Form 10-K

0000950148-01-501316.txt : 20011018 0000950148-01-501316.hdr.sgml : 20011018 ACCESSION NUMBER: 0000950148-01-501316 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010430 FILED AS OF DATE: 20010730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALIFORNIA BEACH RESTAURANTS INC CENTRAL INDEX KEY: 0000738274 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 952693503 STATE OF INCORPORATION: CA FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12226 FILM NUMBER: 1693118 BUSINESS ADDRESS: STREET 1: 17383 SUNSET BLVD STE 140 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 BUSINESS PHONE: 3104599676 MAIL ADDRESS: STREET 1: 17351 SUNSET BLVD STE 404 STREET 2: 17351 SUNSET BLVD STE 404 CITY: PACIFIC PALISADES STATE: CA ZIP: 90272 FORMER COMPANY: FORMER CONFORMED NAME: IHV CORP DATE OF NAME CHANGE: 19900912 FORMER COMPANY: FORMER CONFORMED NAME: NATURAL ORGANICS INC DATE OF NAME CHANGE: 19860318 10-K 1 v74381e10-k.htm FORM 10-K Form 10-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)


[X]		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended April 30, 2001


[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from _______________ to _______________

Commission File No. 0-12226

CALIFORNIA BEACH RESTAURANTS, INC.
(Exact name of registrant as specified in its charter)

California

95-2693503

(state or other jurisdiction of
Incorporation or organization)

(IRS Employer Identification No.)

17383 Sunset Boulevard, Suite 140
Pacific Palisades, California

90272

(Address of principal executive office)

(Zip Code)

Registrant’s telephone number: (310) 459-9676

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

The aggregate market value of voting and non-voting common stock held by non-affiliates of the Registrant based upon the average bid price in the over-the-counter market on July 11, 2001 ($0.20) was approximately $37,219.

The number of outstanding shares of the Registrant’s Common Stock as of July 5, 2001 was 3,400,930.

TABLE OF CONTENTS


PART I
	Item 1 BUSINESS
	Item 2 PROPERTIES
	Item 3 LEGAL PROCEEDINGS
	Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
PART II
	Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
	Item 6 SELECTED FINANCIAL DATA
	Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
	Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
	Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
	Item 11 EXECUTIVE COMPENSATION
	Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
	Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV
	Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Stockholders’ Equity (Deficit)
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements
SIGNATURES
INDEX TO EXHIBITS
EXHIBIT 10.79
EXHIBIT 10.80
EXHIBIT 23.1

Documents incorporated by reference: the definitive Proxy Statement of the Registrant for the 2001 annual meeting of shareholders (Part III to the extent described herein), or if such Proxy Statement is not filed within 120 days of the Registrant’s fiscal year end, such information will be included in an amendment to this Form 10-K filed within such timeframe.

PART I

Item 1 BUSINESS

General

California Beach Restaurants, Inc., (“Registrant” or “Company”), was organized under the laws of the State of California in April 1971. The Registrant is currently engaged in one line of business, the ownership and operation of restaurants, including Gladstone’s 4 Fish (“Gladstone’s”) in Pacific Palisades, California and RJ’s — Beverly Hills (“RJ’s”) in Beverly Hills, California.

Restaurant Operations — Concept and Menu

The Registrant owns and operates the following restaurants through its wholly-owned subsidiary, Sea View Restaurants, Inc. (“Sea View”):

Gladstone’s 4 Fish. Gladstone’s is one of Southern California’s best known fresh seafood restaurants. In 1972, the original Gladstone’s was opened as a small, 80-seat establishment in Santa Monica Canyon near the Pacific Ocean in Santa Monica, California. In 1981, Gladstone’s was moved to its present location on the beach at the intersection of Sunset Boulevard and Pacific Coast Highway in Pacific Palisades, California. Based on restaurant industry surveys, Gladstone’s is one of the top grossing restaurants in America. The 10,000 square foot interior of Gladstone’s seats approximately 400, while the outside deck has a seating capacity of approximately 300 in a 6,000 square foot area. Gladstone’s is open 365 days a year for lunch and dinner. Breakfast is served on weekends. The Registrant completed construction of substantial improvements to its Gladstone’s restaurant in October 1999. The improvements, including the outside deck, have enhanced the dining accommodations.

Gladstone’s offers an extensive menu specializing in fresh fish and shellfish. Gladstone’s strives to purchase only the finest seafood products including, live Maine lobster, premium Alaskan red king crab, western Australian lobster tails and Mexican shrimp as well as the freshest fish available. Typical fresh fish on the menu include salmon, swordfish, catfish, ahi tuna, petrale sole, pacific red snapper, halibut and mahi-mahi. Gladstone’s menu also includes a large number of salads, pasta dishes and sandwiches in addition to its extensive fresh fish and shellfish items.

Sandwich and salad prices begin at $9.99, with dinner entrees beginning at $17.45. A typical dinner entree includes soup or salad, hot sourdough bread, fresh vegetable and rice or potato. Gladstone’s average check, including beverages and desserts, is approximately $24.21. Gladstone’s portion sizes are very large and food that cannot be finished is wrapped in a gold foil animal “sculpture.” The gold foil, which is manufactured specially for Gladstone’s, is a signature element of the restaurant. Gladstone’s is also well known for the full barrels of peanuts that are always available free of charge to guests and free “mile-high” cake for all birthday and anniversary celebrations.

RJ’s — Beverly Hills. RJ’s is located at 252 N. Beverly Drive, Beverly Hills, California. RJ’s was opened in 1979 and emphasizes its extensive salad bar, barbecued ribs and chicken, library bar and antique ceiling fans to create an attractive, casual dining atmosphere in the heart of Beverly Hills. RJ’s is open for lunch and dinner from Monday through Saturday and dinner only on Sunday. The restaurant occupies approximately 7,500 square feet with seating capacity of approximately 260.

RJ’s menu specializes in classic American food. RJ’s signature items include barbecued beef and baby back pork ribs and a very extensive salad bar. RJ’s menu also includes a wide selection of sandwiches and salads. Sandwich and salad pricing begins at $8.75 with dinner entrees starting at $13.99. RJ’s average check is approximately $18.56. As with Gladstone’s, portion sizes are very generous and waitstaff are trained to wrap all leftovers in signature gold foil animal sculptures.

Restaurant Operations — Gladstone’s Concession Agreement

Sea View operates Gladstone’s pursuant to a 20-year concession agreement with the County of Los Angeles (“County”) that commenced November 1, 1997 (“Concession Agreement”) following the expiration of its prior agreement. During February 1999, the Concession Agreement was amended. The Concession Agreement, as amended, obligates Sea View to pay minimum annual rental payments of $1,750,000 to the County. Percentage rents based on 10% of food sales and 12% of the combined sales of alcoholic beverages, merchandise and parking lot revenue are payable to the extent that such percentage rents exceed the minimum annual rents. In addition to minimum annual rent and percentage rent, Sea View is required to pay “Supplemental Rent” to the County equal to the sum of $15,000 per year plus 1% of the excess of Gladstone’s gross annual revenues over $14,000,000. The Registrant records rent expense on a straight line basis over the life of the agreement. See Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The agreement also requires Sea View to post a letter of credit equal to three months minimum rent ($437,500) and to maintain certain net worth levels.

The terms of the Concession Agreement afford the County the opportunity to conduct a valuation of the Gladstone’s Pacific Palisades operations (“Concession”), at any time during the first 150 months of the Concession Agreement (commencing November 1, 1997) in the event of a sale of Gladstone’s or 100% of the stock of Sea View or the Registrant, or at any time between the beginning of the 79th month and the end of the 150th month of the Concession Agreement. If the County elects to conduct a valuation, Sea View must thereafter pay the greater of (1) the Supplemental Rent Payments, or (2) an amount determined by amortizing the greater of 5% of the gross Concession value or 20% of the net Concession value (as determined pursuant to the Concession Agreement), less the aggregate amount of Supplemental Rent Payments paid through the date of the valuation, using an interest rate of 9% and equal payments of principal and interest, over the remaining term of the Concession Agreement.

Restaurant Operations — Marketing

Both of the Registrant’s restaurants focus on the casual segment of the upper-end dinner house market. Management believes that its restaurants’ reputation, developed over many years, of providing guests with unique dining experience has been the most effective approach to attracting and retaining business. By focusing its resources on providing superior service and value, Gladstone’s and RJ’s have primarily relied on word of mouth to attract new business.

The restaurants have also developed unique promotions that are repeated on an annual basis. For example, both Gladstone’s and RJ’s have a special Christmas day promotion whereby each guest that dines in the restaurant on that day receives a gift certificate for the amount of their Christmas day food purchase. Additionally, Gladstone’s has developed promotions tied to specific products such as Sockeye Salmonfest during July and Lobsterfest in October. During these promotions, which have run for several years, Gladstone’s reduces menu prices and adds numerous daily menu specials related to the featured product. On a weekly basis, Gladstone’s features special lobster prices each Thursday and special crab prices each Friday. The Registrant uses print and radio advertising from time to time to support its promotions.

Gladstone’s also has developed other unique programs that are a key element of its marketing plan. Placemats used at each table are printed daily, allowing guests that have made a reservation to print a unique message such as welcoming a special friend, announcing the celebration of a birthday, anniversary or other special occasion. Guests are encouraged to take a placemat home as a reminder of their special experience at Gladstone’s. An electronic message board is located in the front of the restaurant that is also used to welcome guests with special messages. All special occasions are also celebrated with a free picture that is placed in a customized photo sleeve to serve as a reminder of the special experience at Gladstone’s.

Restaurant Operations — Purchasing

The Registrant’s senior management establishes general purchasing guidelines. The Registrant continuously seeks to obtain quality menu ingredients and other supplies from reliable sources at competitive prices. From time to time the Registrant will negotiate contract purchases to insure product availability and to reduce short-term exposure to price fluctuations. Management believes that all essential food and beverage products are available from several qualified suppliers.

Government Regulations

The Registrant is subject to various federal, state and local laws affecting its business. Each restaurant is subject to licensing and regulation by a number of governmental authorities, including alcoholic beverage control, and coastal development, health, safety and fire agencies. The Registrant has not experienced problems in obtaining or renewing required permits or licenses. The failure to receive or retain, or a delay in obtaining any significant license or permit could adversely impact the Registrant’s operations.

Alcoholic beverage control regulations require that each restaurant apply to a state authority for a license or permit to sell alcoholic beverages on the premises. Licenses must be renewed annually and may be revoked or suspended, for cause, at any time. Alcoholic beverage control regulations relate to numerous aspects of the daily operation of each restaurant, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing and storage and dispensing of alcoholic beverages. Failure by the Registrant to retain its liquor license could adversely impact the Registrant’s operations.

Various federal and state labor laws govern the Registrant’s relationship with its employees, including such matters as minimum wage requirements, overtime and other working conditions. Significant additional increases in minimum wage, mandated paid leaves of absence or mandated universal health benefits could adversely impact the Registrant.

License Agreement

Gladstone’s/Universal City — In 1992 the Registrant entered into a license agreement with MCA Development Venture Two (“MCADVT”), an affiliate of Universal Studios, Inc., which permits MCADVT to use the Gladstone’s 4 Fish name and trademarks at a restaurant in their CityWalk development located in Universal City, California in exchange for a license fee of .8% of the restaurant’s gross receipts during such use. The Gladstone’s 4 Fish restaurant at CityWalk opened in May 1993. Fees received pursuant to this agreement during fiscal 2001, 2000, and 1999 were approximately $74,000, $66,000,and $71,000, respectively.

Trademarks

The Registrant and/or Sea View has registered several of its marks relating to the operation of Gladstone’s and R.J.’s as trademarks and service marks and regards such marks as having significant value and as being an important factor in the marketing of its restaurants.

Competition

The Registrant’s restaurants compete with a wide variety of restaurants, ranging from national and regional restaurant chains to locally owned restaurants. Restaurants historically have represented a high-risk investment in a very competitive industry. Many of the Registrant’s competitors have significantly greater financial resources than the Registrant. The restaurant business is often affected by changes in consumer tastes and discretionary spending patterns, national and regional economic conditions, demographic trends, consumer confidence in the economy, traffic patterns and the type, number and location of competing restaurants. Any change in these factors could adversely impact the Registrant. Management believes that the Registrant’s restaurants are comparable in quality, and in many cases superior, to competing restaurants. There is no assurance that the Registrant’s restaurants will be able to compete successfully with other restaurants in their respective areas.

Employees

The Registrant has approximately 260 employees in restaurant operations. The Registrant believes that its working conditions and compensation packages are competitive with those offered by its competitors and considers relations with its employees to be good.

Seasonality

The Registrant’s restaurant business is seasonal due to Gladstone’s location on the beach in Pacific Palisades, California. As a result, sales and operating profits are higher during the summer months.

Item 2 PROPERTIES

Gladstone’s Lease. The current concession agreement for the restaurant provides for rent based on 10% of sales of food and non-alcoholic beverages and 12% of the sales of alcoholic beverages, merchandise, and parking lot revenue, with an annual minimum rent of $1,750,000 and annual supplemental rent of $15,000 plus 1% of Gladstone’s Pacific Palisades annual gross revenue in excess of $14,000,000, and 1% of parking lot revenue in

excess of $680,000. Rent paid under the current restaurant lease for fiscal 2001 was approximately $1,765,000, representing approximately 14.3% of the restaurant’s sales.

R.J.’s Lease. In December 1994, the Registrant negotiated an amended and restated lease for RJ’s. The amended lease expires in December 2004 subject to a non-guaranteed extension period of five years. The amended lease provides for monthly rental payments of $13,034 through December 2000. In January 2001 it was adjusted to monthly lease payments of $14,028 based on Consumer Price Index changes. Rent paid in fiscal, 2001 was $161,376.

Executive Office. The Registrant occupies approximately 2,000 square feet of office space in Pacific Palisades, pursuant to a lease that expires in September 2002 and provides for current monthly rental payments of approximately $4,069. The lease agreement includes an option to extend the term of the lease for an additional five years.

Item 3 LEGAL PROCEEDINGS

The Registrant is involved in litigation and threatened litigation arising in the ordinary course of business. Management of the Registrant does not believe that resolution of any such matters will have a material adverse effect on its business.

Item 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Registrant’s stockholders during the fourth quarter of the fiscal year ended April 30, 2001.

PART II

Item 5 MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The shares of Registrant’s common stock are listed on the OTC Bulletin Board under the symbol “CBHR”.

Market price information for the Registrant’s common stock listed below is taken from the OTC Bulletin Board.


	Bid Price

	High		Low

Fiscal 2000




First Quarter		.05		.05




Second Quarter		2.00		.05




Third Quarter		2.00		.05




Fourth Quarter		6.00		.05




Fiscal 2001




First Quarter		4.00		.13




Second Quarter		3.00		.28




Third Quarter		.88		.25




Fourth Quarter		.31		.31


	Bid Price

	High		Low





Fiscal 2002




First Quarter (through 7/15/01)		.25		.20

At July 20, 2001, the Registrant had approximately 870 shareholders of record.

Convertible Notes On March 30, 1999, the Registrant completed a private offering of $1,800,000 of subordinated, convertible notes (“Subordinated Notes”) to a limited number of existing shareholders of the Registrant who are “accredited investors” within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended. The proceeds of the offering were used to retire existing indebtedness to Outside LLC (as defined herein), and to finance the renovations at Gladstone’s. The Subordinated Notes are immediately convertible into common stock of the Registrant at a rate of $1 per share, and pay interest at 5% per annum. The Registrant may pay interest on the Subordinated Notes in cash or in kind. All interest due as of March 30, 2001 was paid in kind by issuing a note with identical terms to the Subordinated Notes. The Subordinated Notes mature on March 30, 2003; however, the holders of the Subordinated Notes may elect to receive payment for fifty percent of the outstanding Subordinated Notes on March 30, 2002 to the extent debt outstanding to Lyon Credit Corporation (Senior Debt) has been paid in full. The payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation.

Dividends The Registrant has not paid a dividend on its common stock since fiscal 1985. The Registrant presently intends to retain any earnings to repay indebtedness and finance its operations and does not anticipate declaring cash dividends in the foreseeable future.

Item 6 SELECTED FINANCIAL DATA

The following table sets forth the selected financial data and operating data for the five years ended April 30, 2001 and is derived from the audited consolidated financial statements of the Registrant. The consolidated financial data in the following table is qualified in its entirety by, and should be read in conjunction with, the consolidated financial statements and notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and other financial and statistical information included elsewhere in this Form 10-K.


			Years ended April 30,

			2001			2000			1999			1998			1997

			(in thousands, except per share amounts)
Income Statement Data:




	Sales		$	14,021		$	13,382		$	13,687		$	14,162		$	15,164




	Net Income (loss)			(127	)		(921	)		(680	)		(1,420	)		327




	Net Income (loss) per common share:




		Basic		(.04	)		(.27	)		(.20	)		(.42	)		.10




		Diluted		(.04	)		(.27	)		(.20	)		(.42	)		.10




Balance Sheet Data:


	Years ended April 30,

	2001		2000		1999		1998		1997

	(in thousands, except per share amounts)




Total assets	$	3,722	$	3,820	$	4,576	$	3,321	$	5,078




Long-term debt, net of current portion	$	2,475	$	2,600	$	2,499		—		—

Item 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Introduction

The Registrant currently has operations in one business segment, the ownership and operation of restaurants. The Registrant’s restaurant operations are conducted through its wholly owned subsidiary, Sea View. Sea View’s fiscal year is the 52 or 53 week period ending on the Thursday closest to April 30. The fiscal year 2001 contained 53 weeks, and fiscal 2000 and 1999 each contained 52 weeks.

The Registrant completed the construction of substantial improvements to its Gladstone’s restaurant in October 1999. The improvements have enhanced the dining accommodations available to Gladstone’s patrons. Construction of the improvements to Gladstone’s was performed while the restaurant remained open to the public; however, substantial, although temporary, declines in seating capacity attributable to such construction adversely affected sales during the first and second quarters of 2000.

Restaurant Operations

Restaurant operations include the results of Gladstone’s 4 Fish in Pacific Palisades, California, and RJ’s — Beverly Hills in Beverly Hills, California.

Total sales for the fiscal year ended April 30, 2001 were $14,021,000, an increase of $639,000 or 4.8% as compared to the year ended April 30, 2000. The Registrant’s Gladstone’s 4 Fish restaurant is located on the beach in Pacific Palisades, California and is dependent, to a certain extent, on favorable weather and tourism. Gladstone’s has a large outside deck overlooking the Pacific ocean, which is a very popular destination, but is only open as weather permits. Gladstone’s 4 Fish fiscal 2001 revenues were adversely affected by the inclement weather conditions in fourth quarter of fiscal 2001. The 1999 remodel caused a temporary reduction in seating capacity and a commensurate reduction in revenue in the first two quarters of fiscal 2000. The summer months typically result in higher sales due to Gladstone’s location on the beach.

Total sales for the fiscal year ended April 30, 2000 were $13,382,000, a decrease of $305,000 or 2.2% as compared to the year ended April 30, 1999. Gladstone’s 4 Fish revenues were adversely affected during the first quarter of fiscal 1999 by inclement weather and road closures resulting from the “El Nino” storms. Additionally, during the fourth Quarter of fiscal 1999, the Registrant commenced construction of improvements to Gladstone’s causing a temporary reduction in seating capacity and a commensurate decrease in revenue. The above construction was also the main cause of the reduction in fiscal 2000 revenue for the first two quarters which are typically the highest volume of business.

In May 1993, MCA Development, Inc.(“MCAD”) opened a Gladstone’s 4 Fish at its Citywalk project in Universal City, California pursuant to a license agreement between the Registrant and a subsidiary of MCAD. License fees for the fiscal years ended April 30, 2001, 2000 and 1999 were $74,000, $66,000 and $71,000, respectively.

Cost of Goods Sold

Cost of goods sold includes all food, beverages, liquor, direct labor and other operating expenses, including rent, of the Registrant’s restaurant operations. Cost of goods sold, as a percentage of sales, for the fiscal year ended April 30, 2001 was 89.2% compared to 88.9% for fiscal 2000 and 87.1% for fiscal 1999.

The cost of goods sold was $12,504,000 in fiscal 2001 as compared to $11,896,000 in fiscal 2000, an increase of $608,000 or 5.1%. The increase in cost of goods sold in fiscal 2001, as compared to fiscal 2000, as a percentage of sales, is the result of increased operating costs incurred during fiscal 2001, primarily related to increased labor costs resulting from the minimum wage increase effective January 1, 2001. Additional increases included management labor, worker’s compensation, payroll taxes, management bonus, and group medical insurance. Other costs effected were repair and maintenance, and utilities. Gladstone’s rent expense for the fiscal year ended April 30, 2001 was $1,744,000 as compared to $1,728,000 for the fiscal year ended April 30, 2000.

Cost of goods sold was $11,896,000 in fiscal 2000 as compared to $11,928,000 in fiscal 1999, a decrease of $32,000 or 0.3%. Cost of goods sold, as a percentage of sales, for the fiscal year ended April 30, 2000 was 88.9% compared to 87.1% for fiscal 1999. The Registrant’s concerted effort to reduce costs resulted in the decline in the amount of cost of goods sold, as a percentage of sales, in fiscal 2000, as compared to fiscal 1999.

Selling, General and Administrative Expenses

Selling, general and administrative expense for the year ended April 30, 2001, was $895,000 compared to $950,000 for the year ended April 30, 2000. As a percentage of sales selling, general and administrative expense was 6.4% for fiscal 2001, compared to 7.1% for fiscal 2000.

Selling, general and administrative expense for the year ended April 30, 2001 decreased $55,000 or 5.8% as compared with the year ended April 30, 2000. The decrease is due to the Registrant’s continuing efforts to reduce such expenses, as well as combining Chief Financial Officer and Chief Executive Officer positions in April of 2000.

Selling, general and administrative expense for the year ended April 30, 2000, was $950,000 compared to $956,000 for the year ended April 30, 1999. As a percentage of sales selling, general and administrative expense was 7.1% for fiscal 2000,compared to 7.0% for fiscal 1999.

