected thereon for the following purposes, and any of them, to-wit:
1.2.1 to establish, install, construct, lay, operate, maintain, repair,
remove, demolish and reconstruct all such pipes, wires, conduits,
equipment, apparatus and facilities as Tenant, its successors and assigns,
shall deem necessary or appropriate for the provision of utility services
to the Project Area or any portion thereof, including, but not limited to,
water, electricity, steam, natural gas, telephone, sanitary sewer, storm
sewer and oil; and
1.2.2 for vehicular and pedestrian ingress to and egress from the
Project Area to and from each of the public rights-of-way abutting Lakewood
(or any portion of Lakewood), together with the right to grade, level,
fill, drain, pave, construct, maintain, repair, expand, rebuild and replace
such roads, ramps, drives, stairways, bridges and passages as Tenant, its
successors and assigns, shall deem necessary or appropriate to provide such
ingress and egress; and
1.2.3 for the purpose of entry thereon, passage thereover, deposit of
materials and equipment thereon, erection of temporary structures therein
or thereon, and for all such other purposes and uses as are at any time and
from time to time directly related to and made necessary by the
construction, demolition, reconstruction, repair, replacement or alteration
of any buildings, other structures or improvements now or hereafter erected
in, over, through or upon the Project Area or any portions thereof.
The above easements shall benefit and be appurtenant to the Site, and the
Parking Area and shall be binding upon, burden, and run with the land with
respect to the portions of Lakewood so described on attached Exhibit E for a
period coterminous with the Lease Term. The areas encompassed within the legal
descriptions set forth in Exhibit E are hereinafter referred to as the "Easement
Areas." Sublessor, its successors and assigns, shall retain the entire leasehold
interest conveyed to Sublessor by the Master Lease in the "Easement Areas"
except as said interest is specifically burdened by the easements granted in
this Subsection 1.2. Further, the parties recognize that Sublessor, as well as
its patrons, customers and invitees, shall utilize Easement Areas for ingress
and egress in connection with activities of Sublessor; provided that Sublessor
shall not permit utilization which would interfere with amphitheatre events or
pedestrian and vehicular ingress and egress related to
2.
<PAGE>
amphitheatre events or would otherwise interfere with the proper exercise of the
rights granted above.
1.3 Project Area. The "Project Area" consists of the Site, the Parking
Area and the Easement Areas.
1.4 Adjustments of Project Area. Prior to the Opening Date (as defined in
Subsection 1.6.2) Sublessor will make such adjustments in the dimensions and
specific locations of all or any portion of the areas within the Project Area as
Tenant may in good faith request from time to time. Thereafter during the Lease
Term Sublessor will agree to make such minor adjustments to all or any of the
foregoing as Tenant may reasonably request, provided, however, such minor
adjustments will not adversely affect in any material way the then present or
contemplated activities of Sublessor or Persons claiming under Sublessor.
Sublessor shall not be required to agree to adjustments which would cause the
Site to exceed approximately 10 acres or the Parking Area to exceed
approximately 50 acres.
1.5 Interest Conveyed. The interest conveyed by this Sublease consists of
a limited and restricted interest (said limitations and restrictions being set
forth in this Sublease) and said conveyed interest does not include an estate in
real property.
1.6 Lease Term. The "Lease Term" under this Sublease shall commence on the
Initial Date and shall expire midnight, local time in the City of Atlanta, State
of Georgia, on December 31, 2033/January 1, 2034, and for as long thereafter as
Sublessors rights are extended under the Master Lease, or Sublessor by any other
instrument retains a leasehold interest in the areas of Lakewood within the
Project Area. Should Sublessor acquire the fee interest in the Project Area or
any other interest consistent with the continued maintenance of the relationship
contemplated by this Sublease, the term of this Sublease shall also continue as
long as Sublessor retains such an interest. Notwithstanding the foregoing, the
Lease Term will expire, if not sooner, at the same hour specified above on
December 31, 2086/January 1, 2087. Sublessor will exercise any option which it
possesses to enable the Lease Term to extend to the December 31, 2033/January 1,
2034 date specified above and to extend further to the maximum duration
specified in the preceding sentence. The Lease Term is subject to being
terminated as hereinafter provided in this Sublease.
1.6.1 Notwithstanding the above provisions, the terms and conditions of
this Sublease will not become effective until ______________ (the "Start
Date").
1.6.2 The "opening Date" is the date the Amphitheatre (as defined in
Subsection ______) is first opened for business to the public.
3.
<PAGE>
1.6.3 The Term "Lease Year" means a calendar year during the Lease Term.
If the Opening Date occurs on January 1 of any calendar year, the 1st Lease
Year will begin on the Opening Date. If the Opening Date occurs on any day
other than January 1, the period of time between the Opening Date and the
first day of the following calendar year is the "Stub Period" and the 1st
Lease Year shall commence on the first day of the calendar year following
the Stub Period. Each successive 12 month period following the 1st Lease
Year shall be a separate and successively numbered Lease Year.
1.7 Termination by Tenant. Effective any time on or after the second
anniversary of the Initial Date, Tenant may, upon six months' prior notice,
terminate this Sublease and if the termination was solely pursuant to this
Subsection 1.7, Sublessor shall be entitled to the Improvements, but Tenant may
retain ownership of, and may remove at any time up to 60 days after the
termination, all or any of the items which are the same as the items which
Tenant is entitled to retain ownership of, and remove, pursuant to Subsection
5.1.3.2.
1.8 Quiet Enjoyment. Subject to this Sublease, Sublessor covenants and
agrees to take all necessary steps to secure and maintain for the benefit of
Tenant the quiet and peaceful possession and enjoyment of the Project Area for
the full Lease Term (as such Lease Term may be extended as provided in
Subsection 1.6), without hindrance, claim, or molestation by Sublessor or any
other Person acting by, through or under Sublessor, or by the City or any other
fee owner of the Project Area or any other Person acting by, through or under
such fee owner.
Section 2. Use; Restrictions on Sublessor; Sublessor Cooperation
2.1 Tenant's Use of Site. Tenant shall have the right to use the Site for
live entertainment, and for commercial concert and arena activities, including
without limitation the vending of food, beverages (including but not limited to
alcoholic beverages), and merchandise and in addition for any other lawful use
which is either not inconsistent with Subsection 7.1.1 of the Master Lease or is
otherwise permitted by the City. Sublessor represents and warrants that provided
the City approves this Sublease, Tenant will have the right to use the Site (and
the rest of the Project Area in conjunction therewith) for all the purposes
specified in the prior sentence in the manner contemplated by Tenant without
violating any laws, ordinances, regulations and without violating the rights of
any Person, provided, however, alcoholic beverages may not be served or sold
without complying with the specific laws relating thereto.
2.2 Tenant's Exclusive Use. Tenant shall have the sole and exclusive right
to use, occupy, and enjoy the Site and all improvements erected thereon, except
for Sublessor's limited inspection rights as elsewhere provided in the Sublease.
4.
<PAGE>
2.3 Restrictions on Sublessor. During the entire Lease Term, neither
Sublessor nor any Person deriving rights directly or indirectly from Sublessor
shall on all or any portion of Lakewood engage in any activities at any time
which are similar to, or competitive with, the types of activities which at the
particular time are normal and customary for commercial concert and arena
facilities. Sublessor shall be entitled to use facilities in Lakewood for
parties, conventions, dancing, receptions, banquets, film and video production,
musical programs, recreational and sports activities and other similar
activities; if such activities involve live musical programs or live
entertainment they shall not entail audiences of more than 1,000 persons and
shall also not be of the type which is normally and customarily held at
commercial concert and arena facilities. Although not an activity which has
previously been engaged in by Sublessor, Sublessor may, subject to the same
qualifications specified above in the prior sentence, conduct a so-called studio
tour business on other portions of Lakewood (which may involve more than 1,000
persons for the tour itself, as distinguished from particular shows which are
part of the tour). The activities which Sublessor is entitled to engage in, in
accordance with the prior two sentences, are referred to as the "Permitted
Activities." In addition to the restrictions upon Sublessor for the above,
neither Sublessor nor any Person deriving rights from Sublessor will engage in
any conduct on any portion of Lakewood which interferes with Tenant's conduct of
business or Tenant's use of, enjoyment of, or operations on, the Project Area.
Sublessor recognizes that it is of utmost importance that Tenant be free from
any competitive activities at Lakewood and also free from any interference.
Accordingly, all prohibitions contained in this Subsection 2.3 shall be broadly
construed against Sublessor and persons deriving rights from Sublessor and the
scope of the Permitted Activities shall be narrowly construed, it being the
intention of the parties to prohibit all activities at Lakewood which could be
deemed to be competitive with, or to interfere with, Tenant, other than matters
which are de minimis.
2.4 Sublessor Co-operation. Without derogating from the generality of
Sublessor's other obligations, Sublessor shall cooperate and coordinate its
activities so as to assist and expedite the planning for, and construction of,
the improvements contemplated by this Sublease on the Project Area and during
the Lease Term support further in every reasonable manner Tenant's activities on
the Project Area.
Section 3. Construction.
3.1 Amphitheatre and Parking Area. Tenant intends to construct an outdoor
amphitheatre facility on the Site and to improve the Parking Area so as to
accommodate self-parking for approximately 6300 vehicles. The term
"Amphitheatre" refers to the aforementioned amphitheatre as constructed on the
Site. Tenant agrees to expend a minimum of $5,000,000 for the development of
plans and specifications, permit fees, insurance and interest cost (paid or
imputed) during construction, cost of
5.
<PAGE>
construction, and other direct and indirect costs related to the development and
construction of the Amphitheatre and related improvements elsewhere within the
Project Area deemed desirable by Tenant.
3.2 Tenant to Complete Initial Construction. Tenant will, if practical,
attempt to complete substantially the Amphitheatre and related improvements so
as to enable the Amphitheatre to be opened to the public ("Substantial
Completion") by June 16, 1988. However, if this is not accomplished, Tenant will
have 24 months from the Start Date in which to complete substantially the
Amphitheatre and related improvements which date shall be subject to extension
to allow for causes beyond Tenant's control until the first June 16 which occurs
at least 36 months from the Start Date.
3.3 Extension of Utilities; Meters. As part of Tenant's responsibilities
under Subsections 3.1 and 3.2, Tenant shall provide for the extension of
utilities from their present locations to service the Amphitheatre and Parking
Area and for utility meters to measure usage by the Amphitheatre and Parking
Area.
3.4 Removal of Existing Improvements. Tenant shall have the right at any
time during the Lease Term to remove any improvements existing on the Project
Area as of the Initial Date except Tenant may not remove any improvements
located on the Easement Areas which serve or benefit facilities within Lakewood
beyond the Site if such removal would materially adversely affect Sublessor
unless Tenant takes appropriate action to avoid such result.
3.5 Improvements. The term "Improvements" means all improvements,
betterments, facilities and the like which are at any time constructed or placed
upon the Site and/or Parking Area and also includes all improvements,
betterments, facilities and the like which are at any time constructed, or
placed upon the Easement Areas which benefit or serve the Site and/or the
Parking Area or which are constructed or placed upon the Easement Areas by
Tenant or any Person deriving rights from Tenant. Any Improvements within the
Project Area shall become part of the Project Area, but the legal title to the
same shall not vest in Sublessor or the City until the termination of this
Sublease, whether expiration of the Lease Term or otherwise. Title to all
Improvements, any and all depreciation and investment tax credits generated
thereby or available in connection therewith, shall belong to, and accrue to the
benefit of, Tenant during the Lease Term.
3.6 Alterations and New Construction. Tenant shall have the right from
time to time to engage in any alterations, modifications, demolition, and new
construction as Tenant may desire, subject to the same qualification with
respect to Improvements on the Easement Areas as specified in Subsection 3.5.
The term "Existing Minimum Value" means what the
6.
<PAGE>
approximate fair market value would have been at the particular point of time if
an amphitheatre appropriate for the commercial concert business costing
$5,000,000 (with costs including those items specified in Subsection 3.1) had
been completed by the Opening Date and thereafter had been maintained in
accordance with the provisions of this Sublease. If after the completion of the
original facilities contemplated by Subsection 3.1, Tenant exercises Tenant's
right to modify, alter or demolish any Improvements, Tenant may only do so if
the fair market value of the Improvements which will exist on the Project Area
after the completion of the particular work will at the time have a value at
least equal to the Existing Minimum Value.
3.7 Protection of Adjacent Property. While any excavation, demolition or
construction is being performed within the Project Area or any portion thereof,
Tenant shall to the full extent required by applicable law protect all adjacent
property from reasonably foreseeable adverse effects of such excavation,
demolition or construction.
3.8 Liens. Tenant shall permit no liens to attach to the interest in
Lakewood of either Sublessor or the city as the result of any excavation,
demolition or construction upon the Project Area or any portion thereof, unless
Tenant shall remove such liens, within 120 days from and after recordation
thereof, by discharge, bonding or other proceeding; provided that this
Subsection 3.8 shall not, and shall not be deemed to, authorize or empower the
Tenant to cause or permit any lien whatsoever to attach to Sublessor's or the
City's interest in Lakewood.
3.9 Removal of Property. Tenant and other Persons claiming under Tenant
shall have the right to remove from the Project Area all or any of the items
which, pursuant to Subsection 5.1.3.2 are specified as being subject to Tenant's
retained ownership and Tenant's right to remove. The removal of such items, to
the extent that Tenant elects to do so, may be accomplished at any time and from
time to time during the Lease Term, and/or within 60 days from and after the
termination or expiration of the Lease Term.
Section 4. Rent
4.1 Consumer Price Index.
4.1.1 "CPI" means the Consumer Price Index for All Urban Consumers, U.S.
City Average, All Items (1967=100). If the aforementioned Index ceases to exist
in substantially its form as of the Initial Date, a substitute index shall be
utilized, which index shall be reasonably comparable to the index specified in
the prior sentence as agreed upon by the parties, or if the parties disagree,
established by the presiding Judge of the United States District Court for the
Northern District of Georgia, Atlanta Division.
7.
<PAGE>
4.1.2 "CPI Escalation" means multiplying the dollar figure which is the
subject of the escalation by a fraction the denominator of which is the CPI for
the second month prior to the month in which the date occurs which is the
beginning of the comparison period and the numerator of which is the CPI for the
second month prior to the month in which the later date used in the comparison
occurs.
4.2 Minimum Rent
4.2.1 During the period from the Initial Date up to the Opening Date
minimum rent shall be payable at the rate of $12,500 per month. The first
$__________ of minimum rent payable under this Sublease (i.e. rent for the
period ending _____________) has been prepaid. If the date to which minimum rent
has been prepaid (the "Prepayment Date") occurs on a date other than the first
day of a calendar month, then on the after the Prepayment Date Tenant shall pay
to Sublessor rent for the partial month occurring between such day and the first
day of the next calendar month on the basis of the pro-rated amount of $12,500.
Subject to the preceding sentence, minimum rent of $12,500 per month following
the Prepayment Date shall be payable in advance on the first day of each
calendar month. If the opening Date is other than the first day of a calendar
year, then minimum rent during the period from the Opening Date to the first day
of the 1st Lease Year shall continue to be payable at the same rate and in the
same manner.
4.2.2 Minimum rent starting with the 1st Lease Year and continuing through
the 20th Lease Year shall be payable in the following annual amounts (which
shall be divided into 12 equal monthly installments and each such installment
shall be payable in advance on the first day of each calendar month of the
particular Lease Year): For the 1st through 5th Lease Years the minimum annual
rent shall be $150,000, for the 6th and 7th Lease Years the minimum annual rent
shall be $160,000 and for the 7th through the 20th Lease Years the minimum
annual rent shall be $170,000. The minimum annual rent starting with the 21st
Lease Year shall be determined in accordance with the formula specified in
Subsection 4.2.3.
4.2.3 In order to determine the minimum annual rent applicable to each
Lease Year beginning with the 21st Lease Year a hypothetical adjustment to the
minimum annual rent shall be made with respect to the Lease Years beginning with
the 11th Lease Year and continuing through the 20th Lease Year. There shall be
established four Measuring Segments. The first Measuring Segment shall be the
three Lease Years beginning with the 11th Lease Year; the second Measuring
Segment shall be the three Lease Years beginning with the 14th Lease Year; the
third Measuring Segment shall be the three Lease Years beginning with the 17th
Lease Year and the fourth Measuring Segment shall be the 20th Lease Year.
8.
<PAGE>
There shall be a hypothetical adjustment to the minimum annual rent for each of
the Lease Years of each Measuring Segment based upon the CPI Escalation between
the beginning of the 10th Lease Year and the beginning of the first Lease Year
of the particular Measuring Segment. The hypothetically adjusted minimum annual
rent shall remain at the same level for all three years of each of the first
three Measuring Segments. If the aggregate percentage rent earned with respect
to the entire period covered by a Measuring Segment is less than the aggregate
hypothetically adjusted minimum annual rent for the same period, and if Tenant
does not elect to make an "Escalation Avoidance Payment" which means a payment
of the deficiency within 60 days following the last day of the aforementioned
Measuring Segment, then the hypothetical assumption shall be that the minimum
annual rent during the Measuring Segment was increased to reflect the above
described CPI Escalation. If, on the other hand, the percentage rent earned with
respect to the Measuring Segment did equal or exceed the hypothetically adjusted
minimum annual rent applicable to such Measuring Segment or Tenant elects to
make an Escalation Avoidance Payment, then the CPI Escalation which was
otherwise presumed to have gone into effect as of the beginning of the
particular Measuring Segment shall be cancelled, and the minimum annual rent for
each year of the Measuring Segment shall be deemed to be the same as the minimum
annual rent in effect in the last year prior to the particular Measuring
Segment. Therefore, by way of example, if, in accordance with the above
hypothetical calculation, the hypothetical minimum annual rent for the first
Measuring Segment did not increase above $170,000 because sufficient percentage
rent was payable with respect to that period (or Tenant made the Escalation
Avoidance Payment with respect thereto) and if the same conditions exist during
the second Measuring Segment, the hypothetical minimum annual rent during the
second Measuring Segment will continue to be $170,000. In making the
calculations specified in this Subsection 4.2.3, regardless of the increase in
the CPI, in no event will the hypothetical minimum annual rent at any time
during the 11th through the 20th Lease Years be deemed to exceed $250,000 for
purposes of making the above calculation. The minimum annual rent for each Lease
Year beginning with the 21st Lease Year and continuing until the end of the term
shall be the same as the final determination of the hypothetically calculated
minimum annual rent for the 20th Lease Year. Therefore in no event will the
minimum annual rent for any Lease Year starting with the 21st Lease Year exceed
$250,000 and such minimum annual rent may be as low as $170,000 regardless of
any increases in the CPI. The sole purpose of this Subsection 4.2.3 is to
provide the mechanism for determining the minimum annual rent applicable to each
Lease Year beginning with the 21st Lease Year. Accordingly, notwithstanding
anything contained above, Tenant shall not under any circumstances be obligated
for any Lease Year from the 10th through the 20th Lease Years to pay any rent of
9.
<PAGE>
more than the greater of $170,000 or the percentage rent payable pursuant to
Subsection 4.3 (although Tenant may elect to pay more in the form of Voluntary
Payments (which term is defined in Subsection 4.2.4)).
4.2.4 Any Escalation Avoidance Payment made pursuant to Subsection 4.2.3,
and any Option Avoidance Payment made pursuant to Subsection 5.1.2 (these two
types of payments are hereinafter collectively referred to as a "Voluntary
Payments") shall also be deemed a payment of the other two above described
Voluntary Payments for any Lease Year or Segment which overlaps the period with
respect to which the particular Voluntary Payment was made.
4.3 Percentage Rent.
4.3.1 Tenant shall pay to Sublessor, with respect to the Stub Period and
each Lease Year, a percentage of the gross receipts received by Tenant during
the Stub Period, or such Lease Year, as the case may be, from the operation of
the Amphitheatre and the Parking Area.
4.3.2 First, there shall be determined for the Stub Period and for each
Lease Year (except for the specific provisions below which are applicable only
to the periods stated herein), the amount of percentage rent earned which shall
be the sum of the product of multiplying each category specified below of a
particular period's gross receipts by the percentage applicable to that
category:
4.3.2.1 3-1/2% of net ticket revenues up to $6,000,000 in the
Stub Period and in the particular Lease Year, respectively, plus
4-1/2% of net ticket revenues in excess of $6,000,000 in such
period.
4.3.2.2 For the Stub Period and for the 1st Lease Year, 3% of
gross receipts received by Tenant during the Stub Period and during
the 1st Lease Year respectively from sponsorships, whether such
receipts are in cash or other valuable consideration.
4.3.2.3 3% of any valuable consideration, other than cash,
received by Tenant from sponsorships during the particular Lease
Year after the 1st Lease Year.
4.3.2.4 25% of Rental Net received by Tenant for the Stub
Period and in the particular Lease Year, respectively.
4.3.2.5 On gross receipts of Tenant from all other sources (i.e.,
sources not specified above in this Subsection 4.3.2), in the aggregate for
the Stub Period and in the particular Lease Year, respectively, 5.5% on the
first $2,000,000 in such period, escalating to 6% of the next $3,000,000 in
such period and
10.
<PAGE>
escalating to 7% on any additional gross receipts over and above $5,000,000
in such period (the base upon which the percentages specified in this
Subsection 4.3.2.4 are predicated shall include, after the 1st Lease Year,
cash received by Tenant from sponsorships).
4.3.3 The categories of gross receipts referred to in Subsection
4.3.2 are defined as follows:
4.3.3.1 The terms "net ticket receipts" and "net ticket revenues" mean
gross receipts from all ticket sales and other admission or entry fees less
returns, commissions on sales, credit card charges on sales and charge
backs, discounts from face value, excise, sales, seat, entertainment and
similar taxes, and shall include any receipts by Tenant in the form of any
rebate or reimbursement from authorized ticket agents;
4.3.3.2 The term "gross receipts from sponsorships" (and variants
thereof) shall refer to cash or other valuable consideration received by
Tenant for signage, building identification, and advertising tie-ins (the
latter term not to be confused with advertising or other benefits received
by Tenant in consideration of admission tickets) and from such other
activities, if any, as are considered at the time to be sponsorship in
accordance with the practices then generally prevailing in the commercial
concert business;
4.3.3.3 "Rental Arrangements" means a transaction in which Tenant's
subsublessee or licensee pays essentially a flat fee and does not pay on
the basis of such entity's own receipts. Should there be a transaction
which would qualify as a Rental Arrangement except that the transaction is
with an Affiliate of Tenant, the gross receipts of the Affiliate shall be
treated the same as Tenant's gross receipts (i.e. pursuant to Subsections
4.3.2.1, and 4.3.2.5), and the transaction shall not be deemed a Rental
Arrangement. "Rental Net" means the amount of rent received by Tenant from
a subsublessee or licensee of the Amphitheatre and the Parking Area
pursuant to a Rental Arrangement, less Direct Costs. "Direct Costs" means
those costs which are directly incurred for each particular Rental
Arrangement. Direct Costs do not include those continuing costs to Tenant
such as costs for administration, management, continuing insurance,
permanent security, standard utility costs and all such similar costs to
the extent they would have been incurred regardless of whether the Rental
Arrangement had occurred. Direct Costs do include the costs for stage
crews, parking attendants, ticket sellers, ushers, additional security,
event insurance, and all such similar costs which are incurred and paid by
11.
<PAGE>
Tenant which are directly required for the particular Rental Arrangement.
As an example only, assume that B rents the Amphitheatre and the Parking
Area from Tenant for one evening and pays Tenant a rental fee of $25,000
and Tenant retains the right to engage in the activities generating all of
the sources of income described in 4.3.2 except the right to sell tickets
and charge for parking. Further, assume that the rental agreement requires
Tenant to provide a stage crew at a cost of $1,000, ticket sellers and
parking attendants at a cost of $600, and ushers at a cost of $900, and B
furnishes its own sound and light technicians, security forces and pays all
other costs of production of the event. In this case, the Rental
Arrangements rate of 25% provided for in Subsection 4.3.2.4 would be
applied to a Rental Net of $22,500 ($25,000 less the sum of $1,000 and $600
and $900) which would result in percentage rental payment of $5,625 to
Sublessor, as well as all percentage rent set forth in Subsection 4.3.2.5
(excluding parking), but Sublessor would receive no percentage rent based
upon ticket sales and upon parking. As a further example, if pursuant to
the particular Rental Arrangement, Tenant had retained the right to charge
for parking, the costs relating to parking would not be deducted in
computing Rental Net and Tenant would be accountable under Subsection
4.3.2.5 for parking receipts.
4.3.3.4 The term "gross receipts from all other sources" (and variants
thereof) refers to gross operating revenue from other activities directly
related to the Amphitheatre including revenues from food, beverage, and
merchandise sales, parking charges, cash receipts from sponsorships which
are received after the 1st Lease Year, and other operating income not
otherwise excluded.
4.3.4 The following principles shall govern the determination of the
composition and amount of gross receipts.
4.3.4.1 Gross receipts (except for the specific provisions above
relating to receipts from sponsorship) shall be computed only upon the cash
receipts of Tenant unless and to the extent that the reason Tenant did not
receive cash receipts, but received consideration in some other form, was
primarily to enable Tenant to avoid paying percentage rent to Sublessor
with respect to such transaction or Sublessor can establish that the
receipt by Tenant of non-cash consideration was inconsistent with practices
which at the time were generally prevailing in the commercial concert
business.
12.
<PAGE>
4.3.4.2 There shall be deducted in computing all types of
gross receipts, returns, commissions on sales, credit card charges
on sales and chargebacks, discount from face value and similar "off
the top" charges as well as all taxes (other than net income taxes)
paid to governmental entities in connection with Tenant's business,
activities and/or any property, and any payments made by licensees,
subsublessees or the like which are primarily "pass-through" items
or expense reimbursement (such as amounts equal to any taxes,
license fees, insurance premiums, and personnel charges paid to
Tenant by concessionaires, sublessees of Tenant or the like for
transmittal to licensing agencies and insurance companies).
The gross receipts which are subject to percentage rent are in
all cases operating income directly related to activities at the
Amphitheatre and Parking Area and includes only operating income as
distinguished from income received from sources such as the sale of
capital assets, the receipts of insurance proceeds, payment of the
proceeds of a judgment obtained against third parties and other
non-operating income.
4.3.4.4 Subject to Subsection 4.3.4.5, the receipts of
concessionaires, subsublessees and licensees of Tenant shall be
treated the same as if the income were received directly by Tenant
and in those instances, any concession fees, rental fees or the like
paid by such concessionaire, sublessee of Tenant or licensee shall
be excluded from the computation of gross receipts.
4.3.4.5 In cases in which Tenant enters into Rental
Arrangements the receipts of the subsublessee or licensee of Tenant
shall not be included in gross receipts.
4.3.5 After the amount of the percentage rent earned has been
determined, the amount of percentage rent which Tenant shall be required
to pay shall be the percentage rent earned less the following adjustments:
4.3.5.1 The minimum annual rent paid with respect to a
particular Lease Year shall be credited against the percentage rent
earned with respect to the same Lease Year. If the minimum annual
rent paid with respect to such Lease Year exceeds the amount of
percentage rent earned with respect to the same Lease Year, the
excess is hereinafter referred to as the "Minimum Rent Excess." (If
there is a Stub Period, then the entire minimum annual rent payable
with respect to the calendar year in which the Stub Period occurs
shall be subtracted from the percentage rent
13.
<PAGE>
earned with respect to the Stub Period and if the Minimum Annual
Rent exceeded the amount of percentage rent payable with respect to
the Stub Period, that excess shall also constitute a Minimum Rent
Excess.).
4.3.5.2 The Minimum Rent Excess from the two most recent Lease
Years (or Stub Period) prior to the Lease Year for which the amount
of percentage rent payable is being determined shall be credited
against percentage rent earned with respect to the Lease Year for
which the amount of percentage rent payable is being determined, to
the extent not previously credited. The oldest Minimum Rent Excess
shall be the first to be credited.
4.3.5.3 Any Voluntary Payment shall be credited against
percentage rent earned, in the two Lease Years following the end of
the Lease Year (or the end of the last Lease Year in the Measuring
Segment or the Option Segment) for which the Voluntary Payment was
made. The oldest Voluntary Payment shall be the first to be
credited. To the extent that any Voluntary Payment arising from a
particular Lease Year or Measuring Segment is credited against
percentage rent earned in the next Lease Year, the amount of such
Voluntary Payment available to be credited in the following Lease
Year shall be reduced.
4.3.5.4 References elsewhere in this Sublease to "percentage
rent earned" means the percentage rent earned before giving effect
to the adjustments and credit provided for in this Subsection 4.3.5.
4.3.6 Sublessor shall be bound by Tenant's good faith allocation of
receipts which relate to the Amphitheatre and other facilities where the
receipts involved are not identified or allocated to specific facilities.
4.3.7 Within 30 days following the end of each Lease Year (and if
there was a Stub Period or a partial Lease Year at the end of the lease
term, then within 30 days following the end of the Stub Period or partial
Lease Year, as the case may be) Tenant shall provide a report to Sublessor
showing the amount of percentage rent earned and the amount of the credits
to which Tenant is entitled with respect to the particular period and
shall accompany such report (providing such details and line entries as
the parties mutually agree are appropriate) with the payment of percentage
rent payable, if any, with respect to that period. Tenant shall maintain
complete and accurate records with respect to matters relevant to the
computation of percentage rent. Sublessor shall have the right, on no more
than two occasions in any one year period, to inspect and audit, at its
own expense, Tenant's books and records upon 30 days notice to Tenant;
upon exercising this right Tenant
14.
<PAGE>
shall make such books and records available to Sublessor at a location
designated by Tenant in the greater Atlanta area. If within 15 months
after Sublessor's receipt of Tenant's report of percentage rent with
respect to the Stub Period or a particular Lease Year, Sublessor has not
commenced an action, and served a summons and complaint with respect to
such action upon Tenant, Sublessor shall be deemed to have accepted the
report for all purposes and waived its right to raise any objection at a
later date; the fact that information is reiterated or presented in a
cumulative fashion in later reports shall not extend the time within which
Sublessor must object or be deemed to have waived its right to do so.
Section 5. Sublessor Purchase Options
5.1 Percentage Rent - Short Fall Option
5.1.1 There shall be a hypothetical adjustment to the minimum annual
rent for the 11th Lease Year based upon the CPI Escalation between the
beginning of the 11th Lease Year and the beginning of the 12th Lease Year
and if the percentage rent earned with respect to the 11th Lease Year does
not equal or exceed such hypothetically adjusted minimum annual rent,
Sublessor shall have the Option to purchase Tenant's leasehold interest.
The 11th Lease Year is hereinafter referred to as an "Option Segment".
Similarly, there shall be established three successive Option Segments.
One Option Segment shall be the three Lease Years beginning with the 12th
Lease Year; the next option segment shall be the three Lease Years
beginning with the 15th Lease Year; and the last Option Segment shall be
the three Lease Years beginning with the 18th Lease Year. There shall be a
hypothetical adjustment to the minimum annual rent for each of the three
Lease Years of each Option Segment following the 11th Lease Year Option
Segment based upon the CPI Escalation between the beginning of the 11th
Lease Year and the beginning of the first year of the particular Option
Segment; the hypothetically adjusted minimum annual rent shall remain at
the same level for all three years of the particular Option Segment. If
the aggregate percentage rent earned with respect to the entire period
covered by the particular Option Segment is less than the aggregate
hypothetically adjusted minimum annual rent for the same period, Sublessor
shall have an option following the end of the particular Option Segment as
to which there was a deficiency in the amount of percentage rate earned in
accordance with the preceding formula, to purchase the leasehold interest
of Tenant.
5.1.2 In order for Sublessor to exercise an option which has come
into effect in accordance with the provisions of Subsection 5.1.1,
Sublessor must, within 60 days following the date upon which Tenant
rendered its report with respect to percentage rent for the period, give
notice
15.
<PAGE>
(the "Option Exercise Notice") to Tenant that Sublessor will exercise its
purchase option. Tenant shall have the right to advise Sublessor of
Tenant's good faith estimate of the purchase price which will be payable
pursuant to Subsection 5.1.3. Sublessor's Option Exercise Notice will be
void if not given within the 60 day period specified above or if within 30
days following Tenant's advice concerning the estimated purchase price,
Sublessor does not provide Tenant with an unconditional letter of credit
or other security satisfactory to Tenant to assure Tenant that Sublessor
will have sufficient cash to close the purchase of the leasehold interest.
Tenant will also have 60 days from giving of the Sublessor's exercise of
the Option Exercise Notice in which to void the Sublessor's exercise of
the option by making an "Option Avoidance Payment" in an amount equal to
the sum by which the aggregate of the hypothetically adjusted minimum
annual rent for the period in question. If Tenant does make the Option
Avoidance Payment within the aforementioned time period, the option
exercise by Sublessor shall be of no force or effect.
5.1.3 If, pursuant to the above provisions, Sublessor properly
exercised its purchase option and provided Tenant with the required letter
of credit or other security and Tenant did not make the Option Avoidance
Payment, then Sublessor shall purchase, and Tenant shall sell, Tenant's
leasehold interest on the following terms:
5.1.3.1 The sale of the leasehold interest shall close one
year from the date of the Option Exercise Notice unless within 90
days from the giving of the Option Exercise Notice, Tenant notifies
Sublessor of an earlier closing date in which case the date
designated by Tenant shall be the closing date.
5.1.3.2 Tenant shall, at the closing, convey Tenant's
leasehold interest, free of any liens and encumbrances incurred by
Tenant without Sublessor's consent to Sublessor. Included in the
conveyance will be the Improvements, but Tenant may retain ownership
of, and may remove at any time up to 60 days after the closing, all
or any of the temporary buildings, temporary facilities, personal
property of any kind, sound equipment, lighting equipment, stage
equipment, kitchen and commissary equipment, seating and benches,
concessionaire kiosks and similar installations and trade fixtures
whether all or not any of the foregoing are attached.
5.1.3.3 The purchase price shall be payable entirely in cash
at the closing. Rent (minimum annual, pro-rated to the closing, and
percentage rent) shall continue to be payable until the closing.
Premiums on insurance policies, utilities and any pre-paid items
which cover periods or services which will continue or
16.
<PAGE>
will occur after the closing will be pro-rated to the closing. Any
cost of the transaction will be borne in the manner customary in
Atlanta, Georgia.
5.1.3.4 The purchase price shall be the higher of (i) the
depreciated value of the Improvements and of all equipment and trade
fixtures (notwithstanding Sublessor's removal rights), or (ii) 50%
of the appraised fair market value thereof.
5.1.3.4.1 The depreciated value of the Improvements,
equipment and trade fixtures shall be determined by taking
their historical cost and reducing that cost by the amount of
depreciation/amortization which would have been taken to the
date of sale, computed on a straight line basis over the
longest period which could be utilized by Tenant under
generally accepted accounting principles (regardless of
whether a shorter period or different method were in fact
utilized).
5.1.3.4.2 The determination of the appraised value of
the Improvements, equipment and trade fixtures shall be made
by three disinterested appraisers who shall be members of the
American Institute of Real Estate Appraisers of the National
Association of Realtors with at least ten years experience in
the appraisal of business and real property in the greater
Atlanta area and shall have generally recognized current
competence in the evaluation of business property. If the
parties are unable to agree upon the selection of three
appraisers within the 90 day period specified in Subsection
5.1.3.1, then a petition may be made by either party to the
presiding judge of the United States District Court for
Northern District of Georgia, Atlanta Division for such
selection. Each party shall, have the right to submit the
names of three appraisers so qualified, and the judge shall
select three appraisers from the names so submitted. Each
appraiser so selected shall furnish the parties with a written
appraisal within 30 days of selection, setting forth his
determination of the fair market value of the properties. The
average of the two closest evaluations shall be treated as the
fair market value of the properties. The fair market value
shall be determined as of the date of the appraisal. In
determining the fair market value, the appraisers shall work
on the hypothesis that Tenant owned the unencumbered fee of
the Project Area and shall then disregard the value of the
land. The determination of the appraiser shall be final and
binding on the parties and a judgment upon the determination
of the appraisers may be
17.
