-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BmGva+7di0es9ENb1f5dcH4an3oj5wCWxQ/U66LHnrBOa0KtOL2YFbQ1t6ZswZql 2ptQrQMTcfFnbhZGAC3uxg== 0000950116-97-002024.txt : 19971114 0000950116-97-002024.hdr.sgml : 19971114 ACCESSION NUMBER: 0000950116-97-002024 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 19971112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TAM RESTAURANTS INC CENTRAL INDEX KEY: 0001048796 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 133905598 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: SB-2 SEC ACT: SEC FILE NUMBER: 333-39937 FILM NUMBER: 97712552 BUSINESS ADDRESS: STREET 1: 1163 FORREST AVE. CITY: STATEN ISLAND STATE: NY ZIP: 10310 BUSINESS PHONE: 7187205959 SB-2 1 As filed with the Securities and Exchange Commission on November 12, 1997 Registration No. 333- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------- TAM RESTAURANTS, INC.* (Exact name of small business issuer as specified in its charter) Delaware 5812 133905598 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification No.) Identification No.)
1163 Forest Avenue Staten Island, New York 10310 (718) 720-5959 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------- Frank Cretella President and Chief Executive Officer TAM Restaurants, Inc. 1163 Forest Avenue Staten Island, New York 10310 (718) 720-5959 (Name, address and telephone number of agent for service) ---------- Copies of all communications to: ROBERT J. MITTMAN, ESQ. ALAN H. ARONSON, ESQ. Tenzer Greenblatt LLP Akerman, Senterfitt & Eidson, P.A. The Chrysler Building One Southeast 3rd Avenue 405 Lexington Avenue Miami, Florida 33131-1704 New York, New York 10174-0208 Telephone: (305) 374-5600 Telephone: (212) 885-5000 Facsimile: (305) 374-5095 Facsimile: (212) 885-5001 Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 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(c) 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 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. [X] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
================================================================================================================================ Proposed Proposed Maximum Offering Maximum Amount of Title of Each Class of Amount to Price Per Aggregate Offering Registration Securities to be Registered be Registered Security (1) Price (1) Fee - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.0001 per share..... 1,150,000(2) $5.00 $5,750,000 $1,742.42 - -------------------------------------------------------------------------------------------------------------------------------- Warrants, each to purchase one share of Common Stock................ 575,000(2) $.10 $57,500 $17.42 - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.0001 per share, issuable upon exercise of Warrants (3)............. 575,000 $6.00 $3,450,000 $1,045.45 - -------------------------------------------------------------------------------------------------------------------------------- Warrants, each to purchase one share of Common Stock(4)............. 310,000 $.10 $31,000 $9.39 - -------------------------------------------------------------------------------------------------------------------------------- Common Stock, par value $.0001 per share, issuable upon exercise of Warrants(3)(4)........... 310,000 $6.00 $1,860,000 $563.65 - -------------------------------------------------------------------------------------------------------------------------------- Total...................................................................................................... $3,378.33 ================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee. (2) Assumes the Underwriter's over-allotment option to purchase up to 150,000 additional shares of Common Stock and/or 75,000 Warrants is exercised in full. (3) Pursuant to Rule 416, the Company is also hereby registering such indeterminable additional shares of Common Stock as may become issuable upon exercise of the Warrants pursuant to anti-dilution provisions contained in the Warrants. (4) Registered on behalf of the Selling Securityholders. * As disclosed on page 5 of the Prospectus included as part of this Registration Statement, the Prospectus gives effect to a name change to be effected on or prior to the effective date of this Registration Statement. 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. TAM RESTAURANTS, INC. Cross Reference Sheet Pursuant to Rule 404
Registration Statement Item Number and Caption Prospectus Caption 1. Front of the Registration Statement and Outside Front Cover Page of Prospectus.................................... Forepart of the Registration Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus.................................................. Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information and Risk Factors........................ Prospectus Summary; Risk Factors 4. Use of Proceeds............................................. Use of Proceeds 5. Determination of Offering Price............................. Outside Front Cover Page of Prospectus; Risk Factors; Underwriting 6. Dilution.................................................... Risk Factors; Dilution 7. Selling Securityholders..................................... Selling Securityholders and Plan of Distribution 8. Plan of Distribution........................................ Outside Front Cover Page of Prospectus; Underwriting 9. Legal Proceedings........................................... Not Applicable 10. Directors, Executive Officers, Promoters and Control Persons..................................................... Management 11. Security Ownership of Certain Beneficial Owners and Management.................................................. Principal Stockholders 12. Description of Securities................................... Outside and Inside Front Cover Pages of Prospectus; Prospectus Summary; Capitalization; Description of Securities 13. Interest of Named Experts and Counsel....................... Legal Matters 14. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................. Exculpatory Provisions and Indemnification Matters 15. Organization Within Last Five Years......................... Prospectus Summary; Management's Discussion and Analysis of Financial Condition and Results of Operations 16. Description of Business..................................... Prospectus Summary; Risk Factors; Use of Proceeds; Business 17. Management's Discussion and Analysis or Plan of Operation........................................ Management's Discussion and Analysis of Financial Condition and Results of Operations 18. Description of Property .................................... Business 19. Certain Relationships and Related Transactions.............. Certain Transactions 20. Market for Common Equity and Related Stockholder Matters..................................................... Outside Front Cover Page; Risk Factors; Dividend Policy; Description of Securities 21. Executive Compensation...................................... Management 22. Financial Statements........................................ Financial Statements 23. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure......................... Not Applicable
PRELIMINARY PROSPECTUS DATED NOVEMBER 12, 1997 SUBJECT TO COMPLETION TAM RESTAURANTS, INC. 1,000,000 Shares of Common Stock and Redeemable Warrants to Purchase 500,000 Shares of Common Stock The Company is offering hereby 1,000,000 shares (the "Shares") of the common stock of the Company (the "Common Stock") and redeemable warrants to purchase 500,000 shares of Common Stock (the "Warrants"). The Shares and Warrants may be purchased separately and will be separately transferrable immediately upon issuance. Each Warrant entitles the registered holder thereof to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances, at any time commencing , 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents) until , 2003. The Warrants are redeemable by the Company at any time commencing , 1999 (13 months following the date of this Prospectus) upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date. See "Description of Securities." Prior to this offering there has been no public market for the Common Stock or Warrants and there can be no assurance that any such market will develop. It is anticipated that the Common Stock and Warrants will be quoted on the Nasdaq SmallCap Market ("Nasdaq") under the symbols "TAMR" and "TAMRW," respectively. The offering prices of the Shares and Warrants, and the exercise price of the Warrants, were determined pursuant to negotiations between the Company and the Underwriter and do not necessarily relate to the Company's book value or any other established criteria of value. For a discussion of the factors considered in determining the offering prices of the Shares and Warrants, see "Underwriting." This Prospectus also relates to the offer and sale by certain persons (the "Selling Securityholders") of up to 310,000 warrants (the "Selling Securityholders' Warrants"), which are identical to the Warrants and will be issued to the Selling Securityholders upon the consummation of this offering upon the conversion of outstanding warrants, and up to 310,000 shares (the "Selling Securityholders' Shares") of Common Stock issuable upon exercise of the Selling Securityholders' Warrants. The Selling Securityholders' Warrants are not part of the underwritten offering, however, and may not be offered or sold prior to the 15 months following the date of this Prospectus without the prior written consent of the Underwriter. The Company will not receive any of the proceeds from the sale of the Selling Securityholders' Warrants and Selling Securityholders' shares. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Selling Securityholders and Plan of Distribution." ------------------------------- THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" COMMENCING ON PAGE 8 AND "DILUTION" ON PAGE 18. ------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. =============================================================================== Price Underwriting Proceeds to Discounts and to Public Commissions(1) Company(2) - ------------------------------------------------------------------------------- Per Share ................... $5.00 $.50 $4.50 - ------------------------------------------------------------------------------- Per Warrant.................. $.10 $.01 $.09 - ------------------------------------------------------------------------------- Total (3).................... $5,050,000 $505,000 $4,545,000 =============================================================================== (1) The Company has agreed to pay to the Underwriter a 3% nonaccountable expense allowance, to sell to the Underwriter warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock and/or 50,000 warrants and to retain the Underwriter as a financial consultant. The Company has also agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company, including the Underwriter's nonaccountable expense allowance in the amount of $151,500 ($174,225 if the Underwriter's over-allotment option is exercised in full), estimated at $595,000. (3) The Company has granted to the Underwriter an option, exercisable within 45 days from the date of this Prospectus, to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants on the same terms set forth above, solely for the purpose of covering over-allotments, if any. If the Underwriter's over-allotment option is exercised in full, the total price to public, underwriting discounts and commissions and proceeds to Company will be $5,807,500, $580,750 and $5,226,750, respectively. See "Underwriting." ---------- The Shares and Warrants are being offered, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter reserves the right to withdraw, cancel or modify this offering and to reject any order in whole or in part. It is expected that delivery of certificates representing the Shares and Warrants will be made against payment therefor at the offices of the Underwriter, 7 Hanover Square, New York, New York 10004, on or about , 1997. ---------- Paragon Capital Corporation The date of this Prospectus is , 1997 ------------------------ CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS ON NASDAQ, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE, WHICH STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICES OF THE UNITS, COMMON STOCK AND WARRANTS. SPECIFICALLY, THE UNDERWRITER MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK AND WARRANTS IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING." PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Each prospective investor is urged to read this Prospectus in its entirety. Unless otherwise indicated, all share and per share data and information in this Prospectus (i) gives retroactive effect to a 1 for 1.8135268 reverse split of the Common Stock to be effected on or prior to the date of this Prospectus and (ii) assumes no exercise of the Underwriter's over-allotment option to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants. See "Underwriting" and Note Q to Notes to Financial Statements. This Prospectus contains forward-looking statements that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in "Risk Factors." The Company TAM Restaurants, Inc. (the "Company") operates Lundy Bros. Restaurant ("Lundy's"), a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse in Central Park ("The Boathouse"), a multi-use facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park at the Battery ("American Park"), which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. In addition, the Company's restaurants offer high-quality professional, on-premise and off-premise catering services. The Lundy's concept is designed to appeal to a broad range of guests by serving generous portions of premium-quality seafood and other menu items and by combining a grand dining experience with friendly and efficient service in a high-energy environment. Lundy's menu features a wide variety of fresh seafood items, including lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order in a variety of ways: steamed, sauteed, boiled, broiled, grilled, blackened and fried. In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes, pizzas, appetizers, chowders, salads and desserts, as well as full bar service. Dinner entrees range in price from $7.95 to $28.95 and the average dinner check is approximately $32.00 per person. Lundy's is open for lunch and dinner seven days a week. Lundy's interior has been designed with a contemporary decor, rich polished woods and granite surfaces, accented with copper, pottery and brushed-stainless steel and earth tones, to impart "Old World" elegance and comfort. Lundy's commitment to offering its guests a casual, exciting dining experience is highlighted by its "exhibition" kitchen where all meals are cooked to order in view of its guests, a lobster pool from which guests can select their lobsters, an experienced waitstaff uniformed in crisp white linen jackets, a high waitstaff-to-customer ratio to assure attentive service and tables covered with multiple layers of colored linens covered with pristine white butcher paper. Lundy's offers guests several seating selections in its multi-level interior, which consists of an expansive, high-ceiling main dining area; a large upstairs dining room which is also used for special events and to cater private functions; a mezzanine-level cigar room which overlooks the main dining area; and a 30 foot long oyster and beverage bar; as well as outdoor seating. Lundy's also houses a seafood laboratory where seafood is tested to assure premium quality and freshness, and a gift shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise, such as T-shirts and other clothing items, hats, books, plates and coffee and beer mugs, as well as Lundy's chowders and sauces and seafood related products, such as lobster bibs, crackers and forks. -3- The Boathouse is a multi-use, lakeside facility which features an upscale restaurant with primarily al fresco (outdoor) seating and offers guests a comfortable, relaxed and romantic atmosphere. The Boathouse serves eclectic American cuisine that changes according to season and consumer trends, emphasizing herbs grown fresh on site. The menu is limited in scope to permit the greatest attention to quality while offering sufficient breadth to appeal to a variety of taste preferences. Dinner entrees range in price from $19.00 to $28.00 and the average dinner check is approximately $44.00 per person. Other attractions of The Boathouse include a glass-enclosed, tented catering pavilion for private functions; a cocktail area with a jazz band performing live five nights a week; The Boathouse Express, a cafeteria-style convenience counter with indoor and outdoor seating which serves specialty sandwiches, salads, baked goods, and juices, as well as traditional fast-food, such as hamburgers, hot dogs, french fries and sodas; carts and kiosks strategically located on the facility's grounds offering a variety of food and beverage items, such as fresh fruit drinks, New York-style pretzels, pita sandwiches and espresso and cappuccino; rowboat and bicycle rentals and Venetian gondola rides; and a merchandise counter. The restaurant is open for lunch and dinner on a seasonally adjusted basis, while the catering pavilion and The Boathouse Express are open year-round. American Park has been designed with an urban mountain lodge motif, incorporating natural fabrics, slate, stone, wood and brick with modern-style furnishings, vibrant colors and designer lighting, and providing panoramic views of the New York City harbor and downtown Manhattan skyline. American Park will offer seating selections in its main dining room, second floor dining room and bi-level outdoor patio. American Park is expected to serve contemporary American cuisine featuring wood-burning menu selections, such as steaks, whole fish, chicken and veal dishes. The lower-level outdoor patio will extend to the water's edge and is expected to incorporate a separate kitchen which serves selected items from the main restaurant menu and an expanded bar area. In addition, the Company intends to operate a free-standing kiosk as part of American Park which is expected to serve appetizers, sandwiches, cold beverages, beer and wine. The Company believes that providing friendly, courteous, efficient service is critical to the long-term success of each location. The Company maintains a guest service department which, among other things, contacts several customers from each location's previous night's reservation list to inquire about their dining experiences. The Company utilizes guest feedback to continually improve its service, update its menu selections and otherwise improve its operations. The Company also believes that the selection and training of its employees result in friendly, courteous, efficient guest service which contributes to a pleasurable dining experience for the guest. Lundy's and The Boathouse are approximately 16,500 and 20,000 square feet in size, respectively, and have a seating capacity of approximately 730 and 790 seats, respectively. American Park is approximately 18,300 square feet in size and is expected to have a seating capacity of approximately 750 seats. Sales for Lundy's and The Boathouse were $5,694,382 and $6,152,706, respectively, during the fiscal year ended September 29, 1996, and $4,709,258 and $4,021,905, respectively, during the nine months ended June 29, 1997. The Company's food and liquor sales accounted for 76.8% and 15.3% of revenues, respectively, for the fiscal year ended September 29, 1996, and 76.8% and 15.3% of revenues, respectively, for the nine months ended June 29, 1997. The Company's strategy is to initially develop and operate a limited number of additional Lundy's restaurants in the New York City metropolitan area and other urban and upscale suburban areas, particularly those with a large population of transplanted New Yorkers, such as Southern Florida, Los Angeles, Chicago and Washington D.C. With a substantial portion of the proceeds of this offering, projected cash flow from operations and anticipated financing, including equipment and vendor financing and landlord development concessions and rent allowances, the Company intends to open three additional Lundy's restaurants during the 12 months following the consummation of this offering. In addition, in connection with its expansion strategy, the Company may seek to open additional high-volume landmark-type restaurants, as appropriate opportunities arise. The Company, however, has no commitments or understandings with respect to any proposed location or other sources of financing. The Company has limited experience in expanding its operations and there can be no assurance that it will be able to successfully do so. The Company was formed to act as a holding company and was incorporated under the laws of the State of Delaware in July 1996 under the name TAM Restaurant Holding Corp. and changed its name to TAM -4- Restaurants, Inc. Effective September 29, 1996, the Company acquired (the "Acquisition") all of the outstanding capital stock of TAM Restaurant Group, Inc. ("TAM"), Bay Landing Restaurant Corp. ("Bay Landing") and Shellbank Restaurant Corp. ("Shellbank"). Unless the context requires otherwise, all references to "the Company" include its wholly-owned subsidiaries, TAM, Bay Landing and Shellbank, and Plum Third Street Corp., a wholly-owned subsidiary of Bay Landing. The Company's executive offices are located at 1163 Forest Avenue, Staten Island, New York 10310 and its telephone number is (718) 720-5959. Recent Financing In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO Associates, L.P., affiliates of Kayne Anderson Investment Management, Inc. (collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000. The loans bear interest at the rate of 10% per annum, payable quarterly commencing December 31, 1997, and are due May 31, 1999. Upon an event of default under the loans, the interest rate increases to 15% per annum and the Company would be required to pay to Kayne Anderson 25% of the operating profits from American Park on a monthly basis until the loan is fully repaid. The loan is guaranteed by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, and the guarantee is secured by a pledge of 200,000 shares of Common Stock owned by Frank Cretella and Jeanne Cretella, Vice President, a director and principal stockholder of the Company. As partial consideration for the loans, the Company issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares of Common Stock. The KA Warrants are exercisable at a price of $5.00 per share (subject to adjustment under certain circumstances) and are exercisable at any time commencing 90 days following the date of this Prospectus. In connection with the loan, the Company agreed to use its best efforts to cause a representative designated by Kayne Anderson to be elected to the Company's Board of Directors. Kenneth L. Harris is Kayne Anderson's initial designee. The Offering Securities offered ............................... 1,000,000 Shares and Warrants to purchase 500,000 shares of Common Stock. The Shares and Warrants may be purchased separately and will be separately transferable immediately upon issuance. See "Description of Securities." Common Stock to be outstanding after this offering(1) ........................ 3,500,000 shares of Common Stock Warrants(2): Number to be outstanding after this offering....................... 500,000 Warrants Exercise terms .............................. Exercisable at any time commencing , 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents), each to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances. See "Description of Securities - Redeemable Warrants." Expiration date ............................. , 2003 Redemption .................................. Redeemable by the Company at any time commencing , 1999 (13 months following the date of this Prospectus), upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date")
-5- has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter with respect to such redemption prior to the Call Date. The Warrants will be exercisable until the close of business on the date fixed for redemption. See "Description of Securities - Redeemable Warrants." Use of Proceeds .................................. The Company intends to use the net proceeds of this offering for the construction of new restaurants; and for working capital and general corporate purposes. See "Use of Proceeds." Risk Factors ..................................... The securities offered hereby are speculative and involve a high degree of risk and immediate substantial dilution and should not be purchased by investors who cannot afford the loss of their entire investment. See "Risk Factors" and "Dilution." Proposed Nasdaq symbols .......................... Common Stock -- TAMR Warrants -- TAMRW
- ---------- (1) Does not include: (i) 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants; (ii) an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein; (iii) an aggregate of 310,000 shares of Common Stock (the "Selling Securityholders' Shares") reserved for issuance upon exercise of outstanding warrants which will be converted into warrants (the "Selling Securityholders' Warrants") identical to the Warrants; (iv) 203,000 shares of Common Stock reserved for issuance upon exercise of other outstanding warrants; (v) 197,500 shares of Common Stock reserved for issuance upon exercise of outstanding options granted under the Company's 1997 Stock Option Plan (the "Option Plan"); and (vi) 327,500 shares of Common Stock reserved for issuance upon exercise of options available for future grant under the Option Plan. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Management - 1997 Stock Option Plan," "Certain Transactions," "Description of Securities" and "Underwriting." (2) Does not include any of the warrants referred to in clauses (ii), (iii) or (iv) of footnote 1 above. -6- Summary Financial Information The summary financial information set forth below is derived from and should be read in conjunction with the financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Statement of Operations Data:
Nine Months Nine Months Year Ended Ended June 30, Ended June 29, September 29, 1996 1996 1997 ------------------ -------------- ----------- Net Sales............................... $11,847,088 $7,261,892 $8,902,628 Gross Profit............................ 4,586,648 2,759,519 3,838,421 Income (loss) from operations........... (1,536,222) (994,680) 591,714 Net income (loss) from continuing operations(1)........................... (2,637,226) (2,001,972) 109,100 Net income (loss) per share from continuing operations (1)............... (1.22) .05 Weighted average number of shares outstanding............................. 2,160,676 2,418,294
Balance Sheet Data:
September 29, 1996 June 29, 1997 ------------------ ------------------------------------------------------------------- Actual Pro Forma(2) As Adjusted(3) Working capital (deficit)...... $(2,026,787) $(2,131,423) $(420,798) $ 3,529,202 Total assets................... 4,728,868 6,323,596 7,323,596 11,273,596 Total liabilities.............. 4,620,113 5,670,741 6,670,741 6,670,741 Stockholders' equity........... 108,755 652,855 652,855 4,602,855
- ---------- (1) Effective September 29, 1996, the Company transferred the assets of its concession business to MAT Operating Corp. ("MAT"), a company wholly-owned by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company. For each of the year ended September 29, 1996 and nine months ended June 30, 1996, net income from such discontinued operations was $30,142 or $.01 per share. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations," "Certain Transactions" and Consolidated Financial Statements. (2) Gives effect to (i) the reclassification of approximately $720,125 of short-term indebtedness to long-term indebtedness, and (ii) the issuance of the $1,000,000 principal amount of promissory notes in October 1997 to Kayne Anderson and the receipt of the approximately $990,500 of net proceeds therefrom. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Certain Transactions." (3) Gives effect to the sale of the Shares and Warrants offered hereby and the application of the estimated net proceeds therefrom. See "Use of Proceeds." -7- RISK FACTORS The securities offered hereby are speculative and involve a high degree of risk. Prospective investors should carefully consider the following risk factors before making an investment decision. Operating Losses; Future Operating Results; Explanatory Paragraph in Independent Auditors' Report. Although the Company has recently generated net income, during the year ended September 29, 1996, the Company incurred a net loss from continuing operations of $2,637,226 and, at June 29, 1997, had an accumulated deficit of $2,480,194. The Company's operating expenses have increased and can be expected to increase significantly in connection with the Company's proposed expansion (including capital expenditures for construction of and rental payments for new locations prior to their opening). The Company's future profitability will depend upon, among other things, the Company's ability to generate a level of revenues sufficient to offset its cost structure in addition to reducing its operating costs on a per location basis. The Company believes that generation of that level of revenues is dependent upon the timely opening of additional restaurants and future restaurants achieving and maintaining market acceptance. There can be no assurance that the Company will achieve significantly increased revenues or maintain profitable operations. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements, stating that they have been prepared assuming that the Company will continue as a going concern and that significant prior losses from operations raise substantial doubt about the Company's ability to continue as a going concern. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Consolidated Financial Statements. Significant Capital Requirements; Need for Additional Financing. The Company's capital requirements have been and will continue to be significant and its cash requirements have been exceeding its cash flow from operations (at June 29, 1997, the Company had a working capital deficit of $2,131,423) due to, among other things, costs associated with development, opening and start-up costs of Lundy's and American Park and building a corporate infrastructure sufficient to support the Company's proposed expanded operations. As a result, the Company has been substantially dependent upon sales of its equity securities, loans from financial institutions and the Company's officers, directors and stockholders and bartering transactions with member dining clubs to finance a portion of its working capital requirements. The Company is dependent upon the proceeds of this offering to finance a portion of its proposed expansion over the 12 months following the consummation of this offering. Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. Any inability to obtain additional financing when needed would have a material adverse effect on the Company, including requiring it to curtail its expansion efforts. In addition, any additional equity financing may involve substantial dilution to the interests of the Company's then existing stockholders. See "Use of Proceeds," "Dilution," "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Limited Restaurant Base; Dependence Upon Principal Restaurants; High Restaurant Failure Rate. To date, all of the Company's revenues have been derived from only two restaurants, one of which has been in operation only since 1995 and both of which are located in New York City. The results achieved to date by the Company's small restaurant base may not be indicative of the prospects or market acceptance of a larger number of restaurants or of -8- more geographically dispersed restaurants, located in areas with more varied demographic characteristics. Moreover, the opening of new restaurants is characterized by a very high failure rate. Although The Boathouse has operated successfully for many years, there can be no assurance that American Park or any new Lundy's restaurants will be successful or operate profitably. In addition, the Company expects that during the first several months of operation of a newly opened restaurant, such restaurant could operate at a loss. In the event of a prolonged period of unfavorable operating results for a restaurant, the Company may be required to close such restaurant, which could have a material adverse effect on the financial condition and results of operations of the Company. The Company will remain dependent upon a limited number of high-volume restaurants for substantially all of its revenues. The lack of success or closing of any of the Company's existing restaurants, or the unsuccessful operation of a new restaurant, would have material adverse effect upon the financial condition and results of operations of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." Risks Relating to Proposed Expansion. The Company is currently implementing a strategy to expand its operations and will seek to open American Park and additional Lundy's restaurants. The Company has limited experience in effectuating rapid expansion and in managing a large number of locations or locations that are geographically dispersed. The Company intends to open American Park by January 1998 and three Lundy's restaurants during the 12 months following the consummation of this offering. The Company's proposed expansion will be dependent on, among other things, the proceeds of this offering, the availability of other sources of financing, achieving significant market acceptance for its Lundy's concept, distinguishing the Lundy's concept from other seafood restaurants, developing customer recognition and loyalty for the Lundy's name, identifying a sufficient number of prime locations and entering into lease arrangements for such locations on favorable terms, timely development and construction of American Park and new Lundy's locations, securing required governmental permits and approvals, hiring, training and retaining skilled management and other personnel, the Company's ability to integrate new restaurants into its operations and the general ability to successfully manage growth (including monitoring restaurant operations, controlling costs and maintaining effective quality controls). In the event that cash flow from operations is insufficient or that the Company is unable to obtain adequate equipment, vendor or landlord financing, or other unexpected events occur, such as delays in identifying suitable locations, negotiating leases, obtaining permits or design and construction delays, the Company may not be able to open all of such locations in a timely manner, or at all. Moreover, the Company believes that consumer recognition and perception of the Lundy's name has contributed to the success of the existing Lundy's restaurant. Consumer recognition of the Lundy's name outside of the New York City area is likely to be significantly less and, therefore, the success of any future Lundy's restaurant will be dependent upon the Company's ability to distinguish such location from its competitors on bases, such as price, quality and service. There can be no assurance that the Company will be successful in opening the number of restaurants currently anticipated in a timely manner, or at all, or that, if opened, those restaurants will operate profitably. See "Business -- Expansion Strategy." Long Start-up Cycles; Fluctuations in Operating Results; Start-up Expense. The Company's restaurant start-up cycle, which generally commences with site selection and ends upon the opening of the restaurant to customers, will vary by location and could extend for periods of six months or more. Difficulties or delays in site selection or events over which the Company will have no control, such as delays in construction due to governmental regulatory approvals, shortage of or the inability to obtain labor and/or materials, inability of the general contractor or subcontractors to perform under their contracts, strikes or availability and cost of needed debt or lease financing, could materially adversely affect the start-up costs and completion times of new locations. The Company expects that future quarterly operating results will fluctuate as a result of the timing of and expenses related to the openings of new restaurants (as the Company will incur significant expenses during the months preceding the opening of a restaurant), as well as due to various other factors, including the seasonal nature of its business, weather conditions in New York City, the health of New York City's economy in general and its tourism industry in particular. Accordingly, the Company's sales and earnings may fluctuate significantly from quarter to quarter and operating results for any quarter will not necessarily be indicative of the results that may be achieved for a full year. In addition, the capital resources required to construct each new location are significant. The Company estimates that the costs of constructing its future Lundy's locations will be approximately $1.5 million, net of anticipated landlord contributions. The Company expects that it will incur approximately $300,000 in additional pre-opening costs in -9- connection with the opening of future sites. There can be no assurance that the costs to construct and open any new location will not be significantly higher than currently anticipated. See "Management's Discussion and Analysis of Results of Operations" and "Business -- Site Selection." Consumer Preferences; Factors Affecting the Restaurant Industry. The restaurant industry is characterized by introduction of new concepts and is subject to changing consumer preferences, tastes and eating and purchasing habits. While the demand for premium quality seafood restaurants has grown significantly over the past several years, there can be no assurance that such demand will continue to grow or that these trends will not be reversed. Moreover, since prices for seafood menu items are typically higher than those for other menu items, unfavorable national, regional or local economic factors could adversely affect consumer willingness to pay higher prices for the Company's menu items. The Company's success will depend on its ability to anticipate and respond to changing consumer preferences, tastes and eating and purchasing habits, as well as other factors affecting the food service industry, including new market entrants, demographic trends and unfavorable national, regional and local economic conditions, inflation, increasing seafood and other food and labor costs. Failure to respond to such factors in a timely manner could have a material adverse effect on the Company. See "Business." Geographic Concentration. Both of the Company's existing restaurants are located in New York City and the restaurant currently under construction is also located in New York City. Given the Company's present geographic concentration, adverse publicity relating to the Company's restaurants could have a more pronounced adverse effect on the Company's operating results than might be the case if the Company's restaurants were more geographically dispersed. A decline in tourism in New York City, or in general economic conditions, which would likely affect the New York City economy or tourism industry, particularly during the time of peak sales, could have a material adverse effect on the Company's operations and prospects. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business" Seasonality. The Company's business is seasonal. The restaurant and bicycle and rowboat rentals at The Boathouse currently are open only March through November, with dinner served in the restaurant from May 1 through October 1. All of the seating of The Boathouse restaurant and a portion of the seating at Lundy's is outdoors. In addition, since Lundy's is a waterside location, it attracts more guests during the warmer weather months. As a result, the Company's restaurant sales generally increase from May through September, and decrease from November through March. See "Management's Discussion and Analysis of Results of Operations -- Seasonality and Fluctuations in Quarterly Operating Results" and "Business." Menu Emphasis on Seafood; Seafood Quality. Lundy's currently has a limited product offering which specializes in seafood. Sales of seafood accounted for approximately 58% and 61% of the Company's net sales during the year ended September 29, 1996 and the nine months ended June 29, 1997, respectively. The Company anticipates that sales of seafood products will continue to account for a substantial portion of the Company's revenues for the foreseeable future, particularly as a result of the planned expansion of the Lundy's concept. Accordingly, a rise in prices or decline in sales of such menu items, due to evolving consumer preferences, industry trends, or other reasons, could have an adverse effect on the Company. Moreover, some types of seafood have been subject to adverse publicity because of claims of contamination by lead, mercury or other chemicals disposed of in the oceans, which can adversely affect both market demand and supply for such food products. Customer demand may also be negatively impacted by reports of medical or other risks resulting from the consumption of seafood. The Company maintains a continuous inspection program for its food purchases and believes that it has not experienced any adverse effect from contaminated seafood. Nevertheless, there can be no assurance that food contamination or consumer perception of inadequate food quality, in the industry in general or as to the Company in particular, will not have a material adverse effect on the Company's operations and profitability. See "Business -- Lundy's Concept - - Menu" and "-- Restaurant Operations." Fluctuations in Food and Other Costs; Supply of Seafood. The Company's profitability is dependent on its ability to anticipate and react to increases in food, labor, employee benefits, and similar costs over which the Company has limited control. Specifically, the Company's dependence on frequent deliveries of seafood, meat and -10- produce subjects it to the risk of possible shortages or interruptions in supply caused by adverse weather, labor, transportation or other conditions which could adversely affect the availability and cost of such items. In recent years, the availability of certain types of seafood has fluctuated, resulting in corresponding fluctuations in prices. The Company has been able to anticipate and react to fluctuations in food costs through selected menu price adjustments, purchasing seafood directly from numerous suppliers and promoting certain alternative menu selections (in response to price and availability of supply). However, there can be no assurance that the Company will be able to continue to anticipate and respond to such supply and price fluctuations in the future or that the Company will not be subject to significantly increased costs in the future. Moreover, the Company does not maintain contracts with any of its suppliers and purchases products pursuant to purchase orders placed from time to time in the ordinary course of business. Although the Company believes that its relationships with its suppliers are satisfactory and that alternative sources are readily available, the loss of certain suppliers, or substantial price increases, could have a material adverse effect on the Company. See "Business -- Restaurant Operations." Operating License Requirements; Audit By New York City Comptroller. The Boathouse and American Park are located in New York City's Central Park and Battery Park, respectively. In order to operate these restaurants, the Company obtained licenses from the New York City Department of Parks (the "Parks Department") through an open bidding process. The license agreements impose certain requirements and operating restrictions on the Company, such as minimum hours of operation. Although certain aspects of the Company's operating practices are not in full conformity with the terms of The Boathouse license, the Company believes that the Parks Department is aware of its operating practices and the Parks Department has not objected to the variances from the terms of such license. The license agreement relating to The Boathouse expires on June 29, 2000 and each license can be terminated by the Parks Department on short notice. There can be no assurance that the Company will be able to obtain an extension or a new license to operate The Boathouse or that either license will not be terminated. In the event that a license is terminated or not renewed (due to non-conformity with the terms of the license or otherwise), or a new license is not obtained upon expiration of The Boathouse license, the Company would be required to cease operating the location, which would have a material adverse effect on the Company. In addition, the licenses require the Company to pay a license fee based on the greater of a minimum annual fee or a percentage of gross sales. The Company is subject to audit by the New York City Comptroller to determine the accuracy of license fees paid by the Company. See "Business." Significant Outstanding Indebtedness. In order to finance its capital requirements, the Company has incurred significant indebtedness. At June 29, 1997, there was outstanding approximately $3,833,650 of current liabilities and, in October 1997, the Company borrowed an additional $1,000,000. The Company has not allocated any portion of the proceeds of this offering to repay a portion of its outstanding indebtedness. There can be no assurance that cash flow from operations will be sufficient to repay indebtedness, and the Company could be required to use a portion of the proceeds of this offering to repay the amounts then outstanding and would result in less funds available for proposed expansion. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Competition. The restaurant industry is intensely competitive with respect to price, service, location and food quality and variety. There are many well-established competitors with substantially greater financial and other resources than the Company, as well as a significant number of new market entrants. Such competitors include national, regional and local full-service casual dining chains, many of which specialize in or offer seafood products, as well as single location restaurants. Some of the Company's competitors have been in existence for substantially longer periods than the Company, may be better established in the markets where the Company's restaurants are or may be located and engage in extensive advertising and promotional campaigns, both generally and in response to efforts by competitors to open new locations or introduce new concepts or menu offerings. The Company can also be expected to face competition from a broad range of other restaurants and food service establishments which specialize in a variety of cuisines. While the Company believes that it offers a broad variety of quality menu items, there can be no assurance that consumers will regard the Company's menu and concepts as sufficiently distinguishable from competitive menus and restaurant concepts or that substantially equivalent menus and restaurant concepts will not be introduced by the Company's competitors. Moreover, the Company believes that the start-up -11- costs associated with opening a seafood restaurant are not a significant impediment to enter the seafood restaurant industry. See "Business -- Competition." Litigation; Insurance and Potential Liability. The operation of restaurants and rowboat and bicycle rentals subjects the Company to potential claims from others, including consumers, employees and other service providers, for personal injury (resulting from, among other things, contaminated or spoiled food or beverages or accidents). The Company is a defendant in several lawsuits arising in ordinary course of its business relating to personal injury claims by plaintiffs which are seeking damages substantially in excess of the Company's assets and insurance coverage. Although the Company is vigorously defending each action, these matters are in the preliminary stages and there can be no assurance that any such action will be resolved in favor of the Company or that the outcome of any litigation or settlement will not have a material adverse effect on the Company. The Company maintains personal injury and products liability insurance (with coverage in amounts up to $1,000,000 per occurrence and $5,000,000 of umbrella liability coverage), including insurance relating to property insurance, in amounts which the Company currently considers adequate. Nevertheless, a partially or completely uninsured claim against the Company, if successful, could have a material adverse effect on the Company. See "Business - -- Insurance" and "-- Legal Proceedings." Potential Liability for Sale of Alcoholic Beverages. The Company is subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. New York law currently provides that a vendor of alcoholic beverages may be held liable in a civil cause of action for injury or damage caused by or resulting from the intoxication of a minor (under 21 years of age) if the vendor willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and knows that the minor will soon thereafter be driving a motor vehicle. A vendor can similarly be held liable if it knowingly provides alcoholic beverages to a person who is in a noticeable state of intoxication, knows that person will soon thereafter be driving a motor vehicle and injury or damage is caused by that person. In addition, significant national attention is focused on the problem of drunk driving, which could result in the adoption of additional legislation and increased potential liability of the Company for damage or injury caused by its customers. See "Business -- Government Regulation." Government Regulation. The Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. The Company's restaurants are subject to periodic inspections by governmental agencies to assure conformity with such regulations. Difficulties or failure in obtaining required licensing or other regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew, a license at an existing restaurant would adversely affect the operations of the Company. Restaurant operating costs are also affected by other government actions which are beyond the Company's control, including increases in the minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs and unemployment and other taxes. The Federal Americans With Disabilities Act ("ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The Company's restaurants are currently designed to be accessible to the disabled, and the Company believes that it is in compliance with all current applicable regulations relating to accommodations for the disabled. However, there can be no assurance that the Company will not be deemed to violate the ADA, and could be required to expend significant funds to provide service to or make reasonable accommodations for disabled persons. See "Business -- Government Regulation." Uncertainty of Protection of Proprietary Information. The Company's business prospects will depend largely on the Company's ability to capitalize on favorable consumer recognition of the Lundy's name. Although the Company holds a trademark registration for use of the Lundy's name by the U.S. Patent and Trademark Office, there can be no assurance that the Company's marks do not or will not violate the proprietary rights of others or that the Company's marks would be upheld, or that the Company would not be prevented from using its marks, if challenged, any of which could have an adverse effect on the Company. In addition, the Company relies on trade secrets and proprietary know-how, and employs various methods, to protect its concepts and recipes. However, such -12- methods may not afford complete protection and there can be no assurance that others will not independently develop similar know-how or obtain access to the Company's know-how, concepts and recipes. The Company does not maintain confidentiality and non-competition agreements with all of its executives, key personnel or suppliers. There can be no assurance that the Company will be able to adequately protect its trade secrets. In the event competitors independently develop or otherwise obtain access to the Company's know-how, concepts, recipes or trade secrets, the Company may be adversely affected. See "Business -- Intellectual Property." Control by Management. Upon the consummation of this offering, the Company's current officers and directors will, in the aggregate, beneficially own approximately 51.5% of the outstanding Common Stock of the Company. Accordingly, such persons will be able to control the Company and generally direct the Company's affairs, including electing a majority of the Company's directors and causing an increase in the Company's authorized capital or the dissolution, merger, or sale of the Company or substantially all of its assets. See "Principal Stockholders." Dependence Upon Key Personnel. The success of the Company will be largely dependent upon the efforts of Frank Cretella, Chief Executive Officer and President of the Company. Although the Company has entered into an employment agreement with Mr. Cretella, Mr. Cretella is not required to devote his full business time to the Company's business and affairs. The loss of the services of Mr. Cretella or other key personnel would have a material adverse effect on the Company's business and prospects. The Company maintains key-man insurance on the life of Mr. Cretella in the amount of $500,000. The success of the Company will also be dependent on its ability to attract and retain experienced management and restaurant industry personnel. The Company faces considerable competition from other food service businesses for such personnel, many of which have significantly greater resources than the Company. There can be no assurance that the Company will be able to attract and retain such personnel, and the inability to do so could have a material adverse effect on the Company. See "Management." Conflicts of Interest. The Company has, from time to time, entered into transactions with certain of its officers, directors and stockholders and/or affiliates of such persons, which could result in potential conflicts of interest. Although in connection with the Acquisition, the assets relating to TAM's food concession operations were transferred to MAT and MAT assumed the Company's obligations under its agreement to operate the concession in the Central Park Zoo, the Company is still a party to such agreement and, in the event that MAT fails to pay any amounts due under such agreement, the Company will be responsible for such obligations. There can be no assurance that future transactions or arrangements between the Company and its affiliates will be advantageous to the Company, that conflicts of interest will not arise with respect thereto, or that, if conflicts do arise, they will be resolved in a manner favorable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources" and "Certain Transactions." No Dividends. The Company has never paid any dividends on its Common Stock and does not anticipate paying cash dividends in the foreseeable future. The Company currently intends to retain all earnings for use in connection with the expansion of its business and for general corporate purposes. The declaration and payment of future dividends, if any, will be at the sole discretion of the Company's Board of Directors and will depend upon the Company's profitability, financial condition, cash requirements, future prospects, and other factors deemed relevant by the Board of Directors. See "Dividend Policy" and "Description of Securities -- Capital Stock." Dilution. This offering involves an immediate and substantial dilution of $3.68 per Share (or 73.6%) between the adjusted net tangible book value per share of Common Stock after this offering and the initial public offering price per Share in this offering. See "Dilution." Shares Eligible for Future Sale. Upon consummation of this offering, the Company will have 3,500,000 shares of Common Stock outstanding (assuming no exercise of the Warrants), of which the 1,000,000 shares of Common Stock offered hereby will be freely tradable without restriction or further registration under the Securities Act of 1933, as amended (the "Securities Act"). All of the remaining 2,500,000 shares of Common Stock outstanding are "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act -13- and approximately 2,461,076 of such restricted shares will become eligible for sale, pursuant to Rule 144, 90 days following the date of this Prospectus, subject to the agreements set forth below. The holders of 267,325 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other outstanding warrants have agreed not to sell such securities for a period of 15 months from the date of this Prospectus without the Underwriter's prior written consent; the holders of 253,002 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell such securities for a period of 18 months from the date of this Prospectus without the Underwriter's prior written consent; and the holders of 1,979,673 shares of Common Stock have agreed not to sell such shares for a period of 24 months from the date of this Prospectus without the prior written consent of the Underwriter. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or even the availability of such shares for sale will have on the market prices prevailing from time to time. The possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect the prevailing market price for the Common Stock and could impair the Company's ability to raise capital through the sale of its equity securities. See "Shares Eligible for Future Sale" and "Underwriting." Possible Adverse Effect of Outstanding Warrants and Options. Upon the consummation of this offering, there will be 500,000 shares reserved for issuance upon exercise of the Warrants, approximately 310,000 shares reserved for issuance upon the exercise of the Selling Securityholders' Warrants at an exercise price of $6.00 per share, 3,000 shares reserved for issuance upon the exercise of other outstanding warrants at an exercise price of $.01 per share, 200,000 shares reserved for issuance upon exercise of other outstanding warrants at an exercise price of $5.00 per share, an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein and 197,500 shares reserved for issuance upon exercise of options granted under the Option Plan at an exercise price of $5.00 per share. To the extent that any outstanding warrants or options are exercised, dilution of the interests of the holders of the Company's Common Stock will occur and any sales in the public market of the shares underlying such warrants and options may adversely affect prevailing market prices for the Common Stock and the Warrants. Moreover, the terms upon which the Company will be able to obtain additional equity may be adversely affected since the holders of the outstanding warrants and options can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain capital on terms more favorable to the Company than those provided by such securities. See "Management" and "Description of Securities." Indemnification and Exculpation of Officers and Directors. The Company's Certificate of Incorporation provides for indemnification of officers and directors to the fullest extent permitted by Delaware law. In addition, under the Company's Certificate of Incorporation, no director shall be liable personally to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the Certificate of Incorporation does not eliminate the liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) acts or omissions in respect of certain unlawful dividend payments or stock redemptions or repurchases; or (iv) any transaction from which such director derives improper personal benefit. As a result of such provisions in the Certificate of Incorporation and the By-Laws of the Company, stockholders may be unable to recover damages against the directors and officers of the Company for actions taken by them which constitute negligence, gross negligence or a violation of their fiduciary duties, which may reduce the likelihood of stockholders instituting derivative litigation against directors and officers and may discourage or deter stockholders from suing directors, officers, employees and agents of the Company for breaches of their duty of care, even though such an action, if successful, might otherwise benefit the Company and its stockholders. See "Management -- Indemnification and Exculpation Provisions." Delaware Anti-Takeover Statute; Possible Adverse Effects of Authorization of Preferred Stock. As a Delaware corporation, upon the consummation of this offering, the Company will become subject to prohibitions imposed by Section 203 of the Delaware General Corporation Law ("DGCL"). In general, this statute will prohibit the Company from entering into certain business combinations without the approval of its Board of Directors and/or stockholders and, as such, could prohibit or delay mergers or other attempted takeovers or changes in control with respect to the Company. Such provisions may discourage attempts to acquire the Company. In addition, the Company's -14- Certificate of Incorporation authorize the Company's Board of Directors to issue up to 1,000,000 shares of "blank check" preferred stock (the "Preferred Stock") without stockholder approval, in one or more series and to fix the dividend rights, terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and any other rights, preferences, privileges, and restrictions applicable to each new series of Preferred Stock. The issuance of shares of Preferred Stock in the future could, among other results, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, could make it difficult for a third party to gain control of the Company, prevent or substantially delay a change in control, discourage bids for the Common Stock at a premium, or otherwise adversely affect the market price of the Common Stock. See "Description of Securities." No Assurance of Public Market; Arbitrary Determination of Offering Prices; Possible Volatility of Market Price of Common Stock and Warrants; Underwriter's Potential Influence on the Market. Prior to this offering, there has been no public trading market for the Common Stock or Warrants. There can be no assurance that a regular trading market for the Common Stock or Warrants will develop after this offering or that, if developed, it will be sustained. Moreover, the initial public offering prices of the Common Stock and the Warrants and the exercise price of the Warrants have been determined by negotiations between the Company and the Underwriter and, as such, are arbitrary in that they do not necessarily bear any relationship to the assets, book value or potential earnings of the Company or any other recognized criteria of value and may not be indicative of the prices that may prevail in the public market. The market prices of the Company's securities following this offering may be highly volatile as has been the case with the securities of other emerging companies. Factors such as the Company's operating results, openings of new locations, announcements by the Company or its competitors and various factors affecting the restaurant industry generally may have a significant impact on the market price of the Company's securities. In addition, in recent years, the stock market has experienced a high level of price and volume volatility and market prices for the stock of many companies have experienced wide price fluctuations which have not necessarily been related to the operating performance of such companies. Although it has no obligation to do so, the Underwriter intends to make a market in the Common Stock and Warrants and may otherwise effect transactions in the Common Stock and Warrants. If the Underwriter makes a market in the Common Stock or Warrants, such activities may exert a dominating influence on the market and such activity may be discontinued at any time. The prices and liquidity of the Common Stock and Warrants may be significantly affected to the extent, if any, that the Underwriter participates in such market. See "Underwriting." Possible Delisting of Securities from Nasdaq System; Risks Relating to Low-Priced Stocks. It is currently anticipated that the Company's Common Stock and Warrants will be eligible for listing on Nasdaq upon the completion of this offering. In order to continue to be listed on Nasdaq, however, the Company must maintain $2,000,000 in net tangible assets (total assets, other than goodwill, less total liabilities), and a $1,000,000 market value of the public float. In addition, continued inclusion requires two market-makers, a minimum bid price of $1.00 per share and adherence to certain corporate governance provisions. The failure to meet these maintenance criteria in the future may result in the delisting of the Company's securities from Nasdaq, and trading, if any, in the Company's securities would thereafter be conducted in the non-Nasdaq over-the-counter market. As a result of such delisting, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, the Company's securities. In addition, if the Common Stock and Warrants were to become delisted from trading on Nasdaq and the trading price of the Common Stock were to fall below $5.00 per share, trading in the Common Stock would also be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser's -15- written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed upon broker-dealers by such requirements could, in the event the Common Stock were deemed to be a penny stock, discourage broker-dealers from effecting transactions in the Common Stock which could severely limit the market liquidity of the Common Stock and the ability of purchasers in this offering to sell the Common Stock in the secondary market. Potential Adverse Effect of Warrant Redemption. The Warrants are subject to redemption by the Company at any time upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00, subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date. Redemption of the Warrants could force the holders to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for the holders to do so, to sell the Warrants at the then current market price when they might otherwise wish to hold the Warrants, or to accept the redemption price, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities -- Redeemable Warrants. " Possible Inability to Exercise Warrants. The Company intends to qualify the sale of the securities offered hereby in a limited number of states. Although certain exemptions in the securities laws of certain states might permit the Warrants to be transferred to purchasers in states other than those in which the Warrants are initially qualified, the Company will be prevented from issuing Common Stock in such states upon the exercise of the Warrants unless an exemption from qualification is available or unless the issuance of Common Stock upon exercise of the Warrants is qualified. The Company may decide not to seek or may not be able to obtain qualification of the issuance of such Common Stock in all of the states in which the ultimate purchasers of the Warrants reside. In such a case, the Warrants held by purchasers will expire and have no value if such Warrants cannot be sold. Accordingly, the market for the Warrants may be limited because of these restrictions. Further, a current prospectus covering the Common Stock issuable upon exercise of the Warrants must be in effect before the Company may accept Warrant exercises. There can be no assurance the Company will be able to have a current prospectus in effect when this Prospectus is no longer current, notwithstanding the Company's commitment to use its best efforts to do so. See "Description of Securities -- Redeemable Warrants." Possible Restrictions on Market-Making Activities in the Company's Securities. The Company believes that the Underwriter intends to make a market in the Company's securities and may be responsible for a substantial portion of the market making activities in the Company's securities. Regulation M of the federal securities laws may prohibit the Underwriter from engaging in any market-making activities with regard to the Company's securities for the period from five business days (or such other applicable period as Regulation M may provide) prior to any solicitation by the Underwriter of the exercise of Warrants until the termination (by waiver or otherwise) of any right that the Underwriter may have to receive a fee for the exercise of Warrants following such solicitation; and for any period during which the Underwriter, or any affiliated parties, participate in a distribution of any securities of the Company for the account of the Underwriter or any such affiliate. As a result, the Underwriter may be unable to provide a market for the Company's securities during certain periods, including while the Warrants are exercisable. Any temporary cessation of such market-making activities could have an adverse effect on the liquidity and market price of the Company's securities. See "Underwriting." -16- USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,000,000 Shares and 500,000 Warrants offered hereby are estimated to be $3,950,000 ($4,609,025 if the Underwriter's over-allotment option is exercised in full). The Company expects to use the net proceeds over the next 12 months approximately as follows:
Approximate Approximate Percentage of Application of Proceeds Dollar Amount Dollar Amount - ----------------------- ------------- ------------- Construction of new restaurants(1).................................. $3,500,000 88.6% Working capital and general corporate purposes(2)................... 450,000 11.4 ---------- ----- Total...................................................... $3,950,000 100.0% ========== ======
- -------------------- (1) Represents net proceeds allocated to construct three Lundy's restaurants. The Company estimates that the cost to construct a Lundy's restaurant will be approximately $1,500,000 per location (net of anticipated landlord contributions) and that the cost, if any, to open such restaurants in excess of the net proceeds of this offering allocated for such purpose will be financed through cash flow from operations, equipment and vendor financing and landlord development concessions and rent allowances. In connection with its expansion strategy, to the extent appropriate opportunities arise, the Company may use a portion of such proceeds to open high-volume landmark-type restaurants. In the event that cash flow from operations is insufficient or that the Company is unable to obtain adequate equipment, vendor or landlord financing, or other unexpected events occur, such as delays in identifying suitable locations, negotiating leases, obtaining permits or design and construction delays, the Company will not be able to open all of such locations in a timely manner, or at all. See "Business -- Expansion Strategy" and "-- Site Selection." (2) Includes costs of general corporate overhead, capital expenditures for existing restaurants and maintaining inventory. If the Underwriter exercises its over-allotment option in full, the Company will realize additional net proceeds of $659,025, which will be added to the Company's working capital. The allocation of the net proceeds from this offering set forth above represents the Company's best estimate based upon its currently proposed plans and assumptions relating to its operations and certain assumptions regarding general economic conditions. If any of these factors change, the Company may find it necessary or advisable to reallocate some of the proceeds within the above-described categories or to use portions thereof for other purposes. Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Because the Company's strategy is to open a limited number of high-volume restaurants, the costs associated with opening any such restaurant may vary substantially. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Proceeds not immediately required for the purposes described above will be invested principally in United States government securities, short-term certificates of deposit, money market funds or other short-term interest bearing investments. -17- DILUTION The difference between the initial public offering price per Share and the adjusted net tangible book value per share of Common Stock after this offering constitutes the dilution to investors in this offering. Net tangible book value per share of Common Stock on any given date is determined by dividing the net tangible book value of the Company (total tangible assets less total liabilities) on that date, by the number of shares of Common Stock outstanding on that date. As of June 29, 1997, the net tangible book value of the Company was $652,855 or $.26 per share of Common Stock. The Pro Forma Adjustments (see footnote 2 of "Prospectus Summary -Summary Financial Information") had no effect on the Company's net tangible book value. After giving effect to the sale of the 1,000,000 Shares and 500,000 Warrants being offered hereby (less underwriting discounts and commissions and estimated expenses of this offering), the adjusted net tangible book value of the Company as of June 29, 1997 would have been $4,602,855 or $1.32 per share, representing an immediate increase in net tangible book value of $1.06 per share of Common Stock to existing stockholders and an immediate dilution of $3.68 per share (or 73.6%) to new investors. The following table illustrates this dilution to new investors on a per share basis: Public offering price........................................... $5.00 Pro forma net tangible book value before this offering....... .26 Increase attributable to this offering....................... 1.06 ---- Adjusted net tangible book value after this offering............ 1.32 ----- Dilution to investors in this offering.......................... $ 3.68 ===== The following table sets forth, with respect to existing stockholders and new investors in this offering, a comparison of the number of shares of Common Stock issued by the Company, the percentage of ownership of such shares, the total cash consideration paid, the percentage of total cash consideration paid and the average price per share.
Total Cash Shares Purchased Consideration Paid --------------------------------------- ------------------------------------ Average Price Number Percent Amount Percent Per Share ------ ------- ------ ------- --------- Existing stockholders............ 2,500,000 71.4% $2,420,000 32.6% $ .97 New Investors.................... 1,000,000 28.6 5,000,000 67.4 5.00 --------- ---- --------- ---- Total.................. 3,500,000 100.0% $7,420,000 100.0% ========= ====== ========== ======
The above table assumes no exercise of the Underwriter's over-allotment option. If such option is exercised in full, the new investors will have paid $5,750,000 for 1,150,000 shares of Common Stock, representing approximately 70.4% of the total consideration for 31.5% of the total number of shares of Common Stock outstanding. In addition, the table assumes no exercise of other outstanding stock options or warrants. As of the date of this Prospectus, there are also outstanding Selling Securityholders' Warrants to purchase an aggregate of 310,000 shares of Common Stock at an exercise price of $6.00, warrants to purchase 3,000 shares of Common Stock at an exercise price of $.01 per share, warrants to purchase 200,000 shares of Common Stock at an exercise price of $5.00 per share and outstanding stock options granted under the Option Plan to purchase an aggregate of 197,500 shares of Common Stock at an exercise price of $5.00 per share. To the extent that these options and warrants are exercised, there will be further dilution to new investors. See "Management -- 1997 Stock Option Plan," "Description of Securities" and "Underwriting." -18- DIVIDEND POLICY The Company has never paid any dividends on its Common Stock, and the Board does not intend to declare or pay any dividends on its Common Stock in the foreseeable future. The Board of Directors currently intends to retain all available earnings (if any) generated by the Company's operations for the development and growth of its business. The declaration in the future of any cash or stock dividends on the Common Stock will be at the discretion of the Board and will depend upon a variety of factors, including the earnings, capital requirements and financial position of the Company and general economic conditions at the time in question. Moreover, the payment of cash dividends on the Common Stock in the future could be limited or prohibited by the terms of financing agreements that may be entered into by the Company (e.g., a bank line of credit or an agreement relating to the issuance of other debt securities of the Company) or by the terms of any Preferred Stock that may be issued and then outstanding. See "Description of Securities -- Capital Stock." -19- CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of June 29, 1997, (i) on an actual basis, (ii) on a pro forma basis, giving effect to the Pro Forma Adjustments (see footnote 2 of "Prospectus Summary - Summary Financial Information") and (iii) as adjusted to give effect to the sale of the 1,000,000 Shares and 500,000 Warrants offered hereby and the anticipated application of the estimated net proceeds therefrom:
June 29, 1997 ----------------------------------------------------------------------------- Actual Pro Forma As Adjusted ------ --------- ----------- Short-term debt (including current portion of long-term debt and capitalized lease obligations).................................. $ 838,659 $118,534 $ 118,534 =========== ========= ========= Long term debt and capitalized lease obligations............................. $ 1,336,701 $3,056,826 $ 3,056,826 ----------- --------- --------- Stockholders' equity: Common Stock, $.0001 par value, 19,000,000 authorized, 2,500,000 shares issued and outstanding (actual), 2,500,000 shares issued and outstanding (pro forma), 3,500,000 shares issued and outstanding (as adjusted)(1)......... 250 250 350 Preferred Stock, $.0001 par value, issuable in series: 1,000,000 shares authorized: no shares issued and outstanding...................... --- --- --- Additional paid-in-capital............. 3,132,799 3,132,799 7,082,699 Accumulated deficit.................... (2,480,194) (2,480,194) (2,480,194) ----------- ----------- ----------- Total stockholders' equity......... 652,855 652,855 4,602,855 ----------- ---------- ----------- Total capitalization......... $ 1,989,556 $3,709,681 $7,659,681 ============ ========== ==========
- ---------- (1) Does not include (i) 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants; (ii) an aggregate of 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's Warrants and the warrants included therein; (iii) an aggregate of 310,000 shares of Common Stock reserved for issuance upon exercise of the Selling Securityholders' Warrants; (iv) 203,000 shares of Common Stock reserved for issuance upon exercise of other outstanding warrants; (v) 197,500 shares of Common stock reserved for issuance upon exercise of outstanding options under the Option Plan; and (vi) 327,500 shares of Common Stock reserved for issuance upon exercise of options available for future grant -20- under the Option Plan. See "Management -- 1997 Stock Option Plan," "Description of Securities" and "Underwriting." SELECTED FINANCIAL DATA The following table sets forth sets forth certain selected historical and pro forma financial data of the Company as of and for the dates indicated. The selected financial data as of September 29, 1996 and for the year ended September 29, 1996 have been derived from the financial statements set forth elsewhere in this Prospectus that have been audited by Maltese, Potter & LaMarca, LLP, independent auditors. The selected financial data for the nine months ended June 30, 1996 and June 29, 1997 are derived from the Company's unaudited financial statements for such period set forth elsewhere in this Prospectus, which reflect all adjustments (consisting only of normal recurring adjustments) necessary for a proper statement of the results for such period. The financial data set forth below is qualified by reference to and should be read in conjunction with the Company's financial statements, related notes and other financial information contained in this Prospectus, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations." Statement of Operations:
Year Ended Nine Months Nine Months September 29, Ended June 30, Ended June 29, 1996 1996 1997 ------------- -------------- -------------- Sales............................................... $11,847,088 $7,261,892 $8,902,628 Cost of sales....................................... 7,260,440 4,502,373 5,064,207 Gross profit........................................ 4,586,648 2,759,519 3,838,421 Operating and administrative expenses............... 6,122,870 3,754,199 3,246,707 Income (loss) from operations....................... (1,536,222) (994,680) 591,714 Other expenses...................................... 1,199,592 1,105,880 482,614 Net income (loss) from continuing operations........ (2,637,226) (2,001,972) 109,100 Net income (loss)................................... (2,607,084) (1,971,830) 109,100 Net income (loss) per share from continuing operations (1).................................... (1.22) .05 Net income (loss)................................... (1.21) .05 Weighted average number of shares outstanding(1).................................... 2,160,676 2,418,294
Balance Sheet Data:
September 29, 1996 June 29, 1997 ------------------ ------------- Working capital (deficit).............................. $(2,026,787) $(2,131,423) Total assets........................................... 4,728,868 6,323,596 Total liabilities...................................... 4,620,113 5,670,741 Stockholders' equity................................... 108,755 652,855
-21- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview The Company operates Lundy's, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse, a multi-use facility featuring an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements, stating that they have been prepared assuming that the Company will continue as a going concern and that significant prior losses from operations raise substantial doubt about the Company's ability to continue as a going concern. Results of Operations Nine Months Ended June 29, 1997 Compared to Nine Months Ended June 30, 1996 Sales for the nine months ended June 29, 1997 were $8,902,628, an increase of $1,640,736, or 22.6%, as compared to $7,261,892 for the nine months ended June 30, 1996. Sales for Lundy's and The Boathouse for the nine months ended June 29, 1997 were $4,709,258 and $4,021,905, respectively, compared to $3,758,239 and $3,503,653, respectively, during the nine months ended June 30, 1996. The increase in sales for Lundy's was primarily due to Lundy's being opened for approximately seven months during the 1996 period, since Lundy's was opened in December 1995. The increase in sales for The Boathouse were primarily due to catering an increased number of special events. The Company's food, liquor and other sales for each of the nine months ended June 30, 1996 and June 29, 1997 accounted for 76.8%, 15.3% and 7.9%, respectively, of sales. During the nine months ended June 29, 1997, the Company also received $171,465 of income from MAT. See "Certain Transactions." Cost of sales for the nine months ended June 29, 1997 were $5,064,207, an increase of $561,834 or 12.5%, as compared to $4,502,373 for the nine months ended June 30, 1996. The increase in cost of sales was primarily attributable to increased sales. Gross profit for the nine months ended June 29, 1997 was $3,838,421, or 43.1% of sales, as compared to $2,759,519, or 38.0% of sales for the nine months ended June 30, 1996. The increase in gross profit as a percentage of sales was primarily attributable to reduced food and labor costs. Operating and administrative expenses for the nine months ended June 29, 1997 were $3,246,707, a decrease of $507,492, or 13.5%, as compared to $3,754,199 for the nine months ended June 30, 1996. The decrease in operating and administrative expenses was primarily attributable to a restructuring of management responsibilities to focus on controlling costs and economies of scale and obtaining more favorable terms for supplies and services. During the nine months ended June 29, 1997, operating and administrative expenses were reduced by $71,670 of management income fee received under the Company's operating agreement with MAT. See "Certain Transactions." Other expenses for the nine months ended June 29, 1997 were $482,614, a decrease of $623,266, or 56.4%, as compared to $1,105,880 for the nine months ended June 30, 1996. Other expenses for the nine months ended June 29, 1997 consisted of $277,843 of interest expense and $204,771 of barter expense. Other expenses for the -22- nine months ended June 30, 1996 consisted of a write-off of an advance to an affiliate of $542,463, $270,282 of interest expense and $293,135 of barter expense. The write-off of an advance represents cash advances and equipment transferred to Forest Avenue Corporation ("Forest") and deferred management fees due from Forest, an affiliate of Mr. Cretella and Jeanne Cretella, Vice President, a director and a principal stockholder of the Company, upon the sale of the assets of Forest to an unrelated third party, as the Company determined that such advances were uncollectible. See "Certain Transactions." During the nine months ended June 30, 1996, the Company received an income tax benefit of only 4% due to a deferred tax valuation allowance. As a result of the foregoing, income from continuing operations for the nine months ended June 29, 1997 was $109,100, as compared to a loss from continuing operations of $2,001,972 for the nine months ended June 30, 1996. Income from discontinued operations for the nine months ended June 30, 1996 were $30,142 (net of income taxes of $20,093). Discontinued operations were TAM's concession business which were spun-off into MAT. See "Certain Transactions." Net income for the nine months ended June 29, 1997 was $109,100, as compared to a net loss of $1,971,830 for the nine months ended June 30, 1996. Year Ended September 29, 1996 Sales for the year ended September 29, 1996 were $11,847,088. Sales for Lundy's and The Boathouse were $5,694,382 and $6,152,706, respectively. Food, liquor and other sales accounted for 76.8%, 15.3% and 6.9%, respectively of the Company's sales. Cost of sales for the year ended September 29, 1996 were $7,260,440, consisting of direct labor and food costs. As a result, gross profit for the year ended September 29, 1996 was $4,586,648, or 38.7% of sales. Operating and administrative expenses were $6,122,870 for the year ended September 29, 1996. Other expenses for the year ended September 29, 1996 were $1,199,592, consisting of a write-off of an advance to an affiliate of $542,463, $363,994 of interest expense and $293,135 of barter expense. See "Certain Transactions." Net loss for the year ended September 29, 1996 was $2,607,084, consisting of a loss from continuing operations of $2,637,226 which was partially offset by income from discontinued operations of $30,142. Liquidity and Capital Resources The Company's capital requirements have been and will continue to be significant and its cash requirements have been exceeding its cash flow from operations (at June 29, 1997, the Company had a working capital deficit of $2,131,423), due to, among other things, costs associated with development, opening and start-up costs of Lundy's and American Park and building a corporate infrastructure sufficient to support the Company's proposed expanded operations. As a result, the Company has been substantially dependent upon sales of its equity securities, loans from financial institutions and the Company's officers, directors and stockholders and bartering transactions with member dining clubs to finance a portion of its working capital requirements. -23- During the nine months ended June 29, 1997, net cash increased by $39,828. Net cash provided by operating activities was $394,727, net cash used in investing activities was $984,450, relating to the acquisition of property and equipment primarily for American Park, and net cash provided from financing activities was $629,551, consisting primarily of long-term borrowings of $435,000 and proceeds of $200,000 from sales of equity securities. During the year ended September 29, 1996, net cash decreased by $81,138. Net cash used in operating activities was $367,823, net cash used in investing activities was $2,458,971, consisting primarily of the acquisition of property and equipment for Lundy's in connection with its opening in December 1995, and net cash provided by financing activities was $2,745,656, consisting primarily of proceeds of $1,638,936 from the sale of equity securities and $1,215,470 of long-term borrowings. The Company enters into bartering agreements with member dining clubs whereby member dining clubs advance cash to the Company in exchange for the Company's agreement to provide to the clubs' members food and beverages at a designated Company restaurant. The restaurant must permit the clubs' members to purchase food and beverages at rates between 160% and 200% of the amount advanced. Upon entering into the agreement, the Company records its obligation to provide food and beverages at the amount of the advance it receives. Upon a guest purchasing food or beverages, the Company records revenue for the amount of food and beverage purchased by the guest, and the barter discount as a barter expense. During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet Bank, N.A. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, the warehouse leased by the Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company owned by Jeanne Cretella, and Mr. and Ms. Cretella's personal residence, and guaranteed by Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella agreed to pay to Fleet $640,000 as payment for the amount owed by the Company ($720,125 as of June 30, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the settlement. Mr. Cretella paid the balance to Fleet in October 1997. As consideration for entering into the settlement, the Company issued to Mr. Cretella a promissory note in the principal amount of $720,125 which bears interest at the rate of 10% per annum, payable in monthly installments of $6,102, with the outstanding principal payable in October 2001 upon maturity of the note. During the year ended September 30, 1996, the Company issued and sold an aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600 shares of Common Stock to 31 investors for which it received gross proceeds of approximately $1,980,000. Ernest and Madelina Cretella, the parents of Frank Cretella, purchased 13,785 shares of Common Stock and warrants to purchase 1,379 shares of Common Stock for an aggregate purchase price of $50,000. The holders of such warrants have agreed to convert such warrants into Selling Securityholders' Warrants upon the consummation of this offering. During the nine months ended June 29, 1997, the Company issued and sold 55,141 shares of Common Stock and warrants to purchase 27,571 shares of Common Stock to one investor at a purchase price of $200,000 and issued 59,602 shares of Common Stock and warrants to purchase 21,530 shares of Common Stock upon conversion of $235,000 of indebtedness owed to three individuals. The holders of such warrants have agreed to convert such warrants into Selling Securityholders' Warrants upon the consummation of this offering. In October 1997, Kayne Anderson Non-Traditional Investments, L.P. and ARBCO Associates, L.P. affiliates of Kayne Anderson Investment Management, Inc. (collectively, "Kayne Anderson"), loaned the Company an aggregate of $1,000,000. The loans bear interest at the rate of 10% per annum, payable quarterly commencing December 31, 1997, and are due May 31, 1999. Upon an event of default under the loans, the interest rate increases to 15% per annum and the Company would be required to pay to Kayne Anderson 25% of the operating profits from American Park on a monthly basis until the loan is fully repaid. The loan is guaranteed by Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, and the guarantee is secured by a -24- pledge of 200,000 shares of Common Stock owned by Frank Cretella and Jeanne Cretella, Vice President, a director and principal stockholder of the Company. As partial consideration for the loans, the Company issued to Kayne Anderson warrants (the "KA Warrants") to purchase 200,000 shares of Common Stock. The KA Warrants are exercisable at a price of $5.00 per share (subject to adjustment under certain circumstances) and are exercisable at any time commencing 90 days following the date of this Prospectus. In connection with the loan, the Company agreed to use its best efforts to cause a representative designated by Kayne Anderson to be elected to the Company's Board of Directors. Kenneth Harris is Kayne Anderson's initial designee. See "Management." Based on the Company's current proposed plans and assumptions relating to the implementation of its expansion strategy (including the timetable of opening American Park and new Lundy's locations and the costs associated therewith), the Company anticipates that the net proceeds of this offering, together with anticipated cash flow from operations and equipment, vendor and landlord financing, will be sufficient to satisfy its contemplated cash requirements for at least 12 months following the consummation of this offering. In the event that the Company's plans change or its assumptions prove to be inaccurate (due to unanticipated expenses, construction delays or other difficulties) or the proceeds of this offering otherwise prove to be insufficient to fund operations and implement the Company's proposed expansion strategy, the Company could be required to seek additional financing sooner than anticipated. Other than the ability to enter into bartering transactions with member dining clubs, the Company has no current arrangements with respect to, or potential sources of, additional financing, and it is not anticipated that any officers, directors or stockholders will provide any additional loans to the Company. Consequently, there can be no assurance that any additional financing will be available to the Company when needed, on commercially reasonable terms, or at all. Seasonality and Fluctuations in Quarterly Operating Results. The Company's business is seasonal. The restaurant and bicycle and rowboat rentals at The Boathouse currently are open only March through November, with dinner served in the restaurant May 1 through October 1. All of the seating of The Boathouse restaurant and a portion of the seating at Lundy's is outdoors. In addition, since Lundy's is a waterside location, it attracts more guests during the warmer weather months. As a result, the Company's restaurant sales generally increase from May through September, and decrease from November through March. See "Business." The Company also expects that future quarterly operating results will fluctuate as a result of the timing of and expenses related to the openings of new restaurants (as the Company will incur significant expenses during the months preceding the opening of a restaurant), as well as due to various factors, including the seasonal nature of its business, weather conditions in New York City, the health of New York City's economy in general and its tourism industry in particular. Accordingly, the Company's sales and earnings may fluctuate significantly from quarter to quarter and operating results for any quarter will not necessarily be indicative of the results that may be achieved for a full year. -25- BUSINESS The Company operates Lundy's, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse, a multi-use facility featuring an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. The Company is also constructing American Park, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park, a New York City landmark visited by approximately 4 million visitors during 1996. Lundy's Lundy's is a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York. The Company opened Lundy's in December 1995, approximately 16 years after the original Lundy's restaurant closed. The original Lundy's, a storied Brooklyn landmark, originally opened in 1934 and is believed to have been the largest restaurant in the United States during the time it was open, with seating capacity for approximately 2,400 guests. The building which Lundy's occupies was declared a historic landmark building by the New York City Landmarks Preservation Commission in 1992. The Lundy' Concept The Lundy's concept is designed to appeal to a broad range of guests by serving generous portions of premium-quality seafood and other menu items and by combining a grand dining experience with friendly and efficient service in a high-energy environment. Lundy's commitment to offering its guests a casual, exciting dining experience is highlighted by its "exhibition" kitchen where all meals are cooked to order in view of its guests, a lobster pool from which guests can select their lobsters, an experienced waitstaff uniformed in crisp white linen jackets which are knowledgeable about the preparation of seafood and the history of Lundy's, a high waitstaff-to-customer ratio to assure attentive service and tables covered with multiple layers of colored linens covered with pristine white butcher paper. Menu Lundy's menu features a wide variety of fresh seafood items, including lobster, crab, shrimp, oysters, clams and daily fish specials, cooked to order in a variety of ways: steamed, sauteed, broiled, grilled, blackened and fried. In addition, Lundy's offers a selection of steaks, chicken dishes, pasta dishes, pizzas, appetizers, chowders, salads and desserts. Lundy's also offers full bar service, from which a variety of brand name alcohols, mixed drinks, wines and beers, including selected micro-brewed beers, can be ordered, at the bar or with table service. Lundy's feature menu selection is its "Shore Dinner," which consists of a chowder or salad; steamed or baked clams, lobster and chicken; fruit pie; and a beverage, for $21.95. The Company believes that Lundy's is widely recognized for its "signature" biscuits, chowders and apple and blueberry pies. The menu mix has been carefully developed to balance the higher priced items, such as lobster and fresh fish, with lower cost items, such as pizza and pasta dishes. Dinner entrees range in price from $7.95 to $28.95 and the average dinner check is approximately $32.00 per person. Design, Decor and Atmosphere Lundy's interior has been designed with a contemporary decor, rich polished woods and granite surfaces, accented with copper, pottery, brushed-stainless steel and earth tones, to impart "Old World" elegance and comfort. Lundy's offers guests several seating selections in its multi-level interior, which consists of an expansive, high-ceiling main dining area; a large upstairs dining room which is also used for special events and to cater private functions; -26- a mezzanine level cigar room which overlooks the main dining area; and a 30-foot long oyster and beverage bar; as well as outdoor seating. Facility Operations Lundy's occupies approximately 17,000 square feet and has a seating capacity of approximately 730 seats. Lundy's is open for dinner from 5:00 P.M. to 11:00 P.M. on weekdays (10:00 P.M. on Mondays) and for dining from 1:00 P.M. to 12:00 midnight on Sunday. Lundy's oyster and beverage bar and outside bar are also open during such hours and also from 12:00 noon to 5:00 P.M. on weekdays. In addition to the restaurant operations, Lundy's also houses a seafood laboratory where seafood is tested to assure quality and freshness, and a gift shop which carries a variety of "Lundy's" and "Brooklyn" themed merchandise, such as T-shirts and other clothing, hats, plates and coffee and beer mugs, as well as Lundy's chowders and sauces and seafood related products, such as lobster bibs, crackers and forks. During the year ended September 30, 1996 and nine months ended June 30, 1997, Lundy's sales were $5,694,382 and $4,709,258, respectively. The Boathouse The Boathouse is a multi-use, lakeside facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. Restaurant The Boathouse restaurant provides customers a pleasurable dining experience in a comfortable, relaxed and romantic atmosphere and primarily al fresco seating. The restaurant serves eclectic American cuisine that changes according to season and consumer trends, emphasizing herbs grown fresh on site. The menu is limited in scope to permit the greatest attention to quality while offering sufficient breadth to appeal to a variety of taste preferences. The restaurant also offers full bar service. Dinner entrees range in price from $19.00 to $28.00 and the average dinner check is approximately $44.00 per person. The dining area occupies approximately 6,000 square feet of space and has a seating capacity of approximately 225 seats, most of which are covered, expanding approximately 150 feet alongside the Central Park lake. The restaurant is open from early March until the Sunday in early November on which the New York City Marathon is held. Catering Pavilion The catering pavilion is glass-enclosed, tented and heated. The catering pavilion occupies approximately 4,600 square feet of space, is surrounded by an english garden on two sides and resides a few feet from the Central Park lake. The catering pavilion hosts private functions for up to 500 persons year round. Other Attractions The Boathouse incorporates the following additional attractions: o Cocktail Area. The cocktail area offers full bar service at an approximately 21-foot long bar with waitress service and features a jazz band performing five nights a week. The cocktail area has a capacity of 150 persons, including 100 seats, and is open from March through early November. -27- o The Boathouse Express. The Boathouse Express is a cafeteria-style convenience counter which serves specialty sandwiches, salads, baked goods and juices, as well as standard fast-food, such as hamburgers, hotdogs, french fries and sodas. The Boathouse Express has indoor and outdoor seating available for approximately 75 persons year round. o Carts and Kiosks. Approximately six to eight free standing carts and kiosks are strategically located on the facility's grounds offering a variety of food and beverage items, such as fresh fruit drinks, New York-style pretzels, pita sandwiches and espresso and cappuccino, from early March to early November. o Rowboat and Bicycle Rentals and Venetian Gondola Rides. Approximately 110 rowboats are available for rental by the hour on the Central Park lake and approximately 120 bicycles are available for rental by the hour or day from early March to early November. Additionally, Venetian gondola rides on the lake are available from early March to early November. o Merchandise Counter. The merchandise counter carries a variety of The Boathouse and other Central Park and New York City themed merchandised, including T-shirts, sweatshirts, hats and coffee mugs, as well as sundry items. o Shuttle Bus. The Boathouse operates a shuttle bus which transports guests between the facility and the Fifth Avenue and 72nd Street entrance to Central Park. The shuttle bus runs when the restaurant is opened for dinner and during special events at the catering pavilion. The Company operates The Boathouse pursuant to a 15-year license agreement with the City of New York Department of Parks and Recreation (the "Parks Department"). Pursuant to the license agreement, the Company is required to pay a fee to the Parks Department each license year (June 30 through the following June 29) equal to the greater of (i) $85,000 (increasing to $90,000 per year on June 30, 1998) or (ii) the sum of 13% of gross revenue from food and merchandise sales and 16% of gross revenues (increasing to 17% on June 30, 1999) from rowboat and bicycle rentals. The Company is required to maintain certain minimum levels of insurance with respect to the facility. The license agreement expires on June 29, 2000, provided that the Parks Department may terminate the license upon ten days written notice so long as the termination is not arbitrary or capricious. During the year ended September 29, 1996 and nine months ended June 29, 1997, The Boathouse's sales were $6,152,706 and $4,021,905, respectively. American Park American Park has been designed as a high-volume premium-quality restaurant and is currently under construction in Battery Park, a New York City landmark visited by approximately 4 million visitors in 1996. The Company anticipates that American Park will open in January 1998. American Park has been designed with an urban mountain lodge motif, incorporating natural fabrics, slate, stone, wood and brick with modern-style furnishings, vibrant colors and designer lighting. Guests will have panoramic views of the New York City harbor and landmarks such as the Statute of Liberty, Ellis Island, Governor's Island and the downtown Manhattan skyline. American Park will offer seating selections in its main dining room, second floor dining room and bi-level outdoor patios. American Park is expected to serve contemporary American cuisine featuring wood-burning menu selections, such as steaks, whole fish, chicken and veal dishes. The lower-level outdoor patio will extend to the water's edge and is expected to incorporate a separate kitchen which serves selected items from the main restaurant menu and an -28- expanded bar area. American Park will also feature a cigar lounge which will offer waitress service, and personal humidors which can be leased on an annual basis. The Company also intends to sell cigars and related paraphernalia in the cigar lounge. The Company intends to operate a free-standing kiosk as part of American Park which is expected to serve appetizers, sandwiches, cold beverages, beer and wine. In December 1994, the Company entered into a license agreement with the Parks Department to construct and operate a restaurant, American Park, in Battery Park. The Company is required to pay to the Parks Department a fee each license year (November 1 through the following October 31) equal to the greater of (i) $50,000 and (ii) 8% of gross receipts from the restaurant and 10% of gross receipts from merchandise sales (increasing to 12% on November 1, 1999). For the license year ended October 31, 1996, the license fee was $50,000. The Company anticipates that the license fee will increase substantially upon the opening of American Park. The Company is required to maintain certain level of insurance. The license agreement expires on October 31, 2015, provided, however, that the Parks Department may terminate the license upon 30 days written notice. American Park is approximately 18,300 square feet in size and is expected to have a seating capacity of approximately 750 seats, as well as capacity for approximately 75 persons standing in the bar area located on the lower-level outdoor patio. Expansion Strategy The Company's strategy is to initially develop and operate a limited number of additional Lundy's restaurants. The Company intends to focus its expansion efforts in the New York City metropolitan area and other urban and upscale suburban areas, particularly those with a large population of transplanted New Yorkers, such as Southern Florida, Los Angeles, Chicago and Washington D.C. With a substantial portion of the proceeds of this offering (approximately $3,500,000), projected cash flow from operations and anticipated financing, including equipment and vendor financing and landlord development concessions and rent allowances, the Company intends to open three additional Lundy's restaurants during the 12 months following the consummation of this offering. The Company has limited experience in expanding its operations and there can be no assurance that it will be able to successfully do so. The Company's strategy is to capitalize on what it perceives to be a high consumer recognition of the Lundy's name in markets where there is a significant percentage of the population which remembers and had visited the old Lundy's restaurant. The Company anticipates that future Lundy's restaurants will incorporate the Lundy's concept into the existing building architecture to give each location the atmosphere of a long-standing restaurant. The Company's long-term plans include seeking to capitalize upon the Lundy's name by marketing food and related products by mail, such as chowders sauces, pies, cookbooks, lobster bibs, crackers and forks and "Lundy's" and "Brooklyn" themed T-shirts and other clothing items, hats, plates and coffee and beer mugs. In addition, in connection with its expansion strategy, the Company may seek to open additional, high-volume landmark type restaurants as appropriate opportunities arise. Site Selection The choice of site selection is critical to the potential success of a particular restaurant. As a result, the Company devotes a significant amount of time and resources to identifying and analyzing potential sites. The Company seeks to identify locations in close proximity to upscale high-traffic, suburban residential neighborhoods, hotel complexes and/or urban business or entertainment centers. The Company also seeks to identify large spaces in tourist centers, such as government buildings, concession stands and offices in municipal parks which are not -29- utilized to their potential. Additionally, to the extent opportunities arise, the Company seeks to identify waterfront locations, which type of location the Company believes has a synergy with the Lundy's concept and primarily seafood menu. The Company, however, has no commitments or understandings with respect to any proposed location. The Company generally seeks to lease properties with 12,000 to 20,000 square feet of total space and seating capacity for 400 to 750 persons. The Company anticipates that three to six months will typically be required to open a new Lundy's restaurant from the time a location is identified and a lease is negotiated. The Company believes that future Lundy's restaurants, will be destination restaurants, similar to its existing restaurants, and that customers will travel by automobile up to 15 to 30 minutes to the location. The Company anticipates that the cost of opening additional Lundy's restaurants, other than lease expenses, will average approximately $1,500,000 (net of anticipated equipment and vendor financing and landlord contributions), consisting of construction ($800,000), equipment ($350,000), smallwares ($100,000), furniture ($100,000), point-of-sales account and cash management system ($75,000), inventory ($60,000), cash and deposits ($15,000). The Company also anticipates that it will incur pre-opening expenses of approximately $300,000 for each new Lundy's restaurant it opens, which it intends to finance from working capital. Annual rental costs will vary significantly depending upon the geographic market and square footage. The Company will seek to negotiate landlord development concessions and rent allowances with respect to future locations. The Company anticipates that leases relating to future locations will be long-term (20 to 30 years) in duration. Restaurant Operations Management and Employees Each location's operations is managed by a general manager and managers for certain operations of the location, such as kitchen, dining room (waiters and busboys), office (administration) and catering. Each location's staff consists of approximately 160 employees. Because the restaurant and certain other operations at The Boathouse are not open year round, the Company is required to hire new personnel annually for The Boathouse. The Company is currently refining its management bonus plan which will provide for bonuses based on the financial results of the manager's particular location. Service and Guest Satisfaction The Company believes that providing friendly, courteous, efficient service is critical to the long-term success of each location. The Company will attempt to recruit managers for future locations with significant experience in the restaurant industry. The Company is currently refining its training program in anticipation of opening additional Lundy's restaurants to teach restaurant managers to promote the Company's team-oriented atmosphere among restaurant employees, with emphasis on preparing and serving food in accordance with strict standards and providing friendly, courteous and attentive service. Each location's staff is trained on site by location managers and other designated employees. The Company believes that the selection and training of its location managers and staff result in friendly, courteous, efficient guest service which contributes to a pleasurable dining experience for the guest. The Company monitors each location's service and guest satisfaction. The Company maintains a guest service department which contacts several guests from each location's previous night's reservation list to inquire about their dining experiences. The guest service department also contacts each party which utilizes the Company's catering services to obtain feedback about their experiences. The Company also maintains a toll-free telephone line for guests to call with complaints or suggestions about the Company's locations. All calls are personally responded to by an executive officer of the Company. The Company utilizes guest feedback to continually improve its service, update its menu selections and otherwise improve its operations. -30- Purchasing Obtaining a reliable supply of quality seafood and other food and beverage items at competitive prices is critical to the Company's success. The Company has formed long-term relationships with several seafood suppliers, fish markets and operators of fishing boats. Each restaurant purchases its own supply of food and beverage items through a central purchasing department which maintains a list of approved suppliers. The Company regularly sends buyers to local seafood markets to purchase fresh seafood. In addition, the Company regularly arranges to purchase a fishing boat's day catch of lobsters and select fish, reducing its price per pound and ensuring superior quality. The Company maintains a current database of suppliers and continuously updates supplier's pricing to enable its restaurants to obtain the lowest prices available from Company-approved suppliers. The Company believes its diverse menu selection reduces the risk and minimizes the effect of the shortage of any seafood products. The Company has been able to anticipate and react to fluctuations in food costs through selected menu price adjustments, purchasing seafood directly from numerous suppliers, fish markets and fishing boats and promoting certain alternative menu selections (in response to availability and price of supply). To date, the Company generally has not experienced any significant delays in receiving its food and beverage inventories, restaurant supplies or equipment. Quality Control The Company maintains a continuous inspection program for all of its seafood purchases. Each shipment of seafood and other food items is inspected for quality and weight by the restaurant steward. All food items must be purchased from Company-approved suppliers. In addition, Lundy's houses a seafood laboratory where shipments of seafood are randomly tested to assure quality. The restaurants' management are responsible for properly training employees and ensuring that the Company's restaurants are operated in accordance with strict health and quality standards. Each restaurant employee is educated as to the correct handling and proper characteristics of each product. Compliance with the Company's quality standards are monitored by periodic on-site visits and formal periodic inspections by management and third-party food sanitation consultants. The Company believes that its inspection procedure and its employee training practices assist the Company in maintaining high standards of quality for the food and services it provides. Restaurant Reporting The Company maintains financial and accounting controls for each restaurant through a central point-of-sale, accounting and cash management systems. Sales data is collected daily, and store managers are provided with daily sales, cash and inventory information for their respective restaurants. The point-of-sale, accounting and cash management systems enables both store-level management and senior management to quickly react to changing sales trends, better manage food, beverage and labor costs, minimize theft and improve the quality and efficiency of accounting and audit procedures. Catering Operations The Company's restaurants offer high-quality professional, on-premise and off-premise catering services. Each restaurant provides its own catering services and specially designs menus to the guests requirements. Lundy's upstairs dinning room is used to cater private functions and has a capacity of 200 persons. In addition to catering private functions in the banquet area, The Boathouse caters larger functions of up to 1,000 persons in the combined space of the catering pavilion and restaurant. The Company anticipates offering catering services at American Park in its upstairs dining room, as well as at other restaurants opened in the future. -31- In April 1997, the Company entered into a five-year agreement with Bay Cruises LLC ("Bay Cruises") to act as exclusive caterer for all entertainment cruises conducted by Bay Cruises from any location in the New York metropolitan area. Bay Cruises conducts entertainment cruises aboard the Liberty I yacht. The Company provides several breakfast, lunch and dinner menu selections and is paid an amount based on the number of guests for catered cruises and based on the number of meals served for non-catered cruises. The Company may terminate the agreement upon sixty days notice. During the year ended September 29, 1996 and nine months ended June 29, 1997, Lundy's catered 59 and 111 private functions, respectively, and The Boathouse catered 284 and 208 private functions, respectively. Advertising and Marketing The Company employs a marketing strategy that seeks continuous visibility and name recognition through the use of local radio, print and billboard advertisements, as well as community events, for each restaurant. The Company contracts with public relations and advertising agencies to more effectively coordinate its advertising efforts. The Company also publishes and distributes a quarterly newsletter which apprises readers of upcoming events at the Company's restaurants and recent celebrity guests, answers guests' food, wine and restaurant etiquette questions and provides recipes. Each restaurant engages in community-based promotions designed to promote the restaurant and foster goodwill within the community. Each restaurant participates in the Company's "make a dent with 10%" program whereby 10% of the proceeds from three designated tables from the restaurant are donated to local charities. Lundy's and The Boathouse are high-profile locations which host many special events and receive extensive press coverage. Lundy's and The Boathouse have been featured in several magazines, including Gourmet, Travel & Leisure and The New York Times Magazine, and have been the subject of several television news stories. As a result, these restaurants receive a great deal of publicity in addition to the publicity obtained from the Company's advertising efforts. Competition The restaurant industry is intensely competitive with respect to price, service, location and food quality and variety. There are many well-established competitors with substantially greater financial and other resources than the Company, as well as a significant number of new market entrants. Such competitors include national, regional and local full-service casual dining chains, many of which specialize in or offer seafood products, as well as single location restaurants. Some of the Company's competitors have been in existence for substantially longer periods than the Company, may be better established in the markets where the Company's restaurants are or may be located and engage in extensive advertising and promotional campaigns, both generally and in response to efforts by competitors to open new locations or introduce new concepts or menu offerings. The Company can also be expected to face competition from a broad range of other restaurants and food service establishments which specialize in a variety of cuisines. Intellectual Property The Company's business prospects will depend largely upon the Company's ability to capitalize on favorable consumer recognition of the Lundy's name. Although the Company holds a trademark registration for use of the Lundy's name by the U.S. Patent and Trademark Office, there can be no assurance that the Company's marks do not or will not violate the proprietary rights of others or that the Company's marks would be upheld, or that the Company would not be prevented from using its marks, if challenged, any of which could have an adverse effect on the Company. -32- The Company also relies on trade secrets and proprietary know-how, and employs various methods, to protect its concepts and recipes. However, such methods may not afford complete protection and there can be no assurance that others will not independently develop similar know-how or obtain access to the Company's know-how, concepts and recipes. The Company does not maintain confidentiality and non-competition agreements with all of its executives, key personnel or suppliers. There can be no assurance that the Company will be able to adequately protect its trade secrets. Government Regulation The Company is subject to extensive state and local government regulation by various governmental agencies, including state and local licensing, zoning, land use, construction and environmental regulations and various regulations relating to the sale of food and beverages, sanitation, disposal of refuse and waste products, public health, safety and fire standards. The Company's restaurants are subject to periodic inspections by governmental agencies to assure conformity with such regulations. Difficulties or failure in obtaining required licensing or other regulatory approvals could delay or prevent the opening of a new restaurant, and the suspension of, or inability to renew, a license at an existing restaurant would adversely affect the operations of the Company. Restaurant operating costs are also affected by other government actions which are beyond the Company's control, including increases in the minimum hourly wage requirements, workers compensation insurance rates, health care insurance costs and unemployment and other taxes. The Federal Americans With Disabilities Act prohibits discrimination on the basis of disability in public accommodations and employment. The Company's restaurants are currently designed to be accessible to the disabled, and the Company believes that it is in compliance with all current applicable regulations relating to accommodations for the disabled. The Company is subject to "dram-shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. New York law currently provides that a vendor of alcoholic beverages may be held liable in a civil cause of action for injury or damage caused by or resulting from the intoxication of a minor (under 21 years of age) if the vendor willfully, knowingly and unlawfully sells or furnishes alcoholic beverages to the minor and knows that the minor will soon thereafter be driving a motor vehicle. A vendor can similarly be held liable if it knowingly provides alcoholic beverages to a person who is in a noticeable state of intoxication, knows that person will soon thereafter be driving a motor vehicle and injury or damage is caused by that person. Insurance The operation of restaurants subjects the Company to possible liability claims from others, including customers, employees and other service providers for personal injury (resulting from, among other things, contaminated or spoiled food or beverages, accidents or injuries caused by intoxicated persons served alcoholic beverages by a restaurant). The Company maintains insurance (with coverage in amounts up to $1,000,000 per occurrence and $5,000,000 of umbrella liability coverage), including insurance relating to personal injury, in amounts which the Company believes to be adequate. The Company also maintains property insurance for each location it operates in amounts it believes to be adequate. Nevertheless, a partially or completely uninsured claim against the Company, if successful, could have a material adverse effect on the Company. Properties The Company leases approximately 2,500 square feet of space in Staten Island, New York for its executive offices from Frank Cretella, Chief Executive Officer, President, a director and a principal stockholder of the Company. The current annual rent payable under the lease is currently $37,500 and increases by 1.5% per annum -33- commencing January 1998. The lease expires December 31, 2001. The Company believes that this lease is on commercially reasonable terms. See "Certain Transactions." The Company leases 16,505 square feet of space in Sheepshead Bay, Brooklyn, New York, where Lundy's is located pursuant to a lease which expires in 2014. The current annual rent payable under the lease is $300,000 during 1997. Upon the expiration of the lease, the Company has two 10-year renewal options. The Company leases an approximately 6,000 square feet warehouse in Bayonne, New Jersey, from Leisure Time Services, Inc., a company wholly-owned by Jeanne Cretella, Vice President, a director and a principal stockholder of the Company. The annual rent payable under the lease is currently $30,000 and increases by 1.5% per annum commencing January 1998. The Company believes that this lease is on commercially reasonable terms. See "Certain Transactions." The Company operates The Boathouse in Central Park, New York City pursuant to a license from the Parks Department which expires in June 2000. The Company has a license from the Parks Department to operate American Park in Battery Park, New York City. The license expires in 2015. Employees As of September 1, 1997, the Company employed 554 persons, of whom 26 were in management and 528 were in non-management restaurant operations. Approximately 34 of those individuals were employed on a salary basis. The Company believes its employee relations to be good. None of the Company's employees is covered by a collective bargaining agreement. Legal Proceedings The operation of restaurants and rowboat and bicycle rentals subjects the Company to potential claims from others, including customers, employees and other service providers for personal injury (resulting from, among other things, contaminated or spoiled food or beverages and accidents). The Company is a defendant in several lawsuits arising in the ordinary course of its business relating to personal injury claims by plaintiffs which are seeking damages substantially in excess of the Company's assets and insurance coverage. The lawsuits are being handled by the Company's insurance carriers. Although the Company is vigorously defend each lawsuit, since each lawsuit is in an early stage, the Company is unable at this time to evaluate the likelihood of an unfavorable outcome or to estimate the range of potential loss with respect to any of such lawsuits. There can be no assurance that any of such actions will be resolved in favor of the Company or that the outcome of any litigation or settlement will not have a material adverse effect on the Company. In the ordinary course of business, the Company is a party to other legal proceedings, the outcome of which, either singly, or in the aggregate, is not expected to be material. -34- MANAGEMENT Directors and Executive Officers The following are the directors and executive officers of the Company:
Name Age Position ---- --- -------- Frank Cretella 39 President, Chief Executive Officer and Director Jeanne Cretella 39 Vice President and Director Anthony B. Golio 37 Vice President Kenneth L. Harris 55 Chairman of the Board
Frank Cretella co-founded the Company's predecessor in 1981 and has been President, Chief Executive Officer and a director of the Company since inception. Jeanne Cretella co-founded the Company's predecessor in 1981, and has been Vice President, Secretary and a director of the Company since inception. Ms. Cretella is the wife of Frank Cretella. Anthony B. Golio has been Vice President of the Company since October 1997. In June 1996, Mr. Golio founded The Pineapple Group Inc., a consulting company to the restaurant industry. From February 1994 until October 1996, Mr. Golio was director of operations of Whiskey River Restaurant Group, a restaurant holding company. From January 1991 through February 1994, Mr. Golio was Vice President - Operations and Marketing of HMG, Inc., a restaurant holding company. From 1988 to 1991, Mr. Golio was manager of guest services in the food service division of the New York Zoological Society. From 1984 to 1988, Mr. Golio was area manager of Chi-Chi's Restaurants, Inc. Kenneth L. Harris has been Chairman of the Board since June 1997. Since January 1995, Mr. Harris has been President and Chief Executive Officer of Platinum Restaurant Group, a management consulting firm. From February 1994 through January 1995, Mr. Harris was Chief Operating Officer of HOB Entertainment, Inc., a theme restaurant company. From January 1975 through January 1994, Mr. Harris was employed by W.R. Grace & Co. ("Grace") and its subsidiary, Restaurant Enterprises Group, Inc. ("REGI"), most recently as President and Chief Executive Officer of REGI's Dinnerhouse division. In 1994, REGI filed for bankruptcy under Chapter 11 in the United States Bankruptcy Court, as part of a pre-packaged plan in connection with Grace's sale of such subsidiary. Mr. Harris is the designee of Kayne Anderson. The Company intends to appoint two independent directors prior to the date of this Prospectus. All directors currently hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified. Executive officers of the Company serve at the direction of the Board and until their successors are duly elected and qualified. The Company reimburses directors for reasonable travel expenses incurred in connection with their activities on behalf of the Company but does not pay its directors any fees for Board participation. In connection with this offering, the Company has agreed that it will, for a period of three years following the date of this Prospectus, upon the request of the Underwriter, nominate and use its best efforts to elect a designee of the Underwriter (which designee may change from time to time) as a director of the Company or, at the Underwriter's option, appoint such designee as a non-voting advisor to the Company's Board of Directors. The Underwriter has not yet exercised its rights to designate such a person. See "Underwriting." -35- Executive Compensation The following table sets forth certain compensation paid by the Company during the fiscal year ended September 29, 1996 to Frank Cretella, its President and Chief Executive Officer. No other officer of the Company received compensation in excess of $100,000 for the fiscal year ended September 29, 1996. Summary Compensation Table
Annual Compensation ---------------------------------------------- Other Annual Name and Principal Position Year Salary Bonus Compensation - --------------------------- ---- ------ ----- ------------ Frank Cretella President and Chief Executive Officer.............. 1996 $168,000 $ 0 $2,000
During the fiscal year ended September 28, 1997, Frank Cretella received compensation of $150,000. The Company did not grant any options to its executive officers during the years ended September 29, 1996 and September 28, 1997. Employment Agreements The Company has entered into three-year employment agreements with Frank Cretella and Jeanne Cretella, effective as of the date of this Prospectus, which is automatically renewable and provides for an annual base compensation of $175,000 and $75,000, respectively, and such bonuses as the Board of Directors may from time to time determine. Each of the employment agreements requires the officer to devote a majority of such officer's business time to the Company's business and affairs and contains a provision that such officer will not compete or engage in a business competitive with the current or anticipated business of the Company during the term of the employment agreement and for a period of one year thereafter. Each of the agreements also provides that if the officer is terminated without cause (including as a result of a change in control), such officer will be entitled to receive severance pay equal to the base compensation through the term of the agreement, provided that if such officer is terminated during the third year or the last year of any renewal term, such officer will be entitled to receive additional compensation equal to the base compensation received from the Company during the one-year period prior to the date of termination. Consulting Agreement In July 1996, the Company entered into a two-year consulting agreement with Kenneth L. Harris, Chairman of the Board of the Company, pursuant to which Mr. Harris (through Platinum Restaurant Group, a company wholly owned by Mr. Harris) has provided strategic planning, restaurant operations, marketing and site evaluation consulting services for a fee equal to $2,500 per month through December 1997 and $5,000 per month thereafter. The agreement is automatically renewable for successive one-year periods, unless either party gives written notice of its intention not to renew the agreement at least 30 days prior to the end of the term or renewal term. In addition, pursuant to the consulting agreement, the Company agreed to pay to Mr. Harris $50,000 as payment for consulting services rendered to the Company prior to entering into the consulting agreement. Such payment is due July 1998. 1997 Stock Option Plan In October 1997, the Company's stockholders approved a stock option plan (the "Option Plan") pursuant to which 525,000 shares of Common Stock have been reserved for issuance upon the exercise of options designated -36- as either (i) incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) nonqualified options. ISOs may be granted under the Option Plan to officers and employees of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. The purpose of the Option Plan is to encourage stock ownership by certain directors, officers and employees of the Company and other persons instrumental to the success of the Company. The Option Plan is intended to qualify under Rule 16b-3 under the Exchange Act, and is administered by the Board of Directors. The Board, within the limitations of the Option Plan, determines the persons to whom options will be granted, the number of shares to be covered by each option, whether the options granted are intended to be ISOs, the duration and rate of exercise of each option, the option purchase price per share and the manner of exercise, and the time, manner and form of payment upon exercise of an option. ISOs granted under the Option Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant (or 110% of fair market value in the case of persons holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any related corporation) may not exceed $100,000. Non-qualified options granted under the Option Plan may not be granted at a price less than the fair market value of the Common Stock on the date of grant. Options granted under the Option Plan will expire not more than ten years from the date of grant (five years in the case of ISOs granted to persons holding 10% or more of the voting stock of the Company). All options granted under the Option Plan are not transferable during an optionee's lifetime but are transferable at death by will or by the laws of descent and distribution. In general, upon termination of employment of an optionee, all options granted to such person which are not exercisable on the date of such termination immediately terminate, and any options that are exercisable terminate 90 days following termination of employment. The Company has granted options under the Option Plan, effective as of the date of this Prospectus, to purchase an aggregate of 197,500 shares. Of such options, options to purchase 50,000, 50,000, 35,000 and 15,000 shares were granted to Mr. Cretella, Ms. Cretella, Mr. Harris and Mr. Golio, respectively, at an exercise price of $5.00 per share. All of such options vest as to 50%, 25% and 25% of the shares covered thereby on the first, second and third anniversary of the date of this Prospectus, respectively, are exercisable upon vesting and expire ten years from the date of grant, subject to earlier expiration upon termination. The Company also intends to grant options under the Option Plan to purchase 5,000 shares of Common Stock to each non-employee director of the Company upon their re-election by the Company's stockholders at each annual meeting of the Company's stockholders. All of such options will be exercisable at the market value of the Common Stock on the date of grant. Indemnification and Exculpation Provisions The Company's Certificate of Incorporation provides for indemnification of officers and directors to the fullest extent permitted by Delaware law. In addition, under the Company's Certificate of Incorporation, no director shall be liable personally to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director; provided that the Certificate of Incorporation does not eliminate the liability of a director for (i) any breach of the director's duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) acts or omissions in respect of certain unlawful dividend payments or stock redemptions or repurchases; or (iv) any transaction from which such director derives improper personal benefit. The Company has also obtained directors and officers insurance. -37- PRINCIPAL STOCKHOLDERS The following table sets forth certain information, immediately prior to the consummation of this offering and as adjusted to reflect the sale by the Company of the 1,000,000 Shares offered hereby (based on information obtained from the persons named below), relating to the beneficial ownership of shares of Common Stock by: (i) each person or entity who is known by the Company to own beneficially five percent or more of the outstanding Common Stock, (ii) each of the Company's directors and (iii) all directors and executive officers of the Company as a group.