Legal and Litigation Settlement

Legal and litigation settlement expenses for the year ended April 30, 2001 increased by $68,000 or 90.1% as compared with the year ended April 30, 2000. The increase was associated with a general increase in outstanding legal matters.

Legal and litigation settlement expenses for the year ended April 30, 2000 decreased by $29,000, or 27.9% as compared with the year ended April 30, 1999. The decrease is

attributable to the Registrant’s utilization of in-house counsel for representation in certain matters and management of external counsel in other matters.

Interest Expense

For the year ended April 30, 2001, the Registrant recorded interest expense of $173,000, net of interest income of $18,000. Interest expense was related primarily to the note payable with Lyon Credit, for the Gladstone’s remodel, and interest expense on the Subordinated convertible notes.

For the year ended April 30, 2000, the Registrant recorded interest expense of $282,000, net of interest income of $7,000, primarily related to the note payable with Lyon Credit, for the Gladstone’s remodel, and interest expense on the Subordinated convertible notes.

For the year ended April 30, 1999, the Registrant recorded interest expense of $303,000, net of interest income of $5,000, primarily related to the cost of maintaining the letter of credit required by the Concession Agreement and to the cost of the registrant’s revolving line of credit.

Depreciation/Amortization Expense

For the years ended April 30, 2001, 2000 and 1999 depreciation expense was $426,000, $384,000 and $362,000, respectively. During the year ended April 30, 2000, the Registrant placed $1,507,000 of assets that were classified as construction in progress at April 30, 1999 into service, and also purchased an additional $1,332,000 of fixed assets, resulting in an increase in depreciation expense over prior years. This also resulted in increased depreciation during 2001. The assets placed in service pertain to the renovation of the Gladstone’s location completed in July of 1999. Amortization expense relates completely to the Registrant’s Goodwill and other intangible assets and approximated $714,000 per year for fiscal 2000 and fiscal 1999. In April of fiscal 2000 goodwill was fully amortized.

Income Tax Provision

For the year ended April 30, 2001, 2000 and 1999 the Registrant recorded income tax expense of $3,000, $2,000 and $2,000, respectively.

Liquidity and Capital Resources

On March 30, 1999, the Registrant completed a private offering of $1,800,000 of subordinated, convertible notes (“Subordinated Notes”) to a limited number of existing shareholders of the Registrant who are “accredited investors” within the meaning of Regulation D promulgated under the Securities Act of 1933, as amended. The proceeds of the offering were used to retire existing indebtedness to Outside LLC, an entity affiliated with one of the Company’s directors and principal shareholders, and to finance the renovations at Gladstone’s. The Subordinated Notes are immediately convertible into common stock of the Registrant at a rate of $1 per share, and pay interest at 5% per annum. The Registrant may pay interest on the Subordinated Notes in cash or in kind. The Subordinated Notes mature on March 30, 2003; provided, however, that the holders of the Subordinated Notes may elect to receive payment for fifty percent of the outstanding Subordinated Notes on March 30, 2002 to the extent debt outstanding to Lyon Credit Corporation has been paid in full. The

payment of the principal and interest on the Subordinated Notes is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation.

The Registrant has entered into an agreement for tenant improvement and equipment financing with Lyon Credit Corporation (“TI Facility”) of $1,089,000 to be repaid over a 5 year period with interest at the rate of 9.94%. At April 30, 2001, the balance due under the TI Facility was $792,000.

On June 16, 2000, the Company entered into a one year, $500,000 revolving line of credit agreement with U.S. Bank (formerly Santa Monica Bank). The agreement provides for interest at prime plus 1% on all amounts borrowed, requires a commitment fee of 1/2 %, and is secured by certain assets of the Company, including its license agreement with MCA for use of the name Gladstone’s. It is also guaranteed by Sea View. The agreement requires the Company to comply with certain cash flow and liquidity covenants, and includes a 60 consecutive days out of debt requirement. The Company utilized $437,500 of the capacity of the revolving line of credit as collateral support for a letter of credit issued by U.S. Bank pursuant to the Concession Agreement. The letter of credit was to expire on July 6, 2001, and subsequently has been renewed until September 15, 2002.

On March 26, 2001, the Company and U.S. Bank amended the terms of the revolving line of credit agreement to provide for an increase of $200,000 from $500,000 to $700,000. The additional $200,000 of available borrowing capacity will be available to the Company during the period November 1, 2000 through May 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. At April 30, 2001, $62,500 of borrowings were outstanding under the line of credit. The line of credit expires on September 15, 2002.

On October 23, 2000, the Registrant extended the terms of the agreement with Gladstone’s parking lot operator called Standard Parking for fixed term of two years, from January 1, 2001 through and including December 21, 2002. In addition, commencing in 2000 and during each year of the extended term of the agreement, upon request of the Registrant, the parking lot operator shall loan (“Annual Loan”) to the Registrant an amount not to exceed $150,000 per year, to be paid back from parking lot income. The Annual Loan to Registrant shall not be advanced prior to November 1 nor later than December 31 of any calendar year. The Annual Loan to the Registrant, plus interest at the prime rate of interest as published in The Wall Street Journal as of the date the Annual Loan is made, shall be repaid to Standard Parking by July 31, of the calendar year immediately following the calendar year in which the loan is made. As of April 30, 2001 Registrant owed $120,000 to Standard Parking pursuant to the Annual Loan.

On March 22, 2000, Sea View entered into a four-month, $250,000 line of credit agreement with Space Partners, an entity affiliated with one of the Registrant’s principal stockholders and with a member of its board of directors. This agreement provided for interest of 10% on all amounts borrowed, required a commitment fee of $2,500 and was guaranteed by the Registrant. Interest expense associated with the agreement totaled $1,666 for fiscal year 2000. At April 30, 2000 the outstanding balance was $100,000 which was paid down in fiscal 2001. There were no borrowings in fiscal 2001 from Space Partners.

Capital expenditures for the years ended April 30, 2001, 2000, and 1999 totaled approximately $192,000, $1,332,000, and $1,498,000 respectively. The registrant has no significant commitments for capital expenditures in fiscal 2002.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for the historical information contained herein, certain statements in this Form 10-K, including statements in this Item and in “Business” are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievement of the Registrant, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the Registrant’s ability to secure adequate debt or equity financing in order to comply with the terms of the Concession Agreement; the Registrant’s ability to generate an operating profit based on the terms of the Concession Agreement; that its principal source of cash is funds generated from operations and outside financings; that restaurants historically have represented a high risk investment in a very competitive industry; general and local economic conditions, which can, among other things, impact tourism, consumer spending and restaurant revenues; weather and natural disasters, such as earthquakes and fires, which can impact sales at the Registrant’s restaurants; quality of management; changes in, or the failure to comply with, governmental regulations; unexpected increases in the cost of key food products, labor and other operating expenses in connection with the Registrant’s business; and other factors referenced in this Form 10-K and the Registrant’s other filings with the SEC.

Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

Item 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

CALIFORNIA BEACH RESTAURANTS, INC.

INDEX TO FINANCIAL STATEMENTS

Page

Report of Independent Auditors
15

Consolidated Balance Sheets — April 30, 2001 and 2000
16

Consolidated Statements of Operations for each of the three years in the period ended April 30, 2001
17

Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended April 30, 2001
18

Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001
19

Notes to Consolidated Financial Statements
20

All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, therefore, have been omitted.

Item 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

PART III

Item 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information concerning directors and executive officers is incorporated herein by reference from the sections entitled “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Registrant’s 2001 Proxy Statement, or if such Proxy Statement is not filed within 120 days of the Registrant’s fiscal year end, such information will be included in an amendment to this Form 10-K filed within such timeframe.

Item 11 EXECUTIVE COMPENSATION

Information concerning executive compensation is incorporated herein by reference from the section entitled “Executive Compensation” in the Registrant’s 2001 Proxy Statement, or if such Proxy Statement is not filed within 120 days of the Registrant’s fiscal year end, such information will be included in an amendment to this Form 10-K filed within such timeframe.

Item 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Registrant’s 2001 Proxy Statement, or if such Proxy Statement is not filed within 120 days of the Registrant’s fiscal year end, such information will be included in an amendment to this Form 10-K filed within such timeframe.

Item 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions is incorporated herein by reference from the section entitled “Certain Relationships and Related Transactions” in the Registrant’s 2001 Proxy Statement, or if such Proxy Statement is not filed within 120 days of the Registrant’s fiscal year end, such information will be included in an amendment to this Form 10-K filed within such timeframe.

PART IV

Item 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements


	Page No.

Report of Independent Auditors		15




Consolidated Balance Sheets — April 30, 2001 and 2000		16




Consolidated Statements of Operations for each of the three years in the period ended April 30, 2001		17




Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended April 30, 2001		18




Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001		19




Notes to Consolidated Financial Statements		20

(2) Financial Statement Schedules

(3) Exhibits

The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report on Form 10-K.

(b) Reports on Form 8-K

None

All exhibits required by Item 601 are listed on the accompanying Index to Exhibits described in (a) (3) above.

(d) Financial Statement Schedules

All of the financial statement schedules which are required by the regulations of the Securities and Exchange Commission are either inapplicable or are included as part of Item 8 herein.

Report of Independent Auditors

Board of Directors and Shareholders
California Beach Restaurants, Inc.

We have audited the accompanying consolidated balance sheets of California Beach Restaurants, Inc. and subsidiaries as of April 30, 2001 and 2000, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended April 30, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of California Beach Restaurants, Inc. and subsidiaries at April 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended April 30, 2001, in conformity with accounting principles generally accepted in the United States.


		/S/ ERNST & YOUNG LLP

Los Angeles, California
June 20, 2001

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Balance Sheets


		April 30

		2001			2000

Assets




Current assets:




	Cash	$	221,000		$	102,000




	Trade and other receivables		42,000			77,000




	Inventories		231,000			219,000




	Prepaid expenses		265,000			220,000

Total current assets			759,000			618,000




Fixed assets, net of accumulated depreciation and amortization			2,797,000			3,031,000








Other assets			166,000			171,000

Total assets		$	3,722,000		$	3,820,000

Liabilities and stockholders’ equity (deficit)




Current liabilities:




	Accounts payable	$	666,000		$	658,000




	Accrued liabilities		885,000			626,000




	Current portion of note payable		207,000			188,000




	Notes payable — related party		—			100,000




	Revolving line of credit — bank		63,000			--

Total current liabilities			1,821,000			1,572,000




Note payable, less current portion			585,000			800,000




Subordinated convertible notes			1,890,000			1,800,000




Deferred rent			361,000			383,000




Other liabilities			9,000			82,000




Stockholders’ equity (deficit):




	Preferred stock, no par value, authorized 1,818,755 shares, none issued and outstanding at April 30, 2001 and 2000		—			--




	Common stock, $.01 par value, authorized 25,000,000 shares, issued and outstanding 3,401,000 shares at April 30, 2001 and 2000		34,000			34,000




	Additional paid-in capital		13,175,000			13,175,000




	Accumulated deficit		(14,153,000	)		(14,026,000	)

Total stockholders’ equity (deficit)			(944,000	)		(817,000	)

Total liabilities and stockholders’ equity (deficit)		$	3,722,000		$	3,820,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Operations


		Year ended April 30

		2001			2000			1999

Sales		$	14,021,000		$	13,382,000		$	13,687,000




Costs and expenses:




	Cost of goods sold		12,504,000			11,896,000			11,928,000




	Selling, general and administrative		895,000			950,000			956,000




	Legal and litigation settlements		143,000			75,000			104,000




	Depreciation and amortization		426,000			384,000			362,000

			53,000			77,000			337,000




Other income (expenses):




	Interest expense, net		(173,000	)		(282,000	)		(303,000	)




	Amortization of intangible assets		(4,000	)		(714,000	)		(712,000	)

Loss before income taxes			(124,000	)		(919,000	)		(678,000	)




Income tax provision			3,000			2,000			2,000

Net Loss		$	(127,000	)	$	(921,000	)	$	(680,000	)

Net Loss per common share:




	Basic	$	(.04	)	$	(.27	)	$	(.20	)

	Diluted	$	(.04	)	$	(.27	)	$	(.20	)

Weighted average shares outstanding:




	Basic		3,401,000			3,401,000			3,401,000




	Diluted		3,401,000			3,401,000			3,401,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity (Deficit)


		Common Stock				Additional
						Paid-in		Accumulated
		Shares		Amount		Capital		Deficit			Total

Balance at April 30, 1998			3,401,000		34,000		13,175,000		(12,425,000	)		784,000




	Net loss		—		—		—		(680,000	)		(680,000	)

Balance at April 30, 1999			3,401,000		34,000		13,175,000		(13,105,000	)		104,000




	Net loss		—		—		—		(921,000	)		(921,000	)

Balance at April 30, 2000			3,401,000		34,000		13,175,000		(14,026,000	)		(817,000	)




	Net loss		—		—		—		(127,000	)		(127,000	)

Balance at April 30, 2001			3,401,000	$	34,000	$	13,175,000	$	(14,153,000	)	$	(944,000	)

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Consolidated Statements of Cash Flows


				Year ended April 30

				2001			2000			1999

Operating activities




Net loss				$	(127,000	)	$	(921,000	)	$	(680,000	)




Adjustments to reconcile net loss to cash provided by operations:




		Depreciation and amortization			430,000			1,098,000			1,074,000




		Changes in operating assets and liabilities:




			Trade and other receivables		35,000			(27,000	)		(11,000	)




			Inventories		(12,000	)		(8,000	)		(49,000	)




			Prepaid expenses		(45,000	)		90,000			11,000




			Accounts payable		8,000			371,000			(281,000	)




			Accrued liabilities		259,000			(395,000	)		126,000




			Deferred rent		(22,000	)		(22,000	)		198,000




			Other liabilities		(73,000	)		(55,000	)		(30,000	)

Net cash provided by operations					453,000			131,000			358,000




Investing activities




Additions to fixed assets					(192,000	)		(1,332,000	)		(1,498,000	)




(Increase) decrease in other assets					—			19,000			(16,000	)

Net cash used in investing activities					(192,000	)		(1,313,000	)		(1,514,000	)




Financing activities




Borrowings from subordinated notes and note payable					353,000			166,000			2,622,000




Principal payments on borrowings					(395,000	)		—			—




Borrowings from related party					—			200,000			300,000




Payment to related party					(100,000	)		(100,000	)		(1,000,000	)

Net cash (used in) provided by financing activities					(142,000	)		266,000			1,922,000





Net (decrease) increase in cash					119,000			(916,000	)		766,000




Cash at beginning of year					102,000			1,018,000			252,000





Cash at end of year				$	221,000		$	102,000		$	1,018,000

Supplemental disclosures of cash flow information




	Cash paid during the year for:




		Interest		$	98,000		$	284,000		$	292,000




		Income taxes		$	3,000			—		$	2,000

See accompanying notes.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

1. Summary of Significant Accounting Policies

Business

The Company has operations in one business segment, the ownership and management of two restaurants, Gladstone’s 4 Fish and RJ’s — Beverly Hills.

Fiscal Year

The Company’s restaurant operations are conducted through its wholly owned subsidiary, Sea View Restaurants, Inc. (Sea View). Sea View’s fiscal year is the 52 or 53 week period ending on the Thursday closest to April 30. The fiscal years ended on May 3, April 27, and April 29 for fiscal years 2001, 2000 and 1999, respectively. The fiscal year 2001 contained 53 weeks, and fiscal 2000 and 1999 each contained 52 weeks.

Consolidation

The consolidated financial statements of California Beach Restaurants, Inc. and subsidiaries include the accounts of the parent company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined principally by the first-in, first-out method. Inventories consist primarily of food, beverages and other restaurant supplies.

Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Impairment losses are recognized when the carrying amount of the asset exceeds the estimated fair value of the asset. At April 30, 2001 and 2000, the Company believes there has been no impairment of the value of such assets.

Financial Instruments

The carrying value of financial instruments such as cash, receivables, accounts payable and accrued liabilities approximates their fair values based on the short-term maturities of these instruments. The Company limits its exposure to credit loss by placing its cash with high credit quality financial institutions. The carrying value of debt instruments approximates its fair value based on references to similar instruments.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

1. Summary of Significant Accounting Policies (continued)

Fixed Assets

Fixed assets are stated at cost. Depreciation on furniture and equipment is computed by the straight-line method using lives ranging from 3 to 8 years. Leasehold improvements are amortized over the remaining terms of the leases (including options expected to be exercised) or the estimated lives of the improvements, principally 18 years, whichever is less.

Goodwill

Goodwill is stated at cost and was being amortized using the straight-line method over 10 years. In fiscal 2000, goodwill was fully amortized.

Income Taxes

The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are provided for the difference between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates and laws expected to be in effect when temporary differences are expected to reverse.

Restaurant and License Revenues

Revenues from the operation of the Company-owned restaurants are recognized when sales occur. License fees are based on the licensee restaurant’s gross receipts and are recorded by the Company in the period related restaurant’s revenues are earned. Fees received pursuant to this agreement during years ended April 30, 2001, 2000, and 1999 were $74,000, $66,000 and $71,000, respectively.

Advertising Costs

The Company expenses advertising costs as such costs are incurred. The Company expensed $55,000, $110,000 and $68,000 for the years ended April 30, 2001, 2000 and 1999, respectively, in connection with advertising.

Stock-Based Compensation

The Company accounts for stock-based awards to employees using the intrinsic value method as prescribed by Accounting Principles Board Opinion no. 25, “Accounting for Stock Issued to Employees”.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

1. Summary of Significant Accounting Policies (continued)

Basic and Diluted Loss per Common Share

The Company presents basic loss per common share and diluted loss per common share in accordance with Financial Accounting Standard Board No. 128, “Earnings Per Share.” Basic loss per common share includes only the weighted average shares outstanding and excludes the dilutive effect of options, warrants and convertible securities. For the years ended April 30, 2001, 2000, and 1999 basic and diluted loss per common share are the same due to the antidilutive effect of potential common stock equivalents.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions affecting the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

2. Fixed Assets

Details of fixed assets are as follows:


	April 30

	2001			2000

Leasehold improvements		4,664,000			4,580,000




Furniture and equipment		2,140,000			2,027,000

		6,804,000			6,607,000




Less accumulated depreciation and amortization		(4,007,000	)		(3,576,000	)

	$	2,797,000		$	3,031,000

3. Note Payable — Related Party

On March 22, 2000, Sea View entered into a four-month, $250,000 line of credit agreement with Space Partners, an entity affiliated with one of the Company’s principal stockholders and a member of its board of directors. This agreement provides for interest of 10% on all amounts borrowed, requires a commitment fee of $2,500 and is guaranteed by the Company .The entire borrowed amount was paid back in fiscal 2001 and there were no additional borrowings in fiscal 2001.

4. Debt

On March 30, 1999, the Company completed a $1,800,000 private offering of subordinated convertible notes due March 25, 2003 (Subordinated Notes). The Subordinated Notes were sold to certain existing stockholders. The Subordinated Notes bear interest at 5% per annum and are immediately convertible into common stock of the Company at a rate of $1 per share. Interest is payable in cash or in kind. The Subordinated Notes mature on March 30, 2003; provided,

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

4. Debt (continued)

however, that the holders of the Subordinated Notes may elect to receive payment for fifty percent of the outstanding Subordinated Notes on March 30, 2002 to the extent debt outstanding to Lyon Credit Corporation has been paid in full. The payment of the principal and interest on the Subordinated Note is junior and subordinate to the prior payment in full of all indebtedness of the Company to Lyon Credit Corporation. The table below reflects the payment of the Subordinated Notes in 2003, after repayment of Lyon Credit Corporation. The Subordinated Notes agreements limit indebtedness for borrowed money of the Company in excess of $4,000,000 until the Subordinated Notes are fully paid or converted.

In 1999, the Company entered into an agreement for tenant improvements and equipment financing with Lyon Credit Corporation for up to $1,089,000 in credit. The financing is to be repaid over a five year period with interest at the rate of yield to maturity of the five year treasury note plus 4% (effective rate of 9.94% at April 30, 2001). The financing is secured by certain tenant improvements and equipment. A total of $792,000 was outstanding under this financing as of April 30, 2001.

On June 16,2000 the Company entered into a one year, $500,000 revolving line of credit agreement with U. S. Bank. The agreement provides for interest at prime plus 1% on all amounts borrowed, requires a commitment fee of 1/2%, and is secured by certain assets of the Company, including its license agreement with MCA for use of the name Gladstone’s. The agreement is also guaranteed by Sea View. The agreement requires the Company to comply with certain cash flow and liquidity covenants, and includes a 60 consecutive days out of debt requirement and all covenants have been met. The Company utilized $437,500 of the capacity of the revolving line of credit as collateral support for a letter of credit issued by U.S. Bank pursuant to the Concession Agreement. At April 30, 2001, a total of $62,500 was outstanding in addition to the letter of credit. The letter of credit expires September 15, 2002.

On March 26, 2001, the Company and U.S. Bank amended the terms of the revolving line of credit agreement to provide for a $200,000 increase in the maximum amount of the line of the credit from $500,000 to $700,000. The additional $200,000 of available borrowing capacity will be available to the Company during the period November 1, 2000 through May 31, 2001 only, after which the line of credit will revert to its original $500,000 borrowing limit. At April 30, 2001, $62,500 of borrowings were outstanding under the line of credit. The line of credit expires on September 15, 2002.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

Maturities under existing financing agreements are as follows:


Year	Amount

2002	$	270,000




2003		2,118,000




2004		252,000




2005		105,000

	$	2,745,000

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

5. Income Taxes

The provision for income taxes consists of the following:


		Year ended April 30

		2001		2000		1999

Current:




	Federal	$	—	$	—	$	--




	State		3,000		2,000		2,000

		$	3,000	$	2,000	$	2,000

Deferred:




	Federal	$	—	$	—	$	—




	State		—		—		—

		$	—	$	—	$	—

As of April 30, 2000, the Company has available for federal income tax purposes net operating loss carryovers available to offset certain future taxable income of approximately $4,605,000 and state net operating loss carryovers of approximately $1,599,000 which expire at various dates from 2001 through 2020.

