-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OR5xsG8rcJ7A+NEbf3CjIKONnY8l/3AYO825FWdycEytDWUmEtSHIkXAjDBUKwxU kLPuLTEaznPnnCueR/Nz0Q== 0000950123-96-005655.txt : 19961017 0000950123-96-005655.hdr.sgml : 19961017 ACCESSION NUMBER: 0000950123-96-005655 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961015 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RATTLESNAKE HOLDING CO INC CENTRAL INDEX KEY: 0000935499 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-EATING PLACES [5812] IRS NUMBER: 061369616 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 001-13818 FILM NUMBER: 96643841 BUSINESS ADDRESS: STREET 1: 3 STAMFORD LANDING STREET 2: STE 130 CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2039759455 MAIL ADDRESS: STREET 1: 3 STAMFORD LANDING SUITE 130 CITY: STAMFORD STATE: CT ZIP: 06902 10KSB 1 RATTLESNAKE HOLDING COMPANY, INC. 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended June 30, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from _______________ to ________________ Commission File No. 1-13818 THE RATTLESNAKE HOLDING COMPANY, INC. (Exact name of registrant as specified in its charter) Delaware 06-1369616 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3 Stamford Landing, Suite 130 Stamford, Connecticut 06902 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (203) 975-9455 Securities registered pursuant to Section 12(b) of the Exchange Act: Name of each exchange on Title of each class which registered Common Stock, $.001 par value Boston Stock Exchange Securities registered pursuant to Section 12(g) of the Exchange Act: 2 NONE (Title of class) (Title of class) [Cover Page 1 of 2 Pages] 3 Check whether the Issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Check if there is no disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ] The Issuer's revenues for its most recent fiscal ended June 30, 1996 were $8,755,565. On October 9, 1996, the aggregate market value of the voting stock of The Rattlesnake Holding Company, Inc. (consisting of Common Stock, $.001 par value) held by non-affiliates of the Registrant was approximately $7,381,725 based on the average closing bid and asked prices for such Common Stock on said date as reported by NASDAQ. APPLICABLE ONLY TO CORPORATE REGISTRANTS On October 9, 1996, there were 2,643,734 shares of Common Stock, $.001 par value, were issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE None [Cover Page 2 of 2 Pages] 4 PART I ITEM 1. BUSINESS INTRODUCTION The Rattlesnake Holding Company, Inc. (the "Company") was organized in June 1993 to develop, own and operate a chain of casual dining restaurants featuring a southwestern theme. The Company currently operates seven restaurants under the name "Rattlesnake Southwestern Grill" and plans to open two additional restaurants in 1997. The Rattlesnake concept is designed to appeal to the casual dining guest by creating a relaxed restaurant experience for families and couples in an attractive southwestern setting. Each restaurant features contemporary southwestern decor with desert pastel colors and native American art and artifacts. The restaurants include a 40 to 60 foot full relief, mosaic rattlesnake bar, sculpted and tiled by artisans. The varied "all day" menu offers wide selection and customer value and includes traditional favorites as well as spicy recipes inspired by the cuisine of Arizona, New Mexico and Texas. Checks average $10.25 at lunch and $13.90 at dinner per person. The Rattlesnake Southwestern Grill acquisition and conversion strategy was designed and developed to take advantage of the many available restaurants in choice locations whose operations for any one of a number of reasons did not succeed. The Rattlesnake's ability to adapt its design to existing "upfitted" facilities enables it to completely renovate and outfit a facility for less than an average of $500,000 for 6,000-8,000 square feet, exclusive of acquisition costs. Moreover, the Company has completed full conversions of existing restaurant facilities from take-over to opening in six to eight weeks. The Company believes this formula gives the Rattlesnake a significant advantage in rollout time and cost over industry leaders in the same segment. The first Rattlesnake Southwestern Grill was opened in June 1992 in historic South Norwalk, Connecticut as a prototype and distinguished entry into the "theme" restaurant market segment. The Company opened seven additional restaurants in Hamden, Fairfield and Danbury, Connecticut and Lynbrook, White Plains and Yorktown Heights, New York and Flemington, New Jersey. All existing Rattlesnake Restaurants are located in renovated facilities where restaurants were previously operated. The Hamden, Connecticut location did not meet the Company's performance standards. In response to this poor performance, the Company closed this facility in January 1996. The Company believes that the relatively low costs of acquisition and the speed of renovation increase the Company's ability to generate revenues rapidly. The Company also believes that casual "theme" restaurants represent a strong segment of the restaurant market and that the southwestern concept represents a highly appealing but unsaturated portion of that segment. However, due to a number of factors, including the Company's limited operating history, small restaurant base and geographic concentration, as well as the dependence of the Company's expansion strategy on certain external factors which it cannot control, there can be no assurance that the Company's plan of operation will prove profitable or commercially viable. 1 5 The Company was incorporated in the State of Delaware on June 8, 1993. The executive offices of the Company are located at 3 Stamford Landing -- Suite 130, Stamford, Connecticut 06902, and its telephone number is (203) 975-9455. GENERAL BUSINESS DEVELOPMENTS DURING THE LAST FISCAL YEAR In June 1996, the Company completed a Private Placement of 54,500 shares of Preferred Stock and Common Stock purchase warrants to purchase 218,000 shares of common stock (the "Private Placement"). The offering price of the preferred stock was $24.50 per share and $.50 for the four warrants sold with each share of preferred (i.e. $.125 per warrant) The warrants have an exercise price of $7.00 per share and expire August 31, 2001. The preferred shares are convertible into common stock at a conversion price equal to the lesser 120% of the average of the last reported sale price of the common stock for the 10 trading days immediately preceding the closing or $4.50 or 85% of the average of the last reported sale price of the common stock for the 10 trading days immediately preceding the first anniversary of the closing subject to certain anti-dilution adjustments. The preferred stock is redeemable at the option of the Company commencing one year after the closing provided the average of the last reported sale price of the common stock equals or exceeds 150% of the conversion price for the twenty consecutive trading days ending five days prior to the notice of redemption at the following prices: Prior to June 30, 1997 $29.40(120%) June 30, 1997 to June 30, 1999 $26.96(110%) After June 30, 1999 $25.73(105%)
In August, 1995, the Company opened a 7,200 square foot facility in Danbury, Connecticut and in November, 1995, the Company opened a 7,800 square foot facility in Flemington, New Jersey. The newest facility, opened in Lynbrook, New York in June, 1996, is 7,700 square feet. The Company will continue to use the proceeds from the Private Placement to develop new Rattlesnake restaurants and implement the Company's expansion strategy. BUSINESS ORGANIZATION In March 1992, Rattlesnake Ventures, Inc. ("RVI") was organized for the purpose of owning and operating the South Norwalk facility. In June 1993, the Company was established to act as a holding company for the restaurants and in August 1993, acquired all of the outstanding shares of RVI in exchange for 685,617 shares of common stock. In November 1993, the Company acquired all of the outstanding shares of PEN-Z Corp. ("PEN-Z") from Penny Markatos, the mother of Peter Markatos, the Executive Vice President of the Company, for a $300,000 note, 36,084 shares of Common Stock, and other consideration. See "Certain Relationships and Related Transactions." At the time of the acquisition, PEN-Z was not an operating entity and its principal asset was the liquor license for the Yorktown Heights facility. 2 6 The Company has established new subsidiary corporations for each new restaurant operation and such subsidiaries are owned by the holding company. THE CONCEPT - THE RATTLESNAKE SOUTHWESTERN GRILL The Rattlesnake Southwestern Grill concept was designed and developed to take advantage of the many available restaurants in choice locations whose operations for any one of a number of reasons did not succeed. The Rattlesnake's ability to adapt its design to existing "upfitted" facilities enables it to completely renovate and outfit a facility for less than an average of $70.00 per square feet, exclusive of facility acquisition costs. Moreover, the Company has completed full conversions of existing restaurant facilities from take-over to opening in six to eight weeks. The Company believes this formula gives the Rattlesnake a significant advantage in rollout time and cost over industry leaders in the same segment. The Company believes that the relatively low costs of acquisition and the speed of renovation increase the Company's ability to generate revenues rapidly. Further, the trend toward two wage earner families will strongly influence dining habits for the nineties and beyond as families prepare less meals at home during the work week. The emphasis on quality meals in comfortable surroundings will move families to consider alternatives to the fast food restaurants. Tablecloth restaurants, while very popular, are not able to accommodate this market due to their relatively high prices for the repeat customer (2 to 3 times per week). The Company believes the expanding theme restaurant segment has become the concept of choice for families whose working parents have moved away from in-home dining and toward frequent outside dining. The Company also believes that casual "theme" restaurants represent a strong segment of the restaurant market and that southwestern concepts represent a highly appealing but unsaturated portion of that segment. However, due to a number of factors, including the Company's limited operating history, small restaurant base and geographic concentration, as well as the dependence of the Company's expansion strategy on certain external factors which it cannot control, there can be no assurance that the Company's plan of operation will prove profitable or commercially viable. THE RATTLESNAKE MENU The menu of the Rattlesnake is a varied offering which provides a wide selection and customer value. It is a diverse "all day" menu which offers traditional favorites and spicy recipes inspired by the cuisine of Arizona, New Mexico and Texas. Dinner customers can choose from slow-cooked Texas style BBQ ribs and "shredded" meats to grilled salmon. Light alternatives include salad, sandwich or pasta selections. The Rattlesnake also offers a prime 1/2 pound, "Buckaroo Burger" where customers can choose from a variety of toppings as add-ons. Other selections include "Rattlesnake Prairie Pizza," a southwestern variation of the Italian classic, with choices from BBQ chicken and smoked chorizo sausage to Santa Fe garden vegetables, all atop a paper thin crust made from lightly fried flour tortillas. The Rattlesnake also offers three varieties of chili; the "Soon to be Famous, Three Bean, Beef and Chorizo Chili" made with top 3 7 round of beef, instead of ground meat; "Buzzards Breath Chicken Chili" a white chili filled with grilled boneless breast of chicken, white beans, garlic and green chilies; and savory "Navajo Vegetable Chili" which offers a fat-free healthful alternative. Fajitas are among the strongest segment of the menu and the Rattlesnake offers a variety including the standard chicken, beef and shrimp, and the more unusual portabello mushroom, salmon, spicy chorizo sausage and vegetarian. The Company also added Diamond Brand Angus steaks to the menu which capitalizes on the renewed popularity of steakhouses and quality beef. Menu prices range from $1.95 to $23.95, with an average per person check of $10.25 for lunch and $13.90 for dinner. The Company believes that many of these menu items are popular in the take-out food market, and the Company has launched an initiative called "Grub to Go," offering an alternative to the traditional Chinese and pizza take-out options. The Company is also currently developing an off-premises catering program offering corporate and private Southwestern barbecues and buffets, delivered and served at client locations. MARKETING STRATEGY The Company believes that the upward trend in theme type restaurants will continue as the public continues its desire for value and entertainment. Restaurants are entertainment, and in this respect, the Rattlesnake appeals to a broad spectrum of the market. The largest segment is the 25 to 35 year old seeking diverse fare in an environment conducive to socializing. The menu, energetic bar and live entertainment in a contemporary southwestern ambiance provide the inducement for this market. Family business is encouraged as the Rattlesnake is a "kid friendly" restaurant offering "Kid's Grub" menu, crayons, balloons and games. The energy of the restaurant relieves parents of the fear that their children might disturb other diners. The unique nature of the product is also a repeat business generator. The Company attempts to offer many menu items which can only be obtained at The Rattlesnake Southwestern Grill. The Company believes that further opportunities exist in the areas of "Take Out" and "Off Premises" Catering. Many families consist of multiple wage earners, many of which regularly seek take out foods as alternatives to cooking in or eating out. The food at the Rattlesnake is well suited for these meals. Catering is also a potential growth component of the business. Many corporations are currently seeking unique experiences as well as low cost alternatives for company entertainment. EXPANSION STRATEGY The Company's expansion strategy is based upon four principles which build on its commitment to provide consistently high quality food and attentive service: 1) INVEST IN ARCHITECTURAL, DECORATIVE AND ENTERTAINMENT FEATURES TO CREATE STIMULATING AND ENTERTAINING ENVIRONMENTS. The Company has made, and intends to continue to make, investments in architectural, decorative and entertainment features in its restaurants because it believes customers seek not only 4 8 high quality food and attentive service, but also by the sense of superior value and satisfaction they obtain in the Rattlesnake settings. The Company believes that its investment in creating these environments produces an enhanced dining experience. 2) BUILD A BROAD CUSTOMER BASE. The wholesome appeal of the Rattlesnake targets a broader customer base than many other casual dining restaurants, which rely heavily on young, unmarried adults and couples. The contemporary, yet warm, atmosphere and entertainment features are designed to appeal to entire families as well as couples. Promotional programs are addressed to children to reinforce this appeal. By targeting the full spectrum of casual dining guests, the Company seeks to build a broad customer base. 3) CLUSTERED EXPANSION. The Company intends to cluster Rattlesnake restaurants principally in the suburbs of cities, where units of 6,000 to 8,000 square feet may be located. The Company believes that through this clustering it will achieve advertising, management and operational efficiencies and maximum market penetration. 4) SITE SELECTION. The site selection process is fundamental to the success of an individual restaurant, and management devotes significant time and resources to analyzing each prospective site. Local market demographics, population density, average household income levels and site specific characteristics such as visibility, accessibility and traffic volume, are considered. Factors which favor a Rattlesnake restaurant include proximity to retail, office and entertainment centers, and other generators of a high volume of middle-market traffic. The Company also considers existing local competition and, to the extent such information is available, the revenue of other comparably priced restaurants operating in the area. The Company plans to expand the Rattlesnake restaurant from its present suburban New York / Connecticut cluster into New York City, New Jersey, Pennsylvania and beyond. Future expansion will be affected by availability of expansion capital and will be executed in stages in order to insure concept integrity, quality of operation and assurance of controls. The ideal structure is to expand in "Chain Link" formation where each new restaurant casts a radius of not more than 20 miles from an existing facility so that the circles overlap. This type of expansion enhances the brand recognition of the Company, offering new units the closeness of proximity to older units for support and market awareness. However, there can be no assurance that the Company will be able to successfully implement this strategy. RESTAURANT MANAGEMENT AND EMPLOYEES The Company seeks to attract and retain high caliber restaurant managers by providing them with an appropriate balance of autonomy, direction and attractive financial incentives. To 5 9 provide those incentives, the Company has developed a management incentive program under which new general managers will work with senior management to prepare quarterly budgets and performance plans for their restaurants. More experienced general managers, who have demonstrated the ability to achieve planned objectives, may be promoted to the district manager level. The Company believes that by providing its general managers and district managers with short and long-term financial incentives, it will continue to attract and retain high caliber personnel. Company policy strongly favors promoting existing non-management employees into management positions. Management trainees must demonstrate their ability in every area of restaurant operations before being considered for promotion. To assure that its employees properly implement the Company's commitment to consistently high quality food and attentive service, the Company has developed manuals regarding its policies and procedures for all aspects of restaurant operation, including food handling and preparation and dining room and beverage service operations. New employees are trained by corporate personnel and by experienced employees who have demonstrated their familiarity with and ability to consistently implement Company policies. The Company believes that by requiring its employees to adhere to these policies, giving them direct internal training by corporate personnel and using experienced employees to train new ones, it will provide the consistently high quality of food and service its customers desire. In addition, Company policy is generally to assign each server tables with seating for no more than twelve to fourteen guests to enable the server to provide attentive service. The Company believes it provides a supportive work environment which attracts experienced servers. Each restaurant will be directly operated by a management team consisting of: General Manager: Has full operational responsibility including profit and loss and in house promotions. Assistant General Manager: Second in command and is directly responsible for all controls and reporting issues as well as repairs and maintenance. Reports to the General Manager. Front of the House Manager: Directs Human Resources and front-of-house training programs as well as scheduling and employee reviews. Reports to General Manager. Kitchen Manager: Responsible for all food operations including production, purchasing, inventories, food cost controls, sanitation and personnel. Reports to the General Manager. 6 10 Assistant Kitchen Manager: Directly responsible for line production, preparation schedules and daily sanitation. Reports to the Kitchen Manager. The entire management team is directly supervised by and responsible to the director of operations. Cooks, service staff and support personnel will be recruited from local areas surrounding each individual restaurant, and although there can be no assurance, it is anticipated that a sufficient number of qualified personnel will be available in each area. Restaurant sites will be selected giving full consideration to the availability of lower level hourly personnel. All personnel will follow a two-week training protocol and receive qualifying examinations before completion of their probationary employment. All candidates for employment must consent to random and periodic drug screening, if requested by the Company. RESTAURANT SYSTEMS & CONTROLS The Company requires each restaurant unit to adhere to a strict program of systems and controls which were designed to prevent theft and minimize losses resulting from poor product handling and manpower utilization. Cash and credit card transactions are controlled by electronic register systems which compute all sales transactions by server, product and time of day. Sales and cash are reconciled and monitored daily. All food items, beverages and supplies are inventoried weekly and detailed computerized reports of are compiled from this information. These reports along with other support materials are used to generate weekly operating statements for units to summarize data for weekly review. The control system allows for rapid and geographically diverse growth while maintaining the integrity of the data received. TRADEMARK RIGHTS The Company uses or intends to use various tradenames and marks in the Company's business, including "Rattlesnake Southwestern Grill" and variations of that name and mark. Another business has registered the name "The Rattlesnake Club" as a federal trademark. The Company has obtained a license for the use of the name "The Rattlesnake Southwestern Grill" and variations of that name and mark from this trademark holder. In April 1995, the Company entered into an agreement with RC Holdings Inc. ("RC"), the owner of the Rattlesnake trademark, which grants the Company the license to use the trademark in connection with its existing and future facilities. The agreement limits the ability of the Company to open restaurants under the Rattlesnake name within a 24-month period in the areas of Las Vegas, Nevada, Phoenix, Arizona, Seattle, Washington, Dallas and Houston, Texas, Chicago, Illinois and Southern Florida. After the expiration of the 24-month period, the Company will not be able to open in locations if, within a 50-mile radius, there is an existing or proposed location of a facility established or to be established by RC. Irrespective of the foregoing, neither RC nor the Company may open a restaurant within five miles of each other in an urban area, or 15 miles of each other 7 11 in any other area. At no time may the Company open up a Rattlesnake facility in the states of Colorado or Michigan without the prior written consent of RC. RC is currently the operator of fine dining establishments in Colorado and Michigan. The Company does not consider its establishments to be in direct competition with those operated by RC; nor does the Company anticipate that the 24-month restriction will adversely impact its future plans or expansion. The Company paid RC $5,000 in August 1995 for these licensing rights, and is obligated to pay RC an annual fee of $5,000 for the four existing facilities, and an annual fee of $2,500 a year for each of the first ten additional facilities, $1,500 per year for the next ten additional facilities, and $1,000 per year for each additional facility in excess of 20. There can be no assurance that any application by the Company to register any tradenames and trademarks used by the Company will be approved and/or that the right to the use of any such trademarks outside of their respective current areas of usage will not be claimed by others. If trademarks are issued, there can be no assurance as to the extent of the protection that will be granted to the Company as a result of having such trademarks or that the Company will be able to afford the expenses of any complex litigation which may be necessary to enforce its trademark or license rights. The Company was successful in its defense of the Rattlesnake trademark against an operating restaurant in the vicinity of one of the Company's restaurants. Future failure of the Company to successfully enforce license and trademark rights may have a material adverse impact on the Company's business. COMPETITION The restaurant industry is intensely competitive with respect to price, service, type and quality of food, location and other factors. The Company has many well established competitors with substantially greater financial resources and a longer history of operations than the Company. In