Percentage of Shares Beneficially Owned(2) ------------------------------ Number of Shares Name and Address of Beneficial Beneficially Before After Owners(1) Owned Offering Offering - --------- ----- -------- -------- Frank Cretella................................. 1,679,235(3) 67.2% 48.0% Jeanne Cretella................................ 1,679,235(3) 67.2 48.0 Peter J. Salvatore(4).......................... 176,371(5) 7.0 5.0 Kenneth L. Harris.............................. 110,282(6) 4.4 3.2 All directors and executive officers as a group (four persons)........................... 1,803,302(7) 72.1% 51.5%
- ---------- (1) Unless otherwise indicated, the address for each named individual or group is in care of TAM Restaurants, Inc., 1163 Forest Avenue, Staten Island, New York 10310. (2) Unless otherwise indicated, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. A person is deemed to be the beneficial owner of securities that can be acquired by such person within 60 days from the date of this Prospectus upon the exercise of options, warrants or convertible securities. Each beneficial owner's percentage ownership is determined by assuming that options, warrants or convertible securities that are held by such person (but not those held by any other person) and which are exercisable within 60 days of the date of this Prospectus have been exercised and converted. Assumes a base of 2,500,000 shares of Common Stock outstanding prior to this offering and a base of approximately 3,500,000 shares of Common Stock outstanding immediately after this offering, before any consideration is given to other outstanding options or warrants. See "Description of Securities." (3) Represents shares held jointly by Frank Cretella and Jeanne Cretella. Does not include (i) options to purchase 50,000 shares of Common Stock held by Frank Cretella, (ii) options to purchase 50,000 shares of Common Stock held by Jeanne Cretella and (iii) 4,724 Selling Securityholders' Warrants held by Jeanne Cretella. (4) The address for Mr. Salvatore is 35 Seagate Road, Staten Island, New York 10310. (5) Includes 6,082 shares of Common Stock held by Peter and Gail Salvatore Foundation, Inc., a trust of which by Mr. and Mrs. Salvatore are the beneficiaries. Does not include Selling Securityholders' Warrants to purchase 88,191 shares of Common Stock. (6) Does not include options to purchase 25,000 shares of Common Stock. (7) Does not include options to purchase an aggregate of 135,000 shares of Common Stock. -38- CERTAIN TRANSACTIONS Prior to January 1994, Ernest Cretella, father of Frank Cretella, President, Chief Executive Officer, a director and a principal stockholder of the Company, loaned the Company $100,000. In January 1994, Ernest Cretella borrowed $125,000 from a bank and secured the loan by mortgaging his personal residence. Ernest Cretella loaned the Company the proceeds of the bank loan, from which the Company repaid $50,000 of the outstanding indebtedness owed to Ernest Cretella, and the Company agreed to make Ernest Cretella's mortgage payments to the bank. In September 1995, Ernest Cretella converted the additional $50,000 principal amount of indebtedness owed to him into 25,000 shares of Common Stock and 2,500 warrants. Upon consummation of this offering, the warrants will convert into New Warrants. In July 1996, Ernest Cretella, loaned the Company an additional $55,000. Such loan bears interest at the rate of 10% per annum, payable quarterly, and is due June 30, 1998. In March 1994, the Company entered into a lease agreement to sublease the space where Lundy's is located. Frank Cretella personally guaranteed the Company's obligations to pay rent during the time which it occupies the leased premises. During 1994, Frank Cretella loaned the Company $12,500. In September 1996, Mr. Cretella borrowed $65,000 from the Company. During the nine months June 29, 1997, Mr. Cretella repaid the $52,500 owed to the Company. During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet Bank, N.A. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, the warehouse leased by the Company and owned by Leisure Time Services, Inc. ("Leisure Time"), a company owned by Jeanne Cretella, Vice President, director and a principal stockholder of the Company, and Mr. and Ms. Cretella's personal residence, and guaranteed by Mr. and Mrs. Cretella and Leisure Time. In June 1997, Mr. Cretella agreed to pay to Fleet $640,000 as payment for the amount owed by the Company ($720,125 as of June 30, 1997). In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the settlement. Mr. Cretella paid the balance to Fleet in October 1997. As consideration for entering into the settlement, the Company issued to Mr. Cretella a promissory note in the outstanding principal amount of $720,125 which bears interest at the rate of 10% per annum, payable in monthly installments of $6,102, with the outstanding principal payable in October 2001 upon maturity of the note. Prior to his employment by the Company, from October 1996 through September 1997, Anthony Golio, Vice President of the Company, provided consulting services to the Company through The Pineapple Group, Inc., a restaurant consulting firm, wholly-owned by Mr. Golio, for which he was paid an aggregate of $88,000. Such consulting services included organizational and managerial training, labor and cost management, negotiating with vendors and creating and refinancing management programs. In June 1996, the Company borrowed $88,000 from Joseph De Giulio, father of Jeanne Cretella. Interest is payable in monthly installments of $733 and the principal is due on June 22, 2001. As of September 1996, the Company had made advances and transferred equipment to Forest Avenue Corporation ("Forest") and deferred management fees due from Forest in the aggregate of $542,463. In September 1996, the assets of Forest were sold to an unrelated third party, and since the proceeds from the sale of such assets were insufficient to repay the amounts due to the Company, the Company deemed such amount to be uncollectible and wrote off such amount. Effective September 29, 1996, the Company acquired all of the outstanding capital stock of TAM, Bay Landing and Shellbank (the "Acquisition"). Frank and Jeanne Cretella were officers, directors and sole stockholders -39- of TAM, Bay Landing and Shellbank prior to the Acquisition. In connection with the Acquisition, Mr. and Mrs. Cretella received 1,679,235 shares of Common Stock. Immediately prior to the Acquisition, Frank Cretella formed MAT Operating Corp. ("MAT") and, in connection with the Acquisition, the assets relating to TAM's food concession operations were transferred to MAT. In October 1996, the Company entered into a 10-year operating agreement with MAT, a company wholly-owned by Frank Cretella, to manage the food concessions at the Central Park Zoo and the Staten Island Zoo in New York City for which the Company receives a management fee equal to 5% of gross sales. During the nine months ended June 29, 1997, the Company received $171,465 in fees from MAT, consisting of an initial fee of $125,000 relating to the formation of MAT and establishment of operations relating to the operating agreement, $35,862 of management fees and $10,603 of interest and other income. Since October 1, 1996, MAT has advanced to the Company an aggregate of $117,922 which is being offset against future management fees. In October 1996, the Company loaned to Leisure Time $153,863, pursuant to a note which is payable in monthly installments of $1,996.01, that bears interest at a rate of 9.56% per annum and expires on October 1, 2006. The Company loaned to Leisure Time an additional $20,670, which was repaid during the nine months ended June 29, 1997. In October 1996, the Company entered into a lease agreement with Mr. Cretella, pursuant to which the Company leases its executive offices in Staten Island, New York. Annual rent under the lease is $37,500 per year, increasing by 1.5% each year commencing January 1, 1998. The lease expires on December 31, 2001. The Company believes that this lease is on commercially reasonable terms. In October 1996, the Company entered into a lease agreement with Leisure Time, pursuant to which the Company leases a warehouse in Bayonne, New Jersey. Annual rent under the lease is $30,000 per year, increasing by 1.5% each year commencing January 1, 1998. The lease expires on December 31, 2001. The Company believes that this lease is on commercially reasonable terms. From time to time the Company has entered into equipment financing leases which have been guaranteed by Mr. Cretella and/or Leisure Time. Any future transactions with affiliates will be on terms no less favorable to the Company than could be obtained from unaffiliated parties and will be approved by a majority of the independent and disinterested members of the Board of Directors, outside the presence of any interested directors and, to the extent deemed appropriate by the Board of Directors, the Company will obtain stockholder approval or fairness opinions in connection with any such transaction. -40- DESCRIPTION OF SECURITIES Capital Stock General The Company is authorized to issue 19,000,000 shares of Common Stock, par value $.0001 per share, and 1,000,000 shares of Preferred Stock, par value $.0001 per share. As of the date of this Prospectus, there are 2,500,000 shares of Common Stock outstanding, held by approximately 51 stockholders of record, and no shares of Preferred Stock outstanding. Common Stock The holders of Common Stock are entitled to one vote per share on all matters submitted to a vote of the stockholders. There is no cumulative vote with respect to the election of directors, with the result that the holders of 50% or more of the shares vote for the election of directors can elect all of the directors then up for election. The holders of Common Stock, subject to preferences that may be applicable to any Preferred Stock outstanding at the time, are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. In the event of liquidation or dissolution of the Company, the holders of Common Stock are entitled to receive all assets available for distribution to the stockholders, subject to any preferential rights of any Preferred Stock then outstanding. The holders of Common Stock have no preemptive or other subscription rights, and there are no conversion rights or redemption or sinking fund provisions with respect to the Common Stock. All outstanding shares of Common Stock are, and the shares of Common Stock offered hereby upon issuance and sale will be, fully paid and non-assessable. The rights, preferences and privileges of the holders of Common Stock are subject to, and may be adversely affected by, the right of the holders of any shares of Preferred Stock which the Company may designate in the future. Preferred Stock The Company is authorized to issue 1,000,000 shares of Preferred Stock from time to time in one or more series upon authorization by the Company's Board of Directors. The Board of Directors, without further approval of the stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences, and other rights, preferences, privileges and restrictions applicable to each series of Preferred Stock. The issuance of Preferred Stock, while providing flexibility in connection with possible acquisitions and other corporate purposes could, among other things, adversely affect the voting power of the holders of Common Stock and, under certain circumstances, make it more difficult for a third party to gain control of the Company, prevent or substantially delay a change of control, discourage bids for the Company's Common Stock at a premium or otherwise adversely affect the market price of the Common Stock. Redeemable Warrants Each Warrant offered hereby entitles the registered holder thereof (the "Warrant Holders") to purchase one share of Common Stock at a price of $6.00, subject to adjustment in certain circumstances, at any time commencing _________, 1999 (13 months following the date of this Prospectus) (or on such earlier date as to which the Underwriter consents) until 5:00 p.m., Eastern Time on_______, 2003. The Warrants will be separately transferable immediately upon issuance. -41- The Warrants are redeemable by the Company at any time commencing ______________, 1999 (13 months following the date of this Prospectus) upon notice of not less than 30 days, at a price of $.10 per Warrant, provided that the closing bid quotation of the Common Stock on all 20 trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") has been at least 150% (currently $9.00 subject to adjustment) of the then effective exercise price of the Warrants and the Company obtains the consent of the Underwriter to such redemption prior to the Call Date. The Warrant Holders shall have the right to exercise their Warrants until the close of business on the date fixed for redemption. The Warrants will be issued in registered form under a warrant agreement by and among the Company, Continental Stock Transfer & Trust Company, as warrant agent, and the Underwriter (the "Warrant Agreement"). The exercise price and number of shares of Common Stock or other securities issuable on exercise of the Warrants are subject to adjustment in certain circumstances, including in the event of a stock dividend, recapitalization, reorganization, merger or consolidation of the Company. However, the Warrants are not subject to adjustment for issuances of Common Stock at prices below the exercise price of the Warrants. Reference is made to the Warrant Agreement (which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part) for a complete description of the terms and conditions therein (the description herein contained being qualified in its entirety by reference thereto). The Warrants may be exercised upon surrender of the Warrant certificate during the exercise period at the offices of the warrant agent, with the exercise form on the reverse side of the Warrant certificate completed and executed as indicated, accompanied by full payment of the exercise price (by certified check or bank draft payable to the Company) to the warrant agent for the number of Warrants being exercised. The Warrant Holders do not have the rights or privileges of holders of Common Stock. No Warrant will be exercisable unless at the time of exercise the Company has declared effective a current registration statement with the Commission covering the shares of Common Stock issuable upon exercise of such Warrant and such shares have been registered or qualified or deemed to be exempt from registration or qualification under the securities laws of the state of residence of the holder of such Warrant. The Company will use its best efforts to have all such shares so registered or qualified on or before the exercise date and to maintain a current prospectus relating thereto until the expiration of the Warrants, subject to the terms of the Warrant Agreement. While it is the Company's intention to do so, there can be no assurance that it will be able to do so. No fractional shares will be issued upon exercise of the Warrants. However, if a Warrant Holder exercises all Warrants then owned of record by him, the Company will pay to such Warrant Holder, in lieu of the issuance of any fractional share which is otherwise issuable, an amount in cash based on the market value of the Common Stock on the last trading day prior to the exercise date. Other Existing Warrants There are currently outstanding warrants to purchase an aggregate of 310,000 shares of Common Stock all of which are being converted into Selling Securityholders' Warrants. The Selling Securityholders' Warrants will be identical to the Warrants. There are other outstanding warrants to purchase (i) 3,000 shares at an exercise price of $.01 which are exercisable until October 23, 2002 and (ii) 200,000 shares at an exercise price of $5.00 per share which are exercisable commencing 90 days from the date of this Prospectus until October 31, 2002. The Company granted certain registration right to the holder of the warrants to purchase 200,000 shares of Common Stock. Delaware Anti-Takeover Law The Company is subject to certain anti-takeover provisions under Section 203 of the Delaware General Corporation Law. In general, under Section 203, a Delaware corporation may not engage in any business -42- combination with any "interested stockholder" (a person that owns, directly or indirectly, 15% or more of the outstanding voting stock of a corporation or is an affiliate of a corporation and was the owner of 15% or more of the outstanding voting stock), for a period of three years following the date such stockholder became an interested stockholder, unless (i) prior to such date the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder, or (ii) upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The restrictions imposed by Section 203 will not apply to a corporation if the corporation's initial certificate of incorporation contains a provision expressly electing not to be governed by this section or the corporation by action of its stockholders holding a majority of outstanding stock adopts an amendment to its certificate of incorporation or by-laws expressly electing not to be governed by Section 203. The Company has not elected out of Section 203, and upon consummation of this offering and the listing of Common Stock on Nasdaq. Such provision could have the effect of discouraging, delaying or preventing a takeover of the Company, which could otherwise be in the best interest of the Company's stockholders, and have an adverse effect on the market price for the Company's Common Stock. Transfer Agent and Warrant Agent The transfer agent for the Common Stock and the warrant agent for the Warrants is Continental Stock Transfer & Trust Company, Two Broadway, New York, New York 10004. Reports to Stockholders The Company intends to file a registration statement with the Securities and Exchange Commission to register its Common Stock and Warrants under the provisions of Section 12(g) of the Exchange Act prior to the date of this Prospectus and has agreed with the Underwriter that it will use its best efforts to continue to maintain such registration. Such registration will require the Company to comply with periodic reporting, proxy solicitation and certain other requirements of the Exchange Act. SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of this offering, the Company will have 3,500,000 shares of Common Stock outstanding (assuming no exercise of the Warrants). All 1,000,000 of the Shares being offered hereby will be immediately tradable without restriction or further registration under the Securities Act. The remaining 2,500,000 shares of Common Stock outstanding are deemed to be "restricted securities," as that term is defined under Rule 144 promulgated under the Securities Act, in that such shares were acquired by the stockholders of the Company in transactions not involving a public offering, and, as such, may only be sold pursuant to a registration statement under the Securities Act, in compliance with the exemption provisions of Rule 144, or pursuant to another exemption under the Securities Act. Approximately 2,461,076 of the restricted shares will become eligible for sale under Rule 144, subject to the volume limitations prescribed by the Rule, 90 days following the date of this Prospectus and the balance of such restricted shares will become eligible for sale under Rule 144, subject to the volume limitations presented by the Rule, in May 1998. -43- In general, under Rule 144 as currently in effect, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company (or persons whose shares are aggregated with an affiliate), who has owned restricted shares of Common Stock beneficially for at least one year is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class or, if the common stock is quoted on Nasdaq, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least three months immediately preceding the sale and who has beneficially owned shares of Common Stock for at least two years is entitled to sell such shares under Rule 144 without regard to any of the limitations described above. The holders of 267,325 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of 15 months from the date of this Prospectus without the Underwriter's prior written consent. The holders of 253,002 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such shares for a period of 18 months from the date of this Prospectus without the Underwriter's prior written consent. The holders of 1,979,673 shares of Common Stock (including the officers and directors of the Company) have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such shares for a period of 24 months from the date of this Prospectus without the Underwriter's prior written consent. Prior to this offering, there has been no market for the Common Stock or Warrants and no prediction can be made as to the effect, if any, that public sales of shares of Common Stock or the availability of such shares for sale will have on the market prices of the Common Stock and the Warrants prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and the Warrants and could impair the Company's ability in the future to raise additional capital through the sale of its equity securities. UNDERWRITING Paragon Capital Corporation (the "Underwriter") has agreed, subject to the terms and conditions contained in the Underwriting Agreement, to purchase the 1,000,000 Shares and 500,000 Warrants offered hereby from the Company. The Underwriter is committed to purchase and pay for all of the Shares and Warrants offered hereby if any of such securities are purchased. The Shares and Warrants are being offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by the Underwriter and subject to approval of certain legal matters by counsel and to certain other conditions. The Underwriter has advised the Company that it proposes to offer the Shares and Warrants to the public at the public offering prices set forth on the cover page of this Prospectus. The Underwriter may allow to certain dealers who are members of the National Association of Securities Dealers, Inc. (the "NASD") concessions, not in excess of $ per Share and $ per Warrant, of which not in excess of $ per Share and $ per Warrant may be reallowed to other dealers who are members of the NASD. The Company has granted to the Underwriter an option, exercisable for 45 days from the date of this Prospectus, to purchase up to 150,000 additional shares of Common Stock and/or 75,000 additional Warrants at the public offering prices set forth on the cover page of this Prospectus, less the underwriting discounts and commissions. The Underwriter may exercise this option in whole or, from time to time, in part, solely for the purpose of covering over-allotments, if any, made in connection with the sale of the Shares and/or Warrants offered hereby. -44- The Company has agreed to pay the Underwriter a nonaccountable expense allowance of 3% of the gross proceeds of this offering, of which $50,000 has been paid as of the date of this Prospectus. The Company has also agreed to pay all expenses in connection with qualifying the Shares and Warrants offered hereby for sale under the laws of such states as the Underwriter may designate, including expenses of counsel retained for such purpose by the Underwriter. The Company has agreed to sell to the Underwriter and its designees for an aggregate of $105, warrants (the "Underwriter's Warrants") to purchase up to 100,000 shares of Common Stock at an exercise price of $6.00 per share (120% of the public offering price per share) and up to 50,000 Warrants (each exercisable to purchase one share of Common Stock at a price of $7.25 per share) at an exercise price of $.12 per Warrant (120% of the public offering price per Warrant). The Underwriter's Warrants may not be sold, transferred, assigned or hypothecated for one year from the date of this Prospectus, except to the officers and partners of the Underwriter and members of the selling group and are exercisable at any time and from time to time, in whole or in part, during the four-year period commencing one-year from the date of this Prospectus (the "Warrant Exercise Term"). During the Warrant Exercise Term, the holders of the Underwriter's Warrants are given, at nominal cost, the opportunity to profit from a rise in the market price of the Common Stock. To the extent that the Underwriter's Warrants are exercised, dilution to the interests of the Company's stockholders will occur. Further, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the Underwriter's Warrants. Any profit realized by the Underwriter on the sale of the Underwriter's Warrants, the underlying shares of Common Stock or the underlying warrants, or the shares of Common Stock issuable upon exercise of such underlying warrants may be deemed additional underwriting compensation. The Company has agreed, at the request of the holders of a majority of the Underwriter's Warrants, at the Company's expense, to register the Underwriter's Warrants, the shares of Common Stock and warrants underlying the Underwriter's Warrants, and the shares of Common Stock issuable upon exercise of the underlying warrants under the Securities Act on one occasion during the Warrant Exercise Term and to include the Underwriter's Warrants and all such underlying securities in any appropriate registration statement which is filed by the Company during the seven years following the date of this Prospectus. The Company has also agreed, for a period of three years from the date of this Prospectus, if so requested by the Underwriter, to nominate and use its best efforts to elect a designee of the Underwriter as a director of the Company, or, at the Underwriter's option, as a non-voting advisor to the Company's Board of Directors. The Company's officers, directors and stockholders have agreed to vote their shares of Common Stock in favor of such designee. The Underwriter has not yet exercised its right to designate such a person. In addition, the Company has agreed to enter into a consulting agreement to retain the Underwriter as a financial consultant for a period of two years from the consummation of this offering at an annual fee of $30,000, the entire $60,000 payable in full, in advance. The consulting agreement will not require the consultant to devote a specific amount of time to the performance of its duties thereunder. In the event that the Underwriter originates a financing or a merger, acquisition, joint venture or other transaction to which the Company is a party, the Underwriter will be entitled to receive a finder's fee in consideration for origination of such transaction. The Company has agreed, in connection with the exercise of the Warrants pursuant to solicitation (commencing one year from the date of this Prospectus), to pay to the Underwriter a fee of 5% of the exercise price for each Warrant exercised; provided, however, that the Underwriter will not be entitled to receive such compensation in Warrant exercise transactions in which (i) the market price of Common Stock at the time of exercise is lower than the exercise price of the Warrants; (ii) the Warrants are held in any discretionary account; (iii) disclosure of compensation arrangements is not made, in addition to the disclosure provided in this Prospectus, in -45- documents provided to holders of Warrants at the time of exercise; (iv) the exercise of the Warrants is unsolicited by the Underwriter; or (v) the solicitation of exercise of the Warrants was in violation of Regulation M promulgated under the Exchange Act. Regulation M may prohibit the Underwriter from engaging in any market making activities with regard to the Company's securities for the period from nine business days (or such other applicable period as Regulation M may provide) prior to any solicitation by the Underwriter of the exercise of Warrants until the later of the termination of such solicitation activity or the termination (by waiver or otherwise) of any right that the Underwriter may have to receive a fee for the exercise of Warrants following such solicitation. As a result, the Underwriter may be unable to continue to provide a market for the Company's securities during certain periods while the Warrants are exercisable. The holders of 267,325 shares of Common Stock and the holders of the 310,000 Selling Securityholders' Warrants and 3,000 other warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of 15 months from the date of this Prospectus, without the Underwriter's prior written consent. The holders of 253,002 shares of Common Stock and the holders of 200,000 outstanding warrants have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities for a period of 18 months, without the prior written consent of the Underwriter. The holders of 1,979,673 shares of Common Stock (including the officers and directors of the Company), have agreed not to sell, assign, transfer, pledge, hypothecate or otherwise dispose of any of such securities of the Company for a period of 24 months from the date of this Prospectus, without the prior written consent of the Underwriter. The Underwriter has advised the Company that it does not expect sales made to discretionary accounts to exceed 1% of the securities offered hereby. The Company has agreed to indemnify the Underwriter against certain civil liabilities, including liabilities under the Securities Act. Prior to this offering, there has been no public trading market for the Common Stock or Warrants. Consequently, the initial public offering price of the Common Stock and Warrants and the exercise price of the Warrants have been determined by negotiations between the Company and the Underwriter. Among the factors considered in determining these prices were the Company's financial condition and prospects, market prices of similar securities of comparable publicly-traded companies and the general condition of the securities market. In order to facilitate the offering, the Underwriter may engage in transactions that stabilize, maintain or otherwise affect the prices of the Common Stock and Warrants. Specifically, the Underwriter may over-allot in connection with the offering, creating a short position in the Common Stock and/or Warrants for its own account. In addition, to cover over-allotments or to stabilize the price of the Common Stock and Warrants, the Underwriter may bid for, and purchase, shares of Common Stock and Warrants in the open market. The Underwriter may also reclaim selling concessions allowed to a dealer for distributing the Common Stock and Warrants in the offering, if the Underwriter repurchases previously distributed Common Stock and Warrants in transactions to cover short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the Common stock and Warrants above independent market levels. The Underwriter is not required to engage in these activities, and may end any of these activities at any time. -46- SELLING SECURITYHOLDERS AND PLAN OF DISTRIBUTION The Company has agreed to register the public offering of the Selling Securityholders' Warrants and Selling Securityholders' Shares under the Securities Act concurrently with this offering and to pay all expenses in connection therewith. An aggregate of 310,000 Selling Securityholders' Warrants and/or Selling Securityholders' Shares may be offered and sold pursuant to this Prospectus by the Selling Securityholders. None of the Selling Securityholders' Warrants nor Selling Securityholders' Shares may be sold by the Selling Securityholders prior to 15 months after the date of this Prospectus, without the prior written consent of the Underwriter. None of the Selling Securityholders has ever held any position or office with the Company or had any other material relationship with the company. The Company will not receive any of the proceeds from the sale of the Selling Securityholders' Warrants and/or Selling Securityholders' Shares by the Selling Securityholders. The following table sets forth certain information with respect to the Selling Securityholders:
Percentage Beneficial Comon Beneficial Beneficial Beneficial Warrants Beneficial Ownership Stock Ownership Ownership Ownership Being Ownership of Common Being of Common After Sale of Warrants Registered of Warrants Stock Prior Registered Stock After (Common Selling Securityholder Prior to Sale For Sale After Sale(1) to Sale (2) For Sale Sale(2) Stock) ---------------------- ------------- -------- ------------- ----------- -------- ------- ------ [To be supplied]
The Selling Securityholders' Warrants and Selling Securityholders' Shares may be offered and sold from time to time as market conditions permit in the over-the-counter market, or otherwise, at prices and terms then prevailing or at prices related to the then-current market price, or in negotiated transactions. The Selling Securityholders' Warrants and Selling Securityholders' Shares may be sold by one or more of the following methods, without limitation: (i) a block trade in which a broker or dealer so engaged will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction; (ii) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; (iii) ordinary brokerage transactions and transactions in which broker solicits purchases; and (iv) transactions between sellers and purchasers without a broker/dealer. In effecting sales, brokers or dealers engaged by the Selling Securityholders may arrange for other brokers or dealers to participate. Such brokers or dealers may receive commissions or discounts from selling Securityholders in amounts to be negotiated. Such brokers and dealers and any other participating brokers and dealers may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. LEGAL MATTERS The legality of the securities offered by this Prospectus will be passed upon for the Company by Tenzer Greenblatt LLP, New York, New York. Akerman, Senterfitt and Eidson, P.A., Miami, Florida, has acted as counsel to the Underwriter in connection with this offering. EXPERTS The financial statements of the Company included in this Prospectus have been audited by Maltese, Potter & LaMarca, LLP, independent auditors as stated in their report appearing herein and have been included herein in reliance upon the report of said firm given upon their authority as experts in accounting and auditing. Our report contains an explanatory paragraph regarding uncertainties as to the Company's ability to continue as a going concern. -47- ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form SB-2 (the "Registration Statement") under the Securities Act with respect to the securities offered by this Prospectus. This Prospectus, filed as a part of such Registration Statement, does not contain all of the information set forth in, or annexed as exhibits to, the Registration Statement, certain parts of which are omitted in accordance with the rules and regulation of the Commission. For further information with respect to the Company and this offering, reference is made to the Registration Statement, including the exhibits filed therewith, which may be inspected without charge at the Office of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549; and at the following regional offices: Midwest Regional Office, Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661-2511, and the Northeast Regional Office, 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of the Registration Statement may be obtained from the Commission at its principal office upon payment of prescribed fees. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, where the contract or other document has been filed as an exhibit to the Registration Statement, each statement is qualified in all respects by reference to the applicable document filed with the Commission. The Commission maintains an Internet web site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the Commission. The address of that site is http://www.sec.gov. Upon consummation of this offering, the Company will become subject to the reporting requirements of the Securities Exchange Act of 1934 and in accordance therewith will file reports, proxy statements and other information with the Commission. The Company intends to furnish to its stockholders with annual reports containing audited financial statements and such other reports as the Company deems appropriate or as may be required by law. -48- TAM RESTAURANT HOLDING CORP. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s) Report of Independent Certified Public Accountants F-2 Financial Statements Consolidated Balance Sheets F-3 to F-5 Consolidated Statements of Income F-6 Consolidated Statements of Changes in Stockholders' Equity F-7 Consolidated Statements of Cash Flows F-8 to F-9 Notes to Consolidated Financial Statements F-10 to F-26
F-1 Report of Independent Certified Public Accountants (This is the form of opinion we will be able to render upon completion of the stock split as described in Note Q) To the Board of Directors and Stockholders of TAM Restaurant Holding Corp. and Subsidaries Staten Island, New York We have audited the accompanying consolidated balance sheet of TAM Restaurant Holding Corp., as of September 29, 1996, and the related consolidated statements of income, consolidated statements of changes in stockholders' equity, and consolidated statements of cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of TAM Restaurant Holding Corp., as of September 29, 1996, and the results of its operations and cash flows for the year then ended, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note N to the financial statements, the Company's significant operating losses and negative working capital raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Maltese, Potter & LaMarca LLP July 31, 1997 F-2 TAM RESTAURANT HOLDING CORP. CONSOLIDATED BALANCE SHEETS ASSETS September 29, June 29, 1996 1997 ------------- ----------- (Unaudited) Current Assets Cash $ 66,616 $ 106,444 Accounts receivable (net of allowance for doubtful accounts of $15,546) 264,948 987,242 Inventory 207,978 228,819 Prepaid and other expenses 270,216 356,206 Loan receivable-officer 53,602 23,516 ---------- ---------- Total Current Assets 863,360 1,702,227 Property and Equipment-Net 3,551,303 4,327,920 Loans Receivable-Affiliate 177,438 156,682 Other Assets 136,767 136,767 ---------- ---------- TOTAL ASSETS $4,728,868 $6,323,596 ========== ========== The accompanying notes are an integral part of these financial statements F-3 TAM RESTAURANT HOLDING CORP. CONSOLIDATED BALANCE SHEETS LIABILITIES
September 29, June 29, 1996 1997 ------------- ----------- (Unaudited) Current Liabilities Revolving credit line payable $ 130,000 $ 130,000 Current portion of long-term debt 518,938 630,063 Current portion of capitalized lease obligations 81,081 78,596 Accounts payable 934,995 754,750 Contract deposits payable 238,329 485,992 Accrued expenses 986,804 1,754,249 ---------- ---------- Total Current Liabilities 2,890,147 3,833,650 ---------- ---------- Long-term Liabilities Deferred rent expense 148,084 220,140 Deferred expenses 237,250 237,250 Deferred income 43,000 43,000 Loans payable-related parties 236,000 178,000 Long-term debt-net of current portion 816,592 851,753 Capitalized lease obligations-net of current portion 249,040 189,026 Loan payable-MAT Operating Corp. 0 117,922 ---------- ---------- Total Long-term Liabilities 1,729,966 1,837,091 ---------- ---------- TOTAL LIABILITIES 4,620,113 5,670,741 ---------- ---------- Commitments and Contingencies
The accompanying notes are an integral part of these financial statements F-4 TAM RESTAURANT HOLDING CORP. CONSOLIDATED BALANCE SHEETS September 29, June 29, 1996 1997 ---- ---- (Unaudited) STOCKHOLDERS' EQUITY Stockholders' Equity Preferred stock; .0001 per value; 1,000,000 shares authorized, 0 shares issued and outstanding 0 0 Common stock; .0001 par value; 19,000,000 shares authorized; 2,385,257 and 2,500,000 shares issued and outstanding as of September 29, 1996 and June 29, 1997, respectively, 238 250 Additional paid-in capital 2,697,811 3,132,799 Accumulated deficit (2,589,294) (2,480,194) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 108,755 652,855 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,728,868 $ 6,323,596 =========== =========== The accompanying notes are an integral part of these financial statements. F-5 TAM RESTAURANT HOLDING CORP. CONSOLIDATED STATEMENTS OF INCOME
Year Ended Nine Months Ended September 29, 1996 June 30, 1996 June 29, 1997 ------------------ ------------- ------------- (Unaudited) Sales $ 11,847,088 $ 7,261,892 $ 8,902,628 Cost of Sales 7,260,440 4,502,373 5,064,207 ------------ ------------ ------------ Gross Profit 4,586,648 2,759,519 3,838,421 Operating and Administrative Expenses 6,122,870 3,754,199 3,246,707 ------------ ------------ ------------ Income (loss) from Operations (1,536,222) (994,680) 591,714 ------------ ------------ ------------ Other Expense Write-off of advance to affiliate (542,463) (542,463) 0 Interest expense (363,994) (270,282) (277,843) Barter expense (293,135) (293,135) (204,771) ------------ ------------ ------------ Total Other Expense (1,199,592) (1,105,880) (482,614) ------------ ------------ ------------ Income (loss) from Continuing Operations Before Income Tax Benefit (2,735,814) (2,100,560) 109,100 Income Tax Benefit 98,588 98,588 0 ------------ ------------ ------------ Income (loss) from Continuing Operations (2,637,226) (2,001,972) 109,100 Income from Discontinued Operations (Net of Income Taxes of $20,093) 30,142 30,142 0 ------------ ------------ ------------ Net Income (loss) $ (2,607,084) $ (1,971,830) $ 109,100 ============ ============ ============ Income (loss) per common share: Income(loss) from continuing operations (1.22) (1.01) .05 Income from discontinued operations .01 .02 .00 ------------ ------------ ------------ Net Income(loss) Per Common Share (1.21) (.99) .05 ============ ============ ============ Weighted average number of common shares outstanding 2,160,676 1,991,063 2,418,294 ============ ============ ============
The accompanying notes are an integral part of these financial statements. F-6 TAM RESTAURANT HOLDING CORP. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Common Stock Additional Paid In Accumulated Shares Amount Capital Deficit ------ ------ ------- ------- Balance October 1, 1995 1,679,236 $ 168 $ 187,988 $ 17,790 Issuance of Common Stock 510,084 51 1,950,595 Issuance of Common Stock for Settlement 22,056 2 79,998 Common Stock Issued for Services 173,881 17 472,833 Transfer of Assets in Connection with Reorganization (1,710) Warrants Issued for Services 8,107 Net Loss for the Year (2,607,084) ----------- ----------- ----------- ----------- Balance at September 29, 1996 2,385,257 238 2,697,811 (2,589,294) Issuance of Common Stock (Unaudited) 55,141 6 199,994 Stock Issued for Debt (Unaudited) 59,602 6 234,994 Net Income (Unaudited) 109,100 ----------- ----------- ----------- ----------- Balances at June 29, 1997 (Unaudited) 2,500,000 $ 250 $ 3,132,799 $(2,480,194) =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-7 TAM RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Nine Months Ended September 29, 1996 June 30, 1996 June 29, 1997 ------------------ ------------- ------------- (Unaudited) Cash Flows from Operating Activities Net income (loss) $ (2,607,084) $(1,971,830) $ 109,100 Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization expense 359,969 142,650 207,833 Deferred rent expense 148,083 111,062 72,056 Deferred expenses 237,250 237,250 0 Deferred income (7,184) (7,184) 0 Special compensation expense 561,114 0 0 Write-off of advance to affiliate 542,643 542,643 0 (Increase) decrease in: Accounts receivable (22,072) (459,418) (722,296) Inventory (77,238) (135,060) (20,841) Prepaid and other expenses (125,343) (125,343) (85,990) Other assets (90,986) (90,986) 0 Increase (decrease) in: Accounts payable 279,920 273,549 (180,243) Contract deposits payable 62,476 209,764 247,663 Accrued expenses 370,629 526,258 767,445 -------------- -------------- ------------- Net Cash provided by (used in) Operating Activities (367,823) (746,645) 394,727 -------------- -------------- ------------- Cash Flows from Investing Activities Acquisition of property and equipment (2,458,971) (2,138,888) (984,450) -------------- ------------- ------------- Net Cash used in Investing Activities (2,458,971) (2,138,888) (984,450) ------------ ------------- -------------
The accompanying notes are an integral part of these financial statements. F-8 TAM RESTAURANT GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended Nine Months Ended September 29, 1996 June 30, 1996 June 29, 1997 ------------------ ------------- ------------- (Unaudited) Cash Flows from Financing Activities Net repayments of officers loans 60,545 114,147 30,086 Loans receivable 33,403 (20,199) 20,756 Proceeds from long-term debt 1,215,470 1,126,317 435,000 Principal payments on long-term debt (203,840) (72,040) (174,213) Advances to affiliates and others 1,142 1,142 117,922 Proceeds from capital stock issue 1,638,936 1,674,336 200,000 ------------ ------------- ------------- Net Cash provided by Financing Activities 2,745,656 2,823,703 629,551 ------------ ------------- ------------- Net Increase (Decrease) in Cash (81,138) (61,830) 39,828 Cash, Beginning of Period 147,754 147,754 66,616 ------------- -------------- -------------- Cash, End of Period $ 66,616 $ 85,924 $ 106,444 ============= ============== =============
The accompanying notes are an integral part of these financial statements. F-9 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note A-Summary of Significant Accounting Policies Nature of business TAM Restaurant Holding Corp. ("The Company") was incorporated under the laws of the State of Delaware in July 1996 under the name TAM Restaurant Holding Corp. and changed its name to TAM Restaurants, Inc. Effective September 29, 1996, the Company acquired all of the outstanding capital stock of TAM Restaurant Group, Inc., Bay Landing Restaurant Corp. and Shellbank Restaurant Corp. The Company operates Lundy Bros. Restaurant, a high-volume, casual, upscale seafood restaurant located in Brooklyn, New York, and The Boathouse in Central Park, a multi-use facility which features an upscale restaurant and catering pavilion, located on the lake in New York City's Central Park. The Company is also constructing American Park at the Battery, which has been designed as a high-volume premium-quality restaurant to be located at the water's edge in Battery Park. In addition, the Company's restaurants offer high-quality professional, on-premise and off-premise catering services. Corporate restructuring Effective September 29, 1996, the Companies completed a corporate restructuring, whereby, the concession business previously operated by TAM Restaurant Group Inc., was spun-off to a new corporation, MAT Operating Corp. (MAT). These concessions included the Central Park Zoo, the Staten Island Zoo, and the Wollman Ice Rink at Central Park. MAT is owned by a principal shareholder, who prior to the reorganization, was a principal shareholder of TAM Restaurant Group, Inc. In addition, the stockholders of TAM Restaurant Group, Inc., Bay Landing Restaurant Corp. and Shellbank Restaurant Corp., transferred all of the stock owned by them in return for stock in the Company. This transaction has been treated in a manner similar to a pooling of interest. 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. F-10 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Accounting period The Company reports their information using a 4-4-5 week quarter which ends on the last Sunday of the month. Revenue recognition Revenues are recognized at the point of sale. Inventory Inventory is stated at the lower of cost, first-in, first-out, or market. Inventory consists of items used in operations and items held for resale. Property and equipment Property and equipment are carried at cost. Depreciation of equipment, furniture and fixtures, and amortization of leasehold improvements is provided using the straight-line and double declining balance methods for financial reporting purposes at rates based on the following estimated useful lives: Years ----- Transportation equipment 5 Furniture and fixtures 5-7 Equipment 5-7 Leasehold improvements Remaining life of lease Expenditures for major renewals and betterments that extend the useful lives of property and equipment are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred. Trademarks The name Lundy Bros. (registered July 9, 1996) and the logo F.W.I.L. (registered December 17, 1996) are registered with the United States Patent and Technical Office. Each registration will remain in force for 10 years, subject to the filing of a Declaration of Continuing Use between the fifth and sixth anniversaries of the registration date. F-11 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Barter advances The Company has entered into various barter agreements which they use as a source of financing. Under the agreements, the Company is advanced cash in exchange to provide food and beverage to the barter companies. For every dollar advanced, the Company must return $1.60 to $2.00 in food and beverage sales. Income taxes The Company accounts for its income taxes using the Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss carryforwards. Deferred tax expense or benefit is recognized as a result of the changes in the assets and liabilities during the year. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized. Deferred stock offering costs Costs incurred in connection with the Company's proposed public offering of common stock will be charged to capital in the period that the offering was completed, or charged to operations if the offering is not successful. Rent expense The Company amortizes its rental space at Lundy's using the straight-line method over the life of the lease. Advertising expense Advertising expenditures are charged to earnings when incurred. Concentrations of credit risk The Company extends credit based on an evaluation of the customer's financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses. No individual customer is considered to be significant. F-12 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Net loss per share Net loss per share of common stock is computed based on the weighted average number of common stock and common stock equivalent shares outstanding during the period. Common stock and warrants issued within twelve months of the IPO filing for consideration below the proposed public offering price have been included as if they had been outstanding for all periods presented. Disclosure of fair value of financial instruments The carrying amount of financial instruments including cash, accounts receivable, accounts payable, accrued expenses and short-term debt approximated fair value as of September 29, 1996 because of the relatively short maturity of these instruments. Due to the unspecified payment terms, it was not practicable to estimate the fair value of the loan to officer. Interim financial information The financial information presented as of June 29, 1997 and for the nine months ended June 29, 1997 and June 30, 1996 is unaudited but, in the opinion of management, reflects all adjustments (consisting of normal accruals) which the Company considers necessary for a fair presentation of financial position at such date and the operating results and cash flows for those periods. Results for the nine month period ended June 29, 1997 are not necessarily indicative of results that may be expected for the year ending September 29, 1997. Recent accounting standards In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123 is effective for financial statements issued for periods beginning after December 15, 1995 and encourages entities to adopt the fair value method in place of the provisions for Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25), for all arrangements under which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of its stock. The Company does not anticipate adopting the fair value method encouraged by SFAS No. 123 and will account for such transactions in accordance with APB No. 25. F-13 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 (Statement 121), "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Statement No. 121 requires, among other things, an impairment loss on assets to be held and gains or losses from assets that are expected to be disposed of to be included as a component of income from continuing operations before taxes on income. The Company has adopted Statement No. 121 in fiscal 1997, and its implementation has not had a material effect on the consolidated financial statements. The Financial Accounting Standards Board (FASB) has issued Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" SFAS No. 128 is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 simplifies the computation of earnings per share by replacing the presentation of primary earnings per share with a presentation of basic earnings per share, as defined. The statement requires dual presentation of basic and diluted earnings per share by entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted average number of shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. SFAS No. 128 is not expected to have a significant impact on the Company's financial statements. In June 1997, SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information," were issued. SFAS No. 130 addresses standards for reporting and display of comprehensive income and its components and SFAS No. 131 requires disclosure of reportable operating segments. Both statements are effective for the Company's 1998 fiscal year. The Company will be reviewing these pronouncements to determined their applicability, if any. Note B-Inventory Inventory is comprised of the following: 9/29/96 6/29/97 --------- --------- (Unaudited) Food and beverage $ 63,480 $ 72,673 Liquor 61,645 71,782 Paper 4,353 2,869 Small wares, utensils, and supplies 78,500 81,495 ----------- ----------- $ 207,978 $ 228,819 =========== =========== F-14 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note C-Prepaid and Other Expenses Prepaid and other expenses include the following:
9/29/96 6/29/97 ------- ------- (Unaudited) Refundable rent deposit $ 50,000 $ 50,000 Income taxes receivable 108,723 143,782 Prepaid expenses 60,028 162,424 Other receivables 51,465 0 ----------- ----------- $ 270,216 $ 356,206 =========== =========== Note D-Property and Equipment Property and equipment is summarized as follows: 9/29/96 6/29/97 ------- ------- (Unaudited) Transportation equipment and trailers $ 158,406 $ 182,396 Furniture and fixtures 229,075 294,194 Equipment 1,308,098 1,479,624 Leasehold improvements 3,181,543 3,905,358 Assets acquired under capital leases 355,974 355,974 Computer software 35,469 35,469 ----------- ----------- 5,268,565 6,253,015 Less accumulated depreciation and amortization 1,717,262 1,925,095 ----------- ----------- $ 3,551,303 $ 4,327,920 =========== ===========
Depreciation and amortization expense totaled $359,969 and $207,833 for the year ended September 29, 1996 and the nine months ended June 29, 1997, respectively. Note E-Other Assets Included in other assets are treasury bonds which were purchased on February 15, 1985 at a cost of $9,704, with a face value of $10,000. The bonds are held in escrow by Chemical Bank in lieu of a security deposit for the Boathouse concession. F-15 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note F-Accrued Expenses Accrued expenses consisted of the following:
9/29/96 6/29/97 ------- ------- (Unaudited) Sales tax payable $ 477,140 $ 556,471 Accrued rent expense and related taxes 353,498 370,037 Barter advances 0 449,227 Accrued payroll and payroll taxes 148,651 338,475 Accrued other expenses 7,515 40,039 ------------ ---------- $ 986,804 $1,754,249 ============ ==========
Note G-Borrowings The Company's loans outstanding are as follows:
9/29/96 6/29/97 ------- ------- (Unaudited) Installment loan payable to Fleet Bank in 59 monthly installments of $1,108 plus interest at a rate of 9.56% with a balloon payment of $67,609 due in July 1999. The loan is collateralized by New Jersey property which is owned by an affiliated company. $ 105,291 $ 99,751 Installment loan payable to Fleet Bank in 83 monthly installments of $2,372, plus interest of 9.76% with a balloon payment of $230,124 due in 2001. The loan is collateralized by the Companies' offices which are located in Staten Island, New York. 362,956 351,096 Mortgage loan payable to Fleet Bank, bearing interest at the bank's prime rate plus 2% which expired in 1996. Monthly installments of interest only are due on this mortgage. The loan is secured by a collateral mortgage held by two primary stockholders. 150,000 150,000
F-16 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Installment loan payable in 18 equal monthly installments of $2,952 to Central Laundry Services Corp. including interest at a rate of 6% beginning January 10, 1996. The loan is collateralized by a security interest in equipment with a net book value of $21,868. 25,728 0 Installment loan payable in 60 monthly payments of $3,187 to Brooklyn Union Gas Company, including interest at a rate of 10% beginning December 1, 1995. The loan is collateralized by equipment with a net book value of $127,500. 129,887 110,301 Unsecured loan payable to a private investor bearing interest at 21%. During 1997, $40,000 was paid on this note and the remaining balance $160,000 was converted to capital. 200,000 0 Unsecured loans from private investors bearing interest at from rates 12% to 15% per annum. In fiscal 1997, $75,000 of these loans were converted to capital. 361,668 770,668 ------------ ------------ 1,335,530 1,481,816 Less portion due within one year 518,938 630,063 ------------ ------------ Long-term debt $ 816,592 $ 851,753 ============ ============ Maturities of long-term debt are as follows: For the year ending September, 1997 $ 518,938 For the year ending September, 1998 357,648 For the year ending September, 1999 139,430 For the year ending September, 2000 63,824 For the year ending September, 2001 255,690 ------------ $ 1,335,530
F-17 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) The Company has a credit line payable to Fleet Bank, bearing interest at the bank's prime rate plus 2% which expired in December 1996. The loan is collateralized by a security interest in all Company assets. (See Note Q also.) Note H-Capital Lease Obligations The Company leases equipment and various leasehold improvements under capital leases. The assets acquired under capital leases have a cost of $355,974, accumulated amortization of $51,168 and a net book value of $304,806. Amortization of the leased assets is included in depreciation expense. The following is a schedule by year of future minimum lease payments under capitalized leases together with the present value of the net minimum lease payments at September 29, 1996. Payments for the year ending: September, 1997 $ 126,058 September, 1998 126,058 September, 1999 101,840 September, 2000 59,096 September, 2001 9,329 ------------ Total minimum lease payments 422,381 Less amount representing interest (92,260) Present value of net minimum lease payments 330,121 Less current portion (81,081) ------------ Long-term lease obligation $ 249,040 ============ F-18 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note I-Commitments and Contingencies The Companies have entered into various lease and licensing agreements which expire through 2015. All of the Companies license agreements require the payment of rent based on a percentage of gross receipts. Future minimum rental payments are as follows: Year Ending September 30, 1997 $ 415,338 1998 444,389 1999 455,842 2000 441,238 2001 381,831 Thereafter 6,440,649 ----------- $ 8,579,287 =========== Rent expense, real estate taxes and common area charges for the year ended September 29, 1996 totaled $944,828, $46,914 and $7,200 respectively. TAM Restaurant Group, Inc. has a license agreement with the Central Park Zoo. MAT has assumed the operation of the concession granted by such license agreement as a result of a restructuring (See Note A also). However, TAM Restaurant Group, Inc. is still responsible as a primary concessionaire until October 1998 when the license expires. The lease requires payment of 39% of total sales as a licensing fee. Sales for the nine months ended June 29, 1997 relating to this license amounted to $532,603. TAM Restaurant Group, Inc. is currently being audited by New York State for sales and use taxes for the period December 1, 1989 to June 28, 1993. Management believes and the company has accrued $50,000 for additional taxes that may be due, exclusive of interest and penalties, if any. As of July, 1997 this audit has not been completed. F-19 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note J-Related Party Transactions In April 1988, Perfect Parties, the catering division of TAM Restaurant Group, Inc. was transferred to Forest Avenue Corporation which is owned by stockholders of the Company. Forest Avenue Corporation utilized equipment of the Company at no charge. Forest Avenue Corporation also received management services from the Company. On September 3, 1996, the assets of Forest Avenue Corporation were sold to an unrelated third party. As a result, the Company wrote-off $542,463 representing monies advanced as well as unpaid management fees and equipment notes to Forest Avenue Corporation which are uncollectible. In March 1994, Leisure Time Services, Inc. which is owned by a stockholder of the Company was formed to purchase, repair and store equipment and supplies for the company as well as to assist the company in the performance of special catering events. Rent paid by the Company for the year ended September 29, 1996 for utilization of the warehouse was $28,300. All the income and expenses for other operations of Leisure Time Services are absorbed by the Company and reflected in the accompanying financial statements. In late 1994, the Companies obtained long-term financing from Fleet Bank (see Note G also). The borrowings are collateralized by a warehouse located in New Jersey and owned by Leisure Time Services, Inc. In order to provide the bank with the proper title, some of the funds borrowed were used to pay off the mortgages and other related costs on the collateralized property. As of September 29, 1996, included in the accompanying consolidated balance sheet under the caption loans receivable-affiliate is $177,438 which was used to secure the title on the New Jersey warehouse. This loan is being repaid in equal monthly installments of $1,996 including interest at 9.6% through December, 2006. Similarly, in obtaining long-term financing from Fleet Bank, the Company's headquarters facility located in Staten Island, NY (owned by the Company's stockholder) was used to collateralize the debt and to provide the bank with proper title. Additionally, the Company occasionally advanced monies to officers of the Company. No terms of repayment or interest rate have been determined on these advances. As of September 29, 1996 the balance in this account was $53,602. In 1997, repayments of $30,086 were made against this loan by the officer. The Company is indebted to relatives of the principal stockholder in the amounts of $236,000 and $178,000 for the periods ending September 29, 1996 and June 29, 1997, respectively. The notes are unsecured and bear interest from 12% to 15% per annum. F-20 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) For the year ending September 29, 1996, the Company has reduced operating expenses by $71,670 representing management fee income from MAT. (See Note M) Note K-Capital Stock and Warrants During fiscal 1996, the Company issued 173,881 shares and granted 55,141 warrants with an original exercise price of $5.44 per share and 3,000 warrants with an original exercise price of $.01 per share for services received. In addition, the Company issued 4,724 of warrants with original exercise price of $4.53 per share to an officer of the Company for prior compensation. Additionally, during fiscal 1996, the Company sold units consisting of .5514 share of common stock and .05514 warrants for $2.00 per unit and .5514 share of common stock, and .11028 warrants for $2.27 per unit. The warrants had an original exercise price of $4.53 per share. The Company sold 925,050 units. During the nine months ended June 29, 1997, the Company sold an additional 100,000 units at $2.27 per unit, and converted $240,000 of debt into 108,090 additional units. At June 29, 1997, there were an aggregate of 307,486 warrants outstanding. The Company has agreed with certain stockholders to repurchase 158,531 shares of common stock at a original cost of $575,000 if the Company was not in process of going public by certain specified dates or if the Initial Public Offering is not successful. Such repurchase would be executed by utilizing interest bearing notes. There have not been any requests by any shareholders to have their stock repurchased. The Company is currently negotiating with these stockholders to eliminate their right to require the Company to repurchase such shares. For the year ended September 29, 1997, the Company issued 22,056 shares of Common Stock and .5514 warrants as part of a settlement, resulting in a non-recurring charge of $80,000. The Board of Directors is authorized to fix the rights, preferences, privileges and restrictions of any series of preferred stock, including the dividend rights, original issue price, conversion rights, voting rights, terms of redemption, liquidation preferences and sinking fund terms thereof, and the number of shares constituting any such series and the designation thereof and to increase or decrease the number of shares subsequent to the issuance of shares of such series (but not below the number of shares of such series then outstanding.) F-21 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Note L-Income Taxes Income tax benefit has been calculated as follows: 9/29/96 6/30/96 6/29/97 ------- ------- ------- (Unaudited) Federal taxes $ 49,390 $ 49,390 $ 0 State and local taxes 49,198 49,198 0 ---------- ---------- ------------- $ 98,588 $ 98,588 $ 0 ========= ========= ============ The Company's deferred tax assets, deferred tax liabilities and deferred tax asset valuation allowance at September 29, 1996 are as follows: Deferred rent expense $ 50,593 Deferred expenses 80,665 Net operating loss carryforward 466,779 Depreciation 19,386 Vacation pay and officers' payroll accrual 13,017 ---------- Total deferred tax assets 630,440 Less valuation allowance (630,440) 0 Total deferred tax liabilities 0 ---------- Net deferred tax asset $ 0 ========== The tax benefit from a net operating loss carryback resulted in a income tax receivable of $108,723 at September 29, 1996. A valuation allowance of 100% is being recorded due to the uncertainty as to the Company's ability to continue as a going concern. For tax purposes, the Companies have approximately $1,845,114 of net operating loss carryforwards as of September 29, 1996 which expire through 2011. F-22 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) The difference between the amount of income tax expense that would result from applying the federal statutory rate of 34% to pre-tax income and the provision for federal income taxes are as follows:
9/29/96 6/30/96 6/29/97 ------- ------- ------- (Unaudited) Income tax (benefit) at statutory rate $(886,409) $(670,422) $ 37,094 Reduction in valuation allowance relating to tax benefit due to net operating loss limitation 787,821 571,834 0 Reduction of valuation allowance due to utilization of net operating loss 0 0 (37,094) ---------- ----------- ---------- Net Tax (Benefit) $ (98,588) $ (98,588) $ 0 ========== =========== ==========
Note M-Discontinued Operations As a result of a corporate restructuring (see Note A also), the concession business previously operated by TAM Restaurant Group, Inc. was spun off to a new corporation. The following is a summary of the financial information of the concessions as of September 29, 1996: Assets $ 90,239 Liabilities (88,529) ------------ Difference $ 1,710 ============ Sales $1,433,409 Purchases 309,289 Gross Profit 1,124,120 Operating Expenses (1,073,885) ------------ Operating Income 50,235 Income Taxes (20,093) ------------ Net Income $ 30,142 ============ The operations at Wollman Rink terminated in February 1996. The operations at the Central Park Zoo and Staten Island Zoo are still being operated by MAT. Operating expense included above reflect a 5% (of sales) management fee charged to each location from TAM Restaurant Holding Corp. F-23 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) As a result of the transfer of assets and liabilities, additional paid in capital of the companies was reduced by $1,710. Note N-Going Concern As shown in the accompanying financial statements, the Company incurred a net loss of $2,607,084 during the year ended September 29, 1996 and as of that date, the Company's current liabilities exceeded its current assets by $2,026,787. These factors raise substantial doubt as to the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the success of an initial public offering, or the ability of the company to obtain debt financing from a bank or private lenders or, raising additional capital through a private placement offering. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. Note O-Pending Litigation TAM Restaurant Group Inc. and Bay Landing Restaurant Corp. have been named as defendants and/or co-defendants in four separate personal injury lawsuits arising in the ordinary course of business. These cases are in the preliminary stages and, as such, the ultimate outcome of the litigation cannot presently be determined. All the suits are being handled by the Company's insurance carriers. Management believes the suits against the Company to be entirely without merit and anticipates that the suits will have no material impact on the Company. Accordingly, no provision for any liability that may result upon adjudication has been made in the accompanying financial statements by the companies. Note P-Cash Flow Disclosure Cash paid for interest and income taxes is as follows: 9/29/96 6/30/96 6/29/97 ------- ------- ------- (Unaudited) Interest $ 312,366 $ 218,656 $ 277,843 ============ ============= ============ Income taxes $ 0 $ 0 $ 2,800 ============ ============= ============ F-24 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) Non-Cash Transactions included the following: For the period ended June 29, 1997, the Company exchanged debt in the amount of $235,000 and converted it to capital. Note Q-Subsequent Events In connection with a proposed initial public offering of its common stock, the Company will effect a 1-for-1.8135268 reverse stock split. All shares and per share data in the consolidated financial statements have been adjusted to give retroactive effect to the reverse stock split. In addition, effective as of the date of the IPO, the Company will enter into three year employment agreements with Frank Cretella and Jeanne Cretella, which is contractually renewable and provides for an annual base compensation of $175,000 and $75,000, respectively, and such bonuses as the Board of Directors may from time to time determine. Also, effective as of the date of the IPO, the Company will initiate a stock option plan (the "Option Plan") pursuant to which 525,000 shares of Common Stock have been reserved for issuance upon the exercise of options designated as either (i) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986, as amended (the "Code") or (ii) non-qualified options. ISOs may be granted under the Option Plan to officers and employees of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company. F-25 TAM RESTAURANT HOLDING CORP. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (All information relating to June 29, 1997 and June 30, 1996 is unaudited.) During 1995 and 1996, the Company borrowed an aggregate of $840,000 from Fleet. Such loans were collateralized by the Company's principal executive offices, which are owned by Mr. Cretella, and the warehouse leased by the Company and owned by Leisure Time Services, Inc., a company owned by Jeanne Cretella, Vice President, Director and a principal stockholder of the Company, and Mr. and Mrs. Cretella's personal residence. In June 1997, Mr. Cretella agreed to settle the amounts owed to Fleet of $720,125 for $640,000 plus accrued interest through the date of payment. In August 1997, Mr. Cretella paid to Fleet $140,000 as part of the settlement, and the balance was paid in October, 1997. As consideration for entering into the settlement, the Company has issued to Mr. Cretella a promissory note in the principal amount of $720,125, which bears interest at a rate of 10% per annum, payable in monthly installments of $6,102, with the principal payable in October, 2001 upon the maturities of the note. In October, 1997, the Company obtained $1,000,000 in a secured loan from an outside investment firm. The loan bears interest at 10% per annum, payable quarterly and matures nineteen months after the funding date, if the Company's initial public offering becomes effective prior to April 15, 1998; otherwise, the loan is due July 15, 1998. The loan is guaranteed by a principal stockholder of the Company and the guarantee is secured by a pledge of 200,000 shares of common stock held by such shareholder. F-26 ================================================================================ No dealer, salesperson or other person has been authorized to give any information or to make any representations not contained in this Prospectus, and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or the Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any security other than the securities offered by this Prospectus, or an offer to sell or a solicitation of an offer to buy any securities by anyone in any jurisdiction in which such offer or solicitation is not authorized or is unlawful. The delivery of this Prospectus shall not, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. ---------- TABLE OF CONTENTS Page ---- Prospectus Summary...........................................................3 Risk Factors.................................................................8 Use of Proceeds.............................................................17 Dilution....................................................................18 Dividend Policy.............................................................19 Capitalization..............................................................20 Selected Financial Data.....................................................21 Management's Discussion and Analysis of Financial Condition and Results of Operations..............................22 Business....................................................................26 Management..................................................................35 Principal Stockholders......................................................38 Certain Transactions........................................................39 Description of Securities...................................................41 Shares Eligible for Future Sale.............................................43 Underwriting................................................................44 Selling Securityholders and Plan of Distribution............................47 Legal Matters...............................................................47 Experts.....................................................................47 Additional Information......................................................48 Index to Financial Statements..............................................F-1 ---------- Until , 1997, (25 days after the date of this Prospectus), all dealers effecting transactions in the shares of Common Stock or Warrants offered hereby, whether or not participating in this distribution may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. ================================================================================ ================================================================================ TAM RESTAURANTS, INC. 1,000,000 Shares of Common Stock and Redeemable Warrants to Purchase 500,000 Shares of Common Stock ---------- PROSPECTUS ---------- Paragon Capital Corporation , 1997 ================================================================================ PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 24. Indemnification of Directors and Officers. Section 145 of the General Corporation Law of the State of Delaware provides for the indemnification of officers and directors under certain circumstances against expenses incurred in successfully defending against a claim and authorizes Delaware corporations to indemnify their officers and directors under certain circumstances against expenses and liabilities incurred in legal proceedings involving such persons because of their being or having been an officer or director. Section 102(b) of the Delaware General Corporation Law permits a corporation, by so providing in is certificate of incorporation, to eliminate or limit director's liability to the corporation and its stockholders for monetary damages arising out of certain alleged breaches of their fiduciary duty. Section 102(b)(7) provides that no such limitation of liability may affect a director's liability with respect to any of the following: (i) breaches of the director's duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not made in good faith or which involve intentional misconduct of knowing violations of law; (iii) liability for dividends paid or stock repurchased or redeemed in violation of the Delaware General Corporation law; or (iv) any transaction from which the director derived an improper personal benefit. Section 102(b)(7) does not authorize any limitation on the ability of the corporation or its stockholders to obtain injunction relief, specific performance or other equitable relief against directors. Article Eighth of the Registrant's Certificate of Incorporation and the Registrant's By-laws provide that all persons who the Registrant is empowered to indemnify pursuant to the provisions of Section 145 of the General Corporation Law of the State of Delaware (or any similar provision or provisions of applicable law at the time in effect), shall be indemnified by the Registrant to the full extent permitted thereby. The foregoing right of indemnification shall not be deemed to be exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors, or otherwise. Article Ninth of the Registrant's Certificate of Incorporation provides that no director of the Registrant shall be personally liable to the Registrant or its stockholders for any monetary damages for breaches of fiduciary duty of loyalty to the Registrant or its stockholders' (ii) for acts or omission not in good faith or which involve intentional misconduct or knowing-violation of law; (iii) under Section 174 of the General Corporation Law of the State of Delaware; or (iv) for any transaction from which the director derived an improper personal benefit. Insofar as indemnification for liabilities under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to directors, officers or persons controlling the Registrant pursuant to the foregoing provisions, the Registrant has been informed that in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. Reference is made to the Underwriting Agreement, the proposed form of which is filed as Exhibit 1.1, pursuant to which the Underwriter agree to indemnify the directors and certain officers of the Registrant and certain other persons against certain civil liabilities. II-1 Item 25. Other Expenses of Issuance and Distribution. The estimated expenses payable by the Registrant in connection with the issuance and distribution of the securities being registered (other than underwriting discounts and commissions and the Underwriter's nonaccountable expense allowance) are as follows: Securities and Exchange Commission registration fee............... $3,378.33 NASD filing fee................................................... 1,614.85 Nasdaq listing fee................................................ 10,000.00 Underwriter's consulting fee...................................... 60,000.00 Printing and engraving expenses................................... * Legal fees and expenses........................................... * Accounting fees and expenses...................................... * Blue sky fees and expenses (including legal fees)................. * Transfer agent, warrant agent and registrar fees and expenses..... * Miscellaneous..................................................... * ---------- Total.................................................... $443,500.00 =========== - ------------------- * To be filed by amendment. Item 26. Recent Sales of Unregistered Securities Since October 1995, the Registrant has issued securities without registration under the Securities Act in the following transactions (in each case giving retroactive effect to the subsequent stock splits): 1. From October 1995 to September 1996, the Registrant issued an aggregate of 510,084 shares of Common Stock and warrants to purchase 181,600 shares of Common Stock to 31 investors for aggregate proceeds of $1,980,000. 2. In July 1996, the Registrant issued an aggregate of 173,881 shares of Common Stock and warrants to purchase 3,000 shares of Common Stock to 7 persons and entities as consideration for services rendered to the Registrant. 3. In September 1996, the Registrant issued 22,056 shares of Common Stock and warrants to purchase 5,514 shares of Common Stock to four persons as settlement of a dispute. 4. In February 1997, the Registrant issued 55,141 shares of Common Stock and warrants to purchase 27,571 shares of Common Stock to one investor for $200,000. 5. During 1997, the Registrant issued 59,602 shares of Common Stock and warrants to purchase 21,530 shares of Common Stock to three persons upon the conversion of $235,000 of indebtedness. 6. In October 1997, the Registrant issued warrants to purchase 4,724 shares of Common stock to an officer and director as compensation. 7. In October 1997, the Registrant issued warrants to purchase 200,000 shares of Common Stock to three entities as partial consideration for making loans to the Registrant. The sales and issuances of the Common Stock and warrants described above were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(2) thereof as transactions not involving a public offering. The purchasers in such private offerings represented their intention to acquire the securities for investment only and not with a view to the distribution thereof and appropriate legends were affixed to the stock certificates issued in such II-2 transactions. All purchasers had adequate access, through their employment or other relationships, to sufficient information about the Registrant to make an informed investment decision. Item 27. Exhibits.