As a result of changes in control in prior years, net operating losses of approximately $3,740,000 that expire through 2010 are subject to certain restrictions, which limit their future use to approximately $277,000 per year. As a result of this limitation, approximately $693,000 of these net operating loss carryforwards may expire without any utilization.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

5. Income Taxes (continued)

The effective income tax rate on income (loss) varied from the statutory federal income tax rate as follows:


		2001			2000			1999

Statutory federal rate			(34.0	)%		(34.0	)%		(34.0	)%




Increase (decrease):




	State income taxes, net of federal tax benefit		.2			.2			.2




	Operating losses which resulted in no current federal tax benefit		33.8			33.8			33.8

Effective income tax rate			—	%		—	%		.1	%

As of April 30, 2001 and 2000, the tax effect of the net operating loss carryforwards and net deferred tax assets, for which a 100% valuation allowance has been provided and which have not been recognized in the financial statements, is as follows:


	2001			2000

Depreciation and amortization	$	720,000		$	711,000




Nondeductible accruals		81,000			70,000




Net operating loss carryforwards		1,602,000			1,579,000

Total deferred assets		2,403,000			2,360,000




Less valuation allowance		(2,403,000	)		(2,360,000	)

Net deferred assets	$	—		$	—

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

6. Stockholders’ Equity

Stock Options

The Omnibus Stock Plan, which received stockholder approval in April 1995, provides for the issuance of a maximum of 1,000,000 shares of common stock. The plan provides for the issuance of stock options, stock appreciation rights, restricted stock and other awards to participants as selected by the Stock Plan Committee of the board of directors, which administers the plan. Options granted pursuant to this plan have expiration dates, which do not exceed 10 years from the date of grant.

The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions: weighted-average risk-free interest rate of 6% for 2001, 2000 and 1999, dividend yields of 0% for 2001, 2000 and 1999, weighted-average volatility factors of the expected market price of the Company’s common stock of 6.8; and a weighted-average expected life of the option of ten years. The amortization of the fair value of options granted was immaterial for 2001, 2000 and 1999.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

6. Stockholders’ Equity (continued)

Stock Options (continued)

The following schedule summarizes the changes in stock options for the three years ended April 30, 2001 under the plans:


		Number of			Exercise		Weighted Average
		Options			Price		Exercise Price

Outstanding at April 30, 1998			572,000		$	.83	$	.83




	Granted		—			—		—




	Canceled		(135,000	)		.83		.83




	Exercised		—			—		—

Outstanding at April 30, 1999			437,000			.83		.83




	Granted		—			—		—




	Canceled		(50,000	)		.83		.83




	Exercised		—			—		—

Outstanding at April 30, 2000			387,000			.83		.83




	Granted		195,000			.90		.90




	Canceled		(10,000	)		.83		.83




	Exercised		—			—		--

Outstanding at April 30, 2001			572,000			—		.87

Exercisable at April 30, 2001			418,000

The weighted average remaining contractual life of these options is six years. The fair value of the options granted in fiscal year 2001 was determined to be $ 0.10.

Pursuant to an existing Registration Rights Agreement, if the Company registers any class of equity security under the Securities Act of 1933, certain investors with a certain minimum number of shares of the Company’s common stock, individually or in aggregate, can request that their shares be included in such registration.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

7. Loss per Common Share

A reconciliation of the numerator and denominator of basic earnings per share and diluted earnings per share is as follows:


			Year ended April 30

			2001			2000			1999

Basic and Diluted net loss per share computation:




	Numerator		$	(127,000	)	$	(921,000	)	$	(680,000	)




	Denominator:




		Weighted average common shares outstanding		3,401,000			3,401,000			3,401,000

	Total shares			3,401,000			3,401,000			3,401,000

	Basic and Diluted net loss per share		$	(.04	)	$	(.27	)	$	(.20	)

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

8. Commitments and Contingencies

Leases

The Company leases restaurant and office facilities under various noncancelable operating leases with remaining terms ranging from one to twenty years. The terms of certain of the leases require additional rental payments based on a percentage of the restaurants’ sales in excess of a minimum amount. Total amounts charged to rent expense under the Company’s operating leases for the three years ended April 30, 2001 are summarized below:


		2001		2000		1999

Restaurants:




	Fixed minimum rentals	$	1,875,000	$	1,849,000	$	1,851,000




	Percentage rentals		—		—		--




Other fixed minimum rentals			54,000		63,000		61,000





Total		$	1,929,000	$	1,912,000	$	1,912,000

On November 1, 1997, Sea View and the County of Los Angeles (County) executed a new 20-year concession agreement. The previous agreement expired on October 31, 1997. The agreement, as amended February 9, 1999, includes minimum annual rent payments of $1,750,000, an increase of approximately $600,000 over rents paid in fiscal 1997. Percentage rents based on 10% of food sales and 12% of the sales of alcoholic beverages, merchandise and parking lot revenues will be payable to the extent that percentage rents exceed the minimum annual rent. In addition, the agreement requires an annual supplemental rent payment of $15,000 plus 1% of Gladstone’s annual gross revenue in excess of $14,000,000. The agreement further required the expenditure of at least $2,700,000 for renovations to the restaurant facility by August 9, 1999. During the first two years of the agreement, minimum annual rent is reduced by $218,750 per year. Minimum annual rent will be adjusted every three years to 75% of average total rent paid per year for the prior three years, but in no event less than the current minimum rent. Minimum and percentage rent will be adjusted to fair market rental value after 10 years to the extent fair market rental value exceeds minimum and percentage rents.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

8. Commitments and Contingencies (continued)

Leases (continued)

The amended agreement also requires Sea View to post a letter of credit equal to three months minimum rent ($437,500) and maintenance of certain net worth levels, as defined. Initially, the Company posted the letter of credit by utilizing cash collateral provided by Overhead Partners, L.P. (Overhead), an entity affiliated with one of the Company’s principal stockholders and with a member of its board of directors. Since 1999, the Company has been using U.S. Bank to provide for letter of credit agreement and used them for business banking needs starting fiscal 2001.

The agreement also provides, in certain circumstances, approval rights to the County in the event transactions constituting a Change in Ownership or Financing Event, as such terms are defined in the agreement, occur. These provisions may adversely affect the Company’s ability to engage in such transactions.

The parking lot for the Company’s Gladstone’s 4 Fish restaurant is operated by a parking operator pursuant to a management agreement. The Company receives all revenues and pays all operating expenses under this arrangement. During fiscal 2001, 2000 and 1999, the Company received $161,000, $147,000 and $185,000, respectively, pursuant to this arrangement, net of all expenses (except rent). These amounts have been recorded as a reduction to cost of goods sold.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

8. Commitments and Contingencies (continued)

Leases (continued)

Aggregate minimum annual rental commitments at April 30, 2001 were as follows:


Year Ending April 30, 2002		$	1,978,000




	2003		1,952,000




	2004		1,933,000




	2005		1,906,000




	2006		1,765,000




	Thereafter		20,298,000

		$	29,832,000

Employment Agreements

Effective November 4, 1997, the Company entered into an employment agreement with the Company’s Chief Executive Officer. The agreement sets forth certain of the terms of employment, including the right to receive 12 months of salary as severance pay upon (i) termination of employment without cause (as defined in the agreements) or (ii) resignation for good reason (as defined in the agreements). The term of the agreement is three years and provides for a current base salary of $159,000 subject to annual cost of living adjustments.

Effective March 6, 2000, the Company entered into an employment agreement with the Company’s Chief Operating Officer. The agreement sets forth certain of the terms of employment, including current base salary of $115,000 and the right to receive 6 months salary as severance pay upon (i) termination of employment without cause (as defined in the agreements) or (ii) resignation for good reason (as defined in the agreements).

Litigation

The Company is involved in litigation and threatened litigation arising in the ordinary course of business. However, it is the opinion of management that these actions, when finally concluded, will not have a material adverse effect upon the financial position, results of operations or cash flows of the Company.

California Beach Restaurants, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

April 30, 2001

9. Quarterly Results of Operations (Unaudited)

The following is a summary of the quarterly results of operations for the years ended April 30, 2001, 2000 and 1999:


		Quarter Ended												Year
														Ended
		July 31			Oct. 31			Jan. 31			April 30			April 30

		(in thousands, except per share data)
2001




Sales		$	3,905		$	3,709		$	3,346		$	3,061		$	14,021




Operating Income (loss)		$	299		$	212		$	(335	)	$	(123	)	$	53




Net Income (Loss)		$	243		$	161		$	(386	)	$	(145	)	$	(127	)




Net Income (Loss) per common share:




	Basic	$	0.07		$	0.05		$	(0.11	)	$	(0.05	)	$	(0.04	)




	Diluted	$	0.07		$	0.03		$	(0.11	)	$	(0.05	)	$	(0.04	)




Weighted avg. shares outstanding:




	Basic		3,401			3,401			3,401			3,401			3,401




	Diluted		3,401			5,201			3,401			3,401			3,401




2000




Sales		$	3,140		$	3,523		$	3,595		$	3,124		$	13,382




Operating Income (Loss)		$	92		$	133		$	(272	)	$	124		$	77




Net Income (Loss)		$	(160	)	$	(116	)	$	(539	)	$	(106	)	$	(921	)




Net Income (Loss) per common share:




	Basic	$	(0.05	)	$	(0.03	)	$	(0.16	)	$	(0.03	)	$	(0.27	)




	Diluted	$	(0.05	)	$	(0.03	)	$	(0.16	)	$	(0.03	)	$	(0.27	)




Weighted avg. shares outstanding:




	Basic		3,401			3,401			3,401			3,401			3,401




	Diluted		3,401			3,401			3,401			3,401			3,401




1999




Sales		$	3,554		$	3,584		$	3,475		$	3,074		$	13,687




Operating Income (Loss)		$	281		$	308		$	(270	)	$	18		$	337




Net Income (Loss)		$	85		$	69		$	(569	)	$	(265	)	$	(680	)




Net Income (Loss) per common share:




	Basic	$	0.03		$	0.02		$	(0.17	)	$	(0.08	)	$	(0.20	)




	Diluted	$	0.03		$	0.02		$	(0.17	)	$	(0.08	)	$	(0.20	)




Weighted avg. shares outstanding:




	Basic		3,401			3,401			3,401			3,401			3,401




	Diluted		3,401			3,401			3,401			3,401			3,401

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has caused this report to be signed on its behalf by the undersigned, thereunto authorized in the City of Los Angeles, in the State of California, on July 28, 2000.


		CALIFORNIA BEACH RESTAURANTS, INC.





		By:		/s/ Alan Redhead

				Alan Redhead, Chief Executive Officer

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.

Signature Title Date

/s/ Alan Redhead
Alan Redhead Chairman of the Board Chief Executive Officer, Director, and Chief Financial Officer July 27, 2001

/s/ J. Christopher Lewis
J. Christopher Lewis Director July 27, 2001

/s/ Jefferson W. Asher, Jr.
Jefferson W. Asher, Jr. Director July 27, 2001

/s/ Richard P. Bermingham
Richard P. Bermingham Director July 27, 2001

/s/ Robert L. Morrison
Robert L. Morrison Director July 27, 2001

INDEX TO EXHIBITS

Item 14(a) 3

Item Method of

Number Description Filing

3.1 Restated Articles of Incorporation of California Beach Restaurants, Inc., as amended to date, including Certificate of Determination of Rights and Preferences of Series A Convertible Preferred Stock (15)

3.2 By-Laws, as amended to-date (15)

10.10 Registration Rights Agreement dated as of March 30, 1990 between I.H.V. Corp., Robert J. Morris, Richard S. Stevens, California Beach Capital, Inc. and certain investors. (4)

10.13 Amended and Restated Concession Agreement No. 31923 for Will Rogers State Beach Park Restaurant dated April 2, 1981, as amended (Gladstone’s restaurant lease). (5)

10.14 Concession Agreement No. 45334 for the Operation and Maintenance of Parking Lot 4 at Will Rogers State Beach Park dated August 23, 1983, as amended (Gladstone’s parking lot lease). (5)

10.18 Amendment to Registration Rights Agreement dated as of February 25, 1991 among Registrant, California Beach Capital, Inc., Robert J. Morris, Richard S. Stevens, Sand and Sea Partners, Sea Fair Partners, W.R. Grace & Co., Eli Broad, Cushman/Sea View Partners and Cushman K/Sea View Partners. (19)

10.24 License Agreement, dated April 21, 1992, between Sea View Restaurants, Inc. and MCA Development Venture Two. (9)

10.26 Indemnification agreement dated as of October 7, 1992 between the Registrant and Alan Redhead(10)

10.27 Indemnification agreement dated as of October 7, 1992 between the Registrant and Mark E. Segal(10)

10.28 Indemnification agreement dated as of October 7, 1992 between the Registrant and J. Christopher Lewis(10)

10.30 Indemnification agreement dated November 23, 1992 between the Registrant and Jefferson W. Asher, Jr.(10)

10.31 Amendment number 6 to concession agreement number 31923 for Will Rogers State Beach Park Restaurant(10)

10.32 Executive employment agreement dated as of May 21, 1993 between the Registrant and Alan Redhead(10)*


Item		Method of
Number	Description	Filing





10.33	Executive employment agreement dated as of May 21, 1993 between the Registrant and Mark E. Segal(10)*




10.40	Amended and Restated Loan Agreement dated as of December 22, 1994 between Sea View Restaurants, Inc. and Bank of America NT &SA(13)




10.41	Guarantor Confirmation and Amendment dated December 22, 1994 between California Beach Restaurants, Inc. and Bank of America NT & SA(13)




10.42	Stock Purchase Agreement dated December 22, 1994 between California Beach Restaurants, Inc. and Bank of America NT & SA(13)




10.43	Shareholders and Noteholders Agreement dated as of December 22, 1994 among Sand and Sea Partners, Sea Fair Partners and Bank of America NT & SA(13)




10.45	Securities Purchase Agreement dated December 22, 1994 between California Beach Restaurants, Inc. and the purchasers named therein(13)




10.47	California Beach Restaurants, Inc. Omnibus Stock Plan*




10.49	Amended and Restated lease for RJ’s dated January 1, 1995 (15)




10.50	Stock Option Agreement between the Registrant and Alan Redhead dated March 13, 1995 (15)*




10.51	Stock Option Agreement between the Registrant and Mark E. Segal dated March 13, 1995 (15)*




10.52	Stock Option Agreement between the Registrant and Jefferson W. Asher, Jr. dated March 13, 1995 (15)*




10.53	First Amendment to Amended and Restated Loan Agreement dated as of August 1, 1995, between Sea View Restaurants, Inc. and Bank of America NT & SA (16)




10.54	Amendment to Stock Purchase Agreement dated as of August 1, 1995 between the Registrant and Bank of America NT & SA (16)




10.55	Amendment No. 1 to executive employment agreement of Mark E. Segal, dated April 30, 1996 (17) *




10.56	Commitment Letter — Finova Capital Corporation re: $3,000,000 Secured Credit Facility (18)




10.57	Concession Agreement dated as of November 1, 1997 by and between County of Los Angeles and Sea View Restaurants, Inc. (20)




10.58	Non Disturbance and Attornment Agreement dated September 26, 1997 by and Between the State of California Department of Parks and Recreation and Sea View Restaurants, Inc. (20)




10.59	Letter of Credit Agreement dated as of November 1, 1997 by and between California Beach Restaurants, Inc., Sea View Restaurants, Inc. and Overhead Partners, L.P., a California Limited Partnership. (20)


Item		Method of
Number	Description	Filing





10.60	Line of Credit Agreement dated as of November 24, 1997 by and between Outside LLC, a California Limited Liability Company and Sea View Restaurants, Inc., with guaranty by California Beach Restaurants, Inc. (20)




10.61	Executive employment agreement dated as of November 14, 1997 between the Registrant and Alan Redhead. (21) *




10.62	Assignment of trademarks, service marks and registrations thereof, between Sea View Restaurants, Inc., and the Registrant, dated October 30, 1997. (22)




10.63	Non-exclusive royalty free license agreement, between the Registrant and Sea View Restaurants, Inc., dated October 30, 1997. (22)




10.64	Letter of Credit Agreement, dated as of July 22, 1998, by and between California Beach Restaurants, Inc., Sea View Restaurants, Inc., and Overhead Partners L.P., a California Limited Partnership (23)




10.65	Letter of Credit Agreement, dated as of November 1, 1998, by and between California Beach Restaurants, Inc., Sea View Restaurants, Inc., and Overhead Partners L.P., a California Limited Partnership (24)




10.66	Line of Credit Agreement, dated as of November 30, 1998, by and between Sea Sea View Restaurants, Inc., and Outside LLC, a California Limited Liability Company (24)




10.67	First Amendment to Concession Agreement For Will Rogers State Beach Park Restaurant, by and between the County of Los Angeles, and Sea View Restaurants, Dated February 9, 1999 (25)




10.68	Note Purchase Agreement among the Registrant and certain other purchasers, dated as of March 30, 1999, including Exhibit A thereto, the 5% Convertible Subordinated Note Due March 30, 2003.(26)




10.69	Note Agreement, between California Beach Restaurants, Inc., Sea View Restaurants, Inc., and Lyon Credit Corporation and related documents. (27)




10.70	Revolving line of credit agreement between California Beach Restaurants, Inc., Sea View Restaurants, Inc.,and U.S. Bank (formerly Santa Monica Bank),dated July 7, 1999. (27)




10.71	Standby letter of credit agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated July 9, 1999. (27)




10.72	Change in Terms Agreement, dated as of September 30, 1999, Between California Beach Restaurants, Inc. and U.S. Bank and Related Documents. (28)




10.73	Line of Credit agreement, dated as of March 22, 2000, by and between Sea View Restaurants, Inc., and Space Partners, a California general partnership.




10.74	Executive employment agreement dated as of March 6, 2000 between the Registrant and Robert Kissinger.*


Item		Method of
Number	Description	Filing





10.75	Revolving line of credit agreement between California Beach Restaurants, Inc., Sea view Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated July 6, 2000.




10.76	Standby letter of credit agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated July 6, 2000.




10.77	Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated March 25, 2000.




10.78	Amendment of Parking Management Agreement, dated as of October 23, 2000 between Seaview Restaurants, Inc., and Standard Parking, Inc.(29)




10.79	Revolving line of credit agreement between California Beach Restaurants, Inc., Sea view Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated June 22, 2001.(A)




10.80	Amendment to business loan agreement between California Beach Restaurants, Inc., and U.S. Bank (formerly Santa Monica Bank), Dated March 26, 2001.(A)




21.1	Subsidiaries of the Registrant (15)




23.1	Consent of Ernst & Young LLP (A)

(A)		Filed herewith electronically




(4)		Previously filed with Form 8-K filed April 27, 1990. **




(5)		Previously filed with Form 10-K for the fiscal year ended April 30, 1990. **




(7)		Previously filed with Form 10-Q for the quarter ended January 31, 1991. **




(9)		Previously filed with Form 8-K filed April 28, 1992. **




(10)		Previously filed with Form 10-K for the fiscal year ended April 30, 1993. **




(13)		Previously filed with Form 8-K filed January 18, 1995. **




(15)		Previously filed with Form 10-K for the fiscal year ended April 30, 1995. **




(16)		Previously filed with Form S-1 on August 4, 1995, Registration No. 33-95240. **




(17)		Previously filed with Form 10-K for the fiscal year ended April 30, 1996. **




(18)		Previously filed with Form 10-Q for the quarter ended January 31, 1997. **




(19)		Previously filed with Form 10-K for the fiscal year ended April 30, 1997.**




(20)		Previously filed with Form 10-Q for the quarter ended October 31, 1997.**




(21)		Previously filed with Form 10-Q for the quarter ended January 31, 1998.**




(22)		Previously filed with Form 10-K for the fiscal year ended April 30, 1998.**




(23)		Previously filed with Form 10-Q for the quarter ended July 31, 1998.**




(24)		Previously filed with Form 10-Q for the quarter ended October 31, 1998.**




(25)		Previously filed with Form 10-Q for the quarter ended January 31, 1999.**




(26)		Incorporated by reference to Amendment No. 1 to Schedule 13D filed with the Commission on April 16, 1999, on behalf of Alan Redhead.**




(27)		Previously filed with Form 10-Q for the quarter ended July 31, 1999 **




(28)		Previously filed with Form 10-Q for the quarter ended October 31, 1999 **




(29)		Previously filed with Form 10-Q for the quarter ended October 31, 2000 **




*		This is a management contract or compensatory plan or arrangement.