light of the Company's recent establishment of its restaurant operations, small number of facilities and geographical concentration, the Company has not had a significant impact on the restaurant industry. The Company competes with locally-owned restaurants, as well as national and regional restaurant chains, many of which are better established in the Company's existing and future markets. Changes in customer tastes, economic conditions, demographic trends, and the location and number of competing restaurants, as well as the type of cuisine served by competitors, could adversely affect the Company's business as well as the availability of experienced management and hourly employees. Although the Company competes generally with all other casual dining restaurants, the Company believes there are few restaurant concepts that are directly competitive in the Southwestern "theme" market. Most notable of these competitors is Chili's which is currently a chain operated by Brinker International. There are other concepts which exist in a "Southwestern" venue such as the steakhouses Longhorn, Lonestar and Santa Fe, and the Mexican restaurants On the Border, Chi-Chi's and EL Torito. There are also a large number of Bar-B-Que restaurants such as Virgil's . Other casual theme restaurant concepts such as Friday's and Bennigan's compete with the Company for the casual diner, although their concept is distinct from the 8 12 Rattlesnake. The Company is not aware of any other restaurant which is comparable in concept, menu variety or decor; however, the Company believes that the current interest in the American Southwest will stimulate the emergence of such competitors. The Company believes that restaurants are entertainment, and in this respect, intends to compete by designing the Rattlesnake to appeal to a broad spectrum of the market. The menu, energetic bar and live entertainment in a contemporary Southwestern ambiance appeal to this market. Family business is encouraged as the Rattlesnake is a "kid friendly" restaurant offering "Kid's Grub" menu, crayons, balloons and games. The energy of the restaurant relieves parents of the fear that their children might disturb other diners. The unique nature of the product is also a repeat business generator. The Company attempts to offer menu items which will be identified with The Rattlesnake Southwestern Grill. Although management believes it will gain market acceptance, there can be no assurance that the Company will be able to successfully compete in its market. FRANCHISING/LICENSING The Company has no immediate plans to franchise or license. However, the Company believes that one or both may be appropriate outside its near-term expansion territory in the northeast United States and, if potential franchisees/licensees with the necessary experience, stature and financing express interest, the Company may pursue appropriate opportunities. GOVERNMENT REGULATION The Company is subject to a variety of federal, state and local laws. Each of the Company's restaurants is subject to licensing and regulation by a number of government authorities, including alcoholic beverage control, health, safety, sanitation, building and fire agencies in the state or municipality in which the restaurant is located. Difficulties in obtaining or failure to obtain required licenses or approvals could delay or prevent the development of a new restaurant in a particular area. A substantial portion of the Company's revenues is attributable to the sale of alcoholic beverages. Approximately 30% of net restaurant sales were derived from the sale of beverages, including alcohol. Alcoholic beverage control regulations require each of the Company's restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises. Typically, 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 restaurant operations, including minimum age of patrons and employees, hours of operation, advertising, wholesale purchasing, inventory control and handling, storage and dispensing of alcoholic beverages. The failure of a restaurant to obtain or retain liquor or food service licenses would severely adversely affect the restaurant's operations. To reduce this risk, each Company restaurant 9 13 is operated in accordance with procedures intended to assure compliance with applicable codes and regulations. The Company is subject in certain states to "dram shop" statutes, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages to the intoxicated person. The Company presently carries an average liquor liability coverage as part of its existing $1,000,000 comprehensive general liability insurance, as well as excess liability coverage of $2,000,000 per occurrence, with no deductible. The Company has never been named as a defendant in a lawsuit involving "dram shop" liability. The Company's restaurant operations are also subject to federal and state laws governing such matters as the minimum hourly wage, unemployment tax rates, sales tax and similar matters, over which the Company has no control. A majority of the Company's service, food preparation and other personnel are paid at rates related to the federal minimum wage, and the October 1, 1996 minimum wage increase could increase the Company's labor costs. The development and construction of additional restaurants will be subject to compliance with applicable zoning, land use and environmental laws and regulations. 10 14 ITEM 2. DESCRIPTION OF PROPERTIES EXECUTIVE OFFICES The Company's executive offices are located at 3 Stamford Landing -- Suite 130, Stamford, Connecticut 06902, and its telephone number is (203) 975-9455. RESTAURANT FACILITIES The Company's first location in South Norwalk, Connecticut occupies 2,600 square feet on the corner of Washington Avenue and South Main Street in the historic restoration district of South Norwalk. The facility was opened in June 1992 and has a five-year lease with two five-year options. The current rent is $39,200 annually with minimum escalation's over the course of the three five-year periods. The space is comprised of two dining rooms and a large dining/bar room where the mosaic rattlesnake is located. This facility was the prototype facility and tested the feasibility of the Rattlesnake Concept. The second facility in Hamden, Connecticut, was closed in January 1996 due to the inability of the facility to achieve the consistent level of revenues required by the Company. The third facility, which opened in April 1994, is located at 355 Kear Street in Yorktown Heights (Westchester County), New York. The facility is a 5,400 square foot freestanding building located adjacent to a major shopping mall and the center of town. The building is rough sawn pine with a rustic look and the dining room has 35 foot vaulted ceilings with skylights. The facility when acquired was fully fitted as a restaurant and renovated by the Company into the Rattlesnake motif. The lease is for a term of ten years with a five-year renewal option and annual rent of $115,000 with scheduled abatements for the first three years. The fourth Rattlesnake restaurant opened on July 1, 1994 and is located at 55 Miller Street in downtown Fairfield, Connecticut, the county seat. The restaurant is housed in a 5,500 square foot freestanding building which previously served as a restaurant. The rent for the facility is $84,000 per annum for the first year and $107,324 the next fourteen months. In August 1996 the Company exercised its purchase option of $425,000 to purchase the building. The purchase was financed through a note payable to a principal stockholder. The fifth restaurant was opened in June 1995. The 5,200 square foot facility is located at 1241 Mamaroneck Avenue, White Plains, New York. This restaurant is located on a major thoroughfare between White Plains and Mamaroneck, New York. The Company purchased the lease for the facility located in White Plains, New York for $500,000 and entered into a 15 year lease with initial rent of $90,000 annually plus insurance, taxes and maintenance. The sixth restaurant was opened in Danbury, Connecticut in August 1995. The Danbury restaurant is in the vicinity of major shopping facilities and across from a multiplex movie 11 15 theater. The five-year lease includes three five-year renewal options and has an initial annual rent of $96,600 plus real estate taxes. The Company has an option to purchase the facility for $1,365,000. The seventh restaurant was opened in Flemington, New Jersey in November 1995. The Company purchased the lease for $100,000 and liquor license for $150,000. The Company has a seven year lease on a net-net basis with a base rent o $80,400 a year plus a percentage of sales over a stated sales volume. The eighth restaurant was opened in Lynbrook, New York in June 1996. This 7,200 square foot facility is located on a major thoroughfare of Long Island. The Company has a ten year lease with three renewal options for five years each at an initial base rent of $120,000 and associated real estate taxes plus a percentage of sales over a pre-determined stated sales volume. The following table sets forth certain information with respect to the Company's restaurants currently operating and those under development:
ACTUAL OR RESTAURANT TENTATIVE APPROXIMATE SIZE OPENING SEATING (APPROXIMATE LEASE DATE LOCATION CAPACITY(2) SQUARE FEET) EXPIRATION(1) June 1992 2 South Main Street 120 3,270 May 2012 South Norwalk, CT April 355 Kear Street 160 5,000 April 2009 1994 Yorktown Heights, NY July 1994 55 Miller Street 145 5,000 July 2034 Fairfield, CT June 1995 1241 Mamaroneck 170 5,500 April 2010 Avenue White Plains, NY August 106 Federal Road 225 7,200 March 2015 1995 Danbury CT November Route 202 250 7,800 August 2010 1995 Flemington NJ June 1996 931 Sunrise Highway 215 7,700 April 2021 Lynbrook, NY to be 250 West 86th Street 200 5,000 January 2007 scheduled New York, NY =======================================================================================================================
(1) Including all renewal options that may be exercised in the Company's sole discretion. (2) Excludes outside dining area and seating. 12 16 ITEM 3. LEGAL PROCEEDINGS The Company is a party to a lawsuit involving its South Norwalk facility. The owner of an apartment above the facility has commenced an action against the Company seeking damages for nuisance and has complained to local authorities for excessive noise. The action is being defended by the Company's insurance carrier and other than causing the elimination of live entertainment at the facility, the Company does not believe the action will have a material adverse effect on its financial position or results of operation. All of the Company's other facilities, existing and proposed, are free-standing buildings which do not adjoin residential apartments. The Company does not anticipate similar problems with any of its other facilities. The Company is a party to no other material legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NOT APPLICABLE 13 17 PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Upon the effectiveness of the Company's public offering on June 29, 1995, the Common Stock of the Company commenced trading in the over-the-counter market and was listed on the small cap market of the NASDAQ Stock Market ("NASDAQ") under the symbol RTTL and the Boston Stock Exchange under the symbol RTT. The following is the range of high and low bid prices for the Company's stock for the periods indicated below:
COMMON STOCK HIGH LOW Fiscal Year 1995 4th Quarter (from June 29, 1995) 5-5/8 5-1/2 Fiscal Year 1996 1st Quarter 6 5-1/2 2nd Quarter 6-1/8 5-1/2 3rd Quarter 5-1/2 2-5/8 4th Quarter 4-1/8 2-7/8
The above quotations represent prices between dealers, do not include retail mark-ups, mark-downs, or commissions, and do not necessarily represent actual transactions. There are approximately ___ holders of record of all the Company's Common Stock but the Company believes there are more than 700 beneficial holders of the Company's Common Stock. DIVIDEND POLICY The Company has not paid any dividends upon its Common Stock since its inception. The Company does not expect to pay any dividends upon its Common Stock in the foreseeable future and plans to retain earnings, if any, to finance the development and expansion of its business. In June 1996 the Company issued 54,500 shares of preferred stock for $24.50 per share. Each share is entitled to cumulative semi-annual dividends of $.9188 payable on May 15 and November 15 of each year commencing November 15, 1996 and accruing from the date of issuance. Unpaid dividends will accumulate and be payable prior to the payment of any dividends on the Common Stock. No dividends will be payable unless the Company has funds legally available therefor. 14 18 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS The following discussion of the results of operations and financial condition should be read in conjunction with the Company's audited consolidated financial statements and notes thereto. INTRODUCTION Rattlesnake Holding Company, Inc. is the parent corporation of seven subsidiary companies operating at individual restaurant locations, utilizing the unique Rattlesnake Southwestern Grill concept. The following table identifies the seven operating locations and the date operations commenced at each of those locations: RESTAURANT LOCATIONS OPERATIONS COMMENCEMENT DATE Lynbrook, New York June 1996 Flemington, New Jersey November 1995 Danbury, Connecticut August 1995 White Plains, New York June 1995 Fairfield, Connecticut July 1994 Yorktown Heights, New York April 1994 South Norwalk, Connecticut June 1992 In its three years of operation, the Company has endeavored to establish the foundation for future growth by opening seven restaurants in clustered segments in Connecticut, New York and New Jersey. To support its expansion strategy, the Company has increased the size of its corporate staff and successfully completed the Public Offering of its common stock on June 29, 1995. The Public Offering generated net proceeds of $6,535,095, after deducting underwriters fees and expenses and other costs, extinguishment of debt, increased marketing efforts and funding of operations. During fiscal year 1996, the Company opened three restaurants. Danbury, a 7,200 square foot former Howard Johnson's was completely converted into a Rattlesnake Southwestern Grill within an eight week period for a cost of approximately $500,000 and was opened August 30, 1995. Flemington, New Jersey was opened on November 16, 1995 at a conversion cost of approximately $650,000. This location encompasses 7,800 square feet and was converted to a Rattlesnake in seven weeks. The third location opened six weeks after signing was in Lynbrook, New York. This facility is 7,700 square feet and was acquired and converted into a Rattlesnake for approximately $430,000. The Hamden, Connecticut location did not meet the Company's performance standards. In response to this poor performance, the Company closed this facility in January 1996. The Company's strategy of aggressive growth, utilizing a low cost restaurant concept adaptable to different leasehold configurations in a short construction timetable, has been accomplished consistently for the existing properties. The Company has been able to identify numerous sites for potential development over the next fiscal year; however, there can be no assurance that in the future the Company will be able to continue to identify suitable locations or open new restaurants on a consistent basis within the historical time frames or cost levels. As is traditional with the opening of new restaurant sites, the start up period of 90 to 120 days reflects cost ratios at higher than normal operating 15 19 levels. The Company requires the presence of a training team consisting of seasoned employees from the other restaurants during the startup period to train inexperienced personnel. In addition, this lack of experience results in higher food and beverage costs until the staff becomes expert in the use of Company recipes and procedures. The Company's new restaurants can be expected to incur above normal costs during the first three to four months of operation due to the above mentioned factors. Achieving optimum performance as a mature restaurant may require between twelve and twenty four months. As projected, the Company has progressively increased its corporate staff and marketing efforts as integral components of its expansion program. These increases have resulted in higher general and administrative expenses for fiscal 1996. For example, the Company has added positions in administration, accounting and operations to react to the growth and in anticipation of the projected expansion. In order to accommodate the growth in personnel, the Company added additional office space. The Company has made further investments in its computer systems to improve its point of sales and restaurant operations information systems. The Company has also significantly increased its promotional expenditures to support its new restaurant locations. To establish consistency with the Company's operational reporting periods, the accounting reporting periods were changed to a 52 week cycle ending the last Sunday in June. The Company's board of directors ratified this change on April 2, 1996. Effective June 30, 1994, the Company adopted a fiscal year end of June 30. Previously, the year-end of the Company and its subsidiaries was December 31. FISCAL YEAR ENDED JUNE 30, 1996 AS COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995 GENERAL DISCUSSION Net restaurant sales increased 65.6% to $8,242,809 for the fiscal year ended June 30, 1996 from $4,978,068 for the twelve months ended June 30, 1995. The increase in net restaurant sales resulted from the increase in the number of restaurants operating during the period. For the fiscal year ended June 30, 1996, the Company generated a net loss of $3,193,155 as compared to a net loss of $2,758,371 for the fiscal year ended June 30, 1995, an increase of $434,784 or 15.8%. The increased net loss was principally attributable to several factors, including the selling, general and administrative expenses for the fiscal year which increased by $1,478,196. This increase in selling, general and administrative expenses is the result of investments made by the Company in preparation for the implementation of the Company's expansion strategy through an increase in corporate staff, increased advertising and marketing expenditures, as well as other expenses associated with opening new restaurants. Also contributing to this increase was the cost associated with the closing of the Hamden facility of $192,311. Restaurant operating profits, defined as excess of restaurant sales over restaurant costs and expenses, were $(159,235) for the fiscal year ended June 30, 1996, as compared with $(131,905) for the fiscal year ended June 30, 1995. This decrease in operating profits was principally attributable the decreased operating performance in the Fairfield and Yorktown locations as compared to fiscal year 1995 and the higher costs associated with the opening of new units to continue the expansion of the Company. During fiscal 1996, the Company opened three new restaurants (Danbury, August 1995, Flemington, November 1995 and Lynbrook, June 1996)and had one restaurant reach its first anniversary of operation (White Plains, June 1996). As is traditional with the opening of new restaurant sites, the start up period of 90 to 120 days reflects cost ratios at higher than normal operating levels. The lack of experience of the new personnel, results in higher food and beverage costs until the staff becomes expert in the use of Company recipes and procedures. Additionally, promotional expenditures typically are higher than normal during the initial period of a 16 20 restaurant opening. The Company's new restaurants can be expected to incur above normal costs during the first three to four months of operation due to the above mentioned factors. Additionally, management believes that the extremely harsh winter weather also significantly impacted sales and operating profits. RESTAURANT SALES Gross restaurant sales increased 63.9% to $8,755,565 for the fiscal year ended June 30, 1996 from $5,340,657 for the fiscal year ended June 30, 1995. The increase in restaurant sales resulted from the increase in the number of restaurants operating during the fiscal 1996 period. The number of operating restaurants increased from five to eight for the period ended June 30, 1996, prior to the closing of the Hamden, Connecticut facility in January 1996. The three new restaurants are located in Danbury, Connecticut; Flemington, New Jersey; and Lynbrook, New York. The White Plains location was open for only three weeks in fiscal year 1995, thus also contributing to the increased sales in fiscal year 1996. Danbury, Flemington and Lynbrook were opened in August 1995, November 1995 and June 1996, respectively. For the three restaurants operating for a full twelve months in fiscal year 1995 and 1996, same store sales declined by $508,551. This decline is attributed to decreased sales experienced by Yorktown and Fairfield. These comparative sales declines are attributed to the typical higher sales levels experienced by these new units during fiscal 1995. South Norwalk, which was not a new unit in fiscal 1995 experienced an increase in sales. The severe weather conditions experienced in the country's northeastern region had a dramatic affect on sales specifically during the second and third quarters of fiscal year 1996. PROMOTIONAL SALES Promotional sales increased from $362,589 for fiscal year ended June 30, 1995 to $512,756 for fiscal year ended June 30, 1996. This increase is attributed to couponing and direct mail advertisement targeted as sales incentives to counter extreme winter weather conditions during fiscal year 1996. Promotional sales have decreased as a percentage of gross sales in fiscal year 1996 to 5.9% from 6.8% in fiscal year 1995. This decrease as a percentage of sales is the result of the beneficial effects of clustered marketing efforts and shared costs among all of the Rattlesnake restaurants. FOOD AND BEVERAGE COSTS Food and beverage costs decreased as a percentage of net restaurant sales to 31.1% in fiscal year ended June 30, 1996 as compared to 32.4% for the twelve months ended June 30, 1995, despite the opening of three facilities in fiscal year 1996 and the typically higher costs associated with new facilities. The cost of food and beverage sales increased to $2,565,905 for the fiscal year ended June 30, 1996, as compared with $1,610,680 for the fiscal year ended June 30, 1995. The decrease of the food and beverage cost rates was attributable to the new menu, revised recipes, improved inventory utilization, increased purchasing efficiencies and improved training methods. The Company was able to maintain these lower cost levels despite increases in the cost of chicken, beef, and produce in fiscal 1996. There can be no assurance that the Company will be able to maintain these cost levels. RESTAURANT SALARIES AND FRINGE BENEFITS Restaurant salaries and fringe benefits, which consist of direct salaries of restaurant managers, hourly employee wages and related fringe benefits, increased to $3,109,435 for the fiscal year ended June 30, 1996 as compared to $1,804,129 for the fiscal year ended June 30, 1995. This increase is attributable to the opening of additional restaurants during fiscal 1996. As a percentage of net sales, these costs increased to 37.7% in fiscal 1996 from 36.2% 17 21 in fiscal 1995, principally due to increased restaurant management and operating personnel in newly opened restaurants. The Company believes that the management component of restaurant salaries should moderate in the future, as existing restaurant supervisory personnel can manage the anticipated growth in restaurants in fiscal 1997. OCCUPANCY AND RELATED EXPENSES Occupancy and other related expenses, which include linen, repairs, maintenance, utilities, rent, insurance and other occupancy related expenses, increased to $2,118,444 for the fiscal year ended June 30, 1996 from $1,306,469 for the fiscal year end June 30, 1995. As a percentage of net restaurant sales, these costs decreased to 25.7% in fiscal 1996 from 26.2% in fiscal 1995. The decrease can be attributed primarily to the enhanced controls and improved site selection. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expenses, including the amortization of pre-opening store expenses, decreased as a percentage of gross restaurant sales to 7.4% for the fiscal year ended June 30, 1996 from 7.8% for the fiscal year end June 30, 1995. These expenses increased to $608,260 in fiscal year ended June 30, 1996 from $388,695 for the fiscal year end June 30, 1995. This increase is primarily attributable to the opening of new restaurants, the expansion of the corporate offices and other capital expenditures. GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $2,810,433 in fiscal year ended June 30, 1996 from $1,332,237 for the fiscal year end June 30, 1995. As a percentage of net sales, selling, general and administrative expenses increased from 26.8% in 1995 to 34.1% in 1996. These expenditures include a foundation for the implementation of its expansion strategy. These investments included additional corporate level accounting, administrative and restaurant management personnel. The Company also made expenditures necessary to establish the Company as a public company including professional fees, Directors and Officers insurance, printing costs, postage and professional service dues. Additionally, increased advertising, marketing and the cost of promotional programs contributed to the increases in selling, general and administrative expenses, as did the other expenses directly relating the opening of new restaurants. AMORTIZATION OF DEBT ISSUANCE COSTS Debt issuance costs are principally associated with the subordinated notes component of the Company's $1,800,000 unit offering and were capitalized and amortized ratably over the initial one year term of the debt. As a result of the restructuring of this debt, the related unamortized debt issuance costs of $72,114 were offset against the extraordinary gain recognized in this transaction in fiscal year 1996. LOSS ON CLOSURE OF RESTAURANT On December 31, 1995, the Board of Directors authorized the closing of the Rattlesnake Southwestern Grill Restaurant located in Hamden, Connecticut. The facility was closed on January 7, 1996. A majority of the fixed assets at the facility have been removed to be utilized at other existing or new facilities. All remaining fixed assets and leasehold improvements have been abandoned and all intangible assets have been written off. A loss of $192,311 relating to the closing of the Hamden location was recorded during the 1996 fiscal year. 18 22 INTEREST EXPENSES Interest expense decreased to $108,536 for the fiscal year ended June 30, 1996 from $264,279 for the fiscal year end June 30, 1995. The decrease resulted from the repayment of notes upon completion of the IPO. FISCAL YEAR ENDED JUNE 30, 1995 AS COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1994 RESTAURANT SALES Gross restaurant sales increased 231% to $5,340,657 for the fiscal year ended June 30, 1995 from $1,613,535 for the six months ended June 30, 1994. The increase in restaurant sales resulted from the increase in the number of restaurants operating during the fiscal 1995 period. At June 30, 1994 the Company operated three restaurants, as compared to the five restaurants operated at June 30, 1995. PROMOTIONAL SALES Promotional sales increased 154% in fiscal year 1995 to $362,539 from $142,884 in fiscal year 1994. This increase is attributed to the overall increase in sales for the year and in house promotions, such as "Kids Eat Free" and "The Big Buckeroo Burger Bonanza". Promotional sales decreased as a percentage of gross sales 6.8% for fiscal year 1995 from 8.8% for fiscal year 1994. This decrease is the result of the increased gross sales for the year resulting from the increased number of operating restaurants. FOOD AND BEVERAGE COSTS Food and beverage costs remained relatively constant as a percentage of net restaurant sales at 32.4% in fiscal year ended June 30, 1996 as compared to 32.3% for the six months end June 30, 1995, despite the opening of three facilities in fiscal year 1995 and the typically higher costs associated with new facilities. The cost of food and beverage sales increased to $1,610,680 for the fiscal year ended June 30, 1995, as compared with $474,748 for the six months ended June 30, 1994. The stability of the food and beverage costs rates was attributable to enhanced controls, revised recipes, improved inventory utilization, increased purchasing efficiencies and improved training methods, despite increases in the cost of beef, fish and produce in fiscal 1995. RESTAURANT SALARIES AND FRINGE BENEFITS Restaurant salaries and fringe benefits, which consist of direct salaries of restaurant managers, hourly employee wages and related fringe benefits, increased to $1,804,129 for the fiscal year ended June 30, 1995 as compared to $541,803 for the six months ended June 30, 1994. This increase is attributable to the opening of additional restaurants during fiscal 1995. As a percentage of restaurant sales, these costs decreased to 36.2% in fiscal 1995 from 36.8% in fiscal 1994. The Company believes that the management component of restaurant salaries should moderate in the future, as existing restaurant supervisory personnel can manage the anticipated growth in restaurant in fiscal 1996. OCCUPANCY AND RELATED EXPENSES Occupancy and related expenses, which include linen, repairs, maintenance, utilities, rent, insurance and other occupancy related expenses, increased to $1,306,469 for the fiscal year ended June 30, 1995 from $357,717 for the six months ended June 30, 1994. As a percentage of net restaurant sales, these costs 19 23 increased to 26.2% in fiscal 1995 from 24.3% in fiscal 1994. The increase can be attributed primarily to rents paid for additional restaurants opened during 1995 and those operating the full fiscal year. Company management estimates that its occupancy cost ratios should moderate in future periods, as a result of continued modification of the Rattlesnake Southwestern Grill restaurant concept and improved site selection. DEPRECIATION AND AMORTIZATION EXPENSES Depreciation and amortization expenses, including the amortization of pre-opening store expenses, decreased as a percentage of net restaurant sales to 7.8% for the fiscal year ended June 30, 1995 from 9.6% for the six months ended June 30, 1994. These expenses increased to $388,695 in fiscal year ended June 30, 1995 from $140,758 for the six months ended June 30, 1994. This increase is primarily attributable to the opening of new restaurants, the expansion of the corporate offices and other capital expenditures. The Company anticipates that the operating cost ratios for depreciation and amortization will continue to moderate as the Company's expansion plan continues to be implemented in fiscal 1996. GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expense increased to $1,332,237 in fiscal year ended June 30, 1995 from $291,979 for the six months ended June 30, 1994. As a percentage of net restaurant sales, general and administrative expenses increased from 19.9% in 1994 to 26.8% in 1995. The increase was due primarily to the investments made by the Company as a foundation for the implementation of its expansion strategy. The Company added additional corporate level restaurant management personnel to begin implementation of the expansion plan, combined with growth in the accounting and administrative areas. Additionally, increased advertising, marketing and the cost of promotional programs contributed to the increases in selling, general and administrative expenses, as did the related insurance and other expenses to support the opening of new restaurants. Professional, legal and accounting fees also increased significantly in the fiscal year ending June 30, 1995. AMORTIZATION OF DEBT ISSUANCE COSTS Amortization of debt issuance costs, principally relating to the Company's $1,800,000 debt offering, increased to $1,027,751 for the fiscal year ended June 30, 1995, from $499,813 for six months ended June 30, 1994. The increase was due directly to the additional six month period over which these costs were amortized as well as debt issued during June 30, 1995. INTEREST EXPENSE Interest expense increased to $264,279 for the fiscal year ended June 30, 1995 from $70,007 for the six months ended June 30, 1994. The increased resulted from increased borrowings related to the 9% subordinated notes and interest costs associated with additional short-term borrowing incurred as a result of the Company's expansion program. LIQUIDITY The Company's cash position increased by $656,098 during the year ended June 30, 1996, principally as a result of net cash generated from financing activities of $5,933,595 offset by net cash used in operating activities of $3,202,301 and net cash used in investing activities of $2,075,196. Net cash used in operating activities consisting primarily of the $3,193,155 net loss for the year, an increase in prepaids of $206,384, a decrease in accounts payable of $334,691 and an increase in pre-opening costs of $169,138, 20 24 offset by depreciation and amortization of $651,597 and $190,965 relating to the closing of the Hamden facility. The Company utilized $2,075,196 for investing activities, principally for capital expenditures and lease acquisition costs. The Company generated $5,933,595 in cash from financing activities during the year ended June 30, 1996, principally through the proceeds of the Company's initial public offering, offset by $1,275,423 repayment of borrowings. On June 29, 1995, the Company completed an initial public offering of 1,300,000 shares of its common stock and 195,000 additional shares pursuant to the exercise of the over-allotment option by the Underwriter at $5.50 per share. The net proceeds of the offering, after deducting underwriters' commissions and fees of $986,700 and offering costs of $700,705 was $6,535,095. The proceeds of the offering were received on July 7, 1995. The Company utilized the proceeds from its June 1995 initial public offering of common stock to pay approximately $750,000 of the restricted 9% subordinated notes, $525,000 other notes outstanding principally payable to related parties, $200,000 relating to the acquisition of the White Plains, New York facility, $600,000 relating to the acquisition of the Danbury, Connecticut facility, $750,000 relating to the acquisition of the Flemington, New Jersey facility, $150,000 relating to the liquor license acquired for the Flemington location, $400,000 in other capital expenditures for existing facilities, and the remainder was used to fund continuing operations and the Company's expansion plan. In July 1995, the Company redeemed $225,000 of the notes and restructured the remaining principle amount outstanding of $1,575,000. This redemption was partially funded by a $50,000 note payable issued in June 1995 by the Company, with interest at 9%, and repaid in July 1995, together with 10,000 shares of common stock. Each $25,000 principal amount of Notes was exchanged as follows: (i) $8,334 paid in August and September 1995 (the "First Payment"); and (ii) a 9% $8,333 Series A Note (the Series A Notes) due 13 months after the first payment, and a 9% $8,333 Series B Note (the Series B Notes) due five years after the first payment were issued to each Noteholder with the First Payment. Each Series B Note is convertible into common stock thirteen months after issuance at a conversion price equal to $3.85 per share, with piggy-back registration rights for the shares underlying the Series B Notes. Each Series B Note is redeemable with 30 days prior written notice at any time after the closing bid price of the common stock is 150% of the conversion price for the ten consecutive trading days ending within 15 days of the date of notice of redemption. In August and September, the due dates of $312,000 Series A Notes were extended to August 1, 1997 in consideration of an increase in the interest rate to 15% and warrants to purchase the Company's common stock. The number of warrants received was equal to one warrant for every dollar of the Series A not converted. Accrued interest was paid on the notes extended through August 1, 1996. The remaining $213,000 Series A Notes were paid with accrued interest in August, September and October 1996. In January 1995, the Company entered into an agreement to purchase the lease of a new facility located in Danbury, Connecticut for $35,000 which was paid upon consummation of the lease purchase agreement. The Company incurred additional costs associated with this location approximating $565,000 which were paid primarily from the proceeds of the IPO. In September 1995, the Company entered into an asset purchase agreement under which it will acquire furniture, fixtures and other assets of a restaurant located in Flemington, New Jersey for $365,000, consisting of $265,000 in cash and a $100,000 five year note, bearing interest at prime plus 1%. The Company 21 25 also entered into a related seven year lease agreement for this property, with minimal annual rentals of $80,400, with contingent rental provisions based upon a percentage of gross sales. In April 1996, the Company entered into a 10 year lease agreement for a restaurant located in Lynbrook, New York with an initial annual rent of $120,000. Their were no acquisition costs associated with acquiring this lease. On June 24, 1996, the Company entered into an agreement to continue its participation in a discounted meal program in exchange for $230,000 in temporary financing, of which $115,000 was received in June 1996 and the remainder was received in July 1996. In March 1996, the Company entered into an agreement with an investment banking firm to sell 200,000 shares of Series A preferred stock and 800,000 common stock warrants in a private placement for total consideration of $5,000,000. The preferred stock was valued at $24.50 per share and each warrant at $.125 per warrant. On June 30, 1996, the Company closed on the sale of 54,500 shares of the aforementioned Series A preferred stock and 218,000 common stock purchase warrants. The net proceeds of the offering wwre $1,129,082, net of commissions and expenses of $233,418. The dividend rate for the preferred shares is 7-1/2% per annum payable semi-annually in arrears on May 15 and November 15 of each year commencing November 15, 1996. The shares are convertible at any time, one year after issuance into common stock at a conversion price equal to the lesser of (i) 120% if the average of the last reported sale price of the common stock for the 10 trading days immediately preceding the first closing of the offering, or $4.50, whichever is lower; or (ii) 85% of the average of the last reported sales price of the common stock for the 10 trading days immediately preceding the first anniversary of the first closing subject to certain anti-dilution adjustments. The warrants are exercisable between September 1, 1996 and August 31, 2001 at an exercise price of $7.00 per share, with piggy-back and demand rights on the common stock underlying the preferred stock and the warrants. At June 30, 1996, the Company has available a net operating loss carryforward (NOL) for Federal and State income tax purposes of approximately $5,952,000, which are available to offset future taxable income, if any, before 2011. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in more than 50% in the beneficial ownership of the Company within a three-year period (an "Ownership Change"), will place an annual limit on the Company's ability to utilize its existing NOL carryforwards to offset taxable income in current and future periods. The Company believes that an ownership change has occurred and will cause the annual limitations to apply. The Company has not determined what the maximum annual amount of taxable income is that can be reduced by the NOL carryforwards. The Company may consider entering into joint ventures for restaurants, whereby the Rattlesnake Southwestern Grill concept will be implemented in locations where the joint venture would provide a portion of the financing for the new facility. On March 31 1996, the Company exercised its option to purchase the building housing the Fairfield facility for $425,000. This transaction was closed on August 31, 1996 and was financed by a principal stockholder through a 15% short term note due on January 2, 1997. In addition the investor received 50,000 warrants at an exercise price equal to the market price at the date of the grant. On August 7, 1996, the Company signed a purchase and sale agreement for $388,000 for a restaurant location on 86th Street in New York city. Included in the purchase price was the lease and certain furniture, fixtures and equipment. 22 26 On October 10, 1996, a letter of intent was executed with an investment banking firm to raise $1,500,000-$3,000,000 through a private placement to be sold on a "best effort" basis. The Company is formulating a cost containment plan which will be completed and implemented within the next 30 days. The plan is intended to reduce overhead and operating expenses. The Company is currently negotiating with several financing institutions to obtain equipment leasing for its existing and new facilities and is constantly involved in ongoing discussions with investment banking firms to obtain additional interest in the Company. The Company's management believes that the additional financing and improved operating results will provide sufficient liquidity to implement the Company's expansion plan, fund current operations and meet debt service requirements. SEASONALITY AND EXTERNAL INFLUENCES ON QUARTERLY RESULTS The Company's sales and earnings do not reflect a seasonally of the business. Quarterly results have been and, in the future are likely to be, substantially affected by the timing of new restaurant openings. Because of the impact of new restaurant openings, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year and cannot be used to indicate financial performance for the entire year. EFFECTS OF INFLATION AND THE ECONOMY The impact of general inflation in the Company's operations has not been significant to date and the Company believes inflation will continue to have an insignificant impact on the Company. In general restaurant economic conditions in the New England and Mid-Atlantic regions was reported to be the worst in the country by nation's restaurant news. This is also evidenced by the decline in the consumer confidence index. The Company believes that on average nationally, same store sales have declined. There were a number of external factors affecting fiscal year 1996 results. The most significant of these was the early and severe winter experienced. Weather had a notable impact on sales for fiscal year 1996. IMPACT OF ACCOUNTING STANDARDS The Company is required to adopt in fiscal 1997 Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires, among other things, that long-lived assets held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's management has not assessed the impact of the implementation of SFAS No. 121. ITEM 7. FINANCIAL STATEMENTS See attached Financial Statements annexed hereto. ITEM 8. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable. ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS. MANAGEMENT The executive officers and directors of the Company are as follows: NAME AGE OFFICE 23 27 William J. Opper 53 Chairman of the Board, Chief Executive Officer Stephen A. Stein 44 Vice-Chairman of the Board, Chief Administrative Officer and Director David C. Sederholt 44 President, Chief Operating Officer, Chief Financial Officer, Treasurer and Director Peter C. Markatos 49 Executive Vice President and Director Louis R. Malikow 48 Secretary and Director Donald M. Zuckert 61 Director Roger Rankin 51 Director William J. Opper, has served as Chairman of the Board and Chief Executive Officer of the Company since its inception. He has also served as President of each of its subsidiaries since June 1992. From 1986 through 1991, Mr. Opper served as Senior Partner of Atlantic Professional Resources, Inc., a management and marketing consulting firm serving the restaurant, foodservice and hospitality industries. From 1981 to 1986, Mr. Opper was Vice President of Marketing for NCI Foodservice, Inc., where he developed marketing programs. Previously, Mr. Opper was the principal owner of eight full service restaurants. Mr. Opper graduated St. Bonaventure University with a Bachelor of Arts degree in History. Stephen A. Stein, joined the Company as a Director in November 1994 and as Vice Chairman and Chief Administrative Officer in December 1995. Since May 1994, he has been the President and Chief Executive Officer of Cubaney Holding Corp., Inc., a company developing franchise and licensing opportunities. From 1983 to 1995, Mr. Stein was a principal and the President of David's Cookies, Inc. (or its predecessors), a manufacturer/distributor with a chain of retail specialty food stores and franchise outlets with locations worldwide. From 1990 to the present, Mr. Stein has owned and operated a food management consulting firm, SAS Ventures, Inc. Mr. Stein is also associated with Commonwealth Associates in the corporate finance department. Mr. Stein is also a former practicing attorney and a graduate of Ohio State University and Vermont Law School. David C. Sederholt, has served as President of the Company since March 1994, and has been Chief Operating Officer of the corporation and its subsidiaries since their inception. From 1986 through 1991, Mr. Sederholt served as Managing Partner of Atlantic Professional Resources, Inc. with Mr. Opper. From 1983 through 1986 he served as Corporate Director of Food & Beverage for Huckleberry's restaurants, a multi-unit company with restaurants in New York, Connecticut and Florida. From 1975 through 1983, Mr. Sederholt was principal owner and Chef of Adam's Son Restaurant and Caterers on Madison Avenue in New York City. He is a graduate of Pace University in New York City with a Bachelors of Science in Biology and Chemistry. Peter C. Markatos, joined the Company in September 1993 as Executive Vice President in charge of Operations, Real Estate Management and Facility Design. From 1976 to 1993, Mr. Markatos was the Chief Operating Officer and a principal owner of Peters-Spence Corporation, Inc., which owned four units of the Huckleberry's restaurant chain located in New York, Connecticut and Florida. In 1991, after seventeen years of operation, Peters-Spence filed for protection under Chapter 11 of the U.S. Bankruptcy code, and in 1993, after Peters-Spence failed to reorganize, Mr. Markatos, who personally guaranteed the obligations of Peters-Spence, filed under Chapter 7 of the U.S. Bankruptcy Code, and was discharged in 1994. Mr. Markatos is a graduate of Syracuse University with a Bachelor of Arts in Real Estate Management. 