Exhibit Number Description 1.1 Form of Underwriting Agreement. 3.1 Certificate of Incorporation, as amended, of the Registrant. 3.2 Bylaws, as amended, of the Registrant. *4.1 Form of Registrant's Common Stock Certificate. 4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate. 4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent. *4.4 Form of Registrant's Public Warrant Certificate. *5.1 Opinion of Tenzer Greenblatt LLP. 10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and City of New York Department of Parks and Recreation, dated February 8, 1995, as modified. 10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation dated December 14, 1994. 10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24, 1994, as amended. 10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996. 10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996. 10.6 Management Agreement by and between the Registrant and MAT Operating Corp. dated October 1, 1996. 10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne, Anderson Non-Traditional Investments, L.P. dated as of October 31, 1997. *10.8 Form of Employment Agreement between Registrant and Frank Cretella. *10.9 Form of Employment Agreement between Registrant and Jeanne Cretella. *10.10 1997 Stock Option Plan. 23.1 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants. *23.2 Consent of Tenzer Greenblatt LLP (will be contained in such firm's opinion filed as Exhibit). 24.1 A power of attorney relating to the signing of amendments hereto is incorporated in the signature pages of this Registration Statement. 27.1 Financial Data Schedule.
- --------------------- * To be filed by amendment. Item 28. Undertakings. The undersigned registrant hereby undertakes to: (1) file, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to: (i) include any prospectus required by section 10(a)(3) of the Securities Act. (ii) reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the Registration Statement; (iii) include any additional or changed material information on the plan of distribution; II-3 (2) for determining liability under the Securities Act, treat each such post-effective amendment as a new registration of the securities offered, and the offering of such securities at that time to be initial bona fide offering; and (3) file a post-effective amendment to remove from registration any of the securities that remain unsold at the termination of the offering. lnsofar as indemnification for liabilities arising under the Securities Act 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 Securities 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 its 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 Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes (1) to provide to the underwriters at the closing specified in the standby under writing agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser; (2) that for the purpose of determining any liability under the Securities Act, treat 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 as part of this Registration Statement as of the time the Securities and Exchange Commission declares it effective; and (3) that for the purpose of determining any liability under the Securities Act, treat each post-effective amendment that contains a form of Prospectus as a new Registration Statement for the securities offered in the Registration Statement therein, and treat the offering of the securities at that time as the initial bona fide offering of those securities. II-4 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form SB-2 and authorized this Registration Statement to be signed on its behalf by the undersigned, in the city of New York, State of New York on November 11, 1997. TAM RESTAURANTS, INC. By: /s/ Frank Cretella ------------------------ President and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below on this Registration Statement hereby constitutes and appoints Frank Cretella and Jeanne Cretella, and each of them, as his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities (until revoked in writing) to sign any and all amendments (including pre-effective amendments and post-effective amendments and amendments thereto) to this Registration Statement on Form SB-2 of TAM Restaurants, Inc. and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, each acting alone or his substitute, may lawfully do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates stated.
Signatures Title(s) Date ---------- -------- ----- /s/ Frank Cretella President, Chief Executive Officer November 11, 1997 - ------------------------------------- October and Director (Principal Frank Cretella Financial Officer) /s/ Jeanne Cretella Vice President and Director November 11, 1997 - ------------------------------------- Jeanne Cretella /s/ Kenneth L. Harris Chairman of the Board November 11, 1997 - ------------------------------------- Kenneth L. Harris
EXHIBIT INDEX
Exhibit Number Description 1.1 Form of Underwriting Agreement. 4.2 Form of Underwriter's Warrant Agreement, including Form of Warrant Certificate. 4.3 Form of Public Warrant Agreement among the Registrant, Paragon Capital Corporation, as Underwriter and Continental Stock Transfer & Trust Company, as Warrant Agent. 10.1 License Agreement between TAM Restaurant Group, Inc. (formerly TAM Concessions, Inc.) and City of New York Department of Parks and Recreation, dated February 8, 1995, as modified. 10.2 License Agreement between Shellbank Restaurant Corp. and City of New York Parks and Recreation dated December 14, 1994. 10.3 Lease by and between Lundy's Management Corp. and Bay Landing Restaurant Corp. dated July 24, 1994, as amended. 10.4 Lease by and between Mr. Frank Cretella and the Registrant dated October 1, 1996. 10.5 Lease by and between Leasing Time Services and the Registrant dated October 1, 1996. 10.6 Management Agreement by and between the Registrant and MAT Operating Corp. dated October 1, 1996. 10.7 Loan Agreement by and between the Registrant and each of ARBCO Associates, L.P. and Kayne, Anderson Non-Traditional Investments, L.P. dated as of October 31, 1997. 23.1 Consent of Maltese, Potter & LaMarca, LLP, Independent Certified Public Accountants.
EX-1 2 EXHIBIT 1.1 TAM RESTAURANTS, INC. 1,000,000 Shares of Common Stock ($.0001 Par Value) and Warrants to Purchase 500,000 Shares of Common Stock UNDERWRITING AGREEMENT ---------------------- Paragon Capital Corporation , 1998 7 Hanover Square - 2nd Floor New York, New York 10004 Dear Sirs: TAM Restaurants, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to Paragon Capital Corporation (the "Underwriter") an aggregate of one million (1,000,000) shares of common stock of the Company (the "Common Stock"), par value $.0001 per share (the "Offered Shares"), which Offered Shares are presently authorized but unissued shares of the common stock, par value $.0001 per share (individually "Common Share" and collectively the "Common Shares"), of the Company, at a price of Five Dollars ($5.00) per Offered Share, and Five Hundred Thousand (500,000) Common Share purchase warrants (the "Offered Warrants"), at a price of Ten Cents ($.10) per Offered Warrant, entitling the holder of each Offered Warrant to purchase, during the period commencing _________, 1999 (13 months following the Effective Date) or earlier upon the consent of the Underwriter and ending at the close of business on ________, 2003 (the last day of the 60th month following the Effective Date), one (1) Common Share, at an exercise price of Six Dollars ($6.00) (subject to adjustment in certain circumstances). The Company shall have the right to call each Offered Warrant for redemption upon not less than thirty (30) days' written notice at any time at a redemption price of Ten Cents ($.10) per Offered Warrant, provided that the closing bid quotation of the Common Stock has been at least 150% (currently $9.00) of the then-effective exercise price of the Offered Warrants on all twenty (20) of the trading days ending upon the third trading day prior to the day on which the Company notice of redemption (the "Call Date") and that the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date. In addition, the Underwriter, in order to cover over-allotments in the sale of the Offered Shares and/or Offered Warrants, may purchase an aggregate of not more than one hundred fifty thousand (150,000) Common Shares (the "Optional Shares") and/or seventy-five thousand (75,000) Common Share purchase warrants (the "Optional Warrants") entitling the holder of each Optional Warrant to purchase one (1) Common Share on the same terms as the Offered Warrants. The Offered Shares and the Optional Shares are hereinafter collectively referred to as the "Shares"; and the Offered Warrants and the Optional Warrants are hereinafter collectively referred to as the "Warrants." The Warrants will be issued pursuant to a Warrant Agreement (the "Warrant Agreement") to be dated as of the Closing Date (as hereinafter defined) by and among the Company, the Underwriter and Continental Stock Transfer & Trust Company, as warrant agent (the "Warrant Agent"). The Company also proposes to issue and sell to the Underwriter for its own account and the accounts of its designees, warrants (the "Underwriter's Warrants") to purchase an aggregate of one hundred thousand (100,000) Common Shares (collectively, the "Underlying Shares") and fifty thousand (50,000) warrants similar but not identical to the Warrants (collectively, the "Underlying Warrants"), which sale will be consummated in accordance with the terms and conditions of the form of Underwriter's Warrant filed as an exhibit to the Registration Statement. The Underlying Shares and the Common Shares issuable upon exercise of the Warrants and the Underlying Warrants are hereinafter sometimes referred to as the "Warrant Shares". The Shares, the Warrants, the Underwriter's Warrants, the Underlying Warrants and the Warrant Shares (collectively, the "Securities") are more fully described in the Registration Statement and the Prospectus, as defined below. The Company hereby confirms its agreement with the Underwriter as follows: 1. Purchase and Sale of Offered Shares and Offered Warrants. On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company hereby agrees to sell the Offered Shares and Offered Warrants to the Underwriter and the Underwriter agrees to purchase the Offered Shares and Offered Warrants from the Company, at a purchase price of $4.50 per Offered Share and $.09 per Offered Warrant. The Underwriter plans to offer the Offered Shares and Offered Warrants to the public at a public offering price of $5.00 per Offered Share and $.10 per Offered Warrant. 2. Payment and Delivery. (a) Payment for the Offered Shares and Offered Warrants will be made to the Company by certified or official bank check or checks payable to its order in New York Clearing House, next day, funds, at the offices of the Underwriter, 7 Hanover Square - 2nd Floor, New York, New York 10004, against delivery of -2- the Offered Shares and Offered Warrants to the Underwriter. Such payment and delivery will be made at _________________, New York City time, on the third business day following the Effective Date (as hereinafter defined) or the fourth business day following the Effective Date if the Shares and Warrants are released for trading on the day immediately following the Effective Date, the date and time of such payment and delivery being herein called the "Closing Date." The certificates representing the Offered Shares and Offered Warrants to be delivered will be in such denominations and registered in such names as the Underwriter may request not less than three full business days prior to the Closing Date, and will be made available to the Underwriter for inspection, checking and packaging at the office of the Company's transfer agent or correspondent in New York City, Continental Stock Transfer & Trust Company, Two Broadway, New York, New York 10004 not less than one full business day prior to the Closing Date. (b) On the Closing Date, the Company will sell the Underwriter's Warrants to the Underwriter or to its designees. The Underwriter's Warrants will be in the form of, and in accordance with, the provisions of the Underwriter's Warrant attached as an exhibit to the Registration Statement. The aggregate purchase price for the Underwriter's Warrants is $105. The Underwriter's Warrants will be restricted from sale, transfer, assignment or hypothecation for a period of one year from the Effective Date, except to officers and directors of the Underwriter and members of the selling group and/or their officers or directors. Payment for the Underwriter's Warrants will be made to the Company by check or checks payable to its order on the Closing Date against delivery of the certificates representing the Underwriter's Warrants. The certificates representing the Underwriter's Warrants will be in such denominations and such names as the Underwriter may request prior to the Closing Date. 3. Option to Purchase Optional Shares and/or Optional Warrants. (a) For the purposes of covering any over-allotments in connection with the distribution and sale of the Offered Shares and Offered Warrants as contemplated by the Prospectus, the Underwriter is hereby granted an option to purchase all or any part of the Optional Shares and/or Optional Warrants from the Company. The purchase price to be paid for the Optional Shares and Optional Warrants will be the same price per Optional Share and Optional Warrant as the price per Offered Share or Offered Warrant, as the case may be, set forth in Section 1 hereof. The option granted hereby may be exercised by the Underwriter as to all or any part of the Optional Shares and/or the Optional Warrants at any time within 45 days after the Effective Date. The Underwriter will not be under any obligation to purchase any -3- Optional Shares or Optional Warrants prior to the exercise of such option. (b) The option granted hereby may be exercised by the Underwriter by giving oral notice to the Company, which must be confirmed by a letter, telex or telegraph setting forth the number of Optional Shares and Optional Warrants to be purchased, the date and time for delivery of and payment for the Optional Shares and Optional Warrants to be purchased and stating that the Optional Shares and Optional Warrants referred to therein are to be used for the purpose of covering over-allotments in connection with the distribution and sale of the Offered Shares and Offered Warrants. If such notice is given prior to the Closing Date, the date set forth therein for such delivery and payment will not be earlier than either two full business days thereafter or the Closing Date, whichever occurs later. If such notice is given on or after the Closing Date, the date set forth therein for such delivery and payment will not be earlier than five full business days thereafter. In either event, the date so set forth will not be more than 15 full business days after the date of such notice. The date and time set forth in such notice is herein called the "Option Closing Date." Upon exercise of such option, the Company will become obligated to convey to the Underwriter, and, subject to the terms and conditions set forth in Section 3(d) hereof, the Underwriter will become obligated to purchase, the number of Optional Shares and Optional Warrants specified in such notice. (c) Payment for any Optional Shares and Optional Warrants purchased will be made to the Company by certified or official bank check or checks payable to its order in New York Clearing House, next day, funds, at the office of the Underwriter, against delivery of the Optional Shares and Optional Warrants purchased to the Underwriter. The certificates representing the Optional Shares and Optional Warrants to be delivered will be in such denominations and registered in such names as the Underwriter requests not less than two full business days prior to the Option Closing Date, and will be made available to the Underwriter for inspection, checking and packaging at the aforesaid office of the Company's transfer agent or correspondent not less than one full business day prior to the Option Closing Date. (d) The obligation of the Underwriter to purchase and pay for any of the Optional Shares or Optional Warrants is subject to the accuracy and completeness (as of the date hereof and as of the Option Closing Date) of and compliance in all material respects with the representations and warranties of the Company herein, to the accuracy and completeness of the statements of the Company or its officers made in any certificate or other document to be delivered by the Company pursuant to this Agreement, to the performance in all material respects by the Company of its -4- obligations hereunder, to the satisfaction by the Company of the conditions, as of the date hereof and as of the Option Closing Date, set forth in Section 3(b) hereof, and to the delivery to the Underwriter of opinions, certificates and letters dated the Option Closing Date substantially similar in scope to those specified in Section 5, 6(b), (c), (d) and (e) hereof, but with each reference to "Offered Shares," "Offered Warrants" and "Closing Date" to be, respectively, to the Optional Shares, Optional Warrants and the Option Closing Date. 4. Representations and Warranties of the Company. The Company represents and warrants to, and agrees with, the Underwriter that: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full power and authority, corporate and other, to own or lease and operate its properties and to conduct its business as described in the Registration Statement and to execute, deliver and perform this Agreement, the Warrant Agreement, the Consulting Agreement (as hereinafter defined) and the Underwriter's Warrant Agreement and to consummate the transactions contemplated hereby and thereby. The Company has no subsidiaries other than the subsidiaries listed on Schedule A hereto (each a "Subsidiary" and collectively, the "Subsidiaries"), which are corporations duly organized and validly existing under the laws of the respective jurisdictions set forth on Schedule A hereto. Each of the Company and each Subsidiary is duly qualified to do business as a foreign corporation and is in good standing in all jurisdictions wherein such qualification is necessary and failure so to qualify could have a material adverse effect on the financial condition, results of operations, business or properties of the Company and the Subsidiaries taken as a whole. Each Subsidiary has the corporate power and authority to own or lease and operate its properties and to conduct its business as described in the Prospectus. The Company owns all of the issued and outstanding shares of capital stock of each Subsidiary, free and clear of any security interest, liens, encumbrances, claims and charges, and all of such shares have been duly authorized and validly issued and are fully paid and nonassessable. There are no options or warrants for the purchase of, or other rights to purchase, or outstanding securities convertible into or exchangeable for, any capital stock or other securities of any Subsidiary. (b) Each of this Agreement and the consulting agreement described in Section 5(q) hereof (the "Consulting Agreement") has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company, and each of the Warrant Agreement and the Underwriter's Warrant Agree- -5- ment, when executed and delivered by the Company on the Closing Date, will be the valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. The execution, delivery and performance of this Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement by the Company, the consummation by the Company of the transactions herein and therein contemplated and the compliance by the Company with the terms of this Agreement, the Consulting Agreement, the Warrant Agreement and the Underwriter's Warrant Agreement have been duly authorized by all necessary corporate action and do not and will not, with or without the giving of notice or the lapse of time, or both, (i) result in any violation of the Certificate of Incorporation or By-Laws of the Company; (ii) result in a breach of or conflict with any of the terms or provisions of, or constitute a default under, or result in the modification or termination of, or result in the creation or imposition of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company or any Subsidiary pursuant to any indenture, mortgage, note, contract, commitment or other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary or any of their respective properties or assets is or may be bound or affected, except for such breaches, conflicts or defaults which do not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole; (iii) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of their respective properties or business, except for such violations which do not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole; or (iv) have any effect on any permit, certification, registration, approval, consent, license or franchise (the "Permits") necessary for the Company or any Subsidiary to own or lease and operate their properties and to conduct their businesses or the ability of the Company to make use thereof, except for those Permits which do not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole. (c) No authorization, approval, consent, order, registration, license or permit of any court or governmental agency or body, other than under the Securities Act of 1933, as amended (the "Act"), the Regulations (as hereinafter defined) and applicable state securities or Blue Sky laws, is required for the valid authorization, issuance, sale and delivery of the Shares and Warrants to the Underwriter, and the consummation by the Company of the transactions contemplated by this Agreement, the Consulting Agreement, the Warrant Agreement or the Underwriter's Warrant Agreement. -6- (d) The conditions for use of a registration statement on Form SB-2 set forth in the General Instructions to Form SB-2 have been satisfied with respect to the Company, the transactions contemplated herein and in the Registration Statement. The Company has prepared in conformity with the requirements of the Act and the rules and regulations (the "Regulations") of the Securities and Exchange Commission (the "Commission") and filed with the Commission a registration statement (File No. 333-____) on Form SB-2 and has filed one or more amendments thereto, covering the registration of the securities under the Act, including the related preliminary prospectus or preliminary prospectuses (each thereof being herein called a "Preliminary Prospectus") and a proposed final prospectus. Each Preliminary Prospectus was endorsed with the legend required by Item 501(a)(5) of Regulation S-K of the Regulations, including, if applicable, Rule 430A of the Regulations. Such registration statement including any documents incorporated by reference therein and all financial schedules and exhibits thereto, as amended at the time it becomes effective, and the final prospectus included therein are herein, respectively, called the "Registration Statement" and the "Prospectus," except that, (i) if the prospectus filed by the Company pursuant to Rule 424(b) of the Regulations differs from the Prospectus, the term "Prospectus" will also include the prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement is amended or such Prospectus is supplemented after the effective date of the Registration Statement (the "Effective Date") and prior to the Option Closing Date (as hereinafter defined), the terms "Registration Statement" and "Prospectus" shall include the Registration Statement as amended or supplemented. (e) Neither the Commission nor, to the best of the Company's knowledge, any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus or has instituted or, to the best of the Company's knowledge, threatened to institute any proceedings with respect to such an order. (f) The Registration Statement when it becomes effective, the Prospectus (and any amendment or supplement thereto) when it is filed with the Commission pursuant to Rule 424(b), and both documents as of the Closing Date or the Option Closing Date referred to below, will contain all statements which are required to be stated therein in accordance with the Act and the Regulations and will in all material respects conform to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, on such dates, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, except that -7- this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company in connection with the Registration Statement or Prospectus or any amendment or supplement thereto by the Underwriter expressly for use therein. (g) The Company had at the date or dates indicated in the Prospectus a duly authorized and outstanding capitalization as set forth in the Registration Statement and the Prospectus. Based on the assumptions stated in the Registration Statement and the Prospectus, the Company will have on the Closing Date referred to below the adjusted stock capitalization set forth therein. Except as set forth in the Registration Statement or the Prospectus, on the Effective Date and on the Closing Date referred to below, there will be no options to purchase, warrants or other rights to subscribe for, or any securities or obligations convertible into, or any contracts or commitments to issue or sell shares of the Company's capital stock or any such warrants, convertible securities or obligations. Except as set forth in the Prospectus, no holders of any of the Company's securities has any rights, "demand," "piggyback" or otherwise, to have such securities registered under the Act. (h) The descriptions in the Registration Statement and the Prospectus of contracts and other documents are accurate in all material respects and present fairly the information required to be disclosed, and there are no contracts or other documents required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement under the Act or the Regulations which have not been so described or filed as required. (i) Each of BDO Seidman LLP and Maltese, Potter & La Marca, LLP, the accountants who have certified certain of the consolidated financial statements filed and to be filed with the Commission as part of the Registration Statement and the Prospectus, are independent public accountants within the meaning of the Act and Regulations. The consolidated financial statements and schedules and the notes thereto filed as part of the Registration Statement and included in the Prospectus are complete, correct and present fairly the financial position of the Company as of the dates thereof, and the results of operations and changes in financial position of the Company for the periods indicated therein, all in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved except as otherwise stated in the Registration Statement and the Prospectus. The selected financial data set forth in the Registration Statement and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited and unaudited financial -8- statements included in the Registration Statement and the Prospectus. (j) Each of the Company and each Subsidiary has filed with the appropriate federal, state and local governmental agencies, and all foreign countries and political subdivisions thereof, all tax returns, including franchise tax returns, which are required to be filed or has duly obtained extensions of time for the filing thereof; and, to the best of the Company's knowledge, the provisions for income taxes payable, if any, shown on the consolidated financial statements filed with or as part of the Registration Statement are sufficient for all accrued and unpaid foreign and domestic taxes, whether or not disputed, and for all periods to and including the dates of such consolidated financial statements, other than such returns and taxes for which the failure to file and pay can be remedied without adversely affecting the Company. Except as disclosed in writing to the Underwriter, neither the Company nor any Subsidiary has executed or filed with any taxing authority, foreign or domestic, any agreement extending the period for assessment or collection of any income taxes and is not a party to any pending action or proceeding by any foreign or domestic governmental agency for assessment or collection of taxes; and no claims for assessment or collection of taxes have been asserted against the Company or any Subsidiary. (k) The outstanding Common Shares and outstanding options and warrants to purchase Common Shares have been duly authorized and validly issued. The outstanding Common Shares are fully paid and nonassessable. The outstanding options and warrants to purchase Common Shares constitute the valid and binding obligations of the Company, enforceable in accordance with their terms. None of the outstanding Common Shares, options or warrants to purchase Common Shares has been issued in violation of the preemptive rights of any shareholder of the Company. None of the holders of the outstanding Common Shares is subject to personal liability solely by reason of being such a holder. The offers and sales of the outstanding Common Shares and outstanding options and warrants to purchase Common Shares were at all relevant times either registered under the Act and the applicable state securities or Blue Sky laws or exempt from such registration requirements. The authorized Common Shares and outstanding options and warrants to purchase Common Shares conform to the descriptions thereof contained in the Registration Statement and Prospectus. Except as set forth in the Registration Statement and the Prospectus, on the Effective Date and the Closing Date, there will be no outstanding options or warrants for the purchase of, or other outstanding rights to purchase, Common Shares or securities convertible into Common Shares. (l) No securities of the Company have been sold by -9- the Company or by or on behalf of, or for the benefit of, any person or persons controlling, controlled by, or under common control with the Company within the three years prior to the date hereof, except as disclosed in the Registration Statement. (m) The issuance and sale of the Shares and the Warrant Shares have been duly authorized and, when the Shares and the Warrant Shares have been issued and duly delivered against payment therefor as contemplated by this Agreement or by the Warrant Agreement, as the case may be, the Shares and the Warrant Shares will be validly issued, fully paid and nonassessable. The holders of the Securities will not be subject to personal liability solely by reason of being such holders and none of the securities will be subject to preemptive rights of any shareholder of the Company. (n) The issuance and sale of the Warrants, the Underwriter's Warrants and the Underlying Warrants have been duly authorized and, when issued, paid for and delivered pursuant to the terms of this Agreement or the Underwriter's Warrants, as the case may be, the Warrants, the Underwriter's Warrants and the Underlying Warrants will constitute valid and binding obligations of the Company, enforceable as to the Company in accordance with their terms. The Warrant Shares have been duly reserved for issuance upon exercise of the Warrants, the Underwriter's Warrants and the Underlying Warrants in accordance with the provisions of the Warrants, the Underwriter's Warrants and the Underlying Warrants. The Warrants, Underwriter's Warrants and Underlying Warrants will conform to the descriptions thereof contained in the Registration Statement and Prospectus. (o) Neither the Company nor any Subsidiary is in violation of, or in default under, (i) any term or provision of its Certificate of Incorporation or By-Laws, each as amended, except where such violation or default would not have a material adverse effect on the Company and the Subsidiaries taken as a whole; (ii) any material term or provision or any financial covenants of any indenture, mortgage, contract, commitment or other agreement or instrument to which it is a party or by which it or any of its property or business is or may be bound or affected except where such violation or default would not have a material adverse effect on the Company and the Subsidiaries taken as a whole; or (iii) any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court, domestic or foreign, having jurisdiction over the Company or any Subsidiary or any of the Company's or any Subsidiary's properties or business. Each of the Company and each Subsidiary owns, possesses or has obtained all governmental and other (including those obtainable from third parties) Permits necessary to own or lease, as the case may be, and to operate its properties, whether tangible or intangible, and to -10- conduct any of the business or operations of the Company and the Subsidiaries as presently conducted, except where such failure to do so does not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole, and all such Permits are outstanding and in good standing, and there are no proceedings pending or, to the best of the Company's knowledge, threatened, or any basis therefor, seeking to cancel, terminate or limit such Permits. (p) Except as set forth in the Prospectus, there are no claims, actions, suits, proceedings, arbitrations, investigations or inquiries before any governmental agency, court or tribunal, domestic or foreign, or before any private arbitration tribunal, pending, or, to the best of the Company's knowledge, threatened against the Company or any Subsidiary or, to the best of the Company's knowledge involving the Company's or any Subsidiary's properties or business which, if determined adversely to the Company or any Subsidiary, would, individually or in the aggregate, result in any material adverse change in the financial position, shareholders' equity, results of operations, properties, business, management or affairs or business prospects of the Company or any Subsidiary or which question the validity of the capital stock of the Company or this Agreement or of any action taken or to be taken by the Company pursuant to, or in connection with, this Agreement; nor, to the best of the Company's knowledge, is there any basis for any such claim, action, suit, proceeding, arbitration, investigation or inquiry. There are no outstanding orders, judgments or decrees of any court, governmental agency or other tribunal naming the Company or any Subsidiary and enjoining the Company or any Subsidiary from taking, or requiring the Company or any Subsidiary to take, any action, or to which the Company or any Subsidiary, or the Company's or any Subsidiary's properties or businesses is bound or subject. (q) Except as otherwise consented to by the Underwriter in its sole discretion, (i) no other person or entity has any rights to participate in any offer, sale or distribution of securities of the company: (ii) no person is entitled, directly or indirectly, to compensation from the Company for services as a finder or investment adviser in connection with the transactions contemplated by this Agreement; (iii) other than as described in the letter from the Company to the Underwriter attached hereto as Exhibit A, no officer, director or Principal Stockholder (as hereinafter defined) of the Company is a member of the NASD or is associated with a member of the NASD; and (iv) the Company has not promised or represented to any person that any part of the Shares, Warrants or the other securities contemplated herein will be directed or otherwise made available to such person in connection with the offering. -11- (r) Each of the Company and each Subsidiary owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, service marks, copyrights, rights, trade secrets, confidential information, processes and formulations used or proposed to be used in the conduct of their businesses as described in the Prospectus (collectively the "Intangibles"), except where such failure to do so does not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole; to the best of the Company's knowledge, neither the Company nor any Subsidiary has infringed and nor is infringing upon the rights of others with respect to Intangibles; and neither the Company nor any Subsidiary has received any notice of conflict with the asserted rights of others with respect to Intangibles which could, singly or in the aggregate, materially adversely affect its business as presently conducted or prospects, financial condition or results of operations of the Company or any Subsidiary, and the Company knows of no basis therefor; and, to the best of the Company's knowledge, no others have infringed upon the Intangibles of the Company or any Subsidiary. (s) Since the respective dates as of which information is given in the Registration Statement and the Prospectus and the Company's latest consolidated financial statements, neither the Company nor any Subsidiary has incurred any material liability or obligation, direct or contingent, or entered into any material transaction, whether or not in the ordinary course of business, and has not sustained any material loss or interference with its business from fire, storm, explosion, flood or other casualty, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree; and since the respective dates as of which information is given in the Registration Statement and the Prospectus, there have not been, and prior to the Closing Date referred to below there will not be, any changes in the capital stock or any material increases in the long-term debt of the Company or any material adverse change in or affecting the general affairs, management, financial condition, shareholders' equity, results of operations or prospects of the Company or any Subsidiary, otherwise than as set forth or contemplated in the Prospectus. (t) Each of the Company and each Subsidiary has good and marketable title in fee simple to all real property and good title to all personal property (tangible and intangible) owned by it, free and clear of all security interests, charges, mortgages, liens, encumbrances and defects, except such as are described in the Registration Statement and Prospectus or such as do not materially affect the value or transferability of the properties, as a whole, of the Company and do not interfere with the use of such property made, or proposed to be made, by the -12- Company or any Subsidiary. The leases, licenses or other contracts or instruments under which the Company and each Subsidiary leases, holds or is entitled to use any property, real or personal, are valid, subsisting and enforceable only with such exceptions as are not material and do not interfere with the use of the properties, as a whole, of the Company made, or proposed to be made, by the Company or any Subsidiary, and all rentals, royalties or other payments accruing thereunder which became due prior to the date of this Agreement have been duly paid, and neither the Company nor any Subsidiary, nor, to the best of the Company's knowledge, any other party is in default thereunder except for such defaults which does not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole and, to the best of the Company's knowledge, no event has occurred which, with the passage of time or the giving of notice, or both, would constitute a default thereunder. Neither the Company nor any Subsidiary has received notice of any violation of any applicable law, ordinance, regulation, order or requirement relating to its owned or leased properties. Each of the Company and each Subsidiary has insured its properties against loss or damage by fire or other casualty and maintains such other insurance as is usually insured or maintained by companies engaged in the same or similar businesses located in its geographical area. (u) Each contract or other instrument (however characterized or described) which is filed as an exhibit to the Registration Statement and to which the Company or any Subsidiary is a party or by which its property or business is or may be bound or affected has been duly and validly executed by the Company and, to the best of the Company's knowledge, by the other parties thereto, is in full force and effect in all material respects and is enforceable against the parties thereto in accordance with its terms, and none of such contracts or instruments has been assigned by the Company or any Subsidiary, and neither the Company nor any Subsidiary, nor, to the best of the Company's knowledge, any other party is in default thereunder and, to the best of the Company's knowledge, no event has occurred which, with the lapse of time or the giving of notice, or both, would constitute a default thereunder. None of the material provisions of such contracts or instruments violates any existing applicable law, rule, regulation, judgment, order or decree of any governmental agency or court having jurisdiction over the Company or any Subsidiary or any of their respective assets or businesses, including, without limitation, those relating to the sale of food and alcoholic beverages, except for violations which do not, individually or in the aggregate, have a material adverse effect on the Company and the Subsidiaries taken as a whole. -13- (v) The employment, consulting, confidentiality and non-competition agreements, if any, between the Company and between each Subsidiary and its officers and employees, described in the Registration Statement, are binding and enforceable obligations against the Company and, to the best of the Company's knowledge of the other parties thereto, in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, moratorium or other similar laws or arrangements affecting creditors' rights generally and subject to principles of equity. (w) Except as set forth in the Prospectus, the Company has no employee benefit plans (including, without limitation, profit sharing and welfare benefit plans) or deferred compensation arrangements that are subject to the provisions of the Employee Retirement Income Security Act of 1974. (x) To the best of the Company's knowledge, no labor problem exists with any of the Company's or any Subsidiary's employees or is imminent which could adversely affect the Company or any Subsidiary. (y) The Company has not, directly or indirectly, at any time (i) made any contributions to any candidate for political office, or failed to disclose fully any such contribution in violation of law or (ii) made any payment to any state, federal or foreign governmental officer or official, or other person charged with similar public or quasi-public duties, other than payments or contributions required or allowed by applicable law. The Company's internal accounting controls and procedures are sufficient to cause the Company to comply in all material respects with the Foreign Corrupt Practices Act of 1977, as amended. (z) The Shares, Warrants and Warrant Shares have been approved for listing on the Automated Quotation System of the National Association of Securities Dealers, Inc. ("NASDAQ"). (aa) The Company's response to the Corporate Review Memorandum of Tenzer Greenblatt LLP, counsel to the Underwriter ("Underwriter's Counsel"), dated ________, 1997, is true, accurate and complete in all material respects. Any Certificate signed by an officer of the Company or of the Subsidiary and delivered to the Underwriter or to Underwriter's Counsel shall be deemed to be a representation and warranty by the Company to the Underwriter as to the matters covered thereby. -14- 5. Certain Covenants of the Company. The Company covenants with the Underwriter as follows: (a) The Company will not at any time, whether before the Effective Date or thereafter during such period as the Prospectus is required by law to be delivered in connection with the sales of the Shares and Warrants by the Underwriter or a dealer, file or publish any amendment or supplement to the Registration Statement or Prospectus of which the Underwriter have not been previously advised and furnished a copy, or to which the Underwriter shall reasonably object in writing. (b) The Company will use its best efforts to cause the Registration Statement to become effective and will advise the Underwriter immediately, and, if requested by the Underwriter, confirm such advice in writing, (i) when the Registration Statement, or any post-effective amendment to the Registration Statement or any supplemented Prospectus is filed with the Commission; (ii) of the receipt of any comments from the Commission; (iii) of any request of the Commission for amendment or supplementation of the Registration Statement or Prospectus or for additional information; and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus, or of the suspension of the qualification of the Shares and/or the Warrants for offering or sale in any jurisdiction, or of the initiation of any proceedings for any of such purposes. The Company will use its best efforts to prevent the issuance of any such stop order or of any order preventing or suspending such use and to obtain as soon as possible the lifting thereof, if any such order is issued. (c) The Company will deliver to the Underwriter, without charge, from time to time until the Effective Date, as many copies of each Preliminary Prospectus as the Underwriter may reasonably request, and the Company hereby consents to the use of such copies for purposes permitted by the Act. The Company will deliver to each Underwriter, without charge, as soon as practicable after the Registration Statement becomes effective, and thereafter from time to time as requested, such number of copies of the Prospectus (as supplemented, if the Company makes any supplements to the Prospectus) as the Underwriter may reasonably request. The Company has furnished or will furnish to the Underwriter one signed copy of the Registration Statement as originally filed and of all amendments thereto, whether filed before or after the Registration Statement becomes effective, one copy of all exhibits filed therewith and one signed copy of all consents and certificates of experts. -15- (d) The Company will comply with the Act, the Regulations, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations thereunder so as to permit the continuance of sales of and dealings in the Offered Shares and Offered Warrants, in any Optional Shares and Optional Warrants which may be issued and sold, and in the Warrant Shares underlying such Warrants. If, at any time when a prospectus relating to such Securities is required to be delivered under the Act, any event occurs as a result of which the Registration Statement and Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it shall be necessary to amend or supplement the Registration Statement and Prospectus to comply with the Act or the regulations thereunder, the Company will promptly file with the Commission, subject to Section 5(a) hereof, an amendment or supplement which will correct such statement or omission or which will effect such compliance. (e) The Company will furnish such proper informa- tion as may be required and otherwise cooperate in qualifying the Securities for offering and sale under the securities or Blue Sky laws relating to the offering or for sale in such jurisdictions as the Underwriter may reasonably designate, provided that no such qualification will be required in any jurisdiction where, solely as a result thereof, the Company would be subject to service of general process or to taxation or qualification as a foreign corporation doing business in such jurisdiction. (f) The Company will make generally available to its security holders, in the manner specified in Rule 158(b) under the Act, and deliver to the Underwriter as soon as practicable and in any event not later than 45 days after the end of its fiscal quarter in which the first anniversary date of the effective date of the Registration Statement occurs, an earning statement meeting the requirements of Rule 158(a) under the Act covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement. (g) For a period of three (3) years from the Effective Date, the Company will deliver to the Underwriter and to Underwriter's Counsel on a timely basis (i) a copy of each report or document, including, without limitation, reports on Forms 8-K, 10-C, 10-K (or 10-KSB) and 10-Q (or 10-QSB) and exhibits thereto, filed or furnished to the Commission, any securities exchange or NASD Regulation, Inc. (the " NASD") on the date each such report or document is so filed or furnished; (ii) as soon as practicable, copies of any reports or communications (financial or other) of the Company mailed to its security holders; (iii) as soon as -16- practicable, a copy of any Schedule 13D, 13G, 14D-1 or 13E-3 received or prepared by the Company from time to time; (iv) to the extent provided by the Company to any other third party, monthly statements setting forth such information regarding the Company's results of operations and financial position (including balance sheet, profit and loss statements and data regarding outstanding purchase orders) as is regularly prepared by management of the Company; and (v) to the extent provided by the Company to any other third-party, such additional information concerning the business and financial condition of the Company as the Underwriter may from time to time reasonably request and which can be prepared or obtained by the Company without unreasonable effort or expense. The Company will furnish to its shareholders annual reports containing audited financial statements and such other periodic reports as it may determine to be appropriate or as may be required by law. (h) Neither the Company nor any person that con- trols, is controlled by or is under common control with the Company will take any action designed to or which might be reasonably expected to cause or result in the stabilization or manipulation of the price of the Shares or Warrants. (i) If the transactions contemplated by this Agreement are consummated, the Underwriter shall retain the $50,000 previously paid to it, and the Company will pay or cause to be paid the following: all costs and expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to, the fees and expenses of accountants and counsel for the Company, the preparation, printing, mailing and filing of the Registration Statement (including financial statements and exhibits), Preliminary Prospectuses and the Prospectus, and any amendments or supplements thereto, the printing and mailing of the Selected Dealer Agreement, the issuance and delivery of the Shares and Warrants to the Underwriter; all taxes, if any, on the issuance of the Shares and Warrants; the fees, expenses and other costs (including fees, up to a maximum of $20,000 and disbursements of counsel) of qualifying the Shares and Warrants for sale under the Blue Sky or securities laws of those states in which the Shares and Warrants are to be offered or sold, the cost of printing and mailing the "Blue Sky Survey" and fees and disbursements of counsel in connection therewith, including those of such local counsel as may have been retained for such purpose; the filing fees incident to securing any required review by the NASD; the cost of furnishing to Underwriter copies of the Registration Statement, Preliminary Prospectuses and the Prospectus as herein provided; the costs and expenses incurred in connection with "road shows", the costs, not to exceed $15,000, of placing "tombstone advertisements" in any publications which may be selected by the Underwriter, and all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 5(i). -17- In addition, at the Closing Date or the Option Closing Date, as the case may be, the Underwriter will deduct from the payment for the Offered Shares and Offered Warrants or any Optional Shares and/or Optional Warrants purchased three percent (3%) of the gross proceeds of the offering (less the sum of $50,000 previously paid to the Underwriter), as payment for the Underwriter's non accountable expense allowance relating to the transactions contemplated hereby, which amount will include the fees and expenses of Underwriter's Counsel. (j) If the transactions contemplated by this Agreement or related hereto are not consummated for any reason, then the Underwriter may receive (inclusive of amounts previously paid) and retain only an amount equal to its accountable out-of-pocket expenses up to the sum of $50,000 previously paid to it. In no event, however, will the Underwriter, in the event the offering is terminated, be entitled to retain or receive more than an amount equal to their actual accountable out-of-pocket expenses. (k) The Company intends to apply the net proceeds from the sale of the Shares and Warrants for the purposes set forth in the Prospectus. (l) During the eighteen (18) months following the Effective Date, without the prior written consent of the Underwriter, (i) the Company will not file any registration statement relating to the offer or sale of any of the Company's securities, including any registration statement on Form S-8; (ii) neither the Company nor any of its securityholders beneficially owning greater than one percent (1%) and less than four percent (4%) of the Company's Common Stock will sell or otherwise dispose of any securities of the Company's and (iii) no holders of registration rights relating to securities of the Company will exercise any such registration rights. In addition, without the Underwriter's prior written consent, during the twenty-four (24) months following the Effective Date, none of the Company's officers, directors or securityholders beneficially owning four percent (4%) or more of the Company's Common Stock, and, during the fifteen (15) months following the Effective Date, none of the Company's securityholders beneficially owning one percent (1%) or less of the Company's Common Stock, will sell or otherwise dispose of any securities of the Company. Notwithstanding anything else contained herein, the Exchange Warrants and the Bridge Warrants and the shares underlying such warrants may be sold without the Underwriter's prior written consent commencing fifteen (15) months following the Effective Date. The Company will deliver to the Underwriter the agreements of its officers, directors, securityholders and registration rights holders to such effect (the "Lock-Up Agreements") prior to the IPO's Closing. (m) The Company maintains and will continue to maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary in order to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets; and (iii) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (n) The Company will use its best efforts to maintain the listing of the Shares and Warrants on NASDAQ for so long as the Shares and Warrants are qualified for such listing. (o) The Company will, concurrently with the Effective Date, register the class of equity securities of which the Shares are a part under Section 12(g) of the Exchange Act and the Company will maintain the registration for a minimum of five years after the Effective Date. (p) Subject to the provisions of applicable law, the Underwriter shall be entitled to receive a warrant solicitation fee of five percent (5%) of the aggregate exercise price of the Warrants for each Warrant exercised during the period commencing one year after the Effective Date; provided, however, that the Underwriter will not be entitled to receive such compensation in Warrant exercise transactions in which (i) the market price of the Common Shares at the time of exercise is lower than the exercise price of the Warrants; (ii) the Warrants are held in any discretionary account; (iii) disclosure of compensation arrangements is not made in the Registration Statement and in documents provided to holders of Warrants at the time of exercise; (iv) the holder thereof has not confirmed in writing that the Underwriter solicited the exercise of the Warrants; or (v) the solicitation or exercise of the Warrants was in violation of Regulation M promulgated under the Exchange Act. (q) The Company agrees to employ the Underwriter or a designee of the Underwriter as a financial consultant on a non-exclusive basis for a period of two (2) years from the Closing Date, pursuant to a separate written Consulting Agreement between the Company and the Underwriter and/or such designee, at an annual rate of Thirty Thousand Dollars ($30,000) (exclusive of any accountable out-of-pocket expenses), payable in full, in advance, on the Closing Date. In addition, the Consulting Agreement shall provide that the Company will pay the Underwriter a finder's fee in the event that the Underwriter originates a merger, acquisition, joint venture or other transaction to which the Company is a party. The Company further agrees to deliver a duly and validly executed -19- copy of said Consulting Agreement, in form and substance acceptable to the Underwriter, on the Closing Date. (r) The Company shall retain a transfer agent for the Common Shares and Warrants, reasonably acceptable to the Underwriter, for a period of five years following the Effective Date. In addition, for a period of five years from the Effective Date, the Company, at its own expense, shall cause such transfer agent to provide to the Underwriter, if so reasonably requested in writing, with copies of the Company's daily transfer sheets, and, when reasonably requested by the Underwriter, a current list of the Company's security holders, including, to the extent held by or reasonably available to the Company, a list of the beneficial owners of securities held by a depository trust company and other nominees. (s) The Company hereby agrees, at its sole cost and expense, to supply and deliver to the Underwriter, within a reasonable period from the date hereof, four bound volumes, including the Registration Statement, as amended or supplemented, all exhibits to the Registration Statement, the Prospectus and all other underwriting documents. (t) The Company shall, as of the date hereof, have applied for listing in Standard & Poor's Corporation Records Service (including annual report information) or Moody's Industrial Manual (Moody's OTC Industrial Manual not being sufficient for these purposes) and shall us its reasonable best efforts to have the Company listed in such manual and shall maintain such listing for a period of five years from the Effective Date. (u) For a period of three (3) years from the Effective Date, the Company shall continue to retain BDO Seidman, LLP (or such other nationally recognized accounting firm reasonably acceptable to the Underwriter) as the Company's independent public accountants. (v) For a period of three (3) years from the Effective Date, the Company, at its expense, shall cause its then independent certified public accountants, as described in Section 5(w) above, to review (but not audit) the Company's financial statements for each of the first three fiscal quarters prior to the announcement of quarterly financial information, the filing of the Company's 10-Q (or 10Q-SB) quarterly report and the mailing of quarterly financial information to shareholders. (w) So long as any Warrants are outstanding, the Company shall use its best efforts to cause post-effective amendments to the Registration Statement to become effective in compliance with the Act as shall be necessary to enable the sale of -20- the Common Shares underlying the Warrants and cause a copy of each Prospectus, as then amended, to be delivered to each holder of record of a Warrant as they request and as otherwise required by law and, to furnish to the Underwriter and dealers as many copies of each such Prospectus as each Underwriter or dealer may reasonably request. (x) For a period of twenty-five (25) days from the Effective date, the Company will not issue press releases or engage in any other publicity without the Underwriter's prior written consent, other than normal and customary releases issued in the ordinary course of the Company's business or those releases required by law. (y) For a period of three (3) years from the Effective Date, the Company will not offer or sell any of its securities pursuant to Regulation S promulgated under the Act, without prior written consent of the Underwriter. (z) The Company will retain a transfer agent reasonably acceptable to the Underwriter for the Common Stock and the Warrants and continue to retain such transfer agent for a period of three (3) years following the Effective Date. (aa) The Company will not increase or authorize an increase in the compensation of Frank or Jeanie Cretella greater than those increases provided for in their employment agreements with the Company in effect as of the Effective Date and disclosed in the Registration Statement or those approved by the Underwriter, in writing, prior to the Effective Date, and will not increase or authorize an increase greater than five percent (5%) per year in the compensation of any employee earning an annual salary of One Hundred Thousand Dollars ($100,0000) or more, in each case, without the Underwriter's prior written consent, for a period of three (3) years following the Effective Date. (ab) For a period of three (3) years following the Effective Date, the Company will retain a public relations firm reasonably acceptable to the Underwriter. (ac) For a period of one (1) year following the Effective Date, the Company will not use any portion of the proceeds derived from the Proposed IPO to repay any indebtedness, other than up to an aggregate of One Million Dollars ($1,000,000), without the prior written consent of the Underwriter. (ad) For a period of three (3) years following the Effective Date, the Company will provide to the Underwriter five (5) days written notice prior to any issuance by the Company of any equity securities or securities exchangeable for or convertible -21- into equity securities of the Company, except for (i) shares of Common Stock issuable upon exercise or conversion of options, warrants or convertible securities outstanding as of the Effective Date and (ii) options (and shares issuable upon exercise of such options), available for future grant pursuant to any stock option plan in effect on the Effective Date. 6. Conditions of the Underwriter's Obligation to Purchase Shares from the Company. The obligation of the Underwriter to purchase and pay for the Offered Shares and Offered Warrants which it has agreed to purchase from the Company is subject (as of the date hereof and the Closing Date) to the accuracy of and compliance in all material respects with the representations and warranties of the Company herein, to the accuracy of the statements of the Company or its officers made pursuant hereto, to the performance in all material respects by the Company of its obligations hereunder, and to the following additional conditions: (a) The Registration Statement will have become effective not later than _________.M., New York City time, on the day following the date of this Agreement, or at such later time or on such later date as the Underwriter may agree to in writing; prior to the Closing Date, no stop order suspending the effectiveness of the Registration Statement will have been issued and no proceedings for that purpose will have been initiated or will be pending or, to the best of the Underwriter's or the Company's knowledge, will be contemplated by the Commission; and any request on the part of the Commission for additional information will have been complied with to the satisfaction of Underwriter's Counsel. (b) At the Closing Date, there will have been delivered to the Underwriter a signed opinion of Tenzer Greenblatt LLP, counsel for the Company ("Company Counsel"), dated as of the Closing Date (and any other opinions of counsel referred to in such opinion of Company Counsel or relied upon by Company Counsel in rendering their opinion), reasonably satisfactory to Underwriter's Counsel, in substantially the form attached hereto as Exhibit A. (c) At the Closing Date, there will have been delivered to the Underwriter a signed opinion of Underwriter's Counsel, dated as of the Closing Date, to the effect that the opinions delivered pursuant to Section 6(b) hereof appear on their face to be appropriately responsive to the requirements of this Agreement, except to the extent waived by the Underwriter, specifying the same, and with respect to such related matters as the Underwriter may reasonably require. (d) At the Closing Date (i) the Registration State- ment and the Prospectus and any amendments or supplements thereto -22- will contain all material statements which are required to be stated therein in accordance with the Act and the Regulations and will conform in all material respects to the requirements of the Act and the Regulations, and neither the Registration Statement nor the Prospectus nor any amendment or supplement thereto will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there will not have been any material adverse change in the financial condition, results of operations or general affairs of the Company from that set forth or contemplated in the Registration Statement and the Prospectus, except changes which the Registration Statement and the Prospectus indicates might occur after the Effective Date; (iii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there shall have been no material transaction, contract or agreement entered into by the Company, other than in the ordinary course of business, which would be required to be set forth in the Registration Statement and the Prospectus, other than as set forth therein; and (iv) no action, suit or proceeding at law or in equity will be pending or, to the best of the Company's knowledge, threatened against the Company which is required to be set forth in the Registration Statement and the Prospectus, other than as set forth therein, and no proceedings will be pending or, to the best of the Company's knowledge, threatened against the Company before or by any federal, state or other commission, board or administrative agency wherein an unfavorable decision, ruling or finding would materially adversely affect the business, property, financial condition or results of operations of the Company, other than as set forth in the Registration Statement and the Prospectus. At the Closing Date, there will be delivered to the Underwriter a certificate signed by the Chairman of the Board or the President or a Vice President of the Company, dated the Closing Date, evidencing compliance with the provisions of this Section 6(d) and stating that the representations and warranties of the Company set forth in Section 4 hereof were accurate and complete in all material respects when made on the date hereof and are accurate and complete in all material respects on the Closing Date as if then made; that the Company has performed all covenants and complied with all conditions required by this Agreement to be performed or complied with by the Company prior to or as of the Closing Date; and that, as of the Closing Date, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been initiated or, to the best of his knowledge, are contemplated or threatened. In addition, the Underwriter will have received such other and further certificates of officers of the Company as the Underwriter or Underwriter's Counsel may reasonably request. -23- (e) At the time that this Agreement is executed and at the Closing Date, the Underwriter will have received a signed letter from BDO Seidman, LLP, dated the date such letter is to be received by the Underwriter and addressed to it, confirming that it is a firm of independent public accountants within the meaning of the Act and Regulations and stating that: (i) insofar as reported on by them, in their opinion, the financial statements of the Company included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the applicable Regulations; (ii) on the basis of procedures and inquiries (not constituting an examination in accordance with generally accepted auditing standards) consisting of a reading of the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus and the latest available unaudited interim financial statements of the Company, if more recent than that appearing in the Registration Statement and Prospectus, inquiries of officers of the Company responsible for financial and accounting matters as to the transactions and events subsequent to the date of the latest audited financial statements of the Company, and a reading of the minutes of meetings of the shareholders, the Board of Directors of the Company and any committees of the Board of Directors, as set forth in the minute books of the Company, nothing has come to their attention which, in their judgment, would indicate that (A) during the period from the date of the latest financial statements of the Company appearing in the Registration Statement and Prospectus to a specified date not more than three business days prior to the date of such letter, there have been any decreases in net current assets or net assets as compared with amounts shown in such financial statements or decreases in net sales or decreases increases] in total or per share net income [loss] compared with the corresponding period in the preceding year or any change in the capitalization or long-term debt of the Company, except in all cases as set forth in or contemplated by the Registration Statement and the Prospectus, and (B) the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus, do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles and practices on a basis substantially consistent with the audited financial statements included in the Registration Statement or the Prospectus; and (iii) they have compared specific dollar amounts, numbers of shares, numerical data, percentages of revenues and earnings, and other financial information pertaining to the Company set forth in the Prospectus (with respect to all dollar amounts, numbers of shares, percentages and other financial information contained in the Prospectus, to the extent that such amounts, numbers, percentages and information may be derived from the general accounting records of the Company, and excluding any -24- questions requiring an interpretation by legal counsel) with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter, and found them to be in agreement. (f) There shall have been duly tendered to the Underwriter on the Closing Date, certificates representing the Offered Shares and the Offered Warrants to be sold on the Closing Date. (g) The NASD shall have indicated that it has no objection to the underwriting arrangements pertaining to the sale of the Offered Shares and Offered Warrants by the Underwriter or the Optional Shares and Optional Warrants by the Underwriter. (h) No action shall have been taken by the Commission or the NASD the effect of which would make it improper, at any time prior to the Closing Date or the Option Closing Date, as the case may be, for any member firm of the NASD to execute transactions (as principal or as agent) in the Shares or Warrants, and no proceedings for the purpose of taking such action shall have been instituted or shall be pending, or, to the best of the Under- writer's or the Company's knowledge, shall be contemplated by the Commission or the NASD. The Company represents at the date hereof, and shall represent as of the Closing Date or Option Closing Date, as the case may be, that it has no knowledge that any such action is in fact contemplated by the Commission or the NASD. (i) All proceedings taken at or prior to the Closing Date or the Option Closing Date, as the case may be, in connection with the authorization, issuance and sale of the Shares or Warrants shall be reasonably satisfactory in form and substance to the Underwriter and to Underwriter's Counsel, and such counsel shall have been furnished with all such documents, certificates and opinions as they may request for the purpose of enabling them to pass upon the matters referred to in Section 6(c) hereof and in order to evidence the accuracy and completeness of any of the representations, warranties or statements of the Company, the performance of any covenants of the Company, or the compliance by the Company with any of the conditions herein contained. If any of the conditions specified in this Section 6 have not been fulfilled, this Agreement may be terminated by the Underwriter on notice to the Company. -25- 7. Indemnification. (a) The Company agrees to indemnify and hold harmless each of the Underwriter, each officer, director, partner, employee and agent of the Underwriter, and each person, if any, who controls an Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions in respect thereof), to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Underwriter and each such person, if any, for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented) or (ii) in any application or other document executed by the Company, or based upon written information furnished by or on behalf of the Company, filed in any jurisdiction in order to qualify the Shares and Warrants under the securities laws thereof (hereinafter "application"), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, unless such untrue statement or omission was made in such Registration Statement, Preliminary Prospectus, Prospectus or application in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Underwriter or any such person through the Underwriter expressly for use therein; provided, however, that the indemnity agreement contained in this Section 7(a) with respect to any Preliminary Prospectus will not inure to the benefit of the Underwriter (or to the benefit of any other person that may be indemnified pursuant to this Section 7(a)) if (A) the person asserting any such losses, claims, damages, expenses or liabilities purchased the Shares and/or Warrants which are the subject thereof from the Underwriter or other indemnified person; (B) the Underwriter or other indemnified person failed to send or give a copy of the Prospectus to such person at or prior to the written confirmation of the sale of such Shares and/or Warrants to such person; and (C) the Prospectus did not contain any untrue statement or alleged untrue statement or omission or alleged omission giving rise to such cause, claim, damage, expense or liability. (b) The Underwriter agrees to indemnify and hold harmless the Company, each of its directors, each of its officers -26- who have signed the Registration Statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and against any and all losses, claims, damages, expenses or liabilities, joint or several (and actions in respect thereof), to which they or any of them may become subject under the Act or under any other statute or at common law or otherwise, and, except as hereinafter provided, will reimburse the Company and each such director, officer or controlling person for any legal or other expenses reasonably incurred by them or any of them in connection with investigating or defending any actions, whether or not resulting in any liability, insofar as such losses, claims, damages, expenses, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained (i) in the Registration Statement, in any Preliminary Prospectus or in the Prospectus (or the Registration Statement or Prospectus as from time to time amended or supplemented) or (ii) in any application (including any application for registration of the Shares and Warrants under state securities or Blue Sky laws), or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the circumstances under which they were made, but only insofar as any such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company in connection therewith by the Underwriter expressly for use therein. (c) Promptly after receipt of notice ("Notice") of the commencement of any action in respect of which indemnity may be sought against any indemnifying party under this Section 7, the indemnified party will notify the indemnifying party in writing of the commencement thereof, and the indemnifying party will, subject to the provisions hereinafter stated, assume the defense of such action (including the employment of counsel reasonably satisfactory to the indemnified party and the payment of expenses) insofar as such action relates to an alleged liability in respect of which indemnity may be sought against the indemnifying party. After notice from the indemnifying party of its election to assume the defense of such claim or action, the indemnifying party shall no longer be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that if the indemnified party or parties reasonably determine that there may be a conflict between the positions of the indemnifying party or parties and of the indemnified party or parties in conducting the defense of such action, suit, investigation, inquiry or proceeding or that there may be legal defenses available to such indemnified party or parties different from or in addition to those available to the indemnifying party or parties, the indemnified party or -27- parties shall have the right to employ a single counsel to represent the indemnified parties who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the indemnified parties thereof against the indemnifying party, in which event the fees and expenses of such separate counsel shall be borne by the indemnifying party. Any party against whom indemnification may be sought under this Section 7 shall not be liable to indemnify any person that might otherwise be indemnified pursuant hereto for any settlement of any action effected without such indemnifying party's consent, which consent shall not be unreasonably withheld. No indemnification provided for in this Section 7 shall be available to any party who shall fail so to give the Notice if the party to whom such Notice was not given was unaware of the action, suit, investigation, inquiry or proceeding to which Notice would have related and was prejudiced by the failure to give Notice, but the omission so to notify such indemnifying party or parties of any such service or notification shall not relieve such indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of such indemnity agreement. 8. Contribution. To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 7 hereof (subject to the limitations thereof) and it is finally determined, by a judgment, order or decree not subject to further appeal, that such claim for indemnification may not be enforced, even though this Agreement expressly provides for indemnification in such case; or (ii) any indemnified or indemnifying party seeks contribution under the Act, the Exchange Act, or otherwise, then the Company (including, for this purpose, any contribution made by or on behalf of any director of the Company, any officer of the Company who signed the Registration Statement and any controlling person of the Company) as one entity and the Underwriter (including, for this purpose, any contribution by or on behalf of each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee and agent of the Underwriter) as a second entity, shall contribute to the losses, liabilities, claims, damages and expenses whatsoever to which any of them may be subject, so that the Underwriter is responsible for the proportion thereof equal to the percentage which the underwriting discount per Share and per Warrant set forth on the cover page of the Prospectus represents of the initial public offering price per Share and per Warrant set forth on the cover page of the Prospectus and the Company is responsible for the remaining portion; provided, however, that if applicable law does not permit such allocation, then, if applicable law permits, other relevant equitable considerations such as the relative fault of the Company and the Underwriter in connection -28- with the facts which resulted in such losses, liabilities, claims, damages and expenses shall also be considered. The relative fault, in the case of an untrue statement, alleged untrue statement, omission or alleged omission, shall be determined by, among other things, whether such statement, alleged statement, omission or alleged omission relates to information supplied by the Company or by the Underwriter, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement, alleged statement, omission or alleged omission. The Company and the Underwriter agrees that it would be unjust and inequitable if the respective obligations of the Company and the Underwriter for contribution were determined by pro rata or per capita allocation of the aggregate losses, liabilities, claims, damages and expenses or by any other method of allocation that does not reflect the equitable considerations referred to in this Section 8. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and each officer, director, partner, employee and agent of the Underwriter will have the same rights to contribution as the Underwriter, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, each officer of the Company who has signed the Registration Statement and each director of the Company will have the same rights to contribution as the Company, subject in each case to the provisions of this Section 8. Anything in this Section 8 to the contrary notwithstanding, no party will be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 8 is intended to supersede, to the extent permitted by law, any right to contribution under the Act or the Exchange Act or otherwise available. 9. Survival of Indemnities, Contribution, Warranties and Representations. The respective indemnity and contribution agreements of the Company and the Underwriter contained in Sections 7 and 8 hereof, and the representations and warranties of the Company contained herein shall remain operative and in full force and effect, regardless of any termination or cancellation of this Agreement or any investigation made by or on behalf of the Underwriter, the Company or any of its directors and officers, or any controlling person referred to in said Sections, and shall survive the delivery of, and payment for, the Shares and the Warrants. -29- 10. Termination of Agreement. (a) The Company, by written or telegraphic notice to the Underwriter, or the Underwriter, by written or telegraphic notice to the Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M., New York City time, on the first full business day after the Effective Date; or (ii) the time when the Underwriter, after the Registration Statement becomes effective, releases the Offered Shares and Offered Warrants for public offering. The time when the Underwriter "releases the Offered Shares and Offered Warrants for public offering" for the purposes of this Section 10 means the time when the Underwriter releases for publication the first newspaper advertisement, which is subsequently published, relating to the Offered Shares and Offered Warrants, or the time when the Underwriter releases for delivery to members of a selling group copies of the Prospectus and an offering letter or an offering telegram relating to the Offered Shares and Offered Warrants, whichever will first occur. (b) This Agreement, including without limitation, the obligation to purchase the Offered Shares and the Offered Warrants and the obligation to purchase the Optional Shares and/or Optional Warrants after exercise of the option referred to in Section 3 hereof, are subject to termination in the absolute discretion of the Underwriter, by notice given to the Company prior to delivery of and payment for all the Offered Shares and Offered Warrants or the Optional Shares and Optional Warrants, as the case may be, if, prior to such time, any of the following shall have occurred: (i) the Company withdraws the Registration Statement from the Commission or the Company does not or cannot expeditiously proceed with the public offering; (ii) the representations and warranties in Section 4 hereof are not materially correct or cannot be complied with in all material respects; (iii) trading in securities generally on the New York Stock Exchange or the American Stock Exchange will have been suspended; (iv) limited or minimum prices will have been established on either such Exchange; (v) a banking moratorium will have been declared either by federal or New York State authorities; (vi) any other restrictions on transactions in securities materially affecting the free market for securities or the payment for such securities, including the Offered Shares and Offered Warrants or the Optional Shares and Optional Warrants, will be established by either of such Exchanges, by the Commission, by any other federal or state agency, by action of the Congress or by Executive Order; (vii) trading in any securities of the Company shall have been suspended or halted by any national securities exchange, the NASD or the Commission; (viii) there has been a materially adverse change in the condition (financial or otherwise), prospects or obligations of the Company; (ix) the Company will have sustained a material loss, whether or not insured, by reason of fire, flood, accident or other calamity; (x) any action has been taken by the government of the United States or any department or agency thereof which, in the reasonable judgment of the Underwriter, has had a material adverse effect upon the -30- market or potential market for securities in general; or (xi) the market for securities in general or political, financial or economic conditions will have so materially adversely changed that, in the reasonable judgment of the Underwriter, it will be impracticable to offer for sale, or to enforce contracts made by the Underwriter for the resale of, the Offered Shares and Offered Warrants or the Optional Shares and Offered Warrants, as the case may be. (c) If this Agreement is terminated pursuant to Section 6 hereof or this Section 10 or if the purchases provided for herein are not consummated because any condition of the Underwriter's obligations hereunder is not satisfied or because of any refusal, inability or failure on the part of the Company to comply with any of the terms or to fulfill any of the conditions of this Agreement, or if for any reason the Company shall be unable to or does not perform all of its obligations under this Agreement, the Company will not be liable to the Underwriter for damages on account of loss of anticipated profits arising out of the transactions covered by this Agreement, but the Company will remain liable to the extent provided in Sections 5(j), 7, 8 and 9 of this Agreement. 11. Information Furnished by the Underwriter to the Company. It is hereby acknowledged and agreed by the parties hereto that for the purposes of this Agreement, including, without limitation, Sections 4(f), 7(a), 7(b) and 8 hereof, the only information given by the Underwriter to the Company for use in the Prospectus are the statements set forth in the last sentence of the last paragraph on the cover page, the statement appearing in the last paragraph on page __ with respect to stabilizing the market price of Shares and Warrants, the information in the __ paragraph on page __ with respect to concessions and reallowances, and the information in the ___ paragraph on page ___ with respect to the determination of the public offering price, as such information appears in any Preliminary Prospectus and in the Prospectus. 12. Notices and Governing Law. All communications hereunder will be in writing and, except as otherwise provided, will be delivered at, or mailed by certified mail, return receipt requested, or telegraphed to, the following addresses: if to the Underwriter, to it at 7 Hanover Square - 2nd Floor, New York, New York 10004, with a copy to Akerman, Senterfitt & Eidson, P.A., Attention: Alan H. Aronson, Esq., One Southeast 3rd Avenue, Miami, Florida 33131; if to the Company, addressed to it at 1163 Forest Avenue, Staten Island, New York 10310, with a copy to Tenzer Greenblatt LLP, Attention: Robert J. Mittman, Esq., 405 Lexington Avenue, New York, New York 10174. This Agreement shall be deemed to have been made and delivered in New York City and shall be governed as to validity, interpretation, construction, effect and in all other respects by the internal laws of the State of New York. The Company (1) agrees -31- that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York, (2) waives any objection which the Company may have now or hereafter to the venue of any such suit, action or proceeding, and (3) irrevocably consents to the jurisdiction of the New York State Supreme Court, County of New York, and the United States District Court for the Southern District of New York in any such suit, action or proceeding. The Company further agrees to accept and acknowledge service of any and all process which may be served in any such suit, action or proceeding in the New York State Supreme Court, County of New York, or in the United States District Court for the Southern District of New York and agrees that service of process upon the Company mailed by certified mail to the Company's address shall be deemed in every respect effective service of process upon the Company, in any such suit, action or proceeding. 13. Parties in Interest. This Agreement is made solely for the benefit of the Underwriter, the Company and, to the extent expressed, any person controlling the Company or the Underwriter, each officer, director, partner, employee and agent of the Underwriter, the directors of the Company, its officers who have signed the Registration Statement, and their respective executors, administrators, successors and assigns, and, no other person will acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" will not include any purchaser of the Shares or Warrants from the Underwriter, as such purchaser. If the foregoing is in accordance with your understanding of our agreement, kindly sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement between the Company and the Underwriter in accordance with its terms. Very truly yours, TAM RESTAURANTS, INC. By_______________________________ Name: Title: Confirmed and accepted in New York, N.Y., as of the date first above written: PARAGON CAPITAL CORPORATION By:__________________________________ Name: Title: -32- EX-4 3 EXHIBIT 4.2 WARRANT AGREEMENT dated as of ____________, 1998 between TAM Restaurants, Inc., a Delaware corporation (the "Company"), and Paragon Capital Corporation (hereinafter referred to as the "Underwriter"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company proposes to issue to the Underwriter warrants (the "Warrants") to purchase up to 100,000 shares (as such number may be adjusted from time to time pursuant to Article 8 of this Warrant Agreement) (the "Shares") of Common Stock of the Company, par value $.0001 per share (the "Common Stock", of the Company, and up to 50,000 (as such number may be adjusted from time to time pursuant to Article 8 of this Warrant Agreement) Common Stock purchase warrants (the "Underlying Warrants"); and WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement (the "Underwriting Agreement") dated _____________, 1998 between the Underwriter and the Company, to act as the underwriter in connection with the Company's proposed public offering (the "Public Offering") of 1,150,000 (including overallotments) shares of Common Stock (the "Public Shares") at an initial public offering price of $5.00 per Public Share and 575,000 (including overallotments) warrants (the "Public Warrants") at an initial public offering price of $.10 per Public Warrant; and WHEREAS, the Warrants issued pursuant to this Agreement are being issued by the Company to the Underwriter or its designees who are directors, officers and partners of the Underwriter or to members of the selling group participating in the distribution of the Public Shares and Public Warrants to the public in the Public Offering and/or their respective directors, officers or partners (collectively, the "Designees"), in consideration for, and as part of the Underwriter's compensation in connection with, the Underwriter acting as the Underwriter pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Underwriter or its designees to the Company of One Hundred Five Dollars ($105.00), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Underwriter, and/or the Designees are hereby granted the right to purchase, at any time from ___________, 1999 until 5:00 P.M., New York time, on ______________, 2003 (the "Warrant Exercise Term"), up to 160,000 fully-paid and non-assessable Shares at an initial exercise price (subject to adjustment as provided in Articles 6 and 8 hereof) of $6.00 per Share and up to 150,000 Underlying Warrants at an initial exercise price (subject to adjustment as provided in Articles 6 and 8 hereof) of $.12 per Underlying Warrant. The -2- Underlying Warrants are each exercisable to purchase one (1) fully-paid and non-assessable share of Common Stock at a price of $7.25 per share (the "Underlying Warrant Shares"). The Underlying Warrants are exercisable commencing ________________, 1999 (or such earlier date as the Underwriter consents to the exercise of the warrants issued pursuant to the Public Warrant Agreement (as hereinafter defined)) until 5:00 P.M., New York City time on ________________, 2003. The Holder may purchase, upon exercise of this Warrant, either the Shares or the Underlying Warrants or both. Except as provided in Article 13 hereof, the Shares and the Underlying Warrants are in all respects identical to the Public Shares and Public Warrants being sold to the public pursuant to the terms and provisions of the Underwriting Agreement. 2. Warrant Certificates. The warrant certificates delivered and to be delivered pursuant to this Agreement (the "Warrant Certificates") shall, for the Warrants exercisable for the purchase of Shares, be in the form set forth in Exhibit A attached hereto and made a part hereof, and, for the Warrants exercisable for the purchase of Underlying Warrants, in the form of Exhibit B attached hereto and made a part hereof, each with such appropriate insertions, omissions, substitutions and other variations as required or permitted by this Agreement. -3- 3. Exercise of Warrant. ------------------- 3.1. Cash Exercise. The Warrants initially are exercisable at a price of $6.00 per Share purchased and $.12 per Underlying Warrant purchased, payable in cash or by check to the order of the Company, or any combination thereof, subject to adjustment as provided in Article 8 hereof. Upon surrender of the Warrant Certificate(s) with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the Shares and Underlying Warrants purchased, at the Company's principal offices in Washington (currently located at 1163 Forest Avenue, Staten Island, New York 10310) the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the Shares so purchased and/or a certificate or certificates for the Underlying Warrants so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional Shares or fractional Underlying Warrants). In the case of the purchase of less than all the Shares or Underlying Warrants purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the Shares or Underlying Warrants purchasable thereunder. -4- 3.2. Cashless Exercise. At any time during the Warrant Exercise Term, the Holder may, at the Holder's option, exchange, in whole or in part, the Warrants represented by such Holder's Warrant Certificate, which are exercisable for the purchase of Shares (a "Warrant Exchange"), into the number of Shares and Underlying Warrants determined in accordance with this Section 3.2, by surrendering such Warrant Certificate at the principal office of the Company or at the office of its transfer agent, accompanied by a notice stating such Holder's intent to effect such exchange, the number of Warrants to be so exchanged and the date on which the Holder requests that such Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take place on the date specified in the Notice of Exchange or, if later, the date the Notice of Exchange is received by the Company (the "Exchange Date"). Certificates for the Shares issuable upon such Warrant Exchange and, if applicable, a new Warrant Certificate of like tenor representing Warrants which were subject to the surrendered Warrant Certificate and not included in the Warrant Exchange, shall be issued as of the Exchange Date and delivered to the Holder within three (3) days following the Exchange Date. In connection with any Warrant Exchange, the Holder shall be entitled represent the right to subscribe for and acquire (i) the number of Shares (rounded to the next highest integer) which would, but for such Warrant Exchange, then be issuable pursuant to the provisions of Section -5- 3.1 above upon the exercise of the Warrants specified by the Holder in its Notice of Exchange (the "Total Share Number") less (ii) the number of Shares equal to the quotient obtained by dividing (a) the product of the Total Share Number and the existing Exercise Price per Share (as hereinafter defined) by (b) the Market Price (as hereinafter defined) of a Public Share on the day preceding the Warrant Exchange. "Market Price" at any date shall be deemed to be the last reported sale price prior to the Exchange Date or, in case no such reported sales takes place on such day, the average of the last reported sale prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading or as reported in the NASDAQ National Market System, or, if the Common Stock is not listed or admitted to trading on any national securities exchange or quoted on the NASDAQ National Market System, the closing bid price as furnished by (i) the National Association of Securities Dealers, Inc. through NASDAQ or (ii) a similar organization if NASDAQ is no longer reporting such information. 4. Issuance of Certificates. ------------------------ Upon the exercise of the Warrants, the issuance of certificates for the Shares purchased and certificates for the Underlying Warrants purchased, and upon the exercise of the Underlying Warrants, the issuance of certificates for the Underlying Warrant Shares purchased shall be made forthwith (and -6- in any event within three (3) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall (subject to the provisions of Article 5 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Shares and the Underlying Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company under its corporate seal reproduced thereon, attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrant Certificates and certificates representing the Underlying Warrants shall be dated the date of execution by the Company upon initial issuance, division, exchange, substitution or transfer. -7- Upon exercise, in part or in whole, of the Warrants, certificates representing the Shares and the Underlying Warrants purchased, and upon exercise, in whole or in part, of the Underlying Warrants, certificates representing the Underlying Warrant Shares purchased (collectively, the "Warrant Securities"), shall bear a legend substantially similar to the following: "The securities represented by this certificate and the other securities issuable upon exercise thereof have not been registered for purposes of public distribution under the Securities Act of 1933, as amended (the "Act"), and may not be offered or sold except (i) pursuant to an effective registration statement under the Act, (ii) to the extent applicable, pursuant to Rule 144 under the Act (or any similar rule under such Act relating to the disposition of securities), or (iii) upon the delivery by the holder to the Company of an opinion of counsel, reasonably satisfactory to counsel to the Company, stating that an exemption from registration under such Act is available." 5. Restriction on Transfer of Warrants. ----------------------------------- The Holder of a Warrant Certificate, by the Holder's acceptance thereof, covenants and agrees that the Warrants are being acquired as an investment and not with a view to the distribution thereof, and that the Warrants may not be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, for a period of one (1) year from the date hereof [the Effective Date], except to the Underwriter or to the Designees. -8- 6. Price. ----- 6.1. Initial and Adjusted Exercise Price. The Warrant's initial exercise price of each Warrant shall be $6.00 per Share and $.12 per Underlying Warrant. The adjusted exercise price per Share and the adjusted exercise price per Underlying Warrant shall be the prices which shall result from time to time from any and all adjustments of the initial exercise price per Share or per Underlying Warrant, as the case may be, in accordance with the provisions of Article 8 hereof. 6.2. Exercise Price. The term "Exercise Price" herein shall mean the initial exercise price or the adjusted exercise price, depending upon the context. 7. Registration Rights. ------------------- 7.1. Registration Under the Securities Act of 1933. None of the Warrants, the Shares, the Underlying Warrants, or the Underlying Warrant Shares have been registered for purposes of public distribution under the Securities Act of 1933, as amended (the "Act"). 7.2. Registrable Securities. As used herein the term "Registrable Security" means each of the Warrants, the Shares, the Underlying Warrants, the Underlying Warrant Shares and any shares of Common Stock issued upon any stock split or stock dividend in respect of such Shares or Underlying Warrant Shares; provided, however, that with respect to any particular Registrable Security, such security shall cease to be a -9- Registrable Security when, as of the date of determination, (i) it has been effectively registered under the Act and disposed of pursuant thereto, (ii) registration under the Act is no longer required for subsequent public distribution of such security, or (iii) it has ceased to be outstanding. The term "Registrable Securities" means any and/or all of the securities falling within the foregoing definition of a "Registrable Security." In the event of any merger, reorganization, consolidation, recapitalization or other change in corporate structure affecting the Common Stock, such adjustment shall be made in the definition of "Registrable Security" as is appropriate in order to prevent any dilution or enlargement of the rights granted pursuant to this Article 7. 