**		All filings were made at the Commission’s office in Washington D.C.; The Registrant’s SEC file number is 0-12226.

39 EX-10.79 3 v74381ex10-79.txt EXHIBIT 10.79 1 EXHIBIT 10.79 [US BANK LOGO] BUSINESS LOAN AGREEMENT
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials $500,000.00 06-22-2001 09-15-2002 2789-34 070 1105622447 R-B83 /s/[illegible] References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. Bank National Association 17383 SUNSET BOULEVARD, SUITE 140 15910 Ventura Boulevard PACIFIC PALISADES, CA 90272 Encino, CA 91438

THIS BUSINESS LOAN AGREEMENT BETWEEN CALIFORNIA BEACH RESTAURANTS, INC. ("BORROWER") AND U.S. BANK NATIONAL ASSOCIATION ("LENDER") IS MADE AND EXECUTED ON THE FOLLOWING TERMS AND CONDITIONS. BORROWER HAS RECEIVED PRIOR COMMERCIAL LOANS FROM LENDER OR HAS APPLIED TO LENDER FOR A COMMERCIAL LOAN OR LOANS AND OTHER FINANCIAL ACCOMMODATIONS, INCLUDING THOSE WHICH MAY BE DESCRIBED ON ANY EXHIBIT OR SCHEDULE ATTACHED TO THIS AGREEMENT. ALL SUCH LOANS AND FINANCIAL ACCOMMODATIONS, TOGETHER WITH ALL FUTURE LOANS AND FINANCIAL ACCOMMODATIONS FROM LENDER TO BORROWER, ARE REFERRED TO IN THIS AGREEMENT INDIVIDUALLY AS THE "LOAN" AND COLLECTIVELY AS THE "LOANS." BORROWER UNDERSTANDS AND AGREES THAT: (a) IN GRANTING, RENEWING, OR EXTENDING ANY LOAN, LENDER IS RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS, AS SET FORTH IN THIS AGREEMENT: (b) THE GRANTING, RENEWING, OR EXTENDING OF ANY LOAN BY LENDER AT ALL TIMES SHALL BE SUBJECT TO LENDER'S SOLE JUDGMENT AND DISCRETION; AND (c) ALL SUCH LOANS SHALL BE AND SHALL REMAIN SUBJECT TO THE FOLLOWING TERMS AND CONDITIONS OF THIS AGREEMENT. TERM. This Agreement shall be effective as of June 22, 2001, and shall continue thereafter until all Indebtedness of Borrower to Lender has been performed in full and the parties terminate the Agreement in writing. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Business Loan Agreement, as this Business Loan Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Business Loan Agreement from time to time. BORROWER. The word "Borrower" means CALIFORNIA BEACH RESTAURANTS, INC. The word "Borrower" also includes, as applicable, all subsidiaries and affiliates of Borrower as provided below in the paragraph titled "Subsidiaries and Affiliates." CERCLA. The word "CERCLA" means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended. CASH FLOW. The words "Cash Flow" mean net income after taxes, and exclusive of extraordinary gains and income, plus depreciation and amortization. COLLATERAL. The word "Collateral" means and includes without limitation all property and assets granted as collateral security for a Loan, whether real or personal property, whether granted directly or indirectly, whether granted now or in the future, and whether granted in the form of a security interest, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien, charge, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. DEBT. The word "Debt" means all of Borrower's liabilities excluding Subordinated Debt. ERISA. The word "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "EVENTS OF DEFAULT." GRANTOR. The word "Grantor" means and includes without limitation each and all of the persons or entities granting a Security Interest in any Collateral for the Indebtedness, including without limitation all Borrowers granting such a Security Interest. GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with any Indebtedness. INDEBTEDNESS. The word "Indebtedness" means and includes without limitation all Loans, together with all other obligations, debts and liabilities of Borrower to Lender, or any one or more of them, as well as all claims by Lender against Borrower, or any one or more of them; whether now or hereafter existing, voluntary or involuntary, due or not due, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as a guarantor, surety, or otherwise; whether recovery upon such Indebtedness may be or hereafter may become barred by any statute of limitations; and whether such Indebtedness may be or hereafter may become otherwise unenforceable. LENDER. The word "Lender" means U.S. Bank National Association, its successors and assigns. LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus Borrower's readily marketable securities. LOAN. The word "Loan" or "Loans" means and includes without limitation any and all commercial loans and financial accommodations from Lender to Borrower, whether now or hereafter existing, and however evidenced, including without limitation those loans and financial accommodations described herein or described on any exhibit or schedule attached to this Agreement from time to time. NOTE. The word "Note" means and includes without limitation Borrower's promissory note or notes, if any, evidencing Borrower's Loan obligations in favor of Lender, as well as any substitute, replacement or refinancing note or notes therefor. PERMITTED LIENS. The words "Permitted Liens" mean: (a) liens and security interests securing Indebtedness owed by Borrower to Lender; (b) liens for taxes, assessments, or similar charges either not yet due or being contested in good faith; (c) liens of materialmen, mechanics, warehousemen, or carriers, or other like liens arising in the ordinary course of business and securing obligations which are not yet delinquent; (d) purchase money liens or purchase money security interests upon or in any property acquired or held by Borrower in the ordinary course of business to secure Indebtedness outstanding on the date of this Agreement or permitted to be incurred under the paragraph of this Agreement titled "Indebtedness and Liens"; (e) liens and security interests which, as of the date of this Agreement, have been disclosed to and approved by the Lender in writing; and (f) those liens and security interests which in the aggregate constitute an immaterial and insignificant monetary amount with respect to the net value of Borrower's assets. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the Indebtedness. 2 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 2 LOAN NO 2789-34 (CONTINUED) ================================================================================ SECURITY AGREEMENT. The words "Security Agreement" mean and include without limitation any agreements, promises, covenants, arrangements, understandings or other agreements, whether created by law, contract, or otherwise, evidencing, governing, representing, or creating a Security Interest. SECURITY INTEREST. The words "Security Interest" mean and include without limitation any type of collateral security, whether in the form of a lien, charge, mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust, factor's lien, equipment trust, conditional sale, trust receipt, lien or title retention contract, lease or consignment intended as a security device, or any other security or lien interest whatsoever, whether created by law, contract, or otherwise. SARA. The word "SARA" means the Superfund Amendments and Reauthorization Act of 1986 as now or hereafter amended. SUBORDINATED DEBT. The words "Subordinated Debt" mean indebtedness and liabilities of Borrower which have been subordinated by written agreement to indebtedness owed by Borrower to Lender in form and substance acceptable to Lender. TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total assets excluding all intangible assets (i.e., goodwill, trademarks, patents, copyrights, organizational expenses, and similar intangible items, but including leaseholds and leasehold improvements) less total Debt. WORKING CAPITAL. The words "Working Capital" mean Borrower's current assets, excluding prepaid expenses, less Borrower's current liabilities. CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial Loan Advance and each subsequent Loan Advance under this Agreement shall be subject to the fulfillment to Lender's satisfaction of all of the conditions set forth in this Agreement and in the Related Documents. LOAN DOCUMENTS. Borrower shall provide to Lender in form satisfactory to Lender the following documents for the Loan: (a) the Note, (b) Security Agreements granting to Lender security interests in the Collateral, (c) Financing Statements perfecting Lender's Security Interests; (d) evidence of insurance as required below; and (e) any other documents required under this Agreement or by Lender or its counsel, including without limitation any guaranties described below. BORROWER'S AUTHORIZATION. Borrower shall have provided in form and substance satisfactory to Lender properly certified resolutions, duly authorizing the execution and delivery of this Agreement, the Note and the Related Documents, and such other authorizations and other documents and instruments as Lender or its counsel, in their sole discretion, may require. PAYMENT OF FEES AND EXPENSES. Borrower shall have paid to Lender all fees, charges, and other expenses which are then due and payable as specified in this Agreement or any Related Document. REPRESENTATIONS AND WARRANTIES. The representations and warranties set forth in this Agreement, in the Related Documents, and in any document or certificate delivered to Lender under this Agreement are true and correct. NO EVENT OF DEFAULT. There shall not exist at the time of any advance a condition which would constitute an Event of Default under this Agreement. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as of the date of this Agreement, as of the date of each disbursement of Loan proceeds, as of the date of any renewal, extension or modification of any Loan, and at all times any indebtedness exists: ORGANIZATION. Borrower is a corporation which is duly organized, validly existing, and in good standing under the laws of the state of Borrower's incorporation and is validly existing and in good standing in all states in which Borrower is doing business. Borrower has the full power and authority to own its properties and to transact the businesses in which it is presently engaged or presently proposes to engage. Borrower also is duly qualified as a foreign corporation and is in good standing in all states in which the failure to so qualify would have a material adverse effect on its businesses or financial condition. AUTHORIZATION. The execution, delivery, and performance of this Agreement and all Related Documents by Borrower, to the extent to be executed, delivered or performed by Borrower, have been duly authorized by all necessary action by Borrower, do not require the consent or approval of any other person, regulatory authority or governmental body; and do not conflict with, result in a violation of, or constitute a default under (a) any provision of its articles of incorporation or organization, or bylaws, or any agreement or other instrument binding upon Borrower or (b) any law, governmental regulation, court decree, or order applicable to Borrower. FINANCIAL INFORMATION. Each financial statement of Borrower supplied to Lender truly and completely disclosed Borrower's financial condition as of the date of the statement, and there has been no material adverse change in Borrower's financial condition subsequent to the date of the most recent financial statement supplied to Lender. Borrower has no material contingent obligations except as disclosed in such financial statements. LEGAL EFFECT. This Agreement constitutes, and any instrument or agreement required hereunder to be given by Borrower when delivered will constitute, legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their respective terms. PROPERTIES. Except as contemplated by this Agreement or as previously disclosed in Borrower's financial statements or in writing to Lender and as accepted by Lender, and except for property tax liens for taxes not presently due and payable, Borrower owns and has good title to all of Borrower's properties free and clear of all Security interests, and has not executed any security documents or financing statements relating to such properties. All of Borrower's properties are titled in Borrower's legal name, and Borrower has not used, or filed a financing statement under, any other name for at least the last five (5) years. HAZARDOUS SUBSTANCES. The terms "hazardous waste," "hazardous substance," "disposal," "release," and "threatened release," as used in this Agreement, shall have the same meanings as set forth in the "CERCLA," "SARA," the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. Except as disclosed to and acknowledged by Lender in writing, Borrower represents and warrants that: (a) During the period of Borrower's ownership of the properties, there has been no use, generation, manufacture, storage, treatment, disposal, release or threatened release of any hazardous waste or substance by any person on, under, about or from any of the properties. (b) Borrower has no knowledge of, or reason to believe that there has been (i) any use, generation, manufacture, storage, treatment, disposal, release, or threatened release of any hazardous waste or substance on, under, about or from the properties by any prior owners or occupants of any of the properties, or (ii) any actual or threatened litigation or claims of any kind by any person relating to such matters. (c) Neither Borrower nor any tenant, contractor, agent or other authorized user of any of the properties shall use, generate, manufacture, store, treat, dispose of, or release any hazardous waste or substance on, under, about or from any of the properties; and any such activity shall be conducted in compliance with all applicable federal, state, and local laws, regulations, and ordinances, including without limitation those laws, regulations and ordinances described above. Borrower authorizes Lender and its agents to enter upon the properties to make such inspections and tests as Lender may deem appropriate to determine compliance of the properties with this section of the Agreement. Any inspections or tests made by Lender shall be at Borrower's expense and for Lender's purposes only and shall not be construed to create any responsibility or liability on the part of Lender to Borrower or to any other person. The representations and warranties contained herein are based on Borrower's due diligence in investigating the properties for hazardous waste and hazardous substances. Borrower hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and 3 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 3 LOAN NO 2789-34 (CONTINUED) =============================================================================== all claims, losses, liabilities, damages, penalties, and expenses which Lender may directly or indirectly sustain or suffer resulting from a breach of this section of the Agreement or as a consequence of any use, generation, manufacture, storage, disposal, release or threatened release of a hazardous waste or substance on the properties. The provisions of this section of the Agreement, including the obligation to indemnify, shall survive the payment of the indebtedness and the termination or expiration of this Agreement and shall not be affected by Lender's acquisition of any interest in any of the properties, whether by foreclosure or otherwise. LITIGATION AND CLAIMS. No litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against Borrower is pending or threatened, and no other event has occurred which may materially adversely affect Borrower's financial condition or properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by Lender in writing. TAXES. To the best of Borrower's knowledge, all tax returns and reports of Borrower that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being or to be contested by Borrower in good faith in the ordinary course of business and for which adequate reserves have been provided. LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing, Borrower has not entered into or granted any Security Agreements, or permitted the filing or attachment of any Security Interests on or affecting any of the Collateral directly or indirectly securing repayment of Borrower's Loan and Note, that would be prior or that may in any way be superior to Lender's Security Interests and rights in and to such Collateral. BINDING EFFECT. This Agreement, the Note, all Security Agreements directly or indirectly securing repayment of Borrower's Loan and Note and all of the Related Documents are binding upon Borrower as well as upon Borrower's successors, representatives and assigns, and are legally enforceable in accordance with their respective terms. COMMERCIAL PURPOSES. Borrower intends to use the Loan proceeds solely for business or commercial related purposes. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as to which Borrower may have any liability complies in all material respects with all applicable requirements of law and regulations, and (i) no Reportable Event nor Prohibited Transaction (as defined in ERISA) has occurred with respect to any such plan, (ii) Borrower has not withdrawn from any such plan or initiated steps to do so, (iii) no steps have been taken to terminate any such plan, and (iv) there are no unfunded liabilities other than those previously disclosed to Lender in writing. LOCATION OF BORROWER'S OFFICES AND RECORDS. Borrower's place of business, or Borrower's Chief executive office, if Borrower has more than one place of business, is located at 17383 SUNSET BOULEVARD, SUITE 140, PACIFIC PALISADES, CA 90272. Unless Borrower has designated otherwise in writing this location is also the office or offices where Borrower keeps its records concerning the Collateral. INFORMATION. All information heretofore or contemporaneously herewith furnished by Borrower to Lender for the purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all information hereafter furnished by or on behalf of Borrower to Lender will be, true and accurate in every material respect on the date as of which such information is dated or certified; and none of such information is or will be incomplete by omitting to state any material fact necessary to make such information not misleading. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Borrower understands and agrees that Lender, without independent investigation, is relying upon the above representations and warranties in extending Loan Advances to Borrower. Borrower further agrees that the foregoing representations and warranties shall be continuing in nature and shall remain in full force and effect until such time as Borrower's indebtedness shall be paid in full, or until this Agreement shall be terminated in the manner provided above, whichever is the last to occur. AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while this Agreement is in effect, Borrower will: LITIGATION. Promptly inform Lender in writing of (a) all material adverse changes in Borrower's financial condition, and (b) all existing and all threatened litigation, claims, investigations, administrative proceedings or similar actions affecting Borrower or any Guarantor which could materially affect the financial condition of Borrower or the financial condition of any Guarantor. FINANCIAL RECORDS. Maintain its books and records in accordance with generally accepted accounting principles, applied on a consistent basis, and permit Lender to examine and audit Borrower's books and records at all reasonable times. FINANCIAL STATEMENTS. Furnish Lender with, as soon as available, but in no event later than one hundred five (105) days after the end of each fiscal year, Borrower's balance sheet and income statement for the year ended, audited by a certified public accountant satisfactory to Lender. All financial reports required to be provided under this Agreement shall be prepared in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. ADDITIONAL INFORMATION. Furnish such additional information and statements, lists of assets and liabilities, agings of receivables and payables, inventory schedules, budgets, forecasts, tax returns, and other reports with respect to Borrower's financial condition and business operations as Lender may request from time to time. FINANCIAL COVENANTS AND RATIOS. Comply with the following covenants and ratios: OTHER RATIO. Maintain a ratio of (Debt Before Interest, Taxes, Depreciation and Amortization) divided by (Current Portion Long Term Debt plus Interest) of 1.25 to 1.00. The following provisions shall apply for purposes of determining compliance with the foregoing financial covenants and ratios: Compliance with all covenants and ratios shall be determined by calculating the ratios/amounts as of the end of each fiscal quarter. Except as provided above, all computations made to determine compliance with the requirements contained in this paragraph shall be made in accordance with generally accepted accounting principles, applied on a consistent basis, and certified by Borrower as being true and correct. INSURANCE. Maintain fire and other risk insurance, public liability insurance, and such other insurance as Lender may require with respect to Borrower's properties and operations, in form, amounts, coverages and with insurance companies reasonably acceptable to Lender. Borrower, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Borrower or any other person. In connection with all policies covering assets in which Lender holds or is offered as security interest for the Loans, Borrower will provide Lender with such loss payable or other endorsements as Lender may require. INSURANCE REPORTS. Furnish to Lender, upon request of Lender, reports on each existing insurance policy showing such information as Lender may reasonable request, including without limitation the following: (a) the name of the insurer, (b) the risks insured; (c) the amount of the policy; (d) the properties insured; (e) the then current property values on the basis of which insurance has been obtained, and the manner of determining those values; and (f) the expiration date of the policy. In addition, upon request of Lender (however not more often than annually), Borrower will have an independent appraiser satisfactory to Lender determine, as applicable, the actual cash value or replacement cost of any Collateral. The cost of such appraisal shall be paid by Borrower. GUARANTIES. Prior to disbursement of any Loan proceeds, furnish executed guaranties of the Loans in favor of Lender, executed by the guarantor named below, on Lender's forms, and in the amount and under the conditions spelled out in those guaranties. 4 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 4 LOAN NO 2789-34 (CONTINUED) ================================================================================
GUARANTOR AMOUNT --------- ------ ~~SEA VIEW RESTAURANTS, INC. UNLIMITED~~
OTHER AGREEMENTS. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between Borrower and any other party and notify Lender immediately in writing of any default in connection with any other such agreements. LOAN PROCEEDS. Use all Loan proceeds solely for Borrower's business operations, unless specifically consented to the contrary by Lender in writing. TAXES, CHARGES AND LIENS. Pay and discharge when due all of its indebtedness and obligations, including without limitation all assessments, taxes, governmental charges, levies and liens, of every kind and nature, imposed upon Borrower or its properties, income, or profits, prior to the date on which penalties would attach, and all lawful claims that, if unpaid, might become a lien or charge upon any of Borrower's properties, income, or profits. Provided however, Borrower will not be required to pay and discharge any such assessment, tax, charge, levy, lien or claim so long as (a) the legality of the same shall be contested in good faith by appropriate proceedings, and (b) Borrower shall have established on its books adequate reserves with respect to such contested assessment, tax, charge, levy, lien, or claim in accordance with generally accepted accounting practices. Borrower, upon demand of Lender, will furnish to Lender evidence of payment of the assessments, taxes, charges, levies, liens and claims and will authorize the appropriate governmental official to deliver to Lender at any time a written statement of any assessments, taxes, charges, levies, liens and claims against Borrower's properties, income, or profits. PERFORMANCE. Perform and comply with all terms, conditions, and provisions set forth in this Agreement and in the Related Documents in a timely manner, and promptly notify Lender if Borrower learns of the occurrence of any event which constitutes an Event of Default under this Agreement or under any of the Related Documents. OPERATIONS. Maintain executive and management personnel with substantially the same qualifications and experience as the present executive and management personnel; provide written notice to Lender of any change in executive and management personnel; conduct its business affairs in a reasonable and prudent manner and in compliance with all applicable federal, state and municipal laws, ordinances, rules and regulations respecting its properties, charters, businesses and operations, including without limitation, compliance with the Americans With Disabilities Act and with all minimum funding standards and other requirements of ERISA and other laws applicable to Borrower's employee benefit plans. INSPECTION. Permit employees or agents of Lender at any reasonable time to inspect any and all Collateral for the Loan or Loans and Borrower's other properties and to examine or audit Borrower's books, accounts, and records and to make copies and memoranda of Borrower's books, accounts, and records. If Borrower now or at any time hereafter maintains any records (including without limitation computer generated records and computer software programs for the generation of such records) in the possession of a third party, Borrower, upon request of Lender, shall notify such party to permit Lender free access to such records at all reasonable times and to provide Lender with copies of any records it may request, all at Borrower's expense. COMPLIANCE CERTIFICATE. Unless waived in writing by Lender, provide Lender not required and at the time of each disbursement of Loan proceeds with a certificate executed by Borrower's chief financial officer, or other officer or person acceptable to Lender, certifying that the representations and warranties set forth in this Agreement are true and correct as of the date of the certificate and further certifying that, as of the date of the certificate, no Event of Default exists under this Agreement. ENVIRONMENTAL COMPLIANCE AND REPORTS. Borrower shall comply in all respects with all environmental protection federal, state and local laws, statutes, regulations and ordinances; not cause or permit to exist, as a result of an intentional or unintentional action or omission on its part or on the part of any third party, on property owned and/or occupied by Borrower, any environmental activity where damage may result to the environment, unless such environmental activity is pursuant to and in compliance with the conditions of a permit issued by the appropriate federal, state or local governmental authorities; shall furnish to Lender promptly and in any event within thirty (30) days after receipt thereof a copy of any notice, summons, lien, citation, directive, letter or other communication from any governmental agency or instrumentality concerning any intentional or unintentional action or omission on Borrower's part in connection with any environmental activity whether or not there is damage to the environment and/or other natural resources. ADDITIONAL ASSURANCES. Make, execute and deliver to Lender such promissory notes, mortgages, deeds of trust, security agreements, financing statements, instruments, documents and other agreements as Lender or its attorneys may reasonably request to evidence and secure the Loans and to perfect all Security Interests. RECOVERY OF ADDITIONAL COSTS. If the imposition of or any change in any law, rule, regulation or guideline, or the interpretation or application of any thereof by any court or administrative or governmental authority (including any request or policy not having the force of law) shall impose, modify or make applicable any taxes (except U.S. federal, state or local income or franchise taxes imposed on Lender), reserve requirements, capital adequacy requirements or other obligations which would (a) increase the cost to Lender for extending or maintaining the credit facilities to which this Agreement relates, (b) reduce the amounts payable to Lender under this Agreement or the Related Documents, or (c) reduce the rate of return on Lender's capital as a consequence of Lender's obligations with respect to the credit facilities to which this Agreement relates, then Borrower agrees to pay Lender such additional amounts as will compensate Lender therefor, within five (5) days after Lender's written demand for such payment, which demand shall be accompanied by an explanation of such imposition or charge and a calculation in reasonable detail of the additional amounts payable by Borrower, which explanation and calculations shall be conclusive in the absence of manifest error. NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this Agreement is in effect, Borrower shall not, without the prior written consent of Lender. INDEBTEDNESS AND LIENS. (a) Except for trade debt incurred in the normal course of business and indebtedness to Lender contemplated by this Agreement, create, incur or assume indebtedness for borrowed money, including capital leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage, assign, pledge, lease, grant a security interest in, or encumber any of Borrower's assets, or (c) sell with recourse any of Borrower's accounts, except to Lender. CONTINUITY OF OPERATIONS. (a) Engage in any business activities substantially different than those in which Borrower is presently engaged, (b) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change ownership, change its name, dissolve or transfer or sell Collateral out of the ordinary course of business, (c) pay any dividends on Borrower's stock (other than dividends payable in its stock), provided, however that notwithstanding the foregoing, but only so long as no Event of Default has occurred and is continuing or would result from the payment of dividends, if Borrower is a "Subchapter S Corporation" (as defined in the Internal Revenue Code of 1986, as amended), Borrower may pay cash dividends on its stock to its shareholders from time to time in amounts necessary to enable the shareholders to pay income taxes and make estimated income tax payments to satisfy their liabilities under federal and state law which arise solely from their status as Shareholders of a Subchapter S Corporation because of their ownership of shares of stock of Borrower, or (d) purchase or retire any of Borrower's outstanding shares or alter or amend Borrower's capital structure. LOANS, ACQUISITIONS AND GUARANTIES. (a) Loan, invest in or advance money or assets, (b) purchase, create or acquire any interest in any other enterprise or entity, or (c) incur any obligation as surety or guarantor other than in the ordinary course of business. CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to Borrower, whether under this Agreement or under any other 5 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 5 LOAN NO 2789-34 (CONTINUED) ================================================================================ agreement, Lender shall have no obligation to make Loan Advances or to disburse Loan proceeds if: (a) Borrower or any Guarantor is in default under the terms of this Agreement or any of the Related Documents or any other agreement that Borrower or any Guarantor has with Lender, (b) Borrower or any Guarantor becomes insolvent, files a petition in bankruptcy or similar proceedings, or is adjudged a bankrupt; (c) there occurs a material adverse change in Borrower's financial condition, in the financial condition of any Guarantor, or in the value of any Collateral securing any Loan; (d) any Guarantor seeks, claims or otherwise attempts to limit, modify or revoke such Guarantor's guaranty of the Loan or any other loan with Lender; or (e) Lender in good faith deems itself insecure, even though no Event of Default shall have occurred. ACCESS LAWS. Without limiting the generality of any provision of this agreement requiring Borrower to comply with applicable laws, rules, and regulations, Borrower agrees that it will at all times comply with applicable laws relating to disabled access including, but not limited to, all applicable titles of the Americans with Disabilities Act of 1990. LETTERS OF CREDIT. Subject to the terms of this agreement, lender will issue Standby Letters of Credit (each a "letter of credit") on behalf of borrower to support borrower's purchase of inventory or for other business purposes agreed to by lender. At no time, however, shall the total face amount of all letters credit outstanding, less any partial draws paid under the letters of credit will exceed the sum of $450,000.00. There will be a 2.00% per annum fee for the issuance of Letters of Credit. (a) Upon lender's request, borrower promptly shall pay to lender issuance fees and such other fees, commissions, costs and any out-of-pocket expenses charged or incurred by lender with respect to any letter of credit. (b) The commitment by lender to issue letters of credit shall, unless earlier terminated in accordance with the terms of this agreement, automatically terminate on the maturity date. (c) Each letter of credit shall be in form and substance satisfactory to lender and in favor of beneficiaries satisfactory to lender, provided that lender may refuse to issue a letter of credit due to the nature of the transaction or its terms or in connection with any transaction where lender, due to beneficiary or the nationality or residence of the beneficiary, would be prohibited by any applicable law, regulation, or order from issuing such letter of credit. (d) Prior to the issuance of each letter of credit and in all events prior to any daily cutoff time lender may have established for purposes thereof, borrower shall deliver to lender a duly executed form lender's standard form of application for issuance of letter of credit with proper insertions. OUT OF DEBT PERIOD. Borrower agrees with Lender that Borrower shall rest the Line of Credit Facility with no outstanding principal balance for a minimum of sixty (60) consecutive days during the term of the loan. ADDITIONAL PROVISIONS. Borrower and Lender, hereby agree, that while this Agreement is in effect: 1) Borrower will furnish Lender with, no later than one hundred five (105) days after Fiscal Year End, a copy of Borrower's 10-K report. 2) Borrower will furnish Lender with, no later than sixty (60) days after quarter end, a copy of Borrower's 10-Q report. RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on the indebtedness against any and all such accounts. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement. DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Loans. OTHER DEFAULTS. Failure of Borrower or any Grantor to comply with or to perform when due any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents, or failure of Borrower to comply with or to perform any other term, obligation, covenant or condition contained in any other agreement between Lender and Borrower. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Borrower or any Grantor under this Agreement or the Related Documents is false or misleading in any material respect at the time made or furnished, or becomes false or misleading at anytime thereafter. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure or any Security Agreement to create a valid and perfected Security Investment) at any time and for any reason. INSOLVENCY. The dissolution or termination of Borrower's existence as a going business, the insolvency of Borrower, the appointment of a receiver for any part of Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower, any creditor of any Grantor against any collateral securing the Indebtedness, or by any governmental agency. This includes a garnishment, attachment, or levy on or of any of Borrower's deposit accounts with Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes incompetent, or revokes or disputes the validity of, or liability under, any Guaranty of the Indebtedness. CHANGE IN OWNERSHIP. Any change in ownership of twenty-five percent (25%) or more of the common stock of Borrower. ADVERSE CHANGE. A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. INSECURITY. Lender, in good faith, deems itself insecure. EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where otherwise provided in this Agreement or the Related Documents, all commitments and obligations of Lender under this Agreement, or the Related Documents or any other agreement immediately will terminate (including any obligation to make Loan Advances or disbursements), and, at Lender's option, all Indebtedness immediately will become due and payable, all without notice of any kind to Borrower, except that in the case of an Event of Default of the type described in the "Insolvency" subsection above, such acceleration shall be automatic and not optional. In addition, Lender shall have all the rights and remedies provided in the Related Documents or available at law, in equity, or otherwise. Except as may be prohibited by applicable law, all of Lender's rights and remedies shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other 6 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 6 LOAN NO 2789-34 (CONTINUED) ================================================================================ remedy, and an election to make expenditures or to take action to perform an obligation of Borrower or of any Grantor shall not effect Lender's right to declare a default and to exercise its rights and remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement. AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Sacramento County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of California. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. CONSENT TO LOAN PARTICIPATION. Borrower agrees and consents to Lender's sale or transfer, whether now or later, of one or more participation interests in the Loans to one or more purchasers, whether related or unrelated to Lender. Lender may provide, without any limitation whatsoever, to any one or more purchasers, or potential purchasers, any information or knowledge Lender may have about Borrower or about any other matter relating to the Loan, and Borrower hereby waives any rights to privacy it may have with respect to such matters. Borrower additionally waives any and all notices of sale of participation interests, as well as all notices of any repurchase of such participation interests. Borrower also agrees that the purchasers of any such participation interests will be considered as the absolute owners of such interests in the Loans and will have all the rights granted under the participation agreement or agreements governing the sale of such participation interests. Borrower further waives all rights of offset or counterclaim that it may have now or later against Lender or against any purchaser of such a participation interest and unconditionally agrees that either Lender or such purchaser may enforce Borrower's obligation under the Loans irrespective of the failure or insolvency of any holder of any interest in the Loans. Borrower further agrees that the purchaser of any such participation interests may enforce its interests irrespective of any personal claims or defenses that Borrower may have against Lender. COSTS AND EXPENSES. Borrower agrees to pay upon demand all of Lender's expenses, including without limitation attorneys' fees, incurred in connection with the preparation, execution, enforcement, modification and collection of this Agreement or in connection with the Loans made pursuant to this Agreement. Lender may pay someone else to help collect the Loans and to enforce this Agreement, and Borrower will pay that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses, whether or not there is a lawsuit, including attorneys' fees for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower, notice to any Borrower will constitute notice to all Borrowers. For notice purposes, Borrower will keep Lender informed at all times of Borrower's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any provisions of this Agreement makes it appropriate, including without limitation any representation, warranty or covenant, the word "Borrower" as used herein shall include all subsidiaries and affiliates of Borrower. Notwithstanding the foregoing however, under no circumstances shall this Agreement be construed to require Lender to make any Loan or other financial accommodation to any subsidiary or affiliate of Borrower. SUCCESSORS AND ASSIGNS. All covenants and agreements contained by or on behalf of Borrower shall bind its successors and assigns and shall inure to the benefit of Lender, its successors and assigns. Borrower shall not, however, have the right to assign its rights under this Agreement or any interest therein, without the prior written consent of Lender. SURVIVAL. All warranties, representations, and covenants made by Borrower in this Agreement or in any certificate or other instrument delivered by Borrower to Lender under this Agreement shall be considered to have been relied upon by Lender and will survive the making of the Loan and delivery to Lender of the Related Documents, regardless of any investigation made by Lender or on Lender's behalf. TIME IS OF THE ESSENCE. Time is of the essence in the performance of this Agreement. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Borrower, or between Lender and any Grantor, shall constitute a waiver of any of Lender's rights or of any obligations of Borrower or of any Grantor as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent in subsequent instances where such consent is required, and in all cases such consent may be granted or withheld in the sole discretion of Lender. 7 06-22-2001 BUSINESS LOAN AGREEMENT PAGE 7 LOAN NO 2789-34 (CONTINUED) ================================================================================ BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF JUNE 22, 2001. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. BY: /s/ ALAN REDHEAD --------------------------------- ALAN REDHEAD, PRESIDENT LENDER: U.S. BANK NATIONAL ASSOCIATION BY: /s/ [SIGNATURE ILLEGIBLE] --------------------------------- AUTHORIZED OFFICER ================================================================================ 8 [USBANK LOGO] PROMISSORY NOTE [Table Illegible] References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91438