<PAGE>
entered and enforced in any court of competent jurisdiction.
The parties shall each bear one-half of the cost of the
appraisal.
5.2 11th and 21st Lease Year Options
5.2.1 In addition to the options described in subsections 5.1 and
5.3, Sublessor shall have the option, exercisable during the 11th Lease
Year and if not so exercised in the 11th Lease Year, then exercisable in
the 21st Lease Year to purchase the leasehold interest of Tenant.
5.2.2 In order for Sublessor to exercise the option specified above
in Subsection 5.2.1, Sublessor must give Tenant an Option Exercise Notice
anytime during the 11th Lease Year, or during the 21st Lease Year, as the
case may be. Tenant shall have the right to advise Sublessor of Tenant's
good faith estimate of the purchase price which will be payable pursuant
to Subsection 5.2.3. Sublessor's Option Exercise Notice will be void if
not given within the 11th or 21st Lease Years or if within 30 days
following Tenant's advice concerning the estimated purchase price,
Sublessor does not provide Tenant with an unconditional letter of credit
or other security satisfactory to Tenant to assure Tenant that Sublessor
will have sufficient cash to close the purchase of the leasehold interest.
5.2.3 If, pursuant to the above provisions, Sublessor properly
exercised its purchase option and provided Tenant with the required letter
of credit or other security, then the provisions of Subsections 5.1.3.1
and 5.1.3.2 shall be applicable except that the sale of the leasehold
interest shall close two years from the date of the Option Exercise Notice
(instead of one year) unless an earlier date is specified by Tenant in
accordance with the provisions of Subsection 5.1.3.1. Furthermore, anytime
during the period following Landlord's giving of the Option Exercise
Notice and prior to the date upon which the sale would otherwise close,
Tenant may accelerate or further accelerate the closing date by notice to
Sublessor of a new closing date which new closing date may not be less
than six months later than the date upon which Tenant gives the notice so
accelerating the closing date.
5.2.4 The purchase price shall be the highest of (i) depreciated
value of the Improvements and of all equipment and trade fixtures or (ii)
50% of the appraised fair market value thereof, or (iii) the value to
Tenant of the projected net revenues for the remainder of the lease term.
The provisions of Subsections 5.1.3.4.1 and 5.1.3.4.2 shall, respectively,
be applicable to determining the values described in (i) and (ii) above.
The value to Tenant of the projected net revenue for the remainder of the
18.
<PAGE>
lease term shall be determined as follows. First, the net revenues shall
be determined for each of the five most recent Lease Years prior to the
date of sale, with the year in which the sale takes place being included
as the most recent year if the sale will close on or after October 1 of
the then current calendar year. For this purpose "net revenues" means the
total gross revenues received by Tenant from the exploitation of the
Amphitheatre and Parking Area during a particular Lease Year, less all
expenses associated with those gross receipts, including all sums due
Sublessor under this Sublease, all artists' and other performers' fees,
the cost of goods sold, amount of sales and ticket commissions, credit
card charges and other sums charged against gross ticket sales, the cost
of labor, materials, and contractors incurred in producing events, but
excluding the expense of managerial and executive personnel of Tenant who
are not signed exclusively to manage the Amphitheatre and also excluding
interest, other non-operating expenses, and depreciation/amortization.
Next, Tenant shall designate two of the aforementioned five Lease Years,
the net revenue from which shall be used for the computation. Next, the
net revenues from each of the two Lease Years designated by Tenant shall
be increased by CPI Escalation occurring between the beginning of the
particular Lease Year and the date which is 120 days after the date upon
which the Option Exercise Notice was given. The total CPI adjusted net
revenues for each of the aforementioned two Lease Years shall then be
averaged to give an assumed base year net revenue figure. The assumed net
revenue base increased at the rate of 7% per year, compounded annually,
for each Lease Year (or partial Lease Year) in the formula hereinafter
specified in this sentence shall be multiplied by the number of Lease
Years (and partial Lease Year) between the date of sale and December 31,
2033 (or such later date as the lease term had been extended prior to
Sublessor's Option Exercise Notice) and the product shall then be
discounted to then present value by using a 10% factor.
5.2.5 As a material part of the consideration from Sublessor to
Tenant in connection with the purchase of Tenant's leasehold interest,
Sublessor agrees that no portion of the Project Area will be used for the
commercial concert business for a period of 10 years from the closing of
Sublessor's purchase of Tenant's leasehold interest. Tenant shall be
entitled to injunctive relief to enforce the provisions of the prior
sentence and in addition to recover 25% of the gross receipts of Sublessor
and of any Person occupying or doing business on any portion of the
Project Area arising from the commercial concert business during the
aforementioned 10 year period. Sublessor will execute such instruments as
Tenant requires in order to give record notice of the provisions of this
Subsection which instruments will include such other provisions as Tenant
may require in order to assure Tenant of the enforceability of these
provisions and to assist Tenant in the enforcement
19.
<PAGE>
thereof; such instruments shall provide for covenants which will burden
the Project Area and run with the land, and will, at Tenant's request, be
recorded concurrently with the closing.
Section 6. Parking.
6.1 Operation of Parking Area.
6.1.1 Tenant will have the right of exclusive use and occupancy of
the Parking Area from 6:00 P.M. each evening until 6:00 A.M. of the next
day during the entire Lease Term. Sublessor will have the right of
exclusive use and occupancy of the Parking Area from 6:00 A.M. in the
morning until 6:00 P.M. in the evening each day during the entire Lease
Term. The income realized by each party from the Parking Area will be
solely for such party's benefit (subject, however, in the case of Tenant,
to Tenant's obligation to include such income in the computation of
percentage rent under Subsection 4.3). Each party will provide competent
management and employees including parking attendants in connection with
its use of the Parking Area.
6.1.2 If one of the parties (the "Requesting Party") desires to use
the Parking Area during the hours of any day or series of days, which
hours, pursuant to Subsection 6.1.1 are subject to the exclusive rights of
the other party (the "Exclusive Party"), the Requesting Party may notify
the Exclusive Party of the specifics of its intended use at any time at
least 10 days before its intended use. If the Exclusive Party in good
faith believes that the intended use of the Parking Area by the Requesting
Party for all or a portion of the requested period will not likely cause
an interference with the Exclusive Party's use and enjoyment of the
Parking Area, the Exclusive Party may notify the Requesting Party within
36 hours of receiving the aforementioned notice from the Requesting Party
(and in counting the 36 hours, there shall be excluded the 24 hours of any
Saturday, Sunday, or day upon which the United States mails are not
regularly delivered) of the Exclusive Party's permission for the
Requesting Party to use the Parking Area for the entire period specified
in the Requesting Party's notice or for less than the entire period. If
and to the extent the Exclusive Party does not give such permission within
said 36 hours, the Requesting Party shall have no right to use the Parking
Area during the hours when it is subject to the exclusive rights of the
Exclusive Party. If the Exclusive Party does give permission, the
Requesting Party shall notify the Exclusive Party that it will use the
Parking Area in accordance with the permission which notification shall be
given at least 4 days before the intended use. The parties shall, on a
reasonably regular and periodic basis, exchange schedules of events in
which it is anticipated that parking will be required, in order to
maximize the use of the Parking Area.
20.
<PAGE>
6.2 Parking Area Taxes and Costs. Taxes and other charges of the character
described in Subsection 7.2 which are measured by or based upon the land
comprising the Parking Area or by any Improvements on the Easement Areas to the
extent they serve the Parking Area shall be borne by Sublessor. The cost of
utilities for, and the cost of operating, maintaining, repairing and restoring
(including without limitation, after a casualty or condemnation) the Parking
Area and any portion of the Easement Areas which serve the Parking Area will be
borne by Sublessor, except for those personnel costs and any other costs which
are solely caused by Tenant's use of the Parking Area. Sublessor will maintain
the Parking Area (including the surface thereof) and any portion of the Easement
Areas which serve the Parking Area in as good condition as when Tenant first
improved such area. Sublessor shall comply with procedures and requirements
imposed by Tenant designed to insure that cars that are parked during hours when
the Parking Area is used by Sublessor depart, or are removed, at no cost to
Tenant, by 6:00 P.M. each day and by any other time when, pursuant to Subsection
6.1.2, Tenant is entitled to use of the Parking Area. Sublessor shall pay the
taxes and other charges of the character described in Subsection 7.3 which are
based upon the business or activities of Sublessor on the Parking Area.
Subsections 7.3 and 7.4 shall be applicable to the Parking Area.
6.3 Indemnification and Liability Insurance For Parking Area.
6.3.1 Tenant shall indemnify and hold Sublessor and the officers,
agents, and employees of Sublessor harmless against any and all claims of
any kind of character resulting from negligent acts or omissions of Tenant
or the officers, agents, licensees, employees or concessionaires of Tenant
in the use and occupancy of the Parking Area and the pedestrian and
vehicular easements thereto, or resulting from the failure of Tenant to
perform any of Tenant's obligations under this Section 6. The obligations
of Tenant under the prior sentence shall not be restricted to the limits of
liability insurance required to be carried by Tenant. Sublessor shall
indemnify and hold Tenant and the officers, agents and employees of Tenant
harmless against any and all claims of any kind or character resulting from
the negligent acts or omissions of Sublessor, or the officers, agents,
licensees, employees or concessionaires of Sublessor in the use and
occupancy of the Parking Area and the pedestrian and vehicular easements
thereto, or resulting from the failure of Sublessor to perform any of
Sublessor's obligations under this Section 6, and furthermore, subject to
the first two sentences of this Subsection 6.3.1, the aforementioned
indemnification and hold harmless obligation of Sublessor shall extend to
any occurrences on or about the Parking Area and the pedestrian and
vehicular easements thereto. The obligations of Sublessor under the prior
sentence shall not be restricted to the limits of liability insurance
required to be carried by Sublessor.
21.
<PAGE>
6.3.2 The insurance required of Tenant under Subsection 9.1 shall be
extended to cover the claims with respect to the Parking Area and the
pedestrian and vehicular easements thereto, for which Tenant is responsible
under Subsection 6.3.1. Sublessor hereby undertakes the same obligations to
Tenant as Sublessor undertakes to the City under Subsections 8.1, 8.2, 8.3
and 8.5 of the Master Lease, which provisions are incorporated herein by
this reference and the public liability insurance shall be extended to
include contractual liability coverage. For purposes of this incorporation,
references to "Demised Premises" means the Parking Area and the pedestrian
and vehicular easements thereto.
6.4 Conflict With Other Sublease Provisions. If and to the extent there is
any conflict or inconsistency between the provisions of this Section 6 and any
other provisions of this Sublease, the provisions of this Section 6. shall
prevail.
Section 7. Taxes and Other Impositions.
7.1 Taxes Based Upon the Project Area. The parties recognize the
restricted and limited interest conveyed by the Sublease, as described in
Subsection 1.5 and believe that no property or similar tax is payable on the
Project Area. However, if and to the extent any tax, assessment, license fee,
excise, impost, fee, or charge of any sort is imposed by any governmental entity
which, in whole or in part, is measured by or based upon any or all of the land
(the term "land" being used herein refers to the land itself alone and excludes
any Improvements which may constitute real property and also excludes any
personal property located upon or affixed to the land) comprising the Project
Area, Sublessor shall pay the same before delinquency.
7.2 Taxes Based Upon Amphitheatre. Tenant shall pay before delinquency and
taxes, assessments, license fees, excises, imposts, fees, and charges of every
kind imposed by any governmental entity to the extent the foregoing is measured
by or based upon the Amphitheatre or by any Improvements on the Easement Areas
(except to the extent such Improvements serve the Parking Area) or by any
Tenant-owned (or owned by some Person deriving rights from Tenant) temporary
building, temporary facilities, personal property of any kind, sound equipment,
lighting equipment, stage equipment, kitchen and commissary equipment, seating
and benches, concessionaire kiosks and similar installations, and all trade
fixtures. Any tax or other imposition which is payable with respect to a period
of time which falls partly within and partly outside the Lease Term shall be
pro-rated between Sublessor and Tenant.
7.3 Taxes Arising with Respect to Business. Tenant shall pay before
delinquency any sales tax, gross receipts tax, license fee, excise, impost or
fee or charge of any kind which is based upon the business or activities of
Tenant or any Person deriving rights from Tenant (but not the business or
activities of
22.
<PAGE>
Sublessor), and which pertains to activities or business at the Amphitheatre and
the Parking Area during the Lease Term.
7.4 Tax Contest. The party responsible, pursuant to the above provisions
of this Section 7, for the payment of any particular, tax, assessment or other
charge may, at no cost or expense to the other party, dispute and contest the
same and in such case such item need only be paid if and to the extent that the
laws or regulations governing such contest permit postponement of payment,
provided, however, if the non-payment thereof places the other party or its
property at any risk, the other party may require the party who is responsible
for the payment to post such reasonable security as the other party may require.
If the party not responsible for the payment of the tax must nevertheless join
in any protest or contest, such other party shall do so, provided all cost and
expense of the contest will be borne by the party responsible for the tax.
Section 8. General Requirements Upon Tenant.
8.1 Compliance with Laws. During the Lease Term, Tenant shall obey and
comply with all present and future laws, ordinances, rules and regulations of
all governmental entities which in any way affect the Amphitheatre or any
Improvements on the Easement Areas (except to the extent such Improvements serve
the Parking Area). Tenant shall have the right at its sole cost and expense to
contest the validity of any of the foregoing in good faith and if necessary,
Sublessor agrees to join in any such contest, provided however, the cost thereof
shall be borne by Tenant. Tenant's obligations under this Subsection 8.1 are
subject to Sublessor not being in breach of Sublessor's representations and
warranties set forth in Subsection 2.1.
8.2 Repair. Tenant shall, during the Lease Term, at Tenant's sole cost and
expense, keep and maintain the Amphitheatre and all other Improvements in good
and sanitary order, condition and repair, fair wear and tear excepted.
8.3 Utilities. Tenant shall, during the Lease Term, pay for all utilities
to the extent used in and on the Amphitheatre and on the Site and Sublessor
shall have no responsibility for any interruptions in the supply of such
utilities unless and to the extent caused by the negligence of Sublessor, or the
officers, agents, licensees, employees or concessionaires of Sublessor.
8.4 Costs and Expenses. Except as otherwise provided in this Sublease,
Tenant shall, during the Lease Term, bear all costs and expenses pertaining to
the Site and the Amphitheatre including without limitation the costs and
expenses arising out of the activities of Tenant and any concessionaires and
subsublessees of Tenant.
8.5 Event Tickets. Unless and to the extent precluded by contract with an
artist, act, or similar Person, Tenant will make
23.
<PAGE>
available to Sublessor, 8 tickets for each event at the Amphitheatre other than
those held pursuant to Rental Arrangements.
Section 9. Insurance and Indemnification.
9.1 Tenant Insurance Requirements. Tenant hereby undertakes the same
obligations to Sublessor, as Sublessor undertakes to the City under Subsections
8.1. 8.2. 8.3, 8.4 and 8.5 of the Master Lease, which provisions are
incorporated herein by this reference (except with respect to Subsection 8.5,
Tenant may provide certificates of insurance instead of the actual policies).
Furthermore, the public liability insurance shall be extended to include
contractual liability coverage. For purposes of this incorporation, references
to "Demised Premises" mean the Amphitheatre and the Site and references to the 5
buildings referred to in Subsection 8.4 of the Master Lease means the
Amphitheatre. In addition to naming Sublessor as an insured as required by the
above referenced incorporated provisions, in those instances where Sublessor is
so named, the City shall also be named. Tenant shall also comply with Subsection
8.6 of the Master Lease.
9.2 Tenant Self-Insurance. In lieu of providing all or any of the insurance
required by Subsection 9.1, Tenant may self-insure such risk or risks only if
all the following three conditions are met: (i) the coverage afforded under the
self-insurance program with respect to the particular risk or risks is not less
extensive than the coverage which would have been afforded by a third party
carrier; (ii) an independent certified public accountant, an actuary, or a
recognized expert in evaluating self-insurance programs (the accountant,
actuary, or expert shall be designated by Tenant, but shall be subject to
Sublessor's reasonable approval) shall confirm to Sublessor that the self-
insurance program is actuarily sound or is otherwise backed by sufficient assets
to provide assurance that Sublessor will not be prejudiced by relying upon a
self-insurance program as distinguished from insurance provided by a third party
carrier; and (iii) the fee owner of the Site waives any objection to the self-
insurance program to the extent such a waiver is necessary in order to avoid
Sublessor's being in breach of the Master Lease.
9.3 Indemnification by Tenant hereby undertakes the same obligations to
Sublessor as Sublessor has undertaken to the City under subsection 8.7 of the
Master Lease, with the references to "Demised Premises" in the aforementioned
8.7 being, for purposes of this incorporation, defined to mean the Amphitheatre.
9.4 Sublessor Waiver. Sublessor waives any right Sublessor or any of
Sublessor's insurers may have to recover from Tenant for any damage caused to
the property located in, on, or about Lakewood of Sublessor (or any Person
deriving rights from Sublessor) by any act or omission (whether or not such act
or
24.
<PAGE>
omission was negligent) of Tenant, its officers, agents and employees.
Section 10. Casualty and Condemnation.
10.1 Casualty.
10.1.1 If the Amphitheatre or any Improvements on the Easement Areas
(except to the extent such Improvements serve the Parking Area) are damaged
by fire or other casualty, Tenant shall, to the extent of the insurance
proceeds received by Tenant arising out of such casualty, plus the amount
of any deductible under such insurance applicable to such casualty, be
obligated to repair and restore the damage to the Amphitheatre and the
aforementioned Improvements caused by such casualty. If and to the extent
the casualty is not of the type required to be insured against by Tenant,
or despite Tenant's compliance with the insurance provisions of this
Sublease, there are insufficient insurance proceeds to pay for such
restoration, Tenant shall nevertheless be obligated to expend its own funds
up to $500,000 in order to restore the damage. This Subsection is subject
to Subsection 10.1.2.
10.1.2 If at any time the Amphitheatre is substantially destroyed by
casualty (whether or not of the type insured against), or if the cost of
restoring the Improvements referred to in Subsection 9.3.1 following the
casualty in excess of the available insurance proceeds (and the amounts of
any deductibles) would exceed $500,000, or if a casualty (whether or not
insured against) occurs during the last five years of the Lease Term and
causes damage in excess of $500,000, then Tenant shall have the right in
each such instance to terminate this Sublease and to receive that portion
of the insurance proceeds, if any are available, as is equal to the
purchase price determined under Subsection 5.1.3.4, and Sublessor shall be
entitled to the balance, if any, of the insurance proceeds.
10.2 Condemnation.
10.2.1 If at any time during the Lease Term, the entire Site and/or
Amphitheatre is condemned or taken by any body having the power of eminent
domain, then the Lease Term shall automatically terminate on the date that
the condemning authority takes possession. If there is a condemnation or
taking of a portion of the Project Area, but which does not result in a
automatic termination pursuant to the prior sentence, and whether or not
such condemnation or taking is of a temporary or permanent nature, if
Tenant in good faith determines that such condemnation or taking may likely
result in a substantial impairment of its use and enjoyment of the Project
Area, then, at any time up to the date upon which that the condemning
authority takes
25.
<PAGE>
possession and for 30 days thereafter Tenant shall have the right to
terminate the Sublease by notice to Sublessor.
10.2.2 If there is a condemnation or taking and the Lease Term does not
terminate pursuant to the above provisions, then from and after the date
possession is taken by the condemning authority, Tenant's non-rental
obligations shall be equitably abated and the minimum rent (including
without limitation minimum annual rent utilized for the Subsections 4.2.3
and 5.1.1 hypothetical adjustments) shall be abated in accordance with the
following formula. The abated minimum rent shall equal that percent of what
the minimum rent would otherwise have been as is determined by dividing the
fair market value of the land which constitutes the Project Area after the
condemnation (i.e., the portion not taken) by the fair market value of the
land comprising the Project Area prior to the condemnation; for purposes of
both the before condemnation and after condemnation valuation, the value of
improvements (including Improvements) and any affect the condemnation
(including the activities contemplated following the condemnation) would
have on land valuation shall be disregarded. If the parties cannot agree
upon the amount of abatement within 30 days following the date possession
is taken, the determination shall be made by three disinterested appraisers
following the procedures specified in Subsection 5.1.3.4.2, except the
third and fourth sentences from the end of said Subsection shall not be
applicable.
10.2.3 If following a condemnation or taking the Lease Term is not
terminated, Tenant shall be entitled to such portion of award as is
required to compensate it for any consequential or severance damages
suffered by it. Subject to the foregoing, the amount of any awards from any
condemnation or taking (whether or not the Lease Term is terminated) shall
be made separately to Sublessor and Tenant to provide each with just and
adequate compensation for each of their respective interests in the Project
Area and Improvements and such awards shall be made without reference to or
consideration of any termination of this Sublease as if Tenant's leasehold
interest had continued for the full Lease Term.
Section 11. Mortgages.
11.1 Tenant's Right to Encumber. Tenant shall have the right from time to
time to encumber by Mortgage or Mortgages all or any portion of Tenant's rights
and interests hereunder including, without limiting the generality of the
foregoing, all or any portion of Tenant's rights and interests in and to the
Project Area and/or all Improvements. In all respects, however, any Mortgagees'
interests shall be subordinate, inferior, and junior to Sublessor's rights,
title, privileges, liens and interests as provided in this Sublease and also
shall be subordinate, inferior, and junior to the City's rights, title,
26.
<PAGE>
privileges, liens and interests as provided in the Master Lease, subject to the
rights of any Mortgagee as expressly conferred pursuant to this Sublease.
11.1.1 The term "Mortgage" means any deed to secure debt, deed of trust,
mortgage, security agreement or other instrument in the nature thereof at
any time from time to time constituting a lien upon Tenant's interest in
this Sublease and/or the Project Area and/or Improvements or any portion of
any of the foregoing.
11.1.2 "Mortgagee" means a holder or, collectively the holders of a
Mortgage or Mortgages.
11.2 Mortgagee Requested Modifications. Sublessor agrees to modify this
Sublease from time to time for the purpose of incorporating herein such
mortgagee protective provisions in addition to those already set forth in this
Section 11 as may be reasonably requested by any proposed or existing Mortgagee;
provided such modifications do not result in a change in the payment of rent
hereunder or materially modify the obligations of Tenant hereunder, and are not
inconsistent with any of the terms and conditions of this Sublease in any
material respect and do not increase the obligations of or unduly burden
Sublessor.
11.3 Mortgage Protection. Upon execution and recordation in the Office of
Clerk of the Superior Court of Fulton County, Georgia, of any Mortgage,
notwithstanding anything to the contrary contained in this Sublease, so long as
such Mortgage is a lien on the interest of the Tenant created by this Sublease,
Sublessor and Tenant agree as follows:
11.3.1 If Tenant or any Mortgagee delivers to Sublessor a notice setting
forth the address for notice purposes of a Mortgagee, a Mortgagee whose
address has been so furnished shall be referred to as a "Registered
Mortgagee." Any Registered Mortgagee may change its address by notice to
Sublessor. Sublessor shall deliver to each Registered Mortgagee in the same
manner as delivered to Tenant, a copy of any notice under this Sublease at
the time of giving such notice to Tenant, and as soon as known by Sublessor
will give to each Registered Mortgagee notice of any attempted or purported
rejection of this Sublease by a trustee in bankruptcy of Tenant or by
Tenant as debtor in possession. No termination of this Sublease or
termination of Tenant's right of possession of any portion of the Project
Area or reletting of any portion of the Project Area by Sublessor
predicated on the giving of any notice to Tenant shall be effective unless
Sublessor gives to each Registered Mortgagee notice (or a copy of the
notice to Tenant) as required by this Subsection 11.3.1.
11.3.2 In the event of any default by Tenant under the provisions of
this Sublease, each Registered Mortgagee will have the same concurrent
grace periods as are given Tenant
27.
<PAGE>
for remedying such default or causing it to be remedied, plus, in each
case, an additional period of 30 days in the event of a monetary default
and 60 days in the event of any non-monetary default after the expiration
thereof or after Sublessor has served a notice or a copy of a notice of
such default upon such Registered Mortgagee, whichever is later (the "Cure
Period").
11.3.3 If Tenant shall default under any of the provisions of this
Sublease, each Registered Mortgagee, without prejudice to its rights
against Tenant, shall have the right to cure such default within the Cure
Period whether the same consists of the failure to pay rent or the failure
to perform any other matter or thing which Tenant is hereby required to do
or perform, and Sublessor shall accept such performance on the part of any
Registered Mortgagee as though the same had been done or performed by
Tenant; for such purpose Sublessor and Tenant hereby authorize any
Registered Mortgagee to enter upon the Project Area and to exercise any of
Tenant's rights and powers under this Sublease, including without
limitation, Tenant's rights under Subsection 12.2.2.
11.3.4 If there is a default under this Sublease, Sublessor shall not
terminate or take any action to effect a termination of this Sublease or
reenter, take possession of or relet the Project Area or similarly enforce
performance of this Sublease in any manner if within the Cure Period any
Registered Mortgagee either (i) cures such default; or (ii) if such default
cannot reasonably be cured within the Cure Period, promptly commences and
then proceeds with reasonable diligence to cure such default; or (iii) if
physical possession of the Project Area is required to cure such default,
promptly commences and then proceeds with reasonable diligence to acquire
the interest of Tenant by foreclosure or otherwise and thereafter performs
all other obligations of Tenant under this Sublease. The provisions of the
prior sentence shall apply only if any Registered Mortgagee shall have
fully cured any default in the payment of any monetary obligation of Tenant
within the Cure Period and shall continue to pay currently such monetary
obligations as and when the same are due. If a default is such that it
cannot be reasonably cured by a Registered Mortgagee without possession of
the Project Site, then Sublessor shall not terminate or take any action to
effect a termination of this Sublease or reenter, take possession of or
relet the Project Area, or similarly enforce performance of this Sublease
in any manner if within the Cure Period any Registered Mortgagee shall
promptly commence and then proceed with reasonable diligence to acquire the
interest of Tenant by foreclosure or otherwise; provided however, that the
provisions of this sentence shall apply only if any Registered Mortgagee
shall have fully cured any default in the payment of any monetary
obligation of Tenant within the Cure Period and shall continue to pay
currently such
28.
<PAGE>
monetary obligations as and when the same are due and after gaining
possession of the Project Area any such Registered Mortgagee performs all
other obligations of Tenant hereunder as and when the same are due and
agrees in writing to be bound as Tenant under this Sublease (subject to
Subsection 11.7).
11.3.5 If this Sublease is terminated by Sublessor on account of a
default by Tenant or if Tenant's interest under this Sublease shall be
sold, assigned or transferred pursuant to the exercise of any remedy of any
Registered Mortgagee, or pursuant to judicial proceedings, and if (i) no
rent or other charges shall then be due and payable by Tenant under this
Sublease, and (ii) any Registered Mortgagee shall have cured any default of
Tenant under this Sublease of the type capable of cure by any such
Registered Mortgagee, then Sublessor, within 30 days after receiving a
request therefor, which shall be given within 60 days after such
termination or transfer, will execute and deliver to any Registered
Mortgagee (if there is more than one Registered Mortgagee, the Registered
Mortgagee of the highest priority shall be entitled to such new Sublease),
its nominee or the purchaser at a foreclosure sale, or a transferee in lieu
thereof, a new Sublease for the Project Area for the remainder of the Lease
Term of this Sublease containing the same covenants, agreements, terms,
provisions and limitations contained herein. Any new Sublease made pursuant
to this Subsection 11.3.5 shall have the same priority as this Sublease.
All liens, charges or other consentual encumbrances on the interest of
Sublessor in the Project Area which are created by Sublessor shall contain
express provisions to the effect that (i) such lien, charge or encumbrance
shall be subject to such new Sublease to the same extent as such
encumbrance was to this Sublease, and (ii) the mortgagee or other
beneficiary thereof shall, upon request, confirm to Tenant and any
Registered Mortgagee such status.
11.3.6 If any Registered Mortgagee is prohibited by any process or
injunction issued by any court or by reason of any action by any court
having jurisdiction of any bankruptcy or insolvency proceeding involving
the Tenant or the Subject Area from commencing or prosecuting foreclosure
or other appropriate proceedings in the nature thereof, the Cure Period
specified above for commencing or prosecuting such foreclosure or other
proceedings shall be extended for the period of such prohibition; provided,
however, that any applicable Registered Mortgagee shall have fully cured
any default of payment of any monetary obligations of Tenant under this
Sublease and shall continue to pay currently such monetary obligations as
and when the same fall due.
11.3.7 If a default under any Mortgage shall have occurred, any
holder of such Mortgage may exercise with respect to the Project Area any
right, power or remedy under
29.
<PAGE>
the Mortgage which is not in conflict with the provisions of this
Sublease.
11.3.8 This Sublease may be assigned, without the consent of the
Sublessor, upon notice to Sublessor, to or by any applicable Registered
Mortgagee or its nominee, pursuant to foreclosure or similar proceedings,
or pursuant to the sale, assignment or other transfer of this Sublease in
lieu thereof, or pursuant to the exercise of any other right, power or
remedy of any Registered Mortgagee. The Registered Mortgagee and any
assignee of this Sublease, and any purchaser or transferee of the type
described above in this Subsection 11.3.8, is hereinafter referred to as a
"Mortgagee Party".
11.3.9 No surrender of any interest in this Sublease (except a surrender
upon the expiration of the Lease Term) by Tenant to Sublessor and no
surrender by Tenant of the Project Area (or any part thereof, or of any
interest therein), and no termination or rejection of this Sublease by
Tenant, shall be valid or effective, and neither this Sublease nor any of
the terms hereof may be amended, modified, changed, rejected or cancelled
without the prior written consent of each Registered Mortgagee.
11.4 Rent Assignment. Sublessor consents to a provision in any Mortgage
for an assignment of rents, concession revenues, and all other income from any
subsublease of the Amphitheatre and from any other source to any Mortgagee,
provided that such assignment shall reserve unto Sublessor its rental
percentages as described in Section 4.
11.5 Possession. If any Mortgagee Party shall become entitled to
possession of the Project Area (or any portion thereof), whether by reason of
foreclosure, succession to the Sublessee's interests by assumption of this
Sublease, or otherwise, Sublessor shall, at the request, cost and expense of the
Mortgagee Party take all appropriate steps and action to remove any Persons from
possession and to put the Mortgagee Party (or its assigns) in possession of such
area, but Sublessor shall not be liable to Mortgagee Party or to any Person for
any damages resulting from any delay in delivering possession, and there shall
be no abatement of rental under any new Sublease or otherwise by reason of
delay.
11.6 No Merger. There shall be no merger of this Sublease or any interest
in this Sublease nor of the interest created hereby with the interest of
Sublessor or the fee estate in the Project Area by reason of the fact that this
Sublease or such interest therein or such interest of Sublessor may be directly
or indirectly held by or for the account of any Person who shall hold directly
or indirectly, in whole or in part, the interest of Sublessor or the fee estate
in the Project, or any interest in either such interest or estate.
30.
<PAGE>
11.7 Limitation on Liability of Mortgagee Parties. No Mortgagee Party
shall be or become liable to Sublessor as an assignee of this Sublease or
otherwise unless it expressly assumes by written instrument such liability, in
which event the Mortgagee Party's liability shall be limited to the period of
time it is the owner of the interest created by this Sublease, and no assumption
shall be inferred from or result from foreclosure or other appropriate
proceedings in the nature thereof or as the result of any other action or remedy
provided for by such Mortgage or other instrument or from a conveyance from
Tenant pursuant to which the purchaser at foreclosure or grantee shall acquire
the rights and interest of Tenant under the terms of this Sublease; provided
that nothing in this Section 11.7 shall be deemed to prevent Sublessor from
exercising its remedies in accordance with Section 12 (as qualified by this
Section 11) if the obligations of Tenant under this Sublease are not
subsequently performed as provided in this Sublease. The provisions of this
Subsection 11.7 shall apply notwithstanding that any Mortgage may provide for a
present assignment of Tenant's rights under this Sublease to the Mortgagee.
11.8 Mortgage Benefitted. The provisions of this Section 11 are for the
benefit of, and are to be enforceable by, any Registered Mortgagee (or Mortgagee
where the provision is not qualified by the word "Registered"), including
without limitation any successor holder of a Mortgage.
Section 12. Tenant Default.
12.1 Interest Conditional. The Tenant's interest created by this Sublease
is granted on the condition that should any Event of Default occur and be
continuing, then Sublessor may, subject to all of the terms, conditions and
provisions hereof, terminate this Sublease and Tenant's interest as provided in
this Section 12.
12.2 Events of Default. The following conditions and events shall
constitute "Events of Default" for purposes of this Sublease.
12.2.1 Tenant fails to make or pay any fees, charges or other payments
required hereunder when due to Sublessor within 10 days after receipt of
notice from Sublessor of non-payment thereof.
12.2.2 Tenant fails to keep, perform and observe each and every promise,
covenant and condition set forth in this Sublease on its part to be kept,
performed or observed for 30 days after receipt of notice of such failure
from Sublessor, except where fulfillment of such obligation requires
activity over a period of time and Tenant has commenced to perform whatever
may be required within 30 days after receipt of such notice from Sublessor
and continues such performances without interruption except for causes
beyond its control. Notwithstanding the foregoing, if
31.
<PAGE>
Tenant within 15 days after the receipt of such notice of default shall in
good faith dispute the existence of any such default by notice to Sublessor
and, within 45 days after receipt of such notice of default Tenant shall in
good faith institute appropriate legal proceedings in a court of competent
jurisdiction for declaratory relief or another appropriate remedy for the
resolution of such dispute, then so long as such proceedings have not been
finally determined and Tenant is prosecuting them, Sublessor shall not have
the right to terminate this Sublease or exercise any other remedies of
Sublessor hereunder on account of the alleged default, provided however,
that the foregoing provisions of this Subsection 12.2.2 shall not be
construed to preclude a court of competent jurisdiction from entering
temporary orders or otherwise exercising its equitable powers to protect
the interests of the parties during the pendency of the above described
proceedings. If it shall be finally determined in such proceedings that
Tenant is in default, then the time within which Tenant shall have to
remedy the same as set forth above shall be computed from the date of such
determination but Tenant shall have no further right under this Subsection
12.2.2 to dispute such default. No such dispute by Tenant or the filing or
prosecution of any such proceedings shall operate to relieve Tenant from or
permit Tenant to defer the performance of any of its obligations hereunder
not specifically under dispute, and Tenant shall not be relieved of any
liability to Sublessor for actual damages (including any consequential
damages to the extent Sublessor promptly notifies Tenant of the same as
soon as Sublessor could reasonably be expected to be aware that such
damages may occur) suffered by Sublessor if Tenant contests the existence
of the Event of Default by appropriate proceedings as provided above but
fails to prevail in such proceedings. If the court of competent
jurisdiction in which such proceedings has been instituted determines that
such proceeding has not been brought by Tenant in good faith, in addition,
such court may also make an award of damages therefor.
12.2.3 The levy of any attachment or execution, or the appointment of
any receiver, or the execution of any other process of any court of
competent jurisdiction which is not vacated, dismissed or set aside within
a period of 90 days and which substantially interferes with Tenant's use of
the Amphitheatre or with Tenant's operations under this Sublease.
12.2.4 Tenant 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 reorganization, or for readjustment of
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
32.
<PAGE>
receiver, trustee or liquidator of all or substantially all of its property
located within the Site.
12.2.5 By order or decree of court, Tenant is adjudged bankrupt, or an
order is made approving a petition filed by any of the creditors or
stockholders of Tenant seeking the 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.
12.2.6 A petition under any part of the federal bankruptcy laws, or an
action under any present or future solvency law or statute is filed against
Tenant and is not dismissed within 120 days.