7.3. Piggyback Registration. If, at any time during the seven years following the effective date of the Public Offering, the Company proposes to prepare and file one or more post-effective amendments to the registration statement filed in connection with the Public Offering or any new registration statement or post-effective amendments thereto covering equity or debt securities of the Company, or any such securities of the Company held by its shareholders (in any such case, other than in connection with a merger, acquisition or pursuant to Form S-8 or successor form) (for purposes of this Article 7, collectively, the "Registration Statement"), it will give written notice of its intention to do so by registered mail ("Notice"), at least thirty -10- (30) business days prior to the filing of each such Registration Statement, to all holders of the Registrable Securities. Upon the written request of such a holder (a "Requesting Holder"), made within twenty (20) business days after receipt of the Notice, that the Company include any of the Requesting Holder's Registrable Securities in the proposed Registration Statement, the Company shall, as to each such Requesting Holder, use its best efforts to effect the registration under the Act of the Registrable Securities which it has been so requested to register ("Piggyback Registration"), at the Company's sole cost and expense and at no cost or expense to the Requesting Holders; provided, however, that if, in the written opinion of the Company's managing underwriter, if any, for such offering, the inclusion of all or a portion of the Registrable Securities requested to be registered, when added to the securities being registered by the Company or the selling shareholder(s), will exceed the maximum amount of the Company's securities which can be marketed (i) at a price reasonably related to their then current market value, or (ii) without otherwise materially adversely affecting the entire offering, then the Company may exclude from such offering all or a portion of the Registrable Securities which it has been requested to register. If securities are proposed to be offered for sale pursuant to such Registration Statement by other security holders of the Company and the total number of securities to be offered -11- by the Requesting Holders and such other selling security holders is required to be reduced pursuant to a request from the managing underwriter (which request shall be made only for the reasons and in the manner set forth above) the aggregate number of Registrable Securities to be offered by Requesting Holders pursuant to such Registration Statement shall equal the number which bears the same ratio to the maximum number of securities that the underwriter believes may be included for all the selling security holders (including the Requesting Holders) as the original number of Registrable Securities proposed to be sold by the Requesting Holders bears to the total original number of securities proposed to be offered by the Requesting Holders and the other selling security holders. If, subsequent to exercise of the demand registration right referred to in Section 7.4 below, any Registrable Securities requested to be included in a Piggyback Registration are not so included because of the operation of the proviso of the first paragraph of this Section 7.3, then the holders of such excluded Registrable Securities shall have the right to require the Company, at its expense, to prepare and file another Registration Statement under the Act covering such Registrable Securities, provided that, if the underwriter so requests, such Registrable Securities shall not be sold until the expiration of 90 days from the effective date of the offering that gave rise to the piggyback registration rights that are the subject of this -12- Section 7.3. Nothing contained in the foregoing sentence shall require the Company to undergo an audit, other than in the ordinary course of business. Notwithstanding the provisions of this Section 7.3, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7.3 (irrespective of whether any written request for inclusion of Registrable Securities shall have already been made) to elect not to file any such proposed Registration Statement, or to withdraw the same after the filing but prior to the effective date thereof. 7.4. Demand Registration. ------------------- (a) At any time during the Warrant Exercise Term, any "Majority Holder" (as such term is defined in Section 7.4(d) below) of the Registrable Securities shall have the right (which right is in addition to the piggyback registration rights provided for under Section 7.3 hereof), exercisable by written notice to the Company (the "Demand Registration Request"), to have the Company prepare and file with the Securities and Exchange Commission (the "Commission") on one occasion, at the sole expense of the Company (except as provided in Section 7.5(b) hereof), a Registration Statement and such other documents, including a prospectus, as may be necessary (in the opinion of both counsel for the Company and counsel for such Majority Holder) in order to comply with the provisions of the Act, so as to permit a public offering and sale of the Registrable -13- Securities by the holders thereof. The Company shall use its best efforts to cause the Registration Statement to become effective under the Act, so as to permit a public offering and sale of the Registrable Securities by the holders thereof. Once effective, the Company will use its best efforts to maintain the effectiveness of the Registration Statement until the earlier of (i) the date that all of the Registrable Securities have been sold, or (ii) the date that the holders thereof receive an opinion of counsel to the Company that all of the Registrable Securities may be freely traded without registration under the Act, under Rule 144(k) promulgated under the Act or otherwise. Nothing herein contained shall require the Company to undergo an audit, other than in the ordinary course of business. (b) The Company covenants and agrees to give written notice of any Demand Registration Request to all holders of the Registrable Securities within ten (10) business days from the date of the Company's receipt of any such Demand Registration Request. After receiving notice from the Company as provided in this Section 7.4(b), holders of Registrable Securities may request the Company to include their Registrable Securities in the Registration Statement to be filed pursuant to Section 7.4(a) hereof by notifying the Company of their decision to have such securities included within ten (10) days of their receipt of the Company's notice. -14- (c) The term "Majority Holder" as used in Section 7.4 hereof shall mean any holder or any combination of holders of Registrable Securities, if included in such holders' Registrable Securities are that aggregate number of shares of Common Stock (including Shares already issued, Shares issuable pursuant to the exercise of outstanding Warrants, Underlying Warrant Shares already issued and Underlying Warrant Shares issuable pursuant to the exercise of outstanding Underlying Warrants) as would constitute a majority of the aggregate number of shares of Common Stock (including Shares already issued, Shares issuable pursuant to the exercise of outstanding Warrants, Underlying Warrant Shares already issued and Underlying Warrant Shares issuable pursuant to the exercise of outstanding Underlying Warrants) included in all the Registrable Securities. 7.5. Covenants of the Company With Respect to Registration. The Company covenants and agrees as follows: (a) In connection with any registration under Section 7.4 hereof, the Company shall file the Registration Statement as expeditiously as possible, but in any event no later than twenty (20) days following receipt of any demand therefor, shall use its best efforts to have any such Registration Statement declared effective at the earliest possible time, and shall furnish each holder of Registrable Securities such number of prospectuses as shall reasonably be requested. -15- (b) The Company shall pay all costs, fees and expenses (other than indemnity fees, discounts and nonaccountable expense allowance applicable to the Registrable Securities and fees and expenses of counsel retained by the holders of Registrable Securities) in connection with all Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof including, without limitation, the Company's legal and accounting fees, printing expenses, and blue sky fees and expenses. (c) The Company will take all necessary action which may be required in qualifying or registering the Registrable Securities included in the Registration Statement, for offering and sale under the securities or blue sky laws of such states as are requested by the holders of such securities; provided that the Company shall not be obligated to execute or file any general consent to service of process to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (d) The Company shall indemnify any holder of the Registrable Securities to be sold pursuant to any Registration Statement and any underwriter or person deemed to be an underwriter under the Act and each person, if any, who controls such holder or underwriter or person deemed to be an underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934, as amended -16- ("Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter as set forth in Section 7 of the Underwriting Agreement and to provide for just and equitable contribution as set forth in Section 8 of the Underwriting Agreement. (e) Any holder of Registrable Securities to be sold pursuant to a registration statement, and such Holder's successors and assigns, shall severally, and not jointly, indemnify, the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such holder, or such Holder's successors or assigns, for specific inclusion in such Registration Statement to the same extent and with the same effect as the provisions pursuant to which the -17- Underwriter has agreed to indemnify the Company as set forth in Section 7 of the Underwriting Agreement and to provide for just and equitable contribution as set forth in Section 8 of the Underwriting Agreement. (f) Nothing contained in this Agreement shall be construed as requiring any holder to exercise the Warrants or the Underlying Warrants held by such Holder prior to the initial filing of any registration statement or the effectiveness thereof. (g) If the Company shall fail to comply with the provisions of this Article 7, the Company shall, in addition to any other equitable or other relief available to the holders of Registrable Securities, be liable for any or all incidental, special and consequential damages sustained by the holders of Registrable Securities, requesting registration of their Registrable Securities. (h) The Company shall promptly deliver copies of all correspondence between the Commission and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to the Registration Statement to each holder of Registrable Securities included for such registration in such Registration Statement pursuant to Section 7.3 hereof or Section 7.4 hereof requesting such correspondence and memoranda and to the managing underwriter, if any, of the offering in connection with which -18- such Holder's Registrable Securities are being registered, and shall permit each holder of Registrable Securities and such underwriter to do such reasonable investigation, upon reasonable advance notice, with respect to information contained in or omitted from the Registration Statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such holder of Registrable Securities or underwriter shall reasonably request. (i) Upon the written request therefor by any holders of Registrable Securities, the Company shall include in the Registration Statement covering any of the Registrable Securities any other securities of the Company held by such holders of Registrable Securities as of the date of filing of such Registration Statement, including, without limitation, restricted shares of Common Stock, options, warrants or any other securities convertible into shares of Common Stock. 8. Adjustments of Exercise Price and Number of Securities. The following adjustments apply to the Exercise Price of the Warrants with respect to the Shares and the number of Shares purchasable upon exercise of the Warrants. In the -19- event the Exercise Price per Share and/or the number of Shares so purchasable is adjusted, then the Exercise Price of the Warrants relating to the Underlying Warrants and the number of underlying Warrants purchasable hereunder shall, be adjusted in the same proportion. 8.1. Computation of Adjusted Price. In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Exercise Price per Share in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (a) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Exercise Price in effect immediately prior to such dividend or distribution, by (b) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For the purposes of any computation to be made in accordance with the provisions of this Section 8.1, the Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. -20- 8.2. Subdivision and Combination. In case the Company shall at any time subdivide or combine the outstanding shares of Common Stock, the Exercise Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination. 8.3. Adjustment in Number of Securities. Upon each adjustment of the Exercise Price pursuant to the provisions of this Article 8, the number of Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full number by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price provided, however that if an event occurs that results in an adjustment of the number and/or price of the shares of Common Stock issuable upon exercise of the Public Warrants pursuant to Section 9 of the Warrant Agreement by and among the Company, the Underwriter and Continental Stock Transfer & Trust Company dated as of , 1997 ("Public Warrant Agreement"), resulting in automatic adjustment in the number and/or price of the Underlying Warrant Shares issuable upon exercise of the Underlying Warrants pursuant to Section 8.5 hereof, then the adjustment provided for in this Section 8.3 shall not, in such instance, result in any further adjustment in -21- the aggregate number of shares of Common Stock ultimately issuable upon exercise of the Underlying Warrants. 8.4. Reclassification, Consolidation, Merger, etc. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in the case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation of the property of the Company as an entirety, the Holders shall thereafter have the right to purchase the kind and number of shares of stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance as if the Holders were the owners of both the Shares and the Underlying Warrant Shares immediately prior to any such events, at a price equal to the product of (x) the number of shares of Common Stock issuable upon exercise of the Holders' Warrants and the Underlying Warrants and (y) the exercise prices for the Warrants and Underlying Warrants in effect immediately prior to the record date for such reclassification, change, -22- consolidation, merger, sale or conveyance as if such Holders had exercised the Warrants and the Underlying Warrants. 8.5. Determination of Outstanding Common Shares. The number of Common Shares at any one time outstanding shall include the aggregate number of shares issued and the aggregate number of shares issuable upon the exercise of options, rights, warrants and upon the conversion or exchange of convertible or exchangeable securities. 8.6. Adjustment of Exercise Price and Securities Issuable Upon Exercise of Underlying Warrants. With respect to any of the Underlying Warrants, whether or not the Warrants have been exercised and whether or not the Warrants are issued and outstanding, the exercise price for, and the number of, Underlying Warrant Shares issuable upon exercise of the Underlying Warrants shall be automatically adjusted in accordance with Section 9 of the Public Warrant Agreement, upon the occurrence of any of the events described therein. Thereafter, until the next such adjustment or until otherwise adjusted in accordance with this Section 8, the Underlying Warrants shall be exercisable at such adjusted exercise price and for such adjusted number of Underlying Warrant Shares. 8.7. Dividends and Other Distributions with Respect to Outstanding Securities. In the event that the Company shall at any time prior to the exercise of all Warrants make any distribution of its assets to holders of its Common Stock as a -23- liquidating or a partial liquidating dividend, then the holder of the Warrants who exercises its Warrants after the record date for the determination of those holders of Common Stock entitled to such distribution of assets as a liquidating or partial liquidating dividend shall be entitled to receive for the Warrant Price per Warrant, in addition to each share of Common Stock, the amount of such distribution (or, at the option of the Company, a sum equal to the value of any such assets at the time of such distribution as determined by the Board of Directors of the Company in good faith) which would have been payable to such holder had he been the holder of record of the Common Stock receivable upon exercise of his Warrant on the record date for the determination of those entitle to such distribution. At the time of any such dividend or distribution, the Company shall make appropriate reserves to ensure the timely performance of the provisions of this Subsection 8.7. 8.8. Subscription Rights for Shares of Common Stock or Other Securities. In the case that the Company or an affiliate of the Company shall at any time after the date hereof and prior to the exercise of all the Warrants issue any rights, warrants or options to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company, the Holders of unexercised Warrants on the record date set by the Company or such affiliate in connection with such issuance of rights, warrants or options -24- shall be entitled, in addition to the shares of Common Stock or other securities receivable upon the exercise of the Warrants, to receive such rights, warrants or options, in addition to the shares of Common Stock or other securities receivable upon the exercise of the Warrants, to receive such rights at the time such rights, warrants or options that such Holders would have been entitled to receive had they been, on such record date, the holders of record of the number of whole shares of Common Stock then issuable upon exercise of their outstanding Warrants (assuming for purposes of this Section 8.8, that the exercise of the Warrants is permissible immediately upon issuance). 9. Exchange and Replacement of Warrant Certificates. ------------------------------------------------ Each Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of securities in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the -25- Warrant Certificate, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. 10. Elimination of Fractional Interests. ----------------------------------- The Company shall not be required to issue certificates representing fractions of Shares or fractions of Underlying Warrants upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of Shares and Underlying Warrants. 11. Reservation and Listing of Securities. ------------------------------------- The Company shall at all times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants and the Underlying Warrants, such number of shares of Common Stock as shall be issuable upon the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all Shares issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any shareholder. The Company further covenants and agrees that upon exercise of the Underlying Warrants and payment of the respective Underlying Warrant exercise price therefor, all Underlying Warrant Shares issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the -26- preemptive rights of any shareholder. As long as the Warrants shall be outstanding, the Company shall use its best efforts to cause all shares of Common Stock issuable upon the exercise of the Warrants and the Underlying Warrants and all Underlying Warrants to be listed on or quoted by NASDAQ or listed on such national securities exchange, in the event the Common Stock is listed on a national securities exchange. 12. Notices to Warrant Holders. -------------------------- Nothing contained in this Agreement shall be construed as conferring upon the Holder or Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or -27- (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; or (d) reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the surviving corporation and which does not result in any reclassification or change of the outstanding shares of Common Stock, except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or a sale or conveyance to another corporation of the property of the Company as an entirety is proposed; or -28- (e) The Company or an affiliate of the Company shall propose to issue any rights to subscribe for shares of Common Stock or any other securities of the Company or of such affiliate to all the shareholders of the Company; then, in any one or more of said events, the Company shall give written notice to the Holder or Holders of such event at least fifteen (15) days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the shareholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, options or warrants, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend or distribution, or the issuance of any convertible or exchangeable securities or subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 13. Underlying Warrants. ------------------- The form of the certificates representing the Underlying Warrants (and the form of election to purchase shares of Common Stock upon the exercise of the Underlying Warrants and the form of assignment printed on the reverse thereof) shall be -29- substantially as set forth in Exhibit "A" to the Public Warrant Agreement; provided, however, (i) each Underlying Warrant issuable upon exercise of the Warrants shall evidence the right to initially purchase one (1) fully paid and non-assessable share of Common Stock in respect of the Underlying Warrant at an initial purchase price of $7.25 per share commencing ______________, 1999 (or such earlier date as the Underwriter consents to the exercise of the warrants issued pursuant to the Public Warrant Agreement) until , 2003 and (ii) the Target Redemption Price (as defined in the Public Warrant Agreement) of the Underlying Warrants is 150% of the then effective exercise price of the Underlying Warrants. As set forth in Section 8.5 of this Agreement, the exercise price of the Underlying Warrants and the number of shares of Common Stock issuable upon the exercise of the Underlying Warrants are subject to adjustment, whether or not the Warrants have been exercised and the Underlying Warrants have been issued, in the manner and upon the occurrence of the events set forth in Section 9 of the Public Warrant Agreement, which is hereby incorporated herein by reference and made a part hereof as if set forth in its entirety herein. Subject to the provisions of this Agreement and upon issuance of the Underlying Warrants, each registered holder of such Underlying Warrants shall have the right to purchase from the Company (and the Company shall issue to such registered holders) up to the number of fully paid and non-assessable Underlying Warrant Shares (subject -30- to adjustment as provided herein and in the Public Warrant Agreement), free and clear of all preemptive rights of shareholders, provided that such registered holder complies, in connection with the exercise of such holders' Underlying Warrants, with the terms governing exercise of the Public Warrants set forth in the Public Warrant Agreement, and pays the applicable exercise price, determined in accordance with the terms of the Public Warrant Agreement. Upon exercise of the Underlying Warrants, the Company shall forthwith issue to the registered holder of any such Underlying Warrants, in such holder's name or in such name as may be directed by such holder, certificates for the number of Underlying Warrant Shares so purchased. The Underlying Warrants shall be transferable in the manner provided in the Public Warrant Agreement, and upon any such transfer, a new Underlying Warrant shall be issued promptly to the transferee. The Company covenants to, and agrees with, each Holder that without the prior written consent of all the Holders, the Public Warrant Agreement will not be modified, amended, cancelled, altered or superseded, and that the Company will send to each Holder, irrespective of whether or not the Warrants have been exercised, any and all notices required by the Public Warrant Agreement to be sent to holders of the Public Warrants. -31- 14. Notices. ------- All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: (a) If to a registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 3 of this Agreement or to such other address as the Company may designate by notice to the Holders. 15. Supplements and Amendments. -------------------------- The Company and the Underwriter may from time to time supplement or amend this Agreement without the approval of any Holders of the Warrants and/or Warrant Securities in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Underwriter may deem necessary or desirable and which the Company and the Underwriter deem not to adversely affect the interests of the Holders of Warrant Certificates. -32- 16. Successors. ---------- All the covenants and provisions of this Agreement by or for the benefit of the Company and the Holders inure to the benefit of their respective successors and assigns hereunder. 17. Termination. ----------- This Agreement shall terminate at the close of business on , 2006. Notwithstanding the foregoing, this Agreement will terminate on any earlier date when all Warrants and Underlying Warrants have been exercised and all Warrant Securities have been resold to the public; provided, however, that the provisions of Section 7 shall survive any termination pursuant to this Section 17 until the close of business on , 2009. 18. Governing Law. ------------- This Agreement and each Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said State. 19. Benefits of This Agreement. -------------------------- Nothing in this Agreement shall be construed to give to any person or corporation other than the Company and the Underwriter and any other registered holder or holders of the Warrant Certificates or Warrant Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Under- -33- writer and any other holder or holders of the Warrant Certificates or Warrant Securities. 20. Counterparts. ------------ This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. TAM RESTAURANTS, INC. By:_________________________________ Name: Title: Attest: ______________________________ PARAGON CAPITAL CORPORATION By:________________________________ Name: Title: -34- EXHIBIT A THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE ON OR COMMENCING _________, 1999 UNTIL 5:00 P.M., NEW YORK TIME, _______, 2003 No. W- _______ Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that ________ _____________________________ or registered assigns, is the registered holder of __________ Warrants to purchase, at any time from _______, 1999 until 5:00 P.M. New York City time on _______, 2002 ("Expiration Date"), an aggregate of up to _______ fully-paid and non-assessable shares (the "Shares") of the common stock, par value $.0001 per share (the "Common Stock"), of TAM Restaurants, Inc., a Delaware corporation (the "Company"), at an initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $____ per Share, upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of _______, 1997 between the Company and Paragon Capital Corporation (the "Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by certified or official bank check in New York Clearing House funds payable to the order of the Company, or any combination thereof. No Warrant may be exercised after 5:00 P.M., New York City time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax, or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: , 1998 TAM RESTAURANTS, INC. By:__________________ Name: Title: Attest: ________________ [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _________ Shares of Common Stock and herewith tenders in payment for such securities, cash or a certified or official bank check payable in New York Clearing House Funds to the order of TAM Restaurants, Inc. in the amount of $______, all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of ____________________________, whose address is _______________________________, and that such Certificate be delivered to _________________________________, whose address is _____________. Dated: Signature:_________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________ ________________________________ (Insert Social Security or Other Identifying Number of Holder) [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED____________________________________________ hereby sells, assigns and transfers unto ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature:_________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) _______________________________ _______________________________ (Insert Social Security or Other Identifying Number of Assignee) EXHIBIT B THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE COMMENCING _______, 1999 UNTIL 5:00 P.M., NEW YORK TIME, _______, 2003 No. W- _________ Warrants WARRANT CERTIFICATE This Warrant Certificate certifies that _____________ ____________________, or registered assigns, is the registered holder of ___________________________ (_______) Warrants to purchase, at any time from _______, 1999 until 5:00 P.M. New York City time on _______, 2003 ("Expiration Date"), an aggregate of up to ___________________________ (_______) common stock purchase warrants, each common stock purchase warrant entitling the holder thereof to purchase one share of common stock, par value $.0001 per share (collectively, the "Underlying Warrants"), of TAM Restaurants, Inc., a Delaware corporation (the "Company"), at an initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $____ per Underlying Warrant, upon surrender of this Warrant Certificate and payment of the Exercise Price at an office or agency of the Company, but subject to the conditions set forth herein and in the warrant agreement dated as of _______, 1997 between the Company and Paragon Capital Corporation ("Paragon") (the "Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by certified or official bank check in New York Clearing House funds payable to the order of the Company, or any combination thereof. The Underlying Warrants issuable upon exercise of the Warrants will be exercisable at any time from _______, 1999 (or such earlier dates as to which Paragon consent to the exercise of the Public Warrants (as defined in the Warrant Agreement)) until 5:00 P.M. Eastern Time _______, 2003 each Underlying Warrant entitling the holder thereof to purchase one fully-paid and non-assessable share of common stock of the Company, at an initial exercise price, subject to adjustment in certain events, of $____ per share. The Underlying Warrants are issuable pursuant to the terms and provisions of a certain agreement dated as of _______, 1998 by and among the Company, Paragon and _______________ (the "Public Warrant Agreement"). The Public Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to (except as otherwise provided in the Warrant Agreement) for a description of the rights, limitations of rights, manner of exercise, anti-dilution provisions and other provisions with respect to the Underlying Warrants. No Warrant may be exercised after 5:00 P.M., New York City time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to in a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that, upon the occurrence of certain events, the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in the Warrant Agreement, without any charge except for any tax or other governmental charge imposed in connection therewith. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated: , 1998 TAM RESTAURANTS, INC. By:__________________________ Name: Title: Attest: ________________________ [FORM OF ELECTION TO PURCHASE] The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase _________ Underlying Warrants and herewith tenders, in payment for such securities, cash or a certified or official bank check payable in New York Clearing House Funds to the order of TAM Restaurants, Inc. in the amount of $______, all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of ___________________________, whose address is __________________________________, and that such Certificate be delivered to ________________________________, whose address is _____________. Dated: Signature: (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ________________________________ ________________________________ (Insert Social Security or Other Identifying Number of Holder) [FORM OF ASSIGNMENT] (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED________________________________________ hereby sells, assigns and transfers unto ___________________________________ ___________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _______________, Attorney, to transfer the within Warrant Certificate on the books of the within-named Company, with full power of substitution. Dated: Signature: ________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate) ________________________________ ________________________________ (Insert Social Security or Other Identifying Number of Assignee) EX-4 4 EXHIBIT 4.3 TAM RESTAURANTS, INC. a Delaware corporation and [ ] Warrant Agent and PARAGON CAPITAL CORPORATION Underwriter WARRANT AGREEMENT Table of Contents -----------------
Section Page 1 Appointment of Warrant Agent................................................................ 3 2 Form of Warrant............................................................................. 4 3 Countersignature and Registration........................................................... 5 4 Transfers and Exchanges..................................................................... 5 5 Exercise of Warrants; Payment of Warrant Solicitation Fee......................................................................................... 6 6 Payment of Taxes............................................................................ 9 7 Mutilated or Missing Warrants............................................................... 10 8 Reservation of Common Stock................................................................. 11 9 Warrant Price; Adjustments.................................................................. 12 10 Fractional Interest......................................................................... 19 11 Notices to Warrantholders................................................................... 19 12 Disposition of Proceeds on Exercise of Warrants............................................. 21 13 Redemption of Warrants...................................................................... 22 14 Merger or Consolidation or Change of Name of Warrant Agent....................................................................................... 22 15 Duties of Warrant Agent..................................................................... 23 16 Change of Warrant Agent..................................................................... 26 17 Identity of Transfer Agent.................................................................. 28 18 Notices..................................................................................... 28 19 Supplements and Amendments.................................................................. 29 20 New York Contract........................................................................... 30 21 Benefits of this Agreement.................................................................. 30 22. Successors.................................................................................. 30 Exhibit A - Form of Warrant
-2- WARRANT AGENT AGREEMENT dated as of __________________, 1998, by and among TAM Restaurants, Inc., a Delaware corporation (the "Company"), Paragon Capital Corporation (the "Underwriter") and _________________________ _________________________________, as warrant agent (hereinafter called the "Warrant Agent"). WHEREAS, the Company proposes to issue and sell to the public up to 1,150,000 shares of the Common Stock of the Company, par value $.0001 per share (hereinafter, together with the stock of any other class to which such shares may hereafter have been changed, called "Common Stock"), and up to 575,000 Common Stock purchase warrants (the "Warrants"); WHEREAS, each Warrant will entitle the holder thereof to purchase one (1) share of Common Stock; WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer, exchange and exercise of the Warrants; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows: Section 1. Appointment of Warrant Agent. The Company hereby appoints the Warrant Agent to act as Warrant Agent for the Company in accordance with the instructions hereinafter set forth in this Agreement, and the Warrant Agent hereby accepts such appointment. -3- Section 2. Form of Warrant. The text of the Warrants and of the form of election to purchase Common Stock to be printed on the reverse thereof shall be substantially as set forth in Exhibit A attached hereto. Each Warrant shall entitle the registered holder thereof to purchase one share of Common Stock at a purchase price of $6.00, at any time from ____________, 1999 (or such earlier date upon which the Underwriter consents to the exercise of the Warrants) until 5:00 p.m. Eastern time, on , 2003 (the "Warrant Exercise Period"). The warrant price and the number of shares of Common Stock issuable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events, all as hereinafter provided. The Warrants shall be executed on behalf of the Company by the manual or facsimile signature of the present or any future President or Vice President of the Company, attested to by the manual or facsimile signature of the present or any future Secretary or Assistant Secretary of the Company. Warrants shall be dated as of the issuance by the Warrant Agent either upon initial issuance or upon transfer or exchange. In the event the aforesaid expiration date of the Warrants falls on a Saturday or Sunday, or on a legal holiday on which the New York Stock Exchange is closed, then the Warrants shall expire at 5:00 p.m. Eastern time on the next succeeding business day. -4- Section 3. Countersignature and Registration. The Warrant Agent shall maintain books for the transfer and registration of the Warrants. Upon the initial issuance of the Warrants, the Warrant Agent shall issue and register the Warrants in the names of the respective holders thereof. The Warrants shall be countersigned manually or by facsimile by the Warrant Agent (or by any successor to the Warrant Agent then acting as warrant agent under this Agreement) and shall not be valid for any purpose unless so countersigned. Warrants may, however, be so countersigned by the Warrant Agent (or by its successor as Warrant Agent) and be delivered by the Warrant Agent, notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature or delivery. Section 4. Transfers and Exchanges. The Warrant Agent shall transfer, from time to time, any outstanding Warrants upon the books to be maintained by the Warrant Agent for that purpose, upon surrender thereof for transfer properly endorsed or accompanied by appropriate instructions for transfer. Upon any such transfer, a new Warrant shall be issued to the transferee and the surrendered Warrant shall be cancelled by the Warrant Agent. Warrants so cancelled shall be delivered by the Warrant Agent to the Company from time to time upon request. Warrants may be exchanged at the option of the holder thereof, when surrendered at the office of the Warrant Agent, for another Warrant, or other Warrants of different -5- denominations of like tenor and representing in the aggregate the right to purchase a like number of shares of Common Stock. Section 5. Exercise of Warrants; Payment of Warrant Solicitation Fee. (a) Subject to the provisions of this Agreement, each registered holder of Warrants shall have the right, which may be exercised commencing at the opening of business on the first day of the Warrant Exercise Period, to purchase from the Company (and the Company shall issue and sell to such registered holder of Warrants) the number of fully paid and non-assessable shares of Common Stock specified in such Warrants upon surrender of such Warrants to the Company at the office of the Warrant Agent, with the form of election to purchase on the reverse thereof duly filled in and signed, and upon payment to the Company of the warrant price, determined in accordance with the provisions of Sections 9 and 10 of this Agreement, for the number of shares of Common Stock in respect of which such Warrants are then exercised. Payment of such warrant price shall be made in cash or by certified check or bank draft to the order of the Company. Subject to Section 6, upon such surrender of Warrants and payment of the warrant price, the Company shall issue and cause to be delivered with all reasonable dispatch to or upon the written order of the registered holder of such Warrants and in such name or names as such registered holder may designate, a certificate or certificates for the number of full shares of Common Stock so purchased upon the exercise of such Warrants. Such certificate -6- or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such shares of Common Stock as of the date of the surrender of such Warrants and payment of the warrant price as aforesaid. The rights of purchase represented by the Warrants shall be exercisable, at the election of the registered holders thereof, either as an entirety or from time to time for a portion of the shares specified therein and, in the event that any Warrant is exercised in respect of less than all of the shares of Common Stock specified therein at any time prior to the date of expiration of the Warrants, a new Warrant or Warrants will be issued to the registered holder for the remaining number of shares of Common Stock specified in the Warrant so surrendered, and the Warrant Agent is hereby irrevocably authorized to countersign and to deliver the required new Warrants pursuant to the provisions of this Section and of Section 3 of this Agreement and the Company, whenever requested by the Warrant Agent, will supply the Warrant Agent with Warrants duly executed on behalf of the Company for such purpose. Anything in the foregoing to the contrary notwithstanding, no Warrant will be exercisable unless at the time of exercise the Company has filed with the Securities and Exchange Commission a registration statement under the Securities Act of 1933, as amended (the "Act"), covering the shares of Common Stock issuable upon exercise of such Warrant and such shares have been so registered or qualified or deemed to be exempt under the securities laws of the state of residence -7- of the holder of such Warrant. The Company shall use its best efforts to have all shares so registered or qualified on or before the date on which the Warrants become exercisable. (b) If at the time of exercise of any Warrant after ___________, 1999 (i) the per share market price of the Company's Common Stock is equal to or greater than the then exercise price of the Warrant, (ii) the exercise of the Warrant is solicited by the Underwriter at such time while the Underwriter is a member of the National Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not held in a discretionary account, (iv) disclosure of the compensation arrangement is made in documents provided to the holders of the Warrants; and (v) the solicitation of the exercise of the Warrant is not in violation of Regulation M (as such regulation or any successor regulation may be in effect as of such time of exercise) promulgated under the Securities Exchange Act of 1934, then the Underwriter shall be entitled to receive from the Company upon exercise of each of the Warrant(s) so exercised a fee of five percent (5%) of the aggregate price of the Warrants so exercised (the "Exercise Fee"). The procedures for payment of the warrant solicitation fee are set forth in Section 5(c) below. (c) (1) Within five (5) days of the last day of each month commencing with ______________, 1999, the Warrant Agent will promptly notify the Underwriter of each Warrant Certificate which has been properly completed for exercise by holders of Warrants during the last month. The -8- Company and Warrant Agent shall determine, in their sole and absolute discretion, whether a Warrant Certificate has been properly completed. The Warrant Agent will provide the Underwriter with such information, in connection with the exercise of each Warrant, as the Underwriter shall reasonably request. (2) The Company hereby authorizes and instructs the Warrant Agent to deliver to the Underwriter the Exercise Fee promptly after receipt by the Warrant Agent from the Company of a check payable to the order of the Underwriter in the amount of the Exercise Fee. In the event that an Exercise Fee is paid to the Underwriter with respect to a Warrant which the Company or the Warrant Agent determines is not properly completed for exercise or in respect of which the Underwriter is not entitled to an Exercise Fee, the Underwriter will promptly return such Exercise Fee to the Warrant Agent which shall forthwith return such fee to the Company. The Underwriter and the Company may at any time, after _________________, 1999, and during business hours, examine the records of the Warrant Agent, including its ledger of original Warrant certificates returned to the Warrant Agent upon exercise of Warrants. Notwithstanding any provision to the contrary, the provisions of paragraphs 5(b) and 5(c) may not be modified, amended or deleted without the prior written consent of the Underwriter. Section 6. Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance -9- of Common Stock issuable upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of any certificates of shares of Common Stock in a name other than that of the registered holder of Warrants in respect of which such shares are issued, and in such case neither the Company nor the Warrant Agent shall be required to issue or deliver any certificate for shares of Common Stock or any Warrant until the person requesting the same has paid to the Company the amount of such tax or has established to the Company's satisfaction that such tax has been paid or that such person has an exemption from the payment of such tax. Section 7. Mutilated or Missing Warrants. In case any of the Warrants shall be mutilated, lost, stolen or destroyed, the Company may, in its discretion, issue and the Warrant Agent shall countersign and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant, or in lieu of and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and representing an equivalent right or interest, but only upon receipt of evidence satisfactory to the Company and the Warrant Agent of such loss, theft or destruction and, in case of a lost, stolen or destroyed Warrant, indemnity, if requested, also satisfactory to them. Applicants for such substitute Warrants shall also comply with such other reasonable regulations and pay such reasonable charges as the Company or the Warrant Agent may prescribe. -10- Section 8. Reservation of Common Stock. There have been reserved, and the Company shall at all times keep reserved, out of the authorized and unissued shares of Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the Warrants, and the transfer agent for the shares of Common Stock and every subsequent transfer agent for any shares of the Company's Common Stock issuable upon the exercise of any of the rights of purchase aforesaid are irrevocably authorized and directed at all times to reserve such number of authorized and unissued shares of Common Stock as shall be required for such purpose. The Company agrees that all shares of Common Stock issued upon exercise of the Warrants shall be, at the time of delivery of the certificates of such shares, validly issued and outstanding, fully paid and nonassessable and listed on any national securities exchange upon which the other shares of Common Stock are then listed. So long as any unexpired Warrants remain outstanding, the Company will file such post-effective amendments to the registration statement (Form SB-2, Registration No. 333-_______) (the "Registration Statement") filed pursuant to the Act with respect to the Warrants (or other appropriate registration statements or post-effective amendment or supplements) as may be necessary to permit it to deliver to each person exercising a Warrant, a prospectus meeting the requirements of Section 10(a)(3) of the Act and otherwise complying therewith, and will deliver such a prospectus to each such person. To the extent that during any period it is not -11- reasonably likely that the Warrants will be exercised, due to market price or otherwise, the Company need not file such a post-effective amendment during such period. The Company will keep a copy of this Agreement on file with the transfer agent for the shares of Common Stock and with every subsequent transfer agent for any shares of the Company's Common Stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is irrevocably authorized to requisition from time to time from such transfer agent stock certificates required to honor outstanding Warrants. The Company will supply such transfer agent with duly executed stock certificates for that purpose. All Warrants surrendered in the exercise of the rights thereby evidenced shall be cancelled by the Warrant Agent and shall thereafter be delivered to the Company, and such cancelled Warrants shall constitute sufficient evidence of the number of shares of Common Stock which have been issued upon the exercise of such Warrants. Promptly after the date of expiration of the Warrants, the Warrant Agent shall certify to the Company the total aggregate amount of Warrants then outstanding, and thereafter no shares of Common Stock shall be subject to reservation in respect of such Warrants which shall have expired. Section 9. Warrant Price; Adjustments. (a) The warrant price at which Common Stock shall be purchasable upon the exercise of the Warrants shall be $6.00 per share or after adjustment, as provided in this -12- Section, shall be such price as so adjusted (the "Warrant Price"). (b) The Warrant Price shall be subject to adjustment from time to time as follows: (i) In case the Company shall at any time after the date hereof pay a dividend in shares of Common Stock or make a distribution in shares of Common Stock, then upon such dividend or distribution the Warrant Price in effect immediately prior to such dividend or distribution shall forthwith be reduced to a price determined by dividing: (A) an amount equal to the total number of shares of Common Stock outstanding immediately prior to such dividend or distribution multiplied by the Warrant Price in effect immediately prior to such dividend or distribution, by (B) the total number of shares of Common Stock outstanding immediately after such dividend or distribution. For the purposes of any computation to be made in accordance with the provisions of this Section 9(b)(i), the following provisions shall be applicable: Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the date following the date fixed for the determination of stockholders entitled to receive such dividend or other distribution. (ii) In case the Company shall at any time subdivide or combine the outstanding Common Stock, the Warrant -13- Price shall forthwith be proportionately decreased in the case of subdivision or increased in the case of combination to the nearest one cent. Any such adjustment shall become effective at the time such subdivision or combination shall become effective. (iii) Within a reasonable time after the close of each quarterly fiscal period of the Company during which the Warrant Price has been adjusted as herein provided, the Company shall (A) file with the Warrant Agent a certificate signed by the President or Vice President of the Company and by the Treasurer or Assistant Treasurer or the Secretary or an Assistant Secretary of the Company, showing in detail the facts requiring all such adjustments occurring during such period and the Warrant Price after each such adjustment; and (B) the Warrant Agent shall have no duty with respect to any such certificate filed with it except to keep the same on file and available for inspection by holders of Warrants during reasonable business hours, and the Warrant Agent may conclusively rely upon the latest certificate furnished to it hereunder. The Warrant Agent shall not at any time be under any duty or responsibility to any holder of a Warrant to determine whether any facts exist which may require any adjustment of the Warrant Price, or with respect to the nature or extent of any adjustment of the Warrant Price when made, or with respect to the method employed in making any such adjustment, or with respect to the nature or extent of the -14- property or securities deliverable hereunder. In the absence of a certificate having been furnished, the Warrant Agent may conclusively rely upon the provisions of the Warrants with respect to the Common Stock deliverable upon the exercise of the Warrants and the applicable Warrant Price thereof. (iv) Notwithstanding anything contained herein to the contrary, no adjustment of the Warrant Price shall be made if the amount of such adjustment shall be less than $.05, but in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall amount to not less than $.05. (v) In the event that the number of outstanding shares of Common Stock is increased by a stock dividend payable in Common Stock or by a subdivision of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to Subsection (b) of this Section by reason of such dividend or subdivision, the number of shares of Common Stock issuable upon the exercise of each Warrant shall be increased in proportion to such increase in outstanding shares. In the event that the number of shares of Common Stock outstanding is decreased by a combination of the outstanding Common Stock, then, from and after the time at which the adjusted Warrant Price becomes effective pursuant to this Section 9(b) of this Section by reason of such combination, the number of shares of Common Stock issuable upon the exercise of -15- each Warrant shall be decreased in proportion to such decrease in the outstanding shares of Common Stock. (vi) In case of any reorganization or reclassification of the outstanding Common Stock (other than a change in par value, or from par value to no par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification of the outstanding Common Stock), or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, the holder of each Warrant then outstanding shall thereafter have the right to purchase the kind and amount of shares of Common Stock and other securities and property receivable upon such reorganization, reclassification, consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock which the holder of such Warrant shall then be entitled to purchase; such adjustments shall apply with respect to all such changes occurring between the date of this Warrant Agreement and the date of exercise of such Warrant. (vii) Subject to the provisions of this Section 9, in case the Company shall, at any time prior to the exercise of the Warrants, make any distribution of its assets to holders of its Common Stock as a liquidating or a partial liquidating dividend, then the holder of Warrants who exercises its Warrants -16- after the record date for the determination of those holders of Common Stock entitled to such distribution of assets as a liquidating or partial liquidating dividend shall be entitled to receive for the Warrant Price per Warrant, in addition to each share of Common Stock, the amount of such distribution (or, at the option of the Company, a sum equal to the value of any such assets at the time of such distribution as determined by the Board of Directors of the Company in good faith), which would have been payable to such holder had he been the holder of record of the Common Stock receivable upon exercise of its Warrant on the record date for the determination of those entitled to such distribution. (viii) In case of the dissolution, liquidation or winding up of the Company, all rights under the Warrants shall terminate on a date fixed by the Company, such date to be no earlier than ten (10) days prior to the effectiveness of such dissolution, liquidation or winding up and not later than five (5) days prior to such effectiveness. Notice of such termination of purchase rights shall be given to the last registered holder of the Warrants, as the same shall appear on the books of the Company maintained by the Warrant Agent, by registered mail at least thirty (30) days prior to such termination date. (ix) In case the Company shall, at any time prior to the expiration of the Warrants and prior to the exercise thereof, offer to the holders of its Common Stock any rights to subscribe for additional shares of any class of the -17- Company, then the Company shall give written notice thereof to the last registered holder thereof not less than thirty (30) days prior to the date on which the books of the Company are closed or a record date is fixed for the determination of the stockholders entitled to such subscription rights. Such notice shall specify the date as to which the books shall be closed or record date fixed with respect to such offer of subscription and the right of the holder thereof to participate in such offer of subscription shall terminate if the Warrant shall not be exercised on or before the date of such closing of the books or such record date. (x) Any adjustment pursuant to the aforesaid provisions of this Section 9(b) shall be made on the basis of the number of shares of Common Stock which the holder thereof would have been entitled to acquire by the exercise of the Warrant immediately prior to the event giving rise to such adjustment. (xi) Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon exercise of the Warrants, Warrants previously or thereafter issued may continue to express the same price and number and kind of shares as are stated in the similar Warrants initially issuable pursuant to this Warrant Agreement. (xii) The Company may retain a firm of independent public accountants (who may be any such firm regularly employed by the Company) to make any computation required under this Section 9, and any certificate setting forth -18- such computation signed by such firm shall be conclusive evidence of the correctness of any computation made under this Section 9. (xiii) If at any time, as a result of an adjustment made pursuant to Section 9(b)(vi) above, the holders of a Warrant or Warrants shall become entitled to purchase any securities other than shares of Common Stock, thereafter the number of such securities so purchasable upon exercise of each Warrant and the Warrant Price for such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Common Stock contained in Section 9(b)(ii) through (v). Section 10. Fractional Interest. The Warrants may only be exercised to purchase full shares of Common Stock and the Company shall not be required to issue fractions of shares of Common Stock on the exercise of Warrants. However, if a Warrant holder exercises all Warrants then owned of record by it and such exercise would result in the issuance of a fractional share, the Company will pay to such Warrant holder, in lieu of the issuance of any fractional share otherwise issuable, an amount of cash based on the market value of the Common Stock of the Company on the last trading day prior to the exercise date. Section 11. Notices to Warrantholders. (a) Upon any adjustment of the Warrant Price and the number of shares of Common Stock issuable upon exercise of a Warrant, then and in each such case the Company shall give written notice thereof to the Warrant Agent, which notice shall -19- state the Warrant Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of a Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. The Company shall also mail such notice to the holders of the Warrants at their addresses appearing in the Warrant register. Failure to give or mail such notice, or any defect therein, shall not affect the validity of the adjustments. (b) In case at any time: (i) the Company shall pay dividends payable in stock upon its Common Stock or make any distribution (other than regular cash dividends) to the holders of its Common Stock; or (ii) the Company shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; or (iii) there shall be any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of the Company with, or sale or substantially all of its assets to, another corporation; or (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Company; then in any one or more of such cases, the Company shall give written notice in the manner set forth in Section 11(a) of the date on which (A) a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, -20- reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up as the case may be. Such notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date in respect thereof. Failure to give such notice, or any defect therein, shall not affect the legality or validity of any of the matters set forth in this Section 11(b). (C) The Company shall cause copies of all financial statements and reports, proxy statements and other documents that are sent to its stockholders to be sent by first-class mail, postage prepaid, on the date of mailing to such stockholders, to each registered holder of Warrants at his address appearing in the warrant register as of the record date for the determination of the stockholders entitled to such documents. Section 12. Disposition of Proceeds on Exercise of Warrants. (i) The Warrant Agent shall promptly forward to the Company all monies received by the Warrant Agent for the purchase of shares of Common Stock through the exercise of such -21- Warrants; provided, however, that the Warrant Agent may retain an amount equal to the Exercise Fee, if any, until the Company has satisfied its obligations under Section 5(c)(ii). (ii) The Warrant Agent shall keep copies of this Agreement available for inspection by holders of Warrants during normal business hours. Section 13. Redemption of Warrants. The Warrants are redeemable by the Company, in whole or in part, on not less than thirty (30) days' prior written notice at a redemption price of $.10 per Warrant at any time commencing _____________, 1999; provided that (i) the closing bid quotation price of the Common Stock on all twenty (20) trading days ending on the third trading day prior to the day on which the Company gives notice (the "Call Date") of redemption has been at least 150% of the then effective exercise price of the Warrants (the "Target Redemption Price") and the Company obtains the written consent of the Underwriter to such redemption prior to the Call Date and (ii) the Warrants are currently exercisable. The redemption notice shall be mailed to the holders of the Warrants at their addresses appearing in the Warrant register. Holders of the Warrants will have exercise rights until the close of business on the date fixed for redemption. Section 14. Merger or Consolidation or Change of Name of Warrant Agent. Any corporation or company which may succeed to the corporate trust business of the Warrant Agent by any merger or consolidation or otherwise shall be the successor to the Warrant Agent hereunder without the execution or filing of -22- any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible to serve as a successor Warrant Agent under the provisions of Section 16 of this Agreement. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrants shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrants so countersigned. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrants shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignature under its prior name and deliver Warrants so countersigned. In all such cases such Warrants shall have the full force provided in the Warrants and in the Agreement. Section 15. Duties of Warrant Agent. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Warrants, by their acceptance thereof, shall be bound: (a) The statements of fact and recitals contained herein and in the Warrants shall be taken as statements of the Company, and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or action taken or to be taken by it. The Warrant Agent assumes no responsibility with -23- respect to the distribution of the Warrants except as herein expressly provided. (b) The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants in this Agreement or in the Warrants to be complied with by the Company. (c) The Warrant Agent may consult at any time with counsel satisfactory to it (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. (d) The Warrant Agent shall incur no liability or responsibility to the Company or to any holder of any Warrant for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate or other instrument believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (e) The Company agrees to pay to the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the execution of this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges incurred by the Warrant Agent in the execution of this Agreement and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and reasonable counsel fees, for anything done -24- or omitted by the Warrant Agent in the execution of this Agreement except as a result of the Warrant Agent's negligence, willful misconduct or bad faith. (f) The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expenses unless the Company or one or more registered holders of Warrants shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceeding, and any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the registered holders of the Warrants, as their respective rights and interests may appear. (g) The Warrant Agent and any stockholder, director, officer, partner or employee of the Warrant Agent may buy, sell or deal in any of the Warrants or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to or otherwise act as fully and freely as though it were not the Warrant Agent under this Agreement. Nothing herein -25- shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. (h) The Warrant Agent shall act hereunder solely as agent and its duties shall be determined solely by the provisions hereof. (i) The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys, agents or employees, and the Warrant Agent shall not be answerable or accountable for any such attorneys, agents or employees or for any loss to the Company resulting from such neglect or misconduct, provided reasonable care had been exercised in the selection and continued employment thereof. (j) Any request, direction, election, order or demand of the Company shall be sufficiently evidenced by an instrument signed in the name of the Company by its President or a Vice President or its Secretary or an Assistant Secretary or its Treasurer or an Assistant Treasurer (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Warrant Agent by a copy thereof certified by the Secretary or an Assistant Secretary of the Company. Section 16. Change of Warrant Agent. The Warrant Agent may resign and be discharged from its duties under this Agreement by giving to the Company notice in writing, and to the holders of the Warrants notice by mailing such notice to the holders at their addresses appearing on the Warrant register, of -26- such resignation, specifying a date when such resignation shall take effect. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company and the like mailing of notice to the holders of the Warrants. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or after the Company has received such notice from a registered holder of a Warrant (who shall, with such notice, submit his Warrant for inspection by the Company), then the registered holder of any Warrant may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Any successor Warrant Agent, whether appointed by the Company or by such a court, shall be a bank or trust company, in good standing, incorporated under New York or federal law. After appointment, the successor Warrant Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed and the former Warrant Agent shall deliver and transfer to the successor Warrant Agent all cancelled Warrants, records and property at the time held by it hereunder, and execute and deliver any further assurance or conveyance necessary for the purpose. Failure to file or mail any notice provided for in this Section, however, or any defect therein, -27- shall not affect the validity of the resignation or removal of the Warrant Agent or the appointment of the successor Warrant Agent, as the case may be. Section 17. Identity of Transfer Agent. Forthwith upon the appointment of any transfer agent for the shares of Common Stock or of any subsequent transfer agent for the shares of Common Stock or other shares of the Company's Common Stock issuable upon the exercise of the rights of purchase represented by the Warrants, the Company will file with the Warrant Agent a statement setting forth the name and address of such transfer agent. Section 18. Notices. Any notice pursuant to this Agreement to be given by the Warrant Agent, or by the registered holder of any Warrant to the Company, shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until another is filed in writing by the Company with the Warrant Agent) as follows: TAM Restaurants, Inc. 1163 Forest Avenue Staten Island, New York 10310 Attention: Frank Cretella Chief Executive Officer and a copy thereof to: Tenzer Greenblatt LLP 405 Lexington Avenue New York, New York 10174 Attention: Robert J. Mittman, Esq. Any notice pursuant to this Agreement to be given by the Company or by the registered holder of any Warrant to the -28- Warrant Agent shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing by the Warrant Agent with the Company) as follows: Continental Stock Transfer & Trust Company 2 Broadway New York, New York 10004 Attention: Steve Nelson Any notice pursuant to this Agreement to be given by the Warrant Agent or by the Company to the Underwriter shall be sufficiently given if sent by first-class mail, postage prepaid, addressed (until another address if filed in writing with the Warrant agent) as follows: Paragon Capital Corporation 7 Hanover Square New York, New York 10004 Attention: George B. Levine, Chairman and a copy thereof to: Akerman, Senterfitt & Eidson One Southeast 3rd Avenue Miami, Florida 33131-1704 Attention: Alan H. Aronson, Esq. Section 19. Supplements and Amendments. The Company and the Warrant Agent may from time to time supplement or amend this Agreement in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not be inconsistent with -29- the provisions of the Warrants and which shall not adversely affect the interest of the holders of Warrants. Section 20. New York Contract. This Agreement and each Warrant issued hereunder shall be deemed to be a contract made under the laws of the State of New York and shall be construed in accordance with the laws of New York applicable to agreements to be performed wholly within New York. Section 21. Benefits of this Agreement. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrant Agent and the registered holders of the Warrants any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the registered holders of the Warrants. Section 22. Successors. All the covenants and provisions of this Agreement by or for the benefit of the Company, the Warrant Agent or the Underwriter shall bind and inure to the benefit of their respective successors and assigns hereunder. -30- IN WITNESS WHEREOF, the parties have entered into this Agreement on the date first above written. TAM RESTAURANTS, INC. By: ------------------------------------- Name: Title: [ ] By: ------------------------------------- Name: Title: PARAGON CAPITAL CORPORATION By: ------------------------------------- Name: Title: EX-10.1 5 EXHIBIT 10.1 [Logo] City of New York The Arsenal Parks of Recreation Central Park New York, New York 10021 Henry J. Stern Commissioner LICENSE AGREEMENT between TAM Concessions, Inc. and CITY OF NEW YORK DEPARTMENT OF PARKS AND RECREATION Contract No. 025-M TABLE OF CONTENTS ARTICLE PAGE - ------- ---- I Grant of License 2 II Term of License 3 III Commissioner's Representation 4 IV Payments 4 V Operations 6 VI Improvements 7 EXHIBITS - -------- A General Provisions B Floor Plan C Floor Plan - Patio D Licensed Premises E Schedule of Equipment F Stipulation -i- AGREEMENT made this 8th day of February, 1985 between The City of New York ("City") acting by and through Henry J. Stern, Commissioner of the Department of Parks and Recreation ("Commissioner" and "Department" respectively) whose address is The Arsenal, Central Park, New York, New York 10021 and TAM Concessions, Inc. ("Licensee"), a domestic corporation organized under the laws of the State of New York with principal offices at 1163 Forest Avenue, Staten Island, New York 10310. W I T N E S S E T H : WHEREAS, the Department, pursuant to law, has jurisdiction over the parks of the City and desires to provide boat rental, bicycle rental and refreshment facilities at the Loeb Memorial Boathouse in Central Park for the accommodation and convenience of the public; and WHEREAS, the Department received Concessions Review Committee approval to award the refreshment and boat and bicycle rental concessions at the Loeb Memorial Boathouse to TAM Concessions, Inc. on November 4, 1983; and WHEREAS, The Department and Licensee entered into a Temporary Permit agreement, dated January 9, 1984, authorizing Licensee's temporary operation of the above mentioned concessions pending execution of a formal license agreement authorizing Licensee's continued operation of said concessions as well as renovation of the Loeb Memorial Boathouse; and WHEREAS, the Department and Licensee have concluded negotiations of a formal license agreement and deem it expedient to cancel said Temporary Permit and enter into a formal license agreement; and WHEREAS, the Department shall hereby terminate and Licensee shall hereby surrender said Temporary Permit upon execution of this license agreement by both parties hereto; NOW THEREFORE, in consideration of the premises and mutual covenants contained herein, the parties hereto agree as follows: ARTICLE 1 GRANT OF LICENSE 1. The above mentioned Temporary Permit is hereby cancelled and annulled effective upon execution of this License Agreement ("License") by both parties hereto; and Commissioner hereby grants to Licensee and Licensee hereby accepts from Commissioner a License to: (a) operate the food, bicycle and boat rental concessions at the Loeb Memorial Boathouse ("Licensed Premises," as more particularly described in Article I(i) of General Provisions attached hereto as Exhibit A and made a part hereof) located at 72nd Street in Central Park, New York, pursuant to the terms and conditions herein. Additionally, Licensee shall have the right to serve alcoholic beverages at the Licensed Premises upon securing a liquor license for such purpose; however, no alcoholic beverages (with the exception of wine and beer) may be sold before 5:00 p.m. at the Licensed Premises without the prior written approval of the Commissioner. -2- (b) undertake renovation of the Boathouse and adjacent property, pursuant to the terms and conditions herein and as set forth in Article 6 and in accordance with the plans submitted to and approved by the New York City Landmarks Commission in April, 1982 and subsequent amendments submitted to and approved by the City Landmarks Commission on March 19, 1984 and June 29, 1984. (c) sell Park related merchandise and utilize the facility as an informal information center for park visitors, subject to the Department's approval. 2. Licensee shall purchase boats approved by the Department. Additional boats shall be purchased by Licensee as necessary, subject to the Department's approval. 3. Licensee's failure to operate the concessions in accordance with the terms and conditions of this License shall be a material breach of this License and shall result in its immediate termination. ARTICLE 2 TERM OF LICENSE The Term of this License shall commence upon completion of improvements as provided in Article 6 herein or June 30, 1985 whichever occurs sooner. This License is terminable at will by Commissioner upon ten (10) days written notice to Licensee or as otherwise provided herein. Said termination shall be neither arbitrary nor capricious. In the event such notice is not given, the Term shall continue for a period of fifteen (15) years from commencement thereof. -3- The Commissioner, the City and its employees shall not be liable for damages to Licensee in the event that this License is revoked or terminated by Commissioner. ARTICLE 3 COMMISSIONER'S REPRESENTATION Commissioner represents, to the best of his knowledge, that as of the date hereof, no plans now exist for the use of Licensed Premises other than its continued use as a concession as described in Article 1. ARTICLE 4 PAYMENTS (a) Licensee shall pay to City an annual fee for each of the fifteen (15) years of operation authorized under this License according to the following payment schedule, the greater of:
75% OF SALE OF BICYCLE & PREVIOUS FOOD AND BOAT ANNUAL YEAR'S MERCHANDISE RENTALS MINIMUM GROSS % OF GROSS % OF GROSS TERM FEE or RECEIPTS or RECEIPTS plus RECEIPTS - ---- --- -------- -------- -------- Year 1 $40,000 8% 10% 2 $45,000 8% 10% 3 $50,000 9% 11% 4 $55,000 9% 11% 5 $60,000 10% 12% 6 $65,000 10% 12% 7 $70,000 11% 13% 8 $75,000 11% 13% 9 $75,000 11% 14% 10 $75,000 12% 14% 11 $80,000 12% 15% 12 $80,000 12% 15% 13 $85,000 13% 16% 14 $90,000 13% 16% 15 $90,000 13% 17%
-4- (b) Gross Receipts is defined in Article I(h) of Exhibit A. (c) Upon commencement of this License, as provided in Article 2 herein, Licensee shall pay one-twelfth (1/12) of the Annual Minimum Fee. Each month thereafter Licensee shall pay one/twelfth (1/12) of the Annual Minimum Fee plus any percentage of Gross Receipts due, on or before the tenth (10th) of each month. Except that when fees paid by Licensee pursuant to paragraph 4(a) herein exceed the applicable Minimum Annual Fee then thereafter Licensee shall pay only the annual percentage fee for the remainder of the operation year. (d) A 2% late payment penalty will be assessed for any fee payment not received by the Department on or prior to the payment dates specified in this License. In addition, a 2% monthly interest charge shall be applied to any unpaid balance. (e) Licensee shall deposit all receipts from operations under this License in a separate bank account maintained in the name of Licensee. No receipts generated from any other business of Licensee shall be deposited in this account, except as may be required for the operation of this License. (f) Payments by Licensee to Department shall be made to the City of New York at The Arsenal, Central Park, New York, New York 10021. Notice from Licensee or Commissioner shall be sent by certified mail, return receipt requested, or delivered to Commissioner at such address. -5- ARTICLE 5 OPERATIONS (a) A floor plan specifying the dimensions of the areas of the Licensed Premises which will be designated for use as a seated fast food dining area, fast food pick-up, terrace, cafe, ice cream and beverage area and sundries counter is attached hereto as Exhibit B and hereby made a part of this License. A floor plan specifying the dimensions of the area of the Licensed Premises which will be designated for use as a patio is attached hereto as Exhibit C and hereby made a part of this License. The cafe and patio areas shall not be expanded or altered over the Term of this License from the dimensions specified on Exhibits B&C without the prior written approval of the Commissioner. (b) Minimum Hours of Operation Fast Food Area: Spring (April 1st - May 29th) 9:00 a.m. - 6:30 p.m. 7 Days Summer (May 30th - Sept. 15th) 9:00 a.m. - 6:30 p.m. 7 Days Fall (Sept. 16th - Nov. 16th) 9:00 a.m. - 6:00 p.m. 7 Days Winter (Nov. 17th - March 31st) 9:00 a.m. - 4:30 p.m. 7 Days Cafe: Year-Round 11:30 a.m. -11:30 p.m. 6 Days Lunch 11:45 a.m. - 3:00 p.m. Dinner 7:30 p.m. -11:30 p.m. Any change in the hours of operation from those set out above shall be subject to the prior approval of Commissioner. (c) Licensee shall personally operate this License or employ a manager satisfactory to Commissioner and Licensee shall -6- replace said manager or any employee whenever demanded by Commissioner. (d) Licensee shall have sufficient personnel on duty at Licensed Premises for the proper operation of this License. (e) The locations of the bicycle rental and storage areas are subject to the Department's prior approval. (f) Licensee's staff shall wear uniforms of a design approved by the Department. (g) Both the menus and the prices listed thereon shall be subject to the prior approval of the Commissioner. (h) Rates charged by Licensee for boat and bicycle rentals shall be subject to the prior approval of the Commissioner. (i) The patio, as shown on Exhibit C,may be used by Licensee to cater parties and special events. ARTICLE 6 IMPROVEMENTS (a) Licensee agrees to spend or cause to be expended a minimum investment of Six Hundred Twenty Seven Thousand Dollars ($627,000) in value for capital repairs, improvements, renovation and modification of Licensed Premises, which construction shall be satisfactory to the Commissioner, and in accordance with the provisions of Article l(b). The improvements shall include but not be limited to, renovation of the public bathrooms and cafeteria kitchen. Licensee shall, upon the completion of Construction, furnish the Commissioner with a certified statement of the costs of Construction including a description of the -7- Construction and detailing the actual costs of such Construction. Licensee shall keep accurate books and records of account of Construction costs which shall be segregated from other accounts to permit audit by the Department or the Comptroller upon their request. (b) Licensee has obtained the approval of the New York City Landmarks Commission for all plans, designs and specifications for Construction and has submitted the plans, designs and specifications to the Commissioner for his review. On or before November 31, 1984, Licensee shall submit plans, designs and specifications to the New York City Department of Buildings, and any other municipal agency having regulatory authority over the renovation of Licensed Premises for their review and approval. Licensee shall provide Commissioner with copies of each of the above-mentioned approvals within ten (10) days of Licensee's receipt of same. (c) Licensee shall deliver to Commissioner, within ten (10) days after all approvals have been obtained, an executed surety bond in the amount of the total cost of the Construction required hereunder naming the City as obligee, to secure License's full and satisfactory performance of its obligation under this section, and having as surety thereunder a surety company approved by the City of New York and authorized to do business in the State of New York. It is expressly agreed between the parties hereto that failure to comply with this provision is a material breach of this License. -8- (d) Licensee shall provide Commissioner with evidence of its financial ability to undertake Construction as described in Section (a) of this Article prior to commencing any Construction hereunder. Such evidence shall include proof of cash on hand, a commitment for a bank loan or other loans, investment commitments evidenced by written agreements, or such other proof as is acceptable to Commissioner. Failure to comply with this provision shall constitute a material breach of this License and shall be grounds for termination in the sole discretion of Commissioner. (e) Licensee shall commence Construction upon the issuance of a Construction permit from the Department, no later than thirty (30) days after all approvals required herein have been obtained by Licensee, unless Commissioner has consented in writing to an extension of said commencement date. Licensee shall notify Commissioner of the specific date on which Construction shall begin. Construction shall be deemed complete upon approval by Department. During performance and up to the date of final completion, the Licensee shall maintain fire, public liability, property damage and owner's protective liability insurance of a type and amount set forth in Articles XXXII and XXXIII of Exhibit A. (f) Licensee shall proceed with diligence to complete all Construction in an expeditious manner. All Construction shall be completed or caused to be completed by the Licensee no later than one (1) year after commencement of Construction. In the event of delays due to causes beyond the control of the Licensee, -9- the date set for completion of Construction may be extended for such reasonable period, deemed necessary by the Department, upon notice from the Licensee to the Department detailing the reasons for the delay and requesting an extension of time for completion thereof. (g) In the event that there is any conflict between this Article and Article XV of the General Provisions, then the provisions of this Article shall control. IN WITNESS THEREFORE, the parties hereto have caused this License to be signed and sealed the day and year first above written. THE CITY OF NEW YORK DEPARTMENT OF PARKS AND RECREATION By: /s/ Henry J. Stern ------------------------------ Dated: 8 February 1985 --------------------------- APPROVED AS TO FORM: /s/ Unintelligible - -------------------------- Acting Corporation Counsel Tam Concessions, Inc. By: /s/ Frank Cretella, Pres. ------------------------------ Dated: January 28, 1985 --------------------------- -10- STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) On this 8th day of February, 1985 before me personally came HENRY J. STERN, to me known to be the Commissioner of the Department of Parks and Recreation of the City of New York, and the person described in and who executed the foregoing instrument and he acknowledged that he executed the same in his official capacity and for the purpose mentioned therein. /s/ Randi Elliott ------------------------------- Notary Public STATE OF NEW YORK ) ss.: COUNTY OF NEW YORK ) On this 28th day of January, 1985 before me personally came Frank Cretella, who, being duly sworn by me did depose and say that he resides at Staten Island, NY, and that he is the President of TAM Concessions, Inc., the corporation described in and which executed the foregoing instrument and that he is authorized by the Board of Directors of said corporation to execute this License and that he knows the seal affixed to this instrument is such corporate seal, and that it was affixed by order of the Board of Directors of said corporation. /s/ Randi Elliott ------------------------------- Notary Public Exhibit A GENERAL PROVISIONS TABLE OF CONTENTS Article Page - ------- ---- I DEFINITIONS........................................................ 1 Alteration.................................................... 1 City.......................................................... 1 Commissioner.................................................. 1 Comptroller................................................... 1 Department.................................................... 1 Expendable Equipment.......................................... 1 Fixed Equipment............................................... 1 Gross Receipts................................................ 2 Licensed Premises............................................. 3 II Not A Lease........................................................ 3 III Prohibition Against Transfer....................................... 3 IV Books and Records.................................................. 4 V Right to Audit..................................................... 7 VI Security Deposit................................................... 8 VII Creditor-Debtor Proceedings........................................ 9 VIII Use of Equipment................................................... 10 IX City's Title....................................................... 10 X Licensee's Acquisition of Fixed Equipment.......................... 11 XI Expendable Equipment............................................... 12 XII Obligation to Acquire.............................................. 12 XIII Maintenance of Equipment and Condition Upon Surrender.......................................................... 12 XIV Surrender of Licensed Premises..................................... 13 XV Maintenance of Licensed Premises................................... 13 XVI Alterations........................................................ 13 XVII Improvement of Correction in Operations............................ 15 XVIII Merchandise and Prices............................................. 15 XIX Advertising........................................................ 16 XX Utilities.......................................................... 16 XXI Public Telephone Service........................................... 16 XXII Inflammables....................................................... 17 XXIII Sanitation......................................................... 17 XXIV Access............................................................. 17 XXV Compliance With Laws............................................... 18 XXVI Non-Discrimination................................................. 18 XXVII No Waiver of Rights................................................ 19 XXVIII Assumption of Risk................................................. 19 XXIX Indemnification.................................................... 19 XXX Waiver of Compensation............................................. 21 XXXI Workers' Compensation and Public Liability Insurance.......................................................... 22 XXXII Fire Insurance..................................................... 24 XXXIII Termination........................................................ 25 XXXIV Investigations..................................................... 26 XXXV Waiver of Trial by Jury............................................ 31 XXXVI Choice of Law, Consent to Jurisdiction and Venue................... 31 XXXVII Payments and Notices............................................... 33 XXXVIII Late Charges....................................................... 33 XXXIX Entire Agreement................................................... 34 XL Modification of Agreement.......................................... 34 XLI Paragraph and Other References..................................... 34 XLII Severability: Invalidity of Particular Provisions.................. 