================================================================================ PRINCIPAL AMOUNT: $500,000.00 DATE OF NOTE: JUNE 22, 2001 PROMISE TO PAY. CALIFORNIA BEACH RESTAURANTS, INC. ("Borrower") promises to pay to U.S. Bank National Association ("Lender"), or order, in lawful money of the United States of America, the principal amount of Five Hundred Thousand & 00/100 Dollars ($500,000.00) or so much as may be outstanding, together with interest on the unpaid outstanding principal balance of each advance. Interest shall be calculated from the date of each advance until repayment of each advance. PAYMENT. Borrower will pay this loan in one payment of all outstanding principal plus all accrued unpaid interest on September 15, 2002. In addition, Borrower will pay regular monthly payments of accrued unpaid interest beginning July 6, 2001, and all subsequent interest payments are due on the same day of each month after that. The annual interest rate for this Note is computed on a 365/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. Borrower will pay Lender at Lender's address shown above or at such other place as Lender may designate in writing. VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from time to time based on changes in an index which is the prime rate (the "Index"). The unpaid principal balance will bear interest at an annual rate equal to the percentage point described below plus the prime rate announced by the Lender. Lender will tell Borrower the current index rate upon Borrower's request. Borrower understands that Lender may make loans based on other rates as well. The interest rate change will not occur more often than each time that the prime rate changes. The interest rate to be applied to the unpaid principal balance of this Note will be at a rate of 1,000 percentage point over the Index. NOTICE: Under no circumstances will the interest rate on this Note be more than the maximum rate allowed by applicable law. PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges are earned fully as of the date of the loan and will not be subject to refund upon early payment (whether voluntary or as a result of default), except as otherwise required by law. Except for the foregoing, Borrower may pay without penalty all or a portion of the amount owed earlier than it is due. Early payments will not, unless agreed to by Lender in writing, relieve Borrower of Borrower's obligation to continue to make payments of accrued unpaid interest. Rather, they will reduce the principal balance due. DEFAULT. Borrower will be in default if any of the following happens: (a) Borrower fails to make any payment when due. (b) Borrower breaks any promise Borrower has made to Lender, or Borrower fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note or any agreement related to this Note, or in any other agreement or loan Borrower has with Lender. (c) Borrower defaults under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's ability to repay this Note or perform Borrower's obligations under this Note or any of the Related Documents, (d) Any representation or statement made or furnished to Lender by Borrower or on Borrower's behalf is false or misleading in any material respect either now or at the time made or furnished. (e) Borrower becomes insolvent, a receiver is appointed for any part of Borrower's property, Borrower makes an assignment for the benefit of creditors, or any proceeding is commenced either by Borrower or against Borrower under any bankruptcy or insolvency laws. (f) Borrower is in default under any other note, security agreement, lease agreement or lease schedule, loan agreement or other agreement, whether now existing or hereafter made, between Borrower and U.S. Bancorp or any direct or indirect subsidiary of U.S. Bancorp. (g) Any creditor tries to take any of Borrower's property on or in which Lender has a lien or security interest. This includes a garnishment of any of Borrower's accounts with Lender. (h) Any guarantor dies or any of the other events described in this default section occurs with respect to any guarantor of this Note. (i) A material adverse change occurs in Borrower's financial condition, or Lender believes the prospect of payment or performance of the Indebtedness is impaired. (j) Lender in good faith deems itself insecure. LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal balance on this Note and all accrued unpaid interest immediately due, without notice, and then Borrower will pay that amount. Upon Borrower's failure to pay all amounts declared due pursuant to this section, including failure to pay upon final maturity, Lender, at its option, may also, if permitted under applicable law, increase the variable interest rate on this Note to 6.000 percentage points over the Index. Lender may hire or pay someone else to help collect this Note if Borrower does not pay. Borrower also will pay Lender that amount. This includes, subject to any limits under applicable law, Lender's attorneys' fees and Lender's legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower also will pay any court costs, in addition to all other sums provided by law. This Note has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower agrees upon Lender's request to submit to the jurisdiction of the courts of Sacramento County, the State of California. Lender and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender or Borrower against the other. This Note shall be governed by and construed in accordance with the laws of the State of California. RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in, and hereby assigns, conveys, delivers, pledges, and transfers to Lender all Borrower's right, title and interest in and to, Borrower's accounts with Lender (whether checking, savings, or some other account), including without limitation all accounts held jointly with someone else and all accounts Borrower may open in the future, excluding however all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Borrower authorizes Lender, to the extent permitted by applicable law, to charge or setoff all sums owing on this Note against any and all such accounts. LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under this Note may be requested either orally or in writing by Borrower or by an authorized person. Lender may, but need not, require that all oral requests be confirmed in writing. All communications, instructions, or directions by telephone or otherwise to Lender are to be directed to Lender's office shown above. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person or (b) credited to any of Borrower's accounts with Lender. The unpaid principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Lender's internal records, including daily computer print-outs. Lender will have no obligation to advance funds under this Note if: (a) Borrower or any guarantor is in default under the terms of this Note or any agreement that Borrower or any guarantor has with Lender, including any agreement made in connection with the signing of this Note; (b) Borrower or any guarantor ceases doing business or is insolvent; (e) any guarantor seeks, claims or otherwise attempts to limit, modify or revoke such guarantor's guarantee of this Note or any other loan with Lender; (d) Borrower has applied funds provided pursuant to this Note for purposes other than those authorized by Lender; or (e) Lender in good faith deems itself insecure under this Note or any other agreement between Lender and 9 06-22-2001 PROMISSORY NOTE PAGE 2 LOAN NO 2789-34 (CONTINUED) =============================================================================== Borrower. LATE CHARGE. If a payment is 15 days or more past due, borrower will be charged a late charge of 5% of the delinquent payment. PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender to automatically deduct the amount of all principal and/or interest payments on this Note from Borrowers's account number 1-643-0112-0709 with Lender or such other account as Borrower may designate in writing. If there are insufficient funds in the account to pay the automatic deduction in full, Lender may allow the account to become overdrawn, or Lender may reverse the automatic deduction. Borrower will pay all fees on the account which result from the automatic deductions, including any overdraft/NSF charges. If for any reason Lender does not charge the account for a payment, or if an automatic payment is reversed, the payment is still due according to this Note. Of the account is a Money Market Account, the number of withdrawals from that account is limited as set out in the account agreement. Lender may cancel the automatic deduction at any time in its discretion. TEMPORARY BULGE. THE PRINCIPAL AMOUNT OF THE NOTE WILL BE INCREASED FROM $500,000.00 EFFECTIVE JANUARY 1, 2001 THROUGH APRIL 30, 2001, AT WHICH TIME THE MAXIMUM PRINCIPAL AMOUNT OUTSTANDING UNDER THE NOTE SHALL REVERT BACK TO THE PRINCIPAL AMOUNT OF $500,000.00, WITH A $450,000.00 SUB-LIMIT FOR LETTERS OF CREDIT. PRIOR NOTE. This Note is given in renewal and extension and not in novation of the following described indebtedness: That certain Promissory Note dated June 16, 2000, in the amount of $500,000.00 executed by Borrower payable to Lender. It is further agreed that all liens and security interest securing said indebtedness are hereby renewed and extended to secure the Note and all renewals, extensions and modifications thereof. GENERAL PROVISIONS. Lender may delay or forgo enforcing any of the rights or remedies under this Note without losing them. Borrower and any other person who signs, guarantees or endorse this Note, to the extent allowed by law, waive any applicable statute of limitations, presentment, demand for payment, protest and notice of dishonor. Upon any change in the terms of this Note, and unless otherwise expressly stated in writing, no party who signs this Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability. All such parties agree that Lender may renew or extend (repeatedly and for any length of time) this loan, or release any party or guarantor or collateral; or impair, fail to realize upon or perfect Lender's security interest in the collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone. All such parties also agree that Lender may modify this loan without the consent of or notice to anyone other than the party with whom the modification is made. PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS NOTICE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. By: /s/ ALAN REDHEAD -------------------------------------------- ALAN REDHEAD, PRESIDENT LENDER: U.S. BANK NATIONAL ASSOCIATION By: /s/ [Signature Illegible] -------------------------------------------- AUTHORIZED OFFICER =============================================================================== 10 [USBANK LOGO] DISBURSEMENT REQUEST AND AUTHORIZATION ---------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials 500,000.00 06-22-2001 09-15-2002 2789-34 070 1705522447 R-B83 /s/[ILLEGIBLE} ---------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. ---------------------------------------------------------------------------------------------------------- BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91436 ==========================================================================================================

LOAN TYPE. This is a Variable Rate (1.000% over prime rate), Revolving Line of Credit Loan to a Corporation for $500,000.00 due on September 15, 2002. This is a secured renewal of the following described indebtedness: This Note is given in renewal and extension and not innovation of the following described indebtedness: That certain Promissory Note dated June 16, 2000, in the amount of $500,000.00 executed by Borrower payable to Lender. It is further agreed that all liens and security interest securing said indebtedness are hereby renewed and extended to secure the Note and all renewals, extensions and modifications thereof. PRIMARY PURPOSE OF LOAN. The primary purpose of this loan is for: [ ] PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES OR PERSONAL INVESTMENT. [X] BUSINESS (INCLUDING REAL ESTATE INVESTMENT). SPECIFIC PURPOSE. The specific purpose of this loan is: RENEWAL OF REVOLVING LINE OF CREDIT FOR WORKING CAPITAL AND LETTERS OF CREDIT. DISBURSEMENT INSTRUCTIONS. Borrower understands that no loan proceeds will be disbursed until all of Lender's conditions for making the loan have been satisfied. Please disburse the loan proceeds of $500,000 as follows: UNDISBURSED FUNDS: $ 62,500.00 AMOUNT PAID ON BORROWER'S ACCOUNT: $437,500.00 Payment on Loan #67/75 L/C $437,500.00 ----------- NOTE PRINCIPAL: $500,000.00

CHARGES PAID IN CASH. Borrower has paid or will pay in cash as agreed the following charges: PREPAID FINANCE CHARGES PAID IN CASH: $1,300.00 $1,300.00 LOAN FEES --------- TOTAL CHARGES PAID IN CASH: $1,300.00

PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender to automatically deduct the amount of all principal and/or interest payments on this Note from Borrower's account number 1-643-0112-0709 with Lender or such other account as Borrower may designate in writing. If there are insufficient funds in the account to pay the automatic deduction in full, Lender may allow the account to become overdrawn, or Lender may reverse the automatic deduction. Borrower will pay all fees on the account which result from the automatic deductions, including any overdraft/NSF charges. If for any reason Lender does not charge the account for a payment, or if an automatic payment is reversed, the payment is still due according to this Note. If the account is a Money Market Account, the number of withdrawals from that account is limited as set out in the account agreement. Lender may cancel the automatic deduction at any time in its discretion. FINANCIAL CONDITION. BY SIGNING THIS AUTHORIZATION, BORROWER REPRESENTS AND WARRANTS TO LENDER THAT THE INFORMATION PROVIDED ABOVE IS TRUE AND CORRECT AND THAT THERE HAS BEEN NO MATERIAL ADVERSE CHANGE IN BORROWER'S FINANCIAL CONDITION AS DISCLOSED IN BORROWER'S MOST RECENT FINANCIAL STATEMENT TO LENDER. THIS AUTHORIZATION IS DATED JUNE 22, 2001. BORROWER CALIFORNIA BEACH RESTAURANTS, INC. BY: /s/ ALAN REDHEAD -------------------------------- ALAN REDHEAD, PRESIDENT =============================================================================== 11 AGREEMENT TO PROVIDE INSURANCE --------------------------------------------------------------------------------------------------------- Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials 700,000.00 06-22-2001 09-15-2002 2789-34 070 1705522447 R-B83 /s/ [ILLEGIBLE] --------------------------------------------------------------------------------------------------------- References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91436 GRANTOR: CALIFORNIA BEACH RESTAURANTS, INC. AND SEA VIEW RESTAURANTS, INC. 17383 SUNSET BOULEVARD, SUITE 140 PACIFIC PALISADES, CA 90272 =========================================================================================================