12.2.7 By, pursuant to, or under authority of (1) any legislative act,
resolution or rule, or (2) any 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 Tenant, and such possession or control continues in effect for
a period of 120 days.
12.3 Sublessor's Rights of Re-Entry. Subject to Section 11, and the other
provisions of this Sublease, Sublessor shall, as a non-exclusive remedy, upon
the giving of notice of cancellation or termination as above provided, have the
right to re-enter the Project Area 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 may regain and resume possession either with or
without the institution of summary or legal proceedings or otherwise. Such
re-entry, however, shall not in any manner affect, alter or diminish any of the
obligations of Tenant under this Sublease.
12.4 Additional Rights of Sublessor. Sublessor, upon termination or
cancellation of this Sublease, or upon re-entry, regaining or resumption of
possession of the Project Area pursuant to Subsection 12.3 hereof, may occupy
said premises and shall have the right to permit any person, firm or corporation
to enter upon the Project Area and use the same. Such occupation by others may
be of only a part of said Project Area, or the whole thereof or a part thereof
together with other premises, and for a period of time the same as or different
from the balance of the term remaining hereunder, and on terms and conditions
the same as or different from those set forth in this Sublease. Sublessor shall
also have the right to repair or to make such structural or other changes in the
Amphitheatre as are reasonably necessary to maintain the suitability thereof for
commercial concert and arena activities without affecting, altering or
diminishing the obligations of Tenant hereunder.
12.5 Survival of Tenant's Obligations. If this Sublease is terminated or
cancelled by Sublessor pursuant to the provisions of this Sublease or if
Sublessor rightfully enters, regains or
33.
<PAGE>
resumes possession of the Site, Sublessor shall be entitled to recover damages
to be computed in the following manner; subject to Sublessor's obligation to
mitigate damages, Sublessor shall be entitled to recover the amount or amounts
of fees and charges which would have been due and payable to Sublessor to the
same extent, at the same time or times, and in the same manner as if no
termination, cancellation or re-entry, regaining or resumption of possession had
occurred. Sublessor shall have the responsibility to seek diligently the
mitigation of damages in the event of such termination, cancellation, re-entry,
regaining or resumption of possession.
Section 13. Tenant First Refusal and Consultation Rights.
13.1 First Refusal. Before making or accepting an offer with respect to
any transaction which would result in the sale or transfer of any interest of
Sublessor in the Site or in all or any portion of Lakewood, Sublessor shall
first notify Tenant of the best (from the standpoint of Tenant) terms and
conditions under which Filmworks would be willing to offer to Tenant the
interest of the subject transaction. (Filmworks may, at its option, notify
Tenant of alternative terms and conditions with respect to the interest of the
subject transaction.) Tenant shall have 15 days following receipt of such
notification in which to elect to acquire the interest which was the subject of
the transaction on the terms and conditions (or any of the alternative terms and
conditions, if any) specified in the Sublessor's notice. If Tenant does not so
notify Sublessor, Sublessor shall be free to complete the transaction specified
in Sublessor's notice with any third Person on the same terms and conditions (or
any alternative terms and conditions, if any) as specified in such notice, or on
terms and conditions which, are more favorable, as a whole, to Sublessor than
such terms and conditions, as a whole, which are specified in the notice to
Tenant; provided, however, if said transaction does not close within six months
from the date upon which Sublessor gave such notice, the same procedure shall
again be required to be followed, even for the same transaction. Tenant's not
exercising the right specified in the prior sentence shall not constitute waiver
of Tenant's right of first refusal for any subsequent transactions affecting the
Site or the same or different portions of Lakewood (whether owned by Sublessor
or some Person who previously acquired an interest which as of the Initial Date
was owned by Sublessor) and Tenant shall continue to have such right regardless
of the number of successive transactions which occur as to which Tenant does not
exercise its right. The parties expressly reserve all remedies, judicial or
otherwise, if a dispute should arise concerning whether the terms and conditions
of any transaction with any third Party under this subparagraph are in fact the
same as or more favorable to Sublessor than those specified in any notice to
Tenant.
Tenant's first refusal rights shall not apply to any transaction which does
not affect or pertain to the Site in which Sublessor would retain a controlling
interest in a substantial
34.
<PAGE>
portion of Lakewood, provided that the transferee would under the terms of the
transaction be obligated to actually use the subject property in a particular
manner and further provided that the transferee is specially and uniquely
qualified and able actually to conduct such uses.
Any transaction or concurrently contemplated series of transactions
pursuant to which either by the issuance of new stock or by the transfer of
existing stock, a Person or Persons other than the stockholders existing as of
the Initial Date (or the immediate families or trusts for the benefit of the
immediate families of such existing stockholders) would acquire 50% or more of
the equity or of any class of stock or any class of other security convertible
into equity or stock shall be deemed a transaction subject to the first refusal
rights specified in this Subsection 13.1, and Tenant's first refusal rights
shall apply to and bind the successive owners of any such class of stock, equity
or other security convertible into equity or stock.
13.2 Sublessor Consultation. Sublessor agrees to consult with Tenant prior
to undertaking any transactions with a third Person or Persons pertaining to
Lakewood or otherwise developing all or any portions of Lakewood, so as to
afford Tenant an opportunity to become involved in any transactions within
Lakewood.
Section 14. Tenant Concessions and Subsubletting; Assignment.
14.1 Concessions and Subsubletting. Tenant shall have the unrestricted
right at any time to grant concessions and to subsublease all or any portion of
the Project Area.
14.2 Assignments by Tenant.
14.2.1 Tenant shall have the unrestricted right at any time to assign
this Sublease to (i) any Affiliate of Tenant; (ii) any Person acquiring
substantially all of Tenant's assets; or (iii) any partnership, joint
venture, or other entity in which Tenant or an Affiliate of Tenant or a
successor of the type described in (ii) retains both an equity interest and
a role in management.
14.2.3 Tenant shall have the unrestricted right at any time after the
last to occur of Substantial Completion and the Opening Date to assign this
Sublease to any Person.
14.2.3 Tenant shall have the right at any time prior to the time
specified in Subsection 14.2.2 to assign this Sublease with the prior
approval of Sublessor which approval will not be unreasonably withheld. In
exercising its approval rights, Sublessor may not withhold approval on the
ground that Tenant will in any fashion realize any economic gain or benefit
from the assignment. Tenant need only to
35.
<PAGE>
rely on this Subsection 14.2.3 if the provisions of Subsections 14.2.1 or
14.2.2 are not available to Tenant.
14.2.4 Tenant will be entitled to be relieved of all obligations arising
from and after the effective date of any assignment if the assignee assumes
such obligations provided, however, if the effective date of the assignment
occurs before the date specified in Subsection 14.2.2, Tenant will be
relieved of all obligations only with respect to obligations arising from
and after the date Specified in Subsection 14.2.2.
14.2.5 Any assignment, sale or transfer, as described in Section 14,
shall impose all Tenant obligations set forth in this Sublease upon the
purchaser, transferee or assignee, and such party shall execute in writing
an acknowledgment of all of said obligations. Said acknowledgment shall be
transmitted to Sublessor prior to the closing of any such transaction.
Section 15. Miscellaneous.
15.1 Waiver. The waiver by either party of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant or condition herein contained.
15.2 No Benefits to Others. This Sublease does not confer any rights or
benefits upon any person or entity other than Sublessor and Tenant and, to the
extent consistent with this lease, their respective successors and assigns.
There are no third party beneficiaries.
15.3 Entire Agreement. This Sublease sets forth all the covenants,
promises, agreements, conditions and understandings between Sublessor and
Tenant, oral or written, relating to the subject matter of this Sublease.
Neither party has made any representations or promises not expressly contained
in this Sublease. No subsequent alterations, amendment, change or addition to
this Sublease shall be binding upon Sublessor and Tenant unless reduced to
writing and signed by them.
15.4 Force Majeure. If either party hereto shall be delayed or hindered in
or prevented from the performance of any act required hereunder by reason of
unavoidable delays caused by fire, catastrophe, acts of God, strikes, lockouts,
labor troubles, inability to procure materials, failure of power, restrictive
governmental laws or regulations, riots, insurrection, civil commotion, war or
other reason of a like nature not the fault of the party delayed in performing
work or doing acts required under the terms of this Sublease, then performance
of such act shall be excused for the period of the delay and the period for the
performance of any such
36.
<PAGE>
act shall be extended for a period equivalent to the period of such delay.
Neither party shall in any event be liable in damages or otherwise, nor
shall the other party be released from any obligations hereunder because of the
interruption of any service, or a termination, or disturbance (except to the
extent, it any, expressly provided elsewhere in this Sublease) attributable to
strike, lockout, breakdown, accident, war, or other emergency, order or
regulation of, or by any governmental authority, failure of supply, inability to
obtain supplies, parts or employees, or any cause beyond such party's reasonable
control.
The provisions of this Subsection shall not operate to excuse Tenant from
the prompt payment of rents, or any other payments required from either party to
the other by the terms of this Sublease.
15.5 Notices; Approvals and Consents.
(a) All notices required or permitted to be given under this Sublease
shall be in writing and shall be delivered by certified or registered mail,
postage prepaid, return receipt requested, to the parties at the addresses
set forth hereinbelow or such other address as either party may from time
to time designate in writing to the other party.
The current addresses for notices are as follows:
If to Sublessor: Filmworks U.S.A., Inc.
P.O. Box 6826
2000 Lakewood Avenue, Building F
Atlanta, GA 30315
With a concurrent
copy to: Sell & Melton
P.O. Box 229
1414 Charter Medical Building
Macon, GA 31297
If to Tenant: MCA Concerts, Inc.
100 Universal City Plaza
Universal City, California 91608
Attention: Marc Bension
With a concurrent
copy to: Law Department
MCA Inc.
100 Universal City Plaza
Universal City, California 91608
(b) All notices, demands and request shall be effective and to have been
given on the fourth business day following the date
37.
<PAGE>
of mailing provided the mailing occurs in a major metropolitan area within the
United States. Saturdays, Sundays and holidays on which the United States mails
are not regularly delivered shall not be deemed business days. Notices may also
be served by personal service delivered to the then current notice address of
the recipient party.
(c) All approvals and consents given by any party pursuant to this Sublease
shall be in writing and neither party shall rely upon an approval or consent
given by the other party which is not in writing. No party shall unreasonably
delay acting upon a request by the other party for a consent or approval called
for by this Sublease.
15.6 Captions and Section Numbers.
(a) The captions, section numbers, article numbers and table of contents
appearing in this Sublease are inserted only as a matter of convenience, and in
no way define, limit, construe or describe the scope or intent of any section or
article, nor in any way affect this Sublease.
(b) References to section and article numbers are references to sections
and articles within this Sublease.
15.7 Construction of Language. The language in all parts of this Sublease
shall be construed simply, according to its fair meaning, and not strictly for
or against either Sublessor or Tenant, regardless of which party initiated or
drafted particular language or this Sublease. This Sublease was negotiated
between parties of equal bargaining power.
Whenever the singular or plural number or masculine, feminine or neuter
gender is used in this Sublease, it shall equally apply to, extend to, and
include the other.
15.8 Broker's Commission. Both Sublessor and Tenant each warrant it has
employed no broker or finders in connection with this transaction, except Jerry
Dickerson has made a claim which claim is not subject to the following
provisions of this Subsection. However, if claims for brokerage commission or
finders fees are asserted, each party will initially bear its own costs and
indemnify the other against and hold it harmless from, any and all claims or
liabilities for such fees and/or commissions (including, without limitation, the
cost of counsel fees in connection therewith) resulting from the acts of such
indemnitor in causing such commission or fee.
15.9 Interest. Interest shall accrue on any sums owed by either party to
the other starting from the first date of delinquency and continuing until the
full amount including interest is paid at floating rate equal to one point over
the prime or reference rate announced from time to time by Citizens & Southern
National Bank (or successor institution), provided such charge shall not exceed
the maximum interest rate permitted by
38.
<PAGE>
law for loans which are not primarily for personal, family or household
purposes.
15.10 Persons Indemnified. All agreements by either Tenant or Sublessor to
indemnify or hold the other harmless contained in this Sublease shall inure to
the benefit not only of the respective indemnitee but also to its Affiliates,
and if a party is a partnership, to the benefit of such party's partners and to
the directors, officers, employees and agents of any of the foregoing.
15.11 Georgia Law Applies. This Sublease and all provisions thereof,
irrespective of the place of execution or performance, shall be construed and
enforced in accordance with the laws of the State of Georgia applicable to
agreements which are executed by all parties and are performed wholly in
Georgia.
15.12 Rights Are Cumulative. The rights and remedies conferred upon either
party in this Sublease and by law are cumulative, unless and to the extent
inconsistent with the provisions of this Sublease.
15.13 Saving Clause. If any provision of this Sublease, the deletion of
which would not adversely affect the receipt of any material benefit by any
party hereunder or substantially increase the burden on any party hereto, shall
be held to be invalid or unenforceable to any extent, the same shall not affect
in any respect whatsoever the validity or enforceability of the remainder of
this Sublease.
15.14 Attorney's Fees. If either party incurs any expense, including
reasonable attorney's fees, in prosecuting or defending any action or proceeding
against the other, arising out of or in connection with this Sublease, the sums
so paid by the prevailing party shall be due from and be paid by the
nonprevailing party on demand.
15.15 Injunctive Relief. In the event of a breach or threatened breach by
either party, of any of the covenants or provisions of this Sublease, the other
party shall, in addition to any remedies expressly mentioned in this Sublease,
have the right of injunction and the right to invoke any remedy allowed at law
or in equity.
15.16 "Affiliate" Defined. The term "Affiliate" means any Person which,
directly or indirectly, is controlled by, is in control of, or is under common
control with, the Person with reference to which the term "Affiliate" is used.
Ownership of 50% or more of the voting or decision making power with respect to
any Person shall be deemed control, although ownership of less than 50% shall
not necessarily negate control.
15.17 "Person" Defined. The term "Person" means any person, corporation,
partnership, firm, association, trust, or other entity.
39.
<PAGE>
15.16 Estoppel Certificates. Sublessor and Tenant agree at any time and
from time to time upon not less than 10 days prior request by the other, that
Sublessor and Tenant, respectively, will execute, acknowledge and deliver to the
other an estoppel certificate in writing certifying (i) that this Sublease (in
the form attached to the certificate) is unmodified and in full force and effect
or if there have been modifications that the same is in full force and effect as
modified and identifying the modifications, (ii) the date to which the minimum
rent, percentage rent and other charges have been paid, and (iii) that so far as
the certifying party knows, there is not an uncured Event of Default or act or
omission which with the passage of time will ripen into an Event of Default,
other than any specified in the certificate. The party requesting the estoppel
certificate may accompany its request with a proposed certificate to be executed
by the other party, and if the other party does not execute and deliver either
the estoppel certificate tendered by the requesting party or its own prepared
estoppel certificate to the requesting party within said 10 day period, the
estoppel certificate prepared by the requesting party shall be conclusively
deemed to have been executed and delivered by the other party, and shall be
binding on such other party as if executed and delivered by it. Estoppel
certificates may be relied upon by any Person proposing to acquire Sublessor's
or Tenant's interest hereunder, or any portion thereof or interest therein, as
the case may be, and by any mortgagee or encumbrancer or prospective mortgagee
or encumbrancer (or any assignee thereof) now or hereafter having any present or
prospective interest in the right, title or interest of Sublessor or Tenant.
15.19 Confidentiality. Sublessor will not use for its own benefit and will
hold in confidence all information which it learns from Tenant and from any of
Tenant's officers, agents, licensees, employees and concessionaires, which
information is not clearly of a public nature. The foregoing will not preclude
Sublessor from providing to the City such information as Sublessor is required
to provide under the terms of the Master Lease, but Sublessor will use its best
efforts to obtain an agreement from the City obligating the City to similarly
refrain from using and to hold in confidence all such information.
Section 16. Non-Discrimination. Neither Tenant nor any Person under Tenant's
control will discriminate against any customer, employee, or applicant for
employment because of race, color, religion, sex or national origin.
Section 17. Successors and Assigns. This Agreement is binding upon, and subject
to the other provisions of this Sublease, inures to the benefit of the
successors and assigns of the respective parties.
Section 18. Recording of Lease. Each party shall, upon request of the other
party, execute and deliver a notice or short form of this Agreement in form and
content suitable for recording in
40.
<PAGE>
accordance with the laws and customs of the State of Georgia and the City.
Filmworks U.S.A., Inc. MCA Concerts, Inc.
By /s/ Edwin D. [ILLEGIBLE] By: /s/ Marc Bension
-------------------------- -------------------------------------
President
41.
<PAGE>
38
AGREEMENT REGARDING SUBLET
AGREEMENT REGARDING SUBLEASE
This Agreement is executed as of 1/20, 1988 (the "Initial Date") between
Filmworks U.S.A., Inc. ("Sublessor") and MCA Concerts, Inc. ("Tenant").
Section 1. This Agreement is entered into with reference to the following
facts:
1.1 The City of Atlanta (the "City") is the fee owner of an
approximately 117 acre parcel commonly known as Lakewood Fairgrounds
("Lakewood"), the legal description of which is attached as Exhibit A.
1.2 Sublessor is the lessee of Lakewood under a lease with the City
dated February 2, 1984 (the "Master Lease").
1.3 Concurrently herewith the parties have executed a sublease
between Sublessor (as sublessor) and Tenant (as sublessee) pertaining to a
portion of Lakewood (the "Sublease").
1.4 The parties recognize that the Master Lease requires the
approval of the Sublease by the City.
Section 2. Each party will exercise its best efforts expeditiously to
secure the City's approval of the Sublease and such minor amendments of the
Master Lease as Tenant may deem appropriate (subject to Sublessor's reasonable
approval) in order to conform the Master Lease with any provision which would
otherwise conflict with it in the Sublease as well as such attornment and
non-disturbance agreements from the City as Tenant deems appropriate to assure
Tenant of the choice to continue as a sublessee (or direct lessee, if
applicable) regardless of the future relationship between Sublessor and the
City. The matters as referred to in the prior sentence are hereinafter referred
to as the "City Approval Matters." The date upon which all action required by
the City to approve the Sublease has been accomplished and such approval is
fully effective, and all other of the City Approval Matters have been
accomplished to Tenant's satisfaction, is referred to as the "City Approval
Date."
11/23/87
<PAGE>
Section 3. Each party will exercise its best efforts expeditiously to
secure from the appropriate governmental authorities all approvals, actions, and
commitments which Tenant reasonably requires in order to assure itself that the
project contemplated by the Sublease can be developed, constructed, and operated
in accordance with Tenant's contemplated plan. Without derogating from the
generality of the foregoing, this includes assurances to Tenant that appropriate
building permits can be obtained by Tenant without any unusual requirements
being imposed and without any financial obligations (other than standard and
customary permit fees) being imposed, commitments to Tenant from the appropriate
governmental entities for vehicular traffic flow improvement such as freeway
off-ramps and other traffic mitigation measures, and the receipt by Tenant of
licenses and approvals from appropriate regulatory agencies with reference to
environmental regulations, zoning, land use regulations, and licensing.
Sublessor will also take such steps as are necessary to provide Tenant with a
binding commitment from a carrier approved by Tenant to issue the title
insurance policy referred to in Subsection 6.4. The matters referred to above in
this Section 3 (excluding City Approval Matters) are hereinafter referred to as
"Final Action Matters." The date when all of the Final Action Matters have been
accomplished to Tenant's satisfaction or Tenant has waived in writing any Final
Action Matters not so accomplished, and the City Approval Date has previously,
or contemporaneously occurred, is referred to as the "Start Date." If Tenant
commences substantial construction for the erection of the amphitheater facility
(as distinguished from surveys, testing and the like, preparatory work, the
erection of temporary structures and other activities which do not materially
alter the area described in Section 5), the date upon which such construction
begins shall be the Start Date regardless of whether the City Approval Matters
or Final Action Matters have been accomplished.
Section 4. Promptly upon execution of this Agreement, Tenant shall deposit
$150,000 in an escrow account with __________________; interest earned in the
account shall be for the benefit of Tenant. Tenant and Sublessor shall each pay
half the escrow holder's fees except if the Sublease is voided pursuant to
Subsections 4.1 or 4.2 the party electing to void the Sublease shall pay (or
reimburse the other party for) the entire fee. The parties shall execute escrow
instructions consistent with this Agreement and including
-2-
<PAGE>
the standard exculpatory and indemnification provisions required by the escrow
holder. The interest earned on the funds held in escrow shall be disbursed to
Tenant in accordance with instructions given by Tenant from time to time to the
escrow holder. The $150,000 plus any additional deposit into escrow pursuant to
the last sentences of Subsection 4.1 (the sum of $150,000 plus said additional
deposit is hereinafter referred to as the "Escrow Deposit") held by the escrow
holder shall be disbursed as follows:
4.1 If the Start Date has not occurred by a date which is one year
from the Initial Date (the "First Anniversary Date") Sublessor and Tenant
may each cause the Sublease to become void (from its inception as if it had
never been executed) by giving the other notice (the "Termination Notice")
specifying the date upon which the Sublease will become void, which date
will not be less than 30 days after the date upon which the Termination
Notice was given, and the Sublease shall become void on the date so
designated in the Termination Notice unless prior to such date the Start
Date occurs. Notwithstanding the foregoing, if Tenant in good faith
believes that the City Approval Matters (if not previously accomplished)
can be accomplished, and that the Final Action Matters can be
satisfactorily resolved within a reasonable time following the date upon
which the Sublease would, as a result of Sublessor's notice, otherwise
become void, Sublessor will not unreasonably withhold approval of Tenant's
request for an extension of the date upon which, absent the earlier
occurrence of the Start Date, the Sublease will become void; during the
period of any such extension, Tenant shall deposit $12,500 per month into
the escrow account, with the first such payment being due five days
following the First Anniversary Date and each successive monthly payment
being due on the corresponding day of each calendar month thereafter during
the extension period.
4.2 If Tenant in good faith determines, prior to the First Anniversary
Date, that either the City Approval Matters of the Final Action Matters
cannot be accomplished by the First Anniversary Date on terms satisfactory
to Tenant, Tenant may give Sublessor notice that the Sublease is void and
the Sublease will be void immediately upon the giving of such notice.
-3-
<PAGE>
4.3 On the Start Date the Escrow Deposit shall be released to
Sublessor. A sum equal to $12,500 per month (pro-rated for a partial month)
from the Initial Date to the Start Date shall be credited to Tenant's
rental obligation under the Sublease for the aforementioned period; if the
Start Date is earlier than the First Anniversary Date, the balance shall
constitute pre-paid rent under the Sublease for the remainder of the one
year period following the Initial Date, and if, by reason of the last
sentence of Subsection 4.1, the Start Date is more than one year following
the Initial Date, the balance shall constitute pre-paid rent under the
Sublease for the partial month following the Start Date.
4.4 If the Sublease was voided pursuant to Subsection 4.1 and the
Termination Notice was given prior to the City Approval Date, the Escrow
Deposit shall be paid entirely to Tenant.
4.5 If the Sublease was voided pursuant to Subsection 4.1 and the
Termination Notice was given after the City Approval Date, the entire
Escrow Deposit shall be paid to Sublessor.
4.6 If the Sublease was voided pursuant to Subsection 4.2 before the
City Approval Date, the Escrow Deposit shall be paid entirely to Tenant,
and if voided after the City Approval Date, a sum equal to $12,500 per
month (pro-rated for a partial month) from the Initial Date to the date
upon which Tenant gave the notice under Subsection 4.2 shall be released to
Sublessor and the balance shall be paid to Tenant.
4.7 If the Sublease is not voided pursuant to Subsection 4.1 or 4.2,
the Sublease shall remain in full force and effect.
Section 5. The Site (approximately 10 acres), the Parking Area
(approximately 50 acres) and the Easement Areas (as those terms are defined in
the Sublease) will be located within that portion of Lakewood as outlined on
attached Exhibit B and within that portion will be located as designated and
selected by Tenant prior to the Start Date. Tenant will cooperate with Sublessor
with respect to locating the Easement
-4-
<PAGE>
Areas so as to accommodate the reasonable needs of Sublessor, provided Tenant
will not be required to incur any additional expense or suffer any adverse
effect as a result of such cooperation.
Section 6. Promptly following the Start Date the parties shall complete
the Sublease by taking the following actions:
6.1 The date of the Start Date shall be inserted in Subsection 1.6.1
of the Sublease.
6.2 The dollar amount of the Escrow Deposit and the date to which
pre-paid rent has been paid shall be inserted in Subsection 4.2.1 of the
Sublease.
6.3 The plot plan showing the location of each of the areas within the
Project Area (as defined in the Sublease) together with legal descriptions
for each such area shall be attached as Exhibits to the Sublease (which the
parties shall have the right to approve, but approval will not be withheld
if and to the extent the descriptions are consistent with the areas
designated and selected by Tenant pursuant to Section 5). Tenant will bear
the expenses of platting and obtaining the legal descriptions from a
licensed surveyor, unless and to the extent survey work is required outside
the Project Area, the expense for which shall be borne by Sublessor.
6.4 Sublessor shall deliver to Tenant an ALTA extended coverage policy
of title insurance (issued by a carrier approved by Tenant), with limits
designated by Tenant, with the survey and facts disclosed by inspection
exceptions deleted, insuring Tenant's leasehold interest subject only to
the Master Lease and to easements, if any, as are approved by Tenant as not
constituting any potential interference with Tenant's use and enjoyment of
the leasehold; Tenant shall pay the premium for such coverage.
Section 7. Except for the obligations specified in Section 6, for the
provisions of Section 9 below, and for any actions required to effectuate the
disbursement of funds from escrow (as specified in Section 4), following the
Start Date this Agreement will be of no further force or effect
-5-
<PAGE>
and the relationship between the parties shall be governed solely by the
Sublease. While this Agreement is in effect, the provisions of Subsection 15.3
of the Sublease which recite that the Sublease constitutes the full, complete
and entire agreement shall be deemed modified to reflect incorporation of this
Agreement.
Section 8. This Agreement, together with the Sublease, constitutes the
full, complete and entire agreement between and among Sublessor and Tenant
concerning Lakewood; no agent, officer or representative of either party has
authority to make, or has made, any statement, agreement, representation or
contemporaneous agreement, oral or written, in connection with this Agreement
and the Sublease modifying, adding to or changing the provisions, covenants,
terms and conditions of this Agreement and the Sublease. Any prior agreements
between the parties (including without limitation the Memorandum of Intent) are
hereby superseded. No modification or amendment of this Agreement or the
Sublease shall be binding unless such modification or amendment shall be in
writing and signed by both Sublessor and Tenant.
Section 9. During the period from the Initial Date up to the Start Date or
earlier termination of the Sublease, Tenant and any persons and entities
designated by Tenant shall have access to Lakewood for planning, inspections,
conducting tests (including without limitation sound tests and soil tests) and
for similar purposes. Tenant shall indemnify and hold Sublessor harmless from
and against any and all claims, losses, liabilities, costs and expenses arising
solely out of the activities of Tenant and the persons and entities designated
by Tenant in the course of exercising the rights specified in the prior
sentence. Subject to the prior sentence, Sublessor shall indemnify and hold
Tenant harmless from and against any and all claims, losses, liabilities, costs
and expenses arising out of or connected with Lakewood which occur by reason of
any act or omission prior to the Start Date or earlier termination of the
Sublease. Notwithstanding anything to the contrary in Section 9 or elsewhere in
this Agreement nothing in this Agreement shall constitute, or be construed as
constituting, a covenant, promise, agreement, or understanding for Sublessor to
indemnify or hold harmless Tenant against liability for damage arising out of
bodily injury to persons or damage to property caused by or resulting from the
sole negligence of Tenant, his agents or employees.
-6-
<PAGE>
The respective indemnification and hold harmless obligations of Tenant and
Sublessor above shall also inure to the benefit of the shareholders, directors,
officers, employees and agents of the respective indemnified parties. Sublessor
and Tenant shall carry the insurance policies and comply with the provisions of
Subsections 9.1 (except only the provisions of Subsections 8.1 and 8.2 of the
Master Lease shall be applicable) and 9.2 of the Sublease during the period
prior to the Start Date or earlier termination of the Sublease. The liability of
the parties under this Section 9 for acts or omissions occurring prior to the
Start Date or earlier termination of the Sublease shall survive the termination
of the Sublease and shall also survive the Start Date. Except as specified above
Tenant will have no rights or obligations of any kind whatsoever with respect to
the Project Area during the period prior to the Start Date.
Section 10. In addition to the obligations and covenants undertaken by
Tenant under this Agreement, concurrently with the execution hereof Tenant is
paying Sublessor $1.00, receipt of which Sublessor hereby acknowledges.
Sublessor also acknowledges that Tenant will be relying upon this Agreement,
including without limitation by expending sums in connection with planning for
the project contemplated by the Sublease, and Sublessor accordingly recognizes
that this Agreement is binding upon it and that it has received consideration
for executing it.
Section 11. The provisions of Sections 15.19 [confidentiality], 14.2.3
[assignment], 17 [successors and assigns], 15.5 [notice], 15.14 [attorneys
fees], 15.8 [broker's commissions], and 15.11 [governing law] of the Sublease
are incorporated mutatis mutandis herein by this reference. Except to the extent
otherwise specified in this Agreement, until the Start Date has occurred, the
provisions of the Sublease will not be in effect.
MCA Concerts, Inc.
By /s/ [Illegible]
------------------
Filmworks, USA, Inc.
By /s/ [Illegible]
------------------
President
-7-
<PAGE>
EXHIBIT A
(Description of the Property)
All that tract or parcel of land lying and being in Land Lots 58, 71 and
72 of the 14th District of Fulton County, Georgia, and being more particularly
described as follows:
BEGINNING at a nail placed in the intersection formed by the centerline of South
Pryor Road (abandoned on June 4, 1958) and the southwest line of the
right-of-way of Claire Drive (being a 50 foot right-of-way) running thence
southeasterly along the southwest line of the right-of-way of Claire Drive, and
following the curvature thereof, a distance of 1379.3 feet to an iron pin
placed; running thence south 35 degrees 48 minutes west a distance of 481.9 feet
to an iron pin placed, running thence south 51 degrees 17 minutes 00 seconds
east a distance of 1096.0 feet to an iron pin placed; running thence south 45
degrees 14 minutes 30 seconds east a distance of 220.0 feet to an iron pin
placed; running thence south 74 degrees 29 minutes east a distance of 320.0 feet
to the center of a manhole, running thence south 46 degrees 29 minutes east a
distance of 326.3 feet to an iron pin placed on the northwest line of the
right-of-way of Lakewood Avenue (being a 60 feet right-of-way), said iron pin
placed being at a point 518.0 feet southwest, as measured along the northwest
line of the right-of-way of Lakewood Avenue, from the intersection formed by the
northwest line of the right-of-way of Lakewood Avenue and the southwest line of
the right-of-way of Shadydale Avenue, running thence southwesterly along the
northwest line of the right-of-way of Lakewood Avenue, and following the
curvature thereof a distance of 1733.1 feet to an iron pin placed; running
thence north 84 degrees 50 minutes west a distance of 56.6 feet to an iron pin
placed; running thence south 29 degrees 45 minutes west a distance of 33.6 feet
to an iron pin placed; running thence in a westerly and northwesterly direction,
along the arc of a curve having a chord bearing north 65 degrees 22 minutes west
for 967.8 feet, a distance of 970.8 feet to an iron pin placed, running thence
south 87 degrees 46 minutes west along the north line of the right-of-way of
Lakewood Way (being a 60 foot right-of-way) a distance of 1176.2 feet to an iron
pin found in the intersection formed by the north line of the right-of-way of
Lakewood Way and the east line of the right-of-way of Pryor Road (being a 50
foot right-of-way), running thence north 00 degrees 32 minutes east along the
east line of the right-of-way of Pryor Road a distance of 1598.7 feet to a nail
placed in the intersection formed by the east line of the right-of-way of Pryor
Road and the centerline of South Pryor Road (abandoned June 4, 1958), running
thence in a northeasterly, easterly, southeasterly, northeasterly and northerly
direction along the centerline of South Pryor Road and following the curvature
thereof a distance of 2796.3 feet to the POINT OF BEGINNING (said course of
2796.3 feet being comprised of the area of the following chords: begin at the
nail placed in the intersection formed by the east line of the right-of-way of
Pryor Road and the centerline of South Pryor Road and run thence north 63
degrees and 34 minutes east for 251.9 feet, run thence north 88 degrees 47
minutes east for 357.8 feet, run thence north 89 degrees 44 minutes east for
272.2 feet, run thence south 74 degrees 27 minutes east for 458.1 feet, run
thence north 55 degrees and 49 minutes east for 353.8 feet, run thence north 00
degrees 14 minutes east for 569.8 feet and run thence north 00 degrees and 00
west for 563.4 feet to the nail placed in the intersection formed by the
centerline of South Pryor Road and the southwest line of the right-of-way of
Claire Drive); being property depicted as 132.62 acres on that certain blueprint
of survey, to which reference is made for all purposes, prepared by Watts &
Browning, Engineers, dated May 20, 1970, and bearing the certification of A. W.
Browning, Georgia Registered Land Surveyor No. 490.
TOGETHER WITH all other property, if any, owned by the City of Atlanta in Land
Lots 58, 71 and 72 of the 14th District of Fulton County, Georgia, within the
area which the area which is bounded on the west by the above
described property, on the south by Lakewood Avenue and on the east by Shadydale
Avenue and on the north by Claire Drive, BUT NOT INCLUDING the rights of the
City of Atlanta in and to (i) the right-of-way of any road, street or highway,
dedicated to public use or (ii) any utility easements or installations.
TOGETHER WITH all rights, members and appurtenances (except as hereinabove
expressly limited) pertaining to the above described property.
LESS AND EXCEPT that portion of the above-described property lying and being in
Land Lot 71 of the 14th District of Fulton County, Georgia and being more
particularly described as follows:
BEGINNING at an iron pin found in the intersection formed by the east line of
the right-of-way of Pryor Road and the north line of the right-of-way of
Lakewood Way and running thence north 00 degrees 49 minutes 17 seconds west
along the east line of right-of-way of Pryor Road a distance of 27.80 feet to an
iron pin found in the intersection formed by the east line of the right-of-way
of Pryor Road and the southeast side of Lakewood Park Entrance Road, running
thence north 62 degrees 40 minutes 00 seconds east along the southeast side of
Lakewood Park Entrance Road a distance of 299.83 feet to iron pin found, running
thence in a southeasterly, easterly and northeasterly direction, along the arc
of a curve having a chord running north 82 degrees 47 minutes 17 seconds east
for 156.00 feet, a distance of 173.40 feet to an iron pin set; running thence
north 61 degrees 21 minutes 01 seconds east a distance of 92.00 feet to an iron
pin found on the south side of Lakewood Park Entrance Road; running thence south
86 degrees 17 minutes 01 seconds east along the south side of Lakewood Park
Entrance Road a distance of 277.56 feet to an iron pin found; running thence
south 82 degrees 22 minutes 59 seconds east along the south side of Lakewood
Park Entrance Road a distance of 230.00 feet to an iron pin set; running south
33 degrees 14 minutes 49 seconds east along the southwest side of Lakewood Park
Entrance Road a distance of 45.00 feet to an iron pin set; running thence south
57 degrees 45 minutes 17 seconds east along the southwest side of Lakewood Park
Entrance a distance of 125.00 feet to an iron pin found; running thence south 05
degrees 25 minutes 06 seconds west along the west side of Lakewood Park Entrance
Road a distance of 25.05 feet to an iron pin found in the intersection formed by
the west side of Lakewood Park Entrance Road and the north line of the
right-of-way of Lakewood running thence south 86 degrees 31 minutes 57 seconds
west along the north line of the right-of-way of Lakewood Way a distance of
1,119.33 feet to an iron pin found; running thence north 57 degrees and 14
minutes 39 seconds west along the northeast line of the right-of-way of Lakewood
Way a distance of 24.92 feet to the POINT OF BEGINNING; being property depicted
as 3.80 acres on that certain blueprint of survey, to which reference is made
for all purposes, prepared by and bearing the certification of Donald K. Stokes,
Georgia Registered Land Surveyor No. 1896, dated April 1977; being property
developed as the Southeast Atlanta Neighborhood Facility pursuant to a
Resolution proposed by the Human Resources Committee under date of August 3,
1976, adopted by the Council of the City of Atlanta on August 16, 1976 and
approved by the Mayor on August 20, 1976.