35 -ii- GENERAL PROVISIONS ARTICLE I DEFINITIONS As used throughout this License, the following terms shall have the meaning set forth below: (a) "Alteration" shall mean (excepting ordinary repair and maintenance) (1) any restoration, rehabilitation, modification, addition or improvement to Licensed Premises; or (2) any work affecting the plumbing, heating, electrical, water, mechanical, ventilating or other systems of Licensed Premises. (b) "City" shall mean the City of New York, its departments and political subdivisions. (c) "Commissioner" shall mean the Commissioner of the New York City Department of Parks and Recreation or his designee. (d) "Comptroller" shall mean the Comptroller of the City of New York. (e) "Department" shall mean the New York City Department of Parks and Recreation. (f) "Expendable Equipment" shall mean all equipment, other than Fixed Equipment, provided by Licensee. (g) "Fixed Equipment" shall mean any property affixed in any way to Licensed Premises, whether or not removal of said equipment would damage Licensed Premises. (i) "Additional Fixed Equipment" shall mean Fixed Equipment affixed to Licensed Premises subsequent to the date of execution of this License. (ii) "Fixed and Additional Fixed Equipment" shall refer to Fixed Equipment and Additional Fixed Equipment jointly and severally. (h) "Gross Receipts" shall include all sums received by Licensee without deductions of any kind, from the sale of food, wares, merchandise or services of any kind, resulting directly or indirectly from the operation of this License, provided that gross receipts shall exclude the amount of any federal, state or city sales taxes, excise taxes, cigarette or tobacco taxes or other similar taxes which may now or hereafter be imposed upon or be required to be paid by Licensee as against its sales. Gross receipts shall include any orders directly or indirectly taken at Licensed Premises, although delivery of the merchandise order may be from without said premises, and shall include all receipts for services rendered or orders taken at Licensed Premises, for services to be rendered outside thereof. All sales made or services rendered directly or indirectly from Licensed Premises shall be construed as made and completed therein even though payment of the amount may be made at some other place, and although delivery of merchandise sold or services rendered directly or indirectly upon Licensed Premises may be made other than at said premises. Gross receipts shall also include all sales made by any other operator or operators using the Licensed Premises. In the event that the use of vending machines on said premises for the sale of cigarettes, food, drink and other items is approved by the Department, sales from such vending machines shall be included in gross receipts. Gross receipts shall include sales -2- made for cash or credit (credit sales shall be included in gross receipts as of the date of the sale) regardless of whether the sales are paid or uncollected, it being the distinct intention and agreement of the parties that all sums received by Licensee from all sources from the operation of this License shall be included in gross receipts. (i) "Licensed Premises" shall mean the parcel of land described in Exhibit D, attached hereto and made a part hereof. ARTICLE II NOT A LEASE It is expressly understood that no land, building, space, improvement, or equipment is leased to Licensee, but that during the term of License, Licensee shall have the use of the Licensed Premises for the purpose herein provided and except as herein provided, Licensee has the right to occupy the premises assigned to it and to operate the Licensed Premises, and to continue in possession thereof only so long as each and every term and condition in this License is strictly and properly complied with and so long as this License is not terminated by Commissioner. ARTICLE III PROHIBITION AGAINST TRANSFER Licensee shall not sell, transfer, assign, sublicense or encumber in any way the License hereby granted or any equipment furnished as provided herein, or any interest therein, or consent, allow or permit any other person or party to use any part of the Licensed Premises, building, space or facilities -3- covered by this License, nor shall this License be transferred by operation of law, unless approved in advance in writing by Commissioner, it being the purpose and spirit of this agreement to grant this License and privilege solely to Licensee herein named. ARTICLE IV BOOKS AND RECORDS (a) Licensee, during the term of this License and any renewal thereof, shall maintain adequate systems of internal control and shall keep complete and accurate records, books of account and data, including daily sales and receipts records, which shall show in detail the total business transacted by Licensee and the Gross Receipts therefrom. Such books and records maintained pursuant to this License shall be conveniently segregated from other business matters of Licensee and shall include, but not be limited to: all federal, state and local tax returns and schedules of the Licensee, records of daily bank deposits of the entire receipts from transactions in, at, on or from the Licensed Premises, sales slips, daily dated cash register receipts, sales books; duplicate bank deposit slips and bank statements. (b) All transactions shall be registered and recorded on accurate cash registers, totaling or computing machines or on other income-recording devices which shall register each transaction sequentially and contain locked-in cumulative tapes with cumulative capacity satisfactory to the Department or Comptroller. All such machines and devices shall be approved -4- prior to the commencement of this License by the Department or the Comptroller and the Licensee agrees to notify the Department of the name and serial numbers of all such machines and devices used at the Licensed Premises and of any changes or additions within five (5) days thereof. All records and data generated from or by such machines and devices, including transactions, shall be posted daily on books and records of accounts. (c) Licensee shall use such accounting and internal control methods-and procedures and keep such additional books and records as may be prescribed by the Department or the Comptroller, and the Department or the Comptroller shall have the right to examine the record-keeping procedures of the Licensee prior to the commencement of the term of this License, and at any time thereafter, in order to assure that the procedures are adequate to reveal the true, correct and entire business conducted by the Licensee. Licensee shall maintain all records, books of account and data for a minimum of six (6) years. (d) Licensee shall furnish to the Department by the 10th day of each succeeding month, monthly statements sworn to and verified by an officer of the Licensee and in such form as may be requested by the Department or the Comptroller, showing in detail the Gross Receipts of the Licensee for each day of the monthly period. Licensee shall also furnish an annual financial statement, prepared by a certified public accountant, within sixty (60) days after the anniversary date of this License and each anniversary date thereafter. All information to be furnished to the Department shall be accurate and correct in all material -5- respects and sufficient to give the Department a true and accurate picture of the business conducted by the Licensee. (e) The failure or refusal of the Licensee to furnish any of the statements required to be furnished under this section within fifteen (15) days after its due date, the failure or refusal of the Licensee to maintain adequate internal controls or to keep any of the records as required by this section or the existence of an unexplained discrepancy in the amount of fees required to be due and paid hereunder, as disclosed by audit conducted by the Department or the Comptroller, of more than five percent (5%) in any two out of three consecutive months or more than ten percent (10%) in one month, shall be presumed to be a failure to substantially comply with the terms and conditions of this License and a default hereunder, which shall entitle the Department, at its option, on five (5) days written notice, to terminate this License. In addition, the failure or refusal of Licensee to furnish the required statements, to keep the required records or to maintain adequate internal controls shall authorize the Department or the Comptroller to make reasonable projections of the amount of Gross Receipts which would have been disclosed had the required statements been furnished or the required records maintained, based upon such extrinsic factors as the auditors deem appropriate in making such projections. Licensee agrees to pay any assessment based upon such reasonable projections within fifteen (15) days after receipt thereof, and the failure to do so shall constitute an additional substantial violation of this License and a default hereunder. -6- ARTICLE V RIGHT TO AUDIT (a) The Department, the Comptroller and other duly authorized representatives of the City shall have the right, at all reasonable times during business hours, to examine or audit the records, books of accounts and data of the Licensee to verify Gross Receipts as reported by the Licensee. Licensee shall also permit the inspection by the Department, Comptroller or other duly authorized representatives of the City of any equipment used by Licensee, including, but not limited to, cash registers and recording machines, and all reports or data generated from or by the equipment. Licensee shall cooperate fully and assist the Department, the Comptroller or any other duly authorized representative of the City in any examination or audit thereof. In the event that the Licensee's books and records, including supporting documentation, are situated at a location fifty (50) miles or more from the City, the records must be brought to the City for examination and audit or Licensee must pay the food, board and travel costs incidental to two auditors conducting such examination or audit at said location. (b) Notwithstanding any other provision of this License, the failure or refusal of the Licensee to permit the Department, the Comptroller or any other duly authorized representative of the City to audit and examine the Licensee's records, books of account and data or the interference in any way by the Licensee in such an audit or examination is presumed to be a failure to substantially comply with the terms and conditions of this -7- License and a default hereunder which shall entitle the Department, at its option on five (5) days written notice, to terminate this License. ARTICLE VI SECURITY DEPOSIT (a) Licensee has deposited with City the sum of Fifteen Thousand Dollars ($15,000.00) as a security ("Security Deposit") for the full, faithful and prompt performance of and compliance with all the terms and conditions of this License. The Security Deposit shall consist of cash or a negotiable instrument payable to bearer or the City of New York which the Comptroller shall approve as being of equal market value with the sum so required. The Security Deposit shall remain with the City throughout the term of this License. (b) The Security Deposit shall be held by the City without liability for interest thereon, as security for the full and faithful; performance by the Licensee of each and every term and condition of this License on the part of the Licensee to be observed and performed. The Licensee may collect or receive annually any interest or income earned on bonds less any part thereof or amount which the City is or may hereafter be entitled or authorized by law to retain or to charge in connection therewith, whether as or in lieu of administrative expense or custodial charge, or otherwise the City shall not be obligated by this provision to place or to keep cash deposited hereunder in interest-bearing bank accounts. The Security Deposit shall not be mortgaged, assigned, transferred or encumbered by the Licensee -8- without the prior consent of the Department in each instance and any such act on the part of the Licensee shall be without force and effect and shall not be binding upon the City. (c) Use and Return of Deposit If any fees or other charges or sums payable by Licensee to the City shall be overdue and unpaid or should the City make payments on behalf of the Licensee, or should the Licensee fail to perform any of the terms of this License, then the Department may, at its option, and without prejudice to any other remedy which the City may have on account thereof, appropriate and apply the Security Deposit or as much thereof as may be necessary to compensate the City toward the payment of License fees, charges, liquidated damages or other sums due from the Licensee or towards any loss, damage or expense sustained by the City resulting from such default on the part of Licensee. In such event, the Licensee shall restore the Security Deposit to the original sum deposited within five (5) days after written demand therefor. In the event Licensee shall fully and faithfully comply with all of the terms, covenants and conditions of this License and pay all License fees and other charges and sums payable by Licensee to the City, the Security Deposit shall be returned to Licensee following the date of the surrender of the Licensed Premises by the Licensee in compliance with the provisions of this License. ARTICLE VII CREDITOR-DEBTOR PROCEEDINGS In the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or -9- against the Licensee or its successors or assigns, or the guarantor, if any, the Security Deposit shall be deemed to be applied first to the payment of License fees and/or other charges due the City for all periods prior to the institution of such proceedings and the balance, if any, of the Security Deposit may be retained by the City or in partial liquidation of the City's damages. ARTICLE VIII USE OF EQUIPMENT Licensee shall have the use of all Fixed Equipment and other equipment belonging to City found on Licensed Premises as of the commencement of this License listed on Schedule of Equipment attached hereto and incorporated herein as Exhibit E. ARTICLE IX CITY'S TITLE (a) Title to all equipment, (except Fixed Equipment, Additional Fixed Equipment, accessories thereto and other equipment belonging to City as listed on the Schedule of Equipment attached to the Stipulation dated March 1, 1983 between the City of New York and the United States of America, attached hereto and incorporated herein as Exhibit F), provided by Licensee shall remain in Licensee and such equipment shall be removed by Licensee at the expiration or sooner termination of this License. Should any property remain on the Licensed Premises after such expiration or termination, Commissioner may treat same as though abandoned and charge all costs and expenses incurred in the removal and disposal thereof to Licensee. -10- (b) The Department shall use a reasonable amount of secure space within the Licensed Premises which is sufficient for the storage of property owned by Democratic Provisions, Inc. which property is listed on an attachment to Exhibit E attached hereto, and is subject to levy by the U.S. Internal Revenue Service pursuant to the Ex Parte Order for Entry on Premises to Effect Levy, dated February 14, 1983, signed by U.S. District Court Judge, Thomas, P. Griesa, pending the sale or redemption of the property pursuant to law. (c) Licensee shall abide by the terms of Exhibit E hereto. (d) Licensee shall not dispose of or remove from Licensed Premises any of the property listed on the attachments to Exhibit E without the Department's prior approval. ARTICLE X LICENSEE'S ACQUISITION OF FIXED EQUIPMENT In order to acquire and affix Fixed and Additional Fixed Equipment to the Licensed Premises, Licensee shall: (i) notify Commissioner of Licensee's intention to affix Fixed and Additional Fixed Equipment so that Commissioner may, in his sole discretion, inspect and approve such affixing; should Commissioner fail to disapprove same within fifteen (15) days of said notice, then his approval will be deemed granted; and (ii) supply Commissioner within thirty (30) days of delivering Fixed and Additional Fixed Equipment to Licensed Premises, bills of sale or other evidence of purchase so that Commissioner may amend the -11- Department's schedule of Fixed Equipment and have complete information regarding all inventory on Licensed Premises. ARTICLE XI EXPENDABLE EQUIPMENT (a) Licensee shall supply at its own cost and expense, all Expendable Equipment required for the proper operation of this License, and to replace same, at its own cost and expense when requested by Commissioner. (b) Title to all Expendable Equipment shall remain in Licensee and such equipment shall be removed by Licensee at the termination or expiration of this License. In the event such equipment remains in the Licensed Premises following such termination or expiration, Commissioner may treat such property as abandoned and charge all costs and expenses incurred in the removal thereof to Licensee. ARTICLE XII OBLIGATION TO ACQUIRE Licensee must acquire, replace, install or affix, at its sole cost and expense, any equipment (excepting equipment listed on Exhibit D), materials and supplies required for the proper operation of Licensed Premises as described herein or as required by Commissioner. ARTICLE XIII MAINTENANCE OF EQUIPMENT AND CONDITION UPON SURRENDER Licensee shall at its sole cost and expense and to the satisfaction of Commissioner, put, keep, repair, preserve, and -12- maintain in good order, all equipment found on, placed in, installed in or affixed to Licensed Premises. Notwithstanding the aforementioned, at the expiration or sooner termination of this License, Licensee shall surrender the Fixed and Additional Fixed Equipment to which City holds title in the same condition as said equipment was found by Licensee, reasonable wear and tear excepted. ARTICLE XIV SURRENDER OF LICENSED PREMISES At the expiration or sooner termination of this License, Licensee shall surrender Licensed Premises in at least as good a condition as said premises were found by Licensee at the beginning of this License term, reasonable wear and tear excepted. ARTICLE XV MAINTENANCE OF LICENSED PREMISES (a) Licensee shall, at its sole cost and expense and to the satisfaction of Commissioner, put, keep, repair and maintain in good order Licensed Premises, including snow removal. ARTICLE XVI ALTERATIONS (a) "Alteration" shall mean (excepting ordinary repair and maintenance): (i) any restoration, rehabilitation, modification, addition or improvement to Licensed Premises; or -13- (ii) any work affecting the plumbing, heating, electrical, water, mechanical, ventilating or other systems of Licensed Premises. (b) Licensee may alter Licensed Premises only in accordance with the requirements of subsection (c) of this Article. Alterations shall become property of City upon their attachment, installation or affixing. (c) In order to alter Licensed Premises pursuant to subsection (b) of this Article, Licensee must: (i) Obtain Commissioner's prior written approval for whatever designs, plans, specifications, cost estimates, agreements and contractual understandings that may pertain to contemplated purchases and/or work; except that if Commissioner does not give Licensee written notice of his objection to such designs, plans, specifications, cost estimates, agreements, and contractual understandings within ninety (90) days of his receipt of same, then his approval will be deemed granted; and (ii) insure that work performed and alterations made on Licensed Premises are undertaken and completed 1) in accordance with submissions approved pursuant to section (i) of this Paragraph and 2) in a good and workmanlike manner; and (iii) notify Commissioner of completion of, and the making of final payment for, any alteration within ten (10) days after the occurrence of said completion of final payment. (d) Commissioner may, in his sole discretion, make repairs, alterations, decorations, additions or improvements to Licensed Premises at the City's expense, but nothing herein shall be -14- deemed to obligate or require Commissioner to make any repairs, alterations, decorations, additions, or improvements, nor shall this provision in any way affect or impair Licensee's obligations herein in any respect. ARTICLE XVII IMPROVEMENT OR CORRECTION IN OPERATIONS Should Commissioner, in his sole judgment, decide that Licensee is not operating License in a satisfactory manner, Commissioner may in writing order Licensee to improve operations or correct such conditions as Commissioner may deem unsatisfactory. In the event that Licensee fails to comply with such written notice or respond in a manner satisfactory to Commissioner within ten (10) days from the mailing of said notice, then this License shall be deemed terminated, notwithstanding any other provisions herein, as of the mailing of said notice. ARTICLE XVIII MERCHANDISE AND PRICES Licensee warrants that all merchandise or supplies sold pursuant to this License shall be pure and of good quality. Licensee shall submit to Commissioner a list or schedule of the articles to be offered for sale pursuant to this License and the prices to be charged for each article, and Licensee shall offer for sale only such articles and at such prices as have been approved by Commissioner. Such prices may be changed from time to time only with the approval of Commissioner. The schedule of prices approved by Commissioner shall be printed, framed and -15- displayed at the expense of Licensee in a place and manner designated by Commissioner. ARTICLE XIX ADVERTISING Licensee shall not employ callers, criers, or use signs or any other means of soliciting business without the approval of Commissioner, nor advertise this License in any manner or form on or about Licensed Premises, or elsewhere, or in any newspaper or otherwise, without such approval. ARTICLE XX UTILITIES Licensee shall pay for all utility charges including, but not limited to water, oil, electricity and gas, consumed within the Licensed Premises and/or for the operation of this License. Licensee shall procure all permits and licenses necessary for the operation of this License and procure, install and maintain in good working order and repair all utility meters during the term of this License. ARTICLE XXI PUBLIC TELEPHONE SERVICE Commissioner may contract directly with the telephone company for public telephone services at Licensed Premises if Commissioner deems such service necessary, and all revenue therefrom shall belong to City. -16- ARTICLE XXII INFLAMMABLES Licensee shall not use or permit the storage of any illuminating oils, oil lamps, turpentine, benzine, naphtha, or similar substances or explosives of any kind or any substances or things prohibited in the standard policies of fire insurance companies in the State of New York. ARTICLE XXIII SANITATION Licensee shall provide adequate waste receptacles adjacent to or within fifty feet (50') of Licensed Premises. Licensee shall keep at all times Licensed Premises and the surrounding area within the distance specified herein and above clean, neat, fumigated, disinfected, deodorized and in every respect sanitary. All waste material shall be collected and stored in closed containers in a manner satisfactory to Commissioner. Licensee, at its sole cost and expense, shall be responsible for the removal of all such material from the Licensed Premises. ARTICLE XXIV ACCESS Licensee shall provide at all times, free access to the Licensed Premises to the Commissioner or his representatives and to other city, state and federal officials having jurisdiction, for inspection purposes. -17- ARTICLE XXV COMPLIANCE WITH LAWS (a) Licensee shall comply at its sole cost and expense, and cause its employees and agents to comply with all rules, regulations and orders now or hereafter prescribed by Commissioner, and to comply with all laws, rules, regulations and orders of any agency or governmental entity having jurisdiction over operations of the License and the Licensed Premises and/or Licensee's use and occupation thereof. (b) Licensee shall not use or allow Licensed Premises, or any portion thereof, to be used or occupied for any unlawful purpose or in any manner violative of a certificate pertaining to occupancy or use during the License term. ARTICLE XXVI NON-DISCRIMINATION (a) Licensee shall not discriminate against any employee or applicant for employment because of race, creed, color, national origin, age, sex, handicap, marital status, sexual orientation or affectional preference with respect to all employment decisions including, but not limited to recruiting, hiring, upgrading, demoting, promoting, selecting for training (including apprenticeship), rates of pay and other forms of compensation, laying off, terminating and all other terms and conditions of employment. (b) All advertising for employment shall indicate that Licensee is an Equal Opportunity Employer. -18- ARTICLE XXVII NO WAIVER OF RIGHTS No acceptance by Commissioner of any compensation, fees, charges or other payments in whole or in part for any period or periods after a default of any terms and conditions herein shall be deemed as a waiver of any right on the part of Commissioner to terminate this License. No waiver by Commissioner of any default on the part of Licensee in performance of any of the terms and conditions herein shall be construed to be a waiver by the Commissioner of any other or subsequent default in the performance of any of the said terms and conditions. ARTICLE XXVIII ASSUMPTION OF RISK Licensee assumes all risk in the operation of this License and shall comply at its own cost with all federal, state and local laws and regulations, and all rules, regulations and orders of the Department affecting the operation of this License, in regard to all matters. ARTICLE XXIX INDEMNIFICATION (a) Licensee shall indemnify and save harmless Commissioner, his agents and City against and from all losses, liabilities, suits, obligations, fines, damages, penalties, claims, costs, charges, and expenses, of any kind whatsoever including without limitation architects' and attorneys' fees, costs and disbursements which may be imposed upon, incurred by or asserted against Commissioner, his agents and City in whole or in -19- part arising out of any violation of any law, rule, regulation or order, and from any and all claims for loss, damage or injury (including death) to persons or property of whatever kind or nature arising from the operation of this License, or from the negligence or carelessness of employees, agents, contractors, servants, sublicensees or invitees of Licensee. Licensee shall indemnify any recoveries against Commissioner, his agents and City individually and/or jointly arising from same and shall reimburse Commissioner and/or City hereunder. (b) The obligations of Licensee under this Article XXIX shall not be affected in any way by the absence in any case of covering insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under insurance policies affecting the Licensed Premises. (c) If any claim, action or proceeding is made or brought against Commissioner, his agents or City by reason of any event to which reference is made in subparagraph (a) hereof, then upon demand by Commissioner, Licensee, at its sole cost and expense, shall resist or defend such claim, action or proceeding in Commissioner's name, if necessary, by the attorneys for Licensee's insurance carrier (if such claim, action or proceeding is covered by insurance), otherwise by such attorneys as Commissioner shall approve, which approval shall not be unreasonably withheld or delayed. (d) The provisions of this Article XXIX and all other indemnity provisions of this License shall survive the expiration date with respect to any liability, suits, obligations, fines, -20- damages, penalties, claims, costs, charges or expenses arising out of or in connection with any action or failure to take action or any other matter occurring prior to the expiration date of this License. (e) Notwithstanding anything in this License to the contrary, Licensee shall have no liability for any losses, damages or claims which arise out of any act, omission or negligence of the City or its officers, agents, employees, independent contractors or otherwise. ARTICLE XXX WAIVER OF COMPENSATION (a) Licensee hereby expressly waives any and all claims for compensation for any and all loss or damage sustained by reason of any defects, including, but not limited to, deficiency or impairment of the water supply system, gas mains, electrical apparatus or wires furnished for the Licensed Premises, or by reason of any loss of any gas supply, water supply, heat or current which may occur from time to time from any cause, or for any loss resulting from fire, water, windstorm, tornado, explosion, civil commotion, strike or riot, and Licensee hereby expressly releases and discharges Commissioner, his agents, and City and its agents from any and all demands, claims, actions and causes of action arising from any of the causes aforesaid. (b) Licensee further expressly waives any and all claims for compensation, loss of profit, or refund of its investment, if any, or any other payment whatever, in the event -21- this License is terminated by Commissioner sooner than the fixed Term because the Licensed Premises are required for any park or other public purpose, or because License was terminated or revoked for any reason as provided in the License. ARTICLE XXXI WORKERS' COMPENSATION AND PUBLIC LIABILITY INSURANCE (a) Licensee shall, at its own cost and expense, procure and maintain such insurance for the term of this License as will protect Licensee from claims under the Workers' Compensation Act; and shall take out and maintain such public liability insurance including food products liability as will protect and defend Licensee (including agents and sublicensees, if any), the City and Commissioner from any claims for property damage and for personal injuries, including death, arising out of, occurring, or caused by operations under this License by Licensee or anyone directly or indirectly employed by said Licensee, or otherwise arising out of this License. The policies shall provide the amounts of insurance hereafter mentioned, and before delivery of the License, all policies and certificates of insurance shall be submitted to Commissioner for his approval and retention. Each policy and certificate shall be marked "Premium Paid" and shall have endorsed thereon: "No cancellation of or change in this policy shall become effective until after thirty (30) days notice by Registered Mail to Commissioner, Department of Parks and Recreation, The Arsenal, Central Park, New York, New York 10021. Each policy shall also provide that the insurer is obligated to provide a legal defense in the event any claim is -22- made against knee City. If, at any time, any of said policies shall terminate or become unsatisfactory to Commissioner as to form or substance, or if a company issuing any such policies shall become unsatisfactory to Commissioner, Licensee shall promptly obtain a new policy, and submit the same to Commissioner for written approval, which shall not be unreasonably withheld, and for retention thereof as hereinabove provided. Upon failure of Licensee to furnish, deliver and maintain such insurance as above provided, this License may, at the election of Commissioner, be suspended, discontinued or terminated and any and all payments made by Licensee on account of this License shall thereupon be retained by Commissioner as additional liquidated damages along with the Security Deposit. Failure of Licensee to take out and/or maintain or the taking out or maintenance of any required insurance shall not relieve Licensee from any liability under the License, nor shall the insurance requirements be construed to conflict with or limit the obligations of Licensee concerning indemnification. (b) All required insurance must be issued by companies authorized to do business in the State of New York and must be in effect and continue so during the life of the License in not less than the following amounts: Workers' Compensation Insurance............... Per Statute Public Liability Insurance for ............... $1 Million for any one one accident, not less than person; and 3 million for any one accident Property Damage Insurance, not less than ..... $50,000 -23- Food products liability shall be included in Public Liability Insurance. In the event that claims in excess of these amounts are filed against the City, the amount of excess of such claims, or any portion thereof, may be withheld from any payment due or to become due Licensee until such time as Licensee shall furnish such additional security covering such claims as may be determined by Commissioner. All Public Liability and Property Damage policies shall name the City of New York as an additional insured party. ARTICLE XXXII FIRE INSURANCE Licensee shall, at its cost and expense, procure and maintain fire insurance and extended coverage with companies authorized to do business in the State of New York, acceptable to Commissioner, to cover fire loss to the Licensed Premises or to Fixed Equipment belonging to City. Fire insurance shall include coverage for equipment belonging to the City and acts of vandalism. Licensee further agrees that if said Licensed Premises and/or Fixed Equipment shall be damaged or destroyed by fire, or other covered cause, such damage shall be promptly repaired or replaced in a manner satisfactory to Commissioner at the sole cost and expense of Licensee. Upon the satisfactory completion of such repairs or replacements, Licensee shall be repaid the reasonable cost thereof except that such payments shall in no event exceed the amount actually collected and received by -24- Commissioner under the insurance policies. The amount of fire insurance and extended coverage shall be as follows: Fixed Equipment ....................................... $200,000 Licensed Premises...................................... Replacement value, but not less than $600,000. All fire insurance policies shall name the City of New York as the sole insured. All fire insurance policies shall be marked "Premium Paid" and shall be submitted to the Commissioner for his approval and retention before delivery of this License. ARTICLE XXXIII TERMINATION (a) Should Licensee breach or fail to comply with any of the provisions of this License, any federal, state or local law, or any rule, regulation or order of the Department affecting the License or the Licensed Premises in regard to any and all matters, Commissioner may in writing order Licensee to remedy such breach or to comply with such provision, law, rule, regulation or order, and in the event that Licensee fails to comply with such written notice to the City within ten (10) days from the mailing thereof subject to unavoidable delays beyond reasonable control of Licensee and with written notice to the City within such ten (10) day period, then this License shall immediately terminate as though it were the time provided above for the termination thereof. If said breach or failure to comply is corrected, and a second or repeated violation of the same provision, law, rule, regulation or order follows thereafter, Commissioner, by notice in writing, may revoke and terminate this License, such revocation and termination to be immediately -25- effective on the mailing thereof, the License to terminate as though it were the time provided above for the termination thereof. (b) Nothing contained in paragraph (a) above shall be deemed to imply or be construed to represent an exclusive enumeration of circumstances under which Commissioner may terminate the License without being arbitrary or capricious. (c) Upon expiration or sooner termination of the License by Commissioner, all rights of the Licensee herein shall be forfeited without claim for loss, damages, refund of investment or any other payment whatsoever against Commissioner or City. (d) In the event Commissioner terminates the License for reasons related to the Licensee's breach of this License, any property of the Licensee on the Licensed Premises may be held and used by Commissioner in order to operate the License during the balance of the calendar year and may be held and used thereafter until all indebtedness of the Licensee hereunder, at the time of termination of the License, is paid in full. ARTICLE XXXIV INVESTIGATIONS (a) The parties to this License shall cooperate fully and faithfully with any investigation, audit or inquiry conducted by a State of New York (hereinafter "State") or City governmental agency or authority that is empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath, or conducted by the Inspector General of a -26- governmental agency that is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license that is the subject of the investigation, audit or inquiry. (b) (i) If any person who has been advised that his or her statement, and any information from such statement, will not be used against him or her in any subsequent criminal proceeding refuses to testify before a grand jury or other governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath concerning the award of or performance under any transaction, agreement, lease, permit , contract, or license entered into with the City, the State, or any political subdivision or public authority thereof, or the Port Authority of New York and New Jersey, or any local development corporation within the City, or any public benefit corporation organized under the laws of the State of New York, or; (ii) If any person refuses to testify for a reason other than the assertion of his or her privilege against self incrimination in an investigation, audit or inquiry conducted by a City or State governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to take testimony concerning the award of, or performance under, any transaction, agreement, lease, permit, contract, or license entered into with the City, the State, or any political subdivision thereof or any local development corporation within the City, then; -27- (c) (i) The Commissioner or agency head whose agency is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license shall convene a hearing, upon not less than five (5) days written notice to the parties involved to determine if any penalties should attach for the failure of a person to testify. (ii) If any non-governmental party to the hearing requests an adjournment, the Commissioner or agency head who convened the hearing may, upon granting the adjournment, suspend any contract, lease, permit, or license pending the final determination pursuant to paragraph (e) below without the City incurring any penalty or damages for delay or otherwise. (d) The penalties which may attach after a final determination by the Commissioner or agency head may include but shall not exceed: (i) The disqualification for a period not to exceed five (5) years from the date of an adverse determination of any person or entity of which such person was a member at the time the testimony was sought, from submitting bids for, or transacting business with, or entering into or obtaining any contract, lease, permit or license with or from the City and/or (ii) The cancellation or termination of any and all existing City contracts, leases, permits, or licenses that the refusal to testify concerns and that have not been assigned as permitted under this License, nor the proceeds of which pledged, to an unaffiliated and unrelated institutional lender for fair value prior to the issuance of the notice scheduling the -28- hearing, without the City incurring any penalty or damages on account of such cancellation or termination, monies lawfully due for goods delivered, work done, rentals, or fees accrued prior to the cancellation or termination shall be paid by the City. (e) The Commissioner or agency head shall consider and address in reaching his or her determination and in assessing an appropriate penalty the factors in paragraphs (i) and (ii) below. He or she may also consider, if relevant and appropriate, the criteria established in paragraphs (iii) and (iv) below in addition to any other information which may be relevant and appropriate. (i) The party's good faith endeavors or lack thereof to cooperate fully and faithfully with any governmental investigation or audit, including but not limited to the discipline, discharge, or disassociation of any person failing to testify, the production of accurate and complete books and records, and the forthcoming testimony of all other members, agents, assignees or fiduciaries whose testimony is sought. (ii) The relationship of the person who refused to testify to any entity that is a party to the hearing, including, but not limited to, whether the person whose testimony is sought has an ownership interest in the entity and/or the degree of authority and responsibility the person has within the entity. (iii) The nexus of the testimony sought to the subject entity and its contracts, leases, permits or licenses with the City. -29- (iv) The effect a penalty may have on an unaffiliated and unrelated party or entity that has a significant interest in an entity subject to penalties under (d) above, provided that the party or entity has given actual notice to the Commissioner or agency head upon the acquisition of the interest, or at the hearing called for in (c) (i) above gives notice and proves that such interest was previously acquired. Under either circumstance the party or entity must present evidence at the hearing demonstrating the potentially adverse impact a penalty will have on such person or entity. (f) (i) The term "license" or "permit" as used herein shall be defined as a license, permit, franchise or concession not granted as a matter or right. (ii) The term "person" as used herein shall be defined as any natural person doing business alone or associated with another person or entity as a partner, director, officer, principal or employee. (iii) The term "entity" as used herein shall be defined as any firm, partnership, corporation, association, or person that receives monies, benefits, licenses, leases, or permits from or through the City or otherwise transacts business with the City. (iv) The term "member" as used herein shall be defined as any person associated with another person or entity as a partner, director, officer, principal or employee. -30- ARTICLE XXXV WAIVER OF TRIAL BY JURY The parties hereto waive trial by jury in any action, proceeding, or counterclaim brought by either of the parties against the other in any matter related to License. Any action taken by Commissioner relating to License may only be challenged in a proceeding instituted in New York County pursuant to CPLR Article 78. ARTICLE XXXVI CHOICE OF LAW, CONSENT TO JURISDICTION AND VENUE This License shall be deemed to be executed in the City of New York, State of New York, regardless of the domicile of the Licensee, and shall be governed by and construed in accordance with the laws of the State of New York. Any and all claims asserted by or against the City arising under this License or related thereto shall be heard and determined either in the courts of the United States located in New York City ("Federal Courts") or in the courts of the State of New York ("New York State Courts") located in the City and County of New York. To effect this agreement and intent, the Licensee agrees: (a) If the City initiates any action against the Licensee in Federal Court or in New York State Court, service of process may be made on the Licensee either in person, wherever such Licensee may be found, or by registered mail addressed to the Licensee at its address set forth in this License, or to such -31- other address as the Licensee may provide to the City in writing; and (b) With respect to any action between the City and the Licensee in New York State Court, the Licensee hereby expressly waives and relinquishes any rights it might otherwise have (i) to move to dismiss on grounds of forum non conveniens, (ii) to remove to Federal Court, and (iii) to move for a change of venue to a New York State Court outside New York County. (c) With respect to any action between the City and the Licensee in Federal Court located in New York City, the Licensee expressly waives and relinquishes any right it might otherwise have to move to transfer the action to a United States Court outside the City of New York. (d) If the Licensee commences any action against the City in a court located other than in the City and State of New York, upon request of the City, the Licensee shall either consent to a transfer of the action to a court of competent jurisdiction located in the City and State of New York or, if the court where the action is initially brought will not or cannot transfer the action, the Licensee shall consent to dismiss such action without prejudice and may thereafter reinstitute the action in a court of competent jurisdiction in New York City. If any provision(s) of this Article is held unenforceable for any reason, each and all other provision(s) shall nevertheless remain in full force and effect. -32- ARTICLE XXXVII PAYMENTS AND NOTICES (a) Any License fees, charges or sums payable by Licensee to City shall be made to the City of New York at The Arsenal, Central Park, New York, New York 10021. (b) Where provision is made herein for notice to be given in writing, the same shall be given by hand delivery or by mailing a copy of such notice by certified mail, return receipt requested, addressed to Commissioner or Licensee at their respective addresses provided in this License, or such other address as Licensee shall have filed with Commissioner. ARTICLE XXXVIII LATE CHARGES In the event that payment of License fees, percentage fees or other charges shall become overdue for ten (10) days beyond the date on which it is due and payable as provided in this License agreement, a late charge of two percent (2%) per month (computed on a thirty (30) day month) from the date it was due and payable on the sums so overdue shall become immediately due and payable to Commissioner as liquidated damages for the administrative costs and expenses incurred by Commissioner by reason of Licensee's failure to make prompt payment and said late charges shall be payable by Licensee without notice or demand. In addition, a two percent (2%) per month interest charge shall be applied to any unpaid balance. No failure by Commissioner to insist upon the strict performance by Licensee of Licensee's obligations to pay late charges shall constitute a waiver by -33- Commissioner of his right to enforce the provisions of this Article. If any local, state or federal law or regulation which limits the rate of interest which can be charged pursuant to this Article is enacted, the rate of interest set forth in this Article shall not exceed the maximum rate permitted under such law or regulation. ARTICLE XXXIX ENTIRE AGREEMENT This License constitutes the whole of the agreement between the parties hereto, and no other representation made heretofore shall be binding upon the parties hereto. Any changes, additions or amendments not otherwise provided for herein shall be in writing and shall be signed by the parties hereto. ARTICLE XL MODIFICATION OF AGREEMENT This License may be modified from time to time by agreement in writing, but no modification of this License shall be in effect until such modification has been agreed to in writing and duly executed by the party or parties affected by said modification. ARTICLE XLI PARAGRAPH AND OTHER REFERENCES (a) All references herein to "Paragraph(s)", "Sub-paragraph(s)", and "Section(s)" shall be understood to pertain to portions of this License. (b) The Table of Contents and division titles found herein are inserted for reference only and in no way define, -34- limit, describe or in any way affect the scope of intent or meaning of this License. ARTICLE XLII SEVERABILITY: INVALIDITY OF PARTICULAR PROVISIONS If any term or provision of this License or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this License, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this License shall be valid and enforceable to the fullest extent permitted by law. -35- [LOGO] CITY OF NEW YORK The Arsenal PARKS & RECREATION Central Park New York, New York 10021 Henry J. Stern Commissioner January 31, 1994 Frank Cretella, President TAM Concessions, Inc. 1163 Forest Avenue Staten Island, New York 10310 Re: Modification of License Agreement between TAM Concessions, Inc. (Loeb Boathouse) and City of New York Parks and Recreation M10(14)-BR,SB Dear Mr. Cretella: Effective July 1, 1994, Article 4c of the subject license agreement shall be modified as follows, as it applies to payment of the annual minimum fee: Licensee shall pay one-twelfth (1/12) of either the Annual Minimum Fee, or 75% of Licensee's Previous Year's Fee Payments, whichever is greater, on or before the tenth (10th) of each month, except that for the months of November, December, January and February the Licensee shall make partial payments of $10,000, with 20% of the cumulative balance for such underpaid months (November - February), to be added to the minimum payment for each of the months of July, August, September, May and June. For example, using the present annual minimum fee of $340,556.06, the payment schedule would be calculated as follows: CURRENT MODIFIED MONTH MINIMUM FEE ADJUSTMENTS MINIMUM FEE - ----- ----------- ----------- ----------- July $28,379.67 $14,703.74 $43,083.41 August $28,379.67 $14,703.74 43,083.41 September $28,379.67 $14,703.74 43,083.41 October $28,379.67 28,379.67 November $28,379.67 (18,379.67) 10,000.00 December $28,379.67 (18,379.67) 10,000.00 January $28,379.67 (18,379.67) 10,000.00 February $28,379.67 (18,379.67) 10,000.00 March $28,379.67 28,379.67 April $28,379.67 28,379.67 May $28,379.68 14,703.73 43,083.41 June $28,379.68 14,703.73 43,083.41 ---------- --------- --------- TOTALS $340,556.06 $0.00 $340,556.06 ----------- ----- ----------- This modification of the minimum fee payment schedule will better accommodate the seasonal nature of the licensee's business operation. All other terms and conditions of TAM Concessions, Inc.'s license agreement dated February 8, 1985, shall remain in full force and effect. Please indicate your agreement with this amendment by signing and returning the original of this letter. The duplicate copy should be retained with your records. Sincerely, /s/ Joanne Imohiosen -------------------------- Joanne Imohiosen Assistant Commissioner Revenue Division AGREED AND ACCEPTED: TAM CONCESSIONS, INC. BY: /s/ Frank Cretella --------------------------- Frank Cretella Pres - ------------------------------- Print Name & Title DATE: 2/7/94 ------------------------- EX-10.2 6 EXHIBIT 10.2 [Logo] City of New York The Arsenal Parks & Recreation Central Park New York, New York 10021 Henry J. Stern Commissioner LICENSE AGREEMENT BETWEEN SHELLBANK RESTAURANT CORP. AND CITY OF NEW YORK PARKS & RECREATION BATTERY PARK RESTAURANT FACILITY DATED: Dec '94 ---------------------- TABLE OF CONTENTS PAGE ---- SECTION 1 GRANT OF LICENSE........................................ 2 SECTION 2 DEFINITIONS............................................. 5 SECTION 3 TERM OF LICENSE......................................... 11 SECTION 4 PAYMENT TO CITY......................................... 12 SECTION 5 CAPITAL IMPROVEMENTS.................................... 15 SECTION 6 UTILITIES AND PUBLIC TELEPHONE SERVICE.................. 26 SECTION 7 OPERATIONS.............................................. 27 SECTION 8 MAINTENANCE, SANITATION AND REPAIRS..................... 38 SECTION 9 APPROVALS............................................... 40 SECTION 10 RESERVATION FOR SPECIAL EVENTS.......................... 40 SECTION 11 ASSIGNMENTS AND SUBLICENSES............................. 42 SECTION 12 RESERVATION FOR PARKS CONSTRUCTION...................... 44 SECTION 13 GENERAL PROVISIONS INCORPORATED......................... 46 EXHIBIT A GENERAL PROVISIONS EXHIBIT B SCHEDULE OF CAPITAL IMPROVEMENTS EXHIBIT C SITE PLAN EXHIBIT D EMPLOYEE UNIFORMS EXHIBIT E APPROVED MENU, MERCHANDISE PRICE LIST AND OPERATING HOURS EXHIBIT F SIGNAGE LICENSE AGREEMENT made this ____ day of ____________ 1994, between the City of New York (the "City") acting by and through Henry J. Stern, Commissioner of the Department of Parks and Recreation ("Commissioner" and "Parks", "Department" or "DPR" respectively), whose address is The Arsenal, Central Park, New York, New York 10021, and Shellbank Restaurant Corp. ("Licensee") a corporation organized under the laws of the State of New York, with principal office is 1163 Forest Avenue, Staten Island, NY 10310. W I T N E S S E T H: WHEREAS, Parks, pursuant to the City Charter, has jurisdiction over parklands of the City of New York and facilities therein including Battery Park and certain buildings therein, located in the Borough of Manhattan; and WHEREAS, the Commissioner desires to provide food service in Battery Park in the form of a restaurant (the "Restaurant") as well as the provision of rest room facilities for the public and the relocation of a Parks maintenance facility to a reconstructed facility in Battery Park; and WHEREAS, the Licensee has expressed its willingness, intent and capability to supply the services which the Commissioner desires to provide; and WHEREAS, Parks complied with the requirements of the Franchise and Concession Review Committee ("FCRC") for the selection of concessionaires including the issuance of a Request for Proposals (RFP) for the operation and maintenance of the Restaurant and the conduct of a public hearing regarding the intent to award a license agreement upon the terms and conditions contained herein. NOW THEREFORE, in consideration of the premises and covenants contained herein, the parties hereby do agree as follows: SECTION 1 GRANT OF LICENSE 1.1 The Commissioner hereby grants to Licensee and Licensee hereby accepts from Commissioner this License ("License") to reconstruct and operate certain facilities including a restaurant in Battery Park in accordance with the terms herein and to the satisfaction of the Commissioner. 1.2 Licensee is required to perform capital improvements with a value of Eight Hundred Fifty-one Thousand dollars ($851,000,000) as described on the Schedule of Capital Improvements annexed hereto as Exhibit B including, but not limited to renovation to the following: (a) Renovation of the restaurant building, identified as Building A ("Building A") in Exhibit C, annexed hereto, including improvements to the roof top to accommodate public dining; (b) Renovation of the kiosk, identified as Building B ("Building B") in Exhibit C, annexed hereto, including -2- improvements to accommodate the Licensee's merchandise shop, souvenir boutique and/or food and beverage service operations; (c) Reconstruction of the existing comfort station, identified as Building C ("Building C") in Exhibit C, annexed hereto, including construction on the site of a new facility to accommodate Parks offices and Parks staff rest rooms and changing areas. 1.3 Licensee shall complete renovations to Building A and operate, maintain and manage the Restaurant Facility in and adjacent to Building A at its sole cost and expense. Operation, maintenance and management obligations shall include the following: (a) the operation and maintenance of a snack bar, incorporating a fast food walk-away concession with merchandise sales on the first floor of Building A, sit-down restaurant service on the second floor of Building A and, weather permitting, sit-down patio restaurant service adjacent to the first floor of Building A; (b) the provision and ongoing maintenance of a large rest room facility in Building A, which shall be directly accessible to the members of the general public who are not restaurant customers; (c) the maintenance and cleaning of all areas within 100' of the limit lines as illustrated in Exhibit C, Site Plan annexed hereto and made a part hereof. -3- 1.4 At its sole cost and expense, Licensee shall complete renovations to Building B and provide a merchandise shop, souvenir boutique, tourist information center and/or food and beverage service operation in Building B. 1.5 At its sole cost and expense, Licensee shall substantially rehabilitate Building C and therein provide a reconstructed facility for the Parks Department designed to accommodate office, equipment storage and training rooms as well as separate staff restrooms, shower rooms and changing areas for women and men Parks Department personnel. 1.6 Licensee shall maintain the entire Licensed Premises within the limit line, as illustrated on Exhibit C, Site Plan, annexed hereto and made a part hereof. Maintenance shall include any and all daily, regular or routine maintenance or repair necessary, as required by the Commissioner, to keep the premises clean and free of dirt and litter within a one hundred (100) foot radius of Building A and Building B so that the Licensed Premises are capable of being used by the public as a first class facility. Subject to the provisions of Section 10 herein, Parks has not and will not issue other licenses or permits for food and beverage service or merchandise sales within the Licensee's maintenance and cleaning areas of responsibility, provided Licensee performs its obligations under this License to the Commissioner's reasonable satisfaction. -4- 1.7 This license is granted to Licensee provided Licensee obtains any and all approvals, permits, and other licenses required by federal, state and City laws, rules, regulations and orders and approvals necessary to operate the facility in accordance with the terms of this License. In order to be in compliance with this License Agreement, Licensee must fulfill the obligations contained within this Section 1. Commissioner may deem as a default Licensee's failure to provide said services for any reason within the control of the Licensee. SECTION 2 DEFINITIONS 2.1 As used throughout this License, the following terms shall have the meanings set forth below: (a) "Substantial Completion" or "Substantially Complete" shall mean that the Commissioner certifies that the Restaurant or maintenance facilities have been completed substantially in accordance with the plans, specifications, schematics, working and mechanical drawings approved by Parks, notwithstanding that minor work remains to be completed in accordance with work schedule provided for herein and/or set forth as "Punch List" items as provided for in Section 5.18 herein and that the Recreation Facility may be opened to the public. (b) "Final Completion" or "Finally Complete" shall mean that the construction of the Recreation Facility has -5- been completed to such an extent that the Commissioner of Parks certifies that it has been finally completed and no further work is required by Licensee pursuant to this Agreement in connection with the construction of said facility. Notwithstanding the issuance of any such certification, Licensee shall be liable for any claims related to such construction and shall be responsible for any other responsibility (including maintenance, repair and indemnity) set forth in this Agreement. (c) "Year," or "Operating Year" shall mean the period between the anniversary of the Fee Commencement Date of this License in any calendar year and the day before the anniversary of the Fee Commencement Date of this License in the following calendar year. (d) "Licensed Premises" shall mean the areas denoted on Exhibit C annexed hereto and made a part hereof, and shall be deemed to extend to the limit lines surrounding Building A and Building B, Building C for the purposes of completing the reconstruction work for Parks use, all sidewalks, curbs, pathways, trees, landscaping, and other improvements within said limit lines. The Licensed Premises are located in Battery Park, Block 3, Lot 1, Borough of Manhattan, New York, New York. At its sole cost and expense, Licensee shall maintain the entire Licensed Premises, provided that the Licensee shall not maintain utility lines between the Licensed Premises and the main utility trunk lines under the streets, except insofar as the Licensee may -6- alter or connect to utility service lines in order to complete its Capital Improvements program as provided in Section 5 of this License Agreement. (e) "Capital Improvements" shall mean all construction, reconstruction or renovation of the Licensed Premises whether performed directly by the Licensee or by subcontractors or agents of the Licensee. Capital Improvements shall not include routine maintenance and repair of existing facilities required to be performed in the normal course of management and operation of the Restaurant Facility or Parks Facility. (f) "Restaurant Facility" shall mean both the main building and the kiosk, Buildings A and B respectively. Notwithstanding any rights to assign or sublicense the Restaurant Facility and operations pursuant to Section 11 hereof, the Licensee shall design, operate and maintain the Restaurant Facility as a unified business operation with common architectural and aesthetic themes maintained throughout the Restaurant Facility and operations. (g) "Parks Facility" shall mean the existing comfort station, Building C, which the Licensee shall completely renovate and in the shell thereof shall construct a new facility to accommodate the needs of the Parks Department. (h) (i) "Gross Receipts" shall mean, except as otherwise provided in this sub-section 2.1(h), all funds received -7- by Licensee without deduction or set-off of any kind, from the sale of food and beverages, wares, merchandise or services of any kind, resulting directly or indirectly from the operation of this License, provided that Gross Receipts shall exclude the amount of any federal, state or city taxes which may now or hereafter be imposed upon or be required to be paid by Licensee as against its sales. Gross Receipts shall include any orders, placed or made directly or indirectly at Licensed Premises, although delivery of merchandise or services may be made outside, or away from the Licensed Premises, and shall include all receipts for services to be rendered or orders taken at the Licensed Premises for services to be rendered outside thereof. Notwithstanding any provision herein to the contrary, proceeds realized by other caterers in which the principals of Licensee have an interest are excluded from Gross Receipts under this License, notwithstanding the fact that a catered event customer originally solicited Licensee at the Licensed Premises. Licensee is nonetheless required to always act in good faith in its efforts to book catered events at the Licensed Premises. All other sales made or services rendered directly or indirectly from Licensed Premises shall be construed as made and completed therein even though payment therefor may be made at some other place, and although delivery of merchandise sold or services rendered directly or indirectly upon Licensed Premises may be made other than at Licensed Premises. -8- (ii) Gross Receipts shall also include all sales made by any other operator or operators using the Licensed Premises, provided that in the event that the use of vending machines on the Licensed Premises for the sale of food, drink, and other items is approved by Parks, Licensee's actual income realized from such vending machine operations shall be included in Gross Receipts, and provided further that Gross Receipts shall be limited to include Licensee's actual income realized from fees or commissions from any third party vendors operating at the Licensed Premises, including but not limited to florists, photographers, bands and equipment rental companies the services or merchandise of which are provided to Licensee's customers of catered events, and rental, sublicense or subcontracting fees in connection with all services, including but not limited to such services as valet parking operations, provided by Licensee's approved subcontractors or sublicensees. (iii) Gross Receipts shall include sales made for cash or credit (credit sales shall be included in gross receipts as of the date of the sale) regardless of whether the sales are paid or uncollected, it being the distinct intention and agreement of the parties that all sums received by Licensee from all sources from the operation of this License shall be included in Gross Receipts, provided however that any gratuities transmitted by Licensee directly or indirectly to employees and staff shall not be included within Gross Receipts. Licensee shall -9- provide sufficient documentation to prove that such gratuities were paid to employees and staff in addition to their regular salaries. [Intentionally Left Blank] -10- SECTION 3 TERM OF LICENSE 3.1 This License shall commence and become effective upon full execution by the parties. This License shall be for an operating term of twenty (20) years beginning on the earlier of the date the Commissioner certifies that the Licensee's Capital Improvements to Building A are substantially complete or November 1, 1995 ("Fee Commencement Date") and ending on the twentieth anniversary of the Commissioner's certification or October 31, 2015, whichever is earlier. 3.2 In addition to the rights to terminate as provided in Section 13 herein and the General Provisions annexed hereto as Exhibit A, this License is terminable at will by the Commissioner in his sole and absolute discretion at any time and such termination shall be effective after thirty (30) days written notice to Licensee. The Commissioner, the City, its employees and agents shall not be liable for damages to Licensee in the event that this License is terminated by Commissioner as provided for herein. In the event such notice is not given, this License shall terminate on the twentieth anniversary of the Commissioner's certification that Capital Improvements to Building A are substantially complete or October 31, 2015, whichever is earlier. -11- SECTION 4 PAYMENT TO CITY 4.1 Licensee shall pay to City, in equal installments on the dates specified in Section 4.2 herein, License Fees for each Operating Year, consisting of the higher of the Minimum Annual Fee versus the annual percentage of Gross Receipts derived from operations under this License according to the schedule below.
OPERATING MINIMUM PERCENTAGE OF YEAR NUMBER ANNUAL FEE vs. GROSS RECEIPTS - ----------- ---------- -------------- 1 $50,000 06% of restaurant gross receipts and 10% of merchandise gross receipts. 2 $50,000 07% of restaurant gross receipts and 10% of merchandise gross receipts. 3 $50,000 08% of restaurant gross receipts and 10% of merchandise gross receipts. 4 $50,000 08% of restaurant gross receipts and 10% or merchandise gross receipts. 5 $50,000 08% of restaurant gross receipts and 12% or merchandise gross receipts. 6 $50,000 " " " through 20 $50,000 " " "
4.2 The Minimum Annual Fees for each Operating Year shall be paid to the City in twelve (12) equal installments on or before the first day of each month. Any additional amount resulting from the applicable Percentage of Gross Receipts shall -12- be paid on for before sixty days following the end of the applicable Operating Year. 4.3 On or before the thirtieth (30th) day following each month of each Operating Year, Licensee shall submit to Parks in a form satisfactory to Parks, a statement, signed and verified by an officer of Licensee, reporting the preceding months Gross Receipts broken down into the following categories: food and beverage service at snack bar, food and beverage service at sit-down restaurant, alcoholic beverage service, parking, vending machines, merchandise sales, information and tour booth services and miscellaneous sources of income. Licensee must indicate whether or not these amounts are inclusive of sales tax collected. 4.4 On or before the thirtieth (30th) day following each Operating Year, Licensee shall submit to Parks an income and expense statement, in form satisfactory to Parks, signed and verified by an officer of Licensee. The form of the statement annexed hereto as Exhibit G, Income and Expense Statement, is approved as the initial Statement of Annual Income and Expenses. Licensee may designate such income and expense statements or any part thereof confidential and exempt from disclosure under applicable freedom of information laws. Parks will consider such designation when making determinations for disclosure under applicable freedom of information laws. -13- 4.5 Licensee shall keep books and records as set forth in Article IV of the General Provisions, annexed hereto as Exhibit A, and shall institute a revenue control system acceptable to Commissioner. 4.6 In the event Parks determines that Licensee or his/her employees, agents, sublicenses, or subcontractors have breached sections 4.1 through 4.5, hereinabove or sections 7.1 through 7.5, herein, Licensee may be subject to a charge of $100.00 as liquidated damages with respect to each incident of such breach provided that Licensee has been given reasonable notice of such breach and has failed to cure within thirty (30) days of such notice. 4.7 Prior to commencement of operations hereunder, Licensee shall deposit with the City the sum of Twelve Thousand Five Hundred Dollars ($12,500) as a security deposit ("Security Deposit"). Pursuant to the terms of Article VI of the General Provisions annexed hereto as Exhibit A, the Security Deposit shall be held by the City without liability for interest thereon, as security for the full, faithful and prompt performance of and compliance with each and every term and condition of this License to be observed and performed by the Licensee. 4.8 License fees to Parks, shall be made payable to the City of New York Department of Parks and Recreation, Attention Revenue Division, The Arsenal, Central Park, New York, NY 10021. -14- SECTION 5 CAPITAL IMPROVEMENTS 5.1 Licensee shall spend or cause to be expended during the term hereof, a minimum of Eight Hundred Fifty-One Thousand Dollars ($851,000) for Capital Improvements as defined in Section 2 hereof. These Capital Improvements shall include but are not limited to the following (a) Complete renovation of Building A, including improvements necessary to accommodate the operations of the Licensee's food and beverage service and merchandise sales operations including the accommodation of roof top dining, to provide a separately accessed comfort station/restroom area for the general public with no fewer than 24 stalls in the women's room and no fewer than 11 stalls and 10 urinals in the men's room, and to provide one garbage compactor and one closed container equivalent in service capacity to the McClain "MAG" 6-yard compactor and the "RP 2240B" 40-yard closed container respectively, together with any required site work to make the compactor and container functionally operable to the Commissioner's satisfaction; (b) Renovation of Building B to accommodate the Licensee's operation of a merchandise shop, tourist information center or food and beverage service operations, subject to Parks approval; -15- (c) Complete renovation of Building C, the existing comfort station, and reconstruction of the facility so as to accommodate office, equipment storage and training rooms as well as separate staff rest rooms, shower rooms and changing areas for both female and male Parks Department personnel; and (d) Design and installation of appropriate barriers to control access to the parking area adjacent to Building A. 5.2 All Capital Improvements shall be completed in accordance with the attached schedule of Capital Improvements annexed hereto as Exhibit B, which includes the following information: (a) Capital Improvement items to be constructed; (b) Capital Improvement cost commitments; and (c) Capital Improvement completion schedule. Licensee shall perform and complete such Capital Improvements at its sole cost and expense. The Licensee shall make no other Capital Improvements or alterations without the prior written consent of the Commissioner. 5.3 The value of the Capital Improvements and equipment purchases shall be determined by the Commissioner based upon construction documents, invoices, labor time sheets and such other supporting documents or other data. Expenditures for ordinary repairs and maintenance shall not be considered Capital Improvements. In making the determination of value, Commissioner -16- may request any information he reasonably believes would be helpful to make such determination. Licensee shall forward such information to Commissioner upon request by Commissioner. 5.4 A percentage of the total cost ("Total Cost") for all Capital Improvements will be charged to the Licensee for the review of design documents by DPR personnel (the "Design Review Fee"). Total Cost of the Capital Improvements will be the total amount stipulated in Section 5.1 herein or the total of the actual construction and design cost, whichever is greater. DESIGN REVIEW FEE SCHEDULE Cost of Capital Improvements Fee Up to $1,000,000 1% Above $1,000,000 .5% The schedule for payment of the Design Review Fee is as follows: (a) Upon execution of this License Agreement: $8,510.00 (b) Upon the Final Completion of Capital Improvements, the Licensee shall made a supplementary payment based upon the amount of Capital expenditures (including both construction and design) which exceeds the amount of the Capital Improvements stipulated in the License Agreement. 5.5 Pursuant to any approved schedule of Capital Improvements, Licensee shall pay all applicable fees and shall submit to Parks and all other governmental agencies having jurisdiction, for their prior approval, all plans, -17- specifications, schematics, working and mechanical drawings for such Capital Improvements. All plans, specifications, schematics, and working and mechanical drawings shall be in such detail as Parks shall require. All work shall be undertaken in strict accordance with the plans, specifications, schematics, and working and mechanical drawings approved in writing in advance by Parks. No Capital Improvement project shall be deemed Finally Completed until the Commissioner certifies in writing that the Capital Improvement project has been completed to his satisfaction. 5.6 Upon certification by Parks of Final Completion of the Capital Improvements performed by Licensee, as defined herein, Licensee shall provide Parks with one complete set of final, approved plans in "camera-ready wash-off mylar" or other medium acceptable to Parks. 5.7 For any Capital Improvements commenced subsequent to execution of this License, Licensee shall obtain a permit from the construction permit office located in the Olmsted Center, Flushing Meadows Corona Park prior to commencement of work. Licensee shall commence Capital Improvements only after the issuance of a construction permit from Parks construction permit office; conceptual approval of plans does not authorize the Licensee to begin construction. Once Licensee has obtained the required construction permit, Licensee shall notify Commissioner of the specific date on which construction shall begin. -18- 5.8 Licensee shall proceed in good faith and with due diligence to complete all Capital Improvements in accordance with the schedule of dates indicated in Exhibit B attached hereto unless such work cannot be completed due to circumstances beyond the control of Licensee including acts of God, war, enemies or hostile government actions, revolutions, insurrection, riots, civil commotion, strikes, fire or other casualty, or the inability, through no fault of Licensee to obtain either a Certificate of Occupancy, or other permits, licenses, or certificates required by any agency having jurisdiction thereof or other similar circumstances which the Commissioner has determined to be beyond the control of Licensee. In such situations, Licensee shall employ its "best efforts" to continue Capital Improvements. 5.9 Licensee shall spend or cause to be expended the entire amount required to complete each Capital Improvement item listed in Exhibit B, including any amount needed above any estimated cost shown. In the event that Licensee performs all Capital Improvements for less than the amounts listed in Exhibit B, any excess monies shall be remitted to the City as additional license fees upon the expiration or sooner termination of this Agreement. If excess monies become payable pursuant to this paragraph, the excess monies shall be remitted to the City within thirty (30) days following the Commissioner's determination of Final Completion of the last Capital Improvement to be completed -19- according to Exhibit B; in the alternative, the Licensee shall have the option of applying such excess monies (savings) to additional Capital Improvements to the Licensed Premises, provided its proposals for such work are approved by the Commissioner and all Capital Improvement activity is completed by April 1, 2000. 5.10 In the event Licensee is delayed or prevented from completing all Capital Improvements in accordance with Exhibit B due to the conditions enumerated in section 5.8 above, then the Commissioner may extend any dates for performance of any remaining Capital Improvements. The number of days by which performance may be extended shall be determined by the Commissioner after inspection of the Restaurant Facility and consultation with Licensee. 5.11 In the event the Licensee fails to complete a particular Capital Improvement by the date specified for final completion, Licensee shall pay the City liquidated damages of $100.00 per day until the outstanding improvement is completed. Licensee's failure to comply with any phase of the schedules for Capital Improvements for a period of thirty (30) days shall constitute a default upon which Commissioner may terminate this License upon ten (10) days notice as provided in Article XXX of the General Provisions, annexed hereto as Exhibit A. -20- 5.12 Licensee shall perform all Capital Improvements in accordance with all federal, state, and city laws, rules, regulations, orders, and industry standards, and with materials as set forth in the plans, specifications, schematics, working and mechanical drawings. All equipment and materials installed as part of the Capital Improvements shall be new, free from defects, of the best grade quality, suitable for the purpose intended and furnished in ample quantities to prevent delays. Licensee shall obtain all manufacturers warranties and guarantees for all such equipment and materials. 5.13 As required by Section 24-216 of the New York City Administrative Code, devices and activities which will be operated, conducted, constructed or manufactured pursuant to this License and which are subject to the provisions of the New York City Noise Control Code (the "Code") shall be operated, conducted, constructed or manufactured without causing a violation of such Code. Such devices and activities shall incorporate advances in the art of noise control developed for the kind and level of noise emitted or produced by such devices and activities, in accordance with regulations issued pursuant to federal, state, City laws, rules, regulations or orders. 5.14 Unless otherwise provided, Licensee shall choose the means and methods of completing the Capital Improvements unless Commissioner reasonably determines that such means and methods constitute or create a hazard to the Capital Improvements -21- or to persons or property or will not produce finished Capital Improvements in accordance with the Schedule of Capital Improvements annexed hereto as Exhibit B. 5.15 No temporary storage or other ancillary structures or staging areas may be erected or maintained without a permit obtained from Parks Department's Construction Division, Permit Office. 5.16 Licensee may not cut down, replant, or remove any trees from the Licensed Premises without the prior written approval of the Parks Department's Forestry Division. 5.17 During performance of the Capital Improvements and up to the date of Final Completion, Licensee shall be responsible for the protection of the finished and unfinished Capital Improvements against any damage, loss or injury. In the event of such damage, loss or injury, Licensee shall promptly replace or repair such Capital Improvements. 5.18 Licensee shall provide written notice to Commissioner when the Capital Improvements of each phase are substantially completed. After receiving such notice, Commissioner shall inspect such Capital Improvements. After such inspection Commissioner and Licensee shall jointly develop a single final "punch list" incorporating all findings of Commissioner and Licensee of all work not completed or not completed to the satisfaction of the Commissioner. Licensee shall -22- proceed with diligence to complete all "punch list" items within a reasonable time as determined by the Commissioner. 5.19 Licensee, within three (3) months of Certification of Final Completion, shall furnish the Commissioner with a statement signed and certified by an officer of Licensee, detailing the actual costs of construction. Accompanying such statement shall be construction documents, bills, invoices, labor time books, accounts payable, daily reports, bank deposit books, bank statements, checkbooks and canceled checks. Licensee shall maintain accurate books and records of account of construction costs which shall be segregated from other accounts or shall itemize and specify those costs attributable to the Licensed Premises to permit audit by Parks or the Comptroller upon request. 5.20 For any Capital Improvements commenced subsequent to full execution of this License, Licensee at its sole cost and expense shall provide Parks with payment and performance bonds, or upon the approval of the Commissioner, irrevocable letters of credit naming the City of New York as beneficiary, in a three-phased schedule, corresponding to the three phases of the schedule of Capital Improvements, and in the amount of each respective phase of the estimated cost of the Capital Improvements, as security for the faithful completion of the Capital Improvements. Such surety company shall be licensed to conduct surety business in the State of New York and subject to -23- the prior approval of Commissioner. Such Bond shall remain in full force and effect until Parks certifies construction as finally complete. The first such performance bond or letter of credit, shall be in the amount of $220,000 for all Capital Improvements to be completed by May 31, 1995. The second bond or letter of credit shall be in the amount of $390,500 for all Capital Improvements to be completed by May 31, 1996 and the third bond or letter of credit shall be in the amount of $240,000 for all Capital Improvements to be completed by May 31, 1997. The required bond or letter of credit shall be delivered to Parks prior to the commencement of any work under this License. 5.21 Licensee shall promptly repair, replace, restore, or rebuild, as the Commissioner reasonably may determine, items of Capital Improvements in which defects of materials, workmanship or design may appear or to which damages may occur because of such defects, during the two-year period subsequent to the date of the Final Completion of such Capital Improvements. Failure to comply with this section shall constitute a default and may result in the termination of this License as provided in Article XXX of the General Provisions annexed hereto as Exhibit A. 5.22 Neither Parks, nor the City, its agencies, officers, agents, employees or assigns thereof, shall be bound, precluded or estopped by any determination, decision, approval, order, letter, payment or certificate made or given under or in -24- connection with this License by the City, the Commissioner, or any other officer, agent or employee of the City, before the Final Completion and acceptance of the Capital Improvements, from showing that the Capital Improvements or any part thereof does not in fact conform to the requirements of this License Agreement and from demanding and recovering from the Licensee such damages as Parks or the City may sustain by reason of Licensee's failure to perform each and every part of this License Agreement in accordance with its terms, unless such determination, decision, approval, order, letter, payment or certificate shall be made pursuant to a specific waiver of this paragraph signed by the Commissioner or his authorized representative. 5.23 Upon installation, title to all construction, renovation, improvements, equipment and fixtures made to the Licensed Premises shall vest in and thereafter belong to the City at the City's option, which may be exercised at any time after the Substantial Completion of their construction, renovation, improvement, affixing, placement or installation. To the extent the City chooses not to exercise its option with respect to. any of the construction, renovation, improvements, equipment or fixtures made to the Licensed Premises it shall be the responsibility of Licensee to remove such items at its sole cost and expense. 5.24 Licensee warrants that it is financially solvent and sufficiently experienced and competent to perform, or cause -25- to be performed, the Capital Improvements required pursuant to this License. SECTION 6 UTILITIES AND PUBLIC TELEPHONE SERVICE 6.1 Except as provided in Section 6.2 and Section 2.1(d) herein, Licensee, at its sole cost and expense, shall install or cause to be installed, and maintain all utility lines, meters and supplies of power necessary for the proper operation of this License as described herein and pay all utility cost. Utilities may include, but shall not be limited to electricity, gas, heat, coolant, water, sewer and rubbish removal. Parks does not make representation or warranty that existing cables, meters or supplies of power are adequate for Licensee's needs or that any entity can or will make such service available. 6.2 Once Licensee has completed reconstruction of the existing Building C and the Parks Facility is Finally Complete, Parks will accept ongoing responsibility for payment of the cost of utilities to the Parks Facility throughout the remainder of the term of this License Agreement. In no event will Licensee become obligated to maintain the existing Building C prior to the time that Licensee commences renovating construction. In addition, once Licensee has completed installation of the garbage compactor and container as required under this License Agreement, Parks will provide for the ongoing removal of compacted garbage from the compactor. However, Licensee shall have continuous and -26- ongoing responsibility for maintenance and servicing of the compactor and container, as well as for utility costs associated with it. Parks will pay utility costs for the public restroom portion of Building A, provided that Licensee installs separate meters for measuring electricity and water consumption at the restroom portion of Building A as part of its Capital Improvements. 6.3 In the event that New York Telephone Company is unable to supply telephone service to the Licensed Premises, Licensee may, at its option, contract directly with any telephone company for public telephone services at Licensed Premises, but nothing herein shall obligate City to contract with any telephone company for such services in the event Licensee fails to do so. To the extent that rates for such public telephone services are not otherwise regulated by federal, state or local authorities, such rates shall be subject to Parks approval. SECTION 7 OPERATIONS 7.1 License, at its sole cost and expense, shall operate and maintain the Restaurant Facility under authority of this License for the accommodation of the public and in such manner as the Commissioner reasonably shall prescribe and as permitted by federal, state, and City laws, rules, regulations or orders. Licensee shall have the right to use the Restaurant Facility only for the activities described herein as follows: -27- (a) operation and maintenance of a snack bar with a concession stand on the ground floor level of the main building, (Building A in Exhibit C, annexed hereto) for fast-food and merchandise walk away purchases; (b) operation and maintenance of a full service restaurant with an interior dining room on the ground floor level of Building A featuring a display kitchen on the back wall, glass doors leading to the outside patio and a large spiral staircase leading to rooftop dining; (c) operation and maintenance of a partially enclosed, outdoor patio dining area adjacent to the interior dining room incorporating bench seating and cafe tables, an outdoor bar with tables, umbrellas and chairs. (d) operation and maintenance of a roof top dining area on the second level of Building A; (e) operation and maintenance of a valet parking concession in the area adjacent to Building A to accommodate patrons of the Restaurant Facility; (f) operation and maintenance of a large rest room facility on the ground floor level of Building A, part of which shall be directly accessible to be public without entering through the interior dining room described above and which shall be provided without charge to the public. No fewer than 24 stalls in the womens' rest room and 11 stalls and 10 urinals in the mens' rest room shall be directly accessible to -28- the public from outside the Restaurant Facility without entering the interior dining area. The number of rest room stalls accessible through the interior dining room shall not be fewer than the number of stalls required by City Building Code for the number of seats at tables in the interior dining room and roof top dining area combined; (g) subject to the prior written approval of the Commissioner, operation and maintenance of a merchandise shop and souvenir boutique and/or food and beverage operation in the kiosk structure, Building B in Exhibit C, annexed hereto. 7.2 Notwithstanding its obligations to maintain the Licensed Premises, once Licensee has completed the Capital Improvements to the existing comfort station, Building C in Exhibit C annexed hereto, as required pursuant to Section 5 herein, and has turned the Parks Facility over to Parks as Finally Complete, no continuing operational duties pertaining to Building C shall be required of Licensee except for its warranty of construction. 7.3 Licensee may place chairs, tables and umbrellas in the patio areas within the Limit Line of Building A on the Licensed Premises, as illustrated on Exhibit C, annexed hereto, for the use of patrons of the restaurant. Additionally, Licensee will be responsible for placing and maintaining tables in a designated area adjacent to the walk-away food service concession which will be made available for use by the general public. -29- Licensee must operate, maintain and clean the entire seating area including the public tables, whenever the outdoor patio or walk-away fast food concessions are operating. Licensee must arrange the seating area so that pedestrian traffic along the pathways is not impeded. 7.4 Licensee may store tables, chairs and equipment only in the areas in the Restaurant Facility designated on the Design Plans. 7.5 Licensee's vendors and waiters/waitresses will be required to wear uniforms that have been approved by the Department, which approval shall not be unreasonably withheld or delayed. The description of uniforms annexed hereto as Exhibit D is hereby approved by the Department. 7.6 In addition to a Parks permit, the Licensee must obtain a Health Department License, and any other licenses, permits or authorizations from any government agencies having jurisdiction and shall prominently display said licenses, permits or authorizations, as required in accordance with applicable federal, state and City rules, laws, statutes, regulations or orders. In the event that Licensee is unable to obtain a liquor license for the Restaurant Facility or licenses, permits or authorizations for Licensee to operate the Restaurant Facility within one year of the execution date of this License, Licensee shall have the right to terminate this License without penalty or prejudice. In the event of such termination by Licensee the -30- Department shall promptly refund to Licensee the security deposit held pursuant to Section 4.7 herein. 7.7 Prices for all items and services to be sold at or from the Licensed Premises, including but not limited to all prices charged for food, beverages, merchandise, tour services or parking, must be uniform and approved by the Commissioner. It is understood that all restaurant and snack bar pricing will be competitive with all similar restaurant and snack bar pricing, respectively, at facilities under similar licensing arrangements with Parks. Exhibit E, annexed hereto, contains the pre-approved menu, merchandise, services and parking price list, however Licensee shall have a liberal right to change the items being served and sold, subject to approval of Parks which shall not be unreasonably withheld or delayed, except that daily specials shall not require Parks' prior approval. 7.8 Commencing on the Fee Commencement Date and thereafter during the times the Restaurant Facility is in operation, Licensee will be responsible for keeping the entire Licensed Premises clean and free of litter. Licensee shall maintain umbrellas, canopies and other equipment utilized in the operations under this License Agreement in good repair and order. 7.9 Throughout the term of this License Agreement, Licensee shall operate the Restaurant Facility seven days per week for such hours as the Commissioner shall approve. Annexed -31- hereto as Exhibit E is the initial schedule of operating hours, food service menu and merchandise price list, which is hereby approved. In regulating the hours of operation, the Commissioner may consider the hours of operation of other similar Parks facilities, the nature of the community and the environs of the concession, the rules and regulations of Parks operations, the public health and safety, and other similar considerations. Licensee may, subject to the prior written consent of the Commissioner, suspend operation of the restaurant portion of the Restaurant Facility during the period between January 1 and March 31 of any Operating Year, if the Licensee determines that such operation is not economically feasible; during any such period of restaurant suspended operations, the Licensee shall continue operations of the snack bar portion of the Restaurant Facility. 7.10 At its sole cost and expense, Licensee shall open and maintain the rest rooms which are available to the general public in Building A, during all hours when any food or beverage service is in operation on the Licensed Premises. For all rest room space in Building A, including the area available to the general public, the Licensee shall submit a cleaning schedule for the prior approval of Parks and adhere to such schedule once it is approved. Licensee shall provide all required cleaning supplies and services, including but not limited to soap, towels (or hot air blowers) and toilet paper, paint, removal of -32- graffiti, repair broken stall doors, and toilet seats, and replacement of broken lights and fixtures. 7.11 Umbrellas, canopies and other equipment shall be of a design and color as set forth in the Design Plans, once said Design Plans have been approved by the Department. No advertising of product brands will be permitted unless approved in advance by the Department. 7.12 Licensee shall, at its sole cost and expense, print, frame and prominently display in a place and manner designated by Commissioner, the current approved schedule of hours, fees and rates as required by Section 7.9 herein. 7.13 Licensee shall not use any polystyrene foam packaging or food containers in the operations under this License Agreement. Additionally, Licensee will only be allowed to provide paper straws for the walk-away snack bar concession; plastic straws will be permitted only in the interior restaurant settings. 7.14 Licensee, at its sole cost and expense, shall provide any lighting, music, music programming or sound equipment necessary for the proper operation of the License. Licensee agrees to operate and play said sound equipment and music only at a sound level reasonably acceptable to the Commissioner. Any extraordinary musical programming (other than regular background music, either recorded or live) by the Licensee shall be subject to Department approval. -33- 7.15 Licensee warrants that all food, beverages and merchandise shall be pure and of good quality. Licensee shall maintain adequate inventory control to assure a constant supply of food, beverages and merchandise. Licensee shall operate the snack bar in such a manner as to maintain the highest health inspection rating. 7.16 Licensee shall personally conduct operations under this License Agreement or employ an operations manager satisfactory to Commissioner. The designated manager must be available by telephone during all hours of operation. Licensee shall replace any manager, employee, subcontractor or sublicensee whenever reasonably demanded by Commissioner. 7.17 Licensee at its sole cost and expense, shall provide personnel with the requisite qualifications and appropriately train, supervise and accept responsibility for their acts associated with the operation of this License, including but not limited to: (a) the collection of all monies; (b) the maintenance of the Licensed Premises; (c) the conduct and supervision of all activities to be engaged in upon the Licensed Premises, including the provision of food service personnel; (d) the maintenance of security of the Licensed Premises; -34- 7.18 Licensee shall at its sole cost and expense, provide a twenty-four (24) hour per day security system at the Restaurant Facility. 7.19 Licensee shall prepare and provide to Parks, reports of major accidents occurring on the Licensed Premises. Licensee shall promptly notify Parks, in writing, of any claim for injury, death, property damage or theft which shall be asserted against Licensee with respect to the Licensed Premises. Licensee shall also designate a person to handle all such claims, including all insured claims for loss or damage pertaining to the operations of the Licensed Premises and Licensee shall notify Parks in writing, as to said person's name and address. 7.20 Licensee shall promptly notify Parks personnel of any unusual conditions that may develop in the course of the operation of this License Agreement such as, but not limited to, fire, flood, vandalism, casualty or substantial damage of any character. 7.21 Licensee shall maintain close liaison with the Parks Enforcement Patrol and New York City Police and cooperate with all efforts to remove illegal vendors from the Licensed Premises and surrounding areas. Licensee shall not allow or permit illegal activity to occur on the Licensed Premises. Although Parks will use its best efforts to remove non-licensed vendors from the Licensed Premises, Parks makes no warranty that such illegal vendors will not appear on the Licensed Premises. -35- 7.22 All deliveries to Licensee shall be made on such days and at such times of day as Commissioner shall reasonably approve. 7.23 Licensee shall establish an appropriate advertising and promotion program. Licensee shall have the right, subject to the prior approval of the Commissioner, to print or to arrange for the printing of programs for events containing any advertising matter, except advertising matter which in sole discretion of the Commissioner demonstrates a lack of respect for public morals or conduct, is otherwise unacceptable or which adversely affects the reputation of the Restaurant Facility, the Parks Department or the City of New York. 7.24 Licensee shall employ good faith efforts and cooperate with any existing licensees operating nearby the Licensed Premises to secure consent for the Licensee to erect and maintain suitable signs on the Licensed Premises and in the other areas of Battery Park, as described on Exhibit F annexed hereto. Such signs shall be informational in nature and direct patrons to Licensee's facilities at the Licensed Premises, which shall include, for the purposes of such signage, the rest rooms available to the general public in the Main Building. Any advertisement used in connection with such facility, shall be appropriately located and shall state that the Restaurant Facility is a City of New York, Department of Parks and Recreation concession, operated by Shellbank Restaurant Corp. -36- 7.25 If Licensee contemplates placing any signs off-site, such as on nearby highways or streets for the purpose of directing patrons to the Restaurant Facility or for any other purpose, it shall be Licensee's responsibility to obtain any necessary approvals or permits from any governmental agency having jurisdiction over such highways, streets or locations. The design and content of all signs, whether on or off Parks property, are subject to Commissioner's prior approval. 7.26 Licensee shall obtain equipment which will provide security for all monies received. Licensee shall provide for the transfer of all monies collected to the bank. Licensee shall bear the loss of any lost, stolen or counterfeit monies derived from operations pursuant to this License. 7.27 Licensee shall have use of the Parking Area, ("Parking Area") denoted on Exhibit C annexed hereto and made a part hereof, and may, subject to the Licensee's obtaining the prior written approval of the Commissioner and any other state or local authorities having jurisdiction, erect a vehicular traffic control device at the entrance to the Parking Area nearest to State Street and develop a parking control system for the use of the Parking Area by its employees, agents, contractors and patrons. Any such parking control system shall not impede pedestrian traffic through the Parking Area nor restrict the access of official and emergency vehicles to the Parking Area and Battery Park. Licensee agrees to allow and assist tour buses and -37- similar vehicles requiring use of the Parking Areas as a turnaround area. Licensee agrees to maintain the Parking Area in a clean and orderly manner, free from refuse and litter. SECTION 8 MAINTENANCE, SANITATION AND REPAIRS 8.1 Licensee, at its sole cost and expense and to the reasonable satisfaction of Commissioner, shall put, keep, repair and preserve in good order the Licensed Premises including the main building and kiosk structures, walkways, curbs, pathways, trees, landscaping, parking lot and other areas extending to and including the limit line as indicated on Exhibit C annexed hereto. Licensee shall at all times keep Licensed Premises and the areas within 100' of the Licensed Premises, clean, free of litter, neat and, with respect to the food service areas, fumigated, disinfected, deodorized and in every respect sanitary. Licensee shall provide regular cleaning and maintenance services for Licensed Premises, including collection and removal of litter, debris and snow. Licensee shall provide for ongoing maintenance and repair of the garbage compacting equipment which it installs, as provided in Section 5.1 herein. 8.2 Parks will provide for the regular removal of compacted material from the compactor supplied by the Licensee. 8.3 Licensee shall maintain and repair the Licensed Premises in accordance with the standards set forth in this License Agreement. All such maintenance shall be performed by -38- Licensee in a good and worker like manner. Licensee shall submit with its annual statement of income and expenses required pursuant to Section 4.4 herein, a report detailing its annual expenditures for material needed for repairs and maintenance in fulfillment of its obligation pursuant to this Section 8. The Security Deposit required pursuant to Section 4.7 hereof and Article VI of the General Provisions, annexed hereto as Exhibit A, shall secure Licensee's obligation to maintain and repair the Licensed Premises. 8.4 Licensee shall provide adequate waste receptacles on the Licensed Premises. All waste, garbage, refuse, rubbish and litter shall be collected, bagged and placed in the compactor/container at the Licensee's sole cost and expense; compacted garbage will be removed by Parks on a regular, as needed basis. 8.5 Licensee shall be responsible for all snow removal on the Licensed Premises. 8.6 Licensee, at its sole cost and expense and to the reasonable satisfaction of Commissioner, shall provide (and replace if necessary), all equipment necessary for the operation of this License, and put, keep, repair, preserve and maintain in good order all equipment found on, placed in, installed in or affixed to Licensed Premises. 8.7 At the expiration or sooner termination of this License, Licensee shall turn over to Parks a Restaurant Facility -39- with kiosk, parking lot and Parks Facility which are well maintained, in good repair and in broom clean condition, ordinary wear and tear excepted. SECTION 9 APPROVALS 9.1 Licensee is solely responsible for obtaining all government approvals, permits and licenses required by federal, state and City laws, regulations, rules or orders to fulfill this license. 9.2 Whenever any act, consent, approval or permission is required of City or Commissioner under this license, the same shall be valid only if it is, in each instance, in writing and signed by Commissioner or his duly authorized representative. No variance, alteration, amendment, or modification of this instrument shall be valid or binding upon City, Commissioner or their agents, unless the same is, in each instance, in writing and duly signed by the Commissioner or his duly authorized representative. SECTION 10 RESERVATION FOR SPECIAL EVENTS 10.1 Commissioner represents to Licensee that the Commissioner has not granted to any other person or entity any license, permit, or right of possession or use which would prevent in any way Licensee from performing its obligations and realizing its rights under this License. It is expressly -40- understood that this Section 10.1 shall in no way limit Parks right to sponsor or promote Special Events, as defined herein, in Battery Park, or to enter into agreements with third parties to sponsor or promote such events; provided that Parks will use its reasonable efforts to assure that such agreements shall not, without the prior written consent of Licensee, prohibit the Licensee from use of the parking lot or driveway adjacent to the Licensed Premises. For the purposes of this Section 10.1 the term "Special Event(s)" shall mean any event for which Parks has issued a Special Event Permit. 10.2 Commissioner shall use his best efforts to notify Licensee of any Special Event to be held at Battery Park at least fifteen (15) days in advance of such event. 10.3 Parks agrees to notify any third party operator or sponsor of Special Events of Licensee's access rights to the Licensed Premises and to provide same with the name and telephone number of Licensee's manager. 10.4 In the event that Licensee provides reasonably satisfactory evidence to Parks that the use of the Restaurant Facility is adversely affected by such Special Events, Licensee and the Commissioner agree to meet and to discuss and consider a modification of this License to take into account the affect of such Special Events on the revenues of the Restaurant Facility. 10.5 Notwithstanding any other provision of this Section 10, Licensee agrees to make Building A available to Parks -41- for functions conducted and sponsored by Parks for Parks' personnel no more than four (4) times per year. All Parks-sponsored functions shall be scheduled no more than 120 days nor less than 30 days prior to the event. Licensee shall only be obligated to make available the dining and catering space of Building A, although Licensee shall have the right of first refusal to provide any commercial food and beverage catering services, if such services are required for the Parks sponsored functions. Parks may, without obligation to Licensee supply food and beverage service to Parks' personnel. During such Parks sponsored functions, Licensee shall, without cost to Parks, make Licensee's managerial personnel available to assist with opening, closing and/or security of the Licensed Premises. Parks personnel shall not have the right to use the kitchen or bar during such Parks-sponsored functions. SECTION 11 ASSIGNMENTS AND SUBLICENSES 11.1 Licensee may assign or sublicense its interest in whole or in part in this License Agreement provided that Licensee obtains the Commissioner's prior written approval, which shall not be unreasonably withheld or delayed. (a) No assignment or other transfer of any interest in this License Agreement shall be permitted which, alone or in combination with other prior or simultaneous transfers or assignments, would have the effect of changing the -42- ownership or control, whether direct or indirect, of more than forty-nine percent (49%) of stock or voting control of Licensee in the Licensed Premises without the prior written consent of Commissioner. Licensee shall present to Commissioner the assignment or sublicense agreement for approval, together with any and all information as may be required by the City for such approval, including a statement prepared by a certified public accountant indicating that the proposed assignee or sublicensee has a financial net worth acceptable to the Commissioner together with a certification that its principal business activity will consist of the management and operation of the Recreation Facility. The constraints contained herein are intended to assure the City that the Licensed Premises are operated by persons, firms and corporations which are experienced and reputable operators and are not intended to diminish Licensee's interest in the Licensed Premises or to create any rights to payment as a condition of the granting of any required consent or approval. (b) As used in this Section 11 the term "assignment" shall be deemed to include any direct or indirect assignment, sublet, sale, pledge, mortgage, transfer of or change of more than 49% in stock or voting control of the Licensee, including any transfer by operation of law. No sale or transfer of the stock owned by Licensee or its nominee may be made under -43- any circumstance if such sale will result in a change of control violative of the intent of this Section. 11.2 Should Licensee choose to assign or sublicense the management and operation of any element of the Recreation Facility to another party, Licensee shall seek the approval of the Commissioner by submitting a written request including proposed assignment documents as provided above. The Commissioner may request any additional information he deems necessary and Licensee shall promptly comply with such requests. 11.3 No consent to or approval of any assignment or sublicensee granted pursuant to this Section 11 shall constitute consent to or approval of any subsequent assignment or sublicense. 11.4 Failure to comply with this provision shall cause the immediate termination of this license. SECTION 12 RESERVATION FOR PARKS CONSTRUCTION 12.1 Parks reserves the right to perform construction or maintenance work at its discretion on or through the Licensed Premises at any time during the term of this License; however the City shall make reasonable efforts to perform or have performed any repairs, alterations and/or other construction work (the "Construction Work") in and to the Park and/or Licensed Premises in such a manner as will not materially interfere with Licensee's -44- operations at the Licensed Premises which for the purposes of this Section 12.1 shall refer to Building A and Building B only. 12.2 Notwithstanding anything contained herein to the contrary, City reserves the right to, and anticipates that it may during the term hereof, upon thirty (30) days written notice to Licensee, suspend Licensee's Restaurant operations hereunder for any number of days in order to accommodate City construction projects, including without limitation, the anticipated reconstruction of the esplanade and landscaping in Battery Park. During the period of any suspension of Restaurant Facility operations pursuant to this subsection 12.2 whether or not the required notice has been given by City, the Minimum Annual Fee and/or Percentage payments due, if any, shall be suspended and upon resumption of Restaurant Facility operations, such fee payments shall be resumed at the same levels which would have been in effect on the date of the suspension of operations. In addition, the License term shall be extended past its original expiration date for a period of time equal to such suspension, it being the intention of the parties that the Licensee shall, subject to the terms hereof, be entitled to operate the Licensed Premises for twenty (20) full Restaurant Facility Seasons at the corresponding fee set forth in Section 4.1 herein for each such season. [intentionally Left Blank] -45- SECTION 13 GENERAL PROVISIONS INCORPORATED 13.1 The General Provisions annexed hereto as Exhibit A are hereby incorporated herein. In the event that there is any conflict between the General Provisions annexed hereto as Exhibit A and this License Agreement, the language of this License Agreement shall control. IN WITNESS WHEREOF, the parties hereto have caused this License Agreement to be signed and sealed on the day and year first above written. CITY OF NEW YORK PARKS & RECREATION By:/s/ Henry J. Stern ---------------------------------- Henry J. Stern, Commissioner Dated: 23 December, 1994 ------------------------------- SHELLBANK RESTAURANT CORP. By:/s/ Frank Cretella ---------------------------------- Frank Cretella Pres ------------------------------------- Print Name and Title Dated: December 14, 1994 ------------------------------- APPROVED AS TO FORM CERTIFIED AS TO LEGAL AUTHORITY Unintelligible - ------------------------------------ ACTING CORPORATION COUNSEL Dated: November 10, 1994 ------------------------------- -46- STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK ) On this 23rd day of December, 1994 before me personally came Henry J. Stern to me known, and known to be the Commissioner of the Department of Parks and Recreation of the City of New York, and the said person described in and who executed the forgoing instrument and he acknowledged that he executed the same in his official capacity and for the purpose mentioned therein. /s/ Marjorie A. Cadogan ------------------------------------------ Notary Public STATE OF NEW YORK ) } ss.: COUNTY OF NEW YORK ) On this 14th day of December, 1994 before me personally came Frank Cretella, who, being duly sworn by me did depose and say that he resides at 1113 Forest Ave. NY 10310 and that he is the President of the corporation described in and who executed the foregoing instrument and he acknowledged that the executed the same in his official capacity and for the purposes mentioned therein. /s/ Robert J. Scamardella - ------------------------------------ Notary Public -47- EXHIBIT A GENERAL PROVISIONS TABLE OF CONTENTS Page ARTICLE ---- I DEFINITIONS........................................... 1 II NOT A LEASE........................................... 2 III PROHIBITION AGAINST TRANSFER.......................... 2 IV BOOKS AND RECORDS..................................... 2 V RIGHT TO AUDIT........................................ 4 VI SECURITY DEPOSIT...................................... 4 VII CREDITOR-DEBTOR PROCEEDINGS........................... 5 VIII USE OF EQUIPMENT...................................... 6 IX TITLE................................................. 6 X LICENSEE'S ACQUISITION OF FIXED EQUIPMENT............. 