INSURANCE REQUIREMENTS. We, CALIFORNIA BEACH RESTAURANTS, INC. and SEA VIEW RESTAURANTS, INC. ("Grantor), understand that insurance coverage is required in connection with the extending of a loan or the providing of other financial accommodations to CALIFORNIA BEACH RESTAURANTS, INC. ("Borrower") by Lender. These requirements are set forth in the security documents. The following minimum insurance coverages must be provided on the following described collateral (the "Collateral"): COLLATERAL: ALL INVENTORY AND EQUIPMENT. TYPE. All risks, including fire, theft and liability. AMOUNT. Full insurable value. BASIS. Replacement value. ENDORSEMENTS. Lender's loss payable clause with stipulation that coverage will not be cancelled or diminished without a minimum of ten (10) days' prior written notice to Lender. INSURANCE COMPANY. We may obtain insurance from any insurance company we may choose that is reasonably acceptable to Lender. We understand that credit may not be denied solely because insurance was not purchased through Lender. FAILURE TO PROVIDE INSURANCE. We agree to deliver to Lender, ten (10) days from the date of this Agreement, evidence of the required insurance as provided above, with an effective date of June 22, 2001, or earlier. We acknowledge and agree that if we fail to provide any required insurance or fail to continue such insurance in force, Lender may do so at our expense as provided in the applicable security document. The cost of any such insurance, at the option of Lender, shall be payable on demand or shall be added to the indebtedness as provided in the security document. WE ACKNOWLEDGE THAT IF LENDER SO PURCHASES ANY SUCH INSURANCE, THE INSURANCE WILL PROVIDE LIMITED PROTECTION AGAINST PHYSICAL DAMAGE TO THE COLLATERAL, UP TO THE BALANCE OF THE LOAN; HOWEVER, OUR EQUITY IN THE COLLATERAL MAY NOT BE INSURED. IN ADDITION, THE INSURANCE MAY NOT PROVIDE ANY PUBLIC LIABILITY OR PROPERTY DAMAGE INDEMNIFICATION AND MAY NOT MEET THE REQUIREMENTS OF ANY FINANCIAL RESPONSIBILITY LAWS. AUTHORIZATION. For purposes of insurance coverage on the Collateral, we authorize Lender to provide to any person (including any insurance agent or company) all information Lender deems appropriate, whether regarding the Collateral, the loan or other financial accommodations, or both. WE ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS AGREEMENT TO PROVIDE INSURANCE AND AGREE TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 22, 2001. GRANTOR: X /S/ ALAN REDHEAD X /S/ ALAN REDHEAD ---------------------------------- ---------------------------------- CALIFORNIA BEACH RESTAURANTS, INC. SEA VIEW RESTAURANTS, INC. FOR LENDER USE ONLY INSURANCE VERIFICATION DATE: 6-28-01 PHONE: 818-971-5355 AGENT NAME: JANET DAVIS INSURANCE COMPANY: U.S.I. OF SO. CALIFORNIA INS. SERVICES, INC. POLICY NUMBER: DZX80760980 EFFECTIVE DATE: 6-1-01 TO 6-1-02 COMMENTS:______________________________________________________________________ ================================================================================ 12 [US BANK LOGO] COMMERCIAL SECURITY AGREEMENT
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials ~~$700,000.00 06-22-2001 09-15-2002 2789-34 070 1705522447 R-B83 /s/ [ILLEGIBLE]~~
References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91436 GRANTOR: CALIFORNIA BEACH RESTAURANTS, INC. and SEA VIEW RESTAURANTS INC. 17373 SUNSET BOULEVARD, SUITE 140 PACIFIC PALISADES, CA 90272 ================================================================================================

THIS COMMERCIAL SECURITY AGREEMENT is entered into among CALIFORNIA BEACH RESTAURANTS, INC. (referred to below as "Borrower"); CALIFORNIA BEACH RESTAURANTS, INC. and SEA VIEW RESTAURANTS, INC. (referred to below as "Grantor"); and U.S. Bank National Association (referred to below as "Lender"). For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the Indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. Terms not otherwise defined in this Agreement shall have the meanings attributed to such terms in the Uniform Commercial Code. All references to dollar amounts shall mean amounts in lawful money of the United States of America. AGREEMENT. The word "Agreement" means this Commercial Security Agreement, as this Commercial Security Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Security Agreement from time to time. BORROWER. The word "Borrower" means each and every person or entity signing the Note, including without limitation CALIFORNIA BEACH RESTAURANTS, INC. COLLATERAL. The word "Collateral" means the following described property of Grantor, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: ALL INVENTORY, CHATTEL PAPER, ACCOUNTS, EQUIPMENT AND GENERAL INTANGIBLES In addition, the word "Collateral" includes all the following, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located: (a) All attachments, accessions, accessories, tools, parts, supplies, increases, and additions to and all replacements of and substitutions for any property described above. (b) All products and produce of any of the property described in this Collateral section. (c) All accounts, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, or other disposition of any of the property described in this Collateral section. (d) All proceeds (including insurance proceeds) from the sale, destruction, loss, or other disposition of any of the property described in this Collateral section. (e) All records and data relating to any of the property described in this Collateral section, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Grantor's right, title, and interest in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default." GRANTOR. The word "Grantor" means CALIFORNIA BEACH RESTAURANTS, INC. and SEA VIEW RESTAURANTS, INC. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety). GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the Indebtedness. INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and interest, together with all other indebtedness and costs and expenses for which Grantor or Borrower is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Borrower, or any one or more of them, to Lender, as well as all claims by Lender against Borrower, or any one or more of them, whether existing now or later, whether they are voluntary or involuntary, due or not due, direct or indirect, absolute or contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as guarantor, surety, accommodation party or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable. LENDER. The word "Lender" means U.S. Bank National Association, its successors and assigns. NOTE. The word "Note" means the Note dated June 22, 2001 in the principal amount of $600,000.00 from California Beach Restaurants, Inc. to Lender, together with a provision for a temporary bulge for $700,000.00 from January 1, 2001 through April 30, 2001 and the Standby Letters of Credit or Commercial Letters of Credit issued by Lender on Borrower's behalf either severally or in accordance with a Continuing Agreement, together with any and all renewals, modifications, extensions, substitutions, refinancings and consolidations thereof. RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreements and documents, whether now or hereafter existing, executed in connection with the indebtedness. 13 06-22-2001 COMMERCIAL SECURITY AGREEMENT PAGE 2 LOAN NO 2789-34 (CONTINUED) ================================================================================ BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (c) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes or fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this Agreement is executed at Borrower's request and not at the request of Lender; (b) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (c) Grantor has established adequate means of obtaining from Borrower on a continuing basis information about Borrower's financial condition; and (d) Lender has made no representation to Grantor about Borrower or Borrower's creditworthiness. GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any right to require Lender to (a) make any presentment, protest, demand, or notice of any kind, including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor or surety, any action or nonaction taken by Borrower, Lender, or any other guarantor or surety of Borrower, or the creation of new or additional Indebtedness; (b) proceed against any person, including Borrower, before proceeding against Grantor; (c) proceed against any collateral for the Indebtedness, including Borrower's collateral, before proceeding against Grantor; (d) apply any payments or proceeds received against the Indebtedness in any order; (e) give notice of the terms, time, and place of any sale of any collateral pursuant to the Uniform Commercial Code or any other law governing such sale; (f) disclose any information about the Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or about any action or nonaction of Lender; or (g) pursue any remedy or course of action in Lender's power whatsoever. Grantor also waives any and all rights or defenses arising by reason of (h) any disability or other defense of Borrower, any other guarantor or surety of any other person; (i) the cessation from any cause whatsoever, other than payment in full, of the Indebtedness; (j) the application of proceeds of the Indebtedness by Borrower for purposes other than the purposes understood and intended by Grantor and Lender; (k) any act of omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the Indebtedness, or the loss or release of any collateral by operation of law or otherwise; (l) any statute of limitations in any action under this Agreement or on the Indebtedness; or (m) any modification or change in terms of the Indebtedness, whatsoever, including without limitation, the renewal, extension, acceleration, or other change in the time payment of the Indebtedness is due and any change in the interest rate. Grantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Grantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the California Code of Civil Procedure, or otherwise. This waiver includes, without limitation, any loss of rights Grantor may suffer by reason of any rights or protections of Borrower in connection with any anti-deficiency laws, or other laws limiting or discharging the Indebtedness or Borrower's obligations (including without limitation, Section 726, 580a, 580b, and 580d of the California Code of Civil Procedure). Grantor waives all rights and protections of any kind which Grantor may have for any reason, which would affect or limit the amount of any recovery by Lender from Grantor following a nonjudicial sale or judicial foreclosure of any real or personal property security for the Indebtedness including, but not limited to, the right to any fair market value hearing pursuant to California Code of Civil Procedure Section 580a. Grantor understands and agrees that the foregoing waivers are waivers of substantive rights and defenses to which Grantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by California laws of suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that Grantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by Lender. Until the Indebtedness is paid in full, Grantor waives any right to enforce any remedy Lender may have against Borrower or any other guarantor, surety, or other person, and further, Grantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid by fully secured collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in and hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's right, title and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keogh accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all Indebtedness against any and all such accounts. OBLIGATIONS OF GRANTOR. Grantor warrants and covenants to Lender as follows: PERFECTION OF SECURITY INTEREST. Grantor agrees to execute such financing statements and to take whatever other actions are requested by Lender to perfect and continue Lender's security interest in the Collateral. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral, and Grantor will note Lender's interest upon any and all chattel paper if not delivered to Lender for possession by Lender. Grantor hereby appoints Lender as its irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. Lender may at any time, and without further authorization from Grantor, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement. Grantor will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender's security interest in the Collateral. Grantor promptly will notify Lender before any change in Grantor's name including any change to the assumed business names of Grantor. This is a continuing Security Agreement and will continue in effect event though all or any part of the Indebtedness is paid in full and even though for a period of time Borrower may not be indebted to Lender. NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party. ENFORCEABILITY OF COLLATERAL. To the extent the Collateral consists of accounts, chattel paper, or general intangibles, the Collateral is enforceable in accordance with its terms, is genuine, and complies with applicable laws concerning form, content and manner of preparation and execution, an all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral. At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery, instructions or theretofore shipped or delivered pursuant to a contract of sale, or for services theretofore performed by Grantor with or for the account debtor; there shall be no setoffs or counterclaims against any such account; and no agreement under which any deductions or discounts may be claimed shall have been made with the account debtor except those disclosed to Lender in writing. LOCATION OF THE COLLATERAL. Grantor, upon request of Lender, will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Grantor's operations, including without limitation the following: (a) all real property owned or being purchased by Grantor; (b) all real property being rented or leased by Grantor: (c) all storage facilities owned, rented, leased, or being used by Grantor; and 14 06-22-2001 COMMERCIAL SECURITY AGREEMENT PAGE 3 LOAN NO 2789-34 (CONTINUED) (d) all other properties where Collateral is or may be located. Except in the ordinary course of its business, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. REMOVAL OF COLLATERAL. Grantor shall keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts, the records concerning the Collateral) at Grantor's address shown above, or at such other locations as are acceptable to Lender. Except in the ordinary course of its business, including the sales of inventory, Grantor shall not remove the Collateral from its existing locations without the prior written consent of Lender. To the extent that the Collateral consists of vehicles, or other titled property, Grantor shall not take or permit any action which would require application for certificates of title for the vehicles outside the State of California, without the prior written consent of Lender. TRANSACTION INVOLVING COLLATERAL. Except for inventory sold or accounts collected in the ordinary course of Grantor's business, Grantor shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. While Grantor is not in default under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business. A sale in the ordinary course of Grantor's business does not include a transfer in partial or total satisfaction of a debt or any bulk sale. Grantor shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender. This includes security interests even if junior in right to the security interests granted under this Agreement. Unless waived by Lender, all proceeds from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition. Upon receipt, Grantor shall immediately deliver any such proceeds to Lender. TITLE. Grantor represents and warrants to Lender that it holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement. No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented. Grantor shall defend Lender's rights in the Collateral against the claims and demands of all other persons. COLLATERAL SCHEDULES AND LOCATIONS. As often as Lender shall require, and insofar as the Collateral consists of accounts and general intangibles, Grantor shall deliver to Lender schedules of such Collateral, including such information as Lender may require, including without limitation names and addresses of account debtors and agings of accounts and general intangibles. Insofar as the Collateral consists of inventory and equipment, Grantor shall deliver to Lender, as often as Lender shall require, such lists, descriptions, and designations of such Collateral as Lender may require to identify the nature, extent and location of such Collateral. Such information shall be submitted for Grantor and each of its subsidiaries or related companies. MAINTENANCE AND INSPECTION OF COLLATERAL. Grantor shall maintain all tangible Collateral in good condition and repair. Grantor will not commit or permit damage to or destruction of the Collateral or any part of the Collateral. Lender and its designated representatives and agents shall have the right at all reasonable times to examine, inspect, and audit the Collateral wherever located. Grantor shall immediately notify Lender of all cases involving the return, rejection, repossession, loss or damage of or to any Collateral; of any request for credit or adjustment or of any other dispute arising with respect to the Collateral; and generally of all happenings and events affecting the Collateral or the value or the amount of the Collateral. TAXES, ASSESSMENTS AND LIENS. Grantor will pay when due all taxes, assessments and liens upon the Collateral, its use or operation, upon this Agreement, upon any promissory note or notes evidencing the Indebtedness, or upon any of the other Related Documents. Grantor may withhold any such payment or may elect to contest any lien if Grantor is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender's interest in the Collateral is not jeopardized in Lender's sole opinion. If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Grantor shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, attorneys' fees or other charges that could accrue as a result of foreclosure or sale of the Collateral. In any contest Grantor shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral. Grantor shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings. COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS. Grantor shall comply promptly with all laws, ordinances, rules and regulations of all governmental authorities, now or hereafter in effect, applicable to the ownership, production, disposition, or use of the Collateral. Grantor may contest in good faith any such law, ordinance or regulation and withhold compliance during any proceeding, including appropriate appeals, so long as Lender's interest in the Collateral, in Lender's opinion, is not jeopardized. HAZARDOUS SUBSTANCES. Grantor represents and warrants that the Collateral never has been, and never will be so long as this Agreement remains a lien on the Collateral, used for the generation, manufacture, storage, transportation, treatment, disposal, release or threatened release of any hazardous waste or substance as those terms are defined in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601, et seq. ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, Pub. L. No. 99-499 ("SARA"), the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., Chapters 6.5 through 7.7 of Division 20 of the California Health and Safety Code, Section 25100, et seq., or other applicable state or Federal laws, rules, or regulations adopted pursuant to any of the foregoing. The terms "hazardous waste" and "hazardous substance" shall also include, without limitation, petroleum and petroleum by-products or any fraction thereof and asbestos. The representations and warranties contained herein are based on Grantor's due diligence in investigating the Collateral for hazardous wastes and substances. Grantor hereby (a) releases and waives any future claims against Lender for indemnity or contribution in the event Grantor becomes liable for cleanup or other costs under any such laws, and (b) agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement. This obligation to indemnify shall survive the payment of the Indebtedness and the satisfaction of this Agreement. MAINTENANCE OF CASUALTY INSURANCE. Grantor shall procure and maintain all risks insurance, including without limitation fire, theft and liability coverage together with such other insurance as Lender may require with respect to the Collateral, in form, amounts, coverages and basis reasonably acceptable to Lender and issued by a company or companies reasonably acceptable to Lender. Grantor, upon request of Lender, will deliver to Lender from time to time the policies or certificates of insurance in form satisfactory to Lender, including stipulations that coverages will not be cancelled or diminished without at least ten (10) days' prior written notice to Lender and not including any disclaimer of the insurer's liability for failure to give such a notice. Each insurance policy also shall include an endorsement providing that coverage in favor of Lender will not be impaired in any way by any act, omission or default of Grantor or any other person. In connection with all policies covering assets in which Lender holds or is offered a security interest, Grantor will provide Lender with such loss payable or other endorsements as Lender may require. If Grantor at any time fails to obtain or maintain any insurance as required under this Agreement, Lender may (but shall not be obligated to) obtain such insurance as Lender deems appropriate, including if it so chooses "single interest insurance," which will cover only Lender's interest in the Collateral. APPLICATION OF INSURANCE PROCEEDS. Grantor shall promptly notify Lender of any loss or damage to the Collateral. Lender may make proof of loss if Grantor fails to do so within fifteen (15) days of the casualty. All proceeds of any insurance on the Collateral, including accrued proceeds thereon, shall be held by Lender as part of the Collateral. If Lender consents to repair or replacement of the damaged or destroyed Collateral, Lender shall, upon satisfactory proof of expenditure, pay or reimburse Grantor from the proceeds for the reasonable cost of repair or restoration. 15 06-22-2001 COMMERCIAL SECURITY AGREEMENT PAGE 4 LOAN NO 2789-34 (CONTINUED) ================================================================================ If Lender does not consent to repair or replacement of the Collateral, Lender shall retain a sufficient amount of the proceeds to pay all of the Indebtedness, and shall pay the balance to Grantor. Any proceeds which have not been disbursed within six (6) months after their receipt and which Grantor has not committed to the repair or restoration of the Collateral shall be used to prepay the Indebtedness. INSURANCE RESERVES. Lender may require Grantor to maintain with Lender reserves for payment of insurance premiums, which reserves shall be created by monthly payments from Grantor of a sum estimated by Lender to be sufficient to produce, at least fifteen (15) days before the premium due date, amounts at least equal to the insurance premiums to be paid. If fifteen (15) days before payment is due, the reserve funds are insufficient, Grantor shall upon demand pay any deficiency to Lender. The reserve funds shall be held by Lender as a general deposit and shall constitute a non-interest-bearing account which Lender may satisfy by payment of the insurance premiums required to be paid by Grantor as they become due. Lender does not hold the reserve funds in trust for Grantor, and Lender is not the agent of Grantor for payment of the insurance premiums required to be paid by Grantor. The responsibility for the payment of premiums shall remain Grantor's sole responsibility. INSURANCE REPORTS. Grantor, upon request of Lender, shall furnish to Lender reports on each existing policy of insurance showing such information as Lender may reasonably request including the following: (a) the name of the insurer; (b) the risks insured; (c) the amount of the policy; (d) the property insured; (e) the then current value on the basis of which insurance has been obtained and the manner of determining that value; and (f) the expiration date of the policy. In addition, Grantor shall upon request by Lender (however not more often than annually) have an independent appraiser satisfactory to Lender determine, as applicable, the cash value or replacement cost of the Collateral. GRANTOR'S RIGHT TO POSSESSION AND TO COLLECT ACCOUNTS. Until default and except as otherwise provided below with respect to accounts, Grantor may have possession of the tangible personal property and beneficial use of all the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the Related Documents, provided that Grantor's right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender's security interest in such Collateral. Until otherwise notified by Lender, Grantor may collect any of the Collateral consisting of accounts. At any time and even though no Event of Default exists, Lender may exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Indebtedness. If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Grantor shall request or as Lender, in Lender's sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Grantor shall not of itself be deemed to be a failure to exercise reasonable care. Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Indebtedness. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT OF INDEBTEDNESS. Failure of Borrower to make any payment when due on the Indebtedness. OTHER DEFAULTS. Failure of Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or in any other note, security agreement, lease agreement or lease schedule, loan agreement or other agreement, whether now existing or hereafter made, between Grantor and U.S. Bancorp or any direct or indirect subsidiary of U.S. Bancorp. DEFAULT IN FAVOR OF THIRD PARTIES. Should Borrower or any Grantor default under any loan, extension of credit, security agreement, purchase or sales agreement, or any other agreement, in favor of any other creditor or person that may materially affect any of Borrower's property or Borrower's or any Grantor's ability to repay the Loans or perform their respective obligations under this Agreement or any of the Related Documents. FALSE STATEMENTS. Any warranty, representation or statement made or furnished to Lender by or on behalf of Grantor or Borrower under this Agreement, the Note or the Related Documents is false or misleading in any material respect, either now or at the time made or furnished. DEFECTIVE COLLATERALIZATION. This Agreement or any of the Related Documents ceases to be in full force and effect (including failure of any collateral documents to create a valid and perfected security interest or lien) at any time and for any reason. INSOLVENCY. The dissolution or termination of Grantor or Borrower's existence as a going business, the insolvency of Grantor or Borrower, the appointment of a receiver for any part of Grantor or Borrower's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Grantor or Borrower. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Grantor or Borrower or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Grantor or Borrower's deposit accounts with Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. INSECURITY. Lender, in good faith, deems itself insecure. RIGHT AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender shall have all the rights of a secured party under the California Uniform Commercial Code. In addition and without limitation, Lender may exercise any one or more of the following rights and remedies: ACCELERATE INDEBTEDNESS. Lender may declare the entire Indebtedness, including any prepayment penalty which Borrower would be required to pay, immediately due and payable, without notice. ASSEMBLE COLLATERAL. Lender may require Grantor to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral. Lender may require Grantor to assemble the Collateral and make it available to Lender at a place to be designated by Lender. Lender also shall have full power to enter upon the property of Grantor to take possession of and remove the Collateral. If the Collateral contains other goods not covered by this Agreement at the time of repossession, Grantor agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Grantor after repossession. SELL THE COLLATERAL. Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral or proceeds thereof in its own name or that of Grantor. Lender may sell the Collateral at public auction or private sale. Unless the Collateral threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender will give Grantor reasonable notice of the time after which any private sale or any 16 06-22-2001 COMMERCIAL SECURITY AGREEMENT PAGE 5 LOAN NO 2789-34 (CONTINUED) =============================================================================== other intended disposition of the Collateral is to be made. The requirements of reasonable notice shall be met if such notice is given at least ten (10) days, or such lesser time as required by state law, before the time of the sale or disposition. All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. APPOINT RECEIVER. To the extent permitted by applicable law, Lender shall have the following rights and remedies regarding the appointment of a receiver: (a) Lender may have a receiver appointed as a matter of right, (b) the receiver may be an employee of Lender and may serve without bond, and (c) all fees of the receiver and his or her attorney shall become part of the Indebtedness secured by this Agreement and shall be payable on demand, with interest at the Note rate from date of expenditure until repaid. COLLECT REVENUES, APPLY ACCOUNTS. Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral. Lender may at any time in its discretion transfer any Collateral into its own name or that of its nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Indebtedness or apply it to payment of the Indebtedness in such order of preference as Lender may determine. Insofar as the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not Indebtedness or Collateral is then due. For these purposes, Lender may, on behalf of and in the name of Grantor, receive, open and dispose of mail addressed to Grantor; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral. To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender. OBTAIN DEFICIENCY. If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Borrower for any deficiency remaining on the Indebtedness due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement. Borrower shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper. OTHER RIGHTS AND REMEDIES. Lender shall have all the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, as may be amended from time to time. In addition, Lender shall have and may exercise any or all other rights and remedies it may have available at law, in equity, or otherwise. CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by this Agreement or the Related Documents or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor or Borrower under this Agreement, after Grantor or Borrower's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Grantor and Borrower agree upon Lender's request to submit to the jurisdiction of the courts of Sacramento County, the State of California. Lender, Grantor and Borrower hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender, Grantor or Borrower against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of California. ATTORNEYS' FEES; EXPENSES. Grantor and Borrower agree to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may pay someone else to help enforce this Agreement, and Grantor and Borrower shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Grantor and Borrower also shall pay all court costs and such additional fees as may be directed by the court. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. MULTIPLE PARTIES; CORPORATE AUTHORITY. All obligations of Grantor and Borrower under this Agreement shall be joint and several, and all references to Borrower shall mean each and every Borrower, and all references to Grantor shall mean each and every Grantor. This means that each of the persons signing below is responsible for all obligations in this Agreement. NOTICE. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, address to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Grantor or Borrower, notice to any Grantor or Borrower will constitute notice to all Grantor and Borrowers. For notice purposes, Grantor and Borrower will keep Lender informed at all times of Grantor and Borrower's current address(es). POWER OF ATTORNEY. Grantor hereby appoints Lender as its true and lawful attorney-in-fact, irrevocably, with full power of substitution to do the following: (a) to demand, collect, receive, receipt for, sue and recover all sums of money or other property which may now or hereafter become due, owing or payable from the Collateral; (b) to execute, sign and endorse any and all claims, instruments, receipts, checks, drafts or warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and, in the place and stead of Grantor, to execute and deliver its release and settlement for the claim; and (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in its own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable. This power is given as security for the Indebtedness, and the authority hereby conferred is and shall be irrevocable and shall remain in full force and effect until renounced by Lender. PREFERENCE PAYMENTS. Any monies Lender pays because of an asserted preference claim in Borrower's bankruptcy will become a part of the Indebtedness and, at Lender's option, shall be payable by Borrower as provided above in the "EXPENDITURES BY LENDER" paragraph. SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. 17 06-22-2001 COMMERCIAL SECURITY AGREEMENT PAGE 6 LOAN NO 2789-34 (CONTINUED) ================================================================================ WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. WAIVER OF CO-OBLIGOR'S RIGHTS. If more than one person is obligated for the indebtedness, Borrower irrevocably waives, disclaims and relinquishes all claims against such other person which Borrower has or would otherwise have by virtue of payment of the indebtedness or any part thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration. ADDENDUM TO COMMERCIAL SECURITY AGREEMENT. An exhibit, titled "ADDENDUM TO COMMERCIAL SECURITY AGREEMENT," is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set forth in this Agreement. BORROWER AND EACH GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS COMMERCIAL SECURITY AGREEMENT, AND BORROWER AND EACH GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 22, 2001. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. By: /s/ ALAN REDHEAD --------------------------------- ALAN REDHEAD, PRESIDENT GRANTOR: X /s/ ALAN REDHEAD X /s/ ALAN REDHEAD ----------------------------------- --------------------------------- CALIFORNIA BEACH RESTAURANTS, INC. SEA VIEW RESTAURANTS, INC. 18 [US BANK LOGO] COMMERCIAL PLEDGE AGREEMENT
Principal Loan Date Maturity Loan No. Call Collateral Account Officer Initials 700,000.00 06-22-2001 09-15-2002 2789-34 070 1105622447 R-B83 /s/[illegible] References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item.
BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. Bank National 17383 SUNSET BOULEVARD, SUITE 140 Association PACIFIC PALISADES, CA 90272 15910 Ventura Boulevard Encino, CA 91496 GRANTOR: SEA VIEW RESTAURANTS, INC. 17383 SUNSET BOULEVARD, SUITE 140 PACIFIC PALISADES, CA 90272