LESS AND EXCEPT that portion of the above-described property lying and being in
Land Lot 72 of the 14th District of Fulton County, Georgia and being an area of
5.42 acres as shown on General Site Plan of the Lakewood Substation as attached
hereto and made a part hereof and also filed in the Office of Engineering,
Department of Environment and Streets, City of Atlanta.
<PAGE>
EXHIBIT B
Tenant has the right anytime up to and including the Start Date to designate
whether this Exhibit B or Exhibit B - Alternate will be deemed to be "Exhibit B"
for purposes of Section 5 of Agreement Regarding Sublease.
(Graphic omitted)
Sublessor has requested that tenant utilize as little of parking Area X as
possible and Tenant will in good faith attempt to accommodate this request but
sublessee's determination in its sole discretion as to the frequency and extent
of parking usage of the aforementioned Area X shall be final and binding.
MCA AMPHITHEATRE
AT THE LAKEWOOD FAIRGROUNDS [LOGO] The Blurock Partnership
ATLANTA, GEORGIA Architects and Planners
EXHIBIT B - ALTERNATE
Tenant has the right anytime up to and including the Start Date to designate
whether this Exhibit B - Alternate or Exhibit B will be deemed to be the
"Exhibit B" for purposes of Section 5 of Agreement Regarding Sublease.
(Graphic omitted)
MCA AMPHITHEATRE
AT THE LAKEWOOD FAIRGROUNDS ATLANTA, GEORGIA [LOGO] The Blurock Partnership
Architects and Planners
<PAGE>
39
FIRST AMENDMENT TO SUBLEASE
FIRST AMENDMENT TO SUBLEASE
This Amendment is executed as of 1/21, 1988 between Filmworks U.S.A., Inc.
("Sublessor") and MCA Concerts, Inc. ("Tenant") and amends the Sublease between
the same parties executed as of 1/20, 1988 (the "Original Sublease") pertaining
to a portion of the approximately 117 acre parcel commonly known as Lakewood
Fairgrounds. The capitalized terms used in this Amendment shall have the same
meaning as the same terms in the Original Sublease.
Sublessor and Tenant agree to amend the Original Sublease as follows:
1. Dickerson Agreement. Tenant has entered into an Agreement (the
"Dickerson Agreement") with Jerry Dickerson ("JD") as of _______________, 1988.
One of the inducements for Tenant to execute the Dickerson Agreement was certain
assurances given to Tenant by Sublessor that Sublessor would participate in
certain of the burdens imposed upon Tenant under the Dickerson Agreement, and
Sublessor acknowledges that Tenant would not have entered into the Dickerson
Agreement without such assurances from Sublessor, which assurances are
memorialized in this Amendment.
2. Consideration. The consideration for Sublessor's execution of this
Amendment is Tenant's execution of the Dickerson Agreement, and Sublessor
acknowledges that Tenant executed the Dickerson Agreement in reliance on
Sublessor's promise to execute this Amendment.
3. Recoupment of $25,000. Subsection 5.1 of the Dickerson Agreement
provides for Tenant to make a payment to Dickerson of $125,000. Of this
$125,000, $25,000 is recoupable by Tenant out of first monies payable to JD by
Tenant pursuant to Section 4 and/or Section 5.2 of the Dickerson Agreement. An
additional $25,000 of Tenant's payment to JD shall be borne by Sublessor by
allowing Tenant to offset $25,000 without interest, from the first monies
otherwise due Sublessor by Tenant pursuant to the Original Sublease excluding
the first $150,000 payable under the Sublease (including in that $150,000, any
prepaid sums under Subsection 4.2.1 of the Original Sublease).
- 1 -
1/15/88
<PAGE>
4. Recoupment of 6% Payments. Subsection 5.2 of the Dickerson Agreement
provides for Tenant to make payments to JD in an amount equal to 6% of the rent
paid by Tenant to Sublessor. Sublessor shall, during the entire Lease Term, bear
one-half of the burden of making the payments to JD specified in Subsection 5.2
of the Dickerson Agreement (i.e. Sublessor shall pay to Tenant an amount equal
to 3% of the rent paid by Tenant to Sublessor under the Sublease -- computed
without taking into account the offset provided for in Section 3 above and this
Section 4). In order to give effect to Sublessor's contribution to the 6%
payment to JD, Tenant shall be entitled to offset an amount equal to one-half of
the 6% payment due JD against rent and any other sums otherwise due Sublessor by
Tenant pursuant to the Original Sublease as of the first day of the calendar
month in which Tenant is obligated to make a payment of said 6% to JD, and if
Tenant in good faith believes that the amount of monies subject to offset on
said date will be insufficient to cover Sublessor's one-half share of the
payment due JD, Tenant may begin offsetting earlier to such extent as Tenant
believes in good faith is necessary so that by the time Tenant makes the payment
to JD, the Tenant will have offset Sublessor's one-half share of the payment.
5. Annual Festival. Section 6 of the Dickerson Agreement provides for the
Amphitheatre to be made available to JD each year for a one or two day annual
festival (the "Festival"). Whether the Festival is a one day or a two day event,
Sublessor waives its right to receive any percentage rent computed on net ticket
revenues as provided in Subsection 4.3.2.1 of the Original Sublease and on any
consideration received in connection with sponsorships as provided in
Subsections 4.3.2.2 and 4.3.2.3 of the Original Sublease arising in connection
with a festival, and Sublessor's only right to receive percentage rent in
connection with a festival shall be based upon income derived by Sublessor from
concessions, merchandising, and parking. If a festival is a two day event
instead of a one day event all the above provisions shall apply and without
derogating from the generality of the foregoing Sublessor shall not be entitled
to any percentage rent based upon the 50/50 split of profits as provided in
subsection 6.5 of the Dickerson Agreement but will be entitled to treat rent, if
any, paid by JD to Tenant under Subsection 6.6 of the Dickerson Agreement as
income from a Rental Arrangement under the Original Sublease and, after
deducting
- 2 -
<PAGE>
Direct Costs therefrom, as Rental Net as provided in Subsections 4.3.2.4 and
4.3.3.3 of the Original Sublease.
6. Original Sublease in Effect. Except as expressly amended hereby the
Original Sublease remains in full force and effect.
Filmworks U.S.A., Inc. MCA Concerts, Inc.
By By /s/ Marc Bension
--------------------------- ---------------------------
- 3 -
<PAGE>
40
SECOND AMENDMENT TO SUBLEASE
SECOND AMENDMENT TO SUBLEASE
This Amendment is executed as of 4/19/, 1988 between Filmworks U.S.A.,
Inc. ("Sublessor") and MCA Concerts, Inc. ("Tenant") and amends the Sublease
between the same parties executed as of January 20, 1988 (the "Origina1
Sublease") pertaining to a portion of the approximately 117 acre panel commonly
known as Lakewood Fairgrounds. The Original Sublease has been amended by the
First Amendment to Sublease dated January 21, 1988. The capitalized terms used
in this Amendment shall have the same meaning as the same terms in the Original
Sublease.
Sublessor and Tenant agree to amend the Original Sublease as
previously amended as follows:
1. Sharing Agreement. If Tenant enters into an arrangement with a
foundation or other organization ("Association") pursuant to which Tenant would
pay Association a sum not to exceed 25 cents per ticket for each ticket sold at
the Site during a particular calender year in excess of 125,000 tickets in that
year, Sublessor shall, during the entire Lease Term, bear one-half of the burden
of making the per ticket payments to Association which are specified above
provided that Sublessor's one-half of the burden shall not exceed 12 1/2 cents
per ticket. In order to give effect to Sublessor's obligation to bear up to 12
1/2 cents per ticket, Tenant shall be entitled to offset an amount equal to
one-half of the per ticket payment made to Association (but not to exceed an
offset of 12 1/2 cents per ticket) against rent and any other sums otherwise due
Sublessor by Tenant pursuant to the Original Sublease as amended. Tenant may
exercise the aforementioned offset rights at such time as Tenant believes in
good faith is necessary so that by the time Tenant makes any payment to
Association, Tenant will have offset Sublessor's one-half share of such payment.
2. Dickerson Agreement.
Reference is made to Section 1 of the First Amendment to Sublease. The
reference therein to the Dickerson Agreement is hereby modified to refer to the
Agreement dated as of
- 1 -
<PAGE>
February 2, 1988 as executed between Tenant and Dickerson Outdoor Entertainment
Corporation (together with the Jerry Dickerson Agreement between Tenant and
Jerry Dickerson personally), a copy of which is attached hereto and incorporated
herein by this reference which incorporated Agreement with Dickerson Outdoor
Entertainment Corporation is hereby substituted in lieu of the earlier
unexecuted draft between Tenant and Jerry Dickerson personally.
3. Consideration. The consideration for Sublessor's execution of this
Amendment includes, but is not limited to, Tenant's entering into the Agreement
with Dickerson Outdoor Entertainment Corporation referred to in paragraph 2
above. In addition, if Tenant has entered into or does enter into the above
described arrangements with the Association, Sublessor acknowledges that Tenant
will have done so or will be doing so in reliance on Sublessor's promise to
execute this Amendment.
4. Original Sublease as Previously Amended in Effect. Except as amended
hereby, the 0riginal Sublease as previously amended remains in full force and
effect.
Filmworks U.S.A., Inc. MCA Concerts, Inc.
By /s/ Edwin D. Spivia By /s/ Marc Bension
---------------------------- ----------------------------
its President
- 2 -
<PAGE>
41
THIRD AMENDMENT TO SUBLEASE
THIRD AMENDMENT TO SUBLEASE
THIS AMENDMENT is executed as of September 15, 1988 between FILMWORKS
U.S.A., INC. ("Sublessor") and MCA CONCERTS, INC. ("Tenant") and amends the
Sublease between the same parties executed as of January 20, 1988 (the "Original
Sublease") pertaining to a portion of the approximately 117 acre parcel commonly
known as Lakewood Fairgrounds. The Original Sublease has been amended by the
First Amendment to Sublease executed as of January 21, 1988 and by the Second
Amendment to Sublease executed as of April 19, 1988. The capitalized terms used
in this Amendment shall have the same meaning as the same terms in the Original
Sublease.
Sublessor and Tenant agree to amend the Original Sublease, as previously
amended, as follows:
1. Termination of Obligations to City. If the obligations Tenant has to
the City of Atlanta (the "City") are terminated pursuant to termination rights
set forth in Section 4.3 or Section 4.8 of the Agreement by and between the City
of Atlanta and MCA Concerts, Inc., dated as of October 10, 1988 (the "City-MCA
Agreement"), Tenant shall have the right to terminate the Original Sublease, as
amended, and to retain any amounts paid by the City to Tenant pursuant to said
Section 4.8. The foregoing sentence shall not, however, entitle Tenant to a
refund of the first $150,000 in minimum rent prepaid pursuant to Subsection
4.2.1 of the Original Sublease or to any additional rentals paid or due to be
paid by Tenant to Sublessor pursuant to Subsection 4.2.2 of the Original
Sublease for the period prior to termination of the Original Sublease, as
amended, under the foregoing sentence. Except as expressly specified above,
Sublessor's rights under the Original Sublease, as amended, shall be neither
adversely affected nor abridged under the City-MCA Agreement. In the event of
any termination of the Original Sublease, as amended, pursuant to this Section 1
of this Amendment, Tenant shall have no obligation to restore the Project Area
(or any portion thereof) in any manner whatsoever or to remove or demolish any
partially or fully completed Improvements or other property and Sublessor's and
Tenant's respective right, title and interest in and to the Improvements and
other property at the Project Area shall be in accordance with the provisions of
the Original Sublease, as amended.
2. Consideration. The consideration for Sublessor's execution of this
Amendment includes, but is not limited to, Tenant's entering into an agreement
with the City pursuant to which Tenant agrees, subject to certain terms and
conditions, to construct the Amphitheatre.
<PAGE>
3. Original Sublease as Previously Amended in Effect. Except as amended
hereby, the Original Sublease as previously amended remains in full force and
effect.
FILMWORKS U.S.A., INC.
By /s/ Edwin D. Spivia
---------------------------------
Name Edwin D. Spivia
Title President
MCA CONCERTS, INC.
By /s/ Marc Bension
---------------------------------
Name Marc Bension
Title President
-2-
<PAGE>
EXHIBIT C
DESCRIPTION OF AMPHITHEATRE PROJECT
The new amphitheatre at Lakewood Fairgrounds will consist of approximately
8,000 fixed seats on a sloped/tiered concrete bowl with a gently sloped rear
lawn area for approximately 10,000 additional patrons. A pitched steel framed
roof supported on large concrete columns will cover the fixed seating area and
will be coincident to an attenuated masonry stage structure approximately 75'
deep by 150' wide by 50' high, over and around the artists performance area
immediately North of the fixed seating. The westerly and southerly amphitheatre
bowl exposures will be protected with a highly acoustical sound wall, designed
to specific sound attenuating properties. The rear stage area will consist of
modular production and operations offices, artists and group dressing rooms,
crew/group dining, audio/electronic rooms, truck load-in facilities, bus and
artists drop off facilities, and ancillary spaces. On both "sides" of the
amphitheatre will be located expansive paved plazas with circulation ways to all
seating sections. Each plaza will have restroom and concession facilities in a
festive park-like setting. The amphitheatre parcel will be totally enclosed with
security fencing and, on two sides adjacent to parking areas, with well-lighted
pedestrian walkways. Total cost to MCA for the planning, development, and
construction of the amphitheatre and associated improvements will equal not less
than $8 million.
<PAGE>
EXHIBIT D
CITY WORK
Pryor Circle Improvements
1. Resurfacing Pryor Circle - Lakewood Station to Pryor Road. $ 8,000
2. Upgrade street lighting. 5,200
3. Replace/repair fencing adjacent to housing project. 12,000
4. Remove overgrown vines and shrubs in R/W, and;
5. Remove fence across Pryor Circle at Pryor Road. 1,600
6. Install 12 foot high masonry wall from Pryor Road to area
of the stagehouse. 65,000
7. Provide crosswalk, centerline and shoulder stripping
along Pryor Circle and at intersection of Pryor Road
and Pryor Circle. 500
Lakewood Avenue Entryway
1. Grading and paving of ramp, approximately 100 feet long by
72 feet wide (5 lanes plus walkway) from existing northeast
corner of Fairgrounds at Lakewood Avenue to present existing
grade at racetrack surface excluding decorative pedestrian
curbs and walks. 24,700
2. Fine grading. 1,000
3. Provide new high intensity lighting at intersection of
Lakewood Avenue and new entryway. 3,250
4. Provide left turn arrow and signals at intersection of
northerly entryway and Lakewood Avenue. 40,000
5. Provide overhead lane control signs on Lakewood Avenue. 56,000
<PAGE>
Lakewood Avenue/Lakewood Way Focal Imps.
1. Remove existing signage. 6,000
2. Provide new area lighting along new walkway same as
northeasterly entryway and at intersection of Lakewood
Avenue and Lakewood Way. 3,250
3. Remove overgrowth and trim vines. 1,000
4. Provide overhead lane use control signs at Lakewood
Avenue/Lakewood Way/Macon Drive Intersection. 56,000
5. Provide appropriate lane stripping, arrows, etc. as required. 500
Lakewood Way Entryway
1. Provide new graded and paved ramp from Lakewood Way to the
existing paved parking approximately 70 feet long by 70 feet
wide (five lanes plus walkway), including curbs and excluding
decorative pedestrian walkway. 24,700
2. Provide new high intensity lighting at the intersection of
Lakewood Way and new south-easterly entryway. 3,250
3. Provide roadway/entryway lane stripping arrows, etc. as required. 500
Fair Drive Entryway
1. Provide new high intensity lighting at the intersection of
Pryor Road and Fair Drive, and along Pryor Road between Pryor
Circle and Lakewood Way. 13,500
2. Remove existing chain link fence and gates at existing entry -
approximately 100 feet. 500
3. Remove existing billboards. 1,000
4. Provide upgraded signals with directional arrows, etc. as
determined by the Department of Public Works. Provide lane
stripping, arrows as required. 16,000
D-2
<PAGE>
Perimeter Fencing
1. Repair existing fences and gates around entire facility and
replace existing chain link fencing as required, with similar
utility fencing and gates, as subsequently determined. 10,000
Perimeter Landscaping
1. Clean, trim and remove vines and shrubs around entire site
as determined necessary and required. 10,000
Roadway Improvements
1. Provide a double left-turn lane E.B. on Lakewood Way at
the Lakewood Avenue/Lakewood Way/Macon Drive intersection. 40,000
2. Provide a double right-turn S.B. lane on Lakewood Way at
the Lakewood Avenue/Lakewood Way/Macon Drive intersection. 11,400
3. Construct a left turn lane on the W.B. approach to the
Lakewood Avenue/Lakewood Way/Macon Drive intersection. see #1
4. Convert the existing two-way section of Lakewood Way to
one-way S.B. during Amphitheatre events. 500
5. Provide a double right-turn lane W.B. on Lakewood Way into
the parking area for the proposed Amphitheatre. 6,000
6. Provided a double left-turn lane E.B. on Lakewood Avenue into
the parking area for the proposed Amphitheatre. 15,600
7. Provide three lanes into the parking area at the Pryor
Road/Fair Drive entrance during the arrival period. --
8. Provide three exit lanes from the parking area at the
Pryor Road/Fair Drive exit during the departure period. --
D-3
<PAGE>
Fair Drive Entrance and Perimeter Landscaping
1. Plant 250 Canopy Trees and 500 Flowering Trees. 87,500
Plant shrubs:
Lakewood Way Entrance 5,250
Fair Drive Entrance 5,250
Parking Perimeter 26,250
2. Lakewood Way Entrance:
Plant 30 Canopy Trees 7,500
Plant 90 Flowering Trees 4,500
3. Trim existing trees. 10,000
Pryor Road and Pryor Circle Landscaping
1. Provide upgraded landscaping, lighting, and signage
at the Pryor Road and Pryor Circle intersection and at
other Amphitheatre Project entrances as may be mutually
agreed to by the City and MCA. 84,950
Interior Site Landscaping
1. Lakeshore - 4,800 linear feet:
Plant 80 Canopy Trees 20,000
Plant 160 Flowering Trees 8,000
Plant 400 shrubs 6,000
2. Grandstand Area:
Plant 90 Canopy Trees 22,500
Plant 250 Flowering Trees 12,500
Miscellaneous
1. Provide utility chain link fencing, repair existing
fencing where necessary, between lake area parking
southerly Filmworks' leasehold, along southerly
boundary of existing track and grandstand; along boundary
between new Amphitheatre and existing exhibition
D-4
<PAGE>
EXHIBIT 10.48
===================================================================
FIRST AMENDMENT TO
AGREEMENT DATED OCTOBER 10, 1988, BY AND BETWEEN
THE CITY OF ATLANTA
a municipal corporation ("City")
AND
MCA CONCERTS, INC.,
a California corporation ("MCA")
First Amendment Dated as of July 14, 1989
==================================================================
<PAGE>
FIRST AMENDMENT TO AGREEMENT BETWEEN THE CITY OF ATLANTA
AND MCA CONCERTS, INC.
THIS FIRST AMENDMENT is made and entered into as of the 14th day of July,
1989, by and between the CITY OF ATLANTA, a municipal corporation, chartered
pursuant to the law of the State of Georgia ("City"), and MCA/PACE AMPHITHEATRE
GROUP, L.P., a Delaware limited partnership ("MCA/PACE").
WHEREAS, CITY and MCA CONCERTS, INC., a California corporation ("MCA"),
entered into an Agreement dated October 10, 1988, relating to an amphitheater to
be constructed at Lakewood Fairgrounds ("City-MCA Agreement"); and
WHEREAS, by Assignment of Agreement dated June 15, 1989, MCA assigned,
transferred and conveyed to MCA CONCERTS II, INC., a California corporation
"MCA"), all of MCI's right, title and interest in, to and under the CITY-MCA
AGREEMENT; and
WHEREAS, by Assignment of Agreement dated June 23, 1989, MCI assigned,
transferred and conveyed to MCA/PACE all of MCI's right, title and interest in,
to and under the CITY-MCA AGREEMENT; and
WHEREAS, by an Ordinance adopted by the Council of the
City of Atlanta on December 9, 1988, and approved by the Mayor on December 16,
1988, a copy of which is attached
<PAGE>
hereto as "EXHIBIT A" to this First Amendment, the CITY has authorized a First
Amendment to the CITY-MCA AGREEMENT deleting in its entirety Section 4.10 of
said CITY-MCA AGREEMENT, entitled "Tickets for City Use"; and
WHEREAS, MCA/PACE has agreed to the First Amendment insofar as it
deletes said Section 4.10:
NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00)
in hand paid by each party hereto to the other party hereto and for and in
consideration of the foregoing recitals and the covenants and agreements set
forth and contained therein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
CITY and MCA/PACE do hereby covenant and agree as follows:
PARAGRAPH ONE
-------------
THAT certain CITY-MCA AGREEMENT entered into by and between the CITY OF
ATLANTA and MCA CONCERTS, INC., as of October 10, 1988, is hereby AMENDED by
deleting in its entirety Section 4.10 of said CITY-MCA AGREEMENT as it was
originally written, which former Section 4.10 was entitled "Tickets for City
Use". All other Sections of said CITY-MCA AGREEMENT shall retain their original
numbering, and shall remain in full force and effect, including, without
limitation, Section 3.4 of the CITY-MCA AGREEMENT.
PARAGRAPH TWO
-------------
The CITY-MCA AGREEMENT, as expressly amended hereby, is reaffirmed and
restated herein by the undersigned; and said CITY-MCA AGREEMENT, as so amended,
is hereby incorporated
2
<PAGE>
herein by reference as fully as if set forth in its entirety in this First
Amendment.
IN WITNESS WHEREOF, City and MCA/PACE, acting through
their duly authorized officers or representatives, have duly
executed this First Amendment to the CITY-MCA AGREEMENT of
October 10, 1988, under seal as of the day and year first
above written.
Signed sealed and delivered MCA/PACE AMPHITHEATRES
this 18th day of July, 1989 GROUP, L.P., a Delaware
in the presence of: limited partnership
By: MCA CONCERTS II, INC.,
a California corporation
/S/ Dawn Ballard By /s/ Marc Benson
- ----------------------------- ------------------------
Unofficial Witness Name Marc Benson
--------------------
/s/ Linda Jo Brown Title Pres.
-------------------
- -----------------------------
Notary Public ATTEST /s/ Robert Biniaz
--------------------
Name Robert Biniaz
--------------------
Title Executive Vice President
-------------------
Notarial Expiration Date: 7/10/92
-------
[NOTARIAL SEAL] [CORPORATE SEAL]
LINDA JO BROWN
NOTARY PUBLIC-CALIFORNIA
CITY AND COUNTY OF
LOS ANGELES
My Commission Expires July 10, 1992
[Signatures continued on next, and last, page.]
3
<PAGE>
Signed, sealed, and delivered CITY OF ATLANTA,
this 14th day of July, 1989, a municipal corporation
in the presence of: of the State of Georgia
illegible
- ---------------------------- By /s/ Andrew Young
Unofficial Witness ---------------------------
Name: Andrew Young
---------------------
illegible Title: Mayor
- ---------------------------- --------------------
Notary Public RECOMMENDED:
illegible
Notarial Expiration Date: 3/28/93 ----------------------------
Chief Administrative Officer
[NOTARIAL SEAL]
ATTEST:
--------------------
NAME:
--------------------
TITLE: Deputy Clerk
--------------------
[CORPORATE SEAL]
RECOMMENDED:
Betsy C. Baker
---------------------------
Commissioner of Parks,
Recreation & Cultural
Affairs
illegible
--------------------------
Commissioner of Finance
illegible
--------------------------
Commissioner of Public
Works
APPROVED AS TO FORM ON
BEHALF OF THE CITY OF
ATLANTA:
illegible
-------------------------
Assistant City Attorney
4
<PAGE>
A SUBSTITUTE ORDINANCE BY THE EXECUTIVE COMMITTEE:
AN ORDINANCE TO AMEND THAT CERTAIN CONTRACT
ENTERED INTO AS OF OCTOBER 10, 1988, BETWEEN
THE CITY OF ATLANTA AND MCA CONCERTS, INC.,
RELATING TO THE LAKEWOOD AMPHITHEATER, BY
DELETING SECTION 4.10 OF SAID CONTRACT,
ENTITLED "TICKETS FOR CITY USE," AND TO
AMEND THAT CERTAIN CONTRACT ENTERED INTO AS
OF MAY 6, 1986, BETWEEN THE CITY OF ATLANTA
AND THE AMERICAN GOLF CORPORATION BY
DELETING THE PROVISION FOR FREE GOLF PASSES
FOR COUNCILMEMBERS, AND FOR OTHER PURPOSES.
WHEREAS, by an Ordinance adopted by Council on the 3rd
day of October, 1988, and approved by the Mayor on the 7th
day of October, 1988, the City entered into a contract as of
October 10, 1988, with MCA Concerts, Inc., approving the
subletting by MCA Concerts, Inc., of a portion of Lakewood Fairgrounds from the
City's Lessee on the premises, Filmworks U.S.A., Inc., for the purpose of
building and operating an amphitheater complex; and
WHEREAS, pursuant to Section 4.10 of the contract
between the City and MCA Concerts, Inc., MCA is bound to
provide a quantity of free tickets to the City for every
concert held at the Lakewood Amphitheater; and
WHEREAS, the City of Atlanta entered into a contract
between the American Golf Corporation as of May 5, 1986, for
the management of the four eighteen-hole golf courses
belonging to the City; and
WHEREAS, said contract provided for a number of free
<PAGE>
golf passes for councilmembers and; and
WHEREAS, it will be in the best interests of the City that there be no
requirement for free tickets in the contract with MCA Concerts, Inc., and that
there be no provision for free golf passes in the contract with American Golf
Corporation:
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF
ATLANTA, GEORGIA:
SECTION ONE: THAT the Mayor be, and he hereby is, authorized
- -----------
on behalf of the City of Atlanta to execute an agreement with MCA Concerts,
Inc., a California corporation, amending that certain contract dated as of
October 10, 1988, between the City of Atlanta and MCA Concerts, Inc., by
deleting in its entirety Section 4.10 of said contract, entitled "Tickets for
City Use";
SECTION TWO: THAT the Mayor be, and he hereby is, authorized
- -----------
on behalf of the City of Atlanta to execute an agreement with American Golf
Corporation, a California corporation, amending that certain contract dated as
of May 6, 1986, between the City of Atlanta and American Golf Corporation, by
deleting in its entirety all references and provision in said contract for the
furnishing of free golf passes to the President of Council and to individual
councilmembers;
2
<PAGE>
SECTION THREE: That the provisions of this ordinance eliminating
- -------------
free tickets shall apply to all City contracts.
SECTION FOUR: THAT the Mayor be, and he hereby is,
- ------------
further authorized on behalf of the City of Atlanta in the
agreement authorized in SECTION ONE above with MCA Concerts,
Inc., a California corporation, to further amend that certain contract dated as
of October 10, 1988, between the City of Atlanta and MCA Concerts, Inc.,
by amending Section 3.4 of said contract as originally executed, entitled
"Equal Employment Opportunity and Minority Business Enterprise
Goals", as follows:
(A) By inserting a comma in the next-to-last sentence of Subsection "c" of
said Section 3.4 after the word "contract", inserting the words "including those
for food and beverage procurement", inserting another comma and leaving the
remainder of the text of said sentence as originally written, so that the next-
to-last sentence of Subsection "c" of Section 3.4, as thus amended, will read:
"MCA further agrees to adopt a goal that thirty-five percent (35%) of
concessions within the Project Area which are awarded by contract, including
those for food and beverage procurement, shall be awarded to certified Minority
Business Enterprises."
(B) By inserting the word "and" in the first sentence Of
Subsection "g" of Section 3.4 immediately before the word "advertising" where
it appears in the original text, placing a period after the words "advertising
(both print and
<PAGE>
electronic)", and deleting the words "and food and beverage
procurement", so that the first sentence of Subsection "g" of
said Section 3.4, as thus amended, will read: "Due to the
special requirements arising out of MCA's operations in
serving the public as well as the needs of performing artists
whose appearances at the Amphitheatre are often part of
larger scale tours of facilities across the country, City and
MCA acknowledge and agree that the operation of the
Amphitheatre Project requires special qualifications
in certain areas such as but not limited to stagecraft,
lighting, sound amplification, electronic ticketing, and
advertising (both print and electronic)."
SECTION FIVE: The City Attorney shall approve the amendments as
- ------------
to form, and with respect to the amendments to the MCA Contract,
may approve as to form the amendment which accepts either one, or
both, of the amendments to the contract made in this ordinance.
SECTION SIX: That all ordinances or portions of ordinances in
- -----------
conflict herewith are hereby repealed or modified to the extent
necessary to give effect to these contract amendments.
<PAGE>
EXHIBIT 10.49
SECOND AMENDMENT TO AN AGREEMENT
DATED OCTOBER 10, 1988
BY AND BETWEEN
THE CITY OF ATLANTA
a municipal corporation (" City")
and
MCA CONCERTS, INC.,
a California corporation (" MCA")
Second Amendment
Dated June 1989
Signed May 25, 1994
<PAGE>
SECOND AMENDMENT TO AN AGREEMENT BETWEEN
THE CITY OF ATLANTA, GEORGIA
AND MCA CONCERTS, INC.
THIS SECOND AMENDMENT is made as of the 14th day of July 1989, and entered
into as of the 30th day of May, 1994, by and between the City of Atlanta,
Georgia, municipal corporation chartered pursuant to Georgia Laws 1973, p. 2188,
et. seq., (hereinafter "City"), and MCA/PACE AMPHITHEATER GROUP, L. P. A
Delaware limited partnership (hereinafter referred to as (MCA/PACE").
WHEREAS, the CITY and MCA CONCERTS, INC., a California Corporation,
(hereinafter "MCA"), entered into an Agreement dated October 10, 1988, relating
to an amphitheater to be constructed at Lakewood Fairgrounds (hereinafter CITY-
MCA Agreement"); and
WHEREAS, by Assignment of Agreement dated June 15, 1989, MCA assigned,
transferred and conveyed to MCA CONCERTS II, INC., a California corporation
(hereinafter "MCA II"), all of MCA's right, title and interest in, to and under
the CITY-MCA Agreement; and
WHEREAS, by Assignment of Agreement dated June 23, 1989, known as the
"First Amendment", MCA II assigned, transferred and conveyed to MCA/PACE all of
MCA II's right, title and interest in, to and under the CITY-MCA Agreement; and
WHEREAS, by a Ordinance adopted by the Council of the City of Atlanta on
June 19, 1989 and approved by the Mayor on June 26, 1989, a copy of which is
attached hereto as Exhibit "A" to this Second Amendment, the City has authorized
1
<PAGE>
a Second Amendment to the CITY-MCA AGREEMENT authorizing MCA/PACE to name the
entertainment facility operated by them at the Lakewood Fairgrounds "The Coca-
Cola Lakewood Amphitheater" thus evidencing the City's intent to enter into this
Agreement;; and
WHEREAS, MCA/PACE has agreed to this Second Amendment, as evidenced by the
signatures of their officers below; and
WHEREAS, through inadvertence the City and MCA never executed said Second
Amendment in 1989 and are desirous of rectifying this error now;
NOW THEREFORE, in consideration of the sum of Ten Dollars ($10.00)in hand
paid by each party hereto to the other party hereto, and for and in
consideration of the foregoing recitals and the covenants and agreements set
forth and contained therein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the City and MCA/PACE do hereby covenant and agree as follows.
PARAGRAPH ONE
-------------
That a certain CITY-MCA AGREEMENT entered into by and between the City of
Atlanta and MCA Concerts, Inc., as of October 10, 1988, is hereby AMENDED by
inserting the following sentence after the third sentence of Section 3.6 of said
CITY-MCA AGREEMENT, as originally written: " The City further agrees and
acknowledges that the name of the facility shall be 'The Coca-Cola Lakewood
Amphitheater'." With the foregoing sentence thus inserted, the entire Section
3.6, as now amended, shall read as follows:
2
<PAGE>
3.6 Use of Project Area. The City hereby consents to
MCA'S use and enjoyment of the Project Area for any and
all purposes consistent with Section 2.1 of the Sublease.
Without derogating from the generality of the immediately
preceding sentence, the City agrees and acknowledges
that the project contemplated by the Sublease may be used
as a commercial outdoor facility consistent with other
commercial outdoor concert facilities nationwide. Without
derogating from the generality of the immediately preceding
sentence, the City agrees and acknowledges that the
project contemplated by the Sublease may be used for
performing, with or without amplified sound, popular and
contemporary music, rock and roll, pyrotechnic shows, and
other similar sound-intensive and light intensive activities.
The City further agrees and acknowledges that the
name of the facility shall be 'The Coca-Cola
Lakewood Amphitheater'. Nothing in the Section 3.6
shall be deemed or construed to limit the provisions of
Section 4.7 of this agreement.
PARAGRAPH TWO
-------------
The CITY-MCA AGREEMENT, as expressly amended hereby, is reaffirmed and
restated herein by the undersigned. Said CITY-MCA AGREEMENT, as so amended, is
hereby incorporated herein by reference as though fully set forth in its
entirety in this Second Amendment.
IN WITNESS WHEREOF, the City and MCA/PACE, acting through their duly
authorized officers and representatives, have duly executed this 25th day of
May, 1994, under seal as of the day and year first above written.
3
<PAGE>
MCA/PACE AMPHITHEATERS GROUP, L. P.
a Delaware limited partnership
By: MCA CONCERTS II, INC.,
a California Corporation
By: /s/ illegible
______________________
Name: illegible
Title: C.F.O.
ATTEST:__________________
Name:
Title:
CITY OF ATLANTA, a municipal corporation of the State of Georgia
/s/ illegible
______________________________
MAYOR BILL CAMPBELL
RECOMMENDED:
/s/ illegible
______________________________
CHIEF OPERATING OFFICER
/s/ illegible /s/ illegible
______________________________ ______________________________
DIRECTOR, BUREAU OF PURCHASING CHIEF OF STAFF
& REAL ESTATE
APPROVED: APPROVED AS TO FORM:
/s/ illegible
______________________________
CHIEF FINANCIAL OFFICER
ATTEST:
/s/ Olivia P. Woods /s/ Rosalind A. Rubens
______________________________ _____________________________
MUNICIPAL CLERK ASSISTANT CITY ATTORNEY
4
<PAGE>
AN ORDINANCE BY THE HUMAN RESOURCES COMMITTEE:
AN ORDINANCE AUTHORIZING THE MAYOR TO
EXECUTE AN AMENDMENT TO THE CONTRACT
BETWEEN THE CITY AND MCA CONCERTS, INC.,
FOR THE PURPOSE OF NAMING THE OUTDOOR
STAGE AT LAKEWOOD FAIRGROUNDS THE
"COCA-COLA LAKEWOOD AHPHITHEATER."