6 XI EXPENDABLE EQUIPMENT.................................. 6 XII OBLIGATION TO ACQUIRE................................. 7 XIII MAINTENANCE OF LICENSED PREMISES, EQUIPMENT AND CONDITION UPON SURRENDER.............................. 7 XIV ALTERATIONS........................................... 8 XV IMPROVEMENT OR CORRECTION IN OPERATIONS............... 9 XVI MERCHANDISE AND PRICES................................ 9 XVII ADVERTISING...........................................10 XVIII UTILITIES.............................................10 XIX PUBLIC TELEPHONE SERVICE..............................10 XX INFLAMMABLES..........................................10 XXI SANITATION............................................10 XXII ACCESS................................................11 XXIII COMPLIANCE WITH LAWS..................................11 - i - Page ---- XXIV NON-DISCRIMINATION .................................11 XXV NO WAIVER OF RIGHTS ................................12 XXVI ASSUMPTION OF RISK..................................12 XXVII INDEMNIFICATION.....................................12 XXVIII WAIVER OF COMPENSATION..............................13 XXIX WORKERS' COMPENSATION, PUBLIC LIABILITY AND PROPERTY INSURANCE............................. 13 XXX TERMINATION.........................................17 XXXI INVESTIGATIONS......................................19 XXXII WAIVER OF TRIAL BY JURY............................ 21 XXXIII CHOICE OF LAW, CONSENT TO JURISDICTION AND VENUE.............................................. 22 XXXIV PAYMENTS AND NOTICES................................23 XXXV LATE CHARGES........................................23 XXXVI ENTIRE AGREEMENT....................................24 XXXVII MODIFICATION OF AGREEMENT...........................24 XXXVIII PARAGRAPH AND OTHER REFERENCES......................24 XXXIX TRUST FUNDS.........................................24 XL PROCUREMENT OF AGREEMENT............................24 XLI CUMULATIVE REMEDIES - NO WAIVER.....................25 XLII SEVERABILITY: INVALIDITY OF PARTICULAR PROVISIONS......................................... 25 XLIII CONFLICT OF INTEREST................................26 XLIV EMPLOYEES...........................................26 XLV INDEPENDENT STATUS OF LICENSEE......................26 XLVI ALL LEGAL PROVISIONS DEEMED INCLUDED................27 XLVII JUDICIAL INTERPRETATION.............................27 - ii - EXHIBIT A GENERAL PROVISIONS EXHIBIT A GENERAL PROVISIONS ARTICLE I DEFINITIONS As used throughout this License, the following terms shall have the meanings set forth below: (a) "City" shall mean the City of New York, its departments and political subdivisions. (b) "Commissioner" shall mean the Commissioner of the New York City Department of Parks and Recreation or his designee. (c) "Comptroller" shall mean the Comptroller of the City of New York. (d) "Consumer Price Index" ("C.P.I.") shall mean the Consumer Price Index for all urban consumers; all items indexed (C.P.I.-U.) for the New York, New York/Northeastern New Jersey area, by the United States Department of Labor, Bureau of labor Statistics. In the event the index shall hereafter be converted to a different standard reference base or otherwise revised, the determination of the increase shall be made with the use of conversion factor, formula or table for converting the index as may be published by the Bureau of Labor Statistics. In the event the index shall cease to be published, then for the purpose of this License Agreement there shall be substituted for the index such other index as the Department and Licensee shall agree upon. (e) "Department" shall mean the New York City Department of Parks and Recreation. (f) "Expendable Equipment" shall mean all equipment, other than Fixed Equipment, provided by Licensee. (g) "Fixed Equipment" shall mean any property affixed in any way to Licensed Premises, whether or not removal of said equipment would damage Licensed Premises. (i) "Additional Fixed Equipment" shall mean Fixed Equipment affixed to Licensed Premises subsequent to the date of execution of this License. (ii) "Fixed and Additional Fixed Equipment" shall refer to Fixed Equipment and Additional Fixed Equipment jointly and severally. - 1 - (h) "Parks" shall mean the New York City Department of Parks and Recreation. ARTICLE II NOT A LEASE It is expressly understood that no land, building, space, improvement, or equipment is leased to Licensee, but that during the Term of license, Licensee shall have the use of the Licensed Premises for the purpose herein provided and except as herein provided, Licensee has the right to occupy the premises assigned to it and to operate the Licensed Premises, and to continue in possession thereof only so long as each and every term and condition in this license is strictly and properly complied with and so long as this license is not terminated by Commissioner. ARTICLE III PROHIBITION AGAINST TRANSFER Licensee shall not sell, transfer, assign, sublicense or encumber in any way this License hereby granted, a majority of the shares of Licensee, or any equipment furnished as provided herein, or any interest therein, or consent, allow or permit any other person or party to use any part of the Licensed Premises, building, space or facilities covered by this license, nor shall this license be_transferred by operation of law, unless approved in advance in writing by Commissioner, it being the purpose and spirit of this License Agreement to grant this license and privilege solely to Licensee herein named. ARTICLE IV BOOKS AND RECORDS (a) Licensee, during the term of this license and any renewal thereof, shall maintain adequate systems of internal control and shall keep complete and accurate records, books of account and data, including daily sales and receipts records, which shall show in detail the total business transacted by Licensee and the Gross Receipts therefrom. Such books and records maintained pursuant to this license shall be conveniently segregated from other business matters of Licensee and shall include, but not be limited to: all federal, state and local tax returns and schedules of the Licensee, records of daily bank deposits of the entire receipts from transactions in, at, on or from the Licensed Premises; sales slips, daily dated cash register receipts, sales books; duplicate bank deposit slips and bank statements. - 2 - (b) All transactions shall be registered and recorded on accurate cash registers, totaling or computing machines or on other income-recording devices which shall register each transaction sequentially and contain locked-in cumulative tapes with cumulative capacity satisfactory to Parks or Comptroller. All such machines and devices shall be approved prior to the commencement of this license by Parks or the Comptroller and the Licensee shall notify Parks of the name and serial numbers of all such machines and devices used at the Licensed Premises and of any changes or additions within five (5) days thereof. All reports and data generated from or by such machines and devices, including transactions, shall be posted daily on books and records of account. (c) Licensee shall use such accounting and internal control methods and procedures and keep such additional books and records as may be prescribed by Parks or the Comptroller, and Parks or the Comptroller shall have the right to examine the recordkeeping procedures of the Licensee prior to the commencement of the term of this license, and at any time thereafter, in order to assure that the procedures are adequate to reveal the true, correct and entire business conducted by the Licensee. Licensee shall maintain each year's records, books of account and data for a minimum of six (6) years. (d) Licensee shall furnish to Parks, by the 30th day following each year of operation, statements sworn to and verified by an officer of the Licensee, prepared by a certified public accountant showing the Gross Receipts of the Licensee for such operating year and the annual income and expenses of the Licensee. All information to be furnished to Parks shall be accurate and correct in all material respects and sufficient to give parks a true and accurate picture of the business conducted by the Licensee. (e) The failure or refusal of the Licensee to furnish any of the statements required to be furnished under this Article within fifteen (15) days after its due date, the failure or refusal of the Licensee to maintain adequate internal controls or to keep any of the records as required by this Article or the existence of any unexplained discrepancy in the amount of fees required to be due and paid hereunder, as disclosed by audit conducted by Parks or the Comptroller, of more than five percent (5%) in any two out of three consecutive months or more than ten percent (10%) in one month, shall be presumed to be a failure to substantially comply with the terms and conditions of this license and a default hereunder, which shall entitle parks, at its option, on five (5) days written notice, to terminate this license. In addition, the failure or refusal of Licensee to furnish the required statements, to keep the required records or to maintain adequate internal controls shall authorize Parks or the Comptroller to make reasonable projections of the amount of Gross Receipts which would have been disclosed had the required - 3 - statements been furnished or the required records maintained, based upon such extrinsic factors as the auditors deem appropriate in making such projections. Licensee shall pay any assessment based upon such reasonable projections within fifteen (15) days after receipt thereof, and the failure to do so shall constitute an additional substantial violation of this license and a default hereunder. ARTICLE V RIGHT TO AUDIT (a) Parks, the Comptroller and other duly authorized representatives of the City shall have the right, during business hours, to examine or audit the records, books of account and data of the Licensee to verify Gross Receipts as reported by the Licensee. Licensee shall also permit the inspection by Parks, Comptroller or other duly authorized representatives of the City of any equipment used by Licensee, including, but limited to, cash registers and recording machines, and all reports or data generated from or by the equipment. Licensee shall cooperate fully and assist Parks, the Comptroller or any other duly authorized representative of the City in any examination or audit thereof. In the event that the Licensee's books and records, including supporting documentation, are situated at a location fifty (50) miles or more from the City, the records must be brought to the City for examination and audit or Licensee must pay the food, board and travel costs incidental to two auditors conducting such examination or audit at said location. (b) Notwithstanding any other provision of this License, the failure or refusal of the Licensee to permit Parks, the Comptroller or any other duly authorized representative of the City to audit and examine the Licensee's records, books of account and data or the interference in any way by the Licensee in such an audit or examination is presumed to be a failure to substantially comply with the terms and conditions of this license and a default hereunder which shall entitle Parks, at its option on fifteen (15) days written notice, to terminate this license. ARTICLE VI SECURITY DEPOSIT (a) Licensee has deposited with City the sum of Twelve Thousand Five Hundred dollars ($12,500) as a security deposit ("Security Deposit"), for the full, faithful and prompt performance of and compliance with all the terms and conditions of this license. The Security Deposit shall consist of cash or a negotiable instrument payable to bearer or the City of New York which the Comptroller shall approve as being of equal market value with the sum so required. The Security Deposit shall remain - 4 - with the City throughout the Term of this license. Until the Security Deposit is established, as described above, Parks shall retain Licensee's Bid Deposit. (b) The Security Deposit shall be held by the City without liability for interest thereon, as security for the full and faithful performance by the Licensee of each and every term and condition of this license on the part of the Licensee to be observed and performed. The Licensee may collect or receive annually any interest or income earned on bonds less any part thereof or amount which the City is or may hereafter be entitled or authorized by law to retain or to charge in connection therewith, whether as or in lieu of administrative expense or custodial charge, or otherwise the City shall not be obligated by this provision to place or to keep cash deposited hereunder in interest-bearing bank accounts. (c) Use and Return of Deposit If any fees or other charges or sums payable by Licensee to the City shall be overdue and unpaid or should the City make payments on behalf of the Licensee, or should the Licensee fail to perform any of the terms of this License, then Parks may, at its option, and without prejudice to any other remedy which the City may have on account thereof, after five (5) days written notice, appropriate and apply the Security Deposit or as much thereof as may be necessary to compensate the City toward the payment of license fees, charges, liquidated damages or other sums due from the Licensee or towards any loss, damage or expense sustained by the City resulting from such default on the part of Licensee. In such event, the Licensee shall restore the Security Deposit to the original sum deposited within five (5) days after written demand therefor. In the event Licensee shall fully and faithfully comply with all of the terms, covenants and conditions of this license and pay all License fees and other charges and sums payable by Licensee to the City, the Security Deposit shall be returned to Licensee following the date of the surrender of the Licensed Premises by the Licensee in compliance with the provisions of this license. ARTICLE VII CREDITOR-DEBTOR PROCEEDINGS In the event any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings shall be instituted by or against the Licensee or its successors or assigns, or the guarantor, if any, the Security Deposit shall be deemed to be applied first to the payment of license fees and/or other charges due the City for all periods prior to the institution of such proceedings and the balance, if any, of the Security Deposit may be retained by the City in partial liquidation of the City's damages. In the event of any bankruptcy, insolvency, reorganization or other creditor-debtor proceedings, Commissioner - 5 - has to right to terminate this license upon one (1) day's notice. ARTICLE VIII USE OF EQUIPMENT Licensee shall have the use of all Fixed Equipment located on the Licensed Premises. ARTICLE IX TITLE (a) Commissioner represents that City has title to all Fixed Equipment. (b) Any Additional Fixed Equipment, except that which is enumerated Licensee's List of Additional Fixed Equipment, annexed hereto as Exhibit C, shall vest in and belong to the City at the City's option, which option may be exercised at any time after the substantial completion of the affixing of said equipment. Licensee must acquire and affix Additional Fixed Equipment as provided in Article X. ARTICLE X LICENSEE'S ACQUISITION OF FIXED EQUIPMENT In order to acquire and affix Fixed and Additional Fixed Equipment to the Licensed Premises, Licensee shall: (a) notify Commissioner of Licensee's intention to affix Fixed and Additional Fixed Equipment so that Commissioner may, in his sole discretion, inspect and approve such affixing; should Commissioner fail to disapprove same within fifteen (15) days of said notice, then his approval will be deemed granted; and (b) supply Commissioner within thirty (30) days of delivering Fixed and Additional Fixed Equipment to Licensed Premises, bills of sale or other evidence of purchase so that Commissioner may amend Parks' schedule of Fixed Equipment and have complete information regarding all inventory on Licensed Premises. ARTICLE XI EXPENDABLE EQUIPMENT (a) Licensee shall supply at its own cost and expense all Expendable Equipment required for the proper operation of this license, and to replace same, at its own cost and expense when requested by Commissioner. - 6 - (b) Title to all Expendable Equipment obtained by Licensee shall remain in Licensee and such equipment shall be removed by Licensee at the termination or expiration of this license. In the event such equipment remains in the Licensed Premises following such termination or expiration, Commissioner may treat such property as abandoned and charge all costs and expenses incurred in the removal thereof to Licensee. (c) The equipment to be removed by Licensee pursuant to subsection (b) above, shall be removed from the Licensed Premises in such a way as shall cause no damage to the Licensed Premises. Notwithstanding its vacating and surrender of the Licensed Premises, Licensee shall remain liable to City for any damage it may have caused to the Licensed Premises. ARTICLE XII OBLIGATION TO ACQUIRE Licensee must acquire, replace, install or affix, at its sole cost and expense, any equipment, materials and supplies required for the proper operation of Licensed Premises as described herein or as reasonably required by Commissioner. ARTICLE XIII MAINTENANCE OF LICENSED PREMISES, EQUIPMENT AND CONDITION UPON SURRENDER (a) Licensee, at its sole cost and expense and to the satisfaction of Commmissioner, shall put, keep, landscape, repair, preserve in good order Licensed Premises, which shall include the Fixed and Additional Fixed Equipment. Licensee shall keep at all times Licensed Premises and the surrounding area within the distance specified herein, clean, litter free, neat, fumigated, disinfected, deodorized and in every respect sanitary. Licensee shall provide regular cleaning and maintenance services for Licensed Premises. (b) Notwithstanding the foregoing, at the expiration or sooner termination of this license, Licensee shall surrender the Licensed Premises, and the Fixed and Additional Fixed Equipment to which City holds title, in at least as good a condition as said Licensed Premises, and the Fixed and Additional Fixed Equipment were found by Licensee, reasonable wear and tear excepted. (c) Licensee acknowledges, that it is acquiring the Licensed Premises and Fixed Equipment thereon solely on reliance on its own investigation, that no representations, warranties or statements have been made by the City concerning the fitness thereof, and that by taking possession of the Licensed Premises - 7 - and Fixed Equipment, Licensee accepts them in their present condition "as is." ARTICLE XIV ALTERATIONS (a) "Alteration" shall mean (excepting ordinary repair and maintenance): (i) any restoration (to original premises or in the event of fire or other cause), rehabilitation, modification, addition or improvement to Licensed Premises; or (ii) any work affecting the plumbing, heating, electrical, water, mechanical, ventilating or other systems of Licensed Premises. (b) Licensee may alter Licensed Premises only in accordance with the requirements of subsection (c) of this Article. Alterations shall become property of City upon their attachment, installation or affixing. (c) In order to alter Licensed Premises pursuant to subsection (b) of this Article, Licensee must: (i) Obtain Commissioner's written approval (which shall not be unreasonably withheld) for whatever designs, plans, specifications, cost estimates, agreements and contractual understandings that may pertain to contemplated purchases and/or work; except that if Commissioner does not give Licensee written notice of his objection to such submitted designs, plans, specifications, cost estimates, agreements, and contractual understandings within thirty (30) days of his receipt of same, then his approval will be deem granted; and (ii) insure that work performed and alterations made on Licensed Premises are undertaken and completed 1. in accordance with submissions approved pursuant to section (i) of this Article, 2. in a good and workmanlike manner, and 3. within a reasonable time; (iii) notify Commissioner of completion of, and the making final payment for, any alteration within ten (10) days after the occurrence of said completion or final payment. (d) Commissioner may, in his reasonable discretion, make repairs, alterations, decorations, additions or improvements to Licensed Premises at the City's expense, but nothing herein shall be deemed to obligate or require Commissioner to make any - 8 - repairs, alterations, decorations, additions, or improvements, nor shall this provision in any way affect or impair Licensee's obligation herein in any respect. ARTICLE XV IMPROVEMENT OR CORRECTION IN OPERATIONS (a) Should Commissioner, in his sole judgment, which shall not be arbitrary or capricious, decide that Licensee is not operating license in a satisfactory manner, Commissioner may in writing order Licensee to improve operations or correct such conditions as Commissioner may deem unsatisfactory. In the event that Licensee fails to comply with such written notice or respond in a manner satisfactory to Commissioner within fifteen (15) days from the mailing of said notice, notwithstanding any other provisions herein, then Commissioner shall terminate this License. If Licensee is prevented from complying with the written notice for reasons beyond its control, then Commissioner may not terminate this License until Licensee had been given a reasonable opportunity to comply and has failed to do so. (b) Should Commissioner, in his sole judgment, decide that an unsafe or emergency condition exists on the Licensed Premises, after written notification, Licensee shall have forty-eight (48) hours to correct such unsafe or emergency condition. If such unsafe or emergency condition cannot be corrected within said period of time, the Licensee shall notify the Commissioner in writing and indicate the period within such condition shall be corrected. Commissioner, in his discretion, may extend such period of time in order to permit Licensee to cure, under such terms and conditions as Commissioner deems appropriate. This notwithstanding, Licensee shall at all times comply with all laws, rules, regulations and orders pursuant to Article XXIII herein. At no time, however, shall the City be obligated to make repairs, replacements, or additions of any kind to the Licensed Premises or Equipment thereon. ARTICLE XVI MERCHANDISE AND PRICES Licensee warrants that all food, merchandise or supplies sold pursuant to this License shall be pure and of good quality. Licensee shall submit to Commissioner a list or schedule of the articles to be offered for sale pursuant to this License and the prices to be charged for each article, and Licensee shall offer for sale only such articles and at such prices as have been approved by Commissioner, which shall not be unreasonably withheld. The schedule of prices approved by Commissioner shall be printed, framed and displayed at the expense of Licensee in a place and manner such that it may be readily seen by the public. - 9 - ARTICLE XVII ADVERTISING Licensee shall establish an appropriate advertising and promotion program. Licensee shall have the right to print or to arrange for the printing of programs for events containing any advertising matter except advertising matter which is indecent, or in obvious bad taste, or which demonstrates a lack of respect for public morals or conduct. Licensee may release news items to the media as it sees fit. If the Commissioner in his discretion, however, finds any releases to be unacceptable, then Licensee shall cease or alter such releases as directed. ARTICLE XVIII UTILITIES Parks, at its sole cost and expense, shall install or cause to be installed, maintain all utility lines, meters and supplies of power necessary for the proper operation of this license as described herein and pay all utility cost. Notwithstanding the foregoing sentence, Licensee shall bear the cost of the utilities associated with operation of the snack bar. Utilities may include, but shall not be limited to electricity, gas, heat, coolant, water and sewer. Parks does not make representation or warranty that existing cables, meters, or supplies of power are adequate for Licensee's needs or that any entity can or will make such service available. ARTICLE XIX PUBLIC TELEPHONE SERVICE Licensee shall contract directly with the telephone company for public telephone services at Licensed Premises. ARTICLE XX INFLAMMABLES Licensee shall not use or permit the storage of any illuminating oils, oil lamps, turpentine, benzine, naphtha, or similar substances or explosives of any kind or any substances or things prohibited in the standard policies of insurance companies in the State of New York. ARTICLE XXI SANITATION Licensee shall be responsible for keeping all litter baskets within such areas supplied with plastic bags and shall - 10 - tie each bag as it becomes full and place it next to the litter basket. Licensee shall provide adequate waste receptacles adjacent to the Licensed Premises. All waste, garbage, refuse, rubbish and litter shall be collected, bagged and removed as necessary by a private carting company at the Licensee's sole cost and expense. ARTICLE XXII ACCESS Licensee shall provide at all times, free access to the Licensed Premises to the Commissioner or his representatives and to other City, State and Federal officials having jurisdiction, for inspection purposes. ARTICLE XXIII COMPLIANCE WITH LAWS (a) Licensee shall comply at its sole cost and expense, and cause its employees and agents to comply with all applicable laws, rules, regulations and orders now or hereafter prescribed by Commissioner, and to comply with applicable all laws, rules, regulations and orders of any City, State or Federal agency or governmental entity having jurisdiction over operations of the License and the Licensed Premises and/or Licensee's use and occupation thereof. (b) Licensee shall not use or allow the Licensed Premises, or any portion thereof, to be used or occupied for any unlawful purpose or in any manner violative of a certificate pertaining to occupancy or use during the term of this license. ARTICLE XXIV NON-DISCRIMINATION (a) Licensee shall not discriminate against any employee or applicant for employment because of race, creed, color, national origin, age, sex, handicap, marital status, sexual orientation or affectional preference with respect to all employment decisions including, but not limited to recruiting, hiring, upgrading, demoting, promoting, selecting for training (including apprenticeship), rates of pay and other forms of compensation, laying off, terminating and all other terms and conditions of employment. (b) All advertising for employment shall indicate that Licensee is an Equal Opportunity Employer. - 11 - ARTICLE XXV NO WAIVER OF RIGHTS No acceptance by Commissioner of any compensation, fees, penalty sums, charges or other payments in whole or in part for any periods after a default of any terms and conditions herein shall be deemed as a waiver of any right on the part of Commissioner to terminate this license. No waiver by Commissioner of any default on the part of Licensee in performance of any of the terms and conditions herein shall be construed to be a waiver by the Commissioner of any other or subsequent default in the performance of any of the said terms and conditions. ARTICLE XXVI ASSUMPTION OF RISK Licensee assumes all risk in the operation of this license. ARTICLE XXVII INDEMNIFICATION (a) Licensee shall indemnify and save harmless Commissioner, his agents and City against and from all losses, liabilities, suits, obligations, fines, damages, penalties, claims, costs, charges, and expenses, of any kind whatsoever including without limitation architects' and attorneys' fees, costs and disbursements which may be imposed upon, incurred by or asserted against Commissioner, his agents and City in whole or in part arising out of any violation of any law, rule, regulation or order, and from any and all claims for loss, damage or injury (including death) to persons or property of whatever kind or nature arising from the operation of this License, or from the negligence or carelessness of employees, agents, contractors, servants, sublicensees or invitees of Licensee. Licensee shall indemnify any recoveries against Commissioner, his agents and City individually and/or jointly arising from same and shall reimburse Commissioner and/or City hereunder. (b) The obligation of Licensee under this Article 27 shall not be affected in any way by the absence or lapse in any case of covering insurance or by the failure or refusal of any insurance policies affecting the Licensed Premises. (c) If any claim, action or proceeding is made or brought against Commissioner, his agents or City by reason of any event to which reference is made in subparagraph (a) hereof, then upon demand by Commissioner, Licensee, at its sole cost and expense, shall resist or defend such claim, action or proceeding in Commissioner's name, if necessary, by the attorneys for - 12 - Licensee's insurance carrier (if such claim, action or proceeding is covered by insurance), otherwise by such attorneys as Commissioner shall approve, which approval shall not be unreasonably withheld or delayed. (d) The provisions of this Article XXVII and all other indemnity provisions of this License shall survive the expiration date with respect to any liability, suits, obligation, fine, damage, penalty, claim, cost, charge or expense arising out of or in connection with any action or failure to take action or any other matter occurring prior to the expiration date of this license. ARTICLE XXVIII WAIVER OF COMPENSATION (a) Licensee hereby expressly waives any and all claims for compensation for any and all loss or damage sustained by reason of any defects, including, but not limited to, deficiency or impairment of the water supply system, gas mains, electrical apparatus or wires furnished for the Licensed Premises, or by reason of any loss of any gas supply, water supply, heat or current which may occur from time to time from any cause, or for any loss resulting from fire, water, windstorm, tornado, explosion, civil commotion, strike or riot, and Licensee hereby expressly releases and discharges Commissioner, his agents, and City from any and all demands, claims, actions, and causes of action arising from any of the causes aforesaid. (b) Licensee further expressly waives any and all claims for compensation, loss of profit, or refund of its investment, if any, or any other payment whatsoever, in the event this license is terminated by Commissioner sooner than the fixed term because the Licensed Premises are required for any park or other public purpose, or because the license was terminated or revoked for any reason as provided herein. ARTICLE XXIX WORKERS' COMPENSATION AND INSURANCE (a) Licensee shall, at its own cost and expense, procure and maintain such insurance for the Term of this license as will: (1) protect Licensee from claims under the Workers' Compensation Act; (2) protect and defend Licensee (including agents and sublicensees, if any), the City and Commissioner from any claims for property damage and for personal injuries, including death, arising out of, occurring, - 13 - or caused by operations under this license by Licensee or anyone directly or indirectly employed by said Licensee, or otherwise arising out of this license; this coverage shall include coverage for equipment belonging to the City and acts of vandalism. (b) The policies shall provide the amounts of insurance hereafter mentioned, and before delivery of the license, all certificates of insurance shall be submitted to Commissioner for his approval and retention. Each certificate shall be marked "Premium Paid" and shall have endorsed thereon: "No cancellation of or change in this policy shall become effective until after thirty (30) days notice by Certified Mail to Commissioner, Department of Parks and Recreation, The Arsenal, Central Park, New York, New York 10021. Each policy shall also provide that the insurer is obligated to provide a legal defense in the event any claim is made against the City. If, at any time, any of said policies shall terminate or become unsatisfactory to Commissioner as to form or substance, or if a company issuing any such policies shall become unsatisfactory to Commissioner, Licensee shall promptly obtain a new policy, and submit the same to Commissioner for written approval, which shall not be unreasonably withheld, and for retention thereof as hereinabove provided. Upon failure of Licensee to maintain, furnish and deliver such insurance as above provided, this License may, at the election of Commissioner, be suspended, discontinued or terminated and any and all payments made by Licensee on account of this license shall thereupon be retained by Commissioner as additional liquidated damages along with the Security Deposit. Failure of Licensee to take out and/or maintain or the taking out or maintenance of any required insurance shall not relieve Licensee from any liability under the license, nor shall the insurance requirements be construed to conflict with or limit the obligations of Licensee concerning indemnification. (c) If the Licensed Premises and/or Fixed Equipment shall be damaged or destroyed by fire, or other covered cause, such damage shall be promptly repaired or replaced such that the Licensed Premises and/or Fixed Equipment are in the same condition as prior to such damage. At Licensee's request, the City shall advance insurance proceeds received by Commissioner to cover such costs except that such payments shall in no event exceed the amount actually collected and received by Commissioner under the insurance policies. Licensee shall immediately commence and diligently prosecute to completion any restoration or repair within six months (or such longer period as is reasonably neccessary to complete such restoration and repairs) after Licensee is notified by Commissioner that insurance proceeds have been received and are available for such work. Any extension of time for the completion of Restoration shall be granted at the reasonable discretion of Commissioner. Reimbursement under this provision shall be made within 120 days of the Commissioner's - 14 - actual collection and receipt of insurance proceeds under the insurance policy. (d) All insurance money paid to the City on account of such damage or destruction, less the reasonable costs of the City with the recovery or adjustment of the losses, shall be applied by the City to the payment of the cost of the restoration, repairs, replacements, rebuilding or alterations, including the costs of temporary repairs, provided the same has been approved by Commissioner in writing, for the protection of property pending the completion of permanent restoration, repairs, replacements, rebuilding or alterations (collectively referred to as the "Restoration"), and shall be paid out from time to time as such restoration progresses upon the written request of the Licensee which shall be accompanied by the following: (i) A certificate signed by an executive officer of Licensee and signed also in accordance with Article XXIX (c) by the architect or engineer in charge of Restoration (who shall be satisfactory to the Commissioner) dated not more than 30 days prior to such request, setting forth the following: a. that the sum then requested either has been paid by Licensee, or if in the event the Licensee is unable to pay for the Restoration, and funds are to be advanced by the City pursuant to section c, that said sum is justly due or shall become due to contractors, subcontractors, material men, engineers, architects or other persons who shall or have rendered services or furnished materials for said Restoration, and giving a brief description of such services and materials and the several amounts so paid and/or due or to become due to each of said persons in respect thereof and the sum then requested does not exceed the value of the services and materials described in the certificate; b. that except for the amount, if any, stated in said certificate pursuant to the foregoing section XXIX (d) i.e., to be due for services or materials, there is no outstanding indebtedness known to Licensee, after due inquiry, which is then due for labor, wages, materials, supplies or services in connection with Restoration; - 15 - c. that the cost, as estimated by such architect or engineer, of the Restoration required to be done subsequent to the date of such certificate in order to complete the same does not exceed the insurance money remaining in the hands of the City after payment of the sum requested in such certificate. (ii) A Title Company search or other evidence satisfactory to the Commissioner showing that there has not been filed with respect to the Licensed Premises any mechanic's or other lien which has not been discharged of record. (e) Upon compliance with the foregoing provisions of this section, the City, shall, on behalf of the Licensee out of such insurance money, pay or cause to be paid to the persons named in the certificate, pursuant to section XXIX (d)(i), the respective amounts stated in said certificate to be due to them and/or shall pay or cause to be paid to Licensee the amount stated in said Certificate to have been paid by Licensee. Notwithstanding the foregoing in the event that Licensee fails to undertake the Restoration of Licensed Premises as a result of damage or destruction by fire or other casualty in accordance with section XXIX (c) the Commissioner may but shall not be obligated to proceed with such Restoration using insurance proceeds received for such purpose and may terminate this License upon written notice to Licensee. However, if this license is terminated as provided in this paragraph, Licensee shall be responsible for the payment for any fees or other sums then due and owing to the City and the City reserves any and all rights it may have against the Licensee in law or in equity as a result of the termination of this License Agreement. (f) Should Licensee fail, after notice from the City of the need thereof, to perform its obligations required hereunder, City in addition to all other available remedies may, but shall not be so obligated to enter upon the Licensed Premises and perform Licensee's said failed obligations using any equipment or materials on the premises suitable for such purposes. Licensee shall forthwith on demand reimburse City for all costs and expenses so incurred. (g) All required insurance must be issued by companies who are rated "X-10" and are authorized to do business in the State of New York and must be in effect and continue so during the life of the License in not less than the following amounts: Workmen's Compensation Insurance ...................... Per Statute Employer's Liability for any one - 16 - occurrence not less than.................................$ 500,000 Comprehensive General Liability Insurance (with Broad Form Property Damage, Products/ Completed Operations Liability, Contractual Liability, Independent Contractors, Fire/ Legal Liability, Liquor Liability, Property Insurance Endorsements) for any one occurrence not less than............................................$1,000,000 Any Auto, Hired Auto, and Non-Owned Auto Insurance for any one occurrence not less than ...........................................$1,000,000 Builders' Risk Insurance for any one occurrence not less than ....................................replacement value of building and fixed equipment which shall be reassessed every three years or at parks's discretion Property Insurance for any one occurrence not less than ....................................replacement value of building and fixed equipment which shall be reassessed every three years or at parks's discretion (h) In the event that claims in excess of these amounts are filed against the City, the amount of excess of such claims, or any portion thereof, may be withheld from any payment due or to become due Licensee until such time as Licensee shall furnish such additional security covering such claims as may be reasonably determined by Commissioner. All policies, other than Workmen's Compensation, shall name the City of New York as an additional insured party. ARTICLE XXX TERMINATION (a) Should Licensee breach or fail to comply with any of the provisions of this License, any federal, state or local law, rule, regulation or order affecting the License or the Licensed Premises with regard to any and all matters, Commissioner may in writing order Licensee to remedy such breach or to comply with such provision, law, rule,regulation or order, and in the event that Licensee fails to comply with such written notice within thirty (30) days from the mailing thereof subject to unavoidable delays beyond reasonable control of licensee, then this License shall immediately terminate as though it were the time provided above for the termination thereof. If said material breach or failure to comply is corrected, and a second or repeated violation of the same provision, law, rule, regulation - 17 - or order follows thereafter, Commissioner, by notice in writing, may revoke and terminate this License, such revocation and termination to be immediately effective on the mailing thereof, the License to terminate as though it were the time provided above for the expiration thereof. (b) The following shall constitute events of default for which this License may be terminated on one (1) days notice: the filing of a petition in bankruptcy; the adjudication of Licensee as a bankrupt; the appointment of any receiver of Licensee's assets; the making of a general assignment for the benefit of creditors; a petition or answer seeking an arrangement for the reorganization of Licensee under any Federal Reorganization Act, including petitions or answers under Chapter X or XI of the Bankruptcy Act; the occurrence of any act which operates to deprive Licensee permanently of the rights, powers and privileges necessary for the proper conduct and operation of the License; the levy of any attachment or execution which substantially interferes with Licensee's operations under this License and which attachment or execution is not vacated, dismissed, stayed or set aside within a period of sixty (60) days. (c) Nothing contained in paragraph (a) or (b) above shall be deemed to imply or be construed to represent an exclusive enumeration of circumstances under which Commissioner may terminate this License. (d) Upon expiration or sooner termination of this License by Commissioner, all rights of Licensee herein shall be forfeited without claim for loss, damages, refund of investment or any other payment whatsoever against Commissioner or City. (e) In the event Commissioner terminates this License for reasons related paragraphs (a) or (b) above any property of the Licensee on the Licensed Premises may be held and used by Commissioner in order to operate the License during the balance of the calendar year and may be held and used thereafter until all indebtedness of the Licensee hereunder, at the time of termination of this License, is paid in full. (f) Notwithstanding anything herein to the contrary, Licensee agrees that upon the expiration or sooner termination of this License, it shall immediately cease all operations pursuant to this License and shall vacate the Licensed Premises without any further notice by the City and without resort to any judicial proceedings by the City. Upon expiration or sooner termination of this License, City reserves the right to take immediate possession of the Licensed Premises. - 18 - ARTICLE XXXI INVESTIGATIONS (a) The parties to this license shall cooperate fully and faithfully with any investigation, audit or inquiry conducted by a State of New York (hereinafter "State") or City governmental agency or authority that is empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath, or conducted by the Inspector General of a governmental agency that is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license that is the subject of the investigation, audit or inquiry. (b) (i) If any person who has been advised that his or her statement, and any information from such statement, will not be used against him or her in any subsequent criminal proceeding refuses to testify before a grand jury or other governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to examine witnesses under oath concerning the award of or performance under any transaction, agreement, lease, permit, contract, or license entered into with the City, the State, or any political subdivision or public authority thereof, or the Port Authority of New York and New Jersey, or any local development corporation within the City, or any public benefit corporation organized under the laws of the State of New York, or; (ii) If any person refuses to testify for a reason other than the assertion of his or her privilege against self incrimination in an investigation, audit or inquiry conducted by a City or State governmental agency or authority empowered directly or by designation to compel the attendance of witnesses and to take testimony concerning the award of, or performance under, any transaction, agreement, lease, permit, contract, or license entered into with the City, the State, or any political subdivision thereof or any local development corporation within the City, then; (c) (i) The Commissioner or agency head whose agency is a party in interest to the transaction, submitted bid, submitted proposal, contract, lease, permit, or license shall convene a hearing, upon not less than five (5) days written notice to the parties involved to determine if any penalties should attach for the failure of a person to testify. (ii) If any non-governmental party to the hearing requests an adjournment, the Commissioner or agency head who convened the hearing may, upon granting the adjournment, suspend any contract, lease, permit, or license pending the final determination pursuant to paragraph (e) below without the City incurring any penalty or damages for delay or otherwise. - 19 - (d) The penalties which may attach after a final determination by the Commissioner or agency head may include but shall not exceed: (i) The disqualification for a period not to exceed five (5) years from the date of an adverse determination of any person or entity of which such person was a member at the time the testimony was sought, from submitting bids for, or transacting business with, or entering into or obtaining any contract, lease, permit or license with or from the City; and/or (ii) The cancellation or termination of any and all existing City contracts, leases, permits, or licenses that the refusal to testify concerns and that have not been assigned as permitted under this license, nor the proceeds of which pledged, to an unaffiliated and unrelated institutional lender for fair value prior to the issuance of the notice scheduling the hearing, without the City incurring any penalty or damages on account of such cancellation or termination; monies lawfully due for goods delivered, work done, rentals, or fees accrued prior to the cancellation or termination shall be paid by the City. (e) The Commissioner or agency head shall consider and address in reaching his or her determination and in assessing an appropriate penalty the factors in paragraphs (i) and (ii) below. He or she may also consider, if relevant and appropriate, the criteria established in paragraphs (iii) and (iv) below in addition to any other information which may be relevant and appropriate. (i) The party's good faith endeavors or lack thereof to cooperate fully and faithfully with any governmental investigation or audit, including but not limited to the discipline, discharge, or disassociation of any person failing to testify, the production of accurate and complete books and records, ad the forthcoming testimony of all other members, agents, assignees or fiduciaries whose testimony is sought. (ii) The relationship of the person who refused to testify to any entity that is a party to the hearing, including, but not limited to, whether the person whose testimony is sought has an ownership interest in the entity and/or the degree of authority and responsibility the person has within the entity. (iii) The nexus of the testimony sought to the subject entity and its contracts, leases, permits or licenses with the City. (iv) The effect a penalty may have on an unaffiliated and unrelated party or entity that has a significant interest in an entity subject to penalties under (d) above, provided that the party or entity has given actual notice to the - 20 - Commissioner or agency head upon the acquisition of the interest, or at the hearing called for in (c) (i) above gives notice and proves that such interest was previously acquired. Under either circumstance the party or entity must present evidence at the hearing demonstrating the potentially adverse impact a penalty will have on such person or entity. (f) (i) The term "license" or "permit" as used herein shall be defined as a license, permit, franchise or concession not granted as a matter of right. (ii) The term "person" as used herein shall be defined as any natural person doing business alone or associated with another person or entity as a partner, director, officer, principal or employee. (iii) The term "entity" as used herein shall be defined as any firm, partnership, corporation, association, or person that receives monies, benefits, licenses, leases, or permits from or through the City or otherwise transacts business with the City. (iv) The term "member" as used herein shall be defined as any person associated with another person or entity as a partner, director, officer, principal or employee. (g) (1) In addition to and notwithstanding any other provision of this License the Commissioner or agency head may in his or her sole discretion terminate this agreement upon not less than three (3) days written notice in the event Licensee fails to promptly report in writing to the Commissioner of Investigation of the City of New York any solicitation of money goods requests for future employment or other benefit or thing of value, by or on behalf of any employee of the City of other person, firm, corporation or entity for any purpose which may be related to the procurement or obtaining of this agreement by the Licensee, or affecting the performance or this License Agreement. ARTICLE XXXII WAIVER OF TRIAL BY JURY The parties hereto waive trial by jury in any action, proceeding, or counterclaim brought by either of the parties against the other in any matter related to this license. Any action taken by Commissioner relating to this license may only be challenged in a proceeding instituted in New York County pursuant to CPLR Article 78. - 21 - ARTICLE XXXIII CHOICE OF LAW, CONSENT TO JURISDICTION AND VENUE (a) This license shall be deemed to be executed in the City of New York, State of New York, regardless of the domicile of the Licensee, and shall be governed by and construed in accordance with the laws of the State of New York. (b) Any and all claims asserted by or against the City arising under this license or related thereto shall be heard and determined either in the courts of the United States located in New York City ("Federal Courts") or in the courts of the State of New York ("New York State Courts") located in the City and County of New York. To effect this License Agreement and intent, Licensee agrees: (c) If the City initiates any action against the Licensee in Federal Court or in New York State Court, service of process may be made on the Licensee either in person, wherever such Licensee may be found, or by registered mail addressed to the Licensee at its address set forth in this license, or to such other address as the Licensee may provide to the City in writing; and (d) With respect to any action between the City and the Licensee in New York State Court, the Licensee hereby expressly waives and relinquishes any rights it might otherwise have (i) to move to dismiss on grounds of forum non conveniens, (ii) to remove to Federal Court; and (iii) to move for a change of venue to a New York State Court outside New York County. (e) With respect to any action between the City and the Licensee in Federal Court located in New York City, the Licensee expressly waives and relinquishes any right it might otherwise have to move to transfer the action to a United States Court outside the City of New York. (f) If the Licensee commences any action against the City in a court located other than in the City and State of New York, upon request of the City, the Licensee shall either consent to a transfer of the action to a court of competent jurisdiction located in the City and State of New York or, if the court where the action is initially brought will not or cannot transfer the action, the Licensee shall consent to dismiss such action without prejudice and may thereafter reinstitute the action in a court of competent jurisdiction in New York City. (g) If any provision(s) of this Article is held unenforceable for any reason, each and all other provision(s) shall nevertheless remain in full force and effect. - 22 - ARTICLE XXXIV PAYMENTS AND NOTICES (a) Any license fees, charges or sums payable by Licensee to City shall be made to the City of New York at The Arsenal, Central Park, New York, New York 10021. (b) Where provision is made herein for notice to be given in writing, the same shall be given by hand delivery or by mailing a copy of such notice by certified mail, return receipt requested, addressed to Commissioner or to the attention of Licensee or to the General Counsel of Licensee at their respective addresses provided in this License, or other address as Licensee shall have filed with Commissioner. ARTICLE XXXV LATE CHARGES In the event that payment of license fees, percentage fees or other charges shall become overdue for fifteen (15) days beyond the date on which it is due and payable as provided in this license, a late charge of two percent (2%) per month (computed on a thirty (30) day month) from the date it was due and payable on the sums so overdue shall become immediately due and payable to Commissioner as liquidated damages for the administrative cost and expenses incurred by Commissioner by reason of Licensee's failure to make prompt payment and said late charges shall be payable by Licensee without notice or demand. If the late fee and all arrears (including prior 2% charges) are not paid in full by the 1Oth day of the month following the month in which it shall be due, or is already past due, an additional charge of 2% of the total of such fee and arrears shall be added thereto and shall be payable and collectable with the next monthly license fee installment. Failure to abide by the terms of this Article shall be presumed to be a failure to substantially comply with the terms, conditions and covenants of this License: Agreement and shall be a default hereunder. No failure by Commissioner to insist upon the strict performance by Licensee of Licensee's obligations to pay late charges shal1 constitute a waiver by Commissioner of his right to enforce the provisions of this Article. If any local, state or federal law or regulation which limits the rate of interest which can be charged pursuant to this Article is enacted, the rate of interest set forth in this Article shall not exceed the maximum rate permitted under such law or regulation. - 23 - ARTICLE XXXVI ENTIRE AGREEMENT This license constitutes the whole of the agreement between the parties hereto, and no other representation made heretofore shall be binding upon the parties hereto. Any changes, additions or amendments not otherwise provided for herein shall be in writing and shall be signed by the parties hereto. ARTICLE XXXVII MODIFICATION OF AGREEMENT This license may be modified from time to time by agreement in writing, but no modification of this license shall be in effect until such modification has been agreed to in writing and duly executed by the party or parties affected by said modification. ARTICLE XXXVIII PARAGRAPH AND OTHER REFERENCES (a) All references herein to "Paragraph(s)", "Subparagraph(s)", and "Section(s)" shall be understood to pertain to portions of this license. (b) The Table of Contents and division titles found herein are inserted for reference only and in no way define, limit, describe or in any way affect the scope or intent or meaning of this license. ARTICLE XXXIX TRUST FUNDS Immediately upon Licensee's receipt of monies from all operations under this license, the percentage of paid monies belonging to the City, as provided, shall immediately vest in and become the property of the City and are hereby deemed to be trust funds and are to be held by Licensee as trustee for the benefit of City until the said funds are paid over and delivered to Commissioner. ARTICLE XL PROCUREMENT OF AGREEMENT (a) Licensee represents and warrants that no person or selling agency has been employed or retained to solicit or secure this license upon an agreement or understanding for a commission, percentage, brokerage fee, contingent fee or any other - 24 - compensation. Licensee further represents and warrants that no payment, gift or thing of value has been made, given or promised to obtain this or any other agreement between the parties. Licensee makes such representations and warranties to induce the City to enter into this license and the City relies upon such representations and warranties in the execution hereof. (b) For a breach of violation of such representations or warranties, the Commissioner shall have the right to annul this license without liability, entitling the City to recover all monies paid hereunder, if any and the Licensee shall not make any claim for, or be entitled to recover, any sum or sums due under this license. This remedy, if effected, shall not constitute the sole remedy afforded the City for the falsity or breach, nor shall it constitute a waiver of the City's right to claim damages or refuse payment or to make any other action provided for by law or pursuant to this license. ARTICLE XLI CUMULATIVE REMEDIES - NO WAIVER The specific remedies to which the City may resort under the terms of this license are cumulative and are not intended to be exclusive of any other remedies or means of redress to which it may be lawfully entitled in case of any other default hereunder. The failure of the City to insist in any one or more cases upon the strict performance of any of the covenants of this license, or to exercise any option herein contained, shall not be construed as a waiver or relinquishment for the future of such covenants or option. A receipt by the City of any license fee or other monies with knowledge of the occurrence of a default shall not be deemed a waiver thereof, and no waiver, change, modification or discharge by either parties hereto of any provision of this License shall be deemed to have been made or shall be effective unless expressed in writing and signed by the party against whom such waiver, change, modification or discharge is sought. In addition to the other remedies in this license provided, the City shall be entitled to the restraint by injunction of the violation, or attempted or threatened violation, of any of the covenants, conditions or provisions of this license or to a decree compelling specific performance of any of such covenants, conditions or provisions. ARTICLE XLII SEVERABILITY; INVALIDITY OF PARTICULAR PROVISIONS If any term or provision of this license or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this license, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid - 25 - or unenforceable, shall not be affected thereby, and each term and provision of this license shall be valid and enforceable to the fullest extent permitted by law. ARTICLE XLIII CONFLICT OF INTEREST Licensee represents and warrants that neither it nor any of its directors, officers, members, partners or employees, has any interest nor shall they acquire any interest, directly or indirectly which would or may conflict in any manner or degree with the performance or rendering of the services herein provided. Licensee further represents and warrants that in the performance of this License no person having such interest or possible interest shall be employed by it. No elected official or other officer or employee of the City or Department, nor any person whose salary is payable, in whole or part, from the City treasury, shall participate in any decision relating to this license which affects his/her personal interest or the interest of any corporation, partnership or association in which he/she is, directly or indirectly, interested nor shall any such person have any interest, direct or indirect, in this license or in the proceeds thereof. ARTICLE XLIV EMPLOYEES All experts or consultants or employees of Licensee who are employed by Licensee to perform work under this license are neither employees of the City nor under contract to the City and Licensee alone is responsible for their work, direction, compensation and personal conduct while engaged under this license. Nothing in this license shall impose any liability or duty on the City for acts, omissions, liabilities or obligations of Licensee or any person, firm, company, agency, association, corporation or organization engaged by Licensee as expert, consultant, independent contractor, specialist, trainee, employee, servant, or agent or for taxes of any nature including but not limited to unemployment insurance, workers' compensation, disability benefits and social security. ARTICLE XLV INDEPENDENT STATUS OF LICENSEE Licensee is not an employee of parks or the City and in accordance with such independent status neither Licensee nor its employees or agents will hold themselves out as, nor claim to be officers or employees of the City, or of any department, agency, or unit thereof, they will not make any claim, demand, or application to or for, any right or privilege applicable to an - 26 - officer of, or employee of, the City, including but not limited to, workers' compensation coverage, unemployment insurance benefits, social security coverage or employee retirement membership or credit. ARTICLE XLVI ALL LEGAL PROVISIONS DEEMED INCLUDED Each and every provision of law required to be inserted in this license shall be and is inserted herein. Every such provision is to be deemed to be inserted herein, and if, through mistake or otherwise, any such provision is not inserted, or is not inserted in correct form, then this license shall, forthwith upon the application of either party, be amended by such insertion so as to comply strictly with the law and without prejudice to the rights of either party hereunder. ARTICLE XLVII JUDICIAL INTERPRETATION Should any provision of this Permit require judicial interpretation, it is agreed that the court interpreting or considering same shall not apply the presumption that the terms hereof shall be more strictly construed against a party by reason of the rule of conclusion that a document should be construed more strictly against the party who itself or through its agent prepared the same, it being agreed that all parties hereto have participated in the preparation of this Permit and that legal counsel was consulted by each responsible party before the execution of this Permit. (END OF GENERAL PROVISIONS) - 27 - EXHIBIT B SCHEDULE OF CAPITAL IMPROVEMENT ACTIVITIES EXHIBIT B SCHEDULE OF CAPITAL IMPROVEMENT ACTIVITIES BATTERY PARX RESTAURANT AND PARRS DEPARTMENT FACILITY CAPITAL IMPROVEMENTS TO BE COMPLETED BY LICENSEE, INCLUDING NEW CONSTRUCTION AND IMPROVEMENTS TO EXISTING STRUCTURES CONSTRUCTION ACTIVITIES Renovation of Building "A" to accommodate the followina uses: 1. Concession Stand Improvements to include the following: a. Install quarry tile floor. b. Install ceramic tile walls. c. Install interior gates. d. Install front serving counters with sneeze quards. e. Remove overhang presently attached to building. f. Repair exterior granite and close up ticket booth windows. g. Provide and install necessary equipment to serve concession menu in a quality manner. These improvements shall be completed no later than May 31, 1995. 2. Interior Dining Room, Roof-top Dining Area and Display Kitchen Improvements to include the following: a. Complete renovation of entry to create reception area. b. Provide and install all dining room furnishings. c. Construct large spiral staircase leading to rooftop dining for guests. d. Construct roof-top dining area including bus stations, bar, access to the kitchen through separate stairs leading to the back of the house, wind shields, radiant heaters for patron comfort and placement of planter boxes to aesthetic improvement. e. Construct display kitchen including a front counter with painted raised paneled wood, a large copper clad exhaust hood, remove existing drop ceiling and overhang and install wood burning rotisseries and grills as the display kitchen's focal point. These improvements shall be completed no later than May 31, 1996. 3. Outdoor Patio Improvements to include the following: a. Install continuous planter boxes incorporatlog bench seating to define the area. b. Provide cafe tables and chairs, outdoor bar and other furnishings for the area. c. Replace existing benches around trees with a pipe railing to protect trees' roots. d. Install brick pavers in place of the current asphalt. These improvements shall be completed no later than May 31, 1996. 4. Public Restroom Facility Improvements to include the following: a. Construction of a separately accessible comfort station/restroom facility for use by the general public with no fewer than 24 stalls in the women's room and no fewer than 11 stalls and 10 urinaln in the men's room. b. Installation of seperate metering capabilities fore electrical and water service. These improvements shall be completed no later than May 31, 1997. 5. Building Exterior Improvements to include the following: a. Remove existing overhang from the structure and repair the granite wall. b. Cover openings in granite wall previously used for ticket sales with matching granite. c. Roll down gates will either be reversed or removed entirely and will be made unobtrusive when the property is in operation. These improvements shall be completed no later than May 31, 1995. Concerning Building "B" - Kiosk Improvements to include the following: a. Complete renovation of the existing kiosk to accommodate merchandise shop, tourist information center and/or food and beverage service operation. These improvements shall be completed no later than May 31, 1995. Concerning Building "C" - Parks Denartment Facility Improvements to include the following: a. Substantial rehabilitation including removal of existing interior furnishings and reconstruction to accommodate office, equipment storage and training rooms as well as separate staff restrooms, shower rooms and changing areas for women and men Parks Department personnel. These improvements shall be completed no later than May 31, 1997. EXPENDITURE SCHEDULE In accordance with the approval processes outlined in this License Agreement, the Licensee is responsible for completing the Capital Improvement activities listed above in accordance with the following expenditure schedule: 1. By May 31, 1995 : $220,500 2. By May 31, 1996 : 390,500 3. By May 31, 1997 : 240,000 TOTAL MINIMUM VALUE OF CAPITAL IMPROVEMENTS: $851,000 EXHIBIT C SITE PLAN EXHIBIT C SITE PLAN OF LICENSED PREMISES [Diagram] LIMIT LINE OF LICENSED PREMISES Main Biliding: Building A, patio, adjacent landscaping and parking. Kiosk: 20' out from perimeter of Building Parks Facility: Footprint of Building C. Shellbank Restaurant Corp. - Battery Park Restaurant Page 1 of 2 EXHIBIT C SITE PLAN OF LICENSED PREMISES [Diagram] Shellbank Restaurant Corp. - Battery Park Restaurant Page 2 of 2 EXHIBIT D EMPLOYEE UNIFORMS EXHIBIT D EMPLOYEE UNIFORMS Uniforms for Snack Bar Serving Personnel [Photograph] Page 1 of 2 EXHIBIT D EMPLOYEE UNIFORMS Uniforms for Restaurant Serving Personnel To be supplied by Licensee at least 30 days prior to opening restaurant for business. Page 2 of 2 EXHIBIT E APPROVED MENU, MERCHANDISE PRICE LIST AND OPERATING HOURS EXHIBIT E APPROVED MENU, MERCHANDISE PRICE LIST AND OPERATING HOURS BATTERY PARK SNACK BAR MENU Regular Frankfurter No less than 2 oz. (eight to the pound) 1.75 Jumbo Frankfurter No less than 2.66 oz. (six to the pound) 2.50 Hamburger served with lettuce, tomato and onion 3.50 Cheeseburger served with lettuce, tomato and onion 4.00 Chicken Breast Sandwich served with lettuce, tomato and onion 5.25 Nachos 2.75 Nacho Supreme 3.75 Soda Small 12 oz. (with ice) 1.00 Medium 16 oz. (with ice) 1.50 Large 20 oz. (with ice) 1.75 Beer Small 16 oz. 3.00 Large 20 oz. 4.00 Hot Chocolate 8 oz. 1.00 Special Tea 8 oz. 1.00 Mineral Water 11 oz. 1.50 Coffee/Decaf 8 oz. .75 Prices are maximum allowable and are exclusive of sales tax. Operating hours to be supplied by Licensee at least 30 days prior to opening snack bar for business. Page 1 of 3 EXHIBIT E APPROVED MENU, MERCHANDISE PRICE LIST AND OPERATING HOURS BATTERY PARK KIOSK MERCHANDISE AND PRICE LIST To be supplied by Licensee at least 30 days prior to opening kiosk for business. Page 2 of 3 EXHIBIT E APPROVED MENU, MERCHANDISE PRICE LIST AND OPERATING HOURS BATTERY PARK RESTAURANT MENU To be supplied by Licensee at least 30 days prior to opening restaurant for business. Page 3 of 3 EXHIBIT F SIGNAGE [Diagram] Information Signs At five gangway entrances EXHIBIT F SIGNAGE F.1 The Licensee may, subject to the final approval of the Commissioner as to specific locations, place and maintain informational signage, directing the general public to services within Battery Park including the following: Statue of Liberty/Ellis Island Ferry, Castle Clinton, restaurant, and restrooms. Such signage may be located on the fence railing along the Promenade near each gangway to the Statue of Liberty ferry, on the fence railing across from Castle Clinton, and on the fence railing adjacent to Pier A. In addition, the Licensee may, subject to the final approval of the Commissioner as to specific location and design, place and maintain a sign, approximately 2' x 3,' bearing the name of the restaurant, and located along State Street near an entrance to Battery Park. F.2 Any such signage shall be prepared at the sole cost of the Licensee and located as depicted on the sketch on the next page. Page 1 of 2 EXHIBIT F SIGNAGE Page 2 of 2 EXHIBIT G INCOME AND EXPENSE STATEMENT EX-10.3 7 EXHIBIT 10.3 SPACE LEASE INDEX 1. Premises Leased 2. Term and Rent 3. Utilities 4. Additional Rent and CPI 5. Use 6. Taxes 7. Utility Charges 8. Compliance N.Y. Laws 9. Force Majeure 10. Covenants Against Claims 11. Access to Premises 12. Fire Insurance Increases 13. Permits 14. Initial Tenant Improvements 15. Landlord's Work 16. Parking 17. Maintenance and Repairs 18. Charges 19. Indemnity and Public Liability Insurance 20. Insurance 21. Condemnation and Rejectables Offer 22. Removal of Tenant's Property 23. Subordination 24. Non-Waiver 25. Quiet Enjoyment 26. Assignment and Subletting 27. Entry by Landlord 28. Default 29. Bankruptcy or Insolvency 30. Tax Appeals and Contests 31. Signs 32. Surrender of Premises 33. Exculpation 34. Tenant's Payments 35. Right to Cure Defaults 36. Covenants Against Liens 37. Landlord's and Tenants' Certificates 38. Waiver of Trial 39. Net Lease 40. Miscellaneous Provisions 41. Security 42. Brokers 43. Definitions 44. Option to Renew -2- LEASE THIS LEASE entered into this 29th day of July, 1994, by and between LUNDY'S MANAGEMENT CORP. having an office located at: 2770 Ocean Avenue, Brooklyn, New York, (hereinafter called the "Landlord") and Bay Landing Restaurant Corp., having an office located at 1163 Forest Avenue, Staten Island, New York 10310, hereinafter called the "Tenant"). Upon the terms and subject to the conditions hereinafter set forth, the Landlord leases to the Tenant and the Tenant leases from the Landlord, the property hereinafter described: 1. THE LEASED PREMISES. (a) The Premises hereby leased to the Tenant is situated in the Borough of Kings, in the City of New York and State of New York, known as 1901 Ocean Avenue, Brooklyn, New York, and more particularly described in Schedule "A" annexed hereto and by this reference made a part hereof, together with the buildings and other improvements now or hereafter located thereon (collectively the "Improvements"). The Premises leased hereunder, together with all appurtenances thereto, hereinafter sometimes collectively referred to as the "Leased Premises", are demised and let subject to (a) the existing state of the title thereof as of the commencement of the Term of this Lease, (b) any state of facts which an accurate survey or physical inspection thereof might show, (c) all zoning regulations, restrictions, rules and ordinances, building restrictions and other laws and regulations now in effect or hereafter adopted by any governmental authority having jurisdiction, and (d) with respect to the Improvements, their conditions as of the commencement of the Term of this Lease, without representation or warranty by Landlord. Tenant represents to Landlord that Tenant has examined the title to and the physical condition of the Leased Premises prior to the execution and delivery of this Lease and has found the same to be satisfactory for all purposes hereof, and Tenant accepts the title and condition of the Leased Premises in their respective, present condition "as is." Landlord makes no representation or warranty with respect to the condition of the Leased Premises or its fitness or availability for any particular use, nor does the Landlord represent that it has any certificate of occupancy for the Leased Premises, and Landlord shall not be liable for any latent or patent defect that may exist in or about the Leased Premises, however, Landlord represents that the Premises are structurally sound. -3- Tenant has been allowed to review the ground lease herein and understands that they are subject to the provisions contained therein as may apply to them. 2. RENT. Tenant shall pay to Landlord as rental for the Premises, the following: a. Lease years (1) through (20), Tenant shall pay $18.00 per square foot for the Premises based on certification as to actual square footage of the Premises. b. The amount stated to be paid in (a) above and Article 17 shall not include any applicable sales taxes, if any, on the rents paid hereunder nor commercial rent. Occupancy tax shall solely be the responsibility of the Tenant. c. The term "Floor Area" shall include all areas of the Premises measured from the outside of exterior walls and the center of walls dividing the Premises from other space in the Building. Tenant shall further have the use of the permanent sidewalk adjourning the leased Premises for use as an outdoor cafe, provided Tenant shall procure and maintain all permits and observe all municipal laws and rules. Second floor exterior patio, as shown on Exhibit A, shall not be included in floor area and no rent, additional rent or common charge shall be due for Tenant's exclusive use thereof so long as Tenant rents the adjacent space. d. Rent as above determined is payable in advance on the first day of every calendar month after the Lease Term Commencement date for the term of this Lease in equal monthly installments, with adjustments for fractional months. e. For the purposes of this Paragraph 2, "lease year" shall be defined as the twelve (12) month period commencing on the first day of the month following the Lease Term Commencement date and each anniversary in the next succeeding year. Concession: Payment of rental as stated in Paragraph 2 of this Agreement shall commence three (3) months from the lease commencement date, which date shall be the later of the date Landlord has obtained a temporary certificate of occupancy for the Premises or six months from the date of this lease. Landlord shall act expeditiously to obtain a Certificate of Occupancy in a reasonable time period. f. In the event that the Term of this Lease does not commence on the first day of a calendar month, the installment of Minimum Rental for the partial calendar month at the commencement of the Term of this Lease shall be prorated on the basis of the number of days of the Term within such calendar -4- month. The first installment of Minimum Rental shall be paid simultaneously with the execution of this Lease. Landlord, may at its option, direct Tenant to pay all or any portion of the Minimum Rental directly to the holder of any mortgage on the Leased Premises and to pay the balance of the Minimum Rental, if any, to Landlord. g. On each anniversary of the Lease commencement date of this lease, the base rent shall be subject to being increased to compensate the Landlord for increases in costs for the operation of the building in which the demised Premises is located. The increases shall be in ratio to the Consumers Price Index Cost published by the Bureau of Labor statistics of the U.S. Department of Labor for New York City prior to the commencement date of this Lease. Such annual increases to rent caused by an increase in cost of living shall be limited to 2.5 percent of the rent for the year in which the computation is made. This shall not affect any other additional rent due by Tenant for electricity, taxes, assessments or otherwise. Illustration: Assuming annual rent of $10,000.00 for a particular year, and a 4 percent cost of living raise (as decided by Consumer Price Index published by Bureau of Labor Statistics of the U.S. Department of Labor, New York City). Tenant shall be charged an additional rent of 2.5 percent (maximum) or $250.00 that year. Other additional rents shall not be considered in fixing the "base rent" for the following year and accordingly, Tenant will be responsible for an additional 2.5 percent (maximum) of cost of living increase on base rent of $10,250.00. The following year (if maximum increase is reached), the base rental shall be $10.506.25 ($10,250.00 plus $256.25 increase). 3. UTILITIES. Tenant shall obtain, at its own expense, all utilities of every type and nature required by it in its use of the Leased Premises and shall pay or cause to be paid, when due, all bills for water, sewerage, heat, gas, electricity and other utilities, if any, used on, in connection with, or chargeable against the Leased Premises until the termination of this Lease and all bills for utility charges relating to the Leased Premises or the use thereof and imposed on users of utilities, whether or not such charges shall relate to services or benefits available to the Tenant during the Term of this Lease, and the Tenant shall indemnify and save harmless the Landlord from and against any loss, cost and expense in connection therewith. Landlord will not be liable to provide any services under this Article, nor shall Landlord be liable for any disruption of said services. -5- Landlord shall supply at its own cost and expense: the necessary hookup for the supplying of electric, gas, water and sewer and tempered water for HVAC and will run all utilities in adequate amounts to a central distribution point in the demised Premises. Landlord will, at its own cost and expense, provide rough openings as per exhibit. Landlord will make separate charge to Tenant based upon his proportionate share of the square footage for cooling tower/energy consumption. Tenant shall maintain contract for services of a professional exterminator at all times. 4. ADDITIONAL RENT. (a) It is the purpose and intent of the Landlord and Tenant that the Minimum Rental payable hereunder shall be absolutely net to the Landlord so that this Lease shall yield, net to the Landlord, the rents specified herein in each year during the Term of this Lease. COMMON AREAS (a) Common Areas. Landlord shall make available to Tenant all common areas and other common facilities (hereinafter collectively called the "common areas") in or about the Building, which common areas shall be subject to the exclusive control and management of Landlord. Common areas shall be defined as all interior areas, exterior space, and exterior facilities to the Premises, but within the Building (including the parking facilities which is governed by a separate paragraph 16 hereof, and any equipment, signs and exterior lighting and special services rendered therein from time to time made available by Landlord for the common and joint use and benefit of Landlord, the Tenant and other Tenants and occupants of the Building and their respective employees, agents, subtenants, concessionaires, licensees, customers and invites, which may include (but shall not be deemed a representation as to their availability), loading areas, pedestrian walkways, courts, ramps, and exits to the Building and parking facilities. Notwithstanding the previous sentence, Common Areas, for purposes of this Lease shall not include areas or facilities located on the floor of the Building whereon the Premises are located nor dumpster charges or other trash removal services for the benefit of other Tenants in the Building. Landlord shall construct, maintain, operate, repair and clean the common areas, all in such manner as shall be in keeping with first class commercial properties. This shall include, without limitation, lighting on the common areas, cleaning of common areas, and other facilities forming a part of said common areas; closing temporarily portions of the common areas for the purpose of making repairs or changes thereto establishing, modifying and enforcing reasonable rules and regulations with respect to the common areas and the use to be made thereof. -6- Landlord shall have the right and exclusive authority to employ and discharge all personnel; with respect thereto. (b) Use of Common Areas. Tenant is hereby given a nonexclusive right and easement to use, during the initial term, or any extensions thereof, the common areas of the Building as they may now or hereafter exist. Landlord reserves the right to grant to third persons the non-exclusive right to cross over and use in common with Landlord and all tenants of the Building for maintenance and repairs the common areas as designated from time to time by Landlord. The parties covenant and agree that all common areas of the Building, including elevators and the parking facilities which service the Building, shall remain lighted and available for public use during the time Tenant is open for business. Any reference to parking facilities herein is subject to all the provisions of paragraph 16. (c) Charges for Common Area Maintenance. For the purposes of this Lease "Operating Costs" shall mean the total costs and expenses incurred in operating, maintaining and repairing the entire building including parking garage, and including, without limitation, surcharges levied upon or assessed against the cost and expense of cleaning and painting of the exterior building, snow removal, and landscaping, (excluding painting for any tenant occupied space in the building) decorating within the Building, lighting for upper floors, interior and exterior, sanitary control trash, garbage and other refuse removal, the costs of all types of insurance coverage carried by Landlord covering the common areas, including, without limitation, public liability, personal and bodily injury and property damage liability, fire and extended coverage, vandalism and malicious mischief and all broad form coverage, sign insurance that may be carried by Landlord covering the common areas, all in limits with deductibles selected by Landlord, administrative costs attributable to the common area and an overhead cost not to exceed ten (10%) percent of the total Operating Costs of maintaining the common areas as such costs are defined in this paragraph. Limits of insurance coverage shall be $3,000,000.00 for death and injury to one person and not less than $5,000,000.00 for death and injuries to two or more persons in one occurrence and not less than One Million Dollars for property damage. Landlord may cause any or all of said services to be provided by an independent contractor or contractors. There shall be excluded from "Operating Costs" any original costs of construction and installation; any items of expense properly chargeable to "Capital Account" under generally accepted accounting principals; all real property taxes, assessments, depreciation, interest amortization, overhead profit, all as determined in accordance with generally accepted accounting principals. Tenant hereby agrees to pay Landlord its proportionate share of the Operating Costs (as hereinafter defined) of maintaining the common areas in the following manner: -7- (d) This Tenant's agreed portion of the entire Premises for all purposes shall be the percentage of the building that they occupy based on an agreed 40,000 square feet for the entire building. Same shall be subject to actual measurement and verification by architect or professional engineer. Such square footage shall be termed the "floor area." 1. Within thirty (30) days following the end of each lease year quarter, Landlord shall furnish Tenant a statement covering the quarter just expired, certified as correct by Landlord, showing the total operating costs and the amount of Tenant's pro rata share of such operating costs for such quarter. Tenant shall pay Landlord the amount shown on said statement within thirty (30) days after receipt thereof. Annually, Landlord shall submit to Tenant, within sixty (60) days after the end of each calendar year, a statement reconciling all Operating Costs, as certified by a managing partner or officer of Landlord. Tenant's pro rata share of the operating costs for the previous quarter shall be that percentage of all such costs which is agreed to be the percentage allocated to this Tenant. (e) Tenant shall have the right to return to Landlord in increments of 1,000 square feet so much of the occupied premises on the second floor which now totals approximately 5,000 square feet under the following terms. (I) the area returned shall be contiguous to the hallway at the upper floor and available to the Landlord for rental. (II) During the first four (4) years of occupancy, Tenant must give Landlord ninety (90) days written notice and pay four and one half (4 1/2) months of rent plus rent as would have been due for such surrendered area (prorated) as liquidated damages in advance and with the required notice. Such liquidated payment shall be in addition to rent due until the vacature. (III) After the first four (4) years above refers to, Tenant after such ninety (90) days notice shall pay two (2) months of rent in advance as liquidated damages in addition to rent due until the vacature. (See above.) (IV) Landlord warrants to Tenant that Landlord's Operating Costs will be based on Landlord's actual cost incurred in operating and maintaining the Common Areas and Landlord agrees to use its best efforts, to keep charges reasonable and competitive in accordance with standard and good shopping practices. -8- (V) Tenant shall have the right, upon thirty (30) days prior notice and at its own cost and expense, to audit the records of Landlord to verify the actual costs necessary to the operation and maintenance of the Common Areas. Should Landlord's records indicate that the amounts collected by Landlord from the Tenants of the building exceed Landlord's actual costs, then Landlord shall promptly refund to Tenant its proportionate share of any excess or Tenant shall have the right to deduct such excess from the next installment of minimum rent due to Landlord. (VI) Tenant's share of Operating Costs as hereinabove described shall commence upon the date Tenant opens for business in the Premises. 5. USE. The Tenant intends to construct in the Premises and operate a restaurant and cocktail lounge for the sale of food and beverages (both alcoholic and non-alcoholic and related merchandise) on and in the Premises and may include the sale of fresh and prepared food products intended for on-Premises consumption and take out or preparation plus storage and administrative services and catering on and off premises, subject to the use of the Lundy's name as set forth in the ground lease in connection therewith, according to plans and specifications prepared by Tenant's architect. It is understood that Tenant shall use the name "Lundy's" in its signage and will conduct its business as a first class restaurant in the tradition of "Lundy's." (See Paragraph c below.) (a) The Tenant will construct its improvements using good workmanlike procedures and will continue the Restaurant with the use of the name LUNDY' S. (b) Tenant shall not use or occupy or permit the Leased Premises to be used or occupied, nor do or permit anything to be done in or on the Leased Premises or any part thereof, in a manner that would in any way violate any certificate of occupancy affecting the Leased Premises or make void or voidable any insurance then in force with respect thereto, or that may make it impossible to obtain fire or other insurance thereon required to be furnished hereunder by Tenant, or that will cause or be likely to cause structural injury to any of the improvements, or that will constitute a public or private nuisance or waste. Nothing contained in this Lease and no action or inaction by Landlord shall be deemed or construed to mean that Landlord has granted to Tenant any right, power or permission to do any act or to make any agreement that may create, give rise to, or be the foundation for, any right, title, interest, lien, charge or other encumbrance upon the estate of Landlord in the Leased Premises. -9- (c) Subject the ground lease and in particular, Paragraph 32(s) Tenant shall use the name "Lundy's" in the operation of a restaurant at the leased premises and no other place and for no other use. (d) Tenant acknowledges that Landlord has rented space within the building to two (2) additional restaurants however it is agreed. 1. no restaurant exceeds 4,000 square feet. 2. Landlord shall never have more than two (2) restaurants plus Tenant. 3. the total square feet of the other restaurants shall not be more than 7,000 square feet. 4. the use of these restaurants shall be limited to oriental restaurants including: (a) Japanese steak (b) Chinese (mongolian) (c) Sushi 5. these additional restaurants shall maintain separate entrances, names, kitchens, decor, signage and shall not merge or otherwise enter into any joint venture including but not limited to joint advertising. 6. TAXES. Tenant shall pay to Landlord during each Lease year or partial Lease year its percentage share of all real estate taxes and assessments levied and assessed and due and payable for and during any Lease year upon the Building and the underlying realty. For any partial Lease year, such amount shall be pro-rated on a time basis. Payment shall be made within thirty (30) days after receipt of a written statement from Landlord setting forth the amount of such tax showing in reasonable detail the manner in which it has been computed, together with proof that said amount had been paid by Landlord. Landlord agrees to pay all taxes and assessments over the longest available installment period, and that Tenant's obligation hereunder shall be only as to such installments due and payable during the term hereof. Tenant shall also pay, prior to delinquency, all taxes against and levied upon fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises. -10- The Tenant shall have the right at its own cost and expense to initiate and prosecute any proceedings permitted by law for the purposes of obtaining an abatement or of otherwise contesting the validity or amount of taxes assessed to or levied upon the Premises and, if required by law, Tenant may take such action in the name of the Landlord who shall cooperate with the Tenant to such extent as the Tenant may reasonably require to the end that such proceedings may be brought to a successful conclusion; provided, however, that the Tenant shall fully indemnify and hold Landlord harmless from all loss, cost, damage and expense incurred. Tenant shall also pay, prior to delinquency, all taxes against and levied upon fixtures, furnishings, equipment and all other personal property of Tenant contained in the Premises. 7. UTILITY CHARGES. Tenant shall be responsible for and shall pay promptly as and when the same becomes due and payable all rents, rates and charges for water, sewer, electricity, gas, fuel, heat and power and other utilities used by Tenant in connection therewith. All utilities shall be separately metered to the Premises at the sole cost and expense of Tenant. In the event a utility easement is necessary to provide utility service necessary for the Tenant's use, the Landlord agrees to execute any utility easement grant, so far as feasible. Landlord will contract with one trash removal company for the entire premises and Tenant shall pay for trash removal services provided to them. 8. COMPLIANCE WITH LAWS AND AGREEMENTS. (a) Tenant shall, throughout the Term of this Lease, and at Tenant's sole cost and expense, promptly comply, or cause compliance: (i) with all laws, whether present or future, foreseen or unforeseen, ordinary of extraordinary, and whether or not the same shall be presently within the contemplation of Landlord and Tenant or shall involve any change of governmental policy, or require structural or extraordinary repairs, alterations, or additions, and irrespective of the cost thereof, which may be applicable to the Leased Premises, and (ii) with any agreements, contracts, easements and restrictions affecting the Leased Premises or any part thereof or the ownership, occupancy or use thereof existing on the date hereof or hereafter created by Tenant, or consented to or requested by Tenant. (b) Except as expressly provided in subsection 12(f) of this Lease, no abatement, diminution or reduction in Minimum Rental, additional rent or any other charges required to be paid by Tenant pursuant hereto shall be claimed by or allowed -11- to Tenant for any inconvenience or interruption, cessation, or loss of business caused directly or indirectly, by any present or future laws, or by priorities, rationing or curtailment of labor or materials, or by war, civil commotion, strikes or riots, or any manner or thing resulting therefrom, or by any other cause or causes beyond the control of Landlord or Tenant, nor shall this Lease be affected by any such causes; and, except as expressly provided in subsection 12(f) of this Lease, no diminution in the amount of the space used by Tenant caused by legally required changes in the construction, equipment, fixtures, motors, machinery operation or use of the Leased Premises shall entitle Tenant to any abatement, diminution or reduction of the rent or any other charges required to be paid by Tenant pursuant to the Terms of this Lease. (c) The Leased Premises have been landmarked by the New York City Landmark Commission. The Tenant agrees that any plans for the improvement of the exterior of the Leased Premises shall comply with the Rules and Regulations of the Landmark Commission. 9. FORCE MAJEURE. In the event either party hereto shall be delayed or hindered in or prevented from the performance of any act under this Lease, including without limitation in the performance of the site or off-site construction work, by reason of strikes, lockouts, shortage of materials, labor troubles, failure of power, restrictive governmental law or regulations, riots, insurrection, war or other reasons of a like nature, not the fault of the party delayed in performing work or doing acts required on the terms thereof, then performance of any such act shall be excused for the period of the delay, and the period for the performance of any such act shall be extended for a period of the delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay. 10. COVENANTS AGAINST CLAIMS. Landlord hereby warrants and represents to Tenant that as of the date hereof and as of the date of Lease Term Commencement that there are no known pending or threatened condemnation matters, lawsuits, claims, or administrative hearings, affecting the Premises or any portion thereof, written or otherwise. 11. ACCESS TO PREMISES. Landlord or Landlord's agents shall have the right (but shall not be obligated) to enter the Premises in any emergency at any time, and, at other reasonable times, but in no event during the hours of 11:00 a.m. to 2:00 p.m. and 5:00 p.m. -12- to 8:00 p.m., except in the case of emergency, to examine the same and to make such repairs, replacements and improvements as Landlord may deem necessary and reasonably desirable to any portion of the building, or which owner may elect to perform in the Premises after Tenant's failure to make repairs or perform any work which Tenant is obligated to perform under this Lease, or for the purpose of complying with laws, regulations and other directions of governmental authorities. Landlord may, during the progress of any work in the Premises, take all necessary materials and equipment into said Premises without the same constituting an eviction nor shall the Tenant be entitled to any abatement of rent while such work is in progress nor to any damages by reason of loss or interruption of business or otherwise except that Landlord shall indemnify Tenant for any negligent damage to the Premises. If Tenant is not present to open and permit an entry into the Premises, Landlord or Landlord's agents may enter the same whenever such entry may be necessary or permissible by master key or forcibly and provided reasonable care is exercised to safeguard Tenant's property, such entry shall not render Landlord or its agents liable therefor, nor in any event shall the obligations of Tenant hereunder be affected. 12. FIRE INSURANCE INCREASES. If the fire insurance rate shall at any time after the commencement of this lease shall become higher than it otherwise would be based on a course of conduct or change attributed to the Tenant, then Tenant shall reimburse Landlord, as additional charges hereunder, for that portion of all fire insurance premiums thereafter paid by Landlord which shall have been charged by reason of the use made of the Premises by the Tenant. Tenant shall have thirty (30) days from Landlord's notice of rate increase to cure any such activity or circumstance giving rise thereto. In any action or proceeding wherein Landlord and Tenant are parties a schedule or "make up" of rate for the building or Premises, issued by a body making fire insurance rates applicable to said Premises, shall be conclusive evidence of the facts therein stated and of the several items and charges in the fire insurance rate then applicable to said Premises. 13. PERMITS. Tenant will obtain at its sole cost and expense, prior to Lease Term Commencement, all necessary licenses, permits and other authorizations to utilize the Premises for its contemplated USE as stated herein. Such approvals shall be, without limiting same, the right to erect signs, all building and necessary construction permits and alcoholic beverage licenses and permits issued directly by the appropriate governmental authorities at the fees set by statute, ordinance or regulation. Landlord agrees to cooperate with Tenant and the state, county or -13- municipal authorities to obtain such permits and will execute any documents necessary in this regard. 14. INITIAL TENANT IMPROVEMENTS. Tenant shall obtain Landlord's written approval of Tenant's interior improvements, structural penetration and exterior signs on the Building in which the Premises are located. Landlord shall approve or disapprove Tenant's plans for such improvements within fifteen (15) days after receipt of said plans by Landlord. In the event Landlord fails to approve or disapprove said plans within the fifteen (15) day period, said plans shall be deemed approved. Outside signs shall conform to those of the former LUNDY's RESTAURANT. 15. LANDLORD'S WORK. Landlord, at Landlord's expense, shall perform all installation and/or construction (hereinafter called Landlord's work) as set forth on Exhibit "B" within the times stated thereon, which exhibit is attached hereto and by this reference made a part hereof. Tenant shall have the right to enter upon the Premises provided it is fully insured under the terms of this agreement to commence interior renovations, provided, however, that it shall not interfere with work being performed by Landlord and further provided that where there is conflict between the parties as to work in a particular area, Tenant shall defer to Landlord. 16. PARKING. Notwithstanding that the present parking facility is common area, patrons of Tenant shall pay parking pursuant to posted rates, except that from Friday at 6 p.m. to Monday at 6 a.m. no charge shall be made to its patrons. A system of verification of spaces by patrons shall be set up and controlled by Landlord. The several restaurants shall be afforded exclusive use of the parking area on weekends as above set forth. Any net income received from parking fees shall be utilized to offset common charge expenses as related to the parking facility. Provided there is ample space for Tenant's customers on weekends, if there is sufficient space available, Landlord may rent spaces to others, always preferring and guarantying spaces to restaurant clients. In the event that Landlord shall construct or cause to be constructed, additional multi-level parking, then in such event Tenant's patrons shall be charged a maximum of 50 percent of the posted fees for a period of five (5) years from -14- the completion of such additional parking spaces. Parking on the weekends shall be exclusive to the first floor Tenants. 