================================================================================ THIS COMMERCIAL PLEDGE AGREEMENT is entered into among CALIFORNIA BEACH RESTAURANTS, INC. (referred to below as "Borrower"); SEA VIEW RESTAURANTS, INC. (referred to below as "Grantor"); and U.S. Bank National Association (referred to below as "Lender"). GRANT OF SECURITY INTEREST. For valuable consideration, Grantor grants to Lender a security interest in the Collateral to secure the indebtedness and agrees that Lender shall have the rights stated in this Agreement with respect to the Collateral, in addition to all other rights which Lender may have by law. DEFINITIONS. The following words shall have the following meanings when used in this Agreement. AGREEMENT. The word "Agreement" means this Commercial Pledge Agreement, as this Commercial Pledge Agreement may be amended or modified from time to time, together with all exhibits and schedules attached to this Commercial Pledge Agreement from time to time. BORROWER. The word "Borrower" means each and every person or entity signing the Note, including without limitation CALIFORNIA BEACH RESTAURANTS, INC. COLLATERAL. The word "Collateral" means the following specifically described property, which Grantor has delivered or agrees to deliver (or cause to be delivered) immediately to Lender, together with all income and Proceeds as described below: LICENSE AGREEMENT ENTERED INTO AS OF APRIL 21, 1992 BY AND BETWEEN SEA VIEW RESTAURANTS, INC. ("LICENSOR") AND MCA DEVELOPMENT VENTURE TWO ("LICENSEE"). In addition, the word "Collateral" includes all property of Grantor, in the possession of Lender (or in the possession of a third party subject to the control of Lender), whether now or hereafter existing and whether tangible or intangible in character, including without limitation each of the following: (a) All property to which Lender acquires title or documents of title. (b) All property assigned to Lender. (c) All promissory notes, bills of exchange, stock certificates, bonds, savings passbooks, time certificates of deposit, insurance policies, and all other instruments and evidence of an obligation. (d) All records relating to any of the property described in this Collateral section, whether in the form of a writing, microfilm, microfiche, or electronic media. EVENT OF DEFAULT. The words "Event of Default" mean and include without limitation any of the Events of Default set forth below in the section titled "Events of Default." GRANTOR. The word "Grantor" means SEA VIEW RESTAURANTS, INC. Any Grantor who signs this Agreement, but does not sign the Note, is signing this Agreement only to grant a security interest in Grantor's interest in the Collateral to Lender and is not personally liable under the Note except as otherwise provided by contract or law (e.g., personal liability under a guaranty or as a surety). GUARANTOR. The word "Guarantor" means and includes without limitation each and all of the guarantors, sureties, and accommodation parties in connection with the indebtedness. INCOME AND PROCEEDS. The words "Income and Proceeds" mean all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, distributions, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Grantor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles. INDEBTEDNESS. The word "Indebtedness" means the indebtedness evidenced by the Note, including all principal and interest, together with all other indebtedness and costs and expenses for which Borrower or Grantor is responsible under this Agreement or under any of the Related Documents. In addition, the word "Indebtedness" includes all other obligations, debts and liabilities, plus interest thereon, of Borrower, or any one or more of them, to Lender, as well as all claims by Lender against Borrower, or any one or more of them, whether existing now or later; whether they are voluntary or involuntary, due or not due, direct or indirect, absolute of contingent, liquidated or unliquidated; whether Borrower may be liable individually or jointly with others; whether Borrower may be obligated as guarantor, surety, accommodation party or otherwise; whether recovery upon such indebtedness may be or hereafter may become barred by any statute of limitations; and whether such indebtedness may be or hereafter may become otherwise unenforceable LENDER. The word "Lender" means U.S. Bank National Association, its successors and assigns. Note. The word "Note" means the Note dated June 22, 2001 in the principal amount of $500,000.00 from California Beach Restaurants, Inc., together with a provision for a temporary bulge for $700,000.00 from January 1, 2001 through April 30, 2001, and the Standby Letters of Credit or Commercial Letters of Credit issued by Lender on Borrower's behalf either severally or in accordance with a Continuing Agreement, together with any and all renewals, modifications, extensions, substitutions, refinancings and consolidations thereof. OBLIGOR. The word "Obligor" means and includes without limitation any and all persons or entities obligated to pay money or to perform some other act under the Collateral. 19 06-22-2001 COMMERCIAL PLEDGE AGREEMENT PAGE 2 LOAN NO 2789-34 (CONTINUED) ================================================================================ RELATED DOCUMENTS. The words "Related Documents" mean and include without limitation all promissory notes, credit agreements, loan agreements, environmental agreements, guaranties, security agreements, mortgages, deeds of trust, and all other instruments, agreement and documents, whether now or hereafter existing, executed in connection with the Indebtedness. BORROWER'S WAIVERS AND RESPONSIBILITIES. Except as otherwise required under this Agreement or by applicable law, (a) Borrower agrees that Lender need not tell Borrower about any action or inaction Lender takes in connection with this Agreement; (b) Borrower assumes the responsibility for being and keeping informed about the Collateral; and (c) Borrower waives any defenses that may arise because of any action or inaction of Lender, including without limitation any failure of Lender to realize upon the Collateral or any delay by Lender in realizing upon the Collateral; and Borrower agrees to remain liable under the Note no matter what action Lender takes to fails to take under this Agreement. GRANTOR'S REPRESENTATIONS AND WARRANTIES. Grantor warrants that: (a) this Agreement is executed at Borrower's request and not at the request of Lender; (b) Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral to Lender; (c) Grantor has established adequate means of obtaining from Borrower on a continuing basis information about Borrower's financial condition; and (d) Lender has made no representation to Grantor about Borrower or Borrower's creditworthiness. GRANTOR'S WAIVERS. Except as prohibited by applicable law, Grantor waives any right to require Lender to (a) make any presentment, protest, demand, or notice of any kind, including notice of change of any terms of repayment of the Indebtedness, default by Borrower or any other guarantor or surety, any action or nonaction taken by Borrower, Lender, or any other guarantor or surety of Borrower, or the creation of new or additional Indebtedness; (b) proceed against any person, including Borrower, before proceeding against Grantor; (c) proceed against any collateral for the Indebtedness, including Borrower's collateral, before proceeding against Grantor; (d) apply any payments or proceeds received against the Indebtedness in any order; (e) give notice of the terms, time, and place of any sale of any collateral pursuant to the Uniform Commercial Code or any other law governing such sale; (f) disclose any information about the Indebtedness, the Borrower, any collateral, or any other guarantor or surety, or about any action or nonaction of Lender; or (g) pursue any remedy or course of action in Lender's power whatsoever. Grantor also waives any and all rights or defenses arising by reason of (h) any disability or other defense of Borrower, any other guarantor or surety or any other person: (i) the cessation from any cause whatsoever, other than payment in full, of the Indebtedness; (j) the application of proceeds of the Indebtedness by Borrower for purposes other than the purposes understood and intended by Grantor and Lender; (k) any act or omission or commission by Lender which directly or indirectly results in or contributes to the discharge of Borrower or any other guarantor or surety, or the Indebtedness, or the loss or release of any collateral by operation of law or otherwise; (l) any statute of limitations in any action under this Agreement or on the Indebtedness; or (m) any modification or change in terms of the Indebtedness, whatsoever, including without limitation, the renewal, extension, acceleration, or other change in the time payment of the Indebtedness is due and any change in the interest rate. Grantor waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies, such as nonjudicial foreclosure with respect to security for a guaranteed obligation, has destroyed Grantor's rights of subrogation and reimbursement against Borrower by the operation of Section 580d of the California Code of Civil Procedure, or otherwise. This waiver includes, without limitation, any loss of rights Grantor may suffer by reason of any rights or protection of Borrower in connection with any anti-deficiency laws, other laws limiting or discharging the Indebtedness of Borrower's obligations (including, without limitation, Section 726, 580a, 580b, and 580d of the California Code of Civil Procedure). Grantor waives all rights and protections of any kind which Grantor may have for any reason, which would affect or limit the amount of any recovery by Lender from Grantor following a nonjudicial sale or judicial foreclosure of any real or personal property security for the Indebtedness including, but not limited to, the right to any fair market value hearing pursuant to California Code of Civil Procedure Section 580a. Grantor understands and agrees that the foregoing waivers are waivers of substantive rights and defenses to which Grantor might otherwise be entitled under state and federal law. The rights and defenses waived include, without limitation, those provided by California laws of suretyship and guaranty, anti-deficiency laws, and the Uniform Commercial Code. Grantor acknowledges that Grantor has provided these waivers of rights and defenses with the intention that they be fully relied upon by Lender. Until all Indebtedness is paid in full, Grantor waives any right to enforce any remedy Lender may have against Borrower or any other guarantor, surety, or other person, and further, Grantor waives any right to participate in any collateral for the Indebtedness now or hereafter held by Lender. If now or hereafter (a) Borrower shall be or become insolvent, and (b) the Indebtedness shall not at all times until paid be fully secured by collateral pledged by Borrower, Grantor hereby forever waives and relinquishes in favor of Lender and Borrower, and their respective successors, any claim or right to payment Grantor may now have or hereafter have or acquire against Borrower, by subrogation or otherwise, so that at no time shall Grantor be or become a "creditor" of Borrower within the meaning of 11 U.S.C. section 547(b), or any successor provision of the Federal bankruptcy laws. RIGHT OF SETOFF. Grantor hereby grants Lender a contractual security interest in any hereby assigns, conveys, delivers, pledges, and transfers all of Grantor's right, title and interest in and to Grantor's accounts with Lender (whether checking, savings, or some other account), including all accounts held jointly with someone else and all accounts Grantor may open in the future, excluding, however, all IRA and Keough accounts, and all trust accounts for which the grant of a security interest would be prohibited by law. Grantor authorizes Lender, to the extent permitted by applicable law, to charge or setoff all Indebtedness against any and all such accounts. GRANTOR'S REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL. Grantor represents and warrants to Lender that: OWNERSHIP. Grantor is the lawful owner of the Collateral free and clear of all security interests, liens, encumbrances and claims of others except as disclosed to and accepted by Lender in writing prior to execution of this Agreement. RIGHT TO PLEDGE. Grantor has the full right, power and authority to enter into this Agreement and to pledge the Collateral. BINDING EFFECT. This Agreement is binding upon Grantor, as well as Grantor's heirs, successors, representatives and assigns, and is legally enforceable in accordance with its terms. NO FURTHER ASSIGNMENT. Grantor has not, and will not, sell, assign, transfer, encumber or otherwise dispose of any of Grantor's rights in the Collateral except as provided in this Agreement. NO DEFAULTS. There are no defaults existing under the Collateral, and there are no offsets or counterclaims to the same. Grantor will strictly and promptly perform each of the terms, conditions, covenants and agreements contained in the Collateral which are to be performed by Grantor, if any. NO VIOLATION. The execution and delivery of this Agreement will not violate any law or agreement governing Grantor or to which Grantor is a party, and its certificate or articles of incorporation and bylaws do not prohibit any term or condition of this Agreement. LENDER'S RIGHTS AND OBLIGATIONS WITH RESPECT TO COLLATERAL. Lender may hold the Collateral until all the Indebtedness has been paid and satisfied and thereafter may deliver the Collateral to any Grantor. Lender shall have the following rights in addition to all other rights it may have by law: MAINTENANCE AND PROTECTION OF COLLATERAL. Lender may, but shall not be obligated to, take such steps as it deems necessary or desirable to protect, maintain, insure, store, or care for the Collateral, including payment of any liens or claims against the Collateral. Lender may charge any cost incurred in so doing to Grantor. 20 06-22-2001 COMMERCIAL PLEDGE AGREEMENT PAGE 3 LOAN NO 2789-34 (CONTINUED) ================================================================================ INCOME AND PROCEEDS FROM THE COLLATERAL. Lender may receive all Income and Proceeds and add it to the Collateral. Grantor agrees to deliver to Lender immediately upon receipt, in the exact form received and without commingling with other property, all Income and Proceeds from the Collateral which may be received by, paid, or delivered to Grantor or for Grantor's account, whether as an addition to, in discharge of, in substitution of, or in exchange for any of the Collateral. APPLICATION OF CASH. At Lender's option, Lender may apply any cash, whether included in the Collateral or received as Income and Proceeds or through liquidation, sale, or retirement, of the Collateral, to the satisfaction of the Indebtedness or such portion thereof as Lender shall choose whether or not matured. TRANSACTIONS WITH OTHERS. Lender may (a) extend time for payment or other performance, (b) grant a renewal or change in terms or conditions, or (c) compromise, compound or release any obligation, with any one or more Obligors, endorsers, or Guarantors of the Indebtedness as Lender deems advisable, without obtaining the prior written consent of Grantor, and no such act or failure to act shall affect Lender's rights against Grantor or the Collateral. ALL COLLATERAL SECURES INDEBTEDNESS. All Collateral shall be security for the Indebtedness, whether the Collateral is located at one or more offices or branches of Lender and whether or not the office or branch where the Indebtedness is created is aware of or relies upon the Collateral. COLLECTION OF COLLATERAL. Lender, at Lender's option may, but need not, collect directly from the Obligors on any of the Collateral all Income and Proceeds or other sums of money and other property due and to become due under the Collateral, and Grantor authorizes and directs the Obligors, if Lender exercises such option, to pay and deliver to Lender all Income and Proceeds and other sums of money and other property payable by the terms of the Collateral and to accept Lender's receipt for the payments. POWER OF ATTORNEY. Grantor irrevocably appoints Lender as Grantor's attorney-in-fact, with full power of substitution, (a) to demand, collect, receive, receipt for, sue and recover all Income and Proceeds and other sums of money and other property which may now or hereafter become due, owing or payable from the Obligors in accordance with the terms of the Collateral; (b) to execute, sign and endorse any and all instruments, receipts, checks, drafts and warrants issued in payment for the Collateral; (c) to settle or compromise any and all claims arising under the Collateral, and in the place and stead of Grantor, execute and deliver Grantor's release and acquitance for Grantor; (d) to file any claim or claims or to take any action or institute or take part in any proceedings, either in Lender's own name or in the name of Grantor, or otherwise, which in the discretion of Lender may seem to be necessary or advisable; and (e) to execute in Grantor's name and to deliver to the Obligors on Grantor's behalf, at the time and in the manner specified by the Collateral, any necessary Instruments or documents. PERFECTION OF SECURITY INTEREST. Upon request of Lender, Grantor will deliver to Lender any and all of the documents evidencing or constituting the Collateral. When applicable law provides more than one method of perfection of Lender's security interest, Lender may choose the method(s) to be used. Upon request of Lender, Grantor will sign and deliver any writings necessary to perfect Lender's security interest. Grantor hereby appoints Lender as Grantor's irrevocable attorney-in-fact for the purpose of executing any documents necessary to perfect or to continue the security interest granted in this Agreement. This is a continuing Security Agreement and will continue in effect even though all or any part of the Indebtedness is paid in full and even though for a period of time Borrower may not be indebted to Lender. EXPENDITURES BY LENDER. If not discharged or paid when due, Lender may (but shall not be obligated to) discharge or pay any amounts required to be discharged or paid by Grantor under this Agreement, including without limitation all taxes, liens, security interests, encumbrances, and other claims, at any time levied or placed on the Collateral. Lender also may (but shall not be obligated to) pay all costs for insuring, maintaining and preserving the Collateral. All such expenditures incurred or paid by Lender for such purposes will then bear interest at the rate charged under the Note from the date incurred or paid by Lender to the date of repayment by Grantor. All such expenses shall become a part of the Indebtedness and, at Lender's option, will (a) be payable on demand, (b) be added to the balance of the Note and be apportioned among and be payable with any installment payments to become due during either (i) the term of any applicable insurance policy or (ii) the remaining term of the Note, or (c) be treated as a balloon payment which will be due and payable at the Note's maturity. This Agreement also will secure payment of these amounts. Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default. LIMITATIONS ON OBLIGATIONS OF LENDER. Lender shall use ordinary reasonable care in the physical preservation and custody of the Collateral in Lender's possession, but shall have no other obligation to protect the Collateral or its value. In particular, but without limitation. Lender shall have no responsibility for (a) any depreciation in value of the Collateral or for the collection or protection of any Income and Proceeds from the Collateral, (b) preservation of rights against parties to the Collateral or against third persons, (c) ascertaining any maturities, calls, conversions, exchange, offers, tenders, or similar matters relating to any of the Collateral, or (d) informing Grantor about any of the above, whether or not Lender has or is deemed to have knowledge of such matters. Except as provided above, Lender shall have no liability for depreciation or deterioration of the Collateral. EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default under this Agreement: DEFAULT ON INDEBTEDNESS. Failure of Borrower to make any payment when due on the Indebtedness. OTHER DEFAULTS. Failure of Borrower or Grantor to comply with or to perform any other term, obligation, covenant or condition contained in this Agreement or in any of the Related Documents or failure of Borrower to comply with or to perform any term, obligation, covenant or condition contained in any other agreements between Lender and Borrower. INSOLVENCY. The dissolution or termination of Borrower or Grantor's existence as a going business, the insolvency of Borrower or Grantor, the appointment of a receiver for any part of Borrower or Grantor's property, any assignment for the benefit of creditors, any type of creditor workout, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against Borrower or Grantor. CREDITOR OR FORFEITURE PROCEEDINGS. Commencement of foreclosure or forfeiture proceedings, whether by judicial proceeding, self-help, repossession or any other method, by any creditor of Borrower or Grantor or by any governmental agency against the Collateral or any other collateral securing the Indebtedness. This includes a garnishment of any of Borrower or Grantor's deposit accounts with Lender. EVENTS AFFECTING GUARANTOR. Any of the preceding events occurs with respect to any Guarantor of any of the Indebtedness or such Guarantor dies or becomes incompetent. INSECURITY. Lender, in good faith, deems itself insecure. RIGHTS AND REMEDIES ON DEFAULT. If an Event of Default occurs under this Agreement, at any time thereafter, Lender may exercise any one or more of the following rights and remedies: ACCELERATE INDEBTEDNESS. Declare all Indebtedness, including any prepayment penalty which Borrower would be required to pay, immediately due and payable, without notice of any kind to Borrower or Grantor. COLLECT THE COLLATERAL. Collect any of the Collateral and, at Lender's option and to the extent permitted by applicable law, retain possession of the Collateral while suing on the Indebtedness. SELL THE COLLATERAL. Sell the Collateral, at Lender's discretion, as a unit or in parcels, at one or more public or private sales. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Lender shall give or mail to Grantor, or any of them, notice at least ten (10) days in advance of the time and place of any public sale, or of the date after which any private sale may be 21 06-22-2001 COMMERCIAL PLEDGE AGREEMENT PAGE 4 LOAN NO 2789-34 (CONTINUED) ================================================================================ made. Grantor agrees that any requirement of reasonable notice is satisfied if Lender mails notice by ordinary mail addressed to Grantor, or any of them, at the last address Grantor has given Lender in writing. If a public sale is held, there shall be sufficient compliance with all requirements of notice to the public by a single publication in any newspaper of general circulation in the county where the Collateral is located, setting forth the time and place of sale and a brief description of the property to be sold. Lender may be a purchaser at any public sale. REGISTER SECURITIES. Register any securities included in the Collateral in Lender's name and exercise any rights normally incident to the ownership of securities. SELF SECURITIES. Sell any securities included in the Collateral in a manner consistent with applicable federal and state securities laws, notwithstanding any other provision of this or any other agreement. If, because of restrictions under such laws, Lender is or believes it is unable to sell the securities in an open market transaction, Grantor agrees that Lender shall have no obligation to delay sale until the securities can be registered, and may make a private sale to one or more persons or to a restricted group of persons, even though such sale may result in a price that is less favorable than might be obtained in an open market transaction, and such a sale shall be considered commercially reasonable. If any securities held as Collateral are "restricted securities" as defined in the Rules of the Securities and Exchange Commission (such as Regulation D or Rule 144) or state securities departments under state "Blue Sky" laws, or if Borrower or Grantor is an affiliate of the issuer of the securities, Borrower and Grantor agree that neither Grantor nor any agent of Grantor will sell or dispose of any securities of such issuer without obtaining Lender's prior written consent. FORECLOSURE. Maintain a judicial suit for foreclosure and sale of the Collateral. TRANSFER TITLE. Effect transfer of title upon sale of all or part of the Collateral. For this purpose, Grantor irrevocably appoints Lender as its attorney-in-fact to execute endorsements, assignments and instruments in the name of Grantor and each of them (if more than one) as shall be necessary or reasonable. OTHER RIGHTS AND REMEDIES. Have and exercise any or all of the rights and remedies of a secured creditor under the provisions of the Uniform Commercial Code, at law, in equity, or otherwise. APPLICATION OF PROCEEDS. Apply any cash which is part of the Collateral, or which is received from the collection or sale of the Collateral, to reimbursement of any expenses, including any costs for registration of securities, commissions incurred in connection with a sale, attorney fees as provided below, and court costs, whether or not there is a lawsuit and including any fees on appeal, incurred by Lender in connection with the collection and sale of such Collateral and to the payment of the Indebtedness of Borrower to Lender, with any excess funds to be paid to Grantor as the interests of Grantor may appear. Borrower agrees, to the extent permitted by law, to pay any deficiency after application of the proceeds of the Collateral to the Indebtedness. CUMULATIVE REMEDIES. All of Lender's rights and remedies, whether evidenced by this Agreement or by any other writing, shall be cumulative and may be exercised singularly or concurrently. Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Grantor under this Agreement, after Grantor's failure to perform, shall not affect Lender's right to declare a default and to exercise its remedies. MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part of this Agreement: AMENDMENTS. This Agreement, together with any Related Documents, constitutes the entire understanding and agreement of the parties as to the matters set forth in this Agreement. No alteration of or amendment to this Agreement shall be effective unless given in writing and signed by the party or parties sought to be charged or bound by the alteration or amendment. APPLICABLE LAW. This Agreement has been delivered to Lender and accepted by Lender in the State of California. If there is a lawsuit, Borrower and Grantor agree upon Lender's request to submit to the jurisdiction of the courts of Sacramento County, the State of California. Lender, Borrower and Grantor hereby waive the right to any jury trial in any action, proceeding, or counterclaim brought by either Lender, Borrower or Grantor against the other. This Agreement shall be governed by and construed in accordance with the laws of the State of California. ATTORNEYS' FEES; EXPENSES. Borrower and Grantor agree to pay upon demand all of Lender's costs and expenses, including attorneys' fees and Lender's legal expenses, incurred in connection with the enforcement of this Agreement. Lender may pay someone else to help enforce this Agreement, and Borrower and Grantor shall pay the costs and expenses of such enforcement. Costs and expenses include Lender's attorneys' fees and legal expenses whether or not there is a lawsuit, including attorneys' fees and legal expenses for bankruptcy proceedings (and including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services. Borrower and Grantor also shall pay all court costs and such additional fees as may be directed by the court. CAPTION HEADINGS. Caption headings in this Agreement are for convenience purposes only and are not to be used to interpret or define the provisions of this Agreement. NOTICES. All notices required to be given under this Agreement shall be given in writing, may be sent by telefacsimile (unless otherwise required by law), and shall be effective when actually delivered or when deposited with a nationally recognized overnight courier or deposited in the United States mail, first class, postage prepaid, addressed to the party to whom the notice is to be given at the address shown above. Any party may change its address for notices under this Agreement by giving formal written notice to the other parties, specifying that the purpose of the notice is to change the party's address. To the extent permitted by applicable law, if there is more than one Borrower or Grantor, notice to any Borrower or Grantor will constitute notice to all Borrower and Grantors. For notice purposes, Borrower and Grantor will keep Lender informed at all times of Borrower and Grantor's current address(es). SEVERABILITY. If a court of competent jurisdiction finds any provision of this Agreement to be invalid or unenforceable as to any person or circumstance, such finding shall not render that provision invalid or unenforceable as to any other persons or circumstances. If feasible, any such offending provision shall be deemed to be modified to be within the limits of enforceability or validity; however, if the offending provision cannot be so modified, it shall be stricken and all other provisions of this Agreement in all other respects shall remain valid and enforceable. SUCCESSOR INTERESTS. Subject to the limitations set forth above on transfer of the Collateral, this Agreement shall be binding upon and inure to the benefit of the parties, their successors and assigns. WAIVER. Lender shall not be deemed to have waived any rights under this Agreement unless such waiver is given in writing and signed by Lender. No delay or omission on the part of Lender in exercising any right shall operate as a waiver of such right or any other right. A waiver by Lender of a provision of this Agreement shall not prejudice or constitute a waiver of Lender's right otherwise to demand strict compliance with that provision or any other provision of this Agreement. No prior waiver by Lender, nor any course of dealing between Lender and Grantor, shall constitute a waiver of any of Lender's rights or of any of Grantor's obligations as to any future transactions. Whenever the consent of Lender is required under this Agreement, the granting of such consent by Lender in any instance shall not constitute continuing consent to subsequent instances where such consent is required and in all cases such consent may be granted or withheld in the sole discretion of Lender. ADDENDUM TO COMMERCIAL PLEDGE AGREEMENT. An exhibit, titled "ADDENDUM TO COMMERCIAL PLEDGE AGREEMENT," is attached to this Agreement and by this reference is made a part of this Agreement just as if all the provisions, terms and conditions of the Exhibit had been fully set 22 06-22-2001 COMMERCIAL PLEDGE AGREEMENT PAGE 5 LOAN NO 2789-34 (CONTINUED) ================================================================================ forth in this Agreement. BORROWER AND GRANTOR ACKNOWLEDGE HAVING READ ALL THE PROVISIONS OF THIS PLEDGE AGREEMENT, AND BORROWER AND GRANTOR AGREE TO ITS TERMS. THIS AGREEMENT IS DATED JUNE 22, 2001. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. BY: /s/ ALAN REDHEAD ----------------------------------- ALAN REDHEAD, PRESIDENT GRANTOR: SEA VIEW RESTAURANTS, INC. BY: /s/ ALAN REDHEAD ----------------------------------- ALAN REDHEAD, PRESIDENT ================================================================================ 23 ADDENDUM TO COMMERCIAL SECURITY AGREEMENT ================================================================ BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91436