24 28 Louis R. Malikow, has served as Secretary and Director of the Company since September 1993. Mr. Malikow is an attorney and the proprietor of Louis R. Malikow Associates, a tax and financial consulting firm which he founded in 1990. From 1975 to 1990, Mr. Malikow served as Vice President of The Ayco Corporation, Inc. a tax and financial consulting firm. He is a graduate of Syracuse University School of Management with a degree in Corporate Finance and is also a graduate of The Albany Law School. Donald M. Zuckert, joined the Company as a Director in November 1994. Mr. Zuckert is Vice Chairman of Draft Direct Worldwide, Inc., a direct response advertising agency. From 1989 to 1995 Mr. Zuckert served as Chairman and Chief Executive Officer of Arcature Corporation, a Marketing and Investment firm in Stamford, Connecticut. From 1960-1987, Mr. Zuckert served in various capacities with Ted Bates Worldwide, Inc., an advertising and marketing company, eventually becoming Chairman and Chief Executive Officer. Mr. Zuckert also serves on the Boards of California & Washington Co. (Frozen Foods), of San Bruno, California; and is a trustee of Bowdoin College from which he holds a BA degree. Mr. Zuckert holds a degree in law from New York University Law School. Roger Rankin, joined the Company as a Director in November 1994. From 1991 to present Mr. Rankin is active as a private investor. From 1986 to 1991, Mr. Rankin served as Chairman and Chief Executive Officer of Top Source Technologies, Inc., a publicly traded (American Stock Exchange) manufacturing company in the automotive industry. From 1976 to 1984, Mr. Rankin was the principal owner and operator of Rankin Distributing, a company with wholesale/retail stores selling automotive stereo equipment CLASSIFICATION OF THE BOARD OF DIRECTORS The number of directors comprising the entire Board of Directors is such number as determined in accordance with the By-Laws of the Company. The Company's By-Laws provide that the number of directors shall be not less than three nor more than eleven. The Company's Certificate of Incorporation provides for a classified or "staggered" Board of Directors. The classified or "staggered" Board of Directors is comprised of three classes of directors elected for initial terms expiring at the 1995, 1996 and 1997 Annual Meeting of Stockholders. Thereafter, each class is elected for a term of three years. By reason of the classified Board of Directors, one class of the Board comes up for re-election each year. Any further amendment to the Company's Certificate of Incorporation affecting the classified Board may only be adopted upon the affirmative vote of not less than 75% of the issued and outstanding shares entitled to vote thereon. Officers serve at the discretion of the Board of Directors of the Company. There are no family relationships among any of the officers or directors. The underwriting agreement in connection with the Public Offering granted the underwriter, Auerbach, Pollak & Richardson, Inc., the right to designate an observer to the Board of Directors for a period of five years. Messrs. Opper and Sederholt were elected as Class 1 Directors to serve for a term of three years until the 1997 Annual Meeting of Stockholders; Messrs. Markatos and Malikow were each elected as Class 2 Directors to serve for a term of two years until the 1996 Annual Meeting of Stockholders; and Messrs. Zuckert, Stein and Rankin were each elected as Class 3 Directors to serve for a term of one year until the Company's 1995 Annual Meeting of Stockholders. During the Company's 1995 Annual Meeting of Stockholders, Messrs. Zuckert, Stein and Rankin were re-elected for a three year term to the Board of Directors. Thereafter, each class of directors standing for re-election shall be elected for a term of three years. COMMITTEES OF THE BOARD OF DIRECTORS The Board of Directors has standing Audit, Compensation and Executive 25 29 Committees. Audit Committee. The members of the Audit Committee are Roger Rankin, and Louis R. Malikow. The Audit Committee reviews: (i) the Corporation's audit functions; (ii) with management, the finances, financial condition and interim financial statements of the Corporation; (iii) with the Corporation's independent auditors, the year-end financial statements; and (iv) the implementation of any action recommended by the independent auditors. Executive Committee. The members of the Executive Committee are William J. Opper, David Sederholt and Donald Zuckert. The Executive Committee has all of the powers of the Board of Directors except it may not, among other things: (i) amend the Certificate of Incorporation or Bylaws; (ii) enter into agreements to borrow money in excess of $100,000; (iii) grant security interests to secure obligations of more than $100,000; (iv) authorize private placements or public offerings of the Company's securities; (v) authorize the acquisition of any major assets or business or change the business of the Corporation; or (vi) authorize the employment of any independent contractor for compensation in excess of $50,000. Compensation Committee. The members of the Compensation Committee are Roger Rankin, Louis R. Malikow and Donald Zuckert. The Compensation Committee administers the Corporation's 1994 Stock Option Plan and Non-Employee Director Stock Option Plan and negotiates and reviews of all employment agreements of executive officers of the Corporation. MEETINGS OF THE BOARD OF DIRECTORS During the fiscal year ended June 30, 1996, the Board of Directors of the Company met on seven occasions and voted by unanimous written consent on one occasions. No member of the Board of Directors attended less than 75% of the aggregate number of (i) the total number of meetings of the Board of Directors or (ii) the total number of meetings held by all Committees of the Board of Directors. CERTAIN REPORTS Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company's Directors and officers, and persons who own, directly or indirectly, more than 10% of a registered class of the Corporation's equity securities, to file with the Securities and Exchange Commission ("SEC") reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file. Based solely on review of the copies of such reports received by the Company, the Company believes that all Section 16(a) filing requirements applicable to officers, directors and 10% shareholders were complied with during the 1996 fiscal year. ITEM 10. EXECUTIVE COMPENSATION Summary of Cash and Certain Other Compensation The following provides certain information concerning all Plan and Non-Plan (as defined in Item 402 (a)(ii) of Regulation S-B) compensation awarded to, earned by, paid by the Company during the periods ended June 30, 1996, 1995 and 1994 for each of the named executive officers of the Company. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION 26 30
Long Term Compensation Awards No. of Securities Other Annual Restricted Underlying Name and Principal Fiscal Compensation Stock Options/ Position Year Salary(1) Bonus(2) (3) Award(s) Granted William J. Opper 1996 $90,000 $20,000 $0 (4) 150,000 (5) Chairman and Chief 1995 $85,000 $0 $0 (4) 0 Executive Officer 1994* $23,000 $0 $0 (4) 0 Stephan A. Stein 1996 $72,500 $10,000 $0 (4) 120,000 (6) Vice Chairman and 1995 $0 $0 $0 (4) 0 Chief Admin- 1994 $0 $0 $0 (4) 0 istrative Officer David C. Sederholt 1996 $90,000 $20,000 $0 (4) 150,000 (5) Chief Operating 1995 $85,000 $0 $0 (4) 0 Officer, President 1994* $23,000 $0 $0 (4) 0 and Director Peter C. Markatos 1996 $84,600 $20,000 $0 (4) 200,000 (5) Executive Vice Pres- 1995 $80,000 $0 $0 (4) 0 ident and Director 1994* $23,000 $0 $0 (4) 0
- ------------------------- * Six month period due to change of fiscal year. (1) Commencing July 1, 1994, the salaries of Messrs. Opper, Sederholt and Markatos were increased to $85,000, $85,000 and $80,000 per year, respectively. In December 1994, these three executives entered into employment agreements with the company which continued the salaries for the next year. See "Employment Agreements" below. (2) Pursuant to the terms of their employment agreements dated December 1, 1994 Messrs. Opper, Sederholt and Markatos are to receive a cash bonus each year during the term of their agreements equal to 4%, 3% and 3%, respectively, of the earnings before interest and taxes of the Company, as defined ("EBIT") up to $1,000,000, 3%, 2.25% and 2.25% of EBIT in excess of $1,000,000 up to $2,000,000, and 2%, 1.5% and 1.5% of EBIT in excess of $2,000,000, contingent on the Company achieving at least $500,000 in EBIT. See "Employment Agreements." (3) Pursuant to the terms of their employment agreements, Messrs. Opper, Stein, Sederholt and Markatos may receive additional compensation as determined from time to time by the Board of Directors. During fiscal year 1996, the Board of Directors approved the above additional compensation to its executive officers. (4) No restricted stock awards were granted in fiscal 1996; however, Messrs. Opper, Sederholt and 27 31 Markatos owned 288,346, 144,158 and 0, respectively, restricted shares of the Company's Common Stock as of June 30, 1996, the market value of which was $828,995, $328,205 and 0, respectively. (5) In December 1994, pursuant to the terms of their employment agreements, Messrs. Opper, Sederholt and Markatos, respectively, were granted options to purchase an aggregate of 150,000, 150,000 and 200,000 shares of the Company's Common Stock, respectively exercisable at $4.50 per share, vesting at one-third each year commencing December 1, 1995. See "Employment Agreements." (6) In December 1995, pursuant to the terms of Mr. Stein's employment agreement, 120,000 options were granted to purchase shares of common stock at an exercise price of $5.25 per share, vesting one-third each year. STOCK OPTIONS The following table sets forth certain information concerning the grant of stock options made as of the last fiscal year under the Company's 1994 Employees Stock Option Plan to each of the named executive officers of the Company and non-executive employees as a group. OPTION/SAR GRANTS 28 32
(INDIVIDUAL GRANTS) NO. OF SECURITIES PERCENTAGE UNDERLYING OF TOTAL EXERCISE OPTIONS OPTIONS/ OF NAME GRANTED FISCAL BASE EXPIRATION (1) YEAR PRICE DATE Stephen A. Stein 120,000 67% $5.25 12/1/00 Non- Executive 56,000 33% $3.50 - 12/1/99- Employees $5.25 12/1/00
The following table contains information with respect to the named executive officers concerning options held as of the last fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS/SAR VALUES NUMBER OF VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY SHARES OPTIONS AS OF OPTIONS AT ACQUIRED JUNE 30, 1996 JUNE 30, 1996(1) ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE William J. Opper 0 -- 50,000/150,000 $0/0 Stephen A. Stein 0 -- 0/120,000 $0/0 David C. Sederholt 0 -- 50,000/150,000 $0/0 Peter C. Markatos 0 -- 66,666/120,000 $0/0
29 33 - ------------------------------------- 1. Market value at June 30, 1996 was $2-7/8 per share. EMPLOYMENT AGREEMENTS The Company entered into three-year employment agreements with the Company's Chairman of the Board and Chief Executive Officer, William J. Opper; the Company's President and Chief Operating Officer, David C. Sederholt and the Executive Vice President, Peter Markatos, in December 1994. The employment agreements provide for (i) annual compensation of $85,000, $85,000 and $80,000, respectively for the first year of the agreements, increasing by 10% in each of the second and third years; (ii) a bonus of 4%, 3% and 3%, respectively, of the Company's earnings before interest and taxes ("EBIT") up to $1,000,000 (as defined in the agreement), 3%, 2.25% and 2.25%, respectively of the amount of EBIT in excess of $1,000,000 up to $2,000,000 and 2%, 1.5% and 1.5%, respectively, of the EBIT in excess of $2,000,000, providing the Company achieves at least $500,000 in EBIT, with such additional bonuses as may be awarded in the discretion of the Board of Directors; (iii) the award of non-qualified stock options to purchase 150,000, 150,000 and 200,000 shares of Common Stock, respectively at an exercise price of $4.50 per share (iv) certain insurance and severance benefits and (v) automobile expenses. In December 1995, the Company entered into a three year employment agreement with Stephen A. Stein, the Company's Vice-Chairman and Chief Administrative Officer. The agreement provides for a base salary of $90,000 per year increasing 10% per annum plus a bonus to be determined by the board of directors. The agreement also granted Mr. Stein 120,000 five year employee stock options exercisable at $5.25 per share as well as certain insurance and severance benefits and automobile expense payment. The Non-Executive Directors will receive options under the Non- Executive Director Stock Option Plan to purchase 25,000 shares of Common Stock upon joining the Board and options to purchase 15,000 shares each year they serve on the Board. The directors will be reimbursed for expenses incurred in order to attend meetings of the Board of Directors and will be paid a $500 meeting fee. STOCK OPTION PLANS In November 1994, the Company adopted the 1994 Employees Stock Option Plan (the "Plan"). The Plan provides for the grant of options to purchase up to 1,000,000 shares of the Company's Common Stock. Under the terms of the Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment ("ISOs") under Section 422A of the Code, or options which do not so qualify ("Non-ISOs"). The Plan is administered by the Board of Directors or by a Stock Option Committee designated by the Board of Directors. The Board or the Stock Option Committee has the discretion to determine the eligible employees to whom, and the times and the price at which, options will be granted. Whether such options shall be ISOs or Non-ISOs; the periods during which each option will be exercisable; and the number of shares subject to each option, shall be determined by the Board or Committee. The Board or Committee shall have full authority to interpret the Plan and to establish and amend rules and regulations relating thereto. Under the Plan, the exercise price of an option designated as an ISO shall not be less than the fair market value of the Common Stock on the date the option is granted. However, in the event an option designated as an ISO is granted to a ten percent stockholder (as defined in the Plan) such exercise price shall be at least 110% of such fair market value. Exercise prices of Non-ISOs options may be less than such fair market 30 34 value. The aggregate fair market value of shares subject to options granted to a participant which are designated as ISOs which become exercisable in any calendar year shall not exceed $100,000. The "fair market value" will be the closing NASDAQ bid price, or if the Company's Common Stock is not quoted by NASDAQ, as reported by the National Quotation Bureau, Inc., or a market maker of the Company's Common Stock, or if the Common Stock is not quoted by any of the above, by the Board of Directors acting in good faith. The Board or the Stock Option Committee, as the case may be, may, in its sole discretion, grant bonuses or authorize loans to or guarantee loans obtained by an optionee to enable such optionee to pay any taxes that may arise in connection with the exercise or cancellation of an option. Unless sooner terminated, the Plan will expire in November, 2004. The Plan is currently administered by the Board of Directors, although the Board may designate a Stock Option Committee to administer the Plan, comprised of three individuals at least two of whom shall be Directors. In November 1994, the Company adopted the Non-Executive Director Stock Option Plan (the "Director Plan"). The Director Plan provides for issuance of a maximum of 500,000 shares of the Company's Common Stock upon the exercise of stock options granted under the Director Plan. Options are granted under the Director Plan until December 2004 to (i) non-executive directors as defined and (ii) members of any advisory board established by the Company who are not full time employees of the Company or any of its subsidiaries. The Director Plan provides that each non-executive director will automatically be granted an option to purchase 25,000 shares, upon joining the Board of Directors, and on each December 1st thereafter, provided such person has served as a director for the 12 months immediately prior to such December 1st. Similarly, each eligible director of an advisory board will receive options to purchase 15,000 shares upon joining the advisory board, and on each December 1st thereafter, an option to purchase 7,500 shares of the Company's Common Stock, providing such person has served as a director of the advisory board for the previous 12 month period. The exercise price for options granted under the Director Plan shall be 100% of the fair market value of the Common Stock on the date of grant. The "fair market value" will be the closing NASDAQ bid price, or if the Company's Common Stock is not quoted by NASDAQ, as reported by the National Quotation Bureau, Inc., or a market maker of the Company's Common Stock, or if the Common Stock is not quoted by any of the above by the Board of Directors acting in good faith. Until otherwise provided in the Stock Option Plan the exercise price of options granted under the Director Plan must be paid at the time of exercise, either in cash, by delivery of shares of common Stock of the Company or by a combination of each. The term of each option commences on the date it is granted and unless terminated sooner as provided in the Director Plan, expires five years from the date of grant. The Director Plan is administered by a committee of the Board of Directors composed of not fewer than three persons who are officers of the Company (the "Committee"). The Committee has no discretion to determine which non-executive director or advisory board member will receive options or the number of shares subject to the option, the term of the option or the exercisability of the option. However, the Committee will make all determinations of the interpretation of the Director Plan. Options granted under the Director Plan are not qualified for incentive stock option treatment. 31 35 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as October, 1995, with respect to the Company's Common Stock owned by each person known to the Company to be the beneficial owner of more than five percent (5%) of the Company's Common Stock, each director and all officers and directors as a group.
AMOUNT AND NATURE OF PERCENTAGE POSITION WITH BENEFICIAL OF NAME COMPANY OWNERSHIP(1) CLASS William J. Opper Chairman of the Board and 333,361(2) 12.4% The Rattlesnake Holding Chief Executive Officer Company, Inc. 3 Stamford Landing, Suite 130 Stamford, CT 06902 Stephan A. Stein Vice Chairman and 40,000 (3) 1.5% The Rattlesnake Holding Chief Administrative Officer Company, Inc. 3 Stamford Landing, Suite 130 Stamford, CT 06902 David C. Sederholt President, Chief Operating 194,158(2) 7.2% The Rattlesnake Holding Officer, Chief Financial Company, Inc. Officer, Treasurer and 3 Stamford Landing, Suite 130 Director Stamford, CT 06902 Peter C. Markatos Executive Vice President and 66,667(4) 2.5% The Rattlesnake Holding Director Company, Inc. 3 Stamford Landing, Suite 130 Stamford, CT 06902 Louis R. Malikow Secretary and Director 76,517(5) 2.9% Louis R. Malikow Associates 679 Plank Road Clifton Park, NY 12065 Donald M. Zuckert Director 148,252(5) 5.5% 3 Stamford Landing, Suite 300 Stamford, CT 06902 Roger Rankin Director 138,434(5) 5.0% 17561 S.E. Conch Bar Avenue Tequesta, FL 33463 Guy B. Snowden Stockholder 172,422(7) 6.4% c/o Louis R. Malikow Associates 679 Plank Road Clifton Park, NY 12065 All Officers and Directors as 1,001,941(2) 32.8% a Group (7 persons) (3)(4)(5)(6)
- ---------------------------------------- (1) Each person listed has sole voting and investment power over the shares listed as beneficially owned unless otherwise indicated. (2) Does not include 100,000 non-vested options to purchase shares of Common Stock, but does 32 36 include 50,000 vested options. (3) Includes options to purchase 40,000 shares of Common Stock. Does not include non-vested options to purchase 120,000 shares of Common Stock. (4) Does not include (i) non-vested options to purchase 133,333 shares of Common Stock; and (ii) 36,084 shares held by the mother of Mr. Markatos. Does include 66,667 vested options to purchase shares of Common Stock. (5) Includes options to purchase 40,000 shares of Common Stock. (6) Includes (i) options to purchase 40,000 shares; (ii) 73,000 shares issuable upon exercise of a warrant. (7) Includes (i) 27,671 shares held in five trusts established for each of Mr. Snowden's children and (ii) 36,500 shares issuable upon exercise of a warrant. Does not include 50,000 warrants issued to Mr. Snowden's children July 1, 1996. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In May 1992, William J. Opper, the Chairman of the Board and Chief Executive Officer, loaned the Company $100,000 on a five-year note at an interest rate of 9% per annum. This note was subsequently paid in full in July 1995. Mr. Opper's brother privately purchased an aggregate of $95,000 principal amount of 12% convertible promissory notes and warrants to purchase 34,675 shares from Donald Zuckert. Mr. Opper disclaims any beneficial interest in this transaction. In January 1994, David Sederholt, the Company's President and Chief Operating Officer, loaned the Company $22,300 on a note payable in two years at an interest rate of 9% per annum. This note was subsequently paid in full in August 1995. In June 1994, Mr. Sederholt's mother-in-law loaned the Company $10,000 on a note payable on demand at an interest rate of 12% per annum. This note was subsequently paid in full in August 1995. In June 1994, in connection with the acquisition of the Yorktown Heights facility, the Company purchased all of the shares of PEN-Z Corp. Inc. from Penny Markatos, the mother of Peter Markatos, the Company's Executive Vice-President, for a $300,000 note payable monthly through May 2009 at an interest rate of prime plus 1% and Mrs. Markatos received 36,084 shares of Common Stock and a trust of which Mrs. Markatos is Trustee, sold the furniture and equipment in the Yorktown Heights location to the Company for $100,000 payable on a note due monthly through April 2009 at an interest rate of prime plus 1%. Peter Markatos disclaimed any beneficial interest of any transaction involving his mother. Louis R. Malikow, Secretary and a Director of the Company, entered into a consulting agreement in September 1993 pursuant to which Mr. Malikow provides various consulting services to the Company for a fee of $1,667 per month. This agreement voluntarily terminated September 1994. In addition, Mr. Malikow's brother loaned the Company $100,000 in March 1994 payable on demand at an interest rate of 12% per annum and $20,000 in June 1994 on the same terms. Both of these notes have been repaid. In December 1994, Mr. Malikow's brother purchased $20,000 principal amount of 12% convertible promissory notes, convertible at $4.00 per share, and warrants to purchase 7,300 shares of the Company's common stock at an exercise price of $4.50, which he subsequently privately transferred. In addition, Mr. Malikow's brother purchased one unit of the Company's private offering in September 30, 1994. Mr. Malikow disclaims any beneficial interest in any transaction involving his brother. 33 37 Donald M. Zuckert, a Director of the Company loaned the Company pursuant to a demand note in April 1994, the sum of $75,000 which has been repaid in full without interest. Mr. Zuckert in December 1994 purchased $100,000 principal amount of 12% convertible promissory notes, convertible at $8.00 per share, and warrants to purchase 18,250 shares of the Company's common stock at an exercise price of $4.50. Mr. Zuckert subsequently privately transferred these notes and warrants. Roger Rankin, a Director of the Company, purchased 7 units of the Company's private placement of November 1994 at various times during the offering period. Mr. Rankin in December 1994 purchased $200,000 principal amount of 12% convertible promissory notes, convertible at $4.00 per share, and warrants to purchase 73,000 shares of the Company's common stock at an exercise price of $4.50. The $200,000, 12% convertible notes were repaid with interest in December 1995. Guy Snowden, a principal stockholder of the Company, loaned the Company $52,500 pursuant to a demand note at 15% interest per annum. This note was subsequently paid in full August 1995. Mr. Snowden in December 1994 purchased $100,000 principal amount of 12% convertible promissory notes, convertible at $4.00 per share, and warrants to purchase 36,500 shares of the Company's common stock at an exercise price of $4.50. In August 1996, Mr. Snowden loaned the Company $425,000 to finance the purchase of the Fairfield location. This note is at 15% and is due January 1997. As additional consideration Mr. Snowden received 50,000 warrants at the market price at the date of grant. Stephen A. Stein, the Company's Vice-Chairman, has provided, and expects to continue to provide, investment banking services to Commonwealth Associates. The Company has engaged, and in the future may continue to engage, Commonwealth Associates to provide advisory and/or financing activities. Mr. Stein disclaims any beneficial interest in any transaction or activity involving the Company and Commonwealth Associates. Except as provided herein, the Company has not entered into any material transactions or series of similar transactions with any director, executive officer or any security holder owning 5% or more of the Company's Common Stock. ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statement Schedules None (b) Reports on Form 8-K During the quarter ended June 30, 1996 the Company filed no reports on Form 8-K. (c) Exhibits The following exhibits, designated by an asterisk (*), have been previously filed with the Commission with the Company's registration on Form SB-2 (File No. 33-88486) and those designated with two astericks have been filed with the Company's 10KSB for the year ended June 30, 1995, and, pursuant to 17 C.F.R. Section 230.411, are incorporated by reference. Those not so designated are filed herewith. Exhibit No. Description 2.1* Merger Agreement dated August 31, 1993 by and between Rattlesnake Ventures, Inc. and the 34 38 Registrant 3.1* Form of Restated Certificate of Incorporation of the Registrant 3.1.1 Designation of Preferred Stock 3.2* By-Laws 4.1* Form of Common Stock Certificate 4.2* Form of Warrant to be issued to the Underwriter 4.3* Form of Warrant issued to certain individuals in December 1994 10.1* Lease agreement dated May 12, 1992 between the Registrant and South Norwalk Redevelopment Limited Partnership for the South Norwalk facilities 10.1.1* Agreement between Breakaway Sono Inc. and the Registrant for the purchase of certain equipment 10.1.2* Note dated June 11, 1992 from the Registrant to Breakaway Sono, Inc. 10.2* Lease Agreement dated April 1, 1994 between Sivad Inc. and the Registrant for the Fairfield facilities 10.2.1* Purchase Money Leasehold Mortgage between the Registrant and Sivad Inc. 10.3* Common Stock Purchase Agreement between the Registrant and Penny Markatos dated November 1, 1993 10.3.1* Lease Agreement between Penny Markatos and PEN-Z Corp. dated April 1, 1994 10.4* Lease Agreement dated March 15, 1993 between the Registrant and Elm City Manufacturing Jewelers Inc. for the Hamden facilities 10.4.1* Sale Agreement dated August 31, 1993 between the Registrant and Hamden Entertainment Inc 10.4.2* Amendment of Promissory Note Agreement dated February 28, 1994 10.4.3* Amendment to Commitment Agreement dated October 31, 1994 between the Registrant and Hamden Entertainment Inc. 10.4.4* Amendment to Promissory Note dated April, 1995 10.5* Lease Agreement dated January 24, 1995 for Danbury facility 10.6* License Agreement with RC Holdings, Inc. dated April, 1995 10.7* Form of Employment agreement with William J. Opper dated December 1994 10.8* Form of Employment agreement with David Sederholt dated December 1994 10.9* Form of Employment Agreement with Peter Markatos dated December 1994 10.10* 1994 Employee Stock Option Plan 35 39 10.11* 1994 Nonexecutive Directors Stock Option Plan 10.12* Form of 12% Convertible Note 10.12.1* Form of Extension Agreement between the Company and the holders of the 12% Convertible Notes 10.13* Form of Warrant issued to holders of 12% Convertible Note 10.14* Note dated May 8, 1992 from the Registrant to William J. Opper 10.15* Agreement with Berkeley Securities Corporation providing for the cancellation of certain shares 10.16* Proposed Debt Restructure 10.16.1* Series A Note 10.16.2* Series B Note 10.17* Agreement with 1241 Mamaroneck Avenue Corp. 10.17.1* Form of Proposed Lease for 1241 Mamaroneck Avenue 10.17.2* Note Extension Agreement 10.18* Form of Consulting Agreement to be entered into with Auerbach, Pollak & Richardson, Inc. 10.19* Letter of intent with Steve Kalafer for the Flemington facility 10.20* Form of 12% Convertible Promissory Note 10.21** Lease Agreement dated September 12, 1995 with SBX investments, Inc. 10.21.1** Asset Purchase Agreement dated September 12, 1995 with Twinlittle, Inc. and Twinlittle II, Inc. 10.21.2** $100,000 principal amount of promissory note to SBX Investments, Inc. 10.22 Employment Agreement with Stephen A. Stein 10.23 Lease Agreement with Jack Cioffi Trust ULWT dated April 15, 1996 together with Exhibits 10.24 Form of Series C Note 10.25 Note Agreement with Guy B. Snowden 10.26 Option and Escrow Agreement dated August 1996 between CFT Restaurant, Land and Building Group, Rattlesnake of Milford, Inc. et al., together with Asset Sale/Purchase Agreement and related Exhibits thereto 10.27 First Amendment and Restated Lease between Land and Building Group and Rattlesnake of Milford, Inc. 10.28 Form of Consulting Agreement among Frank Tummunello, Charter Tummunello, Thomas Dunn and Rattlesnake of Milford, Inc. 10.29 Agreement of Sale dated August 6, 1996 between Kings Castle Caterers Inc. and Rattlesnake of Bay Ridge, Inc. and certain exhibits 10.30 Assignment and Assumption Agreement dated August 23, 1994 between Holy Cow Restaurant Associates, Inc. and Rattlesnake of 86th Street, Inc. 21 Subsidiary List 36 40 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. THE RATTLESNAKE HOLDING COMPANY, INC. By: /s/ William J. Opper -------------------------------- William J. Opper Chairman of the Board and Chief Executive Officer Dated: October 15, 1996 Pursuant to the requirements of the Securities Act of 1933, this Report has been signed below by the following persons in the capacities and on the dates indicated: Signature Capacity Date /s/ William J. Opper Chairman of the Board October 15, 1996 - ------------------ and Chief Executive Officer William J. Opper /s/ David C. Sederholt President, Chief Operating October 15, 1996 - ------------------ Officer, Chief Financial David C. Sederholt Officer, Treasurer and Director /s/ Peter C. Markatos Director October 15, 1996 - ------------------ Peter C. Markatos /s/ Louis P. Malikow Secretary and Director October 15, 1996 - ------------------ Louis P. Malikow /s/ Donald M. Zuckert Director October 15, 1996 - ------------------ Donald M. Zuckert /s/ Stephen A. Stein Director October 15, 1996 - ------------------ Stephen A. Stein /s/ Roger Rankin Director October 15, 1996 - ------------------ Roger Rankin 37 41 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996, 1995 AND JUNE 30, 1994 (WITH INDEPENDENT AUDITORS' REPORT THEREON) 42 [KPMG PEAT MARWICK LLP LETTERHEAD] Independent Auditors' Report The Board of Directors and Stockholders The Rattlesnake Holding Company, Inc. We have audited the accompanying consolidated balance sheets of The Rattlesnake Holding Company, Inc. and subsidiaries as of June 30, 1996 and 1995 and the related consolidated statements of operations, stockholders' equity and cash flows for the years ended June 30, 1996 and 1995 and the six months ended June 30, 1994. These consolidated 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 generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Rattlesnake Holding Company, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of their operations and their cash flows for the years ended June 30, 1996 and 1995 and the six months ended June 30, 1994 in conformity with generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations that raise substantial doubt about its ability to continue as a going concern. Management has developed a cost reduction program and is attempting to raise additional capital. On October 10, 1996, a letter of intent was executed with an investment banking firm to provide additional capital. Management's plans in regard to these matters are also described in note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our report on the 1994 financial statements contained an explanatory paragraph indicating that the Company financed its operations principally through the private placement of a $1,800,000 unit offering, consisting of 9% subordinated notes and 105,768 shares of common stock and a $500,000 unit offering consisting of 12% convertible subordinated notes and 182,500 common stock purchase warrants. The subordinated notes matured in various amounts during the period May 1995 through September 1995 and the convertible subordinated notes were to mature in various amounts during the period June 1995 through July 1995. In the opinion of management, the Company would not have generated sufficient operating cash flow to repay F-2 43 the subordinated or convertible subordinated notes. The Company utilized a portion of the proceeds received from the June 29, 1995 initial public offering of 1,495,000 shares of common stock to partially repay the 9% subordinated notes and restructured the terms of the remaining outstanding indebtedness. /s/ KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP October 11, 1996 Stamford, Connecticut F-3 44 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1996 and 1995
1996 1995 ---- ---- Assets Current assets: Cash $ 684,414 28,316 Cash in escrow 1,237,625 -- Accounts receivable 63,659 27,138 IPO receivable -- 7,260,800 Inventory 111,312 91,334 Pre-opening costs 107,289 18,081 Debt issuance costs -- 72,114 Prepaid expenses and other current assets 140,490 9,555 ----------- ---------- Total current assets 2,344,789 7,507,338 Property and equipment, net 2,374,848 1,082,873 Intangible assets, net 1,534,227 1,499,478 Other assets 246,288 203,538 ----------- ---------- $ 6,500,152 10,293,227 =========== ========== Liabilities and Stockholders' Equity Current liabilities: Current maturities of notes payable 576,852 1,530,572 Accounts payable 574,889 754,186 Accrued expenses 488,204 805,422 Other current liabilities 283,234 350,542 ----------- ---------- Total current liabilities 1,923,179 3,440,722 Notes payable, net of current maturities 1,255,723 1,768,301 ----------- ---------- Total liabilities 3,178,902 5,209,023 ----------- ---------- Stockholders' equity: Preferred stock, Series A, $.10 par value, 5,000,000 shares authorized, 54,500 and 0 issued and outstanding at June 30, 1996 and 1995, respectively 5,450 -- Common stock, $.001 par value - 20,000,000 shares authorized, 2,643,734 and 2,558,563 issued and outstanding, at June 30, 1996 and 1995, respectively 2,644 2,559 Additional paid-in capital 10,704,315 9,279,649 Accumulated deficit (7,391,159) (4,198,004) ----------- ---------- 3,321,250 5,084,204 $ 6,500,152 10,293,227 =========== ==========
See accompanying notes to consolidated financial statements. F-4 45 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Operations Years ended June 30, 1996 and 1995 and six months ended June 30, 1994
Six months Year ended Year ended ending June 30, June 30, June 30, 1996 1995 1994 ---- ---- ---- Restaurant sales $ 8,755,565 5,340,657 1,613,535 Less: promotional sales 512,756 362,589 142,884 ----------- ---------- --------- Net restaurant sales 8,242,809 4,978,068 1,470,651 Costs and expenses: Cost of food and beverage sales 2,565,905 1,610,680 474,748 Restaurant salaries and fringe benefits 3,109,435 1,804,129 541,803 Occupancy and related expenses 2,118,444 1,306,469 357,717 Depreciation and amortization expense 608,260 388,695 140,758 ----------- ---------- --------- Total restaurant costs and expenses 8,402,044 5,109,973 1,515,026 Selling, general and administrative 2,810,433 1,332,237 291,979 Amortization of debt issuance costs -- 1,027,751 499,813 Loss on closure of restaurant site 192,311 -- -- Interest expense 108,536 264,279 70,077 Miscellaneous expenses 12,350 2,199 250 ----------- ---------- --------- Total expenses 11,525,674 7,736,439 2,377,145 ----------- ---------- --------- Net loss before extraordinary item (3,282,865) (2,758,371) (906,494) Extraordinary item: Gain on early extinguishment of debt 89,710 -- -- ----------- ---------- --------- Net loss $(3,193,155) (2,758,371) (906,494) =========== ========== ========= Per share: Loss before extraordinary item (1.26) (2.46) (0.84) Extraordinary item .03 -- -- ----------- ---------- --------- Net loss $ (1.23) (2.46) (0.84) =========== ========== ========= Weighted average number of common and common equivalent shares outstanding 2,605,808 1,122,678 1,074,513 =========== ========== =========
See accompanying notes to consolidated financial statements. F-5 46 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity Years ended June 30, 1996 and 1995 and six months ended June 30, 1994
Addi- Total tional Accum- stock- Common Preferred Common paid-in ulated holders' shares stock stock capital deficit equity ------ ----- ----- ------- ------- ------ Balance, December 31, 1993 856,274 $ -- 856 1,102,143 (533,139) 569,860 Issuance of stock in connection with acquisition of leaseholds 12,466 -- 12 150,488 -- 150,500 Proceeds received from issuance of common stock 2,226 -- 2 24,998 -- 25,000 Net proceeds received from issuance of common stock in connection with private placement 34,527 -- 35 588,617 -- 588,652 Net loss -- -- -- -- (906,494) (906,494) --------- ------ ----- ----------- ---------- ---------- Balance, June 30, 1994 905,493 -- 905 1,866,246 (1,439,633) 427,518 Issuance of stock in connection with refinancing of debt 10,000 -- 10 54,990 -- 55,000 Net proceeds received from Initial Public Offering 1,495,000 -- 1,495 6,576,839 -- 6,578,334 Net proceeds received from issuance of common stock in connection with private placement 20,570 -- 21 253,452 -- 253,473 Conversion of debt to equity 127,500 -- 128 509,872 -- 510,000 Issuance of warrants in connection with private placement of debt -- -- -- 18,250 -- 18,250 Net loss -- -- -- -- (2,758,371) (2,758,371) --------- ------ ----- ----------- ---------- ---------- Balance, June 30, 1995 2,558,563 -- 2,559 9,279,649 (4,198,004) 5,084,204 Additional costs from Initial Public Offering -- -- -- (43,239) -- (43,239) Issuance of common stock for services performed 2,671 -- 3 14,355 -- 14,358 Net proceeds received from issuance of preferred stock -- 5,450 -- 1,123,632 -- 1,129,082 Conversion of debt to equity 82,500 -- 82 329,918 -- 330,000 Net loss -- -- -- -- (3,193,155) (3,193,155) --------- ------ ----- ----------- ---------- ---------- Balance, June 30, 1996 2,643,734 $5,450 2,644 10,704,315 (7,391,159) 3,321,250 ========= ====== ===== =========== ========== ==========
See accompanying notes to consolidated financial statements. F-6 47 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended June 30, 1996 and 1995 and six months ended June 30, 1994
Six months Year ended Year ended ending June 30, June 30, June 30, 1996 1995 1994 ----------- ---------- -------- Cash flows from operating activities: Net loss $(3,193,155) (2,758,371) (906,494) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 651,597 1,420,314 638,306 Gain on early extinguistment of debt (89,710) -- -- Loss on closure of restaurant site 190,965 -- -- Issuance of stock in connection with debt restructuring 30,000 55,000 -- Stock issued for services provided 14,358 -- -- Changes in assets and liabilities, net of acquisition: Increase in accounts receivable (36,521) (10,712) (11,637) Increase in inventory (25,013) (17,897) (41,016) Increase in prepaid expenses and other assets (206,384) (31,445) (7,099) Increase in pre-opening costs (169,138) (21,697) (12,379) (Decrease) increase in accounts payable and accrued expenses (334,691) 1,178,214 231,580 (Decrease) increase in other current liabilities (34,609) 100,718 63,561 ----------- ---------- -------- Net cash used in operating activities (3,202,301) (85,876) (45,178) ----------- ---------- -------- Cash flows from investing activities: Capital expenditures (1,769,272) (314,242) (446,623) Payments for acquisitions of leaseholds and lease costs (155,924) (150,448) (105,000) Purchase of liquor license (150,000) -- -- Payments for acquisition, net of cash acquired -- -- (94,038) ----------- ---------- -------- Net cash used in investing activities (2,075,196) (464,690) (645,661) ----------- ---------- -------- Cash flows from financing activities: Net proceeds from issuance of common stock -- -- 25,000 Proceeds from IPO 7,260,800 -- -- Proceeds from issuance of convertible notes -- 510,000 -- Net proceeds from private placement -- 383,263 532,686 Cost of issuance of preferred stock (108,543) -- -- Proceeds from borrowings 100,000 484,250 255,000 Principal repayment of borrowings (1,275,423) (141,567) (208,083) IPO costs (43,239) (682,466) -- ----------- ---------- -------- Net cash provided by financing activities 5,933,595 553,480 604,603 ----------- ---------- -------- Net increase (decrease) in cash 656,098 2,914 (86,236) Cash, beginning of period 28,316 25,402 111,638 ----------- ---------- -------- Cash, end of period $ 684,414 28,316 25,402 =========== ========== ======== Cash paid during the period for: Interest $ 221,825 57,686 10,086 =========== ========== ======== Income taxes $ 17,015 2,199 750 =========== ========== ========
See accompanying notes to consolidated financial statements. F-7 48 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued June 30, 1996, 1995 and June 30, 1994 (1) Organization and Description of Business (a) Description of Business The Rattlesnake Holding Company, Inc. and subsidiaries (collectively, the Company), currently operates seven restaurants in Lynbrook, White Plains and Yorktown Heights, New York; Fairfield, South Norwalk, and Danbury, Connecticut and Flemington, New Jersey. In January 1996, the Company closed its restaurant in Hamden, Connecticut (note 4). The Company's eighth restaurant is currently under construction on 86th Street in New York City. Company restaurants feature casual dining utilizing a southwestern theme. (b) Organization In December 1994, an amendment to the Company's Certificate of Incorporation was approved and adopted to (i) effect a 1:2.8077 reverse split of the Company's common stock (ii) change the par value of the Company's common stock from $.01 to $.001 per share (iii) increase the authorized capital stock of the Company to 20,000,000 shares of $.001 par value common stock and 5,000,000 shares of $0.10 par value preferred stock, and (iv) change the Company's fiscal year end from December 31st to June 30th. In March 1995, an additional reverse common stock split of 1:2 was approved by the Company's Board of Directors. All references in the accompanying consolidated financial statements and notes thereto relating to share and per share data have been adjusted retroactively to reflect the stock splits. On June 29, 1995, the Company completed an initial public offering (IPO) of 1,300,000 shares of its common stock and 195,000 additional shares pursuant to the exercise of the over-allotment option by the underwriter at $5.50 per share. The net proceeds of the offering, after deducting underwriters' commissions and fees of $986,700 and offering costs of $700,705, were $6,535,095. The proceeds from this offering were to be used for working capital, marketing and advertising, the implementation of the Company's expansion strategy and to repay subordinated debt (note 9). The underwriter received warrants to purchase 130,000 shares of common stock at a price of 120% of the offering price for a term of four years commencing from the date of the offering. Upon the closing of the offering, the Company executed a one year consulting agreement, as amended, under which the underwriter received $30,000 for providing financial advisory and other consulting services. (2) Summary of Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. The consolidated financial statements have been presented on a historical cost basis for the consolidated statements of operations. All significant inter-company balances and transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. However, due to the matters discussed below, its continuation as a going concern can not be reasonably assured. (Continued) F-8 49 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The Company has incurred aggregate losses since inception of $7,391,159, inclusive of a net loss in fiscal 1996 of $3,193,155. Based upon interim financial information prepared by management, the Company has continued to incur losses in fiscal 1997. Additionally, $525,000 of Series A subordinate notes payable matured on August 1996 (note 9) and a $425,000 short-term note payable associated with the acquisition of restaurant matures in fiscal 1997. Management of the Company is implementing a cost reduction plan to address these issues. Such plan will include the closing of unprofitable sites, a reduction in the Company's workforce and other cost containment measures designed to reduce operating expenses and improve restaurant operating performance. On October 10, 1996, a letter of intent was executed with an investment banking firm to provide additional capital on a "best efforts" basis (note 16). Management believes that the implementation of its strategic plan and consummation of the above-mentioned financing will return the Company to profitable operations and restore liquidity. However, no assurance can be made regarding the achievement of the goals outlined in the strategic plan or consummation of the aforementioned completion of financing arrangements. (b) Reporting Periods On April 2, 1996, the board of directors approved a change, effective July 1, 1996, in the Company's accounting reporting period to a 52 week cycle ending on the last Sunday in June. This change was implemented to establish consistency between the Company's operational and accounting reporting periods. (c) Cash in Escrow On June 30, 1996, the Company completed a private placement of a $1,362,500 unit offering, consisting of 54,500 shares of 7-1/2% preferred stock and 218,000 common stock purchase warrants (note 9). The proceeds of the offering, net of underwriters commissions and fees were $1,212,625. On June 30, 1996, these net proceeds and a $25,000 deposit previously paid by the Company were held in an escrow account by the underwriter on behalf of the Company. The Company subsequently received the proceeds in the first quarter of fiscal 1997. (d) IPO Receivable On June 29, 1995, the Company completed an initial public offering of 1,495,000 shares of common stock. The proceeds of the offering, net of underwriters commissions and fees, was $7,235,800. Such amount, and an additional $25,000 deposit previously paid by the Company, is recorded as IPO receivable at June 30, 1995. These proceeds were received on July 7, 1995. (e) Accounts Receivable Accounts receivable consist principally of bank credit card accounts receivable. (Continued) F-9 50 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (f) Inventories Inventories consist primarily of restaurant food items and supplies and are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. (g) Pre-Opening Costs Certain costs relating to hiring and training of employees prior to the opening of new restaurants are capitalized and amortized over a twelve month period commencing upon restaurant opening. At June 30, 1996 and June 30, 1995, such costs amounted to $107,289 and $18,081, respectively. (h) Debt Issuance Costs Debt issuance costs are principally associated with the subordinated notes component of the Company's $1,800,000 unit offering and were capitalized and amortized ratably over the initial one year term of the debt. Accumulated amortization at June 30, 1995 was $1,609,083 and amortization expenses was $1,018,625 and $499,813 for the year ended June 30, 1995 and six month period ended June 30, 1994, respectively. As a result of the restructuring of this debt, the related unamortized debt issuance costs of $72,114 were offset against the extraordinary gain recognized in this transaction (note 9). (i) Property and Equipment Property and equipment is stated at cost. Depreciation is calculated primarily on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows: Artifacts 3 years Original smallwares 3 years Furniture and fixtures 5 years Restaurant and office equipment 7 years Leasehold improvements 5-15 years
(j) Intangible Assets Intangible assets consist principally of costs to acquire leased facilities. These leasehold costs are amortized over the life of the related lease, generally 5 to 15 years. Accumulated amortization at June 30, 1996 and June 30, 1995 was $401,114 and $194,939, respectively. Amortization expense was $227,847, $150,480, $33,336 for the year ended June 30, 1996, June 30, 1995 and the six months ended June 30, 1994, respectively. In connection with the closing of the Hamden location, the Company wrote off approximately $65,000 in leasehold costs, net of accumulated amortization of $21,672 (note 4). (k) Other Assets The Company utilizes an outside service to provide financing and promotional activities. The costs relating to these activities are capitalized and are being amortized over the repayment period. The Company also capitalized deferred costs relating to potential Rattlesnake locations under negotiation. (Continued) F-10 51 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (l) Financial Instruments Management of the Company believes that the book value of its monetary assets and liabilities, exclusive of long-term debt, approximates fair value as a result of the short-term nature of such assets and liabilities. Management further believes that the fair market value of long-term debt does not differ materially from carrying value. (m) Reclassification Certain reclassifications of prior period balances have been made to conform with the fiscal 1996 presentation. (n) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates. (3) Restaurant Acquisition In November 1993, the Company entered into an agreement to acquire 100% of the outstanding common stock of Pen-Z Corp. (Pen-Z). This transaction was completed in February 1994. Pen-Z operated a leased restaurant facility in Yorktown Heights, New York. Terms of the acquisition included $100,000 in cash, a $300,000 note payable and 36,084 shares of common stock. Based upon the results of an independent appraisal, the stock was valued at $324,200 at the time of issuance. The acquisition has been accounted for as a purchase transaction. Pursuant to the terms of this transaction, the Company entered into a lease agreement with a trust of the former 100% shareholder of Pen-Z to lease the facility for a ten year period, with a five year renewal option and acquired certain restaurant equipment from the trust for a $100,000 note payable. (4) Closure of Restaurant Site On December 31, 1995, the Board of Directors authorized the closing of the Rattlesnake Southwestern Grill Restaurant located in Hamden, Connecticut. The facility was closed on January 7, 1996. A majority of the fixed assets at the facility have been removed to be utilized at other existing or new facilities. All remaining fixed assets and leasehold improvements have been abandoned and all intangible assets have been written off. A loss of $192,311, relating to the closing of the Hamden location, was recorded during the 1996 fiscal year. (Continued) F-11 52 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (5) Property and Equipment Property and equipment consists of the following:
June 30, -------- 1996 1995 ---- ---- Leasehold improvements $ 1,410,404 700,462 Restaurant and office equipment 918,787 458,006 Furniture and fixtures 494,876 262,105 Original smallwares 73,562 -- Artifacts 23,952 -- ----------- ---------- 2,921,581 1,420,573 Less accumulated depreciation and amortization (546,733) (337,700) ----------- ---------- $ 2,374,848 1,082,873 =========== ==========
Related depreciation and amortization expenses were $334,695, $200,592 and $71,688 for the year ended June 30, 1996 and 1995, the six months ended June 30, 1994, respectively. Accumulated depreciation and amortization of $125,662 related to the disposal of fixed assets at the Hamden location was written off at December 31, 1995 (note 4). (6) Other Assets Other assets consist of the following:
June 30, -------- 1996 1995 ---- ---- Promotional meal programs $132,058 164,757 Deposits 96,737 38,781 Loans receivable 17,493 -- -------- ------- $246,288 203,538 ======== =======
(7) Capital Structure The Company's capital structure is as follows:
Shares issued and outstanding --------------- June 30, Shares -------- Security Par value authorized 1996 1995 -------- --------- ---------- ---- ---- Common stock $.001 per share 20,000,000 2,643,734 2,558,563 Preferred stock, Series A $.10 per share 5,000,000 54,500 --
(Continued) F-12 53 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The Company amended its Certificate of Incorporation in December 1994 to increase the authorized capital stock and effect a 1:2.8077 reverse stock split. In March 1995, an additional 1:2 reverse common stock split was approved by the Company's Board of Directors. The Company's preferred stock bears a dividend rate of 7-1/2% per annum payable semi-annually in arrears on May 15 and November 15 of each year commencing November 15, 1996. The shares are convertible at any time, one year after issuance into common stock at a conversion price equal the lesser of (i) 120% of the average of the last reported sale price of the common stock for the 10 trading days immediately preceding the first closing of the offering, or $4.50, whichever is lower; or (ii) 85% of the average of the last reported sale price of the common stock for the 10 trading days immediately preceding the first anniversary of the first closing, subject to certain anti-dilution adjustments. The preferred stock is redeemable only at the option of the Company, commencing one year from the date of issuance, based upon the sales price of the Company' common stock. The preferred stock has a liquidation preference of $24.50 per share, together with accrued and unpaid dividends. To date, the Board of Directors has not declared any dividends on common stock. The Board of Directors has the authority to establish the specific provisions of the preferred stock, i.e., liquidation rights, dividend parameters, at the date of issuance. (8) Notes Payable Notes payable consists of the following:
June 30, -------- 1996 1995 ---- ---- Subordinated notes payable due at various dates in fiscal 1995 and 1996, with interest at 9% (11% for the extension period) (including $175,000 held by a related party) $ -- 1,800,000 Series A subordinated notes payable due August 6, 1996, with interest at 9% (including $58,338 held by a related party) 525,000 -- Series B convertible subordinated notes payable due July 7, 2000 with interest at 9%, convertible at $3.85 per share (including $58,338 held by a related party) 525,000 -- Subordinated 12% convertible notes payable, net of $9,125 un- amortized discount, paid and/or converted in December 1995 -- 490,875 Note payable to shareholder relating to the acquisition of Pen-Z Corp., payable in monthly payments of $2,700 at June 30, 1996 and 1995 with interest at 1% over prime (9.25% and 9.5% at June 30, 1996 and 1995, respectively) through May 2009 289,227 294,186
(Continued) F-13 54 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued
June 30, -------- 1996 1995 ---- ---- Note payable relating to acquisition of leasehold, due in monthly installments of $1,500 with interest at 5%, paid in April 1996 $ -- 11,222 Note payable for the purchase of furniture and equipment, due in monthly installments of $1,292 including interest at 21.6%, paid in February 1996 -- 10,701 Note payable relating to acquisition of leasehold, due in monthly installments of $1,436, including principal and interest at 8.5%, paid on July 18, 1995 -- 38,660 Note payable to a related party with interest of 9%, paid on August 17, 1995 -- 52,500 Note payable to a related party, due in monthly installments of $2,076, including principal and interest at 9%, paid on July 21, 1995 -- 43,522 Note payable to a related party, due in monthly installments of $1,270, including principal and interest at 18% through February 1998 21,799 32,081 Notes payable to a related party, due in monthly installments of $1,050, including principal and interest at 12%, paid on August 1, 1995 -- 7,063 Note payable to a stockholder relating to purchase of furniture and equipment, due in monthly installments of $900 at June 30, 1996 and 1995, respectively, including principal and interest at prime plus 1% through 2009 96,274 98,063 Note payable relating to acquisition of lease with interest of 8%, paid on July 14, 1995 -- 120,000 Note payable relating to acquisition of lease, due in monthly installments of $2,867, including principal and interest at 8% through July 2010 289,206 300,000 Notes payable relating to acquisition of lease, due in monthly installments of $1,666 of principal plus interest at 1% over prime (9.25% at June 30, 1996 through September 1, 2000) 86,069 -- ---------- --------- 1,832,575 3,298,873 Less current maturities 576,852 1,530,572 ---------- --------- $1,255,723 1,768,301 ========== =========
(Continued) F-14 55 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Notes payable to shareholders and other related parties (Company officers and directors) were $523,976 and $1,002,414 at June 30, 1996 and 1995, respectively (note 16). In July 1994, a $50,000 note payable to a related party was exchanged, together with accrued interest for a $52,500 note payable bearing interest at 9%, and was satisfied in August 1995. Maturities of these notes is as follows: June 30,: 1997 $ 576,852 1998 50,793 1999 43,172 2000 570,223 2001 33,526 Thereafter 558,009 ---------- $1,832,575 ==========
(9) Financing Arrangements Commencing in November 1993, the Company sold through a private placement a $1,800,000 unit offering, with each $25,000 unit consisting of 1,469 shares of common stock and a $25,000 subordinated note. The subordinated notes mature in one year from the date of issuance, subject to a 180 day extension period, exercisable at the option of the Company. The subordinated notes bear interest at 9%, commencing on the date of issue, increasing to 11% for the 180 day extension period, with all interest payable at the maturity of the subordinated notes. The underwriter's compensation arrangement included the receipt of 82,367 shares of common stock and a 9.33% commission. The value of the common stock issued to the underwriter was determined by an independent appraisal, based upon the value of the stock at the various dates in which the units were sold, ranging between $7.40 and $12.46 per share. Debt issuance costs were calculated based upon the relative proportional value of the common stock and subordinated notes payable. At June 30, 1995 and 1994, the Company had outstanding $1,800,000 and $1,400,000, respectively, of the unit offering. In July 1995, the Company redeemed $225,000 of the notes and restructured the remaining principle amount outstanding of $1,575,000. This redemption was partially funded by a $50,000 note payable issued in June 1995 by the Company, with interest at 9%, and repaid in July 1995, together with 10,000 shares of common stock, valued at the IPO price of $5.50 per share. The value of the common stock was recorded as interest expense by the Company. Each $25,000 principal amount of Notes was exchanged as follows: (i) $8,334 paid in August and September 1995 (the "First Payment"); and (ii) a 9% $8,333 Series A Note (the Series A Notes) due 13 months after the first payment, and a 9% $8,333 Series B Note (the Series B Notes) due five years after the first payment was issued to each Noteholder with the First Payment. Each Series B Note is convertible into common stock thirteen months after issuance at a conversion price equal to 70% of the initial public offering price of the common stock sold, with piggy-back registration rights for the shares underlying the Series B Notes. Each Series B Note is redeemable with 30 days prior written notice at any time after the closing bid price of the common stock is 150% of the conversion price for the ten (Continued) F-15 56 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued consecutive trading days ending within 15 days of the date of notice of redemption. As a result of the restructuring of this debt, the related debt issuance costs were written off in July 1995. An extraordinary gain of $89,710, net of the write-off of $72,114 debt issuance costs was recognized in fiscal 1996. In fiscal 1997, the Company offered an extension agreement to the Series A noteholders, providing for a one year extension of the maturity date, in exchange for an increase in the interest rate from 9% to 15% and one warrant for every dollar of indebtedness. The warrants provide for exercise prices ranging between $2.50 - $3.00 and expire on August 6, 2001. Through October 7, 1996, noteholders aggregating $303,749 have accepted the terms of the extension and the remaining $221,243 of $524,992 were paid in cash. During December 1994 and January 1995, the Company received $500,000 in proceeds from a new unit offering, each unit consisting of a $20,000 principal amount six-month 12% convertible subordinated note and 3,650 common stock purchase warrants exercisable at $11.80 per share until March 1997 (the "Units"). The due date of these notes was extended to December 10, 1995 in consideration of a reduction of the conversion price and warrant exercise price to $4.00 and $4.50, respectively, and an increase in the number of warrants per Unit to 7,300. The value of the warrants, $0.10 per share was determined by an independent appraisal and has been recorded as a debt discount and additional paid in capital. In December 1995, $300,000 of the debt and $30,000 of accrued interest was exchanged into 82,500 shares of common stock and the remaining $200,000 was paid. During May and June 1995, the Company issued $510,000 of 12% subordinated debt which was automatically converted into shares of Common Stock at the rate of $4.00 per share upon the effective date of the initial public offering. In March 1996, the Company entered into an agreement with an investment banking firm to sell 200,000 shares of Series A preferred stock and 800,000 common stock warrants in a private placement for a total consideration of $5,000,000. The preferred stock was valued at $24.50 per share and each warrant at $.125 per warrant. The warrants are exercisable at a price of $7.00 per share and expire on August 31, 2001. On June 30, 1996, the Company closed on the sale of 54,500 shares of the aforementioned Series A preferred stock and 218,000 common stock purchase warrants. The underwriter received warrants to purchase 24,760 shares of common stock at $3.78 per share which expire on June 30, 2001. The net proceeds of the offering were $1,129,082, net of commissions and expenses of $233,418. The offering period expired on June 30, 1996. (Continued) F-16 57 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (10) Accrued Expenses and Other Liabilities (a) Accrued Expenses Accrued expenses consist of the following:
June 30, ------------------- 1996 1995 ---- ---- Accrued payroll $201,683 178,844 Other 192,021 227,370 Interest payable 94,500 207,787 Professional fees - 191,421 ------- ------- $488,204 805,422 ======= =======
(b) Other Liabilities The Company has entered into a marketing agreement whereby it receives temporary financing in exchange for participating in a discounted price meal program. At June 30, 1996 and June 30, 1995, the balances outstanding under this program were $283,234 and $350,542, respectively, which are included in other liabilities in the accompanying consolidated balance sheets. (11) Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes". SFAS 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted the provisions of SFAS 109 in 1992. There was no income tax expense for any period presented due to losses incurred by the Company. (Continued) F-17 58 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1996 and 1995 are presented below:
June 30, ------------------------ 1996 1995 ---- ---- Deferred tax assets: Net operating loss carry forward $2,381,000 1,103,000 ---------- --------- Total gross deferred tax assets 2,381,000 1,103,000 Less valuation allowance 2,350,000 1,013,000 ---------- --------- Net deferred tax assets 31,000 90,000 ---------- --------- Deferred tax liabilities: Depreciation and amortization 31,000 90,000 ---------- ---------- Net deferred tax liability 31,000 90,000 ---------- ---------- $ - - ========== =========
The valuation allowance for deferred tax assets as of July 1, 1995 and July 1, 1994 was $1,013,000 and $578,000, respectively. The change in the total valuation allowance for the year ended June 30, 1996, June 30, 1995 and the six months ended June 30, 1994 was $1,336,000, $435,000 and $359,000, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $5,952,000. At June 30, 1996 and 1995, the Company has net operating loss carry forwards for Federal and State income tax purposes of approximately $5,952,000 and $2,758,000, respectively (the NOL carry forwards), which are available to offset future taxable income, if any, through 2011. Losses for income tax purposes for the years ended June 30, 1996 and 1995 and the six months ended June 30, 1994 were approximately $3,308,000, $2,983,000 and $934,000, respectively. Based upon the limited operating history of the Company and losses incurred to date, management believes that the value of the deferred tax asset is impaired and has fully reserved the deferred tax asset. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, as it applies to the NOL carry forwards, a change in more than 50% in the beneficial ownership of the Company within a three-year period (an "Ownership Change") will place an annual limitation on the Company's ability to utilize its existing NOL carry forwards to offset United States Federal taxable income in future years. Generally, such limitation would be equal to the value of the Company as of the date of the Ownership Change multiplied by the Federal long-term tax exempt interest rate, as published by the Internal Revenue Service. The Company believes that an Ownership Change has occurred due to changes in the beneficial ownership of the Company's Common Stock in the current three-year testing period immediately prior to the initial public offering and would cause the annual limitations as described above to apply. The Company has not determined what the maximum annual amount of taxable income is that can be reduced by the NOL carry forwards. (Continued) F-18 59 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (12) Commitments and Contingent Liabilities Commitments The Company's operations are principally conducted in leased premises. Remaining lease terms range from 2 to 14 years. Certain leases contain contingent rental provisions based upon a percentage of gross sales. As of June 30, 1996, the Company has non-cancelable operating lease commitments as follows: 1997 $ 737,866 1998 715,129 1999 723,777 2000 731,656 2001 662,157 Thereafter 3,947,294 ---------- $7,517,879 ==========
Certain shareholders and directors have personally guaranteed lease payments for two locations. Contingent rental payments on building leases are typically made based on the percentage of gross sales on the individual restaurants that exceed predetermined levels. The percentage of gross sales to be paid and related gross sales level vary by unit. There were no contingent rental payments in any of the periods presented. Rent expense was $625,000, $329,000 and $109,000 for the periods ended June 30, 1996, June 30, 1995 and June 30, 1994, respectively. In connection with the sale of preferred stock, the Company is required to pay a 7-1/2% dividend payment to the preferred stockholders. These dividends are payable semi-annually in arrears on May 15 and November 15 of each year commencing November 15, 1996. Pursuant to a restaurant lease agreement, the Company has an option to purchase the related facility for $445,000 if executed prior to May 31, 1995 or for $425,000 thereafter. On March 31, 1996, the Company exercised its option to purchase the facility for $425,000. This transaction was closed on August 31, 1996 and was financed by a shareholder (note 16). Pursuant to a leasehold acquisition agreement, the Company paid $65,000 and issued a warrant to purchase 30,000 shares of the Company's common stock at an exercise price of $5.00 per share, exercisable until October 31, 1997. Pursuant to a restaurant lease agreement, the Company has the option to purchase a facility during the period January 1995 through January 2000 for a purchase price ranging between $1,365,000 to $1,580,000. (Continued) F-19 60 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued In August 2, 1995, the Company executed an agreement with a public relations firm providing for annual compensation of $24,000 and an option to purchase 20,000 shares of the Company's common stock at a price of $5.50 per share, exercisable for a five year period. The Company entered into a twelve month agreement with an investment banking firm commencing September 1, 1996 under which the investment banking firm will provide advisory services related to corporate finance and mergers and acquisitions. The investment banking firm will receive an initial retainer of $10,000 and monthly payments of $3,000 for the first three months, $4,000 for the next three months and $5,000 for the remaining six months and warrants to purchase 125,000 shares of the Company's common stock exercisable within five years at a price equal to 120% of the average closing bid price of the Company's common stock for the five preceding days. The Company entered into a thirteen month agreement with an independent research firm which will produce research reports with respect to the securities of the Company. In consideration of the firm's services, it received 100,000 warrants to purchase the Company's common stock, which are exercisable at amounts ranging from $4.00 - $5.50 per share which expire on July 8, 2001. (13) Employee Benefit Plans (a) Stock Option Plan In December 1994, the Company adopted the 1994 Employees Stock Option Plan (the Employees Plan), which provides for the issuance of incentive stock options (ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up to 1,000,000 shares of the Company's common stock have been reserved for issuance under the Plan. The Plan is currently administered by the Board of Directors of the Company. The term of the options is generally for a period of 5 years. The exercise price for non-qualified options outstanding under the Employees Plan can be no less that 100% of the fair market value, as defined, of the Company's common stock at the date of the grant. For ISO's, the exercise price can be generally no less than the fair market value of the Company's common stock at the date of the grant, with the exception of any employee who prior to the granting of the option, is a 10% or greater stockholder as defined, for which the exercise price can be no less than 110% of the fair market value of the Company's common stock at the date of grant. In December 1994, the Company adopted the non-Executive Director Stock Option Plan (the Director Plan), which provides for the issuance of non-ISO's to non-executive directors, as defined, and members of any advisory board established by the Company who are not full-time employees of the Company. The Company has reserved 500,000 shares for issuance under the provisions of the Director Plan. The Director Plan provides that each non-executive director will automatically be granted an option to purchase 25,000 shares upon joining the Board of Directors and 15,000 shares on each December 1st thereafter, provided such person has served as a director for the 12 months immediately prior to such December 1st. Similarly, each eligible director of an advisory board will receive options to purchase 15,000 shares upon joining the advisory board, and on each December 1st thereafter, an option to purchase 7,500 shares of the Company's common stock, providing such person has served as a director of the advisory for the previous 12 month period. The exercise price for options granted under the Director Plan shall be 100% of the fair market value of the Common Stock on the date of grant. (Continued) F-20 61 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued Activity in non-ISO's was as follows:
Number Option Price of Shares per Share --------- --------- Options outstanding June 30, 1994 - $ - Options Granted 600,000 4.50 Exercised Options - - ------- ------------ Options outstanding June 30, 1995 600,000 4.50 Options Granted 144,000 5.25 Exercised Options - - ------- ------------ Options outstanding June 30, 1996 744,000 $4.50 - 5.25 ======= ============
Activity in ISO's was as follows:
Number Option Price of Shares per Share --------- --------- Options outstanding June 30, 1994 - $ - Options Granted 72,000 4.50 Exercised Options - - ------- ------------ Options outstanding June 30, 1995 72,000 4.50 Options Granted 93,500 3.50 - 5.50 Exercised Options - - ------- ------------ Options outstanding June 30, 1996 165,500 $3.50 - 5.50 ======= ============
Options representing 100,000 shares issued in fiscal year 1995 are exercisable as of the date of grant and 114,400 are exercisable annually thereafter. The Employees and Director Plans expire in December 2004, unless terminated earlier by the Board of Directors under conditions specified in the respective Plans. No options have been exercised as of June 30, 1996. (b) Employment Agreements The Company and its Chairman, President and Executive Vice President (collectively, the Senior Management Group) entered into employment agreements in December 1994 for a period commencing in December 1994 through December 1997. The agreements provide for annual compensation for the Senior Management Group collectively of $250,000, increasing by 10% annually, plus certain other benefits. The agreements also provide for annual aggregate incentive (Continued) F-21 62 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued compensation for the Senior Management Group based on consolidated pre-tax earnings of the Company, as defined, as follows:
Pre-tax earnings Percentage ---------------- ---------- $0 - $1,000,000 10.0% $1,000,001 - 2,000,000 7.5% $2,000,001 and over 5.0%
The agreement also provides that upon a change in control, as defined, that all stock options held by the employee become immediately exercisable and that a credit equivalent to three times the employee's annual compensation be credited against the exercise price of the options. The Company and its Vice-Chairman & Chief Administration Officer entered into a part-time employment agreement in December 1995 for a period commencing December 1995 through December 1998. The agreement provides for annual compensation of $90,000 increasing 10% per annum, plus certain other benefits. An additional $20,000 was paid for services rendered in fiscal 1996 provided over and above the part-time agreement. The employee is also entitled to receive a bonus during each year of this agreement, determined by the Board of Directors. The Board of Directors and/or the Compensation Committee shall set forth a formula for determining the bonus for each year. On June 6, 1996, the board of directors authorized additional compensation aggregating $70,000 for the aforementioned executive officers. (c) Other Benefits The Company provides, on a contributory basis, medical benefits to active employees. The Company does not provide medical benefits to retirees. (14) Litigation The Company is a defendant in litigation arising from the normal course of its affairs. Management is of the opinion, pursuant to the advice of counsel, that settlement, if any, of the aforementioned litigation will not have a material adverse impact on the financial position or results of operations of the Company. (15) Earnings Per Share The Company has presented historical earnings per share information assuming the reverse stock split outlined in note 1(b) occurred on March 15, 1992. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin topic 4:D, stock and stock options granted during the 12-month period preceding the date of the Company's initial public offering (IPO) have been included in the calculation of weighted average common shares outstanding for periods prior to the IPO, including years where (Continued) F-22 63 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued the impact of such incremental shares is anti-dilutive. The computation of weighted average common shares outstanding follows:
June 30, 1994 ---- Weighted average common shares and equivalents outstanding, exclusive of issuance within 12 months prior to IPO 905,493 Shares issued within 12 months prior to the IPO assumed to be outstanding for the entire period 30,570 Incremental shares assumed to be outstanding relating to stock options granted within 12 months prior to IPO 67,200 Incremental shares assumed to be outstanding relating to warrants granted within 12 months of IPO 20,750 Incremental shares assumed to be outstanding relating to potentially dilutive securities issued within 12 months of IPO 50,500 --------- Weighted average common shares and equivalent outstanding 1,074,513 =========