17. MAINTENANCE AND REPAIR. (a) Tenant shall promptly throughout the Term of this Lease at Tenant's cost and expense, take good care of and maintain the Leased Premises. (b) Tenant shall not commit or suffer to be committed any waste upon or about the Leased Premises, and shall promptly at its cost and expense, make all necessary replacements, restorations, renewals and repairs to the Leased Premises and appurtenances thereto, whether interior or exterior, structural or non-structural, ordinary or extraordinary, and foreseen or unforeseen, ordinary wear and tear excepted. Repairs, restorations, renewals and replacements shall be at lease equivalent in quality to the original work or the property replaced, as the case may be. Tenant shall not make any claim or demand upon or bring any action against the Landlord for any loss, cost, injury, damage or other expense caused by any failure or defect, structural or non-structural, of the Leased Premises or any part thereof. (c) Landlord shall be responsible for the structural maintenance and to keep the roof in good repair. Other than the above, Landlord shall not under any circumstances be required to build any improvements on the Leased Premises, or to make any repairs, replacements, alterations or renewals or any nature or description to the Leased Premises or to any of the Improvements, whether interior or exterior, ordinary or extraordinary, or nonstructural, foreseen or unforeseen, or to make any expenditure whatsoever in connection with this Lease or to inspect or maintain the Leased Premises in any way. Tenant hereby waives the right to make repairs, replacements, renewals or restorations at the expense of Landlord pursuant to any Laws. 18. CHANGES, ALTERATIONS AND NEW CONSTRUCTION BY THE TENANT. (a) Tenant, at its sole cost and expense, shall have the right at any time and from time to time during the Term of this Lease to make changes and alterations to the building interior of their premises subject, however, in all cases, to the following: (i) Landlord's prior written consent shall be required in each instance of any Tenant's Change involving the structure or interior or exterior of the building which consent shall not be unreasonably withheld; provided that, without limiting the circumstances under which Landlord may decline to give its consent, it shall not be deemed unreasonable for Landlord to withhold such consent if the same shall be in -15- violation of any Mortgage or if any Mortgagee shall not give its consent to the same where its consent is required by the terms of its Mortgage. (ii) [DELETED] (iii) No Tenant Change shall be undertaken until the Tenant shall have procured and paid for all required permits and authorizations of all municipal departments and governmental subdivisions having jurisdiction, including the City Landmark Commission; and, at Tenant's expense, the Landlord shall join in the application for such permits and authorizations whenever such action is necessary. (iv) Any interior change for which a permit is required shall be conducted under the supervision of a licensed architect or engineer selected by Tenant and approved by Landlord (which consent shall not be unreasonably withheld), and shall be made in accordance with detailed plans and specifications (the "Plans and Specifications") and cost estimates prepared by such architect or engineer and approved in writing by the Landlord, which approval Landlord agrees not unreasonably to withhold. (v) Any Tenant Change shall be made promptly and in a good workmanlike manner and in compliance with all applicable permits and authorizations and building and zoning laws and all Laws and in accordance with the orders, rules and regulations of the Board of Fire Insurance Underwriters and any other body hereafter exercising similar functions having or asserting jurisdiction over the Leased Premises. (vi) The cost of any Tenant Change shall be paid for in cash or its equivalent by the Tenant, so that the Leased Premises shall at all times be free of liens for labor or materials supplied or claimed to have been supplied to the Leased Premises. (vii) Any such Tenant Change shall immediately upon incorporation into the Leased Premises be and become the property of the Landlord, subject to the leasehold rights of the Tenant hereunder. (viii) [DELETED] (ix) No Tenant Change shall tie-in or connect the Leased Premises or any Improvements thereon with any property outside the Leased Premises without the prior written consent of the Landlord; and (x) No Tenant Change shall reduce the value of the Leased Premises or impair the structural integrity of any building comprising a part of the Leased Premises. -16- (b) Notwithstanding anything to the contrary contained in this Lease, Tenant shall not, without Landlord's prior written approval, make any alterations or change to the Leased Premises which would decrease the size of or decrease the square foot floor area of any building comprising a part of the Leased Premises. (c) Notwithstanding anything to the contrary contained in this Lease, Tenant is authorized to and shall make Tenant changes to the Leased Premises in accordance with the plans and specifications previously submitted to and approved by [DELETED]. 19. INDEMNITY AND PUBLIC LIABILITY INSURANCE. (a) Tenant shall at all times indemnify Landlord for, defend Landlord against, and save Landlord harmless from, any liability, loss, cost, injury, damage or other expense whatsoever that may occur or be claimed by or with respect to any person(s) or property on or about the Leased Premises and resulting directly or indirectly from the use, misuse, occupancy, or occupancy, of the Leased Premises by Tenant or any or any concessionaires, subtenants or other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons, or from the condition of the Leased Premises. Tenant shall, at its costs and expense, defend against any and all such actions, claims and demands and shall indemnify Landlord for all costs, expenses and liabilities it may incur in connection therewith. Landlord shall not in any event whatsoever be liable for any injury or damage to the Leased Premises or to the Tenant or to any concessionaires, subtenants or other persons claiming through or under Tenant, or their respective agents, employees, licensees, invitees, guests or other such persons or to any property of any such persons. Tenant shall not make any claim or demand upon or institute any action against the Landlord as a result of such injury or damage. This section shall in no way grant Tenants right to sublease. (b) Tenant, at its cost and expense, shall obtain and maintain in force throughout the Term of this Lease, comprehensive general liability insurance against any loss, liability or damage on, about or relating to the Leased Premises, to such limits as Landlord may reasonably, from time to time, require, provided that such insurance shall have minimum limits of one Million ($1,000,000 00) Dollars for death or injuries to one person and not less than three Million ($3,000,000.00) Dollars for death or injuries to two or more persons in one occurrence, and not less than One Million ($1,000,000.00) Dollars for damage to property. Any such insurance obtained and maintained by Tenant shall name the Landlord, its managing agent (if any), any mortgagee, as well as the Tenant as the insured parties therein and shall be obtained and maintained from and with a reputable and financially sound insurance company(ies) -17- reasonably acceptable to Landlord, authorized to issue such insurance in the State in which the Leased Premises is located. (c) The policies of insurance required hereunder shall contain an agreement by the insurer that it will not cancel or modify such policy except after thirty (30) days prior written notice to Landlord by certified mail, return receipt requested. Not less than thirty (30) days prior to the expiration of any such insurance policy, Tenant shall deliver to Landlord a certificate evidencing the replacement or renewal thereof. (d) Tenant shall furnish Landlord with duplicate original(s) or original certificate(s) of such insurance policies, including renewal and replacement policies, together with written evidence that the premiums therefor have been paid. It is understood and agreed that said policies may be blanket policies covering other locations operated by Tenant, its affiliates or subsidiaries, provided that such blanket policies otherwise comply with the provisions of this Section 19. (e) Subject to reasonableness and the provisions of this Lease, Tenant shall comply with the requirements of any Mortgages relating to the insurance and to the proceeds of insurance maintained and required to be maintained by Tenant pursuant to the provisions of Section 19 and 20 of this Lease. 20. INSURANCE FOR DAMAGE OR DESTRUCTION AND WORKER'S COMPENSATION (a) The Tenant shall, throughout the Term of this Lease, at its own cost and expense, obtain and maintain in full force and effect and in the name of Tenant, Landlord and, if so requested by Landlord, or of any Mortgagees (except that Landlord and any Mortgagee need not be named on any Worker's Compensation policy): (i) all risks insurance, including but not limited to collapse, lose or damage occasioned by fire, the perils included in the so-called extended coverage endorsement, vandalism and malicious mischief, and water damage and containing Replacement Coat, Agreed Amount and Demolition and Increased Cost due to Ordinance endorsements covering the Improvements and all replacements and additions thereto, and all fixtures, equipment and other personal property therein, the foregoing coverage shall be provided in amounts sufficient to provide one hundred (100%) percent of the full replacement cost of the Improvements and shall be determined from time to time, but not more frequently than once in any thirty-six (36) calendar months, at Tenant's expense, at the request of the Landlord, by any appraiser selected by Tenant and approved by Landlord and the insurance carrier; -18- (ii) if a sprinkler system shall be located in the Leased Premises, sprinkler leakage insurance in amounts reasonably satisfactory to Landlord and any Mortgagees; (iii) such other insurance and in such amounts as may from time to time reasonably be required by any Mortgagees; (iv) Boiler and Machinery Broad Form policy covering explosion insurance in respect of steam and pressure boilers and similar apparatus, if any, located on the Leased Premises in an amount equal to one hundred (100%) percent of the full replacement cost of the Improvements; (v) War risk insurance as and when such insurance is obtainable from the United States Government or any agency or instrumentality thereof, and a state of war or national or public emergency exists or threatens, and in an amount not less than the full insurable value of the Leased Premises; (vi) Worker's Compensation insurance subject to statutory limits or better in respect of any work or other operations on or about the Leased Premises; (vii) Tenant shall provide and maintain insurance against loss of rental, under a rental value insurance policy covering risk of loss due to the occurrence of any of the hazards described in Article 11 above, in an amount equal to the aggregate of one (1) year's net rent as provided for herein plus the amount of any real estate taxes that Tenant is required to pay for the period of twelve (12) months next following the occurrence of the insured casualty, the proceeds of such policies will be payable to Landlord and Tenant as their interest may appear, if procurable in that form, and otherwise payable to Landlord only. Said policies of insurance shall be deposited with Landlord, and Tenant shall and does hereby assign to Landlord the proceeds of such insurance, if, as and when collected, and said proceeds shall be held in trust and applied by Landlord on account of the net rent or any additional rent accruing under the terms of this lease, the balance, if any, to be paid to Tenant. Tenant shall remain fully responsible for all net rent and additional rents which exceeds the amount of the proceeds of such insurance. Tenants shall pay the premium on all said policies as same become due and payable, from time to time; (viii) Such other insurance with respect to the Leased Premises and in such amounts as Landlord from time to time may reasonably request against such other insurable hazards which at the time in question are commonly insured against in the case of property similar to the Leased Premises; (ix) [DELETED] -19- (x) During the performance of any construction, broad form Builder's All-Risk insurance; (b) All such insurance shall: (i) be obtained from and maintained with reputable and financially sound insurance company(ies) reasonably acceptable to Landlord and any Mortgagees, authorized to issue such insurance in the State in which the Leased Premises are located; (ii) be reasonably satisfactory to Landlord and to any Mortgagees; (iii) contain an agreement by the insurer that it will not cancel or modify such policy except after thirty (30) days prior written notice to Landlord and any Mortgagees by certified mall, return receipt requested; and (c) Not less than thirty (30) days prior to the expiration of any such insurance policy, Tenant shall deliver to Landlord a certificate evidencing the replacement of renewal thereof. (d) The Tenant shall furnish Landlord and any Mortgagees with duplicate original(s) or original certificate(s) together with true copy(ies) of all such insurance policies, including renewal and replacement policy(ies), together with written evidence that the premiums therefor have been paid. It is understood and agreed that said policies may be blanket policies covering other locations operated by Tenant, its affiliates or subsidiaries, provided that such blanket policies otherwise comply with the provisions of this Section 20. (e) If any portion of the Leased Premises is damaged or destroyed by fire or other casualty, Tenant shall forthwith give notice thereof to Landlord and Tenant shall, at its cost and expense, forthwith repair, restore, rebuild or replace the damaged or destroyed improvements, fixtures or equipment, and complete the same as soon as reasonably possible, to the condition they were in prior to such damage or destruction, except for such changes in design or materials as may then be required by Law. The Landlord, in such event, shall, to the extent and at the times the insurer and any Mortgagees make the proceeds of the insurance available, reimburse the Tenant for the costs of making such repairs, restoration, rebuilding and replacements, provided further that said reimbursements need be made only under such conditions that the Landlord and any Mortgagees are assured that at all times the Leased Premises shall be free of liens or claims of liens by reason of such work, and provided further that the portion of the proceeds paid out at any time shall not exceed the value of the actual work and materials incorporated in the repaired, restored, -20- rebuilt or replaced Leased Premises less a customary retainage, and that the conditions described in Section 18 are complied with. To the extent, if any, that the proceeds of insurance made available as aforesaid are insufficient to pay the entire cost of making such repairs, restoration, rebuilding and replacements, and notwithstanding the expiration or termination of the Term of this Lease, the Tenant shall pay the amount by which such costs exceed the insurance proceeds made available as aforesaid. Any surplus of insurance proceeds over the cost of restoration shall be the property of the Tenant and only as it applies to losses related to the interior of restaurant. (f) In the event of any damage to or destruction of the Leased Premises, Tenant shall promptly notify Landlord and any Mortgagees and shall file prompt proof of loss to the relevant insurance company(ies). (g) The obligation to pay the rent provided for herein and to otherwise perform Tenant's obligations hereunder shall continue unabated by reason of such damage or destruction; that is, there shall be no abatement or diminution of rent or release from any of Tenant's obligations hereunder by reason of such damage or destruction regardless of the period of time, if any, during which the Leased Premises or any part thereof remain untenantable, any Laws to the contrary notwithstanding, except to the extent Landlord shall actually receive the proceeds of rent insurance as its sole property. (h) The provisions and requirements of Section 18 shall apply with respect to any repairing, restoring, rebuilding or replacing made pursuant hereto; and same shall be made in accordance with the Plans and Specifications to the extent same is practicable. (i) As to any loss or damage which may occur upon the property of a party hereto and be collected under any insurance policy(ies), such party hereby releases the other from any and all liability for such loss or damage to the extent of such amounts collected. (j) Tenant shall not take out separate insurance concurrent in form or contributing in the event of loss with that required to be furnished by Tenant under Sections 19 and 20 of this Lease, unless Landlord, and with respect to the insurance described in Section 20, any Mortgagees designated by Landlord, are included therein as named insureds, with loss payable as in said Sections provided. Tenant shall immediately notify Landlord whenever any such separate insurance is taken out and shall deliver to Landlord duplicate original(s) thereof, or original certificate(s) evidencing the same with true copies thereof, as provided in this Lease. 21. CONDEMNATION AND REJECTABLE OFFER. -21- (a) In the event that at any time during the Term of this Lease, title to the whole or materially all of the Leased Premises shall be taken by the exercise of the right of condemnation or eminent domain or by agreement between the Landlord and those authorized to exercise such right, this Lease shall terminate and expire on the date of such taking (herein called the "Taking Date") and the rent provided to be paid by the Tenant shall be apportioned and paid to the Taking Date. (b) If (i) twenty-five (25%) percent or more of the Leased Premises shall be taken, or (ii) all reasonable means of ingress and egress to and from the Leased Premises are permanently eliminated by reason of such a taking, then and in any of such events, Landlord and Tenant shall each have the right to terminate this Lease on the next dated for payment of Minimum Rental occurring at least one hundred twenty (120) days after notice to the other given within ninety (90) days after the Taking Date. (c) In the event of any taking of the Leased Premises and if this Lease shall not terminate as provided in subsections 21(a) and 21(b) above, then this Lease shall continue unaffected (except as hereinafter specifically otherwise provided) and the Landlord shall be entitled to all awards, damages, consequential damages and compensation for such taking and the Tenant shall not be entitled to share in any such award or have any claim against Landlord for any part thereof, provided: (i) Landlord shall, to the extent the Net Award paid for the Improvements on the Leased Premises is made available to Landlord, reimburse Tenant for its cost of demolition, repair, rebuilding and restoration to return the Improvements to a tenantable condition, as and when expended, and paid in like manner and subject to the provisions and conditions contained in Section 18 above, which provisions and conditions shall be deemed to apply to such demolition, repair, rebuilding and restoration; and (ii) the Minimum Rental payable by Tenant to Landlord under Section 3 hereof, from and after the date of restoration of the Leased Premises, shall be reduced in the ratio which the square foot area of the building on the Premises taken has to the square foot area of the Building prior to such taking. In the event of any taking which does not result in a termination of this Lease, Tenant shall promptly make such demolition, repair, rebuilding and restoration as are necessary to return the Leased Premises to a tenantable condition (in accordance with the Plans and Specifications, to the extent same is practicable), and in the event that the cost of such demolition, repair, rebuilding and restoration shall exceed the Net Award collected by the Landlord, the Tenant shall pay the deficiency. (d) In the event Landlord is advised of an impending condemnation, the Landlord shall give notice of such fact to the Tenant and the Tenant, at its election, shall be entitled to participate in any negotiations or litigations with -22- the condemning authority. (e) In case of any temporary acquisition of the Leased Premises, the active Net Award received by Tenant shall be payable to the Landlord. (f) Notwithstanding the foregoing, Tenant, at its cost and expense, shall be entitled to separately claim, in any condemnation proceeding, any damages payable for movable trade fixtures paid for and installed by Tenant (or any persons claiming under Tenant) without any contribution or reimbursement therefor by Landlord, and for Tenant's loss of business, and for Tenant's relocation costs; provided that Landlord's award is not reduced or otherwise adversely affected thereby. *21. (SEE BELOW). 22. REMOVAL OF TENANT'S PROPERTY. Provided the Tenant is not then in default hereunder, the Tenant shall have the right, at any time during the Term of this Lease, to remove "Tenant's Property", consisting of machinery, trade equipment, business and trade fixtures, and other trade equipment placed, installed, supplied or made by it in or on the Leased Premises at Tenant's cost and expense (without any contribution or reimbursement therefor by Landlord), and which may be removed without material injury to the Leased Premises; provided, however, that any damage to the Leased Premises or any part thereof occasioned by such removal shall be repaired by the Tenant at Tenant's cost and expense. As used herein and hereafter, the Term "Tenant's Property" shall not include or be deemed to include any item now or hereafter installed in or on the Leased Premises that is an integral part of the building, including, without limiting the generality of the foregoing, heating, ventilating, and air conditioning plants and systems, electrical and plumbing fixtures and systems and other like equipment and fixtures, if any. 23. SUBORDINATION, NON-DISTURBANCE, NOTICE TO LESSORS AND MORTGAGEES. (a) This Lease, and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to all mortgage ground and underlying leases of all or any portions of the Leased Premises, or which hereafter affect all or any portions of the Leased Premises and/or any of such leases, to each and every advance made or hereafter to be made under such Mortgages, and to all renewals, modifications, - -------- * Tenant shall share in any condemnation award on a prorate basis of his square footage to any loss, after the payment of all expenses. -23- replacements and extension of such leases and Mortgages and spreaders and consolidations of such Mortgages; provided, that, as to any such leases and/or Mortgages that become (i) the lessors and/or Mortgagees thereunder shall each enter into a non-disturbance agreement, in favor of Tenant, to provide that in the event its said Mortgage shall be foreclosed or its said lease shall be terminated, as the case may be, and provided that Tenant is not then in default hereunder, this Lease shall not terminate on account thereof so long as the Tenant continues to pay the rents reserved in this Lease and otherwise performs and observes all of the Terms, covenants, conditions and provisions of this Lease to be performed and observed by or on behalf of Tenant thereunder, and (ii) such leases and/or Mortgages shall provide (or the lessors thereunder and/or the holders thereof, as the case may be, shall separately agree) that so long as Tenant is not in default under this Lease beyond any period herein permitted to cure same, the proceeds of any insurance on the Leased Premises payable by reason of fire or other insured casualty and of any award for any partial taking by eminent domain (not resulting in termination of this Lease as herein provided), shall first be applied in payment of the cost of restoring the Leased Premises after such injury or taking, before any part of such proceeds or award shall be paid to any such lessors as its or their property and before any part of such proceeds or award shall be applied on account of any part of such mortgage debts. The lien of any Mortgages shall not cover any trade fixtures or other personal property paid for and installed in the Leased Premises by Tenant (or any persons claiming under Tenant) without any contribution or reimbursement therefor by Landlord. The provisions of this subsection (a) shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver any instruments that Landlord, the lessor of any such lease or the holder of any Mortgage, or any of their respective successors in interest, may reasonably request to evidence such subordinations, and Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and deliver such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request, such power being coupled with an interest. The lease(s) to which, at the time in question, this Lease is subject and subordinate are hereinafter sometimes called "Superior Lease(s)" and the Lessor(s) of a Superior Lease or its (their) successor(s) in interest, at the time in question, is (are) sometimes hereinafter called "Superior Lessor(s)". (b) In the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a period of time, to cancel or terminate this Lease, or to claim a partial or total eviction, Tenant shall not exercise such right (i) until it has given written notice of such act or omission to each Mortgagee and each Superior Lessor whose name and address shall previously have been furnished to Tenant in -24- writing, and (ii) unless such act or omission shall be one which is not capable of being remedied by Landlord or any Mortgagee or Superior Lessor within a reasonable period of time, until a reasonable period for remedying such act or omission shall have elapsed following the giving of such notice and following the time when all such Mortgagees and Superior Lessors shall have become entitled under such Mortgages or Superior Leases, as the case may be, to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy), provided that any such Mortgagee or Superior Lessor shall with due diligence give Tenant written notice of its intention to and shall commence and continue to remedy such act or omission, but nothing herein contained shall obligate any Mortgage or Superior Lessor to do so unless it so elects. (c) If a Superior Lessor or a Mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a new lease or deed, then at the request of such party so succeeding to Landlord's right (herein sometimes called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment Tenant shall attorn to and recognize such Successor Landlord as Tenant's landlord under this Lease, and shall promptly execute and deliver any instrument that such Successor Landlord may reasonably request to evidence such attornment. Tenant hereby irrevocably appoints Landlord the attorney-in-fact of Tenant to execute and deliver such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request, such instrument on behalf of Tenant, should Tenant refuse or fail to do so promptly after request, such power being coupled with an interest. Upon such attornment this Lease shall continue in full force and effect as, and as if it were, a direct lease between the Successor Landlord and Tenant upon all of the terms, covenants and conditions set forth in this Lease, and all such terms, covenants and conditions shall be applicable after such attornment except that the Successor Landlord shall: (i) not be liable for any previous act or omission of Landlord under this Lease, (ii) not be subject to any offset, not expressly provided for in this Lease, which shall have theretofore accrued or which may thereafter accrue to Tenant against Landlord, unless agreed with by Landlord in writing. (iii) not be bound by any previous modification of this Lease, not expressly provided for in this Lease, other than a modification of this Lease executed by Landlord and Tenant prior to the execution of any Superior Lease or Mortgage, or by any previous prepayment of more than one months Minimum Rental, unless such modification or prepayment -25- shall have been expressly approved in writing by the Superior Lessor(s) or the Mortgagee(s) through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease, unless agreed with by Landlord in writing. 24. NON-WAIVER. Neither a failure by the Landlord to exercise any of its options hereunder, nor failure to enforce its rights or seek its remedies upon any default, nor the acceptance by the Landlord of any rent accruing before or after any default, shall effect or constitute a waiver of the Landlord's right to exercise such option, to enforce such right, or to seek such remedy with respect to that default or to any prior or subsequent default. The remedies provided in this Lease shall be cumulative and shall not in any way abridge, modify or preclude any other rights or remedies to which the Landlord may be entitled either at law or in equity. 25. QUIET ENJOYMENT. If the Tenant pays the rent it is obligated hereunder to pay, and observes all other terms, covenants and conditions hereof, it may peaceably and quietly have, hold and enjoy the Leased Premises during the Term of this Lease, subject, however, to all the Terms of this Lease. No failure by Landlord to comply with the foregoing covenant shall give Tenant any right to cancel or terminate this Lease or to abate, reduce or make any deduction from or offset against any rent or any other sum payable under this Lease, or to fail to perform any other obligations of Tenant hereunder. 26. ASSIGNMENT AND SUBLETTING. (a) Tenant shall not sublet the entire of the Leased Premises, nor assign, or otherwise dispose of this Lease or any interest therein, or any part thereof, without Landlord's prior written consent in each of the foregoing cases, which consent, however, to an assignment of this Lease, or subletting of the Leased Premises, shall not be unreasonably withheld, provided the following conditions are complied with: (i) Any assignment shall transfer to the assignee all of the Tenant's rights in, and interests under, this Lease. (ii) At the time of any assignment and/or subletting, this Lease must be in full force and effect without any breach or default thereunder on the part of the Tenant. (iii) Any assignee shall assume, by written, recordable instrument, in form and content satisfactory to Landlord, the due performance of all of Tenant's obligations -26- under this Lease including any accrued obligations at the time of the assignment. A copy of the assignment and assumption agreement, both in form and content satisfactory to Landlord, fully executed and acknowledged by the assignee, together with a certified copy of a properly executed corporate resolution (if the assignee be a corporation) authorizing such assumption agreement, shall be sent to Landlord within ten (10) days from the effective date of such assignment. (iv) A copy of any sublease fully executed and acknowledged by the Tenant and the sublessee, shall be mailed to Landlord within ten (10) days from effective date of such subletting. (v) Such assignment and/or subletting shall be subject to all the provisions, terms covenants and conditions of this Lease and the Tenant-assignor (and any guarantor(s) of this Lease) and such assignee(s) shall continue to be and remain liable hereunder, it being expressly understood and agreed that no assignment or subletting of the Leased Premises shall, in any way, relieve Tenant or any subsequent assignee(s) from the performance of any of the agreements, terms, covenants and conditions of this Lease. (vi) Each sublease permitted under this Section shall contain provisions to the effect that (A) such sublease is only for the actual use and occupancy by the sublessee, and (B) such sublease is subject and subordinate to all of the terms, covenants and conditions of this Lease and to all of the rights of Landlord thereunder, and (C) in the event this Lease shall terminate before the expiration of such sublease, the subtenant thereunder will, at Landlord's option, attorn to Landlord and waive any rights the subtenant may have to terminate the sublease or to surrender possession thereunder, as a result of the termination of this Lease. (b) Notwithstanding anything contained in this Lease to the contrary and notwithstanding any consent by Landlord to any sublease of the Leased Premises or to any assignment of this Lease, no subtenant shall assign its sublease nor further sublease the Leased Premises, or any portion thereof, and no assignee shall further assign its interest in this Lease nor sublease the Leased Premises, or any portion thereof, without Landlord's prior written consent in each of such cases, which consent shall not be unreasonably withheld. (c) Tenant's failure to comply with all of the provisions and conditions of this Section 26 and all of the subsections hereof shall (whether or not Landlord's consent is required under this Section), at Landlord's option, render any purported assignment or subletting null and void and of no force and effect. -27- (d) In the event that Tenant hereunder or any "Guarantors" (hereinafter defined) shall, at any time, be a corporation, no change shall occur in the majority ownership of and/or the power to vote the majority of the outstanding capital stock of Tenant (or such Guarantors) without the prior written consent of Landlord, which consent Landlord agrees not to unreasonably withhold unless such transfer is to the Parent, Wife or children of FRANK CRETELLA. (e) Tenant may not mortgage, pledge or otherwise encumber its leasehold estate hereunder, and any attempt to mortgage, pledge or otherwise encumber such estate shall be null and void and of no force and effect. (f) That Tenant may consolidate with or merge into any other corporation, convey or transfer all or substantially all of its assets to any other corporation, or permit any other corporation to consolidate with or merge into it upon condition that: (i) The corporation which results from such consolidation or merger or the transferee to which such sale shall have been made (the "Surviving Corporation") is a corporation organized under the laws of any State of the United States, and the Surviving Corporation shall have a net worth, computed in accordance with generally accepted accounting principles, consistently applied at least equal to the net worth of Tenant on the day immediately preceding such consolidation, merger or transfer; and (ii) the Surviving Corporation shall expressly and unconditionally assume by written agreement in recordable form to perform all such obligations of the Tenant hereunder and shall be obligated to perform all such obligations of the Tenant hereunder to the same extent as if the Surviving Corporation had originally executed and delivered this Lease; and (g) no rights of Landlord under this Lease shall be affected or reduced by such consolidation, merger, conveyance or transfer. Tenant covenants that it will not merge or consolidate or sell or otherwise dispose of all or substantially all of its assets unless there shall be compliance with all of the foregoing provisions of subsection 17(f) of this Lease and unless the instrument referred to in subparagraph 17(a)(ii) above shall have been delivered to Landlord. 27. ENTRY BY LANDLORD. Landlord, any Superior Lessor(s) and any Mortgagee(s), and their respective duly authorized representatives shall have the right to enter the Leased Premises at all reasonable times for the purposes of: -28- (a) inspecting the conditions of same, and making such repairs, alterations, additions, or improvements thereto as may be necessary or desirable if Tenant fails to do so as required hereunder (but neither the Landlord, Superior Lessor(s), nor any Mortgagee shall have any duty whatsoever to make any such inspections, repairs, alterations, additions, or improvements); and (b) exhibiting the same to persons who may wish to purchase or lease the same, and, during the last six (6) months of the Term, of this Lease, placing a notice of reasonable size on the Leased Premises offering the same or any part thereof for sale or for rent. 28. TENANT'S DEFAULT. The following shall be defined and deemed as an "Event of Default": (a) if Tenant shall default in the payment of the Minimum Rental or any additional rent and if Tenant shall fail to cure said default within fifteen (15) business days after receipt of notice of such default from Landlord (provided, however, that Landlord need give such notice and Tenant shall have such times to cure not more than three (3) times in any calendar year); or, (b) if Tenant shall default in the performance or observance of any other term, covenant or condition to be performed or observed by Tenant under this Lease and if Tenant shall fail to cure said default within twenty (20) days after receipt of notice of said default from Landlord, or if said default shall reasonably require longer than twenty (20) days to cure, if Tenant shall fail to commence to cure said default within twenty (20) days after receipt of notice thereof and continuously prosecute the curing of the same to completion with due diligence, or (c) if there shall be a default on the tenant's part (x) under any other lease covering other premises demised by Landlord to Tenant or to any Guarantor hereof, or (y) under a lease which is guaranteed by Tenant or by any Guarantor hereof, or (d) if Tenant shall make an assignment of its property for the benefit of creditors or shall institute any proceedings relating to it or its property under any bankruptcy or insolvency laws of any jurisdiction or shall petition to any court for, or consent to, the appointment of a receiver, trustee or assignee of it or any part of its property, or (e) if an order for relief under any provisions of the Bankruptcy Reform Act of 1978 shall be entered against tenant, or (f) if Tenant shall be declared bankrupt or insolvent according to law, or (g) if any bankruptcy or insolvency proceedings shall be commenced against Tenant and shall not be dismissed within sixty (60) days thereafter, or (h) if a receiver, trustee, or assignee shall be appointed without the consent of Tenant in any bankruptcy or insolvency proceedings of Tenant or the property of Tenant and shall not be discharged within ninety (90) days thereafter, or (i) if Tenant shall be liquidated or dissolved, or shall begin proceedings toward its liquidation or dissolution, or shall, in any manner, permit the -29- divestiture of substantially all of its assets, or (j) if, as a result of any failure by Tenant to perform or observe any of the terms, covenants or conditions to be performed or observed by it under this Lease, a breach or default shall have occurred and be continuing under any Superior Lease or Mortgage. The word "Tenant" as used in subsections (d), (e), (f), (g), (h), (i) and (j) of this Section 28 shall mean the then holder of the Tenant's interest in this Lease hereunder and/or any Guarantor(s) and/or other persons who or which are liable for Tenant's obligations under this Lease. The words "Landlord" and "Tenant" as used in subparagraph (c) of this Section 28 shall mean any person, firm or entity controlled by, under common control with, or controlling the Landlord or the "Tenant" (as defined in the preceding sentence) under this Lease, respectively; and for the purpose of interpreting this sentence the word "control" shall be deemed to mean capable of directing the business activities and direction of such person, firm or entity. Any defaults in Tenant's liabilities or obligations under this Lease occasioned by any acts or failures to act by any persons having or claiming any right, title and interest in or to the Leased Premises by, through or under Tenant, shall be deemed the default of Tenant hereunder. If this Lease is terminated pursuant to this Section, Tenant waives (x) the benefit of any Laws exempting property from liability for rent or for debt, and (y) the service of any notice which may be required by any Laws. In case of the occurrence of any Event of Default hereinbelow provided, the Landlord shall have the immediate right of reentry and may remove all persons and property from the Leased Premises by summary proceedings, force or otherwise. In addition, in the event of the occurrence of any Event of Default (whether or not Landlord shall elect to reenter or to take possession pursuant to legal proceedings or pursuant to any notice provided for by Laws) Landlord shall have the right, at its option, to terminate this Lease on not less than two (2) days notice to Tenant and upon the giving of said notice, this Lease and the Term hereof shall cease and expire on the date set forth in said notice as if said date were the expiration date originally set forth herein and/or it may from time to time, whether or not this Lease be terminated, make such alterations and repairs as may be reasonably necessary in order to relet the Leased Premises or any part(s) thereof for such term or terms (which may extend beyond the Term of this Lease) and at such rental(s) and upon such other terms and conditions as Landlord in its sole discretion may deem advisable; upon each such reletting all rentals received by the Landlord from such reletting shall be applied, first, to the payment of any indebtedness (other than rents due hereunder) of Tenant to Landlord, second, to the payment of any costs and expenses of such reletting, including, without limitation, brokerage fees (at no greater than customary rates in the area in which the Leased Premises is located) and reasonable attorneys' fees and of the cost of such alterations and repairs, third, to the payment of rents due and unpaid -30- hereunder; and the residue, if any, shall be held by Landlord and applied in payment of future rents and other payments required to be made by Tenant hereunder as the same may become due and payable hereunder, with the right reserved to Landlord to bring such action(s) or proceeding(s) for the recovery of any deficits remaining unpaid without being obliged to await the end of the Term for a final determination of Tenant's account; and the commencement of maintenance of any one or more actions shall not bar Landlord from bringing other or subsequent actions for further accruals pursuant to the provisions of this Section. If such rentals received from such reletting during any month be less than that to be paid during that month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord. Such deficiency shall be calculated and paid monthly subject to Landlord's right of action(s) or proceeding(s) as aforesaid. No such reentry or taking possession of the Leased Premises by Landlord shall be construed as an election on its part to terminate this Lease unless a written notice of such intention be given to Tenant or unless the termination thereof be decreed by a court of competent jurisdiction. Notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Should Landlord at any time terminate this Lease for any breach, in addition to any other remedies it may have, it may recover from Tenant all damages it may incur by reason of such breach as damages for loss of the bargain and not as a penalty, including the cost of recovering the Leased Premises, reasonable attorneys' fees, and including the worth, at the time of such termination, of the excess, if any, of the amount of rental and charges equivalent to the rental and charges reserved in this Lease for the remainder of the then Term of this Lease, over the aggregate rental value of the Leased Premises for the remainder of such Term, all of which shall be immediately due and payable from Tenant to Landlord. If any Laws shall validly limit the amount of the damages provided for in the immediately preceding sentence to less than the amount above agreed upon, Landlord shall be entitled to the maximum amount allowable under such Laws. In the event the Tenant does not comply with its obligations under this Lease, Landlord shall also have the right to appropriate injunctive relief. The rights and remedies whether herein or anywhere else in this Lease provided shall be cumulative, and the exercise of any one right or remedy shall not preclude the exercise of or act aa a waiver of any other right or remedy of Landlord hereunder, or which may be existing at law, or in equity or by statute or otherwise. 29. BANKRUPTCY OR INSOLVENCY. (a) In the event that Tenant shall become a debtor under Chapter 7 of the Bankruptcy Reform Act of 1978, 11 U.S.C. 1 et seq. ("Bankruptcy Code") and Tenant's trustee or Tenant shall elect to assume this Lease for the purpose of assigning the same or otherwise, such election and assignment may -31- be made only if the provisions of this Section 29 are satisfied. If Tenant or Tenant's trustee shall fail to assume this Lease within 60 days after the entry of an order for relief, this Lease shall be deemed to have been rejected. Immediately thereupon Landlord shall be entitled to possession of the Leased Premises without further obligation to Tenant or Tenant's trustee and this Lease, upon the election of Landlord, shall terminate, but Landlord's right to be compensated for damages (including, without limitation, liquidated damages pursuant to Section 19 or the exercise of any other remedies in any such proceeding) shall survive, whether or not this Lease shall be terminated. (b) In the event that a voluntary petition for the reorganization is filed by Tenant, or an involuntary petition is filed against Tenant under Chapter 11 of the Bankruptcy Code, or in the event of the entry of an order for relief under Chapter 7 in a case which is then transferred to Chapter 11, Tenant's trustee or Tenant, as debtor-in-possession, must elect to assume this Lease within 60 days from the date of the filing of the petition under Chapter 11 or the transfer thereto, or Tenant's trustee or the debtor-in-possession shall be deemed to have rejected this Lease. Immediately thereupon Landlord shall be entitled to possession of the Leased Premises without further obligation to Tenant or Tenant's trustee and this Lease, upon the election of Landlord, shall terminate, but Landlord's right to be compensated for damages (including, without limitation, liquidated damages pursuant to Section 19 or the exercise of any other remedies in any such proceeding) shall survive, whether or not this Lease shall be terminated. (c) No election by Tenant's trustee or the debtor-in-possession to assume this Lease, whether under Chapter 7 or Chapter 11, shall be effective unless each of the following conditions has been satisfied: (i) Tenant's trustee or the debtor-in-possession has cured all defaults under this Lease, or has provided Landlord with evidence satisfactory to Landlord that it will cure all defaults susceptible of being cured by the payment of money within 10 days from the date of such assumption and that it will cure all other defaults under this Lease which are susceptible of being cured by the performance of any act within 30 days after the date of such assumption. (ii) Tenant's trustee or the debtor-in-possession has compensated, or has provided Landlord with evidence satisfactory to Landlord that, within 10 days from the date of such assumption, it will compensate Landlord for any actual pecuniary loss incurred by Landlord arising from the default of Tenant, Tenant's trustee, or the debtor-in-possession as indicated in any statement of actual pecuniary loss sent by Landlord to Tenant's trustee or the debtor-in-possession. -32- (iii) Tenant's trustee or the debtor-in-possession (A) has provided Landlord with "Assurance", as hereinbelow defined, of the future performance of each of the obligations under this Lease of Tenant, Tenant's trustee or the debtor-in-possession, and (B) shall, in addition to any other security deposits held by Landlord, deposit with Landlord, as security for the timely payment of Minimum Rental and for the performance of all other obligations of Tenant under this Lease, an amount equal to 3 monthly installments of Minimum Rental and any additional rental payable under this Lease (both at the rate then payable), and (C) pay in advance to Landlord on the date each installment of Minimum Rental is due and payable, one-twelfth of Tenant's annual obligations for Impositions and insurance premiums to be made by Tenant pursuant to this Lease. The obligations imposed upon Tenant's trustee or the debtor-in-possession by this Section 20 shall continue with respect to Tenant or any assignee of this Lease, after the conclusion of proceedings under the Bankruptcy Code, (iv) Such assumption will not breach or cause a default under any provision of any Mortgage, financing agreement or other agreement by which Landlord or the Superior Lessor is bound, relating to the Leased Premises or any larger development of which the Leased Premises is a part. (d) For purposes of subsection (c)(iii) of this Section 20, Landlord and Tenant acknowledge that "Assurance" shall mean no less than that: (x) Tenant's trustee or the debtor-in-possession has and will continue to have sufficient unencumbered assets after the payment of all secured obligations and administrative expenses to assure Landlord that sufficient funds will be available to fulfill the obligations of Tenant under this Lease and (y) to secure to Landlord the obligations of Tenant, Tenant's trustee or the debtor-in-possession and to assure the ability of Tenant, Tenant's trustee or the debtor-in-possession to cure the defaults under this Lease, monetary and/or non-monetary, there shall have been: (A) sufficient cash deposited with Landlord, or (B) the Bankruptcy Court shall have entered an order segregating sufficient cash, payable to Landlord, and/or (C) Tenant's trustee or the debtor-in-possession shall have granted to Landlord a valid and perfected first lien and security interest and/or mortgage in property of Tenant, Tenant's trustee or the debtor-in-possession, acceptable as to value and kind to Landlord. (e) In the event that this Lease is assumed in accordance with subsection (b) of this Section 29 and thereafter Tenant is liquidated or files, or has filed against it, a subsequent petition under any provision of the Bankruptcy Code or any similar statute for relief of debtors, Landlord may, at its option, terminate this Lease and all rights of Tenant hereunder, -33- by giving Tenant notice of its election to so terminate within 30 days after the occurrence of either of such events, (f) If Tenant's trustee or the debtor-in-possession has assumed this Lease pursuant to the terms and provisions of this Section 20 for the purpose of assigning (or elects to assign) this Lease, this Lease may be so assigned only if the proposed assignee has provided adequate assurance of future performance of all of the terms, covenants and conditions of this Lease to be performed by Tenant. Landlord shall be entitled to receive all consideration for such assignment, whether cash or otherwise. As used in this subsection (f) of this Section 20 "adequate assurance of future performance" shall mean at least that clauses (B) and (C) of subsection (c)(iii) of this Section 29 and each of the following conditions, has been satisfied: (i) The proposed assignee has furnished Landlord with a current financial statement audited by a certified public accountant determined in accordance with generally accepted accounting principles consistently applied indicating a credit rating, net worth and working capital in amounts which Landlord reasonably determines to be sufficient to assure the future performance of such assignee of Tenant's obligations under this Lease, but in no event indicating a net worth less than the net worth of the Tenant and any Guarantors of this Lease, on the date of execution hereof. (ii) Such assignment will not breach nor cause a default under any provision of any other lease, Mortgage, financing agreement or other agreement by which Landlord or the Superior Lessor is bound, relating to the Leased Premises or any larger development of which the Leased Premises is a part. (iii) The proposed assignment will not release or impair any Guarantee under this Lease. (g) When, pursuant to the Bankruptcy Code, Tenant's trustee or the debtor-in-possession shall be obligated to pay reasonable use and occupancy charges for the use of the Leased Premises, such charges shall not be less than the Minimum Rental and all additional rent payable by Tenant under this Lease and shall be paid at the times and when due as though such charges were Minimum Rental and additional rent. (h) Anything in this Lease to the contrary notwithstanding, neither the whole nor any portion of Tenant's interest in this Lease or its estate in the Leased Premises shall pass to any trustee, receiver, assignee for the benefit of creditors, or any other similar person or entity, or otherwise by operation of law under the Bankruptcy Code or any similar federal statute now or hereinafter enacted, or under the laws of any state having Jurisdiction of the person or property of Tenant -34- unless Landlord shall have consented to such transfer in writing. No acceptance by Landlord of rent or any other payments from any such trustee, receiver, assignee, person or other entity shall be deemed a waiver of Landlord's right to terminate this Lease for any transfer of Tenant's interest under this Lease without such consent. (i) Anything in this Lease to the contrary notwithstanding, Tenant covenants and agrees that this Lease is an extension of financial benefits and accommodations to Tenant which are uniquely personal in nature and such financial benefits and accommodations are a material inducement for Landlord's execution and delivery of this Lease and are an integral part of the consideration for this Lease. 30. TAX APPEALS AND CONTESTS. (a) Tenant shall have the right, at its cost and expense, to contest the amount or validity, in whole or in part, of any Imposition of any kind by appropriate proceedings diligently conducted in good faith, but no such contest shall be carried on or maintained by Tenant after the time limit for the payment of any Imposition unless the Tenant, at its option: (i) shall pay the amount involved under protest; or (ii) shall procure and maintain a stay of all proceedings to enforce any collection of any Imposition, together with all penalties, interest, costs and expenses, by a deposit of a sufficient sum of money, or by such undertaking, as may be required or permitted by law to accomplish such stay; or (iii) shall deposit with Landlord or any Superior Lessor or Mortgagee, as security for the performance by the Tenant of its obligations hereunder with respect to such Impositions, such security in amounts equal to such contested amount or such reasonable security as may be demanded by the Landlord or any Superior Lessor or Mortgagee to insure payment of such contested Imposition and all penalties, interest, costs and expenses which may accrue during the period of the contest. Upon the termination of any such proceedings, it shall be the obligation of Tenant to pay the amount of such Imposition or part thereof, as finally determined in such proceedings, the payment of which may have been deferred during the prosecution of such proceedings, together with any costs, fees (including counsel fees), interest, penalties or other liabilities in connection therewith, whereupon the Landlord shall arrange to have returned to the Tenant, without interest thereon, all amounts, if any, held by or on behalf of Landlord which were deposited by the Tenant in accordance with the provisions hereof. (b) Tenant shall have the right, at its cost and expense, to seek a reduction in the valuation of the Leased Premises as assessed for tax purposes and to prosecute any action or proceeding in connection therewith. Provided Tenant is not in default hereunder, Tenant shall be authorized to collect any tax -35- refund of any tax paid by Tenant obtained by reason thereof and to retain the same. (c) Landlord agrees that whenever Landlord's cooperation is required in any of the proceedings brought by Tenant as aforesaid, Landlord will reasonably cooperate therein, provided same shall not entail any cost, liability or expense to Landlord and Tenant will pay, indemnity and save Landlord harmless of and from, any and all liabilities, losses, judgments, decrees, costs and expenses (including all reasonable attorneys, fees and expenses) in connection with any such contest and will, promptly after the final settlement, fully pay and discharge the amounts which shall be levied, assessed, charged or imposed or be determined to be payable therein or in connection therewith, and Tenant shall perform and observe all acts and obligations, the performance of which shall be ordered or decreed as a result thereof. No such contest shall subject Landlord or any Superior Lessor or Mortgagee to the risk of any material civil liability or the risk of any criminal liability, and Tenant shall give such reasonable indemnity or security to Landlord, any Superior Lessor and any Mortgagee as may reasonably be demanded by any of them to insure compliance with the foregoing provisions of this Section 30. 31. SIGNS. Tenant may, during the Term of this Lease, upon obtaining any and all necessary approvals and permits from governmental authorities, erect and maintain, at its costs and expense, signs of such dimensions and materials as it may reasonably deem appropriate in or about the Leased Premises. Such signs shall, at the option of the Landlord, be removed by Tenant upon the termination of its occupancy of the Leased Premises. Prior to the installation of any such sign the Tenant shall procure and deliver to the Landlord liability insurance that will specifically insure both the Landlord and the Tenant against injuries and damages that may be caused by the installation and maintenance of the sign. Tenant is advised that the Premises form a part of property which has landmark status and further that all signage for the building must be uniform. 32. SURRENDER OF PREMISES. Except in the case of condemnation described in subsection 21(a), at the expiration or sooner termination of the Term of this Lease, Tenant shall surrender the Leased Premises in the same condition as the Leased Premises were in upon delivery of possession thereto under this Lease, reasonable wear and tear excepted, and shall surrender all keys for the Leased Premises to Landlord at the place than fixed for the payment of rent and shall inform Landlord of all combinations on locks, safes and -36- vaults, if any, in the Leased Premises. Tenant shall at such time remove all Tenant's Property, as well as any alterations or improvements, if requested to do so by Landlord, and shall repair any damage to the Leased Premises caused thereby, and any or all of such property not so removed shall, at Landlord's option, become the exclusive property of Landlord or be disposed of by Landlord, at Tenant's cost and expense, without further notice to or demand upon Tenant. If the Leased Premises be not surrendered as and when aforesaid, Tenant shall indemnify Landlord against loss or liability resulting from the delay by Tenant in so surrendering the Leased Premises including, without limitation, any claims made by any succeeding occupant founded on such delay. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of the Term of the Lease. 33. EXCULPATION. Notwithstanding anything contained herein to the contrary, it is specifically understood and agreed that there shall be no personal liability on Landlord in respect of any of the terms, covenants, conditions or provisions of this Lease, and in the event of a breach or default by Landlord of any of its liabilities and obligations under this Lease, Tenant and any persons claiming by, through or under Tenant shall look solely to the equity of the Landlord in the Leased Premises for the satisfaction of Tenant's and such persons' remedies and claims for damages. 34. TENANT'S PAYMENTS. Each and every payment and expenditure, other than Minimum Rental and other than costs for any additions, alterations, repairs, replacements and improvements to the Improvements, which are required to be paid by Tenant under this Lease shall be deemed to be additional rent hereunder, whether or not the provisions requiring payment of such amounts specifically so state, and shall be payable, unless otherwise provided in this Lease, on demand by Landlord and in the case of the non-payment of any such amount, Landlord shall have, in addition to all of its other rights and remedies, all of the rights and remedies available to Landlord hereunder or by Laws in the case of nonpayment of Minimum Rental. Unless expressly otherwise provided in this Lease, the performance and observance by Tenant of all the terms, covenants and conditions of this Lease to be performed and observed by Tenant at Tenant's sole cost and expense. Tenant agrees to pay or reimburse Landlord, on demand, for any reasonable costs and expenses that may be incurred by Landlord in connection with its review of any instruments or documents requested by Tenant pursuant to this Lease or relating to the Leased Premises including but not limited to the costs and expenses of making such investigations as the Landlord shall deem appropriate and the reasonable legal fees and disbursements of -37- Landlord's counsel. All payments of Minimum Rental hereunder shall be made to Landlord by check or wire transfer of federal funds, as Landlord may direct, at the address set forth in the beginning hereof unless otherwise provided herein or at such other address as may be designated by Landlord. 35. RIGHT TO CURE DEFAULTS. If Tenant shall fail to fully comply with any of its liabilities or obligations under this Lease (including, without limitation, its obligations to make repairs, maintain various policies of insurance, comply with all Laws and pay all Impositions and bills for utilities), then ten (10) days after the giving of written notice of such breach to Tenant (except that prior written notice shall not be required in the event of an emergency) Landlord shall have the right, at its option, to cure such breach at Tenant's cost and expense. Tenant agrees to reimburse Landlord (as additional rent) for all losses, costs, damages and expenses resulting therefrom or incurred in connection therewith, together with interest thereon (at a rate equal to the "Maximum Rate"), promptly upon demand. 36. COVENANT AGAINST LIENS. (a) If, because of any act or omission (or alleged act or omission) of Tenant, any mechanic's or other lien, charge or order for the payment of money or other encumbrances shall be filed or imposed against Landlord, any Superior Lessor, any Mortgagee and/or any portion of the Leased Premises (whether or not such lien, charge, order or encumbrance is valid or enforceable as such), Tenant shall, at its cost and expense, cause same to be discharged of record or bonded within ten (10) days after notice to Tenant of the filing or imposition thereof; and Tenant shall indemnify and defend Landlord against and save Landlord harmless from all losses, costs, damages, expenses, liabilities, suits, penalties, claims, demands and obligations, including, without limitation, reasonable counsel fees, resulting therefrom. If Tenant fails to comply with the foregoing provisions, Landlord shall have the option of discharging or bonding any such lien, charge, order or encumbrance, and Tenant agrees to reimburse Landlord (as additional rent) for all losses, costs, damages, and expenses resulting therefrom or incurred in connection therewith, together with interest thereon (at a rate equal to the "Maximum Rate"), promptly upon demand. (b) All materialmen, contractors, artisans, architects, mechanics, laborers and any other persons now or hereafter furnishing any labor, services, materials, supplies or equipment to Tenant with respect to any portion of the Leased Premises, are hereby charged with notice that they must look exclusively to Tenant to obtain payment for same. Notice is hereby given that the Landlord shall not be liable for any labor, services, materials, supplies or equipment furnished or to be -38- furnished to the Tenant upon credit, and that no mechanic's or other lien for any such labor, services, materials, supplies or equipment shall attach to or affect the estate or interest of the Landlord in and to the Leased Premises. 37. LANDLORD'S AND TENANT'S CERTIFICATES. Landlord and Tenant shall, each without charge at any time and from time to time, within ten (10) days after request by the other party, certify by written instrument, duly executed, acknowledged and delivered to any ground lessor, Mortgagee, assignee of any Mortgagee or purchaser, or any proposed Mortgagee, or proposed assignee or sub-tenant of the Tenant or any other person, firm or corporation specified by Landlord or Tenant: (a) That this Lease and all "Guarantees" (hereinafter defined) are unmodified and in full force and effect (or, if there has been modification, that the same is in full force and effect as modified and stating the modifications); (b) Whether or not there are then existing any breaches or defaults by the other party under any of the Terms of this Lease and specifying such breach or default or any setoffs or defenses against the enforcement of any of the agreements, terms, covenants or conditions of this Lease or of any Guarantees upon the part of the Landlord or Tenant or any said Guarantors, as the case may be, to be performed or compiled with (and, if so, specifying the same and the steps being taken to remedy the same); and (c) The dates, if any, to which the rental(s) and other charges under this Lease have been paid in advance. Tenant shall cause any and all of its said certifications which refer to any Guarantors or Guarantees to be executed and acknowledged by the relevant Guarantors. 38. WAIVER OF TRIAL BY JURY AND WAIVERS BY GUARANTORS. Landlord and Tenant do hereby waive trial by jury in any action, proceeding or counterclaim brought by either against the other, upon any matters whatsoever arising out of or in any way connected with this Lease, Tenant's use or occupancy of the Leased Premises, and/or any claim of injury or damage. It is further mutually agreed that in the event Landlord commences any summary proceeding for non-payment of Minimum Rental or additional rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceeding. Each and every guarantor, if any, shall with respect to the liabilities and obligations under its Guarantee, be deemed to have agreed to -39- waive, with respect to its Guarantee and this Lease, all rights which are waived by Tenant under this Lease. 39. NET LEASE; NON-TERMINABILITY. This is an absolutely net lease, and, except as otherwise specifically provided in Section 21 hereof, this Lease shall not terminate nor shall Tenant have any right to terminate this Lease; nor shall Tenant be entitled to any abatement, deduction, deferment, suspension or reduction of, or setoff, defense or counterclaim against, any rentals, charges, or other sums payable by Tenant under this Lease; nor shall the respective obligations of Landlord and Tenant be otherwise affected by reason of damage to or destruction of the Leased Premises from whatever cause, any taking by condemnation, eminent domain or by agreement between Landlord and those authorized to exercise such rights, the lawful or unlawful prohibition of Tenant's use of the Leased Premises, the interference with such use by any persons, corporations or other entities, or by reason of any eviction by paramount title, or by reason of Tenant's acquisition of ownership of the Leased Premises otherwise than pursuant to an express provision of this Lease, or by reason of any default or breach of any warranty by Landlord and Tenant, or to which Landlord and Tenant are parties, or for any other cause whether similar or dissimilar to the foregoing, any Laws to the contrary notwithstanding; it being the intention that the obligations of Landlord and Tenant hereunder shall be separate and independent covenants and agreements and that the Minimum Rental, additional rent and all other charges and sums payable by Tenant hereunder shall continue to be payable in all events unless the obligations to pay the same shall be terminated pursuant to the express provisions of this Lease; and Tenant covenants and agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, cancel, rescind or void this Lease, notwithstanding the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding up or other proceedings affecting Landlord or any assignee of, or successor to, Landlord, and notwithstanding any action with respect to this Lease that may be taken by a trustee or receiver of Landlord or any assignee of, or successor to, Landlord or by any court in any such proceeding. 40. MISCELLANEOUS PROVISIONS. (a) NOTICES. Any notice, exercise of option or election, communication, request or other document or demand required or permitted under this Lease shall be in writing and shall be given to Landlord or Tenant by first class, certified or registered mail, return receipt requested. (i) to the Landlord as follows: Lundy's Management Corp. -40- 2770 Ocean Avenue Brooklyn, New York 11229 and copy to: HAMBURGER, GREEN & HABER, Esqs. 60 East 42nd Street, Suite 1405 New York, N.Y. 10165-1405 (ii) to the Tenant as follows: Bay Landing Restaurant Corp. 1163 Forest Avenue Staten Island, N.Y. 10310 with a copy to: Russo, Fusco, Scamardella & D'Amato 1010 Forest Avenue Staten Island, N.Y. 10310 Either party may, from to time, change the address at which such written notices, exercise of options or elections, communications, requests, or other documents or demands are to be mailed, by giving the other party(ies) written notice of such changed address, pursuant to the terms hereinabove set forth. At Landlord's option, which may be exercises at any time hereafter, Tenant shall send copies of any and all said notices and other communications designated by Landlord, to any Mortgages and Superior Lessors designated by Landlord, in the same manner as notices are required to be sent to Landlord, and at such address(es) as Landlord may from time to time designate by notice to Tenant. The Landlord designates its attorney that it may from time to time designate as its agent for giving such notices that the Landlord may elect to give under this Lease (b) RELATIONSHIP OF THE PARTIES. It is the intention of the parties hereto to create the relationship of Landlord and Tenant, and no other relationship whatsoever, and unless expressly otherwise provided herein, nothing herein shall be construed to make the parties hereto liable for any of the debts, liabilities or obligations of the other party. (c) APPLICABILITY. Whenever a provision in this Lease is stated to apply to the Term of this Lease, or words of similar import, the same shall be deemed to mean and include any Extended Terms as well, unless specific reference is made to such provision as having applicability only to all or any portions of the Initial Term and/or any Extended Term or Extended Terms. -41- (d) GOVERNING LAWS. This Lease shall be governed exclusively by the provisions hereof and by the laws of the State in which the Leased Premises is located as the same may from time to time exist. (e) INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. (f) WAIVER. Failure on the part of either part to complain of any action or non-action on the part of the other party, no matter how long the same may continue, shall never be deemed to be a waiver by either party of any of its rights hereunder. Acceptance by Landlord of Minimum Rental, additional rent or any other charges paid by Tenant hereunder shall not be or be deemed to be a waiver by Landlord of any default by Tenant, whether or not Landlord knows of such default. No waiver at any time of any of the provisions hereof by either party shall be construed as a waiver of any of the other provisions hereunder and a waiver at any time of any of the provisions hereof shall not be construed as a waiver at any subsequent time of the same provisions. (g) COUNTERPARTS. This Lease may be executed in several counterparts, each of which shall be deemed an original, and such counterparts shall constitute but one and the same instrument. (h) SOLE AGREEMENT. This Lease sets forth all the promises, inducements, agreements, conditions and understandings between Landlord and Tenant relative to the Leased Premises, and there are no promises, agreements, conditions or understandings, either oral or written, express or implied between them, other than as herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant, unless reduced to writing and signed by the party(ies) to be charged therewith. (i) SHORT FORM OF LEASE. A short form of Lease for recording purposes only, in form satisfactory to the Landlord's counsel, may be executed by Landlord and Tenant. (j) CAPTIONS. The captions of the several Sections and subsections of this Lease and table of contents are not a part of the context hereof and shall be ignored in construing this Lease. They are intended only as aids in locating various provisions hereof. -42- (k) SUCCESSORS AND ASSIGNS. Except as may be expressly otherwise provided herein, the terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Landlord and its successors and assigns and the terms, covenants and conditions hereof shall inure to the benefit of and shall be binding upon Tenant and its successors and permitted assigns. (l) NO MERGER. There shall be no merger of this Lease, or the leasehold estate created by this Lease, with any other estate or interest in the Leased Premises, or any part thereof, by reason of the fact that the same person, firm, corporation or other entity may acquire or own or hold, directly or indirectly, (i) this Lease or the leasehold estate created by this Lease, or any interest in this Lease or in any such leasehold estate, and (ii) any such other estate or interest in the Leased Premises or any part thereof, shall join in a written instrument effecting such merger and shall duly record the same. (m) RIGHTS OF SUPERIOR LESSOR. Any rights provided herein for the benefit of any Mortgagees shall apply with equal force and effect for the benefit of any Superior Lessors as if expressly so stated in each instance. (p) ENCROACHMENTS, RESTRICTIONS, ETC. If any of the Improvements shall, at any time, encroach upon any property, street or right of way adjoining or adjacent to the Leased Premises, or shall violate the agreements or conditions contained in any restrictive covenant or other agreement affecting the Leased Premises, or any part thereof, or shall hinder or obstruct any easement or right-of-way to which the Leased Premises are subject, or shall impair the rights of others under such easement or right-of-way, then promptly upon the request of the Landlord at the behest of any persons affected by any such encroachment, violation, hindrance, obstruction or impairment, Tenant shall, at its cost and expense, either (i) obtain valid and effective waivers or settlements of all claims, liabilities and damages resulting from each such encroachment, violation, hindrance, obstruction or impairment, whether the same shall affect Landlord or Tenant, or (ii) make such changes in the Improvements and take such other actions as shall be necessary to remove such encroachments, hindrances or obstructions and to end such violations or impairments, including, if necessary, but only with Landlord's prior written consent, the alteration or removal of any of the Improvements. Any such alteration or removal consented to by Landlord shall be made by Tenant in accordance with the requirements of Section 9, above. Tenant's obligations under this subsection 33(p) shall survive the expiration or sooner termination of this Lease. (q) ACCEPTANCE OF SURRENDER. No surrender to Landlord of this Lease or of the Leased Premises, or any part -43- thereof, or of any interest therein, shall be valid or effective unless agreed to and accepted in writing by Landlord and consented to in writing by any and all Mortgagees and Superior Lessors, and no act or omission by Landlord or any representative or agent of Landlord, other than such a written acceptance by Landlord, consented to aforesaid, shall constitute an acceptance of any such surrender. (r) CONSENT BY LANDLORD. Wherever in this Lease Landlord agrees not to unreasonably withhold its consent or approval, or words of like import, Tenant agrees that it shall not be unreasonable for Landlord to withhold such consent or approval (i) if by granting such consent or approval Landlord shall be in violation of any Mortgage, or (ii) any Mortgagee shall not give its consent or approval thereto where its consent or approval is required by the terms of its Mortgage. 41. SECURITY: 1. The tenant will deposit $100,000.00 as security, $50,000.00 upon signing of lease and $50,000 upon our notification of receiving TCO. 2. Twelve (12) months after the Tenant begins paying rent on the ground floor, the Landlord will return $50,000.00 of the security and maintain $50,000.00 of the security. 42. BROKERS: The parties represent to each other that the following were the only brokers that they dealt with and who brought about this transaction. NONE 43. DEFINITIONS: For the purposes of this Lease, the following definitions shall be applicable: Acceptance Notice - as defined in Section 21 (d). Assurance - as defined in Section 29 (d). Closing Date - as defined in section 21 (e). Control - as defined in Section 28. Event of Default - as defined in Section 28. Final Notice - as defined in Section 21 (e). -44- First, Second, etc., Extended Terms - as defined in Section 2(b). Guarantee - any agreements or undertaking, written or otherwise, by virtue of which any Guarantors guaranty the performance or observance of any or all of the terms, covenants or conditions to be performed or observed by Tenant under this Lease. Guarantor - any persons, firms or entities who or which guaranty the performance or observance of any or all of the terms, covenants or conditions to be performed or observed by Tenant under this Lease. Impositions - as defined in Section 5(b). Improvements - as defined in Section 1. Initial Term - as defined in Section 2(c). Landlord - as defined in Section 25. Laws - as defined in Section 2(a). Lease Year - Any twelve (12) month period during the initial Term of this Lease and any Extended Term commencing on the first day of the first full calendar month of the Term of this Lease. Leased Premises - as defined in Section 1. Maximum Rate - an annual rate of interest equal to the Prime Rate plus two (2%) percent but in no event in excess of the maximum lawful rate permitted to be charged by a Landlord against a defaulting Tenant for monies advanced by reason of a Tenant's default. Minimum Rental - as defined in Section 3. Mortgage - any Mortgage, deed of trust or other security interest now existing or hereafter created on all or any portion of Landlord's interest in this Lease and/or the Leased Premises, provided such Mortgage, deed of trust or other security interest shall comply with the provisions of Section 14 hereof. Mortgagee - the holder of any mortgage. Net Award - as defined in Section 21(e). Offer - as defined in Section 21(c). Person-Persons - any individual(s), partnership(s), firm(s), corporation(s), business trust(s), -45- estate(s), legal representative(s) or other entities of any nature or description whatsoever. Plans and Specifications - as defined in Section Successor Landlord - as defined in Section 23 (c). Superior Lease - any lease of all or any portions of the Leased Premises made by and between any persons, firms or entities, as lessor and any Landlord hereunder, as lessee. Superior Lessor - as defined in Section 23 (a). Taking Date - as defined in section 21 (a). Tenant's Change(s) - as defined in Section 18 (a). Tenant's Property - as defined in Section 22. 44. OPTION TO RENEW Tenant shall have the option to renew this Lease for two (2) additional ten (10) year periods as follows: In the nineteenth year of this Lease and at any time during said eighteenth year, Tenant must advise Landlord of its intention to renew. Notwithstanding anything contained herein to the contrary, using the gross rent for the last month of the nineteenth (19) year, Tenant's rent for the twentieth (20) year shall be increased by 5% in addition to any other increase and with this increase, a new rent shall be determined for the twentieth (20) year. Increases thereafter shall be as in the first nineteen (19) years hereof. All of the above shall be in addition to rent increases heretofore set forth. If during the twenty-ninth (29) year Tenant desires to exercise its option for ten (10) more years, it shall so notify Landlord. The rent for the thirty-first (31) year and the nine (9) years thereafter shall the greater of the rent paid in the last month of the thirty-first (31) years plus a CPI increase capped at 2 1/2 percent, or an amount equal to 75 percent of what the annual rent would be if all actual CPI increases (cumulatively) were applied to the annual rent from year on. -46- IN WITNESS HEREOF, the parties hereto have duly executed this instrument under seal as of the day and year first above written. WITNESSES: ______________________________________ LUNDY'S MANAGEMENT CORP. ______________________________________ By:/s/ Steve Pappas --------------------------------------- Steve Pappas, Secretary Attest: _______________________________ BAY LANDING RESTAURANT CORP. _______________________________________ By:/s/ Frank Cretella _______________________________________ --------------------------------------- Frank Cretella, Pres. Attest: _______________________________ -47- STATE OF NEW YORK COUNTY OF KINGS The foregoing instrument was acknowledged before me this 1 day of August, 1994 by * the Secretary of Lundy's Management Corporation, a New York corporation on behalf of said Corporation. * Steve Pappas /s/ Anthony G. Capozzi ---------------------------- Notary Public My Commission Expires: Anthony G. Capozzi Notary Public, State of New York No. 24-4970162 Qualified in Kings County Commission Expires August 6, 1994 STATE OF NEW YORK COUNTY OF KINGS The foregoing instrument was acknowledged before me this 1 day of August, 1994 by Frank Cretella, the President of Bay Landing Restaurant Corp., on behalf of said Corporation. /s/ Anthony G. Capozzi ---------------------------- Notary Public My Commission Expires: Anthony G. Capozzi Notary Public, State of New York No. 24-4970162 Qualified in Kings County Commission Expires August 6, 1994 -48- GUARANTY Notwithstanding anything contained in this Agreement of Lease dated 7/29/1994 by and between LUNDY'S MANAGEMENT CORP., as Lessor and Bay Landing Restaurant Corp. as Lessee, or its assigns It is agreed that as long as Tenant or its assigns is in possession of the Premises, the principals below do personally guaranty the payment of all rents and additional rents as may be due under the Lease. THIS GUARANTY IS ONLY FOR THE PERIOD DURING WHICH THE TENANT OR ITS ASSIGNS ARE IN POSSESSION. Once the Tenant vacates the Premises whether or not rent is still due under the Lease for any period thereafter, the guaranty ceases with the removal of the Tenant and the amount of the guaranty is fixed at the amount due on the removal of the Tenant. /s/ Frank Cretella -------------------------- Frank Cretella -49- Lundy's Management Corp. - ------------------------------------------------------------------------------- 2770 OCEAN AVENUE BROOKLYN, NEW YORK 11229 (718) 332-8600 FAX (718) 891-7317 March 10, 1995 Mr. Frank Cretella Tam Restaurant Group, Inc. 1163 Forest Avenue Staten Island, NY 10310 Re: Lundy's Project 1901 Emmons Avenue Brooklyn, New York ------------------ Dear Mr. Cretella: Upon reviewing the lease between us dated 7/29/94, we realize that the location of the premises described in paragraph 1 is incorrect. Therefore, this letter will serve as an amendment conforming the lease to the actual location. Paragraph 1 - LEASE PREMISES, located on page 3 of the above lease, should read that the premises is located at 1901 Emmons Avenue, Brooklyn, New York 11235 and the reference made to Ocean Avenue is hereby deleted. Kindly sign and return a copy of this letter for our records. Very truly yours, LUNDY'S MANAGEMENT CORP. /s/ Donald Lentnek - ------------------------------ Donald Lentnek DL:lga Accepted: /s/ Frank Cretella : Tam Restaurant Group, Inc. --------------------- Frank Cretella EX-10.4 8 EXHIBIT 10.4 COMMERCIAL LEASE THIS LEASE is made on the 1st day of October 1996. The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees to hire and take from the Landlord, the Leased Premises described below pursuant to the terms and conditions specified herein: LANDLORD: Frank Cretella TENANT(S): TAM RESTAURANT Holding Corp. Address: 81 Sharrots Road Address: 1163 Forest Avenue Staten Island, NY 10309 Staten Island, NY 10310 1. Leased Premises. The Leased Premises are those premises described as: Approximately 2500 sq. ft. of office space located at 1163 Forest Avenue, Staten Island, NY 10310. 2. Term. The term of the Lease shall be for a period of 5 1/4 year(s) commencing on the 1st day of October, 1996 ending on the 31st day of Dec., 2001 unless sooner terminated as hereinafter provided. If Tenant remains in possession of the Leased Premises with the written consent of the Landlord after the lease expiration date stated above, this Lease will be converted to a month-to-month Lease and each party shall have the right to terminate the Lease by giving at least one months' prior written notice to the other party. 3. Rent. The Tenant agrees to pay the ANNUAL RENT of Thirty Seven Thousand Five Hundred Dollars ($37,500) payable in equal installments $3,125 in advance on the first day of each and every calendar month during the full term of this Lease. 4. [DELETED] See Addendum # 1 5. Security Deposit. The sum of Six Thousand Two Hundred Fifty Dollars ($6,250) is deposited by the Tenant with the Landlord as security for the faithful performance of all the covenants and conditions of the lease by the said Tenant. If the Tenant faithfully performs all the covenants and conditions on his part to be performed, then the sum deposited shall be returned to the Tenant. 6. Delivery of Possession. If for any reason the Landlord cannot deliver possession of the leased property to the Tenant when the lease term commences, this Lease shall not be void or voidable, nor shall the Landlord be liable to the Tenant for any loss or damage resulting therefrom. However, there shall be an abatement of rent for the period between the commencement of the lease term and the time when the Landlord delivers possession. 7. Use of Leased Premises. The Leased Premises may be used only for the following purpose: All legal clerical and administrative purposes. 8. Utilities. Except as specified below, the Tenant shall be responsible for all utilities and services that are furnished to the Leased Premises. The application for and connecting of utilities, as well as all services, shall be made by and only in the name of the Tenant: (List exceptions, if any) None 9. Condition of Leased Premise; Maintenance and Repair. The Tenant acknowledges that the Leased Premises are in good order and repair. The Tenant agrees to take good care of and maintain the Leased Premises in good condition throughout the term of the Lease. The Tenant, at his expense, shall make all necessary repairs and replacements to the Leased Premises, including the repair and replacement of pipes, electrical wiring, heating and plumbing systems, fixtures and all other systems and appliances and their appurtenances. The quality and class of all repairs and replacements shall be equal to the original worth. If Tenant defaults in making such repairs or replacements, Landlord may make them for Tenant's account, and such expenses will be considered additional rent. 10. Compliance with Laws and Regulations. Tenant, at its expense, shall promptly comply with all federal, state, and municipal laws, orders, and regulations, and with all lawful directives of public officers, which impose any duty upon it or Landlord with respect to the Leased Premises. The Tenant at its expense, shall obtain all required licenses or permits for the conduct of its business within the terms of this lease, or for the making of repairs, alterations, improvements, or additions. Landlord, when necessary, will join with the Tenant in applying for all such permits or licenses. 11. Alterations and Improvements. Tenant shall not make any alterations, additions, or improvements to, or install any fixtures on, the Leased Premises without Landlord's prior written consent. If such consent is given, all alterations, additions, and improvements made, and fixtures installed, by Tenant shall become Landlord's property upon the expiration or sooner termination of this Lease. Landlord may, however, require Tenant to remove such fixtures, at Tenant's cost, upon the termination hereof. 12. Assignment/Subletting Restrictions. Tenant may not assign this agreement or sublet the Leased Premises without the prior written consent of the Landlord. Any assignment. sublease or other purported license to use the Leased Premises by Tenant without the Landlord's consent shall be void and shall (at Landlord's option) terminate this Lease. 13. Insurance. (i) [DELETED] See Addendum # 2 (ii) By Tenant. Tenant shall, at its expense, during the term hereof, maintain and deliver to Landlord public liability and property damage and plate glass insurance policies with respect to the Leased Premises. Such policies shall name the Landlord and Tenant as insureds, and have limits of at least $1 million for injury or death to any one person and $3 million for any one accident, and $_____________ with respect to damage to property and with full coverage for plate glass. Such policies shall be in whatever form and with such insurance companies as are reasonably satisfactory to Landlord, shall name the Landlord as additional insured, and shall provide for at least ten days' prior notice to Landlord of cancellation. 14. Indemnification of Landlord. Tenant shall defend, indemnify, and hold Landlord harmless from and against any claim, loss, expense or damage to any person or property in or upon the Leased Premises, arising out of Tenant's use or occupancy of the Leased Premises, or arising out of any act or neglect of Tenant or its servants, employees, agents, or invitees. 15. Condemnation. If all or any part of the Leased Premises is taken by eminent domain, this lease shall expire on the date of such taking, and the rent shall be apportioned as of that date. No part of any award shall belong to Tenant. 16. Destruction of Premises. If the building in which the Leased Premises is located is damaged by fire or other casualty, without Tenant's fault, and the damage is so extensive as to effectively constitute a total destruction of the property or building, this Lease shall terminate and the rent shall be apportioned to the time of the damage. In all other cases of damage without Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and if the damage has rendered the Leased Premises wholly or partially untenantable, the rent shall be apportioned until the damaged is repaired. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by strikes, adjustment of insurance, and other causes beyond the Landlord's control. 17. Landlord's Rights upon Default. In the event of any breach of this lease by the Tenant, which shall not have been cured within TEN (10) DAYS, then the Landlord, besides other rights or remedies it may have, shall have the immediate right of reentry and may remove all persons and property from the Leased Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of, the Tenant. If the Landlord elects to reenter as herein provided, or should it take possession pursuant to any notice provided for by law, it may either terminate this Lease or may, from time to time, without terminating this lease, relet the Leased Premises or any part thereof, for such term or terms and at such rental or rentals and upon such other terms and conditions as the Landlord in Landlord's own discretion may deem advisable. Should rentals received from such reletting during any month be less than that agreed to be paid during the month by the Tenant hereunder, the Tenant shall pay such deficiency to the Landlord monthly. The Tenant shall also pay to the Landlord, as soon as ascertained, the cost and expenses incurred by the Landlord in such reletting. 18. Quiet Enjoyment. The Landlord agrees that if the Tenant shall pay the rent as aforesaid and perform the covenants and agreements herein contained on its part to be performed, the Tenant shall peaceably hold and enjoy the said rented premises without hindrance or interruption by the Landlord or by any other person or persons acting under or through the Landlord. 19. Landlord's Right to Enter. Landlord may, at reasonable times, enter the Leased Premises to inspect it, to make repairs or alterations, and to show it to potential buyers, lenders or tenants. 20. Surrender upon Termination. At the expiration of the lease term the Tenant shall surrender the leased property in as good condition as it was in at the beginning of the term, reasonable use and wear excepted. 21. Subordination. This lease, and the Tenant's leasehold interest, is and shall be subordinate, subject and inferior to any and all liens and encumbrances now and thereafter placed on the Leased Premises by Landlord, any and all extensions of such liens and encumbrances and all advances paid under such liens and encumbrances. 22. Additional Provisions: Rent shall increase by 1.5% starting Jan. 1, 1998 and every January 1st thereafter for the term of this lease. See attached schedule. -2- 23. Miscellaneous Terms. (i) Notices. Any notice, statement, demand or other communication by one party to the other, shall be given by personal delivery or by mailing the same, postage prepaid, addressed to the Tenant at the premises, or to the Landlord at the address set forth above. (ii) Severability. If any clause or provision herein shall be adjudged invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision, which shall remain in full force and effect. (iii) Waiver. The failure of either party to enforce any of the provisions of this lease shall not be considered a waiver of that provision or the right of the party to thereafter enforce the provision. (iv) Complete Agreement. This Lease constitutes the entire understanding of the parties with respect to the subject matter hereof and may not be modified except by an instrument in writing and signed by the parties. (v) Successors. This Lease is binding on all parties who lawfully succeed to the rights or take the place of the Landlord or Tenant. IN WITNESS WHEREOF the parties have set their hands and seals on this 1st day of October, 1996. /s/ Frank Cretella /s/ John Amodio - --------------------------------------- ----------------------------------- Landlord or Landlord's Authorized Agent Tenant TAM RESTAURANT HOLDING CORP. ----------------------------------- -3- TAM Holding Corp. 1163 Forest Avenue Staten Island, NY 10310 October 1, 1996 ADDENDUM #1 Tenant is responsible for 100% of real estate tax in base year as well as every year for the term of this lease and any extension or renewal. Landlord will bill tenant in writing for such additional rent. ADDENDUM #2 Tenant shall at all times during the term of this Lease, at its expense, insure and keep in effect on the building in which the Leased Premises is located fire insurance with extended coverage. The Tenant shall not permit any use of the Leased Premises which will make voidable any insurance on the property of which the Leased Premises are a part, or on the contents of said property or which shall be contrary to any law or regulation from time to time established by the applicable fire insurance rating association. The dollar amount for the above-mentioned insurance shall be for replacement costs or $400,000 which ever is greatest. 10/1/96 ---------------------------- /s/ Frank Cretella /s/ John J. Amodio - -------------------------------- ---------------------------- Frank E. Cretella John J. Amodio, President TAM Restaurant Holding Corp. -1- TAM Holding Corp. 1163 Forest Avenue Staten Island, NY 10310 RENT SCHEDULE MONTHLY YEARLY January 1, 1997 $3,125.00 $37,500.00 January 1, 1998 3,171.85 38,062.50 January 1, 1999 3,219.45 38,633.45 January 1, 2000 3,267.75 39,213.00 January 1, 2001 3,316.75 39,801.00 -2- EX-10.5 9 EXHIBIT 10.5 COMMERCIAL LEASE THIS LEASE is made on the 1st day of October 1996. The Landlord hereby agrees to lease to the Tenant, and the Tenant hereby agrees to hire and take from the Landlord, the Leased Premises described below pursuant to the terms and conditions specified herein: LANDLORD: Leisure Time Services TENANT(S): TAM RESTAURANT Holding Corp. Address: 119 Linnet Street Address: 1163 Forest Avenue Bayonne, NJ 07002 Staten Island, NY 10310