================================================================ This ADDENDUM TO COMMERCIAL SECURITY AGREEMENT is attached to and by this reference is made a part of each Security Agreement, dated June 22, 2001, and executed in connection with a loan or other financial accommodations between U.S. Bank National Association and CALIFORNIA BEACH RESTAURANTS, INC. Capitalized terms used in this Addendum and not defined herein but defined in the Security Agreement shall have the meanings ascribed to such terms under the Security Agreement. For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Grantor and the Lender agree as follows with respect to the Security Agreement, notwithstanding any language to the contrary contained in the Security Agreement: 1. References in the Security Agreement to the term "Uniform Commercial Code" shall be deemed to refer to Revised Article 9 of the Uniform Commercial Code, as adopted in the State whose laws govern the Security Agreement, or, if Revised Article 9 has not been so adopted, as promulgated by the National Commissioners on Uniform State Laws. 2. Grantor agrees that Lender may file financing statements containing a description of the Collateral broader than that set forth in the Security Agreement. Grantor also agrees to execute and cooperate with Lender in obtaining from third parties control agreements in form satisfactory to Lender with respect to Collateral consisting of, or including, investment property, deposit accounts, letter-of-credit rights, and electronic chattel paper. If any Collateral is in the possession of a bailee, Grantor will join with Lender in notifying the bailee of Lender's interest and in obtaining from the bailee an acknowledgment that the bailee holds the Collateral for Lender's benefit. 3. Grantor represents that the information set forth in the Security Agreement with respect to Grantor's name, location and organizational structure is correct. Grantor will not change its name, its location, its jurisdiction of organization, or its organizational structure without giving Lender at least thirty (30) days' prior written notice and will periodically provide Lender with evidence that no change has occurred. 4. To the extent that Grantor uses any amounts loaned to purchase Collateral, Grantor's repayment of the loan amounts shall apply on a "first-in-first-out" basis so that the portion of the loan amounts used to purchase a particular item of Collateral shall be paid in the chronological order in which the Grantor purchased the Collateral. 5. To the extent that Collateral includes chattel paper, at the time Grantor creates any chattel paper, Grantor shall place a legend on the chattel paper indicating that Lender has a security interest in the chattel paper. 6. Grantor will not license any Collateral. 7. Lender's rights described in the paragraph of the Security Agreement titled "Grantor's Right to Possession and to Collect Accounts" apply to Collateral consisting of accounts and/or any other rights to payment. 8. In addition to the events described in the "Events of Default" section of the Security Agreement, it shall also constitute an Event of Default under the Security Agreement. If Lender receives at any time following execution of the Security Agreement any information indicating that Lender's security interest is not prior to all other security interests or other interests in the Collateral, except as otherwise agreed by Lender. 9. In addition to the Lender's rights and remedies as described in the section of the Security Agreement headed "Sell the Collateral," if an Event of Default occurs under the Security Agreement Lender may dispose of any of the Collateral at public auction or private sale in its then present condition or following such preparation and processing as Lender deems commercially reasonable. Lender has no duty to prepare or process the Collateral prior to sale. Lender may disclaim warranties of title, possession, quiet enjoyment and the like. Such actions by Lender shall not affect the commercial reasonableness of the sale. Further, Lender may comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. 10. To the extent that the Collateral listed in the Security Agreement includes general intangibles, it also includes without limitation all software and payment intangibles; to the extent such Collateral includes accounts. It also includes without limitation all health-care insurance receivables; In the event such Collateral includes Inventory, chattel paper, accounts, equipment and general intangibles, it also includes without limitation all of the property described above in this paragraph plus all instruments, deposit accounts, letter of credit rights, investment property, money, documents, as-extracted collateral and fixtures. In any event, the Collateral listed in the Security Agreement includes all supporting obligations as to any such Collateral and all products of such collateral. In the event of any direct conflict between the terms of the Security Agreement and this Addendum, the terms of this Addendum shall control. THIS ADDENDUM TO COMMERCIAL SECURITY AGREEMENT IS EXECUTED ON JUNE 22, 2001. /s/ ALAN REDHEAD X --------------------------------- ----------------------------- LENDER: U.S. BANK NATIONAL ASSOCIATION By: /s/ [Signature Illegible] ------------------------------ Authorized Officer 24 ADDENDUM TO COMMERCIAL PLEDGE AGREEMENT ======================================= BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL ASSOCIATION 17383 SUNSET BOULEVARD, SUITE 140 15910 VENTURA BOULEVARD PACIFIC PALISADES, CA 90272 ENCINO, CA 91436

======================================= This ADDENDUM TO COMMERCIAL PLEDGE AGREEMENT is attached to and by this reference is made a part of each Pledge Agreement, dated June 22, 2001, and executed in connection with a loan or other financial accommodations between U.S. Bank National Association and CALIFORNIA BEACH RESTAURANTS, INC. Capitalized terms used in this Addendum and not defined herein but defined in the Pledge Agreement shall have the meanings ascribed to such terms under the Pledge Agreement. For valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Grantor and the Lender agree as follows with respect to the Pledge Agreement, notwithstanding any language to the contrary contained in the Pledge Agreement: 1. References in the Pledge Agreement to the term "Uniform Commercial Code" shall be deemed to refer to Revised Article 9 of the Uniform Commercial Code, as adopted in the state whose laws govern the Pledge Agreement or, if Revised Article 9 has not been so adopted, as promulgated by the National Commissioners on Uniform State Laws. Terms used in the Pledge Agreement not otherwise defined in the Pledge Agreement will have the meanings given such terms under such Uniform Commercial Code. 2. Grantor agrees that Lender may file financing statements containing a description of the Collateral broader than that set forth in the Pledge Agreement. Grantor also agrees to execute and cooperate with Lender in obtaining from third parties control agreements in form satisfactory to Lender with respect to Collateral consisting of, or including, investment property, deposit accounts, letter-of-credit rights, and electronic chattel paper. If any Collateral is in the possession of a bailee, Grantor will join with Lender in notifying the bailee of Lender's interest and in obtaining from the bailee an acknowledgment that the bailee holds the Collateral for Lender's benefit. 3. Grantor represents that the information set forth in the Pledge Agreement with respect to Grantor's name, location and organizational structure is correct. Grantor will not change its name, its location, its jurisdiction of organization, or its organizational structure without giving Lender at least thirty (30) days prior written notice and will periodically provide Lender with evidence that no change has occurred. 4. The paragraph of the Pledge Agreement headed "Applicable Law" is modified by adding onto the end of that paragraph the phrase "except to the extent that the Uniform Commercial Code provides for the application of the laws of any other state." 5. If more than one person is liable for the Indebtedness, Grantor irrevocably waives, disclaims and relinquishes all claims against such other person which Grantor has or would otherwise have by virtue of payment of the Indebtedness or any part thereof, specifically including but not limited to all rights of indemnity, contribution or exoneration. THIS ADDENDUM TO COMMERCIAL PLEDGE AGREEMENT IS EXECUTED ON JUNE 22, 2001. X /s/ ALAN REDHEAD X -------------------------------- -------------------------------- LENDER: U.S. Bank National Association By: /s/ [Signature Illegible] ------------------------------ Authorized Officer ================================================================================ EX-10.80 4 v74381ex10-80.txt EXHIBIT 10.80 1 EXHIBIT 10.80 [US BANK LOGO] CHANGE IN TERMS AGREEMENT [TABLE ILLEGIBLE] References in the shaded area are for Lender's use only and do not limit the applicability of this document to any particular loan or item. BORROWER: CALIFORNIA BEACH RESTAURANTS, INC. LENDER: U.S. BANK NATIONAL 17383 SUNSET BOULEVARD, NUMBER 140 ASSOCIATION PACIFIC PALISADES, CA 90272 15810 VENTURA BOULEVARD ENCINO, CA 91438 ================================================================================ PRINCIPAL AMOUNT: $500,000.00 DATE OF AGREEMENT: MARCH 26, 2001 DESCRIPTION OF EXISTING INDEBTEDNESS. THAT CERTAIN PROMISSORY NOTE EXECUTED BY BORROWER ON JUNE 16, 2000 IN THE ORIGINAL AMOUNT OF $500,000.00, AS IT MAY HAVE BEEN AMENDED OR RENEWED FROM TIME TO TIME (THE NOTE). DESCRIPTION OF CHANGE IN TERMS. FOR VALUABLE CONSIDERATION, THE BORROWER AND LENDER HEREBY AGREE THAT THE TERMS OF THE NOTE ARE CHANGED AS FOLLOWS: EFFECTIVE MARCH 31, 2001, THE PRINCIPAL AMOUNT OF THE NOTE IS HEREBY INCREASED TO $700,000.00 UNTIL MAY 31, 2001, AT WHICH TIME THE PRINCIPAL AMOUNT OF THE NOTE SHALL REVERT BACK TO $500,000.00. ARBITRATION. Lender and Borrower agree that all disputes, claims and controversies between them, whether individual, joint, or class in nature, arising from this Agreement or otherwise, including without limitation contract and tort disputes, shall be arbitrated pursuant to the Rules of the American Arbitration Association, upon request of either party. No act to take or dispose of any collateral securing this Agreement shall constitute a waiver of this arbitration agreement or be prohibited by this arbitration agreement. This includes, without limitation, obtaining injunctive relief or a temporary restraining order; invoking a power of sale under any deed of trust or mortgage; obtaining a writ of attachment or imposition of a receiver; or exercising any rights relating to personal property, including taking or disposing of such property with or without judicial process pursuant to Article 9 of the Uniform Commercial Code. Any disputes, claims, or controversies concerning the lawfulness or reasonableness of any act, or exercise of any right, concerning any collateral securing this Agreement, including any claim to rescind, reform, or otherwise modify any agreement relating to the collateral securing this Agreement, shall also be arbitrated, provided however that no arbitrator shall have the right or the power to enjoin or restrain any act of any party. Lender and Borrower agree that in the event of an action for judicial foreclosure pursuant to California Code of Civil Procedure Section 726, or any similar provision in any other state, the commencement of such an action will not constitute a waiver of the right to arbitrate and the court shall refer to arbitration as much of such action, including counterclaims, as lawfully may be referred to arbitration, judgment upon any award rendered by any arbitrator may be entered in any court having jurisdiction. Nothing in this Agreement shall preclude any party from seeking equitable relief from a court of competent jurisdiction. The statute of limitations, estoppel, waiver, laches, and similar doctrines which would otherwise be applicable in an action brought by a party shall be applicable in any arbitration proceeding, and the commencement of an arbitration proceeding shall be deemed the commencement of an action for these purposes. The Federal Arbitration Act shall apply to the construction, interpretation, and enforcement of this arbitration provision. CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. Consent by Lender to this Agreement does not waive Lender's right to strict performance of the obligation(s) as changed, nor obligate Lender to make any future change in terms. Nothing in this Agreement will constitute a satisfaction of the obligation(s). It is the intention of Lender to retain as liable parties all makers and endorsers of the original obligation(s), including accommodation parties, unless a party is expressly released by Lender in writing. Any maker or endorser, including accommodation makers, will not be released by virtue of this Agreement if any person who signed the original obligation does not sign this Agreement below, then all persons signing below acknowledge that this Agreement is given conditionally, based on the representation to Lender that the non-signing party consents to the changes and provisions of this Agreement or otherwise will not be released by it. This waiver applies not only to any initial extension, modification or release, but also to all such subsequent actions. LATE CHARGE. If a payment is 15 days or more past due, borrower will be charged a late charge of 5% of the delinquent payment. PAYMENT BY AUTOMATIC DEDUCTION. Borrower hereby authorizes Lender to automatically deduct the amount of all principal and/or interest payments on this Note from Borrower's account number 164301120709 with Lender or such other account as Borrower may designate in writing. If there are insufficient funds in the account to pay the automatic deduction in full, Lender may allow the account to become overdrawn, or Lender may reverse the automatic deduction. Borrower will pay all fees on the account which result from the automatic deductions, including any overdraft/NSF charges. If for any reason Lender does not charge the account for a payment, or if an automatic payment is reversed, the payment is still due according to this Note. If the account is a Money Market Account, the number of withdrawals from that account is limited as set out in the account agreement. Lender may cancel the automatic deduction at any time in its discretion. EX-23.1 5 v74381ex23-1.txt EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-97554) pertaining to the Omnibus Stock Plan of California Beach Restaurants, Inc. of our report dated June 20, 2001, with respect to the consolidated financial statements of California Beach Restaurants, Inc. included in the Annual Report (Form 10-K) for the year ended April 30, 2001. ERNST & YOUNG LLP Los Angeles, California July 21, 2001

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California		95-2693503




(state or other jurisdiction of Incorporation or organization)		(IRS Employer Identification No.)





17383 Sunset Boulevard, Suite 140 Pacific Palisades, California		90272




(Address of principal executive office)		(Zip Code)


	Page

Report of Independent Auditors		15




Consolidated Balance Sheets — April 30, 2001 and 2000		16




Consolidated Statements of Operations for each of the three years in the period ended April 30, 2001		17




Consolidated Statements of Stockholders’ Equity (Deficit) for each of the three years in the period ended April 30, 2001		18




Consolidated Statements of Cash Flows for each of the three years in the period ended April 30, 2001		19




Notes to Consolidated Financial Statements		20


Signature	Title	Date


/s/ Alan Redhead Alan Redhead	Chairman of the Board Chief Executive Officer, Director, and Chief Financial Officer	July 27, 2001

/s/ J. Christopher Lewis J. Christopher Lewis	Director	July 27, 2001

/s/ Jefferson W. Asher, Jr. Jefferson W. Asher, Jr.	Director	July 27, 2001

/s/ Richard P. Bermingham Richard P. Bermingham	Director	July 27, 2001

/s/ Robert L. Morrison Robert L. Morrison	Director	July 27, 2001