For the year ended June 30, 1995, weighted average common shares and equivalents outstanding are 1,122,678. The 12% percent convertible notes do not meet the criteria of a common stock equivalent, as its yield at the time of issuance is greater than the AA corporate bond yield. For the year ended June 30, 1996 a weighted average number of shares was not calculated for options and warrants outstanding due to their anti-dilutive effect on the Company's net loss per share calculation. (16) Subsequent Events Pursuant to a restaurant lease agreement, the Company exercised its option to purchase the facility for $425,000. This transaction was financed by a shareholder through a 15% short-term note agreement. In addition, the investor received 50,000 warrants at an exercise price equal to the market price at the date of the grant. On August 6, 1996, the Company entered into an agreement to lease a restaurant location in Bayridge, New York. The agreement required $20,000 be paid upon execution and $26,500 be paid on or before October 1, 1996. The Company is currently negotiating the extension of this option. On August 6, 1996, the Company entered into an agreement for an option to lease a restaurant location in Milford, Connecticut. The Company paid $15,000 to maintain the option to September 1, 1996 and an additional $15,000 was paid on September 4, 1996 to extend the option period to October 1, 1996. The Company may extend this option to November 1, 1996 for an additional $15,000. The Company is currently negotiating the extension of this option. (Continued) F-23 64 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements, Continued On August 7, 1996, the Company signed a purchase and sale agreement for $388,000 for a restaurant location on 86th Street in New York City. Included in the purchase price was the lease and certain furniture, fixtures and equipment. On October 10, 1996, a letter of intent was executed with an investment banking firm to raise a maximum of $3,000,000 through a private placement to be sold on a "best efforts" basis. F-24 65 EXHIBIT INDEX The following exhibits, designated by an asterisk (*), have been previously filed with the Commission with the Company's registration on Form SB-2 (File No. 33-88486) and those designated with two astericks have been filed with the Company's 10KSB for the year ended June 30, 1995, and, pursuant to 17 C.F.R. Section 230.411, are incorporated by reference. Those not so designated are filed herewith. Exhibit No. Description 2.1* Merger Agreement dated August 31, 1993 by and between Rattlesnake Ventures, Inc. and the Registrant 3.1* Form of Restated Certificate of Incorporation of the Registrant 3.1.1 Designation of Preferred Stock 3.2* By-Laws 4.1* Form of Common Stock Certificate 4.2* Form of Warrant to be issued to the Underwriter 4.3* Form of Warrant issued to certain individuals in December 1994 10.1* Lease agreement dated May 12, 1992 between the Registrant and South Norwalk Redevelopment Limited Partnership for the South Norwalk facilities 10.1.1* Agreement between Breakaway Sono Inc. and the Registrant for the purchase of certain equipment 10.1.2* Note dated June 11, 1992 from the Registrant to Breakaway Sono, Inc. 10.2* Lease Agreement dated April 1, 1994 between Sivad Inc. and the Registrant for the Fairfield facilities 10.2.1* Purchase Money Leasehold Mortgage between the Registrant and Sivad Inc. 10.3* Common Stock Purchase Agreement between the Registrant and Penny Markatos dated November 1, 1993 10.3.1* Lease Agreement between Penny Markatos and PEN-Z Corp. dated April 1, 1994 10.4* Lease Agreement dated March 15, 1993 between the Registrant and Elm City Manufacturing Jewelers Inc. for the Hamden facilities 10.4.1* Sale Agreement dated August 31, 1993 between the Registrant and Hamden Entertainment Inc 10.4.2* Amendment of Promissory Note Agreement dated February 28, 1994 10.4.3* Amendment to Commitment Agreement dated October 31, 1994 between the Registrant and Hamden Entertainment Inc. 10.4.4* Amendment to Promissory Note dated April, 1995 10.5* Lease Agreement dated January 24, 1995 for Danbury facility 10.6* License Agreement with RC Holdings, Inc. dated April, 1995 10.7* Form of Employment agreement with William J. Opper dated December 1994 10.8* Form of Employment agreement with David Sederholt dated December 1994 10.9* Form of Employment Agreement with Peter Markatos dated December 1994 10.10* 1994 Employee Stock Option Plan 10.11* 1994 Nonexecutive Directors Stock Option Plan 10.12* Form of 12% Convertible Note 10.12.1* Form of Extension Agreement between the Company and the holders of the 12% Convertible Notes 10.13* Form of Warrant issued to holders of 12% Convertible Note 10.14* Note dated May 8, 1992 from the Registrant to William J. Opper 10.15* Agreement with Berkeley Securities Corporation providing for the cancellation of certain shares 10.16* Proposed Debt Restructure 10.16.1* Series A Note 10.16.2* Series B Note 10.17* Agreement with 1241 Mamaroneck Avenue Corp. 10.17.1* Form of Proposed Lease for 1241 Mamaroneck Avenue 10.17.2* Note Extension Agreement 10.18* Form of Consulting Agreement to be entered into with Auerbach, Pollak & Richardson, Inc. 10.19* Letter of intent with Steve Kalafer for the Flemington facility 10.20* Form of 12% Convertible Promissory Note 10.21** Lease Agreement dated September 12, 1995 with SBX investments, Inc. 10.21.1** Asset Purchase Agreement dated September 12, 1995 with Twinlittle, Inc. and Twinlittle II, Inc. 10.21.2** $100,000 principal amount of promissory note to SBX Investments, Inc. 10.22 Employment Agreement with Stephen A. Stein 10.23 Lease Agreement with Jack Cioffi Trust ULWT dated April 15, 1996 together with Exhibits 10.24 Form of Series C Note 10.25 Note Agreement with Guy B. Snowden 10.26 Option and Escrow Agreement dated August 1996 between CFT Restaurant, Land and Building Group, Rattlesnake of Milford, Inc. et al., together with Asset Sale/Purchase Agreement and related Exhibits thereto 10.27 First Amendment and Restated Lease between Land and Building Group and Rattlesnake of Milford, Inc. 10.28 Form of Consulting Agreement among Frank Tummunello, Charter Tummunello, Thomas Dunn and Rattlesnake of Milford, Inc. 10.29 Agreement of Sale dated August 6, 1996 between Kings Castle Caterers Inc. and Rattlesnake of Bay Ridge, Inc. and certain exhibits 10.30 Assignment and Assumption Agreement dated August 23, 1994 between Holy Cow Restaurant Associates, Inc. and Rattlesnake of 86th Street, Inc. 21 Subsidiary List EX-3.1.1 2 DESIGNATION OF PREFERRED STOCK 1 EXHIBIT 3.1.1 CERTIFICATE OF DESIGNATIONS, PREFERENCES, RIGHTS AND LIMITATIONS OF THE SERIES A CONVERTIBLE CUMULATIVE PREFERRED STOCK OF THE RATTLESNAKE HOLDING COMPANY, INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware The Rattlesnake Holding Company, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), in accordance with the provisions of Section 103 thereof, and pursuant to Section 151 thereof, DOES HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors of the Corporation (the "Board of Directors") by the Corporation's Certificate of Incorporation, on June 3, 1996, the Board of Directors adopted the following resolution authorizing and creating a series of its authorized class of 5,000,000 shares of preferred stock, par value $.10 per share (the "Preferred Stock"), consisting of 200,000 shares of Preferred Stock, designated as the Series A Convertible Cumulative Preferred Stock: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Corporation's Certificate of Incorporation, a series of the Preferred Stock, par value $.10 per share, of the Corporation be, and it hereby is, authorized and created, and that the designation and amount thereof and the voting powers and such other relative rights, powers and preferences of such series, and the qualifications, limitations or restrictions thereof, are as follows: 1. DESIGNATION AND NUMBER OF SHARES. The designation of such series of Preferred Stock authorized by this resolution shall be the Series A Convertible Cumulative Preferred Stock (the "Series A Preferred Stock"). The maximum number of shares of the Series A Preferred Stock shall be 200,000 and no more. 2. RANK. The Series A Preferred Stock shall, with respect to dividend rights and rights upon liquidation, winding up and dissolution, rank (a) pari passu with all other classes and series of preferred stock whether established by the Board of Directors or pursuant to the Corporation's Certificate of Incorporation, as amended from time to time, unless holders of the shares of Series A Preferred Stock shall consent to be junior; (b) senior to all other equity securities, including the common stock, par value $.001 per share (the "Common Stock"), of the Corporation (all of the securities of the Corporation which 2 rank junior to the Series A Preferred Stock are at times collectively referred to herein as the "Junior Securities"). 3. DIVIDENDS. (a) The holders of the shares of Series A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of funds at the time legally available for the payment of dividends, cumulative semi-annual cash dividends in an amount equal to $.9188 per share (7.5% per annum) and no more. Such dividends shall be payable on May 15 and November 15 of each year, commencing on November 15, 1996 (each of such dates being a "Dividend Payment Date"). Such dividends shall be paid to the holders of record at the close of business on the date specified by the Board of Directors at the time such dividend is declared; provided, however, that such date shall not be less than 10 nor more than 60 days prior to the Dividend Payment Date. Such dividends shall be fully cumulative and shall accrue (whether or not declared), without interest, from the first day of the period (or, with respect to the first dividend, such dividend shall accrue from the date of issue of the shares of Series A Preferred Stock) in which such dividend may be payable through the Dividend Payment Date with respect to such period as herein provided. If the Dividend Payment Date is not a business day, the Dividend Payment Date shall be the next succeeding business day. Accumulated unpaid dividends for any past dividend periods may be declared by the Board of Directors and paid on any date fixed by the Board of Directors, whether or not a regular Dividend Payment Date, to holders of record on the books of the Corporation on such record date as may be fixed by the Board of Directors. (b) (i) Holders of shares of the Series A Preferred Stock shall be entitled to receive the dividends provided for in paragraph 3(a) hereof in preference to and in priority over any dividends upon any of the Junior Securities. (ii) If at any time the Corporation shall have failed to pay all dividends which have accrued on shares of Series A Preferred Stock at the time such dividends are payable, the Corporation shall not declare, pay or set apart for payment any dividend on any of the Junior Securities or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of, any of the Junior Securities or any warrants, rights, calls or options exercisable for any of the Junior Securities, or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Corporation or other property (other than distributions or dividends in stock to the holders of such stock), and shall not permit any corporation or other entity directly or indirectly controlled by the Corporation to purchase or redeem any of the Junior Securities or any warrants, rights, calls or options exercisable for any of the Junior Securities, unless prior to or concurrently with such declaration, payment or setting apart for payment, purchase or 2 3 distribution, as the case may be, all accrued and unpaid dividends on shares of the Series A Preferred Stock not paid on the dates provided for in paragraph 3(a) hereof shall have been or, concurrently therewith, shall be paid. (iii) Notwithstanding the foregoing, no dividend shall be declared or paid or any other distribution made in cash on the Common Stock in an aggregate amount in excess of 25% of the net after tax income of the Corporation for the prior fiscal year. (iv) Subject to the foregoing provisions of this paragraph 3(b), the Board of Directors may declare and the Corporation may pay or set apart for payment dividends and other distributions on any of the Junior Securities, and may purchase or otherwise redeem any of the Junior Securities or any warrants, rights or options exercisable for any of the Junior Securities, and the holders of the shares of the Series A Preferred Stock shall not be entitled to share therein. 4. LIQUIDATION PREFERENCE. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of shares of the Series A Preferred Stock then outstanding shall be entitled, before any distribution or payment is made upon any of the Junior Securities, to be paid out of the assets of the Corporation available for distribution to its stockholders, an amount in cash equal to $24.50 per share, plus an amount in cash equal to all accrued but unpaid dividends thereon (without interest) to the date fixed for liquidation ("Liquidation Value"). If the assets of the Corporation are not sufficient to pay in full the Liquidation Value payable to the holders of outstanding shares of Series A Preferred Stock or any other series of Preferred Stock having liquidation rights ranking pari passu with the shares of Series A Preferred Stock, then the holders of all such shares shall share ratably in such distribution of assets in accordance with the respective amounts which would be payable on such distribution if the amounts to which the holders of outstanding shares of Series A Preferred Stock and of such other series of Preferred Stock are entitled were paid in full. (b) For the purposes of this Section 4, neither the voluntary sale, conveyance, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all the property or assets of the Corporation nor the consolidation or merger of the Corporation with one or more other corporations shall be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary, unless such voluntary sale, conveyance, exchange or transfer shall be in connection with a dissolution or winding up of the business of the Corporation. 3 4 5. OPTIONAL REDEMPTION. (a) The corporation may redeem the Series A Preferred Stock, at any time in whole or from time to time in part on or after July 1, 1997, but only if the Average Closing Sale Price for a period of 20 consecutive trading days ending within five trading days of the date of the Notice of Redemption, as defined in Section 6(b) equals or exceeds 150% of the Conversion Price, at a redemption price equal to $29.40 per share if redeemed before June 30, 1997 and $26.96 per share if redeemed on or after June 30, 1997 but on or before June 30, 1999 and $25.73 per share if redeemed after June 30, 1999, plus an amount in cash equal to all accrued and unpaid dividends thereon. For purposes of this Section 5(a), "Average Closing Sale Price" shall mean the average of the last reported sale prices for the Common stock on the Primary Market (as hereinafter defined) for the Common Stock for each of the trading days within the aforementioned 20 day period, provided however that if there has been no sale on any trading day within the applicable period, for purpose of such average, the price for such day shall be the mean between the closing "bid" and "asked" prices in such Primary Market. For purposes of the foregoing, the Primary Market as of the date of this Certificate of Designations is the Nasdaq Small Cap Market. If hereafter, the Common Stock shall be listed on the NASD National Market system ("NMS"), on the New York Stock Exchange, the American Stock Exchange or equivalent exchange, then the NMS or such exchange, as the case may be, shall be deemed the Primary Market. If the Corporation's securities shall cease to be on an exchange or traded in any recognized securities market, then the Average Closing Sale Price shall be determined by the Board of directors acting in good faith. (b) Shares of Series A Preferred Stock which have been issued and reacquired in any manner, including shares purchased or redeemed or converted into Common Stock, shall (upon compliance with any applicable provisions of the laws of the State of Delaware) have the status of authorized and unissued shares of Preferred Stock undesignated as to series and may be redesignated and reissued as part of any series of the Preferred Stock; provided, however, that no such issued and reacquired shares of Series A Preferred Stock shall be reissued or re-sold as Series A Preferred Stock. (c) No sinking fund payments shall be required to be made by the Corporation in connection with the redemption of the Series A Preferred Stock pursuant to this Section 5. 6. PROCEDURE FOR REDEMPTION. (a) In the event that fewer than all of the then outstanding shares of the Series A Preferred Stock are to be redeemed, the shares of Series A Preferred Stock to be redeemed shall be determined by lot or pro rata as may be determined by the Board of 4 5 Directors or any other method selected by the Board of Directors which is not inconsistent with applicable law. (b) In the event the Corporation shall redeem shares of the Series A Preferred Stock, notice of such redemption (the "Notice of Redemption") shall be given by first class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the redemption date, to each holder of record of the shares to be redeemed at such holder's address as the same appears on the stock register of the Corporation. Each such notice shall state; (i) the redemption date; (ii) the aggregate number of shares of the Series A Preferred Stock to be redeemed from all holders of record, and, if less than all the shares held by a holder are to be redeemed from such holder, the number of shares to be redeemed from such holder; (iii) the redemption price; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; and (v) that dividends on the shares to be redeemed will cease to accrue on such redemption date. (c) Notice having been mailed as provided in Section 6(b), from and after the redemption date (unless default shall be made by the Corporation in providing money for the payment of the redemption price of the shares called for redemption) dividends on the shares of Series A Preferred Stock so called for redemption shall cease to accrue, and such shares shall no longer be deemed to be outstanding and shall have the status of authorized but unissued shares of Preferred Stock, unclassified as to series, and all rights of the holders thereof as stockholders of the Corporation (except the right to receive from the Corporation the redemption price) shall cease. Upon surrender, in accordance with the Notice of Redemption, of the certificates for any shares so redeemed (properly endorsed or assigned for transfer, if the Board of Directors shall so require and the Notice of Redemption shall so state), such shares shall be redeemed by the Corporation at the aforesaid redemption price. In the event that fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without cost to the holder thereof. 7. VOTING RIGHTS. (a) Except as otherwise required by law or set forth in this Section 7, holders of Series A Preferred Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action. (b) The holders of Series A Preferred Stock, voting as a class, shall have the right to approve by a majority vote of the outstanding shares of Series A Preferred Stock (i) any amendment to the Corporation's Certificate of Incorporation or to this Certificate of Designations which amends any of the rights, limitations or preferences of the Series A Preferred Stock, or authorizes or creates any class of capital stock, or series of Preferred Stock, with rights superior to the Series A Preferred Stock on liquidation or as 5 6 to dividends or which otherwise adversely affects the holders of the Series A Preferred Stock, or (ii) any merger, consolidation or sale of all or a majority of the assets of the Corporation. (c) If at any time and for so long as the Corporation shall be in arrears in the payment of any dividends with respect to the shares of Series A Preferred Stock, the holders of Series A Preferred Stock then outstanding, voting as a class, shall have the exclusive and special right (but not the obligation) to nominate and elect up to two directors to the Board of Directors. Such right shall continue until all dividend arrearages with respect to the Series A Preferred Stock shall have been paid, at which time such right shall terminate, subject to the revesting thereof, such directorship(s) shall be eliminated and the director(s) elected pursuant to this Section 7(c) shall automatically be removed, without further action by the stockholders or the Board of Directors. For the purposes of this Section 7(c), the following provisions shall also be applicable: (i) The number of directors constituting the Board of Directors shall be automatically increased, if necessary, by up to two directors in order to provide a vacancy or vacancies in the Board of Directors to permit such holders to exercise their right hereunder. (ii) The right set forth in this Section 7(c) may be exercised by a majority vote of the outstanding shares of Series A Preferred Stock either at a special meeting of the holders of Series A Preferred Stock or by written consent in lieu thereof. (iii) In the event that holders of Series A Preferred Stock are to elect the additional director(s) at a special meeting, such special meeting shall be called by the President or the Secretary of the Corporation within three business days of receipt of a request in writing of the holders owning at least 10% of the outstanding shares of Series A Preferred Stock. Written notice of such special meeting, stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called (the election of up to two directors) shall be given at least 20 days before the date of the meeting to each holder of the Series A Preferred Stock. (iv) So long as there are shares of Series A Preferred Stock outstanding, the Corporation shall cause the Bylaws of the Corporation to be consistent with and to contain provisions necessary to give effect to the right set forth in this Section 7(c). (d) All notices to be delivered pursuant to this Section 7 shall be given by first class mail, postage prepaid to the Corporation at the address of the offices of 6 7 the Corporation and to the holders of the Series A Preferred Stock at the holders' addresses as the same appear on the stock register of the Corporation. (e) If approval of holders of Series A Preferred Stock is required, voting or written consent procedures used to determine whether such approval will be obtained shall comply with the applicable provisions of the Delaware General Corporation Law and the federal securities laws. (f) In any case in which holders of Series A Preferred Stock shall be entitled to vote separately as a class, each holder of Series A Preferred Stock shall be entitled to one vote for each share of Series A Preferred Stock held. 8. CONVERSION RIGHTS; ADJUSTMENTS. (a) Each share of Series A Preferred Stock shall be convertible, at the option of the holder of record thereof, at any time, and from time to time, on or after September 1, 1996, into that number of fully paid and nonassessable shares of Common Stock (as such shares may be constituted on the Conversion Date, as hereinafter defined) as shall be obtained by dividing $24.50 by the Conversion Price in effect at the time of conversion (the "Conversion Price"). The initial Conversion Price shall be $3.95 per share which shall be subject to adjustment as set forth below. In the event that the Conversion Price in effect on June 29, 1997 is greater than an amount equal to 85% of the average last reported sale price of the Common Stock on the Primary Market for the ten consecutive trading days ending five days prior to June 29, 1997 (the "Reset Price"), the Conversion Price will be reduced to the Reset Price and the Company will give notice to each holder of the Series A Preferred Stock, pursuant to Section 8(d)(v), setting forth such new Conversion Price. All rights to convert related to the shares of Series A Preferred Stock redeemed pursuant to Sections 5 and 6 hereof shall expire at the close of business on the redemption date. (b) Before any holder of Series A Preferred Stock shall be entitled to convert the same into Common Stock, such holder shall deliver the certificate or certificates therefor, duly endorsed, to the office of the Corporation or the Corporation's transfer agent, if any, and shall give written notice to the Corporation that the holder elects to convert all or part of the shares represented by the certificate or certificates. Conversion shall be deemed to have been made effective on the date when such delivery is made, and such date is referred to herein as the "Conversion Date". The Corporation will, as soon as practicable thereafter, issue and deliver to such holder of Series A Preferred Stock, or the holder's nominee or nominees, certificates for the number of full shares of Common Stock to which the holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share as hereinafter provided. If surrendered certificates for Series A Preferred Stock are converted only in part, the Corporation will issue and deliver to the holder a new 7 8 certificate or certificates representing the aggregate of the unconverted shares of Series A Preferred Stock. (c) The holders of shares of Series A Preferred Stock surrendered for conversion between a Dividend Payment Date and the next record date for the payment of dividends shall not be entitled to receive accrued dividends on such surrendered shares. Dividends will be paid, however, on any Dividend Payment Date with respect to those shares of Series A Preferred Stock surrendered for conversion after any record date for the payment of dividends to the registered holders thereof. (d) The Conversion Price shall be subject to further adjustment as follows: (i) Adjustment Upon Issuances of Common Stock below the Conversion Price. In case the Corporation shall issue any shares of Common Stock other than Excluded Stock (as hereinafter defined) for a consideration per share less than the then existing Conversion Price applicable immediately prior to such issuance, the Conversion Price in effect immediately prior to each such issuance shall be reduced to a price determined by dividing (A) the sum of (x) the number of shares of Common Stock outstanding immediately prior to such issue, multiplied by the Conversion Price in effect immediately prior to such issue, plus (y) the consideration, if any, received by the Corporation upon such issue, by (B) the number of shares of Common Stock outstanding immediately after such issue. For the purposes of this clause 8(d)(i), the following provisions shall also be applicable: (1) Convertible Securities Options and Rights. If the Corporation shall issue any stock, warrant, security, obligation, option or other right which directly or indirectly may be converted, exchanged, or satisfied in shares of Common Stock other than Excluded Stock (as hereinafter defined), the maximum total number of shares of Common Stock issuable upon such conversion, exchange or other exercise of such securities or rights shall thereupon be deemed to have been issued and to be outstanding, and the consideration received by the Corporation therefor shall be deemed to include the sum of the consideration received for the issue of such securities or rights and the minimum additional consideration payable upon such conversion, exchange or other exercise of such securities or rights. No further adjustment shall be made for the actual issuance of Common Stock upon such conversion, exchange or other exercise of any such securities or rights. If the provisions of any such securities or rights with respect to purchase price or shares purchasable shall change or expire, any adjustment previously made hereunder therefor shall be readjusted to such as would have obtained on the basis of the securities or rights as modified by such change or expiration. 