WHEREAS, the City and MCA Concerts, Inc., a Californina corporation, on
October 10, 1988, entered into a contract whereby MCA Concerts Inc.,
was permitted to enter into a sublease with Filmworks, U. S. A., Inc., the
City's lessee to Lakewood Fairgrounds, for the purpose of constructing and
operating an outdoor entertainment facility on city parkland known as
Lakewood Fairgrounds; and
WHEREAS, the contract contained no provisions specifying the name for the
public amphitheater being built there; and
WHEREAS, the naming of city facilities, including public amphitheaters
being built by private parties ln city parks, is properly a responsibility
of the mayor and council; and
WHEREAS, MCA Concerts, Inc., by virtue of a sponsorship agreement, wishes
to have the outdoor entertainment facility at Lakewood Park named "The Coca-Cola
Lakewood Amphitheater:"
NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF ATLANTA, GEORGIA:
EXHIBIT A
<PAGE>
SECTION 1: That the Mayor be, and he hereby is, authorized on behalf
---------
of the City of Atlanta to execute an amendment to the October 10, 1988,
agreement between the City and MCA Concerts, Inc., which amendment shall
authorize the outdoor entertainment facility at Lakewood Park to be
named "The Coca-Cola Lakewood Amphitheater."
SECTION 2: That the amendment authorized herein shall be approved by the
---------
City Attorney as to form, and the amendment shall not become effective
until it shall have been executed by the Mayor and delivered to MCA
Concerts, Inc.
Section 3: That all ordinances in conflict herewith are hereby repealed
---------
for purposes of this ordinance only, and only to the extent of the
conflict.
.
EXHIBIT A
ADOPTED by City Council June 19, 1989
APPROVED by the Mayor June 26, 1989
A true copy,
/s/ Olivia Parks
Deputy Clerk, C.M.C.
<PAGE>
EXHIBIT 10.50
THIRD AMENDMENT TO AN AGREEMENT
DATED OCTOBER 10, 1988
BY AND BETWEEN
THE CITY OF ATLANTA
a municipal corporation ("City")
and
MCA CONCERTS, INC.,
a California corporation ("MCA")
Third Amendment
Dated July 1989
Signed May 25, 1994
<PAGE>
THIRD AMENDMENT TO AN AGREEMENT BETWEEN
THE CITY OF ATLANTA, GEORGIA
AND MCA CONCERTS, INC.
THIS THIRD AMENDMENT is made as of the 14th day of July 1989, and
entered into as of the 30th day of April, 1994, by and between the City of
Atlanta, Georgia, municipal corporation chartered pursuant to Georgia Laws 1973,
p. 2188, et. seq., (hereinafter "City"), and MCA/PACE AMPHITHEATER GROUP, L.P. a
Delaware limited partnership (hereinafter referred to as (MCA/PACE").
WHEREAS, the CITY and MCA CONCERTS, INC., a California Corporation,
(hereinafter "MCA"), entered into an Agreement dated October 10, 1988, relating
to an amphitheater to be constructed at Lakewood Fairgrounds (hereinafter "CITY-
MCA AGREEMENT"); and
WHEREAS, by Assignment of Agreement dated June 15, 1989, MCA assigned,
transferred and conveyed to MCA CONCERTS II, INC., a California corporation
(hereinafter "MCA II"), all of MCA's right, title and interest in, to and under
the CITY-MCA Agreement; and
WHEREAS, by Assignment of Agreement dated June 23, 1989 designated as
the "First Amendment", MCA II assigned, transferred and conveyed to MCA/PACE all
of MCA II's right, title and interest in, to and under the CITY-MCA AGREEMENT;
and
WHEREAS, pursuant to a Second Amendment to the CITY-MCA AGREEMENT, MCA/PACE
was authorized to name the entertainment facility operated by them at the
Lakewood Fairgrounds "The Coca-Cola Lakewood Amphitheater"; and
<PAGE>
WHEREAS, by an Ordinance adopted by the Council of the City of Atlanta
on July 5, 1989 and approved by the Mayor on July 12,1989, a copy of which is
attached hereto as Exhibit "A" this Third Amendment to the CITY-MCA AGREEMENT,
the terms of this Amendment have been properly approved by the Legislative and
Executive branches of City government; and
WHEREAS, the City of Atlanta and MCA/PACE are desirous of acknowledging
and incorporating the change in fiscal agent for the community fund from the
Metropolitan Atlanta Community Foundation to the Southern Education Foundation
into all relevant sections of the CITY/MCA agreement; and
WHEREAS, MCA/PACE has agreed to this Third Amendment, as evidenced by the
signatures of their officers below; and
WHEREAS, through inadvertence the City and MCA never executed said
Second Amendment in 1989 and are desirous of rectifying this error now;
NOW THEREFORE, in consideration of the sum of Ten Dollars ($10.00)in hand
paid by each party hereto to the other party hereto, and for and in
consideration of the foregoing recitals and the covenants and agreements set
forth and contained therein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the parties hereto,
the City and MCA/PACE do hereby covenant and agree as follows.
PARAGRAPH ONE
-------------
That a certain CITY/MCA AGREEMENT entered into by and between the City of
Atlanta, Georgia and MCA Concerts, Inc., as of October 10, 1988, as amended, be
further amended by deleting the words "Metropolitan Atlanta Community
<PAGE>
Foundation" where they appear in Section 4.11 of aforesaid Agreement, which
section is entitled "Benefits to Community," and inserting in lieu thereof the
words "Southern Education Foundation." When amended section 4.11 shall read as
follows:
4.11 Benefits to Community. In furtherance of, and to the extent consistent
---------------------
with the obligations of MCA under Section 3.4 of this Agreement, MCA
agrees: (a) to give preference consistent with the City's First Source Jobs
Policy Ordinance, throughout the Lease Term under the Sublease, to
individuals residing in the City of Atlanta for the purposes of employment
for MCA's operations at the Amphitheater Project, with MCA's specific goal
under this Section 4.11 being that at least seventy-five per cent (75%)of
MCA's employees for the Amphitheater Project will be residents of the City
of Atlanta; and (b) to conduct job fairs/skills workshops in conjunction
with the surrounding communities, the Southside Council for Jobs, and the
Atlanta Area Vocational/Technical School for purposes of (i) informing the
residents of the surrounding communities of the employment and subcontract
opportunities which may be available in connection with the development and
operation of the Amphitheater Project and (ii) facilitating the
qualification and application process for prospective Amphitheater Project
employees residing in the City of Atlanta. In connection with the first
season of MCA's operations at the Amphitheater Project, MCA shall conduct
at least three (3) such job fairs/skills workshops. MCA shall meet
periodically with duly appointed
<PAGE>
representatives of the surrounding communities in order to discuss the
development and implementation of the programs described in this Section
4.11 and in order to discuss other aspects of the development of the
Amphitheater Project. MCA shall contribute twenty-five cents (25c) to
the Southern Education Foundation for each ticket sold by MCA at the
Amphitheater Project during each calendar year in excess of 125,000 tickets
in such year, said proceeds to be distributed within communities impacted
by the development within a three (3) mile radius of the facility. During
the first year of MCA's operations at the Amphitheater Project, MCA shall
contribute $100,000.00 to such fund or association as an advance against
(and not in addition to) the contribution contemplated under the
immediately preceding sentence. MCA's performance under this Section 4.11
shall be monitored by the City's Office of Contract Compliance; and MCA
shall, on or before June 1st and December 1st of each year, shall submit
written reports to City's Office of Contract Compliance regarding such
performance. Furthermore, in the event that MCA has not achieved or is not
maintaining the seventy-five (75%) goal set forth in Section 4.1l(a) hereof
during operation of the Amphitheater Project, then MCA shall request and
utilize the assistance of the Office of Contract Compliance in achieving or
maintaining said goal. MCA shall, in good faith, facilitate the hiring of
resident subcontractors in connection with construction of the Amphitheater
Project. Without limiting MCA's liability for City ad valorem property
taxes relating to MCA's improvements at the Amphitheater Project, MCA also
agrees that MCA
<PAGE>
shall pay, or shall cause to be paid, any and all City ad valorem property
taxes properly and duly levied with respect to MCA's improvements at the
Amphitheater Project during a five (5) calendar year period commencing with
the first calendar year in which such taxes are so levied, regardless of
whether the operation of the Amphitheater Project is continuing during said
five (5) calendar year period or any portion thereof.
PARAGRAPH TWO
-------------
The CITY-MCA AGREEMENT, as expressly amended hereby, is reaffirmed and
restated herein by the undersigned. Said CITY-MCA AGREEMENT, as so amended, is
hereby incorporated herein by reference as though fully set forth in its
entirety in this Third Amendment.
IN WITNESS WHEREOF, the City and MCA/PACE, acting through their duly
authorized officers and representatives, have duly executed this 25th day of
May, 1994, under seal as of the day and year first above written.
MCA/PACE AMPHITHEATERS GROUP, L.P.
a Delaware limited partnership
By: MCA CONCERTS II, INC.,
- -- a California Corporation
[SEAL HERE]
BY: _____________________________
- -- Name: Name illegible
Title: C.F.O
ATTEST: _________________________
- ------
<PAGE>
Name:
Title
CITY OF ATLANTA
a municipal corporation+tion of the State of Georgia
/s/ Bill Campbell
----------------------------------
MAYOR BILL CAMPBELL
RECOMMENDED:
/s/
----------------------------------
CHIEF OPERATING OFFICER
/s/ /s/
---------------------------------- --------------------------
DIRECTOR, BUREAU OF PURCHASING CHIEF OF STAFF
& REAL ESTATE
APPROVED: APPROVED AS TO FORM:
/s/
------------------------------
CHIEF FINANCIAL OFFICER
ATTEST:
/s/ Olivia P. Woods /s/ Rosalind A. Rubens
--------------------------------- --------------------------
MUNICIPAL CLERK ASSISTANT CITY ATTORNEY
<PAGE>
CLERK OF COUNCIL
ATLANTA, GEORGIA
AN ORDINANCE
BY COUNCILMEMBERS DEBBY MCCARTY, DOZIER SMITH
AND MORRIS FINLEY
AN ORDINANCE TO AMEND AN ORDINANCE ADOPTED BY
COUNCIL ON OCTOBER 3, 1988 AND APPROVED BY THE
MAYOR ON OCTOBER 7, 1988 AUTHORIZING THE APPROVAL
OF A SUBLEASE OF A PORTION OF THE LAKEWOOD FAIR-
GROUNDS BY FILMWORKS U.S.A., INC. TO MCA CONCERTS,
INC. AND THE EXECUTION OF AN AGREEMENT BETWEEN THE
CITY OF ATLANTA AND MCA CONCERTS, INC. PERTAINING
TO THE CONSTRUCTION, DEVELOPMENT AND OPERATION OF
AN AMPHITHEATRE PROJECT, TRAFFIC IMPROVEMENTS, AND
OTHER RELATED FACILITIES, SO AS TO AMEND ARTICLE IV
SECTION 4.11 ENTITLED "BENEFITS TO COMMUNITY" TO
CHANGE THE RECIPIENT OF MCA'S CONTRIBUTION TO THE
COMMUNITY FROM THE METROPOLITAN ATLANTA COMMUNITY
FOUNDATION TO THE SOUTHERN EDUCATION FOUNDATION.
NOW, THEREFORE BE IT ORDAINED BY THE COUNCIL OF THE CITY OF ATLANTA,
GEORGIA as follows:
SECTION 1: That an ordinance adopted by Council on October 3, 1988 and
---------
approved by the Mayor on October 7, 1988 authorizing a sublease of a portion of
the Lakewood Fairgrounds by Filmworks U.S.A., Inc. to MCA Concerts, Inc. and the
execution of an agreement between the City of Atlanta and MCA Concerts, Inc.
pertaining to the construction, development and operation of an amphitheatre
project, traffic improvements, and other related facilities, is hereby amended
by deleting the words "Metropolitian Atlanta Community Foundation" in Article
IV, Section 4.11 entitled "Benefits to Community" and inserting in lieu thereof
the words "The Southern Education Foundation". When amended said section shall
read as attached hereto.
SECTION 2: That all ordinances and parts of ordinances in conflict
---------
herewith be and the same are hereby repealed.
a true copy,
/s/
Deputy Clerk, C.M.C
<PAGE>
EXHIBIT 10.51
FOURTH AMENDMENT TO AN AGREEMENT
DATED OCTOBER 10, 1988
BY AND BETWEEN
THE CITY OF ATLANTA
a municipal corporation ("City")
and
MCA CONCERTS, INC.,
a California corporation ("MCA")
Fourth Amendment
Dated March, 1993
Executed May 25, 1994
<PAGE>
FOURTH AMENDMENT TO AN AGREEMENT
BETWEEN THE CITY OF ATLANTA AND MCA CONCERTS, INC.
THIS FOURTH AMENDMENT is made and entered into as of the 25th day of May,
1994, by and between the CITY OF ATLANTA, a municipal corporation chartered
pursuant to the laws of the state of Georgia, Ga. Laws 1973, p. 2188, et seq.,
(hereinafter "CITY"), and MCA/PACE AMPHITHEATER GROUP, L.P. a Delaware limited
partnership, (hereinafter "MCA/PACE").
WHEREAS, the CITY and MCA CONCERTS, INC., a California Corporation,
(hereinafter "MCA"), entered into an Agreement dated October 10, 1988, relating
to an amphitheater to be constructed at Lakewood Fairgrounds (hereinafter
"CITY-MCA Agreement"); and
WHEREAS, by Assignment of Agreement dated June 15,1989, MCA assigned,
transferred and conveyed to MCA CONCERTS II, INC., a California corporation
(hereinafter "MCA II"), all of MCA's right, title and interest in, to and under
the CITY-MCA Agreement; and
WHEREAS, by Assignment of Agreement dated June 23, 1989, known as the First
Amendment MCA II assigned, transferred and conveyed to MCA/PACE all of MCA II's
right, title and interest in, to and under the CITY-MCA Agreement; and
WHEREAS, pursuant to a Second Agreement the name of the entertainment
facility operated by MCA/PACE at Lakewood Fairgrounds authorized by the City of
Atlanta became "The Coca Cola Lakewood Amphitheater; and
<PAGE>
WHEREAS, pursuant to a Third Amendment the agent for receipt of monetary
benefits to the community was changed from the Metropolitan Atlanta Community
Foundation to the Southern Education Foundation; and
WHEREAS, the community is now desirous of naming the Fund for Southern
Communities as the new fiscal agent under the City-MCA Agreement; and
WHEREAS, by a Resolution adopted by the Council of the City of Atlanta on
April 5, 1993 and approved by the Mayor on April 12, 1993 a copy of which is
attached hereto as Exhibit "A" to this Fourth Amendment to the CITY/MCA
Agreement, the terms of this Amendment have been properly approved by the
Legislative and Executive branches of City government; and
WHEREAS, the City of Atlanta and MCA/PACE are desirous of acknowledging and
incorporating the change in fiscal agent for the community fund from the
Southern Education Foundation to the Fund for Southern Communities into the
ClTY/MCA agreement; and
WHEREAS, MCA/PACE has agreed to the Fourth Amendment as evidenced by the
signature of their officers below;
2
<PAGE>
NOW THEREFORE, for and in consideration of the sum of Ten Dollars($10.00)
in hand paid by each party hereto the other party hereto and for and in
consideration of the foregoing recitals and the covenants and agreements set
forth and contained therein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by the patties hereto,
the CITY and MCA/PACE do hereby covenant and agree as follows:
PARAGRAPH ONE
-------------
That an Ordinance Adopted by Council on October 3, 1988 and Approved by the
Mayor on October 7, 1988 and an Ordinance Adopted by the City Council on July 5,
1989 and Approved by the Mayor on July 12, 1989 (known as the Third Amendment),
be hereby amended. That said THIRD amendment to the CITY/MCA agreement be
amended by deleting the words "Southern Education Foundation" each and every
place that phrase appears in Article IV, Section 4.11 entitled "Benefits to
Community" and substituting in lieu thereof the phrase "Fund for Southern
-----------------
Communities". When amended said section shall read as follows:
- -----------
4.11 Benefits to Community. In furtherance of, and to the extent
---------------------
consistent with the obligations of MCA under Section 3.4 of this Agreement, MCA
agrees: (a) to give preference consistent with the City's First Source Jobs
Policy Ordinance, throughout the Lease Term under the Sublease, to individuals
residing in the City of Atlanta for the purposes of employment for MCA's
operations at the Amphitheater Project, with MCA's specific goal under this
Section 4.11 (a) being that at least seventy-five per cent (75%)of MCA's
employees for the Amphitheater Project will be residents of the City of Atlanta;
and (b) to conduct job fairs/skills workshops in
3
<PAGE>
conjunction with the surrounding communities, the Southside Council for Jobs,
and the Atlanta Area Vocational/Technical School for purposes of (i) informing
the residents of the surrounding communities of the employment and subcontract
opportunities which may be available in connection with the development and
operation of the Amphitheater Project and (ii) facilitating the qualification
and application process for prospective Amphitheater Project employees residing
in the City of Atlanta. In connection with the first season of MCA's operations
at the Amphitheater Project, MCA shall conduct at least three (3) such job
fairs/skills workshops. MCA shall meet periodically with duly appointed
representatives of the surrounding communities in order to discuss the
development and implementation of the programs described in this Section 4.11
and in order to discuss other aspects of the development of the Amphitheater
Project. MCA shall contribute twenty-five cents (25c) to the Fund for Southern
-----------------
Communities for each ticket sold by MCA at the Amphitheater Project during each
- -----------
calendar year in excess of 125,000 tickets in such year, said proceeds to be
distributed within communities impacted by the development within a three (3)
mile radius of the facility. During the first year of MCA's operations at the
Amphitheater Project, MCA shall contribute $100,000.00 to such fund or
association as an advance against (and not in addition to) the contribution
contemplated under the immediately preceding sentence. MCA's performance under
this Section 4.11 shall be monitored by the City's Office of Contract
Compliance; and MCA shall, on or before June 1st and December 1st of each year,
shall submit written reports to City's Office of Contract Compliance regarding
such performance. Furthermore, in the event that MCA has not achieved or is not
maintaining the seventy-five (75%) goal set forth in Section 4.11(a) hereof
during operation of the Amphitheater Project, then MCA shall request and utilize
the assistance of the Office of Contract Compliance in achieving or maintaining
said goal. MCA shall, in good
4
<PAGE>
faith, facilitate the hiring of resident subcontractors in connection with
construction of the Amphitheater Project. Without limiting MCA's liability
for City ad valorem property taxes relating to MCA's improvements at the
Amphitheater Project, MCA also agrees that MCA shall pay, or shall cause to
be paid, any and all City ad valorem property taxes properly and duly
levied with respect to MCA's improvements at the Amphitheater Project
during a five (5) calendar year period commencing with the first calendar
year in which such taxes are so levied, regardless of whether the operation
of the Amphitheater Project is continuing during said five (5) calendar
year period or any portion thereof.
PARAGRAPH TWO
-------------
The CITY-MCA AGREEMENT, as expressly amended hereby, is reaffirmed and
restated herein by the undersigned. Said CITY-MCA AGREEMENT, as so amended, is
hereby incorporated herein by reference as though fully set forth in its
entirety in this Fourth Amendment.
IN WITNESS WHEREOF, the City and MCA/PACE, acting through their duly
authorized officers and representatives, have duly executed this 25th day of
May, 1994, under seal as of the day and year first above written.
MCA/PACE AMPHITHEATERS GROUP, L.P.
a Delaware limited partnership
By: MCA CONCERTS II, INC.,
- -- a California Corporation
5
<PAGE>
By: /s/ John Van Zeebroeck
- --- ----------------------------
Name: John Van Zeebroeck
Title: C.F.O.
ATTEST:
- ------- --------------------- SEAL HERE
Name:
Title
CITY OF ATLANTA
a municipal corporation of the State of Georgia
/s/ Bill Campbell
- ---------------------------
MAYOR BILL CAMPBELL
RECOMMENDED:
/s/ illegible
- ---------------------------
CHIEF OPERATING OFFICER
/s/ illegible /s/ illegible
- ------------------------------ ---------------------------
DIRECTOR, BUREAU OF PURCHASING CHIEF OF STAFF
& REAL ESTATE
6
<PAGE>
APPROVED: APPROVED AS TO FORM:
/s/ ILLEGIBLE
- --------------------------
CHIEF FINANCIAL OFFICER
ATTEST:
/s/ Rosalind A. Rubens
-----------------------
ASSISTANT CITY ATTORNEY
/s/ Olivia P. Woods
- --------------------------
MUNICIPAL CLERK
7
<PAGE>
MUNICIPAL CLERK
ATLANTA, GEORGIA
1
A SUBSTITUTE ORDINANCE
BY FINANCE COMMITTEE
AN ORDINANCE TO AMEND AN ORDINANCE ADOPTED BY
COUNCIL ON OCTOBER 3, 1988 AND APPROVED BY THE MAYOR
ON OCTOBER 7, 1988 AUTHORIZING THE APPROVAL OF A
SUBLEASE OF A PORTION OF THE LAKEWOOD FAIRGROUNDS
BY FILMWORKS U.S.A., INC. TO MCA CONCERTS, INC. AND THE
EXECUTION OF AN AGREEMENT BETWEEN THE CITY OF
ATLANTA AND MCA CONCERTS, INC. PERTAINING TO THE
CONSTRUCTION, DEVELOPMENT, AND OPERATION OF AN
AMPHITHEATER PROJECT, TRAFFIC IMPROVEMENTS, AND
OTHER RELATED FACILITIES, TO AMEND ARTlCLE IV, SECTION
4.11 ENTITLED "BENEFITS TO COMMUNITY" TO CHANGE THE
RECIPIENT OF MCA'S CONTRIBUTION TO THE COMMUNITY
FROM THE SOUTHERN EDUCATION FOUNDATION TO THE FUND
FOR SOUTHERN COMMUNITIES; TO REPEAL CONFLICTING
ORDINANCES; AND FOR OTHER PURPOSES.
WHEREAS, an ordinance adopted by Council on October 3, 1988 and
approved by the Mayor on October 7, 1988 authorized the approval of a sublease
of a portion of the Lakewood Fairgrounds by Filmworks U.S.A., Inc. to MCA
Concerts, Inc. and the execution of an agreement between the City of Atlanta and
MCA Concerts, Inc. pertaining to the construction, development and operation of
an amphitheater project, traffic improvements, and other related facilities; and
WHEREAS, under the Agreement entered into between the City of
Atlanta and MCA Concerts, Inc. a portion of tickets sales are to be distributed
for the benefit of communities near the Lakewood Amphitheater; and
WHEREAS, pursuant to an Ordinance Adopted by the City Council on
July 5, 1989 and Approved by the Mayor on July 12, 1989, the Mayor was
authorized to enter into a Third Amendment
<PAGE>
2
to the City-MCA Agreement to designate the Southern Education Foundation as the
recipient of MCA's contribution to the Lakewood Community; and
WHEREAS, the MCA Oversight Community and the Lakewood Amphitheater
Community Finance Committee, who represent the Lakewood community, and the
Southern Education Foundation have determined that the existing arrangement is
unacceptable to all parties; and
WHEREAS, the MCA Oversight Community and the Fund for Southern
Communities have come to a mutual agreement for the Fund for Southern
Communities to accept and administer funds, which represent MCA'S contribution
to the community, for the Lakewood Amphitheater Community Finance Committee; and
NOW THEREFORE BE AND THE SAME IS HEREBY ORDAINED BY THE COUNCIL OF
THE CITY OF ATLANTA, GEORGIA as follows:
SECTION ONE: That an Ordinance Adopted by Council on October 3, 1988 and
- -----------
Approved by the Mayor on October 7, 1988 and an Ordinance Adopted by the City
Council on July 5, 1989 and Approved by the Mayor on July 12, 1989, be hereby
amended to authorize a fourth amendment of the executed of Agreement between MCA
Concerts, Inc. and the City of Atlanta.
SECTION TWO: That said third amendment to the MCA Concerts, Inc. / City of
- -----------
Atlanta agreement be amended by deleting the words "Southern Education
Foundation" each and every place
<PAGE>
3
that phrase appears in Article IV, Section 4.11 entitled "Benefits to
Community" and substituting in lieu thereof the phrase "Fund for Southern
Communities". When amended said seection shall read as follows:
4.11 Benefits to Community. In furtherance of, and to the extent
---------------------
consistent with the obligations of MCA under Section 3.4 of this
Agreement MCA agrees: (a) to give preference consistent with the
City's First Source Jobs Policy Ordinance, throughout the Lease Term
under the Sublease, to individuals residing in the City of Atlanta
for the purposes of employment for MCA's operations at the
Amphitheater Project, with MCA's specific goal under this Section
4.11 (a) being that at least seventy-five per cent (75%)of MCA's
employees for the Amphitheater Project will be residents of the City
of Atlanta; and (b) to conduct job fairs/skills workshops in
conjunction with the surrounding communities, the Southside Council
for Jobs, and the Atlanta Area Vocational/Technical School for
purposes of (i) informing the residents of the surrounding
communities of the employment and subcontract opportunities which
may be available in connection with the development and operation of
the Amphitheater Project and (ii) facilitating the qualification and
application process for prospective Amphitheater Project employees
residing in the City of Atlanta. In connection with the first season
of MCA's operations at the Amphitheater Project, MCA shall conduct
at least three (3) such job fairs/skills workshops. MCA shall meet
periodically with duly appointed representatives of the surrounding
communities in order to discuss the development and implementation
of the programs described in this Section 4.11 and in order to
discuss other aspects of the development of the Amphitheater
Project. MCA shall contribute twenty-five cents (25c) to the Fund
----
for Southern Communities for each
------------------------
<PAGE>
4
ticket sold by MCA at the Amphitheater Project during each calendar year in
excess of 125,000 tickets in such year, said proceeds to be distributed within
communities impacted by the development within a three (3) mile radius of the
facility. During the first year of MCA's operations at the Amphitheater
Project, MCA shall contribute $100,000.00 to such fund or association as an
advance against (and not in addition to) the contribution contemplated under the
immediately preceding sentence. MCA's performance under this Section 4.11 shall
be monitored by the City's Office of Contract Compliance; and MCA shall, on or
before June 1st and December 1st of each year, shall submit written reports to
City's Office of Contract Compliance regarding such performance. Furthermore, in
the event that MCA has not achieved or is not maintaining the seventy-five (75%)
goal set forth in Section 4.11(a) hereof during operation of the Amphitheater
Project, then MCA shall request and utilize the assistance of the Office of
Contract Compliance in achieving or maintaining said goal. MCA shall, in good
faith, facilitate the hiring of resident subcontractors in connection with
construction of the Amphitheater Project. Without limiting MCA's liability
for City ad valorem property taxes relating to MCA's improvements at the
Amphitheater Project, MCA also agrees that MCA shall pay, or shall cause to be
paid, any and all City ad valorem property taxes properly and duly levied with
respect to MCA's improvements at the Amphitheater Project during a five
(5) calendar year period commencing with the first calendar year in which such
taxes are so levied, regardless of whether the operation of the Amphitheater
Project is continuing during said five (5) calendar year period or any potion
thereof.
<PAGE>
5
SECTION THREE: That the City Attorney be directed to prepare the necessary
- -------------
Fourth Amendment to effect the terms of this ordinance, and that the Mayor be
authorized to enter into said Fourth Amendment.
SECTION FOUR: That all ordinances or parts of ordinances in conflict herewith
- ------------
are hereby repealed.
93-0________
March 17, 1993
A true copy,
/s/ Olivia P. Woods
Municipal Clerk C.M.C.
<PAGE>
EXHIBIT 10.54
REAL PROPERTY PURCHASE AGREEMENT
- --------------------------------
This Agreement is made and entered into as of October , 1993, by and between
Champs de Brionne Winery Associates, a Washington Limited Partnership
("Champs"), Summer Music Theater, Inc., a Washington Corporation ("SMT"),
Vincent E. Bryan, Jr. and Carol A. Bryan (the "Bryans") (Champs, SMT and the
Bryans are hereinafter collectively referred to as the "Sellers"), and MCA
Concerts, Inc. ("Buyer").
RECITALS
- --------
A. Sellers are the owner of approximately 110-135 acres including,
surrounding, and/or adjacent to an amphitheatre located in County of Grant,
State of Washington.
B. Sellers, Summer Music Theatre, Inc. ("SMT"), Amphitheatre Services, Inc.
("ASI") and Buyer have entered into an Agreement dated April 14, 1993 (the
"Prior Agreement"), pursuant to which (i) Buyer agreed with Sellers, SMT and ASI
to lease a portion of the real property referred to in Recital A above for the
1993 Season (as such term is used in the Prior Agreement), and (ii) Buyer agreed
with Sellers to negotiate in good faith for the purchase of 100-115 acres
described on Exhibit A of the Prior Agreement and related assets in accordance
with certain specified terms.
C. Buyer desires to purchase the foregoing real property and related assets
and Sellers desire to sell such property and assets on the terms and
conditions contained in this Agreement.
AGREEMENT
- ---------
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, Buyer and Sellers agree as follows:
1. PURCHASE AND SALE
------------------
1.1 Agreement to Buy and Sell. Subject to all of the terms and
-------------------------
conditions of this Agreement, Sellers agree to sell and convey to Buyer and
Buyer agrees to acquire and purchase from Sellers the following (all of which
are collectively called the "Property" in this Agreement):
--------
1.1.1. That certain real property located in County of Grant,
State of Washington, described on "Exhibit A-1" attached hereto, plus that
-----------
additional parcel comprising the northerly 160
1
<PAGE>
feet of that certain real property located in County of Grant, State of
Washington, described on "Exhibit A-2" attached hereto, including all minerals,
-----------
oil, gas and other hydrocarbon substances thereon, allocated water rights on
Farm Unit 17 and on the remainder of the Land (subject to the Adjacent Owner
Agreements referred to in Section 4.9), air rights, all development rights
relating thereto, and any easements, rights-of-way, or other rights appurtenant
thereto or used in conjunction therewith (collectively, the "Land") except as
----
disclosed in the PTR (defined below).
1.1.2. All improvements, structures and fixtures (other than
those listed on the attached Schedule of Improvements as excluded) now or at the
Closing located on the Land (collectively, the "Improvements"), subject to all
------------
claims (as defined below) by ASC (as defined below). Without derogating from
the generality of the foregoing, the Improvements include each of the
improvements, structures and fixtures specifically designated on the Schedule of
Improvements (and such others, if any, as are not listed on said Schedule as
being excluded) but exclude those specific improvements, structures and fixtures
as are designated on the aforementioned Schedule as being excluded.
1.1.3. All tangible personal property of Sellers listed on the
attached Schedule of Personal Property (collectively, the "Personal Property").
1.1.4. All intangible property (the "Intangible Property") now
-------------------
or at the Closing owned or held by any Seller or Related Party in connection
with the Land or the Personal Property, all other leases, contracts, contract
rights, building and trade names, transferable business licenses, permits,
applications, authorizations and other entitlements, transferable warranties
covering the Property or the construction or fabrication thereof and all
transferable utility contracts and telephone exchange numbers. There is excluded
from Intangible Property those items listed on the attached Schedule of Excluded
Intangible Property. A "Related Party" is (a) any partner or employee of any
Seller or of any partner of any Seller, (b) any corporation, partnership, trust
or other entity in which any Seller or any individual or entity named in clause
(a) above owns, directly or indirectly, an ownership interest and (c) any
parent, brother, sister or descendant of any Seller.
1.2. Purchase Price. The purchase price ("Purchase Price") of the
--------------
Property shall be the sum of Four Million Six Hundred Forty-Two Thousand Dollars
($4,642,000).
1.3. Payment of Purchase Price. The Purchase Price shall be payable as
-------------------------
follows:
2
<PAGE>
1.3.1. Concurrently with the execution of this Agreement by
Seller, Buyer shall pay to Seller the sum of Fifty Thousand Dollars ($50,000.00)
which payment shall apply to the Purchase Price in the event Closing occurs on
or before October 31, 1993 and which payment constitutes prepayment to Sellers
of the agreed amount of liquidated damages in the event this transaction does
not close on or before October 31, 1993 due to Buyer's default, and Buyer shall
also deposit into Escrow (as defined below) the sum of One Hundred Fifty
Thousand Dollars ($150,000) (the "Second Deposit"). Escrow Holder
--------------
(as defined below) shall deposit the Second Deposit into an interest-bearing
account, pending disbursement of the Second Deposit in accordance with the
terms of this Agreement. The parties acknowledge that Buyer already has
delivered to Sellers the sum of Two Hundred Twenty Thousand Dollars ($220,000)
(the "Prior Payment"), and that Eighty Three Thousand Six Hundred Ninety Six
-------------
and 72/100 Dollars ($83,696.72) of such amount (the "First Deposit") was
-------------
deposited by Buyer into Escrow pursuant to Section 2 of the Prior Agreement.
The Prior Payment and the Second Deposit, and all interest earned on the Second
Deposit in the escrow account, shall be credited to the Purchase Price at
Closing (i. e. to Buyer's account). Additionally, the First Deposit and all
interest earned on the First Deposit, to the extent any portion thereof remains
after the payment of those obligations specified in the escrow instructions
delivered pursuant to the Prior Agreement, as well as the Second Deposit, shall
be delivered to Sellers together with the balance of the Purchase Price at
Closing.
In the event that Escrow fails to close for any reason Sellers shall retain the
Prior Payment and any interest accrued on the First Deposit and such sum shall
be the consideration for the execution by Sellers, SMT and AS1 of the Prior
Agreement and Sellers' leasing of the Lease Property (as defined in the Prior
Agreement) to Buyer for the 1993 Season.
The parties acknowledge and agree that the $50,000.00 payment concurrently made
to Sellers by Buyer constitutes the liquidated damages payable to Seller and
that the entire Second Deposit and any interest thereon shall be immediately
disbursed to Buyer by Escrow, in the event that Escrow fails to close for any
reason.
Notwithstanding anything to the contrary, each party shall bear half the
Escrow Holder's charges, and each party shall also bear such additional costs
and charges as are customarily borne by a purchaser or seller (as the case may
be) in unclosed transactions in accordance with common escrow practices in the
State of Washington.
1.3.2. At the Closing, Buyer shall deposit in immediately
available funds the additional sum of One Million Six Hundred Forty-Seven
Thousand Dollars ($1,647,000) into Escrow, less
3
<PAGE>
or plus the anticipated net debit or credit to Buyer by reason of the interest
earned in escrow, pro rations, and allocation of closing costs set forth below.
1.3.3. At Closing, the remaining Two Million Five Hundred
Seventy Five Thousand Dollars ($2,575,000) of the Purchase Price will be
evidenced and paid in accordance with the terms of a fully executed and
secured promissory note (the "Purchase Money Note") in the form of "Exhibit B"
------------------- ---------
attached hereto. The Purchase Money Note shall be non-recourse and shall be
secured by one or more fully executed deeds of trust covering the Property in
the form of "Exhibit C" attached hereto. The Purchase Price Note and the deeds
of trust shall provide that if Buyer or any successor loses title to the
Property by reason of the foreclosure of the deeds of trust or the completion of
a trustee's sale pursuant to the power of sale under the deeds of trust, the
restrictive covenants referred to in Section 1.4 shall thereafter cease to have
any force or effect.
1.3.4. Allocation of Purchase Price. The Purchase Price shall
----------------------------
be allocated for all purposes by the parties as follows:
Bryans Property:
Land and Improvements ---------$2,503,430.00
Personal Property ------------------5,000.00
Goodwill -------------------------600,000.00
Imputed Interest (at 5.84%
assuming a closing during
October, 1993)------------------939,570.00
SMT Property:
Land and Improvements ------------121,050.00
Goodwill --------------------------28,950.00
Champs Property
Land and Improvements-------------359,105.00
Goodwill --------------------------85,895.00
Total-----------------------------------------$4,642,00
Buyer and Sellers shall report the sale and purchase of the
Property for all federal, state, local and foreign tax purposes in a manner
consistent with the allocation set forth in this Section 1.3.4.
1.4. Restrictive Covenants.
---------------------
1.4.1. Attached as "Exhibit D" is a restrictive covenant to be
executed by Sellers and Related Parties and Buyer and delivered to Escrow Holder
for recording on the Closing.