1. Leased Premises. The Leased Premises are those premises described as: The entire Parcel of land with 6000 sq. ft. structure known as 119 Linnet Street, Bayonne, NJ 07002 2. Term. The term of the Lease shall be for a period of 5 1/4 year(s) commencing on the 1st day of October, 1996 ending on the 31st day of Dec., 1996 unless sooner terminated as hereinafter provided. If Tenant remains in possession of the Leased Premises with the written consent of the Landlord after the lease expiration date stated above, this Lease will be converted to a month-to-month Lease and each party shall have the right to terminate the Lease by giving at least one months' prior written notice to the other party. 3. Rent. The Tenant agrees to pay the ANNUAL RENT of Thirty thousand Dollars($30,000) payable in equal installments $ 2,500 in advance on the first day of each and every calendar month during the full term of this Lease. 4. [DELETED] See Addendum # 1 5. Security Deposit. The sum of Five thousand Dollars ($5,000) is deposited by the Tenant with the Landlord as security for the faithful performance of all the covenants and conditions of the lease by the said Tenant. If the Tenant faithfully performs all the covenants and conditions on his part to be performed, then the sum deposited shall be returned to the Tenant. 6. Delivery of Possession. If for any reason the Landlord cannot deliver possession of the leased property to the Tenant when the lease term commences, this Lease shall not be void or voidable, nor shall the Landlord be liable to the Tenant for any loss or damage resulting therefrom. However, there shall be an abatement of rent for the period between the commencement of the lease term and the time when the Landlord delivers possession. 7. Use of Leased Premises. The Leased Premises may be used only for the following purpose: storage 8. Utilities. Except as specified below, the Tenant shall be responsible for all utilities and services that are furnished to the Leased Premises. The application for and connecting of utilities, as well as all services, shall be made by and only in the name of the Tenant: (List exceptions, if any) None 9. Condition of Leased Premise; Maintenance and Repair. The Tenant acknowledges that the Leased Premises are in good order and repair. The Tenant agrees to take good care of and maintain the Leased Premises in good condition throughout the term of the Lease. The Tenant, at his expense, shall make all necessary repairs and replacements to the Leased Premises, including the repair and replacement of pipes, electrical wiring, heating and plumbing systems, fixtures and all other systems and appliances and their appurtenances. The quality and class of all repairs and replacements shall be equal to the original worth. If Tenant defaults in making such repairs or replacements, Landlord may make them for Tenant's account, and such expenses will be considered additional rent. 10. Compliance with Laws and Regulations. Tenant, at its expense, shall promptly comply with all federal, state, and municipal laws, orders, and regulations, and with all lawful directives of public officers, which impose any duty upon it or Landlord with respect to the Leased Premises. The Tenant at its expense, shall obtain all required licenses or permits for the conduct of its business within the terms of this lease, or for the making of repairs, alterations, improvements, or additions. Landlord, when necessary, will join with the Tenant in applying for all such permits or licenses. 11. Alterations and Improvements. Tenant shall not make any alterations, additions, or improvements to, or install any fixtures on, the Leased Premises without Landlord's prior written consent. If such consent is given, all alterations, additions, and improvements made, and fixtures installed, by Tenant shall become Landlord's property upon the expiration or sooner termination of this Lease. Landlord may, however, require Tenant to remove such fixtures, at Tenant's cost, upon the termination hereof. 12. Assignment/Subletting Restrictions. Tenant may not assign this agreement or sublet the Leased Premises without the prior written consent of the Landlord. Any assignment, sublease or other purported license to use the Leased Premises by Tenant without the Landlord's consent shall be void and shall (at Landlord's option) terminate this Lease. 13. Insurance. (i) [DELETED] See Addendum # 2 (ii) By Tenant. Tenant shall, at its expense, during the term hereof, maintain and deliver to Landlord public liability and property damage and plate glass insurance policies with respect to the Leased Premises. Such policies shall name the Landlord and Tenant as insureds, and have limits of at least $1 million for injury or death to any one person and $3 million for any one accident, and $_____________ with respect to damage to property and with full coverage for plate glass. Such policies shall be in whatever form and with such insurance companies as are reasonably satisfactory to Landlord, shall name the Landlord as additional insured, and shall provide for at least ten days' prior notice to Landlord of cancellation. 14. Indemnification of Landlord. Tenant shall defend, indemnify, and hold Landlord harmless from and against any claim, loss, expense or damage to any person or property in or upon the Leased Premises, arising out of Tenant's use or occupancy of the Leased Premises, or arising out of any act or neglect of Tenant or its servants, employees, agents, or invitees. 15. Condemnation. If all or any part of the Leased Premises is taken by eminent domain, this lease shall expire on the date of such taking, and the rent shall be apportioned as of that date. No part of any award shall belong to Tenant. 16. Destruction of Premises. If the building in which the Leased Premises is located is damaged by fire or other casualty, without Tenant's fault, and the damage is so extensive as to effectively constitute a total destruction of the property or building, this Lease shall terminate and the rent shall be apportioned to the time of the damage. In all other cases of damage without Tenant's fault, Landlord shall repair the damage with reasonable dispatch, and if the damage has rendered the Leased Premises wholly or partially untenantable, the rent shall be apportioned until the damaged is repaired. In determining what constitutes reasonable dispatch, consideration shall be given to delays caused by strikes, adjustment of insurance, and other causes beyond the Landlord's control. 17. Landlord's Rights upon Default. In the event of any breach of this lease by the Tenant, which shall not have been cured within TEN (10) DAYS, then the Landlord, besides other rights or remedies it may have, shall have the immediate right of reentry and may remove all persons and property from the Leased Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of, and for the account of, the Tenant. If the Landlord elects to reenter as herein provided, or should it take possession pursuant to any notice provided for by law, it may either terminate this Lease or may, from time to time, without terminating this lease, relet the Leased Premises or any part thereof, for such term or terms and at such rental or rentals and upon such other terms and conditions as the Landlord in Landlord's own discretion may deem advisable. Should rentals received from such reletting during any month be less than that agreed to be paid during the month by the Tenant hereunder, the Tenant shall pay such deficiency to the Landlord monthly. The Tenant shall also pay to the Landlord, as soon as ascertained, the cost and expenses incurred by the Landlord in such reletting. 18. Quiet Enjoyment. The Landlord agrees that if the Tenant shall pay the rent as aforesaid and perform the covenants and agreements herein contained on its part to be performed, the Tenant shall peaceably hold and enjoy the said rented premises without hindrance or interruption by the Landlord or by any other person or persons acting under or through the Landlord. 19. Landlord's Right to Enter. Landlord may, at reasonable times, enter the Leased Premises to inspect it, to make repairs or alterations, and to show it to potential buyers, lenders or tenants. 20. Surrender upon Termination. At the expiration of the lease term the Tenant shall surrender the leased property in as good condition as it was in at the beginning of the term, reasonable use and wear excepted. 21. Subordination. This lease, and the Tenant's leasehold interest, is and shall be subordinate, subject and inferior to any and all liens and encumbrances now and thereafter placed on the Leased Premises by Landlord, any and all extensions of such liens and encumbrances and all advances paid under such liens and encumbrances. 22. Additional Provisions: Rent shall increase by 1.5% starting Jan. 1, 1998 and every January 1st thereafter for the term of this lease. See attached schedule. -2- 23. Miscellaneous Terms. (i) Notices. Any notice, statement, demand or other communication by one party to the other, shall be given by personal delivery or by mailing the same, postage prepaid, addressed to the Tenant at the premises, or to the Landlord at the address set forth above. (ii) Severability. If any clause or provision herein shall be adjudged invalid or unenforceable by a court of competent jurisdiction or by operation of any applicable law, it shall not affect the validity of any other clause or provision, which shall remain in full force and effect. (iii) Waiver. The failure of either party to enforce any of the provisions of this lease shall not be considered a waiver of that provision or the right of the party to thereafter enforce the provision. (iv) Complete Agreement. This Lease constitutes the entire understanding of the parties with respect to the subject matter hereof and may not be modified except by an instrument in writing and signed by the parties. (v) Successors. This Lease is binding on all parties who lawfully succeed to the rights or take the place of the Landlord or Tenant. IN WITNESS WHEREOF the parties have set their hands and seals on this 1st day of October, 1996. /s/ Frank Cretella /s/ John Amodio - --------------------------------------- ----------------------------- Landlord or Landlord's Authorized Agent Tenant Tam Restaurant Corp. ----------------------------- Tenant -3- EX-10.6 10 EXHIBIT 10.6 MANAGEMENT AGREEMENT AGREEMENT made as of the 1st day of October, 1996, between MAT Operating Corp., a New York Corporation, (the "Owner"), with offices at 1163 Forest Avenue, Staten Island, NY 10310, and TAM RESTAURANT HOLDING CORP., INC., a Delaware corporation (the "Manager"), with offices at 1163 Forest Avenue, Staten Island, New York, 10310. W I T N E S S E T H: WHEREAS, the Owner is the owner of certain concession business assigned to it by TAM Restaurant Group, Inc. known as "Central Park Zoo", located at Fifth Avenue and 64th Street (inside Central Park) and "Staten Island Zoo", located at 614 Broadway, Staten Island, New York; and a Special Events business which handles various Special Events at various locations and at various times. WHEREAS, the Owner desires to retain the Manager, and the Manager desires to be so retained, on the terms and conditions which are set forth herein. NOW THEREFORE, in consideration of the foregoing and the mutual convenants and promises which are set forth herein, the parties hereby agree as follows: 1. DESIGNATION OF MANAGER AS AGENT. A. The Manager is hereby designated as the agent and representative of the Owner for the purpose of managing the Restaurant for the account of the Owner. B. (i) This Agreement shall remain in effect for a period beginning on the date hereof and continuing for ten (10) years therefrom through and including September 30, 2006, unless terminated earlier as provided below. The period for which this Agreement remains in effect is referred to herein as the "Term". The period of one (1) year beginning on the date hereof is referred to as a "Term Year", and each successive period of one (1) year during the Term (and any final period of one (1) year or shorter during the Term) shall also be referred to as a "Term Year". (ii) This Agreement may be terminated at any time by the Owner for "cause". For purposes of this Agreement, "cause" shall be any continuing or repeated failure by the Manager to perform its duties and responsibilities set forth in this Agreement. 2. DUTIES OF MANAGER. A. Subject to the other provisions of this Agreement, the duties and responsibilities of the Manager in connection with the management of the Concessions are to act on behalf of the Owner as follows: (i) Collection of Revenue. The Manager shall collect all revenues from the operations of the Concessions. -2- (ii) Expenses. The Manager shall, from gross revenues collected from the Concessions: (a) pay all operating expenses (including advertising and promotional expenses) and such other expenses of the Concessions; and (b) pay to any lenders designated by the Owner all sums that may become due on loans affecting the Concessions and the Owner. (iii) Taxes. The Manager shall pay all taxes levied and assessed against the Concessions prior to delinquency. The Manager shall withhold from gross revenues an amount equal to the estimated annual taxes on the Owner in connection with the Concessions, and the Manager shall pay such taxes from such withheld amounts. (iv) Maintenance, Upkeep and Repairs. The Manager shall do everything reasonably necessary for the proper maintenance, upkeep and repair of the Concessions, except to the extent that such items are the responsibility of the person that owns the real property where the Concession is located, in accordance with the lease or license for the Concession premises. The Manager shall also cause all improvements, decorations and alterations to the Concession as may be required in its reasonable discretion, subject to the requirements of such lease/license. (v) Employees The Manager shall have authority to hire, supervise and terminate on behalf of the Owner all independent contractors and employees, if any, reasonably -3- required in the operation of the Concession, but all such employees shall be employees of the Owner and not employees of the Manager. Where applicable, the Manager shall prepare for the Owner payroll tax returns and shall make payments of such taxes to appropriate agencies out of gross revenues from the Concession. (vi) Legal Assistance. Where legal assistance is needed for matters involving the Concession, such action shall be taken through counsel designated or approved by the Owner. The expenses for such counsel shall be borne by the Owner. (vii) Records. The Manager shall maintain accurate records of all moneys received and disbursed in connection with its management of the Concession, and such records shall be open for inspection by the Owner at all times during regular business hours. The Manager shall also render to the Owner a monthly statement showing all receipts and disbursements, relating to the Concession. (viii) Expenses of Manager. All of the following expenses are part of the Manager's fee and are the sole expense of the Manager: payroll processing fees, messenger service, money transport and change fees, health plan and benefit plan maintenance fees, all operating expenses not directly incurred at the unit level. (ix) Payment of Owner. After the Manager deducts all authorized expenses relating to the operation and management of the Concession (including managers fee) from the funds collected for the account of the Owner, as well as all reserves -4- set by the Owner for working capital and capital expenditures, the Manager shall disburse any remaining funds as agreed between the manager and the Owner. (x) Insurance. Upon the execution of this Agreement, the Manager will review existing insurance coverage on the Concession with its insurance broker to determine adequacy of coverage, and may place, on behalf of the Owner and at the Owner's expense, such coverage as the Manager and the Owner deem appropriate. (xi) Compliance with Laws. The Manager shall manage the Concession in full compliance with the requirements of all applicable laws. B. The parties acknowledge and agree that the services to be provided by the manager will consist of services provided at the Concession itself, as well as services to be provided at the offices of the Manager. The compensation to be paid to the Manager as provided below will be the entire payment to the Manager in connection with such services, and no additional payment or amount will be charged by the Manager for any services or work which may be performed by employees or other personnel of the Manager in connection with the Manager's performance of its obligations hereunder. 3. RIGHTS OF CERTAIN PERSONS TO PARTICIPATE IN DECISIONS . Notwithstanding anything to the contrary which may be contained in this Agreement, the parties acknowledge and agree as follows in connection with the Manager's duties hereunder: -5- A. All decisions of the Manager will be subject to any other policies (if any) which may be set by the Owner and communicated to the Manager. B. The following actions or steps shall be subject to the prior review and approval of the Owner: (i) Any change in the name of the Concession or any proposed new use of such name in any manner. (ii) Preparation of an annual operating budget, capital budget or business plan for the Concession. (iii) All advertising and promotional expenses for the Concession. 4. COMPENSATION. As compensation for its services to be performed pursuant to this Agreement, the Owner shall pay to the Manager a fee equivalent to five (5%) percent of the annual gross sales less sales tax attributable. The amounts shall be payable monthly based on revenues for each month. 5. INDEMNIFICATION OF MANAGER. A. Except for the willful misconduct, recklessness or negligence of the Manager, the Owner agrees to indemnify the Manager against all claims from or connected with the management of the Concession by the Manager or the performance or exercise of any of the duties, obligations or powers herein or hereafter granted to the Manager, provided that the Manager gives the Owner prompt written notice of each such claim, permits the Owner to -6- contest such claim and cooperates with the Owner in any such contesting of the claim. B. The Owner agrees to carry at all times during the Term comprehensive general liability insurance against any loss, liability or damage on, about or relating to the Leased or Licensed Premises, to such limits as Landlord may reasonably, from time to time, require, provided that such insurance shall have minimum limits of One Million ($1,000,000.00) Dollars for death or injuries to one person and not less than Three Million ($3,000,000.00) Dollars for death or injuries to two or more persons in one occurrence, and not less than Twenty Thousand Dollars ($20,000.00) for damage to property. All such bodily injury, property damage and personal injury, property insurance, and any other insurance coverage carried by the Owner on the Restaurant shall be extended to insure and indemnify the Manager as well as the Owner, by the appropriate endorsement of all policies evidencing such insurance, to name the Manager as an additional insured. 6. DELIVERY UPON TERMINATION. Upon termination of this Agreement, the parties shall account to each other with respect to all uncompleted business hereunder, and the Manager shall promptly deliver to the Owner all leases, books, records and other documents and instruments relating to the Concessions and the Owner that may be in the possession or custody of the manager. -7- 7. MISCELLANEOUS. A. Any disagreement, dispute, controversy or claim arising out of or relating to this contract or the breach thereof, shall be settled by arbitration in accordance with the Rules of the American Arbitration Association. Judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. B. This Agreement contains the entire agreement of the parties concerning the subject matter hereof, and supersedes any and all prior agreements among the parties hereto concerning the subject matter hereof, which prior agreements, if any, are hereby canceled. This Agreement may not be changed, modified, amended, discharged, abandoned or terminated orally, but only by an agreement in writing, signed by the parties hereto. C. If any of the provisions of this Agreement is held invalid, such invalidity shall not affect the other provisions hereof that can be given effect without the invalid provision, and to this end the provisions of this Agreement are intended to be and shall be deemed severable. D. Any and all notices, requests, demands or other communications hereunder shall be in writing and shall be deemed given if delivered personally, sent via facsimile or overnight courier, or sent by certified or registered mail, return receipt requested, to the parties at their respective addresses set forth first above or to such addresses as may from time to time be designated by them respectively in writing by notice similarly given to all parties in accordance with this paragraph. A copy -8- of all such notices, requests, demands, or other communications hereunder to the owner shall be forwarded to the following attorneys: Russo, Fusco, Scamardella & D'Amato P.C. 1010 Forest Avenue Staten Island, NY 10310 Attn: Robert Scamardella, Esq. A copy of all such notices, requests, demands, or other communications hereunder to the Manager shall be forwarded to the following attorneys: Hofheimer, Gartlir & Gross 633 Third Avenue New York, NY 10017 Attn: Donald Weisberg or to such other address as such attorneys may designate by written notice to the parties hereto and the other such attorneys. Notices under this Agreement shall be deemed delivered on the date delivered personally or sent via facsimile, the next business day after being sent via overnight courier, or three (3) business days after being sent via certified mail, return receipt requested, as the case may be. E. Waiver by any party of any breach of this Agreement or failure to exercise any right hereunder shall not be deemed to be a waiver of any other breach or right. The failure of any party to take action by reason of any such breach or to exercise any such right shall not deprive such party of the right to take -9- action at any time while such breach or condition giving rise to such right continues. F. This agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Notwithstanding the above, however, the parties recognize that the services to be provided by the Manager hereunder are unique, and accordingly, this Agreement may not be assigned by the Manager, nor any obligation hereunder delegated by the Manager, except to another entity in which Frank E. Cretella owns more than fifty (50%) percent of the ownership interests or is otherwise (in the reasonable determination of the Owner) in control of management. G. This Agreement shall be governed and construed in accordance with the laws of the State of New York. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. MAT OPERATING CORP. By: /s/ Frank Cretella -------------------------------------- Frank Cretella, President TAM RESTAURANT HOLDING CORP., INC. By: /s/ John Amodio ------------------------------------- John Amodio, President -10- T R A N S F E R O F R I G H T S - ------------------------------------------------------------------------------- September 30, 1996 TAM Restaurant Group, Inc. (TAM) a New York Corporation located at 1163 Forest Avenue, Staten Island, NY 10310 currently owned by Frank & Jeanne Cretella is re-organizing its business and as such is distributing to MAT Operating Corp. (MAT) a New York Corporation located at 1163 Forest Avenue, Staten Island, NY 10310, a company also owned by Frank & Jeanne Cretella, the assets, liabilities and the rights of TAM pertaining to the operation of concessions at the Staten Island Zoo and Central Park Zoo and any special events that may arise. Effective immediately, MAT will assume all rights and responsibilities to operate the concessions at the Staten Island Zoo and Central Park Zoo and any special events that may arise. /s/ John J. Amodio /s/ Frank Cretella - --------------------------- ----------------------------- John J. Amodio, President Frank Cretella, President TAM Restaurant Group, Inc. MAT Operating Corp. -11- EX-10.7 11 EXHIBIT 10.7 TAM LOAN AGREEMENT (TERM) Loan Agreement ("Agreement"), dated as of October 31, 1997, by and between TAM RESTAURANT HOLDING CORP., a Delaware corporation ("Borrower"), and each of ARBCO ASSOCIATES, L.P. and KAYNE, ANDERSON NON-TRADITIONAL INVESTMENTS, L.P., each a California limited partnership (each a "Lender" and, together, "Lenders"). For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND INTERPRETATIONS For purposes of this Agreement, the following terms shall have the following meanings: 1.1. DEFINITIONS. The definitions set forth in the Recitals are incorporated herein by reference. "Agreement" shall mean this Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, or amended. "Affiliate" shall mean any person or business entity, directly or indirectly, related to, in control of, controlled by or under the common control of any other person, or of a successor thereof, whether through merger, consolidation, transfer of assets or otherwise. "American Park Restaurant Operating Profit" shall mean all earnings of Borrower's American Park Restaurant (or as otherwise named) to be opened in Battery Park, (Manhattan) New York City before any allocation thereto of corporate overhead expense and before interest, taxes, depreciation and amortization, all in accordance with GAAP. "Assets" shall have the meaning usually given that term in accordance with GAAP, but shall exclude sums due to Borrower from Affiliates (other than subsidiaries) of Borrower. "Business Day" shall mean a day of the year on which banks are not required or authorized to close in California. "Contingent Liabilities" shall mean all contingent liabilities as determined and computed in accordance with GAAP. "Current Assets" shall mean all current assets as determined and computed in accordance with GAAP (excluding loans to officers and employees). "Current Liabilities" shall mean all current liabilities as determined and computed in accordance with GAAP. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time, and, unless the context otherwise requires, the regulations thereunder. "Event of Default" shall mean any of those events specified in Article V hereof. "Financial Statements" shall mean balance sheets, income statements, reconciliation of capital structure, statements of sources and applications of funds together with appropriate notes and footnotes in accordance with GAAP. Quarterly Financial Statements provided each Lender in accordance with this Agreement may be unaudited and annual Financial Statements shall be audited. "GAAP" shall mean generally accepted accounting principles consistently applied and maintained throughout the period indicated and consistent with the prior financial practice of Borrower, except for changes mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing. "Governmental Agency" or "Government Agency" shall mean any federal, state or local governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, court, administrative tribunal, or public utility. "Guarantor" shall mean Frank Cretella, an individual. "Guaranty" shall mean the Continuing Guaranty of Guarantor, in the form attached hereto as Exhibit B. "Insurance Policies" shall mean any of the policies of insurance specified in Section 4.01. "Laws" shall mean, collectively, all federal, state, and local laws, rules, regulations, ordinances and codes. "Liabilities" shall have the meaning usually given that term in accordance with GAAP. "Loan" shall mean the loan described in Article III of this Agreement in a principal amount of $1,000,000.00. "Loan Documents" shall mean the Note, the Guaranty, the Pledge and Security Agreement, the Warrant, this Agreement, and such other documents as Lenders may require Borrower to give or cause to be given to Lenders as evidence of and/or security for the Loan and the Guaranty. -2- "Loan Proceeds" shall mean all funds advanced by Lenders as a Loan to Borrower under this Agreement. "Maturity Date" shall mean the date which is 19 months following the date on which the Loan is made in the event that Borrower shall have made an offering of its common stock to the public pursuant to the Securities Act of 1933, as amended, prior to April 15, 1998; otherwise, the Maturity Date shall mean July 15, 1998. "Note" shall mean a Promissory Note in the form attached hereto as Exhibit A, made by Borrower to the order of each Lender, evidencing the Loan. "Organizational Documents" shall mean: (a) Articles of Incorporation, By-Laws and current Good Standing Certificates of Borrower. (b) Certified resolutions of Borrower's board of directors, in form and substance satisfactory to Lender, affirming the authority of Borrower to borrow and guarantee the Loan and enter into the Loan Documents, and affirming the names and signatures of the officers of Borrower authorized to execute documents in connection with the Loan. "PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor established under ERISA. "Person" shall mean an individual, corporation, partnership, joint venture, trust or unincorporated organization or a Government Agency. "Plan" shall mean an employee benefit plan or other plan maintained for employees of Borrower and covered by Title IV of ERISA. "Pledge and Security Agreement" shall mean the Pledge and Security Agreement between Guarantor and Lenders in the form attached hereto as Exhibit C. "Warrant" shall mean the Warrant to purchase shares of the Borrower's common stock in the form attached hereto as Exhibit D. 1.2. ACCOUNTING TERMS. All accounting terms not specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the Financial Statements referred to in Section 4.10 and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. 1.3. USE OF DEFINED TERMS. Any defined terms used in the plural shall include the singular and such terms shall encompass all members of the relevant class. -3- 1.4. SCHEDULES AND EXHIBITS. All schedules and exhibits to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by reference. 1.5. REFERENCES. Any reference to this Agreement or any other document shall include such document both as originally executed and as it may from time to time be supplemented and modified. References herein to Articles, Sections and Exhibits shall be construed as references to this Agreement unless a different document is named. 1.6. OTHER TERMS. The term "document" is used in its broadest sense and encompasses agreements, certificates, opinions, consents, instruments and other written material of every kind. Unless otherwise expressly stated, the terms "including" and "include" shall mean "including (include), without limitation." ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE BORROWER Borrower hereby represents and warrants to Lenders as of the date of this Agreement, the date the Loan Proceeds are disbursed to Borrower, and each and every date during the existence of the Loan, or any portion thereof, as the context admits or requires, that: 2.1. BORROWER'S CAPACITY. Borrower is and shall continue to be a corporation, duly organized and existing under the Laws of the State of Delaware, and duly qualified to do business in any state in which the nature of its business requires it to be so qualified. 2.2. VALIDITY OF LOAN DOCUMENTS. The Loan Documents are and shall continue to be in all respects valid and binding on Borrower and, as applicable, on Guarantor, according to their terms, subject to all Laws, including equitable principles, insolvency laws, and other matters applying to creditors generally; provided, however, that the implementation of such Laws do not and will not affect the ultimate realization of the security afforded thereby. The execution, delivery and performance by Borrower of the Loan Documents have been duly authorized by all necessary action and do not and will not: (a) Violate any provision of the Organizational Documents or other agreements to which Borrower is a party or by which it is bound; (b) Result in or require the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest, claim, charge, right of others or other encumbrance of any nature (other than under the Loan Documents) upon or with respect to any property now owned or leased or hereafter acquired by Borrower; (c) Violate any provision of any Laws or of any rule, regulation, order, writ, judgment, injunction, decree, determination, or award; or -4- (d) Result in a breach of or constitute a default under, cause or permit the acceleration of any obligation owed under, or require any consent under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which Borrower or any property of Borrower is bound or affected. 2.3. BORROWER AND GUARANTOR NOT IN DEFAULT OR VIOLATION. Neither Borrower nor Guarantor is, or prior to full repayment of the Loan will be, in default under or in violation of any Laws, order, rule, regulation, writ, judgment, injunction, decree, determination or award which in any way relate to the Loan or the Guaranty. No event has occurred and is continuing, or would result from the making of the Loan or an advance of funds hereunder, which constitutes an Event of Default, or would constitute an Event of Default but for the requirement that notice be given or time elapse or both. 2.4. NO APPROVALS REQUIRED. Borrower does not require any authorization, consent, approval, order, license, exemption from, or filing, registration, or qualification with, any Governmental Agency or any other party in connection with the execution, delivery or performance by Borrower of the Loan Documents. 2.5. TAX LIABILITY. Borrower has filed and shall file all tax returns (federal, state, and local), if any, required to be filed and has paid and shall pay all taxes shown thereon to be due and all property taxes due, including interest and penalties, if any. 2.6. FINANCIAL STATEMENTS. All Financial Statements, tax returns and other financial information of Borrower which have been provided to Lender fairly present the financial position of Borrower at the respective dates of their preparation. Since the dates of such Financial Statements, tax returns and other financial information, there has been no material adverse change in the financial condition of Borrower. 2.7. PENDING LITIGATION. Except as set forth on Schedule 2.07, there are no actions, suits, or proceedings pending, or to the knowledge of Borrower threatened, against or affecting the Borrower or Guarantor, or involving the validity or enforceability of any of the Loan Documents or the priority of the lien thereof, at Law or in equity, or before or by any Governmental Agency, except actions, suits, and proceedings that are fully covered by insurance or which, if adversely determined, would not substantially impair the ability of Borrower and Guarantor to perform each and every one of its obligations under and by virtue of the Loan Documents; and Borrower and Guarantor is not in default with respect to any order, writ, injunction, decree, or demand of any court or any Governmental Agency. 2.8. COMPLIANCE WITH ERISA. Borrower does not and shall not maintain any employee benefit plan or other plan maintained for employees of Borrower which is or might be deemed to be covered by Title IV of ERISA, except plans that are or shall be in compliance with all applicable provisions of ERISA. No Reportable Event has occurred or is continuing with respect to any Plan. -5- 2.9. SOLVENCY. Borrower is and shall continue to be able to pay its debts as they mature and the realizable value of its Assets is, and at all times that it may have obligations hereunder shall continue to be, sufficient to satisfy any and all obligations hereunder. 2.10. PRINCIPAL PLACE OF BUSINESS. The principal place of business of Borrower is, and will continue to be, as set forth underneath the signature of Borrower at the end of this Agreement. In the event that Borrower hereafter intends to move its principal place of business, it shall first give at least 30 days' prior written notice to Lender of its intention so to move, the date that such move is anticipated, and its new address. 2.11. PERMITS. Borrower possesses all licenses, permits, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, that are necessary to conduct its business substantially as now conducted and as presently proposed to be conducted, and, except as set forth on Schedule 2.11, Borrower is not in material violation of any valid rights of others with respect to any of the foregoing. ARTICLE III THE LOAN 3.1. THE LOAN. Lenders agree, on the terms and conditions hereinafter set forth, to make, or to cause one or more of its Affiliates to make, the Loan provided for in this Article. Each Lender will participate equally in the Loan. 3.2. NOTE. The Loan shall be evidenced by a Note payable to each Lender. Each payment under the Loan shall be evidenced and recorded by the Lender to which such payment is made on such Lender's records, which recordation shall be prima facie evidence of such payment; provided, however, that the failure by a Lender to make any such recordation shall not limit or otherwise affect the obligation of Borrower hereunder or under either Note. 3.3. INTEREST. Interest on the outstanding principal balances under the Notes shall accrue at the rates provided for in the Notes and shall be paid as provided for in the Notes. 3.4. USE OF PROCEEDS. The Loan Proceeds shall be used by Borrower for the purpose of constructing and opening the American Park Restaurant in Battery Park, New York City. 3.5. CONDITIONS PRECEDENT TO LOAN. The obligation of Lenders to make the Loan is subject to and expressly conditioned on each of the following: (a) Borrower, at its sole expense, shall deliver to each Lender, at its office in Los Angeles, California, on or before the date of advance of any Loan Proceeds, the following, in form and substance satisfactory to such Lender, in Lender's sole opinion and judgment: (i) this Loan Agreement; (ii) a Note; (iii) a Guaranty; (iv) a Pledge and Security Agreement; (v) a -6- Warrant; (vi) certified copies of resolutions of Board of Directors of Borrower; and (vii) such additional assignments, agreements, certificates, reports, approvals, instruments, documents, financing statements, consents, and opinions as such Lender may request. (b) Review and approval by each Lender, its counsel, or both, of true and correct copies of Borrower's Organizational Documents, and all other Loan Documents; (c) Review and approval by each Lender of true and correct copies of Financial Statements of Borrower; and (d) No suit, action, or other proceeding of material consequence shall be pending or threatened which seeks to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or to obtain damages or other relief in connection therewith; 3.6. LIMITATIONS ON ADVANCES AND PAYMENTS. (a) The Loan Proceeds shall be disbursed to Borrower by wire transferring the Loan Proceeds to or for the benefit of Borrower in accordance with wire transfer instructions to be provided by Borrower to Lenders. (b) The principal amount of the Notes may be prepaid upon and subject to the terms and conditions of the Notes. (c) Payments shall be as provided for in the Notes. (d) Borrower hereby authorizes each Lender, if and to the extent any payment of principal or interest or sum otherwise due hereunder is not promptly made pursuant to such Lender's Note, and to the extent of any obligation of Borrower to such Lender under this Agreement or any other agreement, to charge against any account of Borrower with Lender an amount equal to part or all of the principal costs and expenses, and accrued interest from time to time due and payable to such Lender under the Note or otherwise. Such Lender is under no obligation to charge such past due payments against any account of Borrower, but may elect to do so in its sole and absolute opinion and judgment. 3.7. GUARANTY. As further support for the payment of the Notes and performance of this Loan Agreement, Guarantor shall guarantee payment of interest and costs of collection pursuant to the Guaranty and, to secure its obligations thereunder, shall enter into, together with his spouse, the Pledge and Security Agreement, pledging to Lender as security 362,705 shares (which are anticipated to become, pursuant to a planned reverse split of Borrower's common stock, 200,000 shares) of common stock of Borrower. -7- ARTICLE IV BORROWER'S COVENANTS In addition to anything else herein stated, Borrower agrees: 4.1. INSURANCE. To obtain and at all times maintain hazard and liability insurance in amount, form and issued by a company or companies satisfactory to Lender. The insurance is to include business interruption, boiler and machinery and glass insurance. Said liability insurance is to include, but not be limited to, worker's compensation and employer's liability insurance. Upon a Lender's request, all policies or a certificate acceptable to such Lender shall be delivered to it together with evidence of payment of premium thereon and an agreement to give such Lender at least 30 Business Days' prior notice of any material changes, termination, or expiration of the policies. 4.2. RIGHT OF ENTRY. Each Lender and each Lender's employees or agents shall have the right at all times to enter upon Borrower's premises for whatever purpose such Lender deems appropriate, including, without limitation, inspection of the premises and the posting of such notices and other written or printed material thereon as such Lender may deem appropriate or desirable. 4.3. LENDER MAY EXAMINE BOOKS AND RECORDS. Each Lender shall have the right, from time to time, acting by and through its employees or agents, to examine the books, records, and accounting data of Borrower and Guarantor, and to make extracts therefrom or copies thereof. Borrower shall, and shall cause Guarantor to, promptly make such books, records, and accounting data available to each Lender, as stated above, upon written request, and upon like request shall promptly advise such Lender, in writing, of the location of such books, records, and accounting data. 4.4. NO AUTOMATIC SET-OFF. The existence of the deposit or other accounts of Borrower with either Lender and/or the fact of any sum or sums being on deposit in any such account shall in no way constitute a set-off against or be deemed to compensate the obligation of the Loan or any payment or performance due under this Agreement or any of the other Loan Documents, unless and until such Lender, by affirmative action, shall so apply said account or any portion thereof and then only to the extent thereof so designated by such Lender. 4.5. PAYMENT OF TAXES. Borrower shall pay and discharge all taxes, assessments, and governmental charges or levies imposed on Borrower or upon its income or profits, or upon any properties belonging to it, prior to the date on which penalties attach thereto, and all lawful claims which, if unpaid might become a lien or charge of a material nature upon any of its properties, provided that Borrower shall not be required to pay any such tax, assessment, charge, levy or claim which is being contested in good faith and by proper proceedings if it maintains adequate reserves with respect thereto, which reserves shall be segregated and maintained in such accounts and upon such conditions as may be designated by Lender from time to time. 4.6. PRESERVATION OF EXISTENCE. Borrower shall preserve and maintain its corporate existence, right, franchises and privileges in the State of Delaware and qualify and remain qualified as a foreign corporation, in any jurisdiction in which such qualification is or may be necessary, in view of Borrower's business and operations or the ownership of its properties. -8- 4.7. COMPLIANCE WITH LAWS AND CONTRACTS. Except as described on Schedule 2.11, Borrower shall comply with the requirements of all applicable Laws and orders of any Governmental Agency, provided that if Borrower has not so complied by the date prescribed in any such Law or order, regulation, Borrower shall comply therewith by the date set forth in any order of the Governmental Agency charged with the enforcement of such Law, rule or regulation if such date is later, and comply with all contracts, agreements, indentures or instruments by which it is bound. 4.8. MAINTENANCE OF PROPERTY. Borrower shall maintain and preserve, or cause to be maintained and preserved, its Assets and every part thereof, in good working order and condition, ordinary wear and tear excepted. 4.9. LIMITATION OF DISPOSITION OF ASSETS. Except for personal property sold, leased or otherwise disposed of in the ordinary course of business, Borrower shall not, prior to repayment in full of the Loan, convey, sell, lease or otherwise dispose of all or substantially all of its Assets without the prior written consent of the general partner of Lenders. 4.10. REPORTING REQUIREMENTS. So long as Borrower shall have any obligation to Lender under this Agreement, Borrower shall deliver to the Lenders each of the following financial statements and reports: (a) As soon as practicable and in any event within five days after Borrower knows or should reasonably have known of the commencement of any action or proceeding against it or Guarantor, which action or proceeding could materially impact the payment or performance by Borrower or Guarantor under the Loan Documents or the Guaranty, as applicable (except actions or proceedings seeking money judgment that are fully insured or bonded), a report of the commencement of such action or proceeding containing a statement signed by the principal financial officer of Borrower or by Guarantor setting forth details of such action or proceeding and any action Borrower or such Guarantor proposes to take with respect thereto; (b) Within five days of the occurrence of any Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, a report regarding such Event of Default or event setting forth details and describing any action which Borrower proposes to take with respect thereto, signed by an officer of Borrower; (c) Any change in name of Borrower (other than to TAM Restaurants, Inc.) or use of any trade names or trade styles not presently used; (d) As soon as practicable and in any event within 60 days after the end of each quarter of each fiscal year of Borrower, the balance sheet and a statement of earnings and surplus of Borrower as of the end of and for each such quarter, all in reasonable detail and duly certified (subject to year-end audit adjustments) by the principal financial officer of Borrower as having been prepared in accordance with GAAP consistent with those applied in the preparation of the Financial Statements referred to in Section 4.10(e), together with a certificate of said officer stating that he has no knowledge that an Event of Default, or any event which, with notice -9- or lapse of time, or both, would constitute an Event of Default or, if an Event of Default or such event has occurred and is continuing, a statement as to the nature thereof and the action which Borrower proposes to take with respect thereto and a certificate of the said officer certifying Borrower's compliance with all covenants contained herein; (e) As soon as available and in any event within 120 days after the end of each fiscal year of Borrower, a copy of the Financial Statements for such year, certified by BDO Seidman LLP or such other independent certified public accountants of recognized standing reasonably acceptable to the general partner of Lenders; (f) Within 60 days after the end of each fiscal year, a certificate of the president and principal financial officer of Borrower stating that neither such officer has any knowledge that an Event of Default or any event which, with notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, or if, in the opinion of either such officer, an Event of Default or such an event has occurred and is continuing, a statement as to the nature thereof; (g) Promptly upon receipt thereof, one copy of any other report submitted to Borrower by independent accountants in connection with any annual, interim or special audit made by them of the books of Borrower; (h) Within five business days of becoming aware of any developments or other information which may materially and adversely affect Borrower's or Guarantor's properties, business, prospects, profits or condition (financial or otherwise) or Borrower's or Guarantor's ability to perform this Agreement or the other Loan Documents, telephonic or telegraphic notice specifying the nature of such development or information and such anticipated effect, which shall be promptly confirmed in writing; and (i) Such other information respecting the business, properties or the condition or operations, financial or otherwise, of Borrower as either Lender may from time to time reasonably request. 4.11. RESTRICTION ON SENIOR DEBT. Borrower shall not, without the prior written consent of the general partner of Lenders, incur any additional indebtedness not existing on the date hereof, unless (a) such indebtedness is indebtedness to trade creditors incurred in the ordinary course of business, (b) such indebtedness is expressly subordinated in right of payment to the Loan pursuant to an instrument of subordination satisfactory in form and substance to Lenders or (c) all of the proceeds of each indebtedness are used to prepay, in whole or in part, the Loan. 4.12. DIRECTORSHIP. So long as the Loan or any portion thereof is outstanding or Lenders (and their affiliates) hold, or have the right to require upon exercise of Warrants or any other warrants, an aggregate of at least 362,705 shares (as such number shall be adjusted to account for the planned reverse stock split, or any other stock split or similar action) of common stock of Borrower, management of Borrower shall use its best efforts to assure that a -10- representative designated by the general partner of Lenders is nominated and elected to the Board of Directors of Borrower. Borrower acknowledges that Guarantor (and his spouse) shall vote all of their shares of common stock of Borrower in favor of the election of such designee. Kayne Anderson's initial designee shall be Ken Harris and any subsequent designee shall be an individual reasonably acceptable to Borrower. ARTICLE V EVENTS OF DEFAULT An "Event of Default" shall be deemed to have occurred hereunder if: 5.1. DEFAULT UNDER LOAN DOCUMENTS. Borrower shall fail to pay principal or interest, or both, when due under the terms of either Note; or Borrower shall fail to perform or observe any term, covenant, or agreement contained in this Agreement or in any of the other Loan Documents, which failure may be cured by the payment of money, and, in any of such events, such failure shall continue for a period of 10 days from the date such payment or performance was due; or Borrower shall fail to perform or observe any term, covenant or agreement contained in this Agreement or in any of the other Loan Documents, which failure cannot be cured by the payment of money and, unless otherwise provided in this Agreement, such failure shall continue for a period of 30 days after either Lender shall have given written notice to Borrower specifying such default; or 5.2. BREACH OF WARRANTY. Any warranties or representations made or agreed to be made in this Agreement or in any of the other Loan Documents shall be breached in any material respect or shall prove to be false or misleading in any respect when made; or 5.3. LITIGATION AGAINST BORROWER OR GUARANTOR. Any suit shall be filed against Borrower or Guarantor, which, if adversely determined, could substantially impair the ability of Borrower or Guarantor to perform any or all of its obligations under and by virtue of this Agreement or any of the other Loan Documents, unless Borrower or Guarantor furnishes to Lenders an officer's certificate certifying a resolution of Borrower's Board of Directors or an opinion of legal counsel, to the satisfaction of Lenders (and their counsel), that, in the judgment of such Board of Directors or legal counsel, as applicable, the suit is essentially without merit; or 5.4. BANKRUPTCY. Borrower or Guarantor shall fail to pay its debts as they become due, or shall make an assignment for the benefit of its creditors, or shall admit, in writing, its inability to pay its debts as they become due, or shall file a petition under any chapter of the Federal Bankruptcy Code or any similar law, now or hereafter existing, or shall become "insolvent" as that term is generally defined under the Federal Bankruptcy Code, or shall in any involuntary bankruptcy case commenced against it file an answer admitting insolvency or inability to pay its debts as they become due, or shall fail to obtain a dismissal of such case within 30 calendar days after its commencement or convert the case from one chapter of the Federal -11- Bankruptcy Code to another chapter, or be the subject of an order for relief in such bankruptcy case, or be adjudged a bankrupt or insolvent, or shall have a custodian, trustee, or receiver appointed for, or have any court take jurisdiction of, its properties, or any part thereof, in any voluntary or involuntary proceeding, including, but not limited to, those for the purpose of reorganization, arrangement, dissolution, or liquidation, and such custodian, trustee, or receiver shall not be discharged, or such jurisdiction shall not be relinquished, vacated, or stayed within 30 days after the appointment; or 5.5. BORROWER STATUS. Without each Lender's prior written consent, Borrower shall be liquidated, dissolved, or fail to maintain its status as a going concern; or 5.6. ATTACHMENT. Any proceeding shall be brought, the object of which is that any part of either Lender's commitment to make the advances of Loan Proceeds hereunder shall at any time be subject or liable to attachment or levy by any creditor of Borrower; or 5.7. MISREPRESENTATION AND/OR NON-DISCLOSURE. Any statements or disclosures made by Borrower or Guarantor in order to induce either Lender to make the Loan and enter into this Agreement shall have been material misrepresentations or Borrower or Guarantor shall have failed to disclose any material fact; or 5.8. ERISA. Any of the following events occur or exist with respect to Borrower: (a) Any Reportable Event with respect to any Plan; (b) The filing under Title IV of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (c) Any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings for the termination of, or for the appointment of a trustee to administrate any Plan, or the institution by the PBGC of any such proceeding; or 5.9. FINANCIAL CONDITION. There shall be any material adverse changes in Borrower's or Guarantor's financial condition. ARTICLE VI REMEDIES 6.1. CEASE PAYMENT AND/OR ACCELERATE. Upon, or at any time after, the occurrence of an Event of Default or upon the occurrence of a default in any other joint and/or several obligation or obligations of the Borrower or Guarantor, to either Lender, Lenders shall have no obligation to make any further advances of Loan Proceeds, all sums disbursed or advanced by Lenders and all accrued and unpaid interest thereon shall, at the option of Lenders, become immediately due and payable, Lenders shall be released from any and all obligations to -12- Borrower under the terms of this Agreement, and Lenders shall be entitled to collect interest at the default rate specified in the Notes and to require Borrower to make the monthly payments specified in the Notes. 6.2. RIGHTS AND REMEDIES NON-EXCLUSIVE. In addition to the specific rights and remedies hereinabove mentioned, each Lender shall have the right to avail itself of any other rights or remedies to which it may be entitled, at Law or in equity, including, but not limited to, the right to realize upon any or all of its security and/or the right to enforce the Guaranty, and to do so in any order. Furthermore, the rights and remedies set forth above are not exclusive, and each Lender may avail itself of any individual right or remedy set forth in this Agreement, or available at Law or in equity, without utilizing any other right or remedy. Notwithstanding the foregoing, Lender shall forbear from availing itself of any remedies to which it may be entitled so long as the Borrower continues to timely pay to both Lenders interest payments at the default rate and the monthly payments referred to in Section 6.01. ARTICLE VII GENERAL CONDITIONS AND MISCELLANEOUS 7.1. NONLIABILITY OF LENDERS. Borrower acknowledges and agrees that by accepting or approving anything required to be observed, performed, fulfilled, or given to Lenders pursuant to this Agreement or the other Loan Documents, including any certificate, Financial Statement, appraisal or insurance policy, Lenders shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision, or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation to anyone with respect thereto by Lenders. 7.2. NO THIRD PARTIES BENEFITED. This Agreement is made for the purpose of defining and setting forth certain obligations, rights, and duties of Borrower and Lenders in connection with the Loan. It shall be deemed a supplement to the Notes and the other Loan Documents, and shall not be construed as a modification of the Notes or the other Loan Documents, except as provided herein. It is made for the sole protection of Borrower and Lenders, and each Lender's successors and assigns. No other person shall have any rights of any nature hereunder or by reason hereof or the right to rely hereon. In the event of a conflict between this Agreement and the Notes, the provisions of the Notes shall control. 7.3. INDEMNITY BY BORROWER. Borrower hereby indemnifies and agrees to hold harmless each Lender and its partners, directors, officers, agents and employees (individually and collectively the "Indemnitee(s)") from and against: (a) Any and all claims, demands, actions or causes of action that are asserted against any Indemnitee by any person if the claim, demand, action or cause of action, directly or indirectly, relates to a claim, demand, action or cause of action that the person has or asserts against Borrower; and -13- (b) Any and all liabilities, losses, costs or expenses (including court costs and attorneys' fees) that any Indemnitee suffers or incurs as a result of the assertion of any claim, demand, action or cause of action specified in this Section 7.03. 7.4. TIME IS OF THE ESSENCE. Time is of the essence of this Agreement and of each and every provision hereof. The waiver by either Lender of any breach or breaches hereof shall not be deemed, nor shall the same constitute, a waiver of any subsequent breach or breaches. 7.5. BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding on and inure to the benefit of Borrower and Lenders and their respective successors and assigns, except that Borrower may not assign its rights hereunder or any interest herein without the prior written consent of each Lender. Each Lender shall have the right to assign its rights under this Agreement or the other Loan Documents and to grant participations in the Loan to others, but all waivers or abridgements of Borrower's obligations that may be granted from time to time by such Lender in writing, shall be binding upon such assignees or participants. 7.6. EXECUTION IN COUNTERPARTS. This Agreement and any other Loan Document, except the Notes, may be executed in any number of counterparts, and any party hereto or thereto may execute any counterpart, each of which, when executed and delivered, will be deemed to be an original, and all of which counterparts of this Agreement or any other Loan Document, as the case may be, taken together will be deemed to be but one and the same instrument. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereon or thereof, as the case may be, have been executed by all the parties hereto or thereto. 7.7. INTEGRATION; AMENDMENTS; CONSENTS. This Agreement, together with the documents referred to herein, constitutes the entire agreement of the parties touching upon the subject matter hereof, supersedes any prior negotiations or agreements on such matter, and, in particular, supersedes the commitment letter or other correspondence or communication from Lenders (or their general partner) to Borrower. No amendment, modification or supplement of any provision of this Agreement or any of the other Loan Documents shall be effective unless in writing, signed by Lenders and Borrower; and no waiver of any of Borrower's or Guarantor's obligations under this Agreement or any of the other Loan Documents or consent to any departure by Borrower or Guarantor therefrom shall be effective unless in writing, signed by Lenders, and then only in the specific instance and for the specific purpose given. 7.8. COSTS, EXPENSES AND TAXES. Borrower shall pay to each Lender, on demand: (a) The attorneys' fees and out-of-pocket expenses incurred by such Lender in connection with the negotiation, preparation, execution, delivery and administration of this Agreement and any other Loan Document and any matter related thereto; -14- (b) The costs and expenses of such Lender in connection with the enforcement of this Agreement and any other Loan Document and any matter related thereto, including the fees and out-of-pocket expenses of any legal counsel (including those of in-house counsel), independent public accountants, appraisers and other outside experts retained by such Lender; and (c) All costs, expenses, fees, premiums and other charges relating to or arising from this Agreement or any of the other Loan Documents or any transactions contemplated hereby or thereby or the compliance with any of the terms and conditions hereof or thereof. All sums payable under this Section 7.08 may be deducted from the Loan Amount in the discretion of Lenders. 7.9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Borrower contained herein or in any other Loan Document shall survive the making of the Loan and the execution and delivery of the Notes, and are material and have been or will be relied upon by Lenders, notwithstanding any investigation made by Lenders or on behalf of Lenders. For the purpose of this Agreement, all statements contained in any certificate, agreement, Financial Statement, or other writing delivered by or on behalf of Borrower pursuant hereto or to any other Loan Document or in connection with the transactions contemplated hereby or thereby shall be deemed to be representations and warranties of Borrower contained herein or in the other Loan Documents, as the case may be. 7.10. NOTICES. All notices, requests, demands, directions, and other communications provided for hereunder and under any other Loan Document (a "Notice"), must be in writing and must be mailed, telegraphed, delivered or sent by "fax," telex, cable or other form of electronic written communication to the appropriate party at its respective address set forth below or, as to any party, at any other address as may be designated by it in a written notice sent to the other parties in accordance with this Section. Any notice given by "fax," telegram, telex, cable or other form of electronic written communication must be confirmed within 48 hours by letter mailed or delivered to the appropriate party at its respective address. If any notice is given by mail, it will be effective three (3) calendar days after -15- being deposited in the mails with first-class or air mail postage prepaid; if given by telegraph or cable, when delivered to the telegraph company with charges prepaid; if given by "fax," telex or other form of electronic written communication, when sent; or if given by personal delivery, when delivered. Such notices will be given to the following: To Lenders: c/o Kayne Anderson Investment Management, Inc. 1800 Avenue of the Stars, Second Floor Los Angeles, California 90067 Attn: David Shladovsky, General Counsel Fax: (310) 284-6444 To Borrower: TAM Restaurant Holding Corp. 1163 Forest Avenue Staten Island, New York 10310 Attention: Frank Cretella Fax: (718) 448-3872 7.11. FURTHER ASSURANCES. Borrower shall, at its sole expense and without expense to Lenders, do, execute and deliver such further acts and documents as Lender from time to time may reasonably require for the purpose of assuring and confirming unto Lender the rights hereby created or intended, now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Documents, or for assuring the validity of any security interest. 7.12. GOVERNING LAW. The Loan shall be deemed to have been made in California, and this Agreement and the other Loan Documents shall be governed by and construed and enforced in accordance with the Laws of the State of California. 7.13. SEVERABILITY OF PROVISIONS. If any provision of this Agreement or of any of the other Loan Documents is held to be inoperative, unenforceable or invalid, such provision shall be inoperative, unenforceable or invalid without affecting the remaining provisions; this Agreement and the other Loan Documents shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement or the other Loan Documents; and to this end the provisions of this Agreement and the other Loan Documents are declared to be severable, remaining in full force and effect. 7.14. JOINT AND SEVERAL OBLIGATIONS. If this Agreement is executed by more than one person as Borrower, the obligations of each of such persons hereunder shall be joint and several obligations. 7.15. CONSTRUCTION. Whenever the context of this Agreement requires, the singular shall include the plural and the masculine gender shall include the feminine and/or neuter. -16- 7.16. HEADINGS. Article and Section headings in this Agreement are included for convenience of reference only and are not part of this Agreement for any other purpose. IN WITNESS WHEREOF, Borrower and Lenders have hereunto caused this Agreement to be executed on the date first above written. Lenders: ARBCO ASSOCIATES, L.P., a California limited partnership KAYNE, ANDERSON NON-TRADITIONAL INVESTMENTS, L.P., a California limited partnership By: KAYNE ANDERSON INVESTMENT MANAGEMENT, INC., a Nevada corporation, General Partner By: /s/ Richard A. Kayne ------------------------ Name: Richard A. Kayne Title: President Borrower: TAM RESTAURANT HOLDING CORP., a Delaware corporation By: /s/ Frank Cretella ----------------------- Name: Frank Cretella Title: President and Chief Executive Officer -17- SCHEDULE 2.07 In July 1996, Lisa Lea, on behalf of her infant daughter Monicea Lea, and herself individually, filed a Notice of Claim against The City of New York and New York City Department of Parks alleging personal injury caused to the infant Monicea Lea resulting from a slip and fall on or near the premises of the Loeb Boathouse. The claimant has stated a claim for damages of $10,000,000. This matter is in the information gathering stage. In February 1997, a lawsuit entitled Sharon Porto and Salvatore Porto v. Bay Landing Restaurant Corp. and Lundy Bros. Restaurant, was filed in the Supreme Court of New York, County of Kings. The plaintiffs allege personal injury caused to Sharon Porto as a result of a slip and fall at Lundy Bros. Restaurant in September 1996, and seek damages in the aggregate of $3,300,000. The Company is vigorously defending the lawsuit which is in its preliminary stages. In June 1997, a lawsuit entitled Ralph Guiffre and Lisa Guiffre v. Lundy's Management Corporation, Bay Landing Restaurant Corp., Sheepshead Restaurant Associates, Inc., Ralph Attanasia and Showcase Contracting Corporation, was filed in the Supreme Court of New York, County of Kings. The plaintiffs allege personal injury caused to Ralph Guiffre while performing construction work at the Lundy's Bros. Restaurant facility and seek damages in the aggregate amount of $11,000,000. The Company is vigorously defending the lawsuit which is in its preliminary stages. In August 1997, a lawsuit entitled Gloria Gentile and Anthony Gentile v. The City of New York and Tam Restaurant Group, Inc., was filed in the Supreme Court of New York, New York County. The plaintiffs allege personal injury to Gloria Gentile resulting from a slip and fall while attending an engagement at the Loeb Boathouse and seek damages in the aggregate amount of $2,500,000. The Company is vigorously defending the lawsuit which is in its preliminary stages. The Company is unable at this time to evaluate the likelihood of an unfavorable outcome or to estimate the range of potential loss with respect to any of such lawsuits. SCHEDULE 2.11 The Company's license agreement with the New York City Department of Parks (the "Parks Department") to operate The Boathouse imposes certain requirements and operating restrictions on the Company, such as minimum hours of operation. Although certain aspects of the Company's operating practices are not in conformity with the terms of such license, the Company believes that the Parks Department is aware of its operating practices and the Parks Department has not objected to the variances from the terms of such license. SCHEDULE OF EXHIBITS Exhibit Document A Promissory Note B Continuing Guaranty C Pledge and Security Agreement D Warrant EXHIBIT A NOTE $500,000 October 31, 1997 Los Angeles, CA TAM RESTAURANT HOLDING CORP., a Delaware corporation (the "Company"), for value received, hereby promises to pay to the order of [Lender] (" ") or its assignes, at its principal office at Los Angeles, California, the principal sum of Five Hundred Thousand Dollars ($500,000) (or such lesser amount as may result from any repayment thereof), in lawful money of the United States and prior to noon, Los Angeles time, in funds which are immediately available in Los Angeles, California, payable on the Maturity Date, as such term is defined in the Loan Agreement, dated as of October 31, 1997, between the Company and each of Arbco Associates, L.P. and Kayne, Anderson Non-Traditional Investments, L.P. (the "Loan Agreement"), and to pay interest on the unpaid principal amount of this Note from the date hereof, in like money and funds, at said office, on the last day of each March, June, September and December commencing December 31, 1997, at a rate per annum (computed on the basis of a year of 365 days or 366 days, as the case may be) of ten percent (10%). If any payment to be made by the Company under this Note shall become due on a Saturday, Sunday or business holiday under the laws of the States of New York or California, such payment shall be made on the next succeeding business day, and any such extension of time shall be included in computing any interest in respect of such payment. The Company may at its option make prepayments on this Note before maturity as provided in the Loan Agreement. This Note is made pursuant to the Loan Agreement, and is entitled to the security and benefits therein provided. Upon the occurrence of an Event of Default specified in the Loan Agreement, as at any time amended, the principal hereof and accrued interest hereon may be declared to be and shall thereupon forthwith become due and payable, all as provided in the Loan Agreement, as at any time amended, and following such an Event of Default, so long as it is continuing, Borrower shall (a) pay to lender interest on the unpaid principal amount of this Note and any accrued and unpaid interest thereon at the rate of fifteen percent (15%) per annum on the regular interest payment dates and (b) pay to Lender on the first day of each month an amount, to be applied to accrued interest and then to principal, equal to twenty-five percent (25%) of its American Park Restaurant Operating Profit for the previous month. This Note shall be construed and enforced in accordance with and governed by the laws of the State of California. The Company agrees to pay costs of collection and reasonable attorney's fees in case default is made in the payment of this Note. TAM RESTAURANT HOLDING CORP. By: -------------------------------------------- Name: Frank Cretella Title: President & Chief Executive Officer -2- EXHIBIT D WARRANT FOR THE PURCHASE OF SHARES OF COMMON STOCK No. __________ Number of Shares determined as set forth herein THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS WARRANT (COLLECTIVELY, THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS, OR, IN THE WRITTEN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THE SECURITIES, SUCH OFFER, SALE, OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. AS PARTIAL CONSIDERATION FOR LOAN PROCEEDS RECEIVED BY TAM RESTAURANT HOLDING CORP., (THE "COMPANY") FROM KAYNE ANDERSON INVESTMENT MANAGEMENT, INC. ("KAIM"), the Company hereby certifies that KAIM, or its permitted assigns (the "Holder"), subject to and in accordance with the terms and conditions of this Warrant, is or are entitled to purchase the Underlying Common Shares from the Company at the Exercise Price. OTHER TERMS AND CONDITIONS 1. Exercise of Warrant. (a) Subject to the terms and conditions set forth herein, the Warrant is exercisable on or after the Exercise Date at the Exercise Price. (b) This Warrant is exercisable other than on the Exercise Date only upon the occurrence of a Triggering Event. (c) The Warrant shall terminate and become void as of the close of business on the Expiration Date. (d) In order to exercise this Warrant, the Holder must surrender this Warrant (with the subscription form at the end hereof duly executed) at the address set forth in Section 10(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part. Payment for the Underlying Common Shares shall be made by certified or official bank check, payable to the order of the Company. If this Warrant is exercised in part, this Warrant must be exercised for a number of whole shares of the Common Stock, and the Holder is entitled to receive a new Warrant covering the number of Underlying Common Shares in respect -3- of which this Warrant has not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Underlying Common Shares. Upon such exercise and surrender of this Warrant, the Company will (i) issue a certificate or certificates in the name of the Holder for the number of whole shares of the Common Stock to which the Holder shall be entitled and, if this Warrant is exercised in whole, in lieu of any fractional share of the Common Stock to which the Holder shall be entitled, pay cash equal to the fair value of such fractional share (determined in such reasonable manner as the Board of Directors of the Company shall determine), and (ii) deliver the other securities and properties receivable upon the exercise of this Warrant, or the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of this Warrant. 2. Certain Defined Terms As used in this Warrant, the following terms shall have the following meanings: "Aggregate Warrant Price" means the aggregate purchase price payable hereunder, being an amount equal to the product of the Exercise Price multiplied by the number of Underlying Common Shares. "Common Stock" means the Common Stock, par value $.0001 per share, of the Company and any other capital stock of the Company into which such common stock may be converted or reclassified or that may be issued in respect of, in exchange for, or in substitution of, such common stock by reason of any stock splits, stock dividends, distributions, mergers, consolidations or other like events. "Exercise Price" means (i) if the Warrants are exercised prior to an Initial Public Offering, $5.00 per share of Underlying Common Shares, provided, however, if, thereafter, the Initial Public Offering Price of Common Shares is less than $5.00 per share, then a holder of Underlying Common Shares shall be entitled to receive from the Company at the time of the Initial Public Offering an amount which equals the product of (A) the difference of $5.00 less the Initial Public Offering Price multiplied by (B) the number of Underlying Common Shares owned by such holder; or (ii) if the Warrants are exercised subsequent to an Initial Public Offering, an amount per share of Underlying Common Shares equal to the Initial Public Offering Price. "Expiration Date" means the fifth anniversary of the Funding Date. "Exercise Date" means the earliest of (i) 365 days following the Funding Date, (ii) 90 days following an Initial Public Offering, or (iii) the day on which a Triggering Event occurs. "Funding Date" means the day on which the Company makes the loan contemplated under the Loan Agreement. -4- "Initial Public Offering" means (i) the first time a registration statement filed under the Securities Act with the SEC respecting an offering of Common Stock (or securities convertible into, or exchangeable for, Common Stock or rights to acquire Common Stock or such securities), is declared effective and the securities so registered are issued and sold. "Initial Public Offering Price" mean the price per share of Common Stock paid to the Company in an Initial Public Offering. "Loan Agreement" means the Loan Agreement dated as of October 31, 1997 between the Company and each of Arbco Associates, L. P. and Kayne, Anderson Non-Traditional Investments, L.P. "Planned Reverse Split" means the reverse split of Common Stock at a rate of 1 to 1.8135268 shares expected to be effected by the Company at or about the time of its Initial Public Offering. "SEC" means the United States Securities and Exchange Commission. "Triggering Event" means (i) the voluntary or involuntary bankruptcy or insolvency of the Company or the approval by its stockholders of its dissolution, liquidation or winding up; or (ii) any merger, consolidation, statutory exchange, sale or conveyance described in Section 4(c) below. "Underlying Common Shares" means a number of shares of Common Stock equal to the quotient of $1 million divided by the Exercise Price. 3. Reservation of Underlying Common Shares. The Company agrees that, prior to the Expiration Date, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the Underlying Common Shares of Common Stock and such amount of other securities and properties as from time to time shall be deliverable to the Holder upon the exercise of this Warrant, free and clear of all restrictions on sale or transfer (except such as may be imposed under applicable federal and state securities laws) and free and clear of all preemptive rights and all other rights to purchase securities of the Company. 4. Protection Against Dilution. (a) If, at any time or from time to time after the date of this Warrant, the Company shall distribute to the holders of its outstanding Common Stock, (i) securities, other than shares of Common Stock, or (ii) property, other than cash dividends, without payment therefor, with respect to Common Stock, then, and in each such case, the Holder, upon the exercise of this Warrant, shall be entitled to receive the securities and property which the Holder would have held on the date of such exercise if, on the date of this Warrant, the Holder had been the holder of record of the number of shares of the -5- Common Stock subscribed for upon such exercise and, during the period from the date of this Warrant to and including the Exercise Date, had retained such shares and the securities and properties receivable by the Holder during such period. Notice of each such distribution shall be forthwith mailed to the Holder. (b) If, at any time or from time to time after the date of this Warrant, the Company shall (i) pay a dividend or make a distribution on its capital stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Exercise Price in effect immediately prior to such action shall be adjusted so that the Holder of any Warrant thereafter exercised shall be entitled to receive the number of shares of Common Stock or other capital stock of the Company which he would have owned or been entitled to receive immediately following the happening of any of the events described above had such Warrant been exercised immediately prior thereto. Notwithstanding the foregoing, no adjustment shall be made for the Planned Reverse Split, which has been accounted for and is reflected in the terms of this Warrant, provided, however, that if the Planned Reverse Split is consummated at a ratio less favorable to the Holder, an adjustment shall be made pursuant to this Section 4(b) to provide Holder with economically equivalent rights. An adjustment made pursuant to this Section 4(b) shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this Section 4(b), the holder of any Warrant thereafter surrendered for exercise shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in a written notice to the Holder of any Warrant promptly after such adjustment) shall determine the allocation between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. (c) In case of any consolidation or merger to which the Company is a party other than a merger or consolidation in which the Company is the continuing corporation, or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another entity (including any exchange effectuated in connection with a merger of any other corporation with the Company), the Holder of this Warrant shall have the right thereafter to convert such Warrant into the kind and amount of securities, cash or other property which he would have owned or have been entitled to receive immediately after such consolidation, merger, statutory exchange, sale or conveyance had this Warrant been exercised immediately prior to the effective date of such consolidation, merger, statutory exchange, sale or conveyance and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Section 4 with respect to the rights and interests thereafter of the Holder of this Warrant to the end that the provisions set forth in this Section 4 shall thereafter correspondingly -6- be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the exercise of this Warrant. In the event of a triangular merger in which the Company is the surviving corporation, the right to purchase Underlying Common Shares hereunder shall terminate on the date of such merger and thereupon this Warrant shall become null and void but only if the controlling corporation shall agree to substitute for this Warrant its warrant which entitles the holder thereof to purchase upon its exercise the kind and amount of shares and other securities and property which the holder would have owned or been entitled to receive had this Warrant been exercised immediately prior to such merger. The above provisions only apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. Notice of any such consolidation, merger, statutory exchange, sale or conveyance, and of said provisions so proposed to be made, shall be mailed to the Holder not less than 20 days prior to such event. A sale of all or substantially all of the assets of the Company for a consideration consisting primarily of securities shall be deemed a consolidation or merger for the foregoing purposes. (d) Anything in this Section 4 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Exercise Price as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable. (e) Whenever the Exercise Price is adjusted as provided in this Section 4 and upon any modification of the rights of the Holder of this Warrant in accordance with Section 4, the Company shall, at its own expense, within 10 days of such adjustment or modification, deliver to the Holder of this Warrant a certificate of the Principal Financial Officer of the Company setting forth the Exercise Price and the number of Underlying Common Shares after such adjustment or the effect of such modification, a brief statement of the facts requiring or permitting such adjustment or modification and the manner of computing the same. In addition, within thirty 30 days of the end of the Company's fiscal year following any such adjustment or modification, the Company shall, at its own expense, deliver to the Holder of this Warrant a certificate of a firm of independent public accountants of recognized standing selected by the Board of Directors (who may be the regular auditors of the Company) setting forth the same information as required by such Principal Financial Officer certificate. (f) If the Board of Directors of the Company shall declare any dividend or other distribution in cash with respect to the Common Stock, other than out of earned surplus, the Company shall mail notice thereof to the Holder not less than 10 days prior to the record date fixed for determining shareholders entitled to participate in such dividend or other distribution. -7- 5. Fully Paid Stock; Taxes. The Company agrees that the shares of the Common Stock represented by each and every certificate for Underlying Common Shares delivered on the exercise of this Warrant in accordance with the terms hereof shall, at the time of such delivery, be validly issued and outstanding, fully paid and non-assessable and not subject to preemptive rights or other contractual rights to purchase securities of the Company, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Exercise Price. The Company further covenants and agrees that it will pay, when due and payable, any and all federal and state stamp, original issue or similar taxes which may be payable in respect of the issue of any Underlying Common Shares or certificate therefor. 6. Registration Under Securities Act of 1933. (a) (i) The Company agrees that if, at any time, the Company proposes to file with the SEC a registration statement (other than a registration statement for the Initial Public Offering or a registration statement on Form S-4 or S-8 or any corresponding future forms, or any other form for a limited purpose which excludes registration of the Underlying Common Shares, or any registration statement covering only securities proposed to be issued in exchange for securities or assets of another corporation) in connection with the registration of its Common Stock, the Company shall give written notice of such proposed filing to all Holders of the Warrants and/or the Underlying Common Shares and shall use its reasonable efforts to include in such filing any proposed disposition of the Underlying Common Shares upon receipt by the Company of a written request therefor, given within 10 days after such notice is given by the Company, setting forth the facts with respect to such proposed disposition and all other information with respect to such person necessary to be included in such registration statement; provided that the Company shall have the right to postpone or withdraw any registration of its Common Stock (and the corresponding registration effected pursuant to this Section 5) without obligation to any such Holder (the "Piggy-Back Registration"). (ii) From time to time, the Holder may make a written request for registration under the Securities Act of its Underlying Common Shares (a "Demand Registration"). Any such request will specify the number of Underlying Common Shares proposed to be sold (the "Included Shares") and will also specify the intended method of disposition thereof. Upon receipt of such request for registration, the Company shall use its reasonable best efforts to effect, at the earliest possible date, such registration under the Securities Act of the Included Shares. (b) Notwithstanding the foregoing, the Company shall not be required to include any Underlying Common Shares in an underwritten public offering unless each such Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriter(s) selected by it, and then only in such quantity, if any, as will not, in the opinion of the managing underwriter, jeopardize or be detrimental to the success -8- of the offering (including price) by the Company. In the event that the managing underwriter advises the Company in writing that the total amount of securities, including the Underlying Common Shares, requested to be included in such offering by all persons having registration rights with respect thereto exceeds the amount that the managing underwriter believes can be offered without jeopardizing or being detrimental to the success of such offering, the quantity of securities that the managing underwriter believes can be offered without causing such adverse effect shall be allocated first to the Company, then to the requesting Holders of Warrants and/or Underlying Common Shares and any other holders of Common Stock having registration rights with respect thereto as of the date hereof, and thereafter pro rata among other security holders of the Company possessing similar registration rights in accordance with their relative holdings, it being agreed to by the Company that no person who does not possess such registration rights shall be allowed to participate in the offering to the exclusion of any Underlying Common Shares requested to be included by any Holder, and such Underlying Common Shares shall be offered and sold on the same terms and conditions as the shares of Common Stock, if any, being offered by the Company in such offering. In the event that any of the Underlying Common Shares are registered in connection with the registration of an underwritten public offering (other than the Initial Public Offering) but are not included in such underwritten public offerings which are excluded from the offering shall be withheld from the market by each such Holder for a period, not to exceed 180 days, which the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering. The Company shall use its best efforts to keep effective any registration statement covering any of the Underlying Common Shares not subject to or included in an underwritten public offering for a period of 90 days after the later of the effective date of such registration statement or the date, if any, that the managing underwriter specifies to be the date upon which such Underlying Common Shares may be distributed; provided that the Company may keep such registration statement effective for a shorter period if all the Holders whose Underlying Common Shares were included in such registration statement have notified the Company in writing that the distribution of their Underlying Common Shares has been completed. (c) Whenever the Company is required pursuant to the provisions of this Section 5 to include Underlying Common Shares in a registration statement, the Company shall (i) furnish each Holder of any such Underlying Common Shares and each underwriter of such Underlying Common Shares with such copies of the prospectus, including the preliminary prospectus, conforming to the Securities Act (and such other documents as each such Holder or each such underwriter may reasonably request) in order to facilitate the sale or distribution of the Underlying Common Shares, (ii) use its best efforts to register or qualify such Underlying Common Shares under the blue sky laws (to the extent applicable) of such jurisdiction or jurisdictions as the Holders of any such Underlying Common Shares and each underwriter of Underlying Common Shares being sold by such Holders shall reasonably request and (iii) take such other actions as may be reasonably necessary or advisable to enable such Holders and such underwriters to consummate the sale or distribution in such jurisdiction or jurisdictions in which such Holders shall have reasonably requested that the Underlying Common Shares be sold. -9- Notwithstanding the foregoing, the Company shall not be required to register the Underlying Common Shares or perfect any exemption for the offering and sale of the Underlying Common Shares under (i) the securities laws of any foreign jurisdiction, (ii) the securities laws of any State, territory or possession of the United States in the event that registration or the perfection of any exemption under the law of any such State, territory or possession would, in the opinion of the Company, result in the imposition of unreasonable restrictions on the Company or its shareholders, officers, directors or employees or (iii) the securities laws of any state, territory or possession of the United States which would require the Company to file a general consent to service of process to qualify as a foreign corporation to do businesterritory or possession. (d) To the extent permitted by applicable law, the Company shall pay all expenses incurred in connection with any registration or other action pursuant to the provisions of this Section, including the attorneys' fees (including those of in-house counsel) and expenses of the Holder(s) of the Underlying Common Shares covered by such registration incurred in connection with such registration or other action, other than underwriting discounts, commissions and non-accountable expense allowance and applicable transfer taxes relating to the Underlying Common Shares. 7. Indemnification. (a) To the extent permitted by applicable law, the Company agrees to indemnify and hold harmless each selling holder of Underlying Common Shares and each person who controls any such selling holder within the meaning of Section 15 of the Securities Act, and each and all of them, from and against any and all losses, claims, damages, liabilities or actions, joint or several, to which any selling holder of Underlying Common Shares or they or any of them may become subject under the Securities Act or otherwise and to reimburse the persons indemnified as above for any legal or other expenses (including the cost of any investigation and preparation) incurred by them in connection with any litigation or threatened litigation, whether or not resulting in any liability, but only insofar as such losses, claims, damages, liabilities or actions arise out of, or are based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement pursuant to which Underlying Common Shares were registered under the Act (a "registration statement"), any preliminary prospectus, the final prospectus or any amendment or supplement thereto (or in any application or document filed in connection therewith) or document executed by the Company based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to register or qualify the Underlying Common Shares under the securities laws thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (ii) the employment by the Company of any device, scheme or artifice to defraud, or the engaging by the Company in any act, practice or course of business which operates or would operate as a fraud or deceit, or any conspiracy with respect thereto, in which the Company shall participate, in connection Underlying Common Shares; provided, however, that (i) the -10- indemnity agreement contained in this Section 7(a) shall not extend to any selling holder of Underlying Common Shares in respect if any such losses, claims, damages, liabilities or actions arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if (a) such statement or omission was based upon and made in conformity with information furnished in writing to the Company by a selling holder of Underlying Common Shares specifically for use in connection with the preparation of such registration statement, any final prospectus, any preliminary prospectus or any such amendment or supplement thereto or (b) such selling holder fails to deliver the final prospectus in connection with the transaction in conformity with the prospectus delivery requirements under the Securities Act. The Company agrees to pay any legal and other expenses for which it is liable under this Section 7(a) from time to time (but not more frequently than monthly) within 30 days after its receipt of a bill therefor. (b) To the extent permitted by applicable law, each selling holder of Underlying Common Shares, severally and not jointly, will indemnify and hold harmless the Company, its directors, its officers who shall have signed the registration statement and each person, if any, who controls the Company within the meaning of Section 15 of the Act and each agent and underwriter of the Company to the same extent as the foregoing indemnity from the Company, but in each case to the extent, and only to the extent, that any statement in or omission from or alleged omission from such registration statement, any final prospectus, any preliminary prospectus or any amendment or supplement thereto was made in reliance upon information furnished in writing to the Company by such selling holder specifically for use in connection with the preparation of the registration statement, any final prospectus or the preliminary prospectus or any such amendment or supplement thereto; provided, however, that the obligation of any holder of Underlying Common Shares to indemnify the Company under the provisions of this Section 7(b) shall be limited to the product of the number of Underlying Common Shares being sold by the selling holder and the market price of the Common Stock on the date of the sale to the public of these Underlying Common Shares. Each selling holder of Underlying Common Shares agrees to pay any legal and other expenses for which it is liable under this Section 7(b) from time to time (but not more frequently than monthly) within 30 days after receipt of a bill therefor. (c) If any action is brought against a person entitled to indemnification pursuant to the foregoing Sections 7(a) or (b) (an "indemnified party") in respect of which indemnity may be sought against a person granting indemnification (an "indemnifying party") pursuant to such Sections, such indemnified party shall promptly notify such indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party of any such action shall not release the indemnifying party from any liability it may have to such indemnified party otherwise than on account of the indemnity agreement contained in Sections 6(a) or (b). In case any such action is brought against an indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party against which a claim is to be made will be entitled to participate therein at its own expense and, to the extent that it may wish, to assume at its -11- own expense the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, that (i) if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based upon advice of counsel that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party shall have the right to select separate counsel to assume such legal defenses and otherwise to participate in the defense of such action on behalf of such indemnified party or parties and (ii) in any event, the indemnified party shall be entitled to have counsel chosen by such indemnified party participate in, but not conduct, the defense at the expense of the indemnifying party. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by they will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with proviso (i) to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel), (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. An indemnifying party shall not be liable for any settlement of any action or proceeding effected without its written consent. (d) In order to provide for just an equitable contribution in circumstances in which the indemnity agreement provided for in Section 7(a) is unavailable to a selling holder of Underlying Common Shares in accordance with its terms, the Company and the selling holder of Underlying Common Shares shall contribute to the aggregate losses, claims, damages and liabilities, of the nature contemplated by said indemnity agreement, incurred by the Company and the selling holder of Underlying Common Shares, in such proportions as is appropriate to reflect the relative benefits received by the Company and the selling holder of Underlying Common Shares from any offering of the Underlying Common Shares; provided, however, that if such allocation is not permitted by applicable law or if the indemnified party failed to give the notice required under Section 7(c), then the relative fault of the Company and the selling holder of Underlying Common Shares in connection with the statements or omissions which resulted in such losses, claims, damages and liabilities and other relevant equitable considerations will be considered together with such relative benefits. (e) The respective indemnity and contribution agreements by the Company and the selling holder of Underlying Common Shares in Sections 7(a), (b), (c) and (d) shall remain operative and in full force and effect regardless of (i) any investigation made by any selling holder of Underlying Common Shares or by or on behalf of any person who controls such selling holder or by the Company or any controlling person of the Company -12- or any director or any officer of the Company, (ii) payment for any of the Underlying Common Shares or (iii) any termination of this Agreement, and shall survive the delivery of the Underlying Common Shares, and any successor of the Company, or of any selling holder of Underlying Common Shares, or of any person who controls the Company or of any selling holder of Underlying Common Shares, as the case may be, shall be entitled to the benefit of such respective indemnity and contribution agreements. The respective indemnity and contribution agreements by the Company and the selling holder of Underlying Common Shares contained in Sections 7(a), (b), (c) and (d) shall be in addition to any liability which the Company and the selling holder of Underlying Common Shares may otherwise have. 8. Limited Transferability. (a) The Holder agrees that prior to making any transfer or disposition of the Warrant or the Underlying Common Shares or any interest therein, the Holder shall give written notice to the Company describing briefly the manner in which any such proposed transfer or disposition is to be made; and no such transfer or disposition shall be made if the Company has notified the Holder that in the opinion of counsel to the Company (i) a registration statement (or other notification or post-effective amendment thereto) under the Securities Act is required with respect to such transfer or disposition and no such registration statement has been filed by the Company with, and declared effective, if necessary, by, the Commission, or (ii) unfulfilled requirements under any federal, state or foreign securities laws prohibit or restrict the proposed transfer or disposition. The Company shall not be required to cause the Warrant or the Underlying Common Shares to be registered under any securities laws, except as provided in Section 5 above. The Company may treat the registered holder of this Warrant as he or it appears on the Company's books at any time as the Holder for all purposes. The Company shall permit any holder of a Warrant or his duly authorized attorney, upon written request during ordinary business hours, to inspect and copy or make extracts from its books showing the registered holders of Warrants. All Warrants will be dated the same date as this Warrant. (b) By acceptance hereof, the Holder represents and warrants that this Warrant is being acquired, and all Underlying Common Shares to be purchased upon the exercise of this Warrant will be acquired, by the Holder solely for the account of such Holder and not with a view to the distribution thereof and will not be sold or transferred except in accordance with the applicable provisions of the Securities Act and the rules and regulations of the SEC promulgated thereunder, and the Holder agrees that neither this Warrant nor any of the Underlying Common Shares may be sold or transferred except under cover of a registration statement under the Act which is effective and current with respect to such Underlying Common Shares or pursuant to an opinion, in form and substance reasonably acceptable to the Company's counsel, that registration under the Act is not required in connection with such sale or transfer. Any Underlying Common Shares issued upon exercise of this Warrant shall bear the following legend: -13- "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE OR FOREIGN SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH ACT AND ALL SUCH APPLICABLE LAWS OR, IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THE SHARES REPRESENTED BY THIS CERTIFICATE, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH." 9. Intentionally Left Blank 10. Loss, etc., of Warrant. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant, if mutilated, and upon reimbursement of the Company's reasonable incidental expenses, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 11. Warrant Holder Not Shareholders. Except as otherwise provided herein, this Warrant does not confer upon the Holder any right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. -14- 12. Communication. No notice or other communication under this Warrant shall be effective unless, but any notice or other communication shall be effective and shall be deemed to have been given if, the same is in writing and is mailed by first-class mail, postage prepaid, addressed to: a) the Company at: TAM Restaurant Holding Corp. 1163 Forest Avenue Staten Island, New York 10310 Attn: Frank Cretella with a copy to: Tenzer Greenblatt LLP The Chrysler Building 405 Lexington Avenue New York, New York 10174-0208 Attention: Robert J. Mittman, Esq. or such other address as the Company has designated in writing to the Holder; or the Holder at: c/o Kayne Anderson Investment Management, Inc. 1800 Avenue of the Stars, Second Floor Los Angeles, California 90067 Attention: David Shladovsky, General Counsel or such other address as the Holder has designated in writing to the Company. 13. Headings. The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof. 14. Applicable Law. This Warrant shall be governed by and construed in accordance with the laws of New York. -15- IN WITNESS WHEREOF TAM Restaurant Holding Corp. has caused this Warrant to be signed by its Chairman of the Board and its corporate seal to be hereunto affixed and attested by its Secretary this 31st day of October, 1997. ATTEST: _________________________ TAM RESTAURANT HOLDING CORP. By: ------------------------- Chairman of the Board [Corporate Seal] -16- SUBSCRIPTION FORM TAM RESTAURANT HOLDING CORP. The undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant for, and to purchase thereunder, _______________ Shares of Common Stock provided for therein, and makes payment therefor in full at the price per share provided by said Warrant. Unless the Shares have been registered under the Securities Act of 1933, as amended, the undersigned hereby represents and warrants to TAM Restaurant Holding Corp. that it is acquiring the Shares for its own account for investment and not with a view to or for sale in connection with a distribution thereof. Dated:_____________________________ Name of Holder or Assignee: ___________________________________ (Please Print) Address:___________________________ ___________________________________ Signature:_________________________ Note: The above signature must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever, unless these Warrants have been assigned. Signature Guaranteed: __________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) ASSIGNMENT TAM RESTAURANT HOLDING CORP. (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________________________________________________________________________ (Name and Address of Assignee Must Be Printed or Typewritten) _______________________________________________________________________________ the within Warrant, hereby irrevocably constituting and appointing ____________________ Attorney to transfer said Warrants on the books of TAM Restaurant Holding Corp., with full power of substitution in the premises. Dated:______________________________ ____________________________________ Signature of Registered Holder Note: The above signature must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: __________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) PARTIAL ASSIGNMENT TAM RESTAURANT HOLDING CORP. (To be signed only upon assignment of Warrant) FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _______________________________________________________________________________ (Name and Address of Assignee Must Be Printed or Typewritten) _______________________________________________________________________________ the right to purchase __________________ shares of the Common Stock of TAM Restaurant Holding Corp. (the "Company") by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced thereby, and hereby irrevocably constitutes and appoints ________________________ Attorney to transfer said Warrants on the books of the Company with full power of substitution in the premises. Dated:________________________________ ______________________________________ Signature of Registered Holder Note: The above signature must correspond with the name as it appears upon the face of the within Warrant certificate in every particular, without alteration or enlargement or any change whatever. Signature Guaranteed: _____________________________________ (Signature must be guaranteed by a bank or trust company having an office or correspondent in the United States or by a member firm of a registered securities exchange or the National Association of Securities Dealers, Inc.) EX-23 12 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS TAM Restaurants Holding Corp. and subsidiaries We hereby consent to the incorporation by reference of the Prospectus constituting a part of this Registration Statement on Form SB-2 (No. 333- ) of our report dated July 31, 1997 relating to the consolidated financial statements of TAM Restaurants Holding Corp. and subsidiaries which is contained in that Prospectus. Our report contains an explanatory paragraph regarding uncertainties as to the Company's ability to continue as a going concern. We also consent to the reference to us under the captions "Selected Financial Data" and "Experts" in the Prospectus. /s/ Maltese, Potter & La Marca LLP MALTESE, POTTER & LA MARCA LLP Staten Island, New York November 10, 1997 -----END PRIVACY-ENHANCED MESSAGE-----