1.4.2. After Closing Sellers shall be entitled to 8
complimentary seats in locations designated from time to time by Buyer. Said
reserved seats shall be located in the center of the
4
<PAGE>
center section - Sellers request row 10 (if there are no reserved seats to be
issued for a particular concert, the Sellers' shall be entitled, to 8 general
admission tickets) for each event at the amphitheatre. Sellers' rights under
this Section 1.4.2 shall expire when the Purchase Price referred to in Section
1.3.3 has been paid in full. Sellers' tickets will be available to be picked up
at Buyer's primary ticket outlet within the greater Seattle area within the
first 5 days following the public announcement of the availability of tickets.
2. OPENING OF ESCROW
-----------------
2.1. Escrow; Escrow Holder. In connection with the execution of this
---------------------
Agreement, an escrow account (the "Escrow") will be opened by Sellers and Buyer
with Chicago Title in Seattle Washington, Attention: Scott Smouse ("Escrow
Holder").
2.2. Escrow Instructions. The terms and conditions set forth in this
-------------------
Agreement shall constitute both an agreement between Buyer and Sellers and
escrow instructions for the Escrow Holder. Buyer and Sellers shall promptly
execute and deliver to Escrow Holder any additional escrow instructions
requested by Escrow Holder which are consistent with the terms of
this Agreement and the previously delivered Escrow Instructions. This Agreement
shall not modify or amend the provisions of the previously delivered Escrow
Instructions to Stanley E. P. S., Escrow Department, nor shall any
additional instructions modify or amend the provisions of this Agreement or the
previously delivered (to Mr. Stone) Escrow Instructions, unless otherwise
expressly set forth by mutual consent of Buyer and Sellers.
A separate escrow to effectuate this Agreement (without terminating the
escrow relating to the First Deposit) will be established at the Seattle office
of Chicago Title, with the Escrow Holder to collect and disburse the cash
portion of the purchase price pursuant to instructions approved by Buyer and
Sellers each acting reasonably. As used in this Agreement, "Escrow Date" means
-----------
the date of delivery of a fully executed (by all parties) copy, or counterparts,
of this Agreement to Escrow Holder (and if counterparts are received on
different dates, Escrow Date shall not occur until the counterpart bearing the
-----------
last signature has been delivered to Escrow Holder) and acceptance of this
Agreement by Escrow Holder, but in any case no later than October 13, 1993. As
used in this Agreement, "Closing" means the recordation of the "Statutory
------- ---------
Warranty Deed" (as defined below) (which deed is sometimes referred to in this
- -------------
Agreement as "Warranty Deed") in the official records of County of Grant,
Washington.
2.3. Investment of Deposits. Any sums deposited into Escrow by Buyer
----------------------
prior to Closing, and any interest thereon, shall
5
<PAGE>
be placed in an interest-bearing account or invested in interest-bearing
securities by Escrow Holder.
2.4. Closing Date. The Closing shall be held on a date set
------------
by Buyer, which shall be within 30 days after all conditions to the Close of
Escrow have been satisfied, but in no event later than October 31, 1993, subject
to Buyer's right to extend such date to a date not later than December 20,
1993. Buyer shall provide Sellers with at least 5 days prior written notice of
the Closing Date (the "Closing Date"). Notwithstanding the foregoing, Sellers
------------
may postpone the Closing Date for any number of days up to 15 days following the
date designated by Buyer by giving Buyer notice of such postponed date within 5
days after Buyer gave Sellers the notice of the Closing Date designated by
Buyer, and if Sellers do postpone the Closing Date, the time limitations
specified in the prior sentence shall be extended accordingly, provided, however
Sellers may not extend the Closing Date [illegible] Buyers agreement with ASC is
similarly extended.
Buyer may extend the Closing Date from October 3l, 1993 to a date not
later than November 20, 1993 by giving written notice to Seller and to Escrow
Holder on or before October 31, 1993: provided, however, upon Buyer giving such
notice the sum of Fifty Thousand Dollars ($50,000.00) paid to Seller shall no
longer be applicable to the Purchase Price and shall remain as a payment of
liquidated damages in the event the transaction does not thereafter close by
reason of Buyer's default.
Buyer may further extend the Closing Date to a date not later than
December 20, 1993 by giving written notice to Seller and by concurrently paying
Seller the sum of Fifty Thousand Dollars ($50,000.000) which sum shall not be
applicable to the Purchase Price and shall remain as a payment of additional
liquidated damages in the event the transaction does not thereafter close by
reason of Buyer's default.
3. ACTIONS PENDING CLOSING
-----------------------
3.1. Delivers by Sellers. Sellers shall as soon after the Escrow Date as is
-------------------
reasonably possible but in any event, not later than the Date which is 20 days
after the date of Buyer's and Sellers' execution of this Agreement, deliver to
Buyer the following:
3.1.1. A preliminary title report issued by SECURITY TITLE GUARANTY, INC.
("Title Company") showing the condition of title to the Property, accompanied by
-------------
copies of all documents referred to therein (collectively, the "PTR").
---
3.1.2. Copies of the most recent property tax bills for the Property.
6
<PAGE>
3.1.3. A schedule (the "Schedule of Existing Contracts")listing and
------------------------------
describing all existing leases, management, leasing and sale brokerage,
concession, service, supply and maintenance agreements and equipment leases
(collectively, the "Existing Contracts") with respect to or affecting the
------------------
Property, together with true, correct and complete copies of all of the Existing
Contracts.
3.1.4. A schedule (the "Schedule of Easements") listing and
---------------------
describing all privileges, easements, rights of way, access, ingress and egress,
and any other rights appurtenant to the Property or used by Sellers or its
lessess in conjunction with the business currently being operated on the Land
(collectively, the "Easements"), together with true, correct and complete copies
of all documentation evidencing the foregoing, if any.
3.2. Title
-----
3.2.1. Buyer's Review of Title. Buyer, has caused a survey performed
-----------------------
by Huibregtse, Louman Associates, Inc. as Job No. 93064 dated September 27, 1993
(the "Survey") of the Land to be prepared and delivered to Title Company and
------
Sellers. The parties have approved the Survey, subject to revision to add the
parcel consisting northerly 160 feet of the property described on "Exhibit A-2".
-----------
The Survey shall meet the Title Company's requirements for the issuance of the
"Owner's Policy" (as defined in Section 4.2). As soon as the Survey has been
delivered to the Title Company, at Buyer's request Sellers shall cause the Title
Company to issue a supplement (the "Supplement")to the PTR, showing such
----------
additional matters which the Title Company would take exception to if it were
issuing the Owner's Policy to Buyer on the date the Supplement is issued
together with copies of all documents (not previously furnished) referred to in
the Supplement. With respect to any exceptions to title or other matters shown
on the PTR, Survey or Supplement, Buyer may, on or before the date which is 7
days from the date Buyer received the Supplement and copies of the documents
described in the prior sentence disapprove by notice to Sellers any such
exceptions ("Disapproved Exceptions"). Buyer's failure to provide such notice
----------------------
on or before such date shall constitute approval of the condition of title as
shown oh the PTR, Survey and Supplement. Within 7 days following Seller's
receipt of Buyer's notice of such disapproval, Sellers shall notify Buyer in
writing that: Sellers have removed such Disapproved Exceptions from title;
Sellers are covenanting to do so as of or before Closing; or Sellers will not
remove specified Disapproved Exceptions. If a Disapproved Exception is of the
type described in the last sentence of this Section 3.2.1, or if Sellers
otherwise covenant to remove any Disapproved Exceptions, such removal shall be
coordinated by Escrow Holder as a condition (waivable by Buyer) of Closing and
Buyer's obligations hereunder, and failure to effect such removal shall be a
breach by Sellers of this Agreement, unless
7
<PAGE>
arising out of the negligence of Escrow Holder. Notwithstanding the foregoing,
if Escrow Holder needs additional time to remove a Disapproved Exception, no
breach by Sellers shall result (but the agreed Closing Date shall be postponed
for the length of time required by Escrow Holder after the agreed Closing Date
plus 7 additional days).
The 2nd day after delivery to Buyer of Seller's aforementioned notice as to
whether Sellers have removed, or will or will not remove, a Disapproved
Exception is called the "Title Decision Date" in this Agreement. If Sellers do
-------------------
not remove or covenant to remove any such Disapproved Exception, Buyer shall
have the option to terminate this Agreement on or before the Title Decision Date
or to waive its objection to the Disapproved Exception in question, and proceed
to closing of the Escrow, in which case Sellers shall have no obligation to
remove the Disapproved from title.
If Buyer elects to terminate this Agreement, the provisions of Section 3.4 shall
apply. The exceptions to title shown by the PTR, Survey and Supplement (except
the Disapproved Exceptions Sellers remove or covenant to remove), the Adjacent
Owner Agreements referred to in Section 4.9, the Easements referred to in
Section 3.1.4, the Existing Contracts referred to in Section 3.1.3, and any ASC
claims are called the "Permitted Exceptions" in this Agreement. For purposes of
--------------------
this Agreement, "ASC" shall mean Kenneth E. Kinnear, John E. Bauer, Debbie
Bauer, Bauer-Kinnear Enterprises, Inc., Media One, Inc., Facility Sales
Management, Inc. and Arena Services Corporation, individually and collectively.
Notwithstanding the foregoing, Sellers in coordination with Escrow Holder shall
in any event be required to discharge and remove any and all liens affecting the
Property which secure an obligation to pay money (other than installments of
real estate taxes not delinquent as of the Closing) and at Closing cause the
removal of any exceptions which can be eliminated by payment and, even though
Buyer does not disapprove those liens and exceptions, they will not be Permitted
Exceptions.
3.2.2. Conditions of Title at Closing. Upon the Closing, Sellers shall
------------------------------
convey to Buyer good and marketable fee simple title to the Land and
Improvements and by a duly executed and acknowledged statutory warranty deed of
the Land in form and content acceptable to Buyer and Sellers acting reasonably
(the "Statutory Warranty Deed"), subject only to the Permitted Exceptions. Upon
-----------------------
the Closing, Sellers shall convey to Buyer good and marketable title to the
Personal Property and the Intangible Property by a duly executed bill of sale
and assignment of the Personal Property and the Intangible Property in form and
content acceptable to Buyer and Sellers acting reasonably (the "Bill of Sale"),
------------
free and clear of any and all liens, encumbrances, security interests, pledges,
hypothecations or other rights or claims to or
8
<PAGE>
by any third party, except (i) any and all of those claims by ASC and (ii) any
claims by McCormick & Schmick arising out of any Buyer's acts or omissions
during the 1993 Season (but not including any claims by McCormick & Schmick
relating to prior periods or relating to any period after the Closing, including
without limitation any claim arising out of the cancellation of the McCormick &
Schmick Concession Service Contract dated July 11, 1990). If title to the
Property would not, but for this sentence, be in the condition called for by
this Agreement on the Closing Date, then Escrow Agent shall use the funds
otherwise payable by Buyer hereunder to cause title on the closing Date to be in
such condition.
3.3. Sellers represents that there are no agreements or contracts which
Buyer would not be free, without liability, to terminate upon acquiring title
to the Property, except for the Concession Service Contract dated July 11, 1990,
which will be terminated on or before the Closing Date at no cost to Buyer
except as provided for in this paragraph, and the updated Service Agreement with
Waste Management of Ellensburg which has a three (3) year term beginning June 8,
1992. At Closing, Buyer agrees to deposit with Escrow Holder the sum of Fifty
Thousand Dollars ($50,000.00)to be disbursed by Escrow Holder as a portion of
the consideration Seller has agreed to pay in order to terminate the said
Concession Service Contract. Escrow Holder is directed to send to McCormick &
Schmick Concession Services, Inc. the said $50,000 along with the additional
consideration provided for in a Termination Agreement to be provided to Escrow
Holder by Sellers.
3.4. Termination By Buyer. If Buyer elects to terminate this Agreement in
--------------------
accordance with Article 3, then, on or before the Title Decision Date, Buyer
shall give Sellers and Escrow Holder written notice that Buyer elects to
terminate this Agreement. Said notice shall list Buyer's reason(s) for
termination. Buyer's failure to provide such notice by the specified deadline
shall constitute Buyer's waiver of Buyer's right to terminate this Agreement for
the reasons for which that deadline applies. Upon such termination of this
Agreement, Buyer shall return to Sellers all items provided by Sellers (and all
copies, duplications or other record thereof) referred to in this Agreement and
Escrow Holder will promptly proceed pursuant to Section 1.3.1 upon receipt of
the Buyer's notice of termination.
3.5. Operation of the Property. Until the Closing, Sellers shall operate
-------------------------
and manage the Property in substantially the same manner as on the date of this
Agreement and shall maintain the Property in good condition and repair, subject
to the provisions of Section 3 of the Prior Agreement relating to the leasing of
the Property to Buyer. Notwithstanding the foregoing, Sellers shall not be
responsible for any failure of Buyer to comply with Buyer's obligation under the
Prior Agreement. Until the closing, unless
9
<PAGE>
Buyer's prior written consent is first obtained, Sellers shall not (i)enter into
any other lease, concession agreement or license agreement affecting the
Property or any portion thereof or any renewals or amendments to any of the same
nor any other contract or agreement with respect to the Property which is not
cancelable without advance notice without cost or expense to Buyer, or (ii)
offer to sell the Property, advertise or market the Property or solicit offers
to purchase the Property. Nothing contained above in this Section 3.5 derogates
from Buyer's rights under the Prior Agreement.
4. CONDITIONS TO CLOSING
---------------------
In addition to the conditions provided elsewhere in this Agreement, the
Closing and Buyer's or Sellers', as the case may be, obligation to perform
hereunder are conditioned upon the fulfillment of each and all of the following,
any of which conditions the party for whose benefit the condition was included
in this Agreement may waive in whole or in part (Sellers acknowledging that the
conditions specified in Sections 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, and 4.8 are for
the sole benefit of Buyer).
4.1. Due Performance. Due performance by Sellers and Buyers of all of their
---------------
respective obligations hereunder and the truthfulness of each representation and
warranty contained in Section 5 or any other part of this Agreement at the time
the same is made and as of the Closing.
4.2. Owner's Policy. The commitment and ability of Title Company to issue
--------------
the "Owner's Policy" to Buyer, dated as of the date and time of the Closing.
"Owner's Policy" means Title Company's ALTA Owner's Extended Coverage Policy of
--------------
Title Insurance, without general exceptions (except with respect to water rights
and except that an exception relating to U.S. patents shall be included as a
special exception subject to Buyer's right to request an endorsement protecting
against loss or damage), in the full amount of the Purchase Price, insuring fee
simple title to the Land and all access, ingress and egress, and utility
easements and rights of way conveyed to Buyer hereunder as vested in Buyer,
subject only to installments of real estate taxes not delinquent and the
Permitted Exceptions. Sellers have agreed to pay for the cost of the Title
Company's ALTA Owner's Standard Coverage Policy and Buyer has agreed to pay for
the difference in cost for the Extended Owner's Policy and for any additional
coverage requested by Buyer. Sellers shall be entitled at its expense to request
from Title Company a standard mortgage policy covering the Deed of Trust
securing the Purchase Money Note.
4.3. Moratoriums. That no moratorium, statute, regulation, ordinance, or
-----------
federal, state, county or local legislation, or order, judgment, ruling or
decree of any governmental agency or of
10
<PAGE>
any court is enacted, adopted, issued, or entered which would materially and
adversely affect Buyer's use of the Property for "contemporary music" concerts
as were conducted in 1992, unless arising out of Buyer's activities pursuant to
the Prior Agreement.
4.4. Damage or Destruction. The risk of any loss, damage or destruction
---------------------
to any of the Property from fire, wind, flooding, or other natural disaster
shall be borne by Sellers at all times prior to the Closing, except to the
extent Buyer is responsible under Section 3.9 of the Prior Agreement. If damage
to or destruction of the Property or any portion of the Property shall occur
prior to Closing (and such damage or destruction is not the responsibility of
Buyer under Section 3.9 of the Prior Agreement), then at Buyer's election either
(i) all insurance proceeds payable by reason of such damage or destruction shall
be assigned to and paid to Buyer, or (ii) Sellers shall be entitled to use such
insurance proceeds and shall otherwise at Sellers' sole cost and expense cause
such damage or destruction to be repaired as soon as possible.
4.5. Condemnation. That no condemnation or eminent domain action shall
------------
have been commenced or to either party's knowledge (supported by a writing from
a government agency) be contemplated by a government agency to acquire the
Property or any portion thereof. If Buyer waives this condition and a Closing
occurs following any condemnation or eminent domain action has been commenced or
contemplated, Buyer shall be entitled to the entire condemnation award made with
respect to the Property, less the amount still remaining on the Purchase Price
Note, which shall immediately be paid to Sellers and credited to the earliest
payment[s] due under said note, and if the award also includes compensation for
property beyond the Property, Buyer's share shall be as allocated by the
condemning authority, and in the absence of such an allocation, as determined by
court.
4.6. Bankruptcy. That no action or proceeding shall have been commenced
----------
against any of the Sellers under the federal bankruptcy code or any state law
for the relief of debtors or for the enforcement of the rights of creditors.
That no attachment, execution, lien or levy shall have attached to or been
issued with respect to the Property or any portion thereof, that cannot be (or
is not) cured at Closing.
4.7. Non-Foreign Affidavit. That each of the Sellers shall have delivered
---------------------
to Escrow Holder, for delivery to Buyer, an affidavit or qualifying statement
satisfying the requirements of Section 1445 of the Internal Revenue Code of
1986, as amended, and the regulations thereunder (the "Non-Foreign Affidavit").
---------------------
4.8. Buyer's Purchase of Assets from ASC. That the purchase by Buyer of
-----------------------------------
certain businesses and real property from ASC
11
<PAGE>
has successfully closed on or prior to November 20, 1993, or Buyer has elected
to waive this condition in which event Buyer shall be obligated to deliver the
indemnity and hold harmless agreement referred to in Section 6.4.4.
4.9. Adjacent Owner Agreements. Execution of the agreements between Buyer
-------------------------
and Seller pertaining to easements and other agreements applicable to the
Property and to other property of Seller, all of which are to be executed in
recordable form in substantially the form of the agreements attached hereto as
Exhibits F-1 through F-12. Upon Closing, Escrow Holder is directed to record the
same in the Grant County Auditor's Office.
4.10. Corporate Existence. A certificate submitted by Buyer to the Title
-------------------
Company (in form required by the Title Company) verifying that Buyer has a legal
corporate existence in Washington State such that it can contract for and take
title to the Property in the name of MCA Concerts, Inc..
4.11. Buyer's Performance. Buyer shall have performed and complied with
-------------------
all material terms', covenants and conditions of this Agreement that are
required to be performed or complied with by it on or before the Closing Date
and deliver to Sellers through Escrow Holder the following:
(a) Cash in the amount of Two Million Sixty-Seven Thousand Dollars
($2,067,000) adjusted as provided in Section 3.1.1 plus the additional sum of
Fifty Thousand Dollars ($50,000.00) as provided in Section 3.3.
(b) Buyer's Purchase Money Note in the amount of Two Million Five Hundred
Seventy Five Thousand Dollars ($2,575,000), together with the Deed of Trust
securing such Purchase Money Note.
(c) A certified copy of a resolution of Buyer's board of directors
authorizing this transaction.
(d) A certificate from Buyer to the effect that all warranties and
representations of Sellers herein are true and correct as Of the Closing Date.
(e) All other instruments and documents to fulfill any obligation required
to be fulfilled by Buyer on the Closing Date.
(f) The release executed by ASC or the indemnity executed by Buyer as
specified in Section 6.4.4.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
12
<PAGE>
5.1. Sellers' Representations and Warranties. Each of the Sellers,
---------------------------------------
jointly and severally, represents and warrants to and agrees with Buyer as
follows:
5.1.1. Authority. Champs is a limited partnership duly formed
---------
under the laws of State of Washington, which has filed certificate of
dissolution, but not a certificate of cancellation, and is in the process of
winding up its affairs. Each of the Sellers has the power and authority to own
the Property it is selling and to consummate the transactions contemplated by
this Agreement. This Agreement and all instruments, documents and agreements to
be executed by Sellers in connection herewith are or when delivered will be duly
authorized, executed and delivered by Sellers and will be valid, binding and
enforceable obligations of Sellers. Neither this Agreement nor any instrument,
document or agreement to be executed by any Seller in connection herewith nor
anything provided in or contemplated by any of the same does constitute a breach
or default or invalidate, make inoperative or interfere with any contract,
agreement, lease, easement, right or interest affecting or relating to the
Property (but Sellers make no representation or warranty about the rights of ASC
with respect to the Property). Each individual executing this Agreement on
behalf of any Seller is duly authorized to do so.
5.1.2. Title. Upon the Closing, Buyer will acquire good,
-----
marketable and insurable title to the Land, Easements, and Improvements, and the
entire right, title and interest in the Personal Property and the Intangible
Property, all free and clear of any liens, encumbrances, security interests,
liabilities, assessments, agreements, leases, judgments, claims, rights,
easements, restrictions or other matters other than the Permitted Exceptions,
and Adjacent Owner Agreements (which contain Sellers' easements).
5.1.3. Consents. As of the Closing, Sellers will have obtained
--------
all consents and approvals required to consummate the transactions contemplated
by this Agreement.
5.1.4. Activities on the Property. Except as disclosed on
--------------------------
"Exhibit E" to Sellers' knowledge all of the contemporary music concert
activities taking place on or in the vicinity of the Land in 1992, were, with
the exception of activities on Department of Wildlife land, conducted entirely
within the confines of the Land, and to Sellers' knowledge the owner of the
Property can and may, in the future, continue to conduct the same contemporary
music concert activities as were conducted in 1992 without any burdens other
than those which were applicable and enforced in 1992. Notwithstanding the
foregoing, burdens, restrictions, impediments, financial requirements or the
like may be imposed on Buyer as a direct or indirect result of Buyer's
activities in 1993, but Sellers will, if and to the extent Sellers are aware of
the same,
13
<PAGE>
promptly notify Buyer thereof as soon as Sellers become so aware. Buyer
acknowledges that Sellers have notified Buyer about, and Buyer is aware of, the
phased improvements required by the State and County Department of Health and
the statements pertaining to restricting attendance at events, made by
representatives of Grant County agencies.
5.1.5. Utilities, Streets, Easements. The Property has a potable
-----------------------------
public water system, sanitary sewage facilities, telephone, and electricity. No
easements are required by the owner of the Land for any access and full use or
in connection with any utilities. Except as specifically set forth in the
Adjacent Owner Agreements, no easement affecting the Land which benefits any
third party interferes with the use of the Property by Sellers or its lessees.
5.1.6. Soils. To the best knowledge of Sellers the Land is not in
-----
an area identified by an agency or department of the federal, state or local
government as having special flood or mudslide hazards, or other special hazards
or adverse soils conditions (other than being rocky) and to the best knowledge
of Sellers the Land is not subject to any of the foregoing.
5.1.7. Intentionally Omitted.
5.1.8. Permits and Zoning. All building permits, certificates of
------------------
occupancy (other than any certificates required because of Buyer's activities in
1993 which were different than, or beyond the scope of, or involved more people
than, the activities engaged in on the Property in 1992), business licenses and,
without limitation, all other notices, licenses, permits, certificates and
authority in the possession of Sellers pertaining to the construction, use or
occupancy of the Property will be delivered to Buyer and all of the foregoing
(whether or not in the possession of Sellers) are to the knowledge of Sellers in
effect and in good standing and all conditions of approval imposed in connection
with any of the same have been satisfied except as specified in the first
sentence of Section 5.1.9 and conditional permits issued may be required for
overnight parking. The Land (as contemplated in the Prior Agreement) has P.U.D.
Zoning. The use of the buildings and business included thereon are in
conformance with the P.U.D. use designation.
5.1.9. Compliance. Sellers have no notice or knowledge that any
----------
government agency considers the current operation, use or development of the
Property to have failed to comply with any law, ordinance, regulation or order
or that any investigation has been commenced or is contemplated respecting any
such possible failure or compliance except the use of irrigation water on the
Land, including but not limited to the amphitheatre itself. Sellers do not have
any knowledge of any intended public
14
<PAGE>
improvement which may involve any charge being levied or assessed or which may
result in the creation of any lien on the Property, or of any intended or
proposed federal, state or local statute, ordinance, order, requirement, law or
regulation which may adversely affect the use of the Property. Sellers do not
have any knowledge of any unsatisfied requests for repairs, restorations or
improvements from any entity or authority, including, but not limited to, any
lender, insurance carrier or government authority, except those improvements
required by the State and County Departments of Health and Grant County Building
Department.
5.1.10. Financial Information. All books, records, financial
---------------------
statements and other financial information which have been or are hereafter
delivered to Buyer shall be full, true and correct in all material respects and
have been and will be prepared in accordance with generally accepted accounting
principles, consistently applied. All such financial statements will fairly
present the respective financial conditions of the subjects thereof as of the
respective dates thereof, and no material adverse change has occurred from the
respective dates thereof to the date hereto. If a material adverse change has
occurred or shall have occurred in the condition (financial or otherwise) of the
Property between dates of the statements delivered in accordance with Section
3.3.4 and the Closing Sellers will give Buyer Notice. None of the occurrences
specified in Section 4.6 has occurred. Notwithstanding anything to the contrary
in this Agreement, Sellers shall not be required to deliver financial
information related, to Champs Winery related operations or activities on the
Land relating primarily to agricultural activities. Sellers do not have, and
within the last five years have not had, any appraisals or appraisal reports
with respect to the Land (or including the Land).
5.1.11. Existing Agreements. There are no agreements or
-------------------
understandings relating to the Property, except for the Permitted Exceptions,
Adjacent Owner Agreements, the Existing Contracts and the Prior Agreement. To
Sellers' best knowledge, none of the Existing Contracts violates any federal,
state or local law, rule or regulation.
5.1.12. Default. Sellers are not and will not be at any time or
-------
times as of or before the Closing in default in respect of any of its
obligations or liabilities pertaining to the Property. Without limitation on the
foregoing, the Continuing Contracts, and the Permitted Exceptions are free from
default by Sellers, and to the best knowledge of Sellers, by any other party
thereto. There is not any state of facts or circumstances or conditions or
events which, after notice or lapse of time or both, would constitute or result
in any such default by any Sellers under its said obligations or liabilities or,
to the best knowledge of Sellers, by any party under or related to the Existing
Contracts, or the Permitted Exceptions. Sellers are not aware of any claim
15
<PAGE>
by any person or entity which is inconsistent with provisions of this Section
5.1.12. Sellers shall not be deemed in violation of this Section 5.1.12 with
respect to any matter which can be cured by the payment of money and which is
in fact cured at or before the Closing.
5.1.13. Litigation; Condemnation. Except as specified on Exhibit I,
------------------------
to Sellers' best knowledge, there are no actions, suits or proceedings pending,
before or by any judicial body or any governmental authority, against or
affecting Sellers or relating to the Property or the transactions contemplated
by this Agreement. To Sellers' best knowledge, there is no known eminent domain
or similar proceeding which would affect the Land or Improvements in any way
whatsoever.
5.1.14. Insurance Policies. All Sellers insurance policies
------------------
covering or relating to the Property or any part thereof are in full force and
effect on the date hereof and all premiums coming due with respect thereto prior
to the date hereof have been paid. No notice of cancellation has been received
with respect thereto. Sellers will maintain all such insurance policies (or
renewals thereof) in effect to the Closing, at Sellers' sole cost and expense.
5.1.15. No Surviving Concessions/Leases. Except as disclosed in
-------------------------------
the Schedule of Existing Contracts and the Permitted Exceptions, there are no
concession agreements, leases, licenses, or any other agreements conferring any
right on a third person to use, or occupy, or conduct business upon all or any
part of the Property which will survive the Closing.
5.1.16. Adverse Information. Sellers have no information of any
-------------------
change contemplated in any applicable laws, ordinances, or restrictions, or any
judicial or administrative action, or any action by adjacent landowners, or
natural or artificial conditions upon the Property, or any other material fact,
circumstance or condition which would prevent, limit, or impede, or render more
costly Buyer's use of the Property as a contemporary music concert venue, other
than as provided for elsewhere in this Agreement or disclosed in the Prior
Agreement. Sellers will have no liability under this Section 5.1.16
if and to the extent Buyer has knowledge of a particular matter as a consequence
of Buyer (or its representatives) having attended meetings held in 1993 between
representatives of Grant County, the State of Washington, or other governmental
agencies or contractors or as a result of Buyer receiving information from any
of said agencies.
5.1.17. Toxic or Hazardous Materials. During the time when Sellers
----------------------------
owned the Property, and to the best of Sellers' knowledge, prior thereto,
neither Sellers nor, to the best of
16
<PAGE>
Sellers' knowledge, any third party, has used, generated, manufactured, stored
or disposed of on, under or about the Property or transported to or from the
Property in a manner which violated any statute, regulation or ordinance any
Hazardous Materials except those listed and described on "Exhibit G". As used in
this Agreement, "Hazardous Materials" means any substance, material or waste
which is or becomes regulated by any local governmental authority, the State of
Washington or the United States Government; flammable, explosive, and
radioactive materials; petroleum and petroleum products; asbestos; any chemical
substance, material or waste which is hazardous, toxic, or radioactive, or is
defined, classified, or designated as hazardous, toxic, or radioactive, or other
similar term, by any federal, state or local statute, regulation, or ordinance
presently in effect, including but not limited to Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sec.
9601, et seq.; Hazardous Materials Transportation Act, 49 U.S.C. Section 1801,
et seq.; Toxic Substances Control Act, 15 U.S.C. Section 2601, et seq.; Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.; Clean Air Act, 42
U.S.C. Section 7401 et seq.; Water Pollution Control Act, Federal Clean Water
Act of 1977, 33 U.S.C. Section 1251 et seq.; Insecticide, Fungicide, and
Rodenticide Act; Safe Drinking Water Act, 42 U.S C. Section 300(f) et seq.;
Washington Water Pollution Control Act, RCW Chapter 90.48; Washington Clean Air
Act, RCW Chapter 70.94; Washington Solid Waste Management-Recovery and Recycling
Act, RCW Chapter 70.95; Washington Hazardous Waste Management Act, RCW Chapter
70.105; Washington Hazardous Waste Fees Act, RCW Chapter 70.105(a); Washington
Hazardous Waste Clean-up - Model Toxics Control Act, RCW Chapter 70.105D;
Washington Nuclear Energy and Radiation Act, RCW Chapter 70.98; and Washington
Radioactive Waste Storage and Transportation Act of 1980, RCW Chapter 70.99.
5.2. Buyer's Representations and Warranties. Buyer represents an
--------------------------------------
warrants to Sellers that the following statements are true and correct on the
date hereof and will be true and correct on the Closing Date as though made on
such date:
5.2.1 Organization, Corporate Power and Authority. Buyer is a
-------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Washington, and has the requisite corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby.
5.2.2 Authorization, Binding Effect and No Conflicts. The
----------------------------------------------
execution, delivery and performance by Buyer of this Agreement and the
consummation by Buyer of the transactions contemplated thereby have been duly
authorized by all necessary corporate action on the part of Buyer. This
Agreement has been duly and validly executed and delivered by Buyer and
constitutes the valid and binding obligation of Buyer, enforceable in accordance
with its terms. The
17
<PAGE>
execution, delivery and performance by Sellers of this Agreement and the
consummation by Sellers of the transactions contemplated hereby will not (x)
violate any provision of law, rule or regulation to which Sellers or Buyer is
subject, (y) violate any order, judgement or decree applicable to Sellers or
Buyer, or (z) conflict with, or result in a breach or default under, any term or
condition of the Articles of Incorporation or the Bylaws of Buyer, or any
agreement or other instrument to which Sellers are a party or by which Sellers
may be bound; except in each case, for violations, conflicts, breaches or
defaults which in the aggregate would not materially hinder or impair the
consummation of the transactions contemplated hereby.
5.2.3 Consents and Approvals. Neither the execution of this
----------------------
Agreement nor the consummation of the sale of the Assets requires the approval
or consent of any governmental authority having jurisdiction over the business
of Buyer nor of any party to any agreement with Buyer.
5.2.4 Availability of Funds. Buyer has available and will have
---------------------
available on the Closing Date sufficient funds to enable it to consummate the
transactions contemplated by this Agreement. The Purchase Price Note shall be
paid to Sellers in full and in installments as specified therein on or before
when due.
5.3. Reaffirmation. The representations and warranties of Sellers and
-------------
Buyer set forth above in Section 5.1 and 5.2 respectively, are true and correct
as of the date of this Agreement and shall be true and correct as of Closing. At
Buyer's or Sellers' election, as the case may be, each may require the other to
execute a document reaffirming those representations and warranties and deliver
the same to Buyer or Sellers, as the case may be, upon Closing. Except with
respect to events or circumstance occurring or arising after the Closing, these
representations and warranties shall survive the Closing and the delivery and
recording of the Warranty Deed. The parties shall be entitled to rely upon those
representations and warranties, notwithstanding any inspection or investigation
of the Property which was made or could have been made by Buyer.
5.4 No Sandbagging. A party (the "claiming party") shall not be
--------------
entitled to recover from the other party on account of any breach or alleged
breach of any representation or warranty made by the other party if and to the
extent the other party can establish by a preponderance of the evidence that the
claiming party knew prior to the Closing that a particular representation or
warranty made by the other party was not true.
6. CLOSING
-------
18
<PAGE>
6.1. Deposits Into Escrow.
--------------------
6.1.1. Not less than 5 business days prior to the Closing Date,
Sellers shall deposit into the Escrow the Statutory Warranty Deed, and the Non-
Foreign Affidavit, and the restrictive covenants referred to in Section 1.4.1.
6.1.2. On or prior to the Closing Date, Buyer shall deposit into
the Escrow the funds required to be deposited pursuant to the provisions of
Section 1.3.2 above, the deed(s) of trust and the Purchase Price Note.
6.1.3. Sellers and Buyer shall each deposit into Escrow such other
instruments (including without limitation, the Adjacent Owner Agreements) and
funds as are reasonably required by the Escrow Holder or otherwise required to
complete Escrow and consummate the purchase of the Property in accordance with
the terms of this Agreement.
6.2. Prorations. The following prorations shall be made as of 12:01 a.m.
----------
on the day the Closing occurs on the basis of a 365-day year. At least 10
business days prior to the Closing Date, Escrow Holder shall deliver to Sellers
and Buyer a tentative proration schedule setting forth a preliminary
determination. In the event the parties are unable to agree on the proration of
an item of income or expense within seven (7) calendar days the matter shall be
referred to the firm of Ernst & Young, Certified Public Accountants, for
determination. The determination of Ernst & Young shall be final and binding on
the parties with respect to proration of the disputed item, and any amount owing
by one party to the other shall be paid in cash within five (5) days of Ernst &
Young's determination. Prior to submission of the disputed item to Ernst &
Young, each party shall give to the other its written determination of how it
believes the item should be prorated. The party whose determination is closest
to that of Ernst & Young shall be indemnified by the other party for all
reasonable costs incurred in resolving the dispute, including the fees of Ernst
& Young. Closing shall not be delayed because of the fact that any prorations
have not been finally determined by the date otherwise set for the Closing.
However, if the prorations have not been finally determined by the Closing,
Escrow Holder and the party shall proceed as if the Escrow Holder's tentative
proration schedule were final, except that Escrow Holder shall hold back any
proration amounts which are in dispute and shall disburse them after the Closing
in accordance with mutual instructions by the parties (and the parties shall be
obligated to give instructions on the basis of the resolution procedures
specified above in this Section 6.2) and any additional payments owing by one
party to the other shall be made outside of Escrow.
19
<PAGE>
6.2.1. Real estate taxes and personal property taxes shall be
prorated as of the Closing on the basis of the most recent tax statement for the
Property. If the prorations are not made on the basis of the current tax year
or if supplemental taxes are assessed after the Closing, but only if said
supplemental taxes are assessed on or before December 31, 1995 or on or before
December 31, 1995 Buyer has notified Sellers that Buyer has become aware that
such supplemental taxes will be assessed, for the period prior to the Closing,
the parties shall make any necessary adjustment after Closing by cash payment to
the party entitled thereto so that Sellers shall have borne all taxes allocable
to the period prior to the Closing (including all supplemental taxes which are
allocable to the period prior to the Closing) and Buyer shall bear all taxes
allocable to the period after the Closing (including all supplemental taxes
which are allocable to the period after the Closing).
6.2.2. Except for payments made to Sellers under the Prior
Agreement, rentals, prepaid rentals, prepaid payments and security deposits
(and all accrued interest thereon, if any) (collectively, "Rent") shall be
----
prorated on the basis that Buyer shall receive a credit for all Rent which
Sellers have actually collected which is allocable to the period after the
Closing. Sellers shall not receive a credit for any Rent Sellers have not
collected as of the Closing which is allocable to the period prior to the
Closing. Nevertheless, if Buyer collects any such Rent after the Closing, Buyer
shall promptly pay the same to Sellers.
6.2.3. Utility bills relating to the Property (with the assumption
that utility charges were uniformly incurred during the billing period in which
the Closing occurs).
6.3. Payment of Closing Costs.
------------------------
6.3.1. Closing Costs Borne by Sellers. Sellers shall bear
------------------------------
and Escrow Holder shall discharge on Sellers' behalf out of the sums payable to
Sellers hereunder the costs and expenses associated with a Standard Owner's
Policy, and all sale, excise (or similar tax, such as a documentary transfer
tax), and use taxes required in connection with the transfer of the Land and
Improvements to Buyer, the sums necessary to obtain and the cost of recording
any reconveyance required hereby, one-half of Escrow Holder's fee (including any
fees of Chicago Title should it act to collect and disburse the cash portion of
the purchase price as specified in Section 2.2), and any additional costs and
charges customarily charged to sellers in accordance with common escrow
practices in the State of Washington.
6.3.2. Closing Costs Borne by Buyer. Buyer shall bear and pay
----------------------------
into Escrow and Escrow Holder shall discharge on Buyer's behalf out of the
additional sums required by Buyer hereunder, the
20
<PAGE>
additional costs and expenses associated with an Extended Owner's Policy (beyond
those if the title company had issued the Standard Owner's Policy as evidenced
in the PTR), the fee for recordation of the Warranty Deed, one half of Escrow
Holder's fee, and any additional charges customarily charged to buyers in
accordance with common escrow practices in the State of Washington.
6.4. Closing of Escrow.
-----------------
6.4.1. General Conditions To Be Satisfied. Escrow Holder shall hold
----------------------------------
the Closing on the Closing Date if: (a) it has received in a timely manner all
the funds and materials required to be delivered into Escrow by Buyer and
Sellers: (b) it has received the Owner's Policy from the Title Company, issued
subject only to the Permitted Exceptions, Adjacent Owner Agreements, and (c) all
of the conditions to Closing have been satisfied or waived by the party entitled
to waive.
6.4.2. Actions By Escrow Holder. To Close the Escrow, Escrow Holder
------------------------
shall:
(a) Cause the Statutory Warranty Deed, the restrictive covenant
agreements referred to in Section 1.4.1., the Adjacent Owner Agreements referred
to in Section 4.9, the deed[s] of trust referred to in Section 1.3.3, and any
other recordable instruments, to be recorded by the County Recorder of the
County of Grant, Washington, and thereafter the Statutory Warranty Deed and the
restrictive covenant agreements shall be mailed to Buyer, and the deed[s] of
trust shall be mailed to Sellers, and each of the Adjacent Owner Agreements for
the primary benefit of Buyer or Sellers, as the case may be, shall be mailed to
such party with photocopies of the recorded instrument being mailed to the
other, and Escrow Holder shall deliver the Owner's Policy, the Non-Foreign
Affidavits and any surplus funds deposited by Buyer to Buyer, and any other
documents will be mailed to the appropriate party; and
(b) Promptly deliver to the Sellers the Purchase Money Note and funds
which in the aggregate equal the amount of the Purchase Price less the portion
of the Prior Payment previously delivered to Sellers or paid to third parties
pursuant to the escrow instructions delivered in connection with the execution
of the Prior Agreement, and less amounts paid to discharge liens and
encumbrances or paid otherwise to enable Sellers to comply with their
obligations under this Agreement and less or plus the net debit or credit to
Sellers by reason of the prorations and allocation of closing costs provided for
in this Agreement; and
(c) Cause to be recorded and thereafter mailed to such Buyer and
Sellers, such other instruments as Buyer and Sellers may specify.
21
<PAGE>
6.4.3. Deliveries By Sellers. Concurrently with the Closing, in
---------------------
addition to delivering to Escrow Holder the instruments executed by Sellers
required to enable Escrow Holder to comply with Section 6.4.2, Sellers shall
deliver to Buyer:
(a) The Bill of Sale:
(b) Specific assignments of the Continuing Contracts and other
leases, easements and agreements as designated by Buyer in recordable form and
otherwise in form and content acceptable to Buyer and Sellers, each acting
reasonably;
(c) Termination agreements between Sellers and each of SMT and ASI
for all leases between such parties which relate to or affect all or part of the
Property;
(d) A release in favor of ASC with respect to any and all claims by
Sellers relating to or arising out of the Property or any of Sellers' contracts
with ASC, with the terms of such release being agreed upon between Buyer and
Sellers, each acting reasonably; Buyer shall have the right to deliver the
release to ASC at any time, or not deliver it at all. Sellers shall also deliver
to Buyer an assignment on terms agreed upon between Buyer and Sellers, each
acting reasonably, of Sellers' rights, remedies and defenses against or relating
to ASC; and
(e) The document required by Section 5.3, if requested by Buyer.
6.4.4. Delivery by Buyer. Buyer shall deliver to Sellers,
-----------------
concurrently with the Closing, either a release executed by ASC or an indemnity
and hold harmless agreement executed by Buyer, in each case, in favor of
Sellers, with respect to any and all claims by ASC relating to or arising out of
the Property or any of Sellers' contracts with ASC. Such release and/or
indemnity and hold harmless agreement shall be on terms agreed to between Buyer
and Sellers, each acting reasonably, including without limitation the obligation
of Buyer under the indemnity (if a release of Sellers is not obtained) to defend
Sellers at Buyer's expense. Buyer shall also deliver the document required by
Section 5.3, if requested by Sellers. Buyer shall also deliver to Escrow Holder
the instruments executed by Buyer required to enable Escrow Holder to comply
with Section 6.4.2.
6.5. Failure to Close, Cancellation. Unless Buyer and Sellers mutually
------------------------------
agree in writing and inform Escrow Holder to the contrary, or Sellers have
postponed the Closing Date for up to 15 days as provided in Section 2.4, (in
which case the time limitations for the Closing to occur, for example, below in
this Section 6.5 and in Section 6.6, shall be extended accordingly), or Escrow
Holder received an order from court to the contrary, if the
22
<PAGE>
Closing has not occurred by October 31, 1993, or any extended date through
December 20, 1993 to which Buyer has extended the Closing Date as provided
for in Section 2.4, then Escrow Holder shall distribute the funds in the Escrow
to Buyer.
6.6. LIQUIDATION DAMAGES. BUYER AND SELLERS AGREE THAT IN THE EVENT BUYER
-------------------
DEFAULTS IN ITS OBLIGATION TO PURCHASE THE SALE PROPERTY, THE DAMAGES TO SELLERS
WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE TO ASCERTAIN, AND THAT
THEREFORE, IN SUCH CIRCUMSTANCES, THE SUM OF FIFTY THOUSAND DOLLARS ($50,000)
PAID TO SELLER CONCURRENTLY WITH THE EXECUTION OF THIS AGREEMENT IS A REASONABLE
ESTIMATE OF THE DAMAGES TO SELLERS, SUCH DAMAGES INCLUDE COSTS OF NEGOTIATING
AND DRAFTING OF THIS AGREEMENT, COSTS OF COOPERATING IN SATISFYING CONDITIONS TO
CLOSING COSTS OF SEEKING ANOTHER BUYER, COSTS AND OTHER RISKS RELATED TO
EXTENSIONS OF THE CLOSING AND OTHER COSTS AND LOSSES INCURRED IN CONNECTION
HEREWITH. BUYER AND SELLERS AGREE THAT SAID SUM, AS WELL AS SELLERS' RIGHT TO
RETAIN THE PRIOR PAYMENT AS CONSIDERATION FOR SELLERS' EXECUTION OF THE PRIOR
AGREEMENT AND LEASING OF THE LEASE PROPERTY TO BUYER FOR THE 1993 SEASON, SHALL
BE THE SOLE DAMAGES AND THE SOLE AND EXCLUSIVE REMEDY OF SELLERS FOR BUYER'S
FAILURE TO CLOSE, AND BUYER SHALL BE ENTITLED TO ALL FUNDS DEPOSITED BY BUYER IN
ESCROW, EXCEPT BUYER AND SELLERS SHALL EACH BEAR ITS RESPECTIVE SHARE OF COSTS
AS SPECIFIED IN SECTION 3.4.
SELLERS ACKNOWLEDGE RECEIPT OF THE SUM OF FIFTY THOUSAND DOLLARS ($50,000.00) AS
PAYMENT OF LIQUIDATED DAMAGES, WHICH AMOUNT SHALL BE APPLIED TO THE PURCHASE
PRICE IN THE EVENT CLOSING OCCURS ON OR BEFORE OCTOBER 31, 1993 BUT SHALL NOT BE
APPLIED IF CLOSING OCCURS THEREAFTER.
/s/ VB
--------
Initials of Buyer: /s/ B Initials of Sellers: /s/ CB
------ --------
6.7. Return of Funds not a Release. The return of funds held in Escrow
-----------------------------
shall not relieve Sellers or Buyer of liability for any failure to comply with
the terms of this Agreement and shall be in addition to any other right Buyer or
Sellers may have at law or in equity against the other. The foregoing sentence,
however, is not meant to place any further liability than provided for elsewhere
in this Agreement on any party who, in accordance with the terms of this
Agreement, exercises the right to terminate this Agreement, or to expand Buyer's
liability beyond that provided for in Section 6.6 which shall take precedance
over this Section 6.7.
6.8. Possession. Possession of the Property shall be delivered to Buyer
----------
upon Closing, free of any tenancy or right of
23
<PAGE>
occupancy or possession, except as specified in the Existing Contracts,
Permitted Exceptions, and Adjacent Owner Agreements. Notwithstanding the
foregoing, Sellers shall have a reasonable period of time to remove any grape
crop on the Property remaining to be harvested for the 1993 crop.
7. INDEMNIFICATION
---------------
7.1. Indemnification of Buyer. Sellers, jointly and severally, shall hold
------------------------
harmless, indemnify and defend Buyer from and against: (a) any and all third
party claims, demands, causes of action, losses, liabilities, liens or
encumbrances, whether direct, contingent or consequential and no matter how
arising, in any way related to the Property and occurring before the Closing, or
in any way related to or arising from any act, conduct, omission, contract or
commitment of Sellers occurring at any time or times before the Closing (except
any claims arising from any act, conduct, omission occurring before or after the
Closing with respect to any claims arising or accruing under any agreement with
ASC prior to Closing); and (b) any loss or damage to Buyer resulting from a
material inaccuracy in or material breach of any representation or warranty of
Sellers under this Agreement or resulting from any material breach or default by
Sellers under this Agreement. Buyer shall notify Sellers of any such claim
against Buyer within 10 days after it has notice of such claim. Should Sellers
fail to discharge or undertake to defend Buyer against such liability upon
learning of the same, then Buyer may settle such liability and Sellers'
liability to Buyer shall be conclusively established by such settlement, the
amount of such liability to include both the settlement consideration and the
reasonable costs and expenses, including reasonable attorneys' fees, incurred by
Buyer in effecting such settlement, together with interest thereon from the date
of payment of any of the same by Buyer until repayment is made by Sellers at the
lesser of ten per cent (10%) per annum or the maximum rate then allowed by
applicable law. Notwithstanding anything to the contrary, Sellers shall not be
required to defend, hold harmless, or indemnify Buyer, or be liable for any
claims, demands, causes of action, losses, liabilities, liens or encumbrances,
whether direct, contingent or consequential arising from any act, conduct,
contract, or commitment of Sellers to any governmental agency at any time or
times before Closing with respect to improvements to be made to the Property.
7.2. Indemnification of Sellers. Buyer hereby agrees to indemnify, defend
--------------------------
and hold Sellers harmless from and against any and all damage or deficiency
resulting from any misrepresentations, breach of warranty, or breach or default
by Buyer, or any claim by a party to an Existing Contract arising out of Buyer's
acts or omissions after the Closing. Without limiting the foregoing, Buyer
shall defend, hold harmless, and indemnify Sellers, for any claims, demands,
causes of action, losses, liabilities, liens or
24
<PAGE>
encumbrances, whether direct, contingent or consequential and no matter how
arising, in any way related to the Property arising from any act, conduct,
contract, or commitment of Sellers to any governmental agency at any time or
times before Closing with respect to improvements to be made to the Property.
Sellers shall notify Buyer of any such claim against Sellers within 10 days
after Sellers have notice of such claim. Should Buyer fail to discharge or
undertake to defend Sellers against such liability upon learning of the same,
then Sellers may settle such liability and Buyer's liability to Sellers shall be
conclusively established by such settlement, the amount of such liability to
include both the settlement consideration and the reasonable costs and expenses,
including reasonable attorneys' fees, incurred by Sellers in effecting such
settlement, together with interest thereon from the date of payment of any of
the same by Sellers until repayment is made by Buyer at the lesser of ten
percent (10%) per annum or the maximum rate then allowed by applicable law.
7.3 Indemnification per Prior Agreement. Notwithstanding anything set
-----------------------------------
forth in Sections 7.1 and 7.2 above, the provisions of Section 3.11 of the
Prior Agreement remain in full force and effect (except, as provided in Section
8.2, Sellers shall have no claims against the Buyer for damage to the Property
if the Closing occurs), and in the event of a conflict between Sections 7.1 or
7.2 and this Section 7.3, this Section 7.3 shall prevail. Section 3.11 of the
Prior Agreement reads as follows:
3.11 Seller shall indemnify and hold MCA harmless from and against
any and all third party claims for occurrences taking place on
Property D, or Property E, or the Adjacent Area. Seller shall also
indemnify and hold MCA harmless from and against any and all third
party claims for occurrences taking place on the Lease Property
arising out of acts or omissions of Seller, its employees, agents, or
contractors during the 1993 Season. Seller will indemnify and hold MCA
harmless from and against any and all third party claims for
occurrences taking place on the Lease Property during times other than
the calendar day immediately preceding, the calendar day of, and the
calendar day immediately following an event held by MCA at the
Amphitheater, unless such claim arises out of the active negligence of
MCA, its employees, agents or contractors. MCA will indemnify and hold
Seller harmless from and against any and all third party claims for
occurrences taking place on the Lease Property anytime during the 1993
Season (and not just
25
<PAGE>
during the 3 day periods specified in the prior sentence) arising out
of the active negligence of MCA, its employees, agents, contractors,
patrons, or performers. The indemnification obligations specified
above in this Section 3.11 and the insurance obligations specified
below in Section 3.12 inure and extend not only to the benefit of
Seller and MCA, respectively, but also respectively to Seller's and
MCA's shareholders, partners, directors, officers, employees, and
agents.
Certain of the words and phrases used in the aforementioned Section
3.11 are defined elsewhere in the Prior Agreement and such definitions are
incorporated herein by this reference.
26
<PAGE>
8. GENERAL PROVISIONS
------------------
8.1. Counterparts; No Offer. This Agreement may be executed in
----------------------
counterparts, each of which shall be deemed an original, but all of which, taken
together, shall constitute one and the same instrument. None of the
preparation, circulation of drafts or negotiations of this Agreement shall
constitute an offer by Sellers to sell the Property nor an offer by Buyer to
purchase the Property. Neither Buyer nor Sellers shall have any right, duty or
obligation under this Agreement unless and until this Agreement or counterparts
hereof have been executed by Buyer and each of the Sellers.
8.2. Entire Agreement. This Agreement contains the entire agreement
----------------
between the parties respecting the subject matter of this Agreement and
supersedes all prior understandings and agreements, whether oral or in writing,
between the parties respecting the subject matter of this Agreement. Without
derogating from the generality of the foregoing, this Agreement supersedes
Section 1.2 of the Prior Agreement and any other provision of the Prior
Agreement insofar as such other provisions relate to the purchase and sale of
the Property. Notwithstanding the foregoing, (except as specified in the prior
sentence) this Agreement shall not supersede the Prior Agreement except that if
Closing occurs, the lease contemplated by the Prior Agreement shall terminate
and Sellers shall have no claims against Buyer for damage of the Property (but
the foregoing is not intended to derogate from any provision of the deed of
trust securing the Purchase Money Note), and Buyer shall have no claims against
Sellers arising out of the Prior Agreement, provided that Section 3.11 of the
Prior Agreement shall survive the Closing.
8.3. Legal Advice; Neutral Interpretation; Headings. Each party has
----------------------------------------------
received independent legal advice from its attorneys with respect to the
advisability of executing this Agreement and the meaning of the previsions
hereof. The provisions of this Agreement shall be construed and interpreted as
to their fair meaning, and not for or against any party based upon any
attribution to such party as the source of language in question. Headings used
in this Agreement are for convenience of reference only and shall not be used in
construing this Agreement.
8.4. Choice of Law. This Agreement shall be governed by the laws of the
-------------
State of Washington applicable to contracts to be wholly performed therein.
8.5. Severability. If any term, covenant, condition or provision of this
------------
Agreement, or the application thereof to any person or circumstance, shall to
any extent be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the
27
<PAGE>
remainder of the terms, covenants, conditions or provisions of this Agreement,
or the application thereof to any person or circumstance, shall remain in full
force and effect and shall in no way be affected, impaired or invalidated
thereby.
8.6 Waiver of Covenants, Conditions or Remedies. The waiver by one party
--------------------------------------------
of the performance of any covenant or condition under this Agreement shall not
invalidate this Agreement nor shall it be considered a waiver by it of any other
covenant or condition under this Agreement. The waiver by either or both
parties of the time for performing any act under this Agreement shall not
constitute a waiver of the time for performing any other act or an identical
act required to be performed at a later time. If for any reason any item
required to be delivered to Buyer under this Agreement is not delivered when
required, then Sellers shall nevertheless remain obligated to deliver the same
to Buyer and nothing (including, without limitation, the occurrence of the
Closing) shall constitute a waiver by Buyer of any such requirement, unless with
respect to any post-Closing obligation Sellers establish that Buyer was aware of
the non-delivery of such item. Notwithstanding the foregoing, if Sellers give
notice to Buyer anytime within 10 days prior to the Closing that Sellers will
not be delivering a specific item or items, and if and to the extent Buyer does
not object to such non-delivery by giving notice to Sellers prior to the
Closing, then Sellers shall have no obligation to deliver after the Closing any
item or items as to which Buyer did not object to non-delivery. The exercise of
any remedy provided in this Agreement shall not be a waiver of any consistent
remedy provided by law or in equity, and the provision in this Agreement for any
remedy shall not exclude other remedies unless they are expressly excluded.
8.7. Exhibits and Schedules; Sections. All exhibits and schedules to
--------------------------------
which reference is made in this Agreement are deemed incorporated in this
Agreement, whether or not actually attached. References to Sections are to
Sections of this Agreement unless stated otherwise.
8.8. Amendment. This Agreement may be amended at any time prior to Closing
---------
by the written agreement of Buyer and Sellers. An amendment of this Agreement,
may be binding upon the parties despite any lack of legal consideration, so
long as the same shall be in writing and executed by the parties hereto.
8.9. Relationship of Parties. The parties agree that their relationship
-----------------------
is that of seller and buyer, and that nothing contained herein shall constitute
either party the agent or legal representative of the other for any purpose
whatsoever, nor shall this Agreement be deemed to create any form of business
organization between the parties hereto, nor is either party granted any right
or authority to assume or create any obligation or
28
<PAGE>
responsibility on behalf of the other party, nor shall either party be in any
way liable for any debt of the other.
8.10. No Third Party Benefit. This Agreement is intended to benefit only
----------------------
the parties hereto and no other person or entity has or shall acquire any
rights hereunder. Notwithstanding the foregoing, affiliates of the parties and
others may be expressly benefited by the terms of Adjacent Owner Agreements.
8.11. Time of the Essence. Time shall be of the essence as to all dates
-------------------
and times of performance, whether contained herein or contained in any escrow
instructions to be executed pursuant to this Agreement, and all escrow
instructions shall contain a provision to this effect.
8.12. Further Acts. Each party hereby agrees that it shall, upon request
------------
of the other, execute and deliver such further documents (in form and substance
reasonably acceptable to the party to be charged) and do such other acts and
things as are reasonably necessary and appropriate to effectuate the terms and
conditions of this Agreement, including (without limitation) the execution and
delivery of such documents, and the doing of such acts or thinge as may be
required to satisfy the requirements of the Title Company to issue title
insurance in accordance with this Agreement and for Buyer to fully and
adequately perform its investigations of the Property.
8.13. Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of, and shall be binding upon, the parties hereto,
their respective heirs, personal representatives, successors and assigns. This
Agreement may not be assigned or conveyed prior to the Closing by any party to
any person or entity without the prior written consent of the other party
hereto. In the event of an assignment, the assigning party shall not be relieved
of any of its obligations and undertakings contracted for herein, and if the
Closing occurs the Purchase Money Note shall not be discharged nor shall the
lien of the deed of trust securing said Note be released. The deed of trust
securing the Purchase Money Note contains provisions enabling the beneficiary to
accelerate the unpaid balance of the Purchase Money Note under certain
conditions upon a transfer of title of the Land and Improvements.
8.14. Attorneys' Fees. In the event of any litigation (including the
---------------
arbitration referred to in Section 8.16) involving the parties to this Agreement
to enforce any provision of this Agreement, to enforce any remedy available upon
default under this Agreement, or seeking a declaration of the rights of either
party under this Agreement, the prevailing party shall be entitled to recover
from the other such attorneys' fees and costs as may be reasonably incurred. All
other attorneys' fees and costs relating
29
<PAGE>
to this Agreement and the transactions contemplated hereby shall be borne by the
party incurring the same.
8.15. Brokers. Buyer and Sellers each represent and warrant to the other
-------
that they have not dealt with any brokers or finders in connection with the
purchase and sale of the Property and no broker or other person is entitled to
any commission or finder's fee in connection with the purchase and sale of the
Property, except as follows: Alexander Hutton which shall be Sellers'
responsibility and will be included in Sellers' indemnity set forth in the next
sentence. Sellers and Buyer each agree to indemnify and hold harmless the other
against any loss, liability, damage, cost, claim or expense incurred by the
indemnified party by reason of any brokerage fee, commission or finder's fee
alleged to be payable because of any act, omission or statement of the
indemnifying party.
8.16. Conflicting Demands. Should Escrow Holder receive or become aware
-------------------
of conflicting demands or claims with respect to the Escrow, the rights of any
party hereto, or funds, documents or property deposited with Escrow Holder,
Escrow Holder shall have the right to discontinue any further acts until such
conflict is resolved to its satisfaction, and it shall have the further right to
commence or defend any action for the determination of such conflict by
expedited arbitration (within 30 days) in accordance with the rules of Judicial
Arbitration and Mediation Services (J. A. M. S.). The parties shall,
immediately after demand therefor by Escrow Holder, reimburse Escrow Holder (in
such respective proportions as Escrow Holder shall determine) any reasonable
attorneys' fees and court costs incurred by Escrow Holder pursuant to this
Section.
8.17. Manner of Giving Notice. All notices and demands which either party
-----------------------
is required or desires to give to the other shall be given in writing by United
States registered or certified mail, return receipt requested, by personal
delivery, by telegram or by express courier service to the address set forth
below for the respective party, provided that if any party gives notices of a
change of name or address, notices to that party shall thereafter be given as
demanded in that notice. All notices and demands given by mail shall be
effective on the third business day after mailing; all notices and demands
otherwise given as provided above shall be effective upon receipt by the party
to whom notice or a demand is being given.
30
<PAGE>
To Buyer: With Copies To:
- --------- ---------------
MCA Concerts, Inc. Rosenfeld, Meyer & Susman
100 Universal City Plaza 9601 Wilshire Blvd
Universal City, CA 91608 Beverly Hills, CA 90210
Attn: Marc Bension Attn: Jeffrey L. Nagin
To Sellers: With Copies To:
- ----------- ---------------
Vincent E. Bryan, Jr. and Vincent E. Bryan III
Carol A. Bryan Bane & Bryan
2421 60th Avenue, S.E. Suite 220E
Mercer Island, WA 98040 1800 - 112th Avenue N.E.
Bellevue, WA 98004
8.18 Confidentiality. The terms of this Agreement and the information
---------------
and documents delivered pursuant to this Agreement shall be considered
confidential between the parties hereto and, unless a litigation or arbitration
should arise between the parties hereunder, or a party be legally compelled
to disclose (but the party under compulsion shall as soon as it becomes aware of
the likelihood of such compulsion advise the other party thereof), or a
particular matter is already in the public domain through no fault of the
disclosing party, no party shall disclose the terms of the Agreement to any
individual or entity other than the respective parties and their agents,
attorneys, and accountants. Buyer may terminate the effectiveness of this
Section 8.18 by notice to Sellers anytime after the first to occur of 2 years
from the Closing or December 31, 1995.
8.19. Buyer's Investigation. Unless and until the purchase and sale
---------------------
contemplated by this Agreement is closed, Buyer and its representatives shall
treat all information obtained in the investigation of Sellers' Property and
otherwise not in the public domain (and as long as such information is not
known by others through no fault of Buyer) as confidential, and shall return all
books, records and documents made available to it by Sellers by December 31,
1993, if the transaction contemplated herein is terminated or fails to close by
December 20, 1993. If Buyer's obligation specified in the prior sentence is
not sooner terminated, it shall expire on December 31, 1995. Nothing contained
in this Section 8.19 or in Section 8.18 shall restrict the right of Buyer to use
and disclose information and documents in connection with its evaluation of, and
in connection with its activities on, and development of, the Property.
8.20. Approval of Documents. Unless otherwise provided herein, all
----------------------
instruments and documents delivered pursuant to this Agreement shall be dated
as of the Closing Date, and shall be
31
<PAGE>
satisfactory to the parties and to their respective counsel as to form and
content.
8.21. Short form Agreement. Either party shall, upon the request of the
--------------------
other, execute, acknowledge and deliver to the other a short form of this
Agreement in recordable form.
8.22. Survival. The terms and provisions of this Agreement and the
--------
Schedules and Exhibits shall survive the Closing and recording of the Warranty
Deed. In case of any termination by either party pursuant to the terms of this
Agreement, neither party shall have any further obligation to the other party
under the terms of this Agreement, except for the sharing of costs and for any
rights Buyer or Sellers may have against the other for breach (subject, in the
case of Buyer's liability, to Section 6.6).
9. DISCLAIMER
----------
Except as specifically provided in this Agreement, (i) Buyer has
agreed to purchase the Property "as is", "where is" and "with all faults"; and
(ii) Sellers disclaim any implied warranty with respect to the condition, grade,
suitability, accuracy or physical condition of the Property, including without
limitation, any implied warranties that the Property is merchantable or fit for
a particular purpose.
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this
Agreement to be executed by their/its duly authorized officers as of the day and
year first written above.
SELLERS: BUYER:
/s/ Vincent E. Bryan, Jr. MCA CONCERTS, INC.
- ----------------------------- a California corporation
VINCENT E. BRYAN, JR.
/s/ Carol A. Bryan By: /s/ Marc Bension
- ----------------------------- ---------------------------
CAROL A. BRYAN Its: President
--------------------------
CHAMPS DE BRIONNE WINERY
ASSOCIATES, a Washington
limited partnership
By: /s/ Carol A. Bryan
--------------------------
Its: General Partner
-------------------------
General Partner
SUMMER MUSIC THEATRE, INC.
By: /s/ Vincent E. Bryan, Jr.
--------------------------
Its: President
-------------------------
33
<PAGE>
EXHIBIT 10.64
AMENDMENT NO. 1
This Amendment No. 1 amends the Licensing Agreement between Daniel E.
Aykroyd, Judith Belushi Pisano, and Isaac B. Tigrett dated February 18, 1992
(the "Agreement"), as assigned to House of Blues Brands Corp. pursuant to that
certain Agreement for Assignment of Contract Rights, effective November 16,
1992.
In consideration of the mutual promises and other consideration contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
Parties mutually agree as follows:
l. Notwithstanding section 2(b) of the Agreement, the Owners agree that
Tigrett or his assignee are entitled to ownership of trademarks, service marks,
and copyrights relating to names or marks that incorporate a "blues" theme, but
which are not listed in Recital C of the Agreement and do not consist of or
incorporate a name, mark, copyright or work that was identified with the Blues
Brothers prior to the effective date of the Agreement. For purposes of this
Amendment, a mark that consists of or incorporates a name, mark, copyright or
work listed in Recital C of the Agreement or identified with the Blues Brothers
prior to the effective date of the Agreement shall be referred to as a "Blues
Brothers Mark" and a name, mark, copyright or work that does not incorporate a
Blues Brothers Mark shall be referred to as a Non-Blues Brothers Mark. Pursuant
to this Amendment, the marks House of Blues, Help Ever-Hurt Never, Original Home
of the Blues, Blues Basement, Blues is Better, El Soul, and Blue Note each
constitute a Non-Blues Brothers Mark. Non-Blues Brothers Marks shall not
constitute Property for purposes of the Agreement.
2. Notwithstanding paragraph 1 of this Amendment No. 1, the parties agree
that any restaurant, retail store, or other facility of the kind described in
Recital D or Exhibit A-Royalties of the Agreement which uses a Non-Blues
Brothers Mark to identify, promote, market, advertise or operate said
Restaurant, retail store or other facility and which incorporates a "blues"
theme shall nevertheless be a Restaurant for purposes of the Agreement;
provided, however, that nothing in this Amendment No. 1 is intended to alter or
relieve Tigrett or his assignees from the restriction on competition contained
in section 2(e) of the Agreement. Upon termination of the Agreement, existing
Restaurants shall be entitled to continue operation, but Tigrett and his
assignees may not engage in any new business which incorporates a "blues" theme
or concept and is competitive with such then-existing Restaurants, directly or
<PAGE>
indirectly, whether as employee, investor, consultant, agent, or otherwise,
within 200 miles of any such then-existing Restaurant.
3. The parties hereby agree that any tangible personal property bearing &
Non-Blues Brothers Mark, and which does not bear a Blues Brothers Mark, shall
not be a part of the Product Line for purposes of the Agreement.
4. Tigrett and his assignees hereby agree that if Tigrett or any assignee
operates or licenses a retail facility adjacent to any of the first six (6)
Restaurants that commence operation, such facility shall use the Property in the
name of the facility, or in the advertising, promotion, or marketing of the
facility, for so long as the facility remains in operation and that the Owners
shall be entitled (except as provided below in this paragraph) to royalty
payments in the amount set forth in Paragraph d of Exhibit A of the Agreement
(two percent of gross revenues) for the sale of Non-product Line Merchandise in
such facility; provided, however, that by execution hereof, Daniel E. Aykroyd
-------- -------
hereby forever waives, effective July 1, 1993, his right to receive, and forever
releases Tigrett, his assignees, HOB Entertainment, Inc. and its licensees and
sublicensees, from their obligation to pay, the portion of the royalties payable
to Daniel E. Aykroyd pursuant to Paragraph (d) of Exhibit A of the Agreement.
Accordingly, as a result of said release, Judith Belushi Pisano, to the extent
payable, will be entitled to a one percent (1%) royalty pursuant to Paragraph
(d) of Exhibit A of the Agreement and Aykroyd shall be entitled to no royalty
payments pursuant to Paragraph (d) of Exhibit A of the Agreement.
5. The Owners hereby: (a) assign to House of Blues Brands Corp. any and all
rights they may have in Non-Blues Brothers Marks as of the date of this
Agreement; (b) release any claim they may have to ownership of Non-Blues
Brothers Marks; and (c) agree that operation of Restaurants (including retailing
from adjacent premises) using a Non-Blues Brothers Mark does not violate
Tigrett's or his assignees' agreement not to compete as set forth in section
2(c) of the Agreement.
6. Nothing in this Amendment is intended to give Tigrett or House of Blues
Brands Corp. ownership of any Blues Brothers Mark or to relieve Tigrett or House
of Blues Brands Corp. of any obligations they may have under the Agreement
except as set forth herein.
7. Terms used in this Amendment shall have the meanings given to them in
the Agreement.
2
<PAGE>
any federal or state tax authority inquires or takes any action regarding this
matter.
9. Except as expressly set forth in this Amendment, the remaining terms
of the Agreement shall remain in full force and effect.
10. The Parties acknowledge that they, along with HOB Entertainment,
Inc., are also parties to a Waiver and Consent pursuant to which Aykroyd and
Pisano are granted certain rights to purchase stock in HOB Entertainment. The
Parties further acknowledge and agree that the stock transfer referred to in
Paragraph 8, above, is in addition to, and not in lieu of or a partial exercise
of, any rights granted to Aykroyd and Pisano in such Waiver and Consent.
11. This Amendment may be signed in counterparts, with each counterpart
constituting an original and all counterparts together shall constitute one and
the same instrument.
12. Tigrett represents and warrants that he is authorized to execute this
Amendment on behalf of House of Blues Brands Corp.
13. This Agreement is executed as of the date hereof, but shall become
effective only upon the Closing.
IN WITNESS WHEREOF, the Parties hereto have executed this Amendment
as of June 16, 1993.
/s/ Daniel E. Aykroyd
-------------------------------
Daniel E. Aykroyd
/s/ Judith Belushi Pisano
-------------------------------
Judith Belushi Pisano
/s/ Isaac B. Tigrett
-------------------------------
Isaac B. Tigrett
House of Blues Brands Corp.
By: /s/ Isaac B. Tigrett
---------------------------
Isaac B. Tigrett
4
<PAGE>
EXHIBIT 10.65
AMENDMENT NO. 2
This Amendment No. 2 amends the Licensing Agreement between Daniel E.
Aykroyd ("Aykroyd"), Judith Belushi Pisano ("Pisano"), and Isaac B. Tigrett
("Tigrett") dated February 18, 1992, as amended by Amendment No. 1 dated June
16, 1993 (the "Agreement"), as assigned to House of Blues Brands Corp. ("HOBB")
pursuant to that certain Agreement for Assignment of Contract Rights, effective
November 16, 1992.
In consideration of the mutual promises and other consideration contained
herein, the receipt and sufficiency of which are hereby acknowledged, the
parties mutually agree as follows:
1. In Section 1(c) of the Agreement, line 14, the last sentence is
deleted and the following is inserted in its place:
"Notwithstanding the above, Owners may continue to license and
merchandise tangible personal property (other than "B.B. Blues" and
"B.B. Blues Bar") directly connected to exploitation of the rights
described in paragraph 2a(i) as may be reasonably required by third
party film, television, or theatrical production entities."
2. Pursuant to paragraph 5 of the Agreement, the parties have
negotiated in good faith to establish minimum performance requirements. The
parties agree that the minimum performance requirement shall be: (a) that HOBB
or its sublicensees shall operate no fewer than three Restaurants incorporating
various aspects of the Property; and (b) that HOBB shall pay Pisano and Aykroyd
each minimum cumulative royalties of $100,000 per year (less any amount waived
by Aykroyd pursuant to Section 4 of Amendment No. 1 to the Agreement) based upon
gross revenues at the Restaurant other than revenues from the sale of tangible
personal property labeled with the Property. Effective as of the date of this
Amendment No. 2, paragraph 5 of the Agreement shall have no further force or
effect.
3. This Amendment No. 2 shall become effective only if HOB
Entertainment, Inc. ("HOBE"), contemporaneously with execution of this Amendment
No. 2, executes an amendment to the Waiver and Consent Agreement dated June 23,
1993, under which HOBE agrees that Pisano's right to purchase up to 212,963
Shares of its Class A Convertible Preferred Stock may be exercised by Pisano at
any time, in whole or in part, before the earlier of June 30, 1999 or the date
of HOBE's initial public offering of securities pursuant a firm commitment
underwriting agreement.
4. HOBB shall use good faith, commercially reasonable efforts to market
the Property for the purpose of enhancing its value to HOBB and the Owners.
Within ninety (90) days following the Effective Date of this Amendment No. 2,
the Owners and HOBB shall meet to discuss marketing opportunities for the
Property with SONY Signatures, Inc.
<PAGE>
5. The following provisions of the Agreement are hereby deleted;
5.1 The second and third sentences in Section 2(d) of the Agreement.
5.2 Section 2(e) of the Agreement.
5.3 Section 4(c) of the Agreement.
5.4 The second and third sentences in Section 23 of the Agreement.
5.5 The last sentence in Section 2 of Amendment No. 1 to the
Agreement.
6. As of the Effective Date of this Amendment No. 2, if either Owner
provides notice to Tigrett pursuant to Section 22 of the Agreement, the Owner
shall not be required to send a copy of the notice to Randall E. Roberts, but
instead shall send a copy of the notice to:
Nathaniel J. Lipman
House of Blues
8439 Sunset boulevard, Suite 107
West Hollywood, CA 90069
Facsimile: (213) 650-0471
7. Terms used in this Amendment No. 2 shall have the meanings given to
them in the Agreement.
8. Except as expressly set forth in this Amendment No. 2, the remaining
terms of the Agreement shall remain in full force and effect.
9. This Amendment may be signed in counterparts, with each counterpart
constituting an original and all counterparts together constituting one and the
same instrument.
10. HOBB and HOBE represent and warrant that they have the power and
authority to execute and deliver this Amendment No. 2, that the execution and
delivery of this Amendment No. 2 has been authorized by all necessary corporate
action on the part of HOBB, HOBE, and that the provisions of this Amendment No.
2 shall be binding on Tigrett, HOBB, HOBE, and their successors and assigns.
2
<PAGE>
11. The individuals executing this Amendment on behalf of HOBB and
HOBE represent and warrant that they are authorized to execute this Amendment on
behalf of HOBB and HOBE, respectively.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No.
2 as of May 1, 1996.
-------------------------------
Daniel E. Aykroyd
/s/ Judith Belushi Pisano
-------------------------------
Judith Belushi Pisano
-------------------------------
Isaac Tigrett
HOUSE OF BLUES BRANDS CORP.
By:
----------------------------
Title:
-------------------------
HOB ENTERTAINMENT, INC.
By:
----------------------------
Title:
-------------------------
3
<PAGE>
11. The individuals executing this Amendment on behalf of HOBB and HOBE
represent and warrant that they are authorized to execute this Amendment on
behalf of HOBB and HOBE, respectively.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 2
as of May 1, 1996.
/s/ Danniel E. Aykroyd
-----------------------------
Danniel E. Aykroyd
-----------------------------
Judith Belushi Pisano
/s/ Isaac Tigrett
-----------------------------
Isaac Tigrett
HOUSE OF BLUES BRANDS CORP.
By: /s/ Isaac Tigrett
--------------------------
Title:
-----------------------
HOB ENTERTAINMENT, INC.
By: /s/ Isaac Tigrett
--------------------------
Title:
-----------------------
[LOGO OF IN BLUES WE TRUST]
3
<PAGE>
EXHIBIT 10.67
WAIVER AND CONSENT AGREEMENT
Parties
-------
DANIEL E. AYKROYD "Aykroyd"
JUDITH BELUSHI PISANO "Pisano"
ISAAC B. TIGRETT "Tigrett"
HOB ENTERTAINMENT, INC. "HOB"
Recitals
--------
A. Aykroyd, Pisano and Tigrett are parties to a Licensing Agreement
dated February 18, 1992 (the "Licensing Agreement").
B. Tigrett and HOB wish Aykroyd and Pisano to waive certain rights they
each have under the Licensing Agreement and consent to certain actions.
C. Aykroyd and Pisano wish to grant such waiver and consent in
consideration of the terms and conditions contained in this Waiver and Consent.
Agreement
---------
In consideration of the mutual promises contained herein, the parties
agree as follows:
1. Waiver. Aykroyd and Pisano each waive his or her respective rights
------
under Section 9 of the Licensing Agreement in connection with HOB and any
current or future subsidiary (whether or not wholly-owned) of HOB.
2. Aykroyd Option. HOB hereby grants Aykroyd the right to purchase up
--------------
to $1,000,000 of its Class A Convertible Preferred Stock at the same price
offered to other investors in accordance with the terms of the private placement
of HOB securities as described in the Private Placement Memorandum dated
December 4, 1992, as thereafter supplemented (the "Private Placement"), provided
that Aykroyd makes his purchase at the Initial Closing (as such term is defined
in that certain Class A Preferred Stock Purchase Agreement, dated June ___,
1993, by and between the Company and the Investors (as defined therein, the
"Stock Purchase Agreement").
3. Pisano Option. HOB hereby grants Pisano the right to purchase up to
-------------
212,963 shares of its Class A Convertible Preferred Stock, at the same purchase
price offered to other investors in the Private Placement. Such right may be
exercised by Pisano at any time, in whole or in part, before the earlier of
<PAGE>
the date that is three years after the Initial Closing of the Private Placement
or the date of HOB's initial public offering of securities pursuant to a firm
commitment underwriting agreement.
4. Preemptive Rights. Aykroyd and Pisano shall have the right
-----------------
of first refusal to purchase securities of HOB as set forth in that certain
Stockholders Agreement, dated June , 1993, by and among HOB, the Investors
----
(as defined therein) and the Stockholders (as defined therein). HOB has not
granted preemptive rights to acquire the securities of any subsidiary
corporation of HOB and will not grant to any Investor as defined in the Stock
Purchase Agreement (other than in connection with a new investment by such
Investor) any such preemptive rights without concurrently granting to each of
Aykroyd and Pisano the preemptive right to acquire up to 5% of such subsidiary
on the same terms offered to the Investors.
5. Consent to Assignment. Aykroyd and Pisano hereby consent to the
---------------------
assignment by Tigrett of all his rights under the Licensing Agreement to House
of Blues Brands Corp. (formerly known as House of Blues Trademark Company), a
Delaware corporation and a wholly owned subsidiary of HOB. Tigrett shall
provide Aykroyd and Pisano with a copy of the written assignment to House of
Blues Brands Corp. This consent shall not be deemed a consent to any further
assignment, and any further assignment shall remain subject to the consent and
other requirements of the Licensing Agreement. However, House of Blues Brands
Corp., as a result of said assignment, has the same rights to sublicense as
were granted to Tigrett in the Licensing Agreement. Aykroyd and Pisano also
hereby consent to the sale of the Class A Convertible Preferred Stock pursuant
to the Stock Purchase Agreement.
6. Guaranty. HOB hereby guarantees payment of all royalties
--------
due to Aykroyd and Pisano under the Licensing Agreement, and also agrees to
cause all HOB majority-owned subsidiaries who become sublicensees under the
Licensing Agreement to guarantee payment of all sublicense fees and royalties
due from House of Blues Brands Corp. with respect to the operations of such
subsidiary. HOB agrees to, and to cause each majority-owned subsidiary who
becomes a sublicensee under the Licensing Agreement to, deliver to Aykroyd and
Pisano a signed guarantee, in form and substance reasonably acceptable to
Aykroyd and Pisano.
7. Financial Information. HOB shall deliver to Pisano the
---------------------
financial information to which she would be entitled under Section 7.1 of the
Stock Purchase Agreement if she were an "Investor" thereunder owning less than
375,000 shares of the Class A Preferred Stock of HOB.
8. Additional Sublicense Provisions. Tigrett and HOB agree,
--------------------------------
that in addition to the existing requirements in the
-2-
<PAGE>
Licensing Agreement regarding sublicenses, all sublicense agreements (whether
with HOB majority-owned subsidiaries or otherwise) shall also contain provisions
acknowledging that Aykroyd and Pisano are third party beneficiaries of the
sublicense agreement, that the sublicensee guarantees to Aykroyd and Pisano all
sublicense fees and royalties due to Aykroyd and Pisano under the Licensing
Agreement with respect to the operations of said sublicensee and that should the
sublicensee reasonably believe that the liability under its guarantee may arise,
it may, at its option, pay its sublicense fees or royalties directly to Aykroyd
and Pisano to the extent due to Aykroyd and Pisano.
9. Deemed Amendment. To the extent Section 8 of this Waiver and Consent
----------------
amends, changes or modifies Section 6 of the Licensing Agreement, Aykroyd,
Pisano and Tigrett all consent to such amendment, change or modification and
each of them hereby affirms the Licensing Agreement, as amended by that certain
Amendment No. 1 to the Licensing Agreement, effective as of the effective date
hereof, in all other respects.
10. Subsidiaries. HOB represents that it has six subsidiaries, each of
------------
which is wholly-owned by HOB, directly or indirectly. HOB directly owns House of
Blues Cambridge Restaurant Corp., House of Blues New Orleans Restaurant Corp.,
House of Blues Los Angeles Restaurant Corp., House of Blues Chicago Restaurant
Corp. and House of Blues Brands Corp. House of Blues Brands Corp. owns House of
Blues Records, Inc.
11. Certificate of Insurance. HOB represents that it maintains insurance
------------------------
coverage in accordance with the requirements of Sections 19, 20 and 21 of the
Licensing Agreement, except that the certificate of insurance provides for
------
thirty days' advance written notice to Aykroyd and Pisano of cancellation for
other than non-payment of premiums, and ten days' advance written notice of
cancellation for non-payment of premiums. Aykroyd and Pisano accept such
certificate of insurance as issued.
12. Counterparts. This Waiver and Consent may be signed in counterparts,
------------
by original or facsimile signature, with each counterpart constituting an
original and all counterparts together shall constitute one and the same
instrument.
-3-
<PAGE>
13. Effective Date. This Waiver and Consent is executed as of the date
--------------
hereof, but shall become effective only upon the Initial Closing.
IN WITNESS WHEREOF, the parties have executed this Waiver and Consent on
this ___ day of June, 1993.
/s/ Daniel E. Aykroyd
-----------------------------------------
DANIEL E. AYKROYD
/s/ Judith Belushi Pisano
-----------------------------------------
JUDITH BELUSHI PISANO
/s/ Isaac B. Tigrett
-----------------------------------------
ISAAC B. TIGRETT
HOB ENTERTAINMENT, INC.
By: /s/ Isaac B. Tigrett
------------------------------------
Isaac B. Tigrett
President
<PAGE>
EXHIBIT 10.68
AMENDMENT TO WAIVER AND CONSENT AGREEMENT
This Amendment to Waiver and Consent Agreement, dated June 23, 1993 (the
"Agreement") is made and entered into effective the 28th day of May, 1996 by and
between HOB Entertainment, Inc., a Delaware corporation (the "Company"), Judith
Belushi Pisano ("Pisano"), Daniel E. Aykroyd and Isaac B. Tigreet.
RECITALS
--------
The parties hereto have agreed to certain amendments to that certain Blues
Brothers Licensing Agreement. As partial consideration for Pisano's agreement to
such amendments, the Company has agreed to extend the exercise period of an
option to acquire 212,963 shares of Class A Convertible Preferred Stock granted
to Pisano under the Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
agree as follows;
l. Section 3 of the Agreement is hereby amended in its entirely to
hereafter read as follows:
"3. Pisano Option. HOB hereby grants Pisano the right to purchase
-------------
up to 212,963 shares of its Class & Convertible Preferred Stock, at the
same purchase price offered to other investors in the Private Placement.
Such right may be exercised by Pisano at any time, in whole or in part,
until June 30, 1999."
2. The Agreement, as amended by this Amendment, is ratified and affirmed.
IN WITNESS WHEREOF the parties hereto have caused this Amendment to be
executed effective as of the date first above written.
HOB ENTERTAINMENT, INC.
/s/ J. Belushi Pisano BY: /s/ Nathaniel J. Lipman
- -------------------------------- --------------------------------
Judith Belushi Pisano ITS:
--------------------------------
/s/ Danniel E. Aykroyd
- --------------------------------
Danniel E. Aykroyd
/s/ Isaac B. Tigrett
- -------------------------------
Isaac B. Tigrett
<PAGE>
EXHIBIT 10.69
RELEASE AGREEMENT
-----------------
PARTIES
-------
The parties to this Release Agreement (this "Release") are:
1.01. Daniel E. Aykroyd (herein called "Aykroyd").
1.02. Isaac B. Tigrett (herein called "Tigrett").
1.03. House of Blues, Inc. (herein called "HOB").
1.04. House of Blues Brands Corp. (herein called "HOB Brands").
1.05. House of Blues Cambridge Restaurant Corp. (herein called "HOB
Cambridge").
DEFINITIONS
-----------
2.01. "Correspondence" means (a) that certain letter, dated February 26,
--------------
1993, from Pamela Jacklin, as counsel for Pisano, to Randall Roberts, as counsel
for the HOB Parties, and (b) that certain letter, dated April 19, 1993, from
Peter Laird, as counsel for Aykroyd, to Randall Roberts, as counsel for the HOB
Parties.
2.02. "HOB Parties" means Tigrett, HOB, HOB Brands and HOB Cambridge and
-----------
their respective principals, past or present officers, directors, stockholders,
employees, attorneys, agents, representatives, subsidiaries, parents, heirs,
successors and affiliated or associated entities of whatever kind.
2.03. "Licensing Agreement" means that certain Licensing Agreement, dated
-------------------
February 18, 1992, by and among Aykroyd, Pisano and Tigrett.
2.04. "Marks" means "House of Blues," "Help Ever-Hurt Never," "Original
-----
Home of the Blues," "Blues Basement," "Blues is Better," "El Soul" and "Blue
Note."
2.05. "Pisano" means Judith Belushi Pisano.
------
2.06. "Purchase Agreement" means that certain Class A Preferred Stock
------------------
Purchase Agreement to be entered into between HOB and the Investors (as defined
therein) for the sale of shares of Class A Convertible Preferred Stock of HOB.
<PAGE>
2.07. Except as otherwise defined herein, capitalized terms used in this
Release shall have the meanings set for the in the Licensing Agreement.
STATEMENT OF FACTS
------------------
The parties stipulate and agree to the following facts:
3.01. Pursuant to the Licensing Agreement, the Owners have heretofore
granted to Tigrett certain licenses to use the Property for certain specified
purposes, which licenses have been assigned to HOB Brands, with further
sublicenses to HOB and HOB Cambridge.
3.02. The Owners, through their counsel, have asserted certain claims
under the Licensing Agreement relating to use of the Marks by the HOB Parties.
3.03. As a condition to entering into the Purchase Agreement, certain of
the Investors (as defined in the Purchase Agreement) have required that such
claims be resolved.
3.04. Bona fide disputes and controversies exist among the parties to
this Release, both as to the fact and extent of liability, if any, and as to the
fact and extent of damages, if any. By reason of such disputes and
controversies, in order to induce the Investors to enter into the Purchase
Agreement and to avoid further trouble, litigation and expense, the parties to
this Release desire to settle such disputes and controversies.
In consideration of the foregoing, the agreements contained in this
Release, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
REPRESENTATIONS AND WARRANTIES
------------------------------
The following representations and warranties shall survive the execution
of this Release and the completion of the settlement provided below.
4.01. Each party to this Release warrants and represents that it has
the power and authority to enter into this Release and that this Release and all
documents delivered in connection with this Release by such party, are valid,
binding and enforceable against such party.
-2-
<PAGE>
4.02. Each party of this Release warrants and represents that no
consent, approval, authorization or order of, and no notice to, or filing with
any court, governmental authority, person or entity (except any which may have
been obtained) is required for such party's execution, delivery and performance
of this Release.
4.03. Each party to this Release warrants and represents that it owns
the claims released by it in this Release (to the extent that such claims exist)
and that no part of the claims released in this Release has been assigned or
transferred to any other person or entity.
TERMS OF RELEASE
----------------
5.01. Aykroyd hereby releases and forever discharges the HOB Parties
from any and all claims, demands, and causes of action of whatever kind or
character which Aykroyd has, or may have in the future, arising out of or
related to the matters asserted in the Correspondence, including, without
limitation: (a) any claim that the Marks, or any of them, were acquired by the
HOB Parties by reason of their use, conception and development of the Property;
(b) any claim that the Marks, or any of them, are a part, improvement, change,
derivation, addition or approximation to the Property or are deceptively
similar to the Property; (c) any claim that the Marks, or any of them, are the
property of or inure to the benefit of Aykroyd or that Aykroyd is entitled to
conveyance of the Marks, or any of them, to him pursuant to Section 2(b) of the
Licensing Agreement; (d) any claim that use of the Marks, or any of them, by
the HOB Parties creates an obligation to pay royalties to Aykroyd pursuant to
any of the royalty provisions contained in Exhibit A to the Licensing Agreement
other than paragraph (d) of Exhibit A; and (e) any claim that by virtue of
their use of the Marks, or any of them, the HOB Parties are engaging in a
business which incorporates a "blues" theme or concept and is competitive with
the Restaurants.
5.02. Aykroyd shall not participate or join in or consent to any
claim or cause of action asserted by Pisano arising out of or related to
the matters asserted in the Correspondence.
MISCELLANEOUS
-------------
6.01. This Release shall be governed and construed in accordance with
laws of the State of Delaware, except that any Delaware conflict of law rule
that may require reference to the laws of some other jurisdiction shall be
disregarded.
-3-
<PAGE>
6.02. The parties agree that this Release is entered into for settlement
purposes only in order to avoid further trouble, litigation and expense, and it
is further agreed that the parties do not admit liability or damages to each
other or anyone else, as the result of the claims released hereby.
6.03. If any provision of this Release is held by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless survive and continue in full force and effect without
being impaired or invalidated in any way.
6.04. The parties expressly disclaim reliance on any facts or
representations made by the others if not contained in this Release. This
Release represents the entire agreement of the parties with respect to the
subject matter hereof, supersedes all prior written or oral agreements, and the
terms are contractual and not mere recitals.
6.05 This Release shall continue perpetually and shall be binding upon and
inure to the benefit of the respective heirs, successors and assigns of Aykroyd
and the HOB Parties.
6.06. This Release may not be amended, altered, modified or changed in any
way except in writing signed by all the parties to this Release.
6.07. EACH OF THE PARTIES HERETO EXPRESSLY WARRANTS THAT IT HAS CAREFULLY
READ THIS RELEASE, UNDERSTANDS ITS CONTENTS AND SIGNS THIS RELEASE AS ITS OWN
FREE ACT.
6.08. This Release may be executed in multiple counterparts and by the
separate parties hereto in different counterparts, which may be delivered by
facsimile transmission or any other means. Each of such counterparts shall be
deemed an original and all of such counterparts shall together constitute a
single agreement.
-4-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this Release as
of the 4th day of June, 1993.
/s/ Daniel E. Aykroyd
-----------------------------------------
Daniel E. Aykroyd
/s/ Isaac B. Tigrett
-----------------------------------------
Isaac B. Tigrett
HOUSE OF BLUES, INC.
By: /s/ Isaac B. Tigrett
----------------------------------
Isaac B. Tigrett
President
HOUSE OF BLUES BRANDS CORP.
By: /s/ Isaac B. Tigrett
--------------------------------
Isaac B. Tigrett
President
HOUSE OF BLUES CAMBRIDGE RESTAURANT
CORP.
By: /s/ Isaac B. Tigrett
-----------------------------------
Isaac B. Tigrett
President
-5-
<PAGE>
EXHIBIT 10.70
GUARANTY SUPPLEMENT
Pursuant to a Waiver and Consent Agreement dated June 17, 1993 among
Daniel E. Aykroyd, Judith Belushi Pisano, Issac B. Tigrett, and HOB
Entertainment, Inc. ("Consent Agreement"), the undersigned has guaranteed
payment of all royalties due to Aykroyd and Pisano ("Obligations") under the
Licensing Agreement (the "Guaranty"). For valuable consideration, the
undersigned agrees as follows:
1. All capitalized terms not defined herein shall have the
meanings ascribed to them in the Consent Agreement.
2. The undersigned agrees to pay any and all expenses (including,
without limitation, all reasonable fees and disbursements of counsel) which may
be paid or incurred by Aykroyd and Pisano in successfully enforcing any rights
under the guaranty. Notwithstanding any payment made by the undersigned on the
guaranty, the undersigned shall not be entitled to be subrogated to any of the
rights of Aykroyd and Pisano. The Obligations, the liability of any other party
for the Obligations, or any collateral security or guarantee therefor may
be accelerated, compromised, waived, surrendered or released by Aykroyd and
Pisano without notice to or assent of, the undersigned, and the undersigned will
remain obligated hereunder, and the Licensing Agreement, and any other documents
executed and delivered in connection therewith may be amended, modified,
supplemented, or terminated in whole or in part, without notice to, or assent
of, the undersigned, and the undersigned will remain obligated hereunder.
Aykroyd and Pisano shall not by any act, delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder. The
undersigned hereby irrevocably and unconditionally:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THE GUARANTY TO THE NON-EXCLUSIVE GENERAL JURISDICTION
OF THE MULTNOMAH COUNTY COURT OF OREGON AND APPELLATE COURTS FROM ANY THEREOF,
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME; AND
1
<PAGE>
(C) AGREES THAT THE GUARANTY SHALL BE GOVERENED BY THE LAWS
OF OREGON.
Dated this 14th day of May, 1998.
HOB ENTERTAINMENT, INC.
By: /s/ [SIGNATURE ILLEGIBLE]
-----------------------------
Title: E.V.P./ Secretary
--------------------------
<PAGE>
EXHIBIT 10.71
ASSIGNMENT AGREEMENT
This Assignment agreement (the "Agreement"), effective February 17,
1992 (the "Effective Date"), is between Applied Action Research Corporation, a
California corporation ("Assignor") and Daniel E. Aykroyd ("Aykroyd").
WHEREAS, by a written Assignment and Assumption Agreement dated May
31, 1988, Assignor acquired Aykroyd's entire worldwide right, title and interest
in "The Blues Brothers" and the "Elwood Blues" character; and
WHEREAS, subsequent to said Assignment and Assumption Agreement,
Assignor reassigned certain of said rights to Aykroyd for the purpose of
exclusively licensing same to Isaac B. Tigrett; and
WHEREAS, the parties wish to memorialize that certain prior assignment
in writing as if same had been executed then;
NOW, THEREFORE, for value received, subject to the terms and
conditions set forth herein, the parties agree as follows:
1. Definitions.
-----------
"Property" shall mean copyright, publicity, trademark, trademark
Registrations (as defined herein"), trade dress, goodwill and other rights
connected with the Blues Brothers, including the "Elwood Blues" character.
"Registrations" shall mean United States and foreign trademark
registrations to protect the name and image of the Blues Brothers, including:
MISCELLANEOUS DESIGN, Classes: International 16, U.S. Class 38 (Display
Buttons), International 25, U.S. Class 39 (Clothing, Namely Casual Attire and
Headgear); BLUES BROTHERS, Classes: International 16, U.S. Class 38 (Books and
Postcards), International 25, U.S. Class 39 (Clothing, Namely Casual Attire and
Headgear); MISCELLANEOUS DESIGN, Classes: International 42, U.S. Class 100 (Bar
and Restaurant Services); B. B. BLUES BAR, Classes: International 25, U.S. Class
39 (Clothing, Namely Casual Attire and Headgear); B. B. BLUES BAR, Classes:
International 29, U.S. Class 46 (Food Products, Namely Salad Dressing); and
International 30, U.S. Class 46 (Ice Cream); B. B. BLUES BAR, Classes:
International 42, U.S. Class 100 (Bar and Restaurant Services); BLUES BROTHERS,
Classes: International 42, U.S. Class 100 (Bar and Restaurant Services); BLUES
BROTHERS, Classes: International 29, U.S. Class 46 (Food Products, Namely Salad
Dressings) and International 30, U.S. Class 46 (Ice Cream): MISCELLANEOUS
DESIGN. Classes: International 29, U.S. Class 46 (Food Products, Namely Salad
Dressing)and International 30, U.S. Class 46 (Ice Cream); MISCELLANEOUS DESIGN,
Classes: International 16, U.S. Class 38 (Printed Matter, Namely Calendars,
Stationery, Greeting Cards, Postcards and Restaurant Menus); BLUES BROTHERS,
Classes: international 16, U.S. Class 38 (Printed Matter, Namely
<PAGE>
Calendars, Stationery, Greeting Cards, and Restaurant Menus) and International
20, U. S. Class 40 (Ornamental Novelty Buttons).
2. Assignment of Rights. Assignor sells, grants, assigns and sets over unto
---------------------
Aykroyd, and his successors and assigns, forever, all of Assignor's right,
title and interest throughout the world in and to the Property:
a. To identify, promote, market, advertise, and operate restaurants; and
b. To advertise, identify, display, promote, market, manufacture and
otherwise merchandise tangible personal products, including food products.
3. Miscellaneous.
-------------
a. Applicable law. This Agreement shall be governed by the laws of the
--------------
state of California.
b. Modification or Amendment. No amendment, change or modification of this
-------------------------
Agreement shall be valid, unless in writing and signed by all of the
parties hereto.
c. Entire Agreement. This Agreement constitutes the entire understanding
----------------
and agreement of the parties with respect to its subject matter, and any
and all prior agreements, understandings or representations with respect
to its subject matter are hereby terminated and canceled in their
entirety and are of no further force or effect.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of February 17, 1992.
APPLIED ACTION
RESEARCH CORPORATION DANIEL E. AYKROYD
By: /s/ Daniel E. Aykroyd By: /s/ Daniel E. Aykroyd
------------------------- --------------------------
President Daniel E. Aykroyd
Date: July 7/98 Date: July 7/989
---------------------- --------------------------
<PAGE>
EXHIBIT 10.72
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of July 31,
---------
1998, by and between HOB Entertainment, Inc., a Delaware corporation (the
"Company"), and Chase Venture Capital Associates, L.P. ("Chase"), for the
------- -----
benefit of Chase and certain related persons and entities as more fully set
forth below.
RECITALS:
A. Chase is presently a stockholder of the Company and has indicated
that, through an affiliate, Chase/HOB 1998 Partners (GC), L.L.C. ("Chase HOB"),
---------
it is willing to make a substantial additional investment in the stock of the
Company.
B. In order to induce Chase to cause its affiliate to make such further
investment in the Company, the Company has agreed to indemnify Chase and certain
related persons or entities as follows.
AGREEMENT:
1. Indemnity. The Company agrees, to the fullest extent permitted by
---------
applicable law, to indemnify and hold harmless Chase, each director, officer,
employee, agent, advisor, partner, affiliate and stockholder of Chase, and any
person affiliated with any of such persons (including, without limitation, (i)
Chase Capital Partners and each of its partners and (ii) Chase HOB and each of
its members), against any and all Expenses (as defined below), costs, losses,
claims, damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and any
amount paid in settlement of, any action, suit or proceeding or any claim
asserted), promptly as such amounts are incurred, to which they, or any of them,
may become subject insofar as such losses, claims, damages or liabilities arise
out of or are based upon or in any manner relate to any claim, complaint or
other allegation initiated by a party other than a party entitled to
indemnification hereunder, with respect to (i) the status of Chase as a
stockholder of the Company prior to the completion of the offering of Class D
Preferred Stock by the Company, (ii) the acquisition of shares of stock of the
Company by Chase HOB pursuant to the Class D Preferred Stock Purchase Agreement
(the "Purchase Agreement") and its participation in the transactions
------------------
contemplated thereby or (iii) the participation by Chase or any of the related
persons and entities identified above in planning, structuring, obtaining
approval of, or participating in the transactions contemplated by the Purchase
Agreement, whether such event participating in the transactions contemplated by
the Purchase Agreement, whether such event took place before or after the
execution of this Agreement. The right to indemnity provided in this Agreement
is in addition to any obligation which the Company may otherwise have
2. Expenses. As used in the Agreement, the term "Expenses" shall be
-------- --------
interpreted broadly and include (without limitation) damages, judgments, fines,
penalties, settlements and costs, attorneys' fees and disbursements and costs of
attachment or similar bonds,
<PAGE>
investigations, and any expenses of establishing a right to indemnification
under this Agreement.
3. Procedures. In the event that any indemnified party proposes to
----------
assert the right to be indemnified under Section 1, such party will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim is to be made against the Company
under this Agreement, notify the Company of the commencement of such action,
suit or proceeding, enclosing a copy of all papers served; provided, however,
-------- -------
that the omission so to notify the Company of any such action, suit or
proceeding shall not, however, relieve the Company from any liability unless,
and only to the extent that, the Company is actually prejudiced by such delay.
In case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the Company of the commencement thereof,
the Company shall be entitled to participate in, and, to the extent that it
wishes, to assume the defense thereof, with outside counsel reasonably
satisfactory to such indemnified party, provided that such defense may only be
--------
assumed by the Company if (i) the company confirms in writing its responsibility
to indemnify the indemnified party in full in respect of such proceeding,
without any reservation of rights and (ii) the indemnified party is satisfied,
in its reasonable judgment, that the Company possesses the financial resources
to defend and resolve such claim. Throughout the pendency of any claim, the
indemnified party shall nonetheless retain its right, at the Company's expense,
to employ separate counsel of its choice in any such action in order to monitor
the proceedings, including to monitor the Company's compliance with its duty to
defend fully such indemnified party in respect thereof and the Company shall
provide such counsel with full access to its counsel and the related
proceedings; provided, however, that the Company shall be responsible for the
-------- -------
expenses of only one such counsel (and any necessary local counsel) for all
parties entitled to indemnification under this Agreement. If the Company assumes
the defense of any such proceeding, no settlement with respect to such
proceeding will be made involving any indemnified party without the prior
written consent of all indemnified parties, which consent shall not be
unreasonably withheld.
4. Enforcement. If a proper claim or request under this Agreement is not
-----------
paid by the Company, or on its behalf, within thirty days after a written claim
or request has been received by the Company, the indemnified party may at any
time thereafter bring suit against the Company to recover the unpaid amount of
the claim or request and if successful in whole or in part, the indemnified
party shall also be entitled to be paid all Expenses of prosecuting such suit.
The Company shall have the right to recoup from the Indemnitee the amount of
any item or items of Expenses theretofore paid by the Company pursuant to this
Agreement, to the extent such Expenses are not reasonable in nature or amounts;
provided, however, that the Company shall have the burden of proving such
- -------- -------
Expenses to be unreasonable. The burden of proving that the indemnified party is
not entitled to indemnification for any other reason shall be upon the Company.
5. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of the
2
<PAGE>
indemnified party, who shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
6. Partial Indemnification. If the indemnified party is entitled under
-----------------------
any provision of this Agreement to indemnification by the Company for some or a
portion of Expenses, but not, however, for the total amount thereof, the Company
shall nevertheless indemnify the indemnified party for the portion of such
Expenses to which the indemnified party is entitled.
7. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one instrument.
8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with Delaware law, without regard to the conflicts of law provisions
thereof.
9. Saving Clause. The intention of this parties is to indemnify Chase
-------------
and the other persons and entities affiliated therewith which constitute
indemnified parties hereunder to the greatest permitted by applicable law in
connection with the transactions and actions identified above. Accordingly,
wherever there is conflict between any provision of this Agreement and any
applicable present or future statute, law or regulation contrary to which the
Company and the indemnified party have no legal right to contract, the latter
shall prevail, but in such event the affected provisions of this Agreement shall
be curtailed and restricted to the extent, but only to the extent, necessary to
bring them within applicable legal requirements.
(Signature Page Follows)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and signed as of the day and year first above written.
HOB ENTERTAINMENT, INC.
By /s/ Gregory A. Trojan
----------------------------
President
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners
General Partner
By /s/ David L. Ferguson
---------------------------------
Authorized Signatory
4
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Organized Under Laws
Name of Company of
- --------------- --------------------
<S> <C>
Cuyahoga Falls Concerts, Inc. ............................ Delaware
Hilltop Concerts, Inc. ................................... California
HOB Chicago, Inc. ........................................ Delaware
HOB Concerts II, Inc. .................................... California
HOB Concerts Arenas, Inc. ................................ California
HOB Concerts Canada Ltd. ................................. Ontario, Canada
HOB Concerts Company...................................... Colorado
HOB Concerts Events, Inc. ................................ California
HOB Concerts Oregon, Inc. ................................ California
HOB Concerts Tickets Holdings, Inc. ...................... California
HOB Concerts Tickets, Inc. ............................... California
HOB Concerts/PACE Amphitheatres Group, L.P. .............. Delaware
HOB Hotel Chicago, Inc. .................................. Delaware
HOB Hotel Chicago Partners, L.P. ......................... Delaware
HOB Marina City, Inc. .................................... Delaware
HOB Marina City Partners, L.P. ........................... Delaware
House of Blues Brands Corp. .............................. Delaware
House of Blues Cambridge Restaurant Corp. ................ Delaware
House of Blues Concerts, Inc. ............................ California
House of Blues Concerts/Hewitt/Silva LLC.................. Delaware
House of Blues Digital, Inc. ............................. Delaware
House of Blues Hospitality, Inc. ......................... Delaware
House of Blues Los Angeles Restaurant Corp. .............. Delaware
House of Blues Las Vegas Restaurant Corp. ................ Delaware
House of Blues Music, Inc. ............................... Delaware
House of Blues Myrtle Beach Restaurant Corp. ............. Delaware
House of Blues New Orleans Restaurant Corp. .............. Delaware
House of Blues Orlando Restaurant Corp. .................. Delaware
House of Blues Productions, Inc. ......................... Delaware
House of Blues Records, Inc. ............................. Delaware
House of Blues Tours and Talent, Inc. .................... Delaware
House of Blues Smokin' Grooves, Inc. ..................... Delaware
House of Blues San Diego Restaurant Corp. ................ Delaware
Impact Tours, Inc. ....................................... California
Live from the House of Blues Productions, Inc. ........... Delaware
The Andrew Hewitt Corporation............................. California
WJS III, Inc. ............................................ California
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 10, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated August 30, 1999, except for Note 11 which is as of September
13, 1999, relating to the financial statements of Universal Concerts, Inc.,
which appear in such Registration Statement. We also consent to the references
to us under the headings "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Century City, California
March 10, 2000
<PAGE>
EXHIBIT 23.3
CONSENT OF KPMG LLP
The Board of Directors
Ticketmaster Southeast (a joint venture)
HOB Entertainment, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
KPMG LLP
Los Angeles, California
March 10, 2000
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated September 3, 1999 (except for note 11 which is at February 17,
2000) relating to the financial statements of Universal Concerts Canada, which
appear in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Chartered Accountants
Mississauga, Ontario, Canada
March 10, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
The consolidated Financial Statements of HOB Entertainment, Inc.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-02-2000
<PERIOD-START> JUN-28-1999
<PERIOD-END> DEC-26-1999
<CASH> 35,993
<SECURITIES> 0
<RECEIVABLES> 6,431
<ALLOWANCES> 326
<INVENTORY> 2,303
<CURRENT-ASSETS> 51,632
<PP&E> 127,140
<DEPRECIATION> 20,439
<TOTAL-ASSETS> 106,701
<CURRENT-LIABILITIES> 47,220
<BONDS> 71,976
287,786
0
<COMMON> 1
<OTHER-SE> (102,029)
<TOTAL-LIABILITY-AND-EQUITY> 323,274
<SALES> 0
<TOTAL-REVENUES> 107,263
<CGS> 99,554
<TOTAL-COSTS> 112,151
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,111
<INCOME-PRETAX> (6,880)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,880)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,880)
<EPS-BASIC> (4.55)
<EPS-DILUTED> (4.55)
</TABLE>