8 9 (2) Stock Dividends and Splits. In case the Corporation shall declare a dividend or other distribution payable in Common Stock or shall subdivide Common Stock into a greater number of shares of Common Stock, such issue of Common Stock shall be deemed to have been made without consideration. (3) Consideration. In case the Corporation shall issue shares of Common Stock for consideration wholly or partly other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined by the Board of Directors by any method that the Board of Directors deems appropriate (provided, however, that in the event that any such shares of Common Stock are to be issued to any person or entity in which any director or directors of the Corporation has an interest, such determination shall be made solely by those members of the Board of Directors who have no such interest). (4) Record Dates. In case the Corporation shall take a record of the holders of Common Stock for the purpose of entitling them (i) to receive a dividend or other distribution payable in Common Stock, or (ii) to subscribe for or purchase Common Stock, then such record date shall be deemed to be the date of issue or sale of the shares of Common Stock deemed to have been issued upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (5) Treasury Stock. The number of shares of Common Stock outstanding at any given time shall include shares owned or held by or for the account of the Corporation, and the disposition of any such shares so owned or held shall not be considered an issue of Common Stock. (6) Excluded Stock. The term "Excluded Stock" shall mean (i) the shares of Common Stock issuable upon conversion of the Corporation's Series B Convertible Notes, as in effect on the date hereof; (ii) the shares of Common Stock issuable upon exercise of options and warrants, as in effect on the date hereof, outstanding on the date of this Certificate of Designations; (iii) the shares of Common Stock issuable upon exercise of the warrant to be issued to the Placement Agent in connection with the placement of the Series A Preferred Stock; (iv) the shares of Common Stock issuable upon exercise of the Series A Common Stock Purchase Warrants; and (v) options and shares of Common Stock issuable under the Company's Stock Option Plans approved by the shareholders. 9 10 (ii) Adjustments for Changes in Capital Stock. If the Corporation (A) pays a dividend in shares of Common Stock to holders of Common stock; (B) subdivides outstanding shares of Common Stock into a greater number of shares; (C) combines outstanding shares of Common Stock into a smaller number of shares; (D) pays a dividend on shares of Common Stock in shares of capital stock other than Common Stock or makes a distribution on Common stock in shares of capital stock other than Common Stock; or (E) issues by reclassification of shares of Common Stock any shares of its capital stock; then the Conversion Price in effect immediately prior to such action shall be adjusted so that the holder of Series A Preferred Stock thereafter converted may receive the number of shares of capital stock of the Corporation which such holder would have owned immediately following such action if such holder had converted the Series A Preferred Stock immediately prior to such action. For a dividend or distribution, the adjustment shall become effective immediately after the record date for the dividend or distribution. For a subdivision, combination or reclassification, the adjustment shall become effective immediately after the effective date of the subdivision, combination or reclassification. If, after an adjustment, a holder of Series A Preferred Stock upon conversion thereof may receive shares of two or more classes of capital stock of the Corporation, the Board of Directors shall determine the allocation of the adjusted Conversion Price between or among the classes of capital stock. After such allocation, the Conversion Price of the classes of capital stock shall thereafter be subject to adjustment on terms comparable to those applicable to Common Stock contained in this Section 8(d). (iii) Voluntary Adjustment. The Corporation at any time may decrease the Conversion Price, temporarily or otherwise, by any amount but in no event shall such Conversion Price result in the issuance of Common Stock at a price less than the par value of the Common Stock at the time such decrease is made. Any such decreased Conversion Price shall be available for at least 20 days from the date on which notice of such decrease is filed by the corporation with the transfer agent for the Common Stock, and such decrease shall be irrevocable during such period. The Company shall notify each holder of Series A Preferred Stock at least 15 days prior to the date on which the reduced Conversion Price takes effect. (iv) When Adjustment May be Deferred, Etc. No adjustment in the Conversion Price need be made under this Section 8(d) unless cumulative adjustments equal at least $.125. Any adjustments which are not made shall be carried forward and taken into account in any subsequent adjustment. No adjustment of the Conversion Price will be made for cash distributions or cash dividends paid out of funds 10 11 legally available therefor. All calculations under this Section 8(d) shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. (v) Notice of Adjustment. Whenever the Conversion Price is adjusted, the Company shall calculate the adjustment to be made and shall promptly mail to holders of the Series A Preferred Stock at such holder's address as set forth in the stock register of the Corporation and to the transfer agent of the Corporation a certificate from an officer of the Corporation briefly stating the facts requiring the adjustment and the manner of computing it. The certificate shall be conclusive evidence that the adjustment is correct, absent manifest error. (e) No fractional shares or scrip representing fractional shares of Common Stock shall be issued upon conversion of the Series A Preferred Stock. If more than one certificate representing shares of the Series A Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series A Preferred Stock so surrendered. Instead of any fractional share of Common Stock that would otherwise be issuable upon conversion of any shares of Series A Preferred Stock, the Corporation will pay a cash adjustment in respect of such fractional interest in an amount equal to the same fraction of the Conversion Price. (f) The Corporation shall reserve and keep available out of its authorized but unissued shares of Common Stock or its shares of Common Stock held in treasury, solely for the purpose of effecting the conversion of the Series A Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock. All shares of Common Stock which may be issued upon conversion of the Series A Preferred Stock shall be validly issued, fully paid and non-assessable. (g) The issuance of certificates for shares of Common Stock upon the conversion of shares of Series A Preferred Stock shall be made without charge to the holders of shares of Series A Preferred Stock converting such shares of Series A Preferred Stock for any issue or stamp tax in respect of the issuance of such certificates, and such certificates shall be issued in the respective names of the holders of shares of Series A Preferred Stock converted. (h) Shares of Common Stock held in the treasury of the Corporation may in the discretion of the Board of Directors be delivered upon any conversion of shares of Series A Preferred Stock. 11 12 (i) All certificates for the shares of Series A Preferred Stock and any shares of Common Stock issued upon conversion thereof shall bear the following legend: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFICATION UNDER THE BLUE SKY LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE DISPOSED OF, BENEFICIALLY OR ON THE RECORDS OF THE CORPORATION, UNLESS THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OR APPLICABLE BLUE SKY LAWS OR AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION IS AVAILABLE AND AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS DELIVERED STATING THAT SUCH REGISTRATION AND QUALIFICATION ARE NOT REQUIRED. The certificates evidencing such shares shall also bear any legends required pursuant to any state, local or foreign law governing such securities. 9. NOTICE OF CERTAIN TRANSACTIONS. In the event (A) the Corporation takes any action which would require an adjustment in the Conversion Price; (B) the Corporation proposes to consolidate with or merge with or into, or transfer all or substantially all or its assets to, another corporation; or (C) there is a proposed dissolution or liquidation of the Corporation; then in each such case the Corporation shall send by first class mail, postage prepaid to each holder of Series A Preferred Stock at the address of such holders as listed in the stock register of the Corporation and to the transfer agent or effective agent a notice stating any such proposed record or effective date, as the case may be, by first-class mail at least 20 days before such date. Failure to mail the notice or any defect in it shall not affect the validity of any transaction referred to in clause (A), (B), or (C) of this Section 9. 10. CONSOLIDATION, MERGER OR SALE OF ASSETS. In case the Corporation shall consolidate or merge into or with another corporation, or in case the Corporation shall sell or convey to any other person or persons all or substantially all the assets of the Corporation, each holder of Series A Preferred Stock then outstanding shall have the right 12 13 thereafter to convert each share of Series A Preferred Stock held by the holder into the kind and amount of shares of stock, other securities, cash and property receivable upon such consolidation, merger, sale or conveyance by a holder of the number of shares of Common Stock into which such consolidation, merger, sale or conveyance, and shall have no other conversion rights. In any event, effective provision shall be made, in the certificate or articles of incorporation of the resulting or surviving corporation or otherwise or in any contracts of sale and conveyance so that, so far as appropriate and as nearly as reasonably may be, the provisions set forth herein for the protection of the conversion rights of the shares of the Series A Preferred Stock shall thereafter be made applicable. 11. CERTAIN DIVIDENDS AND DISTRIBUTIONS. In the event that the Corporation shall at any time prior to the conversion of all Series A Preferred Stock declare a dividend (other than a dividend consisting solely of shares of common stock or a cash dividend or distribution payable out of current or retained earnings) or otherwise distribute to its stockholders any monies, assets, property, rights, evidences of indebtedness, securities (other than shares of Common Stock), whether issued by the Corporation or by another person or entity, or any other thing of value, the holders of the shares of unconverted Series A Preferred Stock shall thereafter be entitled, in addition to the shares of Common Stock receivable upon the conversion thereof, to receive, upon the conversion of such Series A Preferred Stock, the same monies, property, assets, rights, evidences of indebtedness, securities or any other thing of value that they would have been entitled to receive at the time of such dividend or distribution had they been an owner of record of the shares of Common Stock into which the shares of Series A Preferred Stock are then being converted as of the record date or other date of determination for such dividend or distribution and an appropriate provision (which provision may include without limitation, the establishment of an escrow arrangement in favor of the holders of the unconverted shares of Series A Preferred Stock in which the portion of the dividend or distribution attributable to such shares of Series A Preferred Stock is held) shall be made a part of any such dividend or distribution. Notwithstanding any provision herein to the contrary, no adjustment under this Section 11 shall be made with respect to any cash dividend or distribution payable solely out of current or retained earnings of the Company. 12. CERTAIN COVENANTS. (a) So long as any shares of Series A Preferred Stock are outstanding, the Corporation shall not directly or indirectly, create, incur, issue, assume or guarantee or otherwise become liable, contingently or otherwise, with respect to any indebtedness for borrowed money, without the consent of the Board of Directors and of Auerbach, Pollak & Richardson, Inc., the placement agent on behalf of the Corporation in connection with the initial offering of up to 200,000 shares of Series A Preferred Stock (the "Placement Agent") if the terms of such indebtedness would prohibit the payment of regular stated dividends on the Series A Preferred Stock under circumstances, except 13 14 where the instruments evidencing such indebtedness contain default provisions whereby the lender has the right to demand immediate payment and/or acceleration of payment. The Corporation shall furnish the Placement Agent with copies of all instruments of indebtedness which contain provisions regarding declaration or payment of dividends on the Series A Preferred Stock or other capital stock of the Corporation irrespective of whether such instruments contain the default provisions permitted in this Section 12(a). Such copies shall be delivered by the Corporation not less than ten days prior to the anticipated incurrence of any such indebtedness. (b) No material amendments may be made to the terms of compensation set forth in those employment agreements by and between the Corporation and the senior executives of the Corporation in effect on the date of this Certificate of Designation without the consent of the Placement Agent or, if applicable, of the nominee(s) to the Board of Directors elected by the holders of the Series A Preferred Stock pursuant to Section 7(c) hereof. (c) The Corporation will not engage in any transaction with any officer, director, employee or holder of at least 5% of any class of the Corporation's outstanding securities, other than transactions on terms no less favorable to the Corporation than those terms and conditions which would be offered by or to an unaffiliated third party. 13. AMENDMENT. Any of the rights specified in this Certificate of Designation may be amended, provided, that all amendments to this Certificate of Designation shall be made in accordance with Section 7(b) of this Certificate of Designation and the Delaware General Corporation Law in effect from time to time. Any such amendment so effected shall be binding upon the Corporation and any holder of Series A Preferred Stock. 14 15 IN WITNESS WHEREOF, The Rattlesnake Holding Company, Inc. has caused its corporate seal to be hereunto affixed and this Certificate of Designations, Preferences, Rights and Limitations to be duly executed by its President and attested to by its Secretary this 30th day of June, 1996. THE RATTLESNAKE HOLDING COMPANY, INC. [SEAL] By: /s/ William J. Opper --------------------------------------- William J. Opper, Chairman of the Board ATTEST: By: /s/ Victor J. DiGioia ------------------------------- Victor J. DiGioia, Assistant Secretary 15 EX-10.22 3 EMPLOYMENT AGREEMENT 1 EXHIBIT 10.22 EMPLOYMENT AGREEMENT AGREEMENT made as of the 1st day of December, 1995, by and between Stephen A. Stein, residing at 60 Foxwood, Jericho, New York 11753 (hereinafter referred to as the "Employee") and The Rattlesnake Holding Company, Inc., a Delaware corporation with principal offices located at 3 Stamford Landing - Suite 130, Stamford, Connecticut 06902 (hereinafter referred to as the "Company"). W I T N E S S E T H : WHEREAS, the Company and its subsidiaries are engaged in the business of developing and operating a chain of casual dining restaurants; and WHEREAS, the Company desires to employ the Employee and secure for the Company the experience, ability and services of the Employee; and WHEREAS, the Employee desires employment with the Company, pursuant to the terms and conditions herein set forth, superseding all prior agreements between the Company, its subsidiaries and/or predecessors and Employee; NOW, THEREFORE, it is mutually agreed by and between the parties hereto as follows: ARTICLE I EMPLOYMENT Subject to and upon the terms and conditions of this Agreement, the Company hereby employs the Employee, and the Employee hereby accepts such continued employment in his capacity as Vice-Chairman of the Board of Directors and Chief Administrative 2 Officer. ARTICLE II DUTIES (A) The Employee shall, during the term of his employment with the Company, and subject to the direction and control of the Company's Board of Directors and Chief Executive Officer, perform such duties and functions as he may be called upon to perform by the Company's Board of Directors and Chief Executive Officer during the term of this Agreement. (B) The Employee agrees to devote such business time as is necessary to fully perform his duties and shall use his best efforts in the performance of his duties for the Company and any subsidiary corporation of the Company. The Company acknowledges that Employee is an executive officer of another company and has outside business interests which will continue during the term of this Agreement. (C) The Employee shall perform, in conjunction with the Company's Executive Management, to the best of his ability the following services and duties for the Company and its subsidiary corporations (by way of example, and not by way of limitation): (i) Those duties attendant to the position with the Company for which he is hired; (ii) Implement the Company's general business plans and strategy as formulated by the Board of Directors and the Chief Executive Officer; and (iii) Promotion of the relationships of the Company 2 3 and its subsidiaries with their respective employees, customers, suppliers and others in the business community. (D) Employee shall be based in the New York/Connecticut area, and shall undertake such occasional travel, within or without the United States as is or may be reasonably necessary in the interests of the Company. ARTICLE III COMPENSATION (A) Commencing the date hereof and during the term hereof, Employee shall be compensated at the rate of $90,000 per annum (the "Base Salary"), increasing 10% per annum, which shall be paid to Employee as in accordance with the Company's regular payroll periods. (B) Employee shall be entitled to receive a bonus (the "Bonus") during each year of this Agreement, determined by the Board of Directors. Prior to the expiration of six months after the commencement of this Agreement, the Board of Directors and/or the Compensation Committee shall set forth a formula for determining the Bonus for each year under this Agreement. (C) Employee may receive such other additional compensation as may be determined from time to time by the Board of Directors. Nothing herein shall be deemed or construed to require the Board to award any bonus or additional compensation. (D) The Company shall deduct from Employee's compensation all federal, state and local taxes which it may now or may hereafter be required to deduct. 3 4 (E) The Company and Employee acknowledge that the position contemplated hereunder is not a full time position. In the event the parties desire Employee to be engaged full time in the business of the Company, the compensation under this Article III shall be subject to renegotiation. ARTICLE IV BENEFITS (A) During the term hereof, the Company shall (i) provide Employee with group health care and insurance benefits as generally made available to the Company's senior management; provided, however, that the Company will provide term life insurance in the face amount of $500,000 (as long as Employee is insurable without special exception or premium), at Employee's election, in lieu of the group health care and insurance benefits in this subparagraph (A) (i); (ii) reimburse the Employee, upon presentation of appropriate vouchers, for all reasonable business expenses incurred by the Employee on behalf of the Company upon presentation of suitable documentation, provided that reimbursement for any expenses in excess of $500 per month shall be approved by the Chairman of the Audit Committee; and (iii) pay to Employee the sum of $500 per month as and for an automobile allowance. (B) In the event the Company wishes to obtain Key Man life insurance on the life of Employee, Employee agrees to cooperate with the Company in completing any applications necessary to obtain such insurance and promptly submit to such physical 4 5 examinations and furnish such information as any proposed insurance carrier may request. (C) For each year of the term hereof, Employee shall be entitled to three weeks paid vacation. ARTICLE V NON-DISCLOSURE The Employee shall not, at any time during or after the termination of his employment hereunder except when acting on behalf of and with the authorization of the Company, make use of or disclose to any person, corporation, or other entity, for any purpose whatsoever, any trade secret or other confidential information concerning the Company's business, finances, marketing, restaurant operations and future expansion and business plans of the Company and its subsidiaries including information relating to any customer of the Company or employee, or any other nonpublic business information of the Company and/or its subsidiaries learned as a consequence of Employee's employment with the Company (collectively referred to as the "Proprietary Information"). For the purposes of this Agreement, trade secrets and confidential information shall mean information disclosed to the Employee or known by him as a consequence of his employment by the Company, whether or not pursuant to this Agreement, and not generally known in the industry. The Employee acknowledges that trade secrets and other items of confidential information, as they may exist from time to time, are valuable and unique assets of the 5 6 Company, and that disclosure of any such information would cause substantial injury to the Company. ARTICLE VI RESTRICTIVE COVENANT (A) In the event of the voluntary termination of employment with the Company prior to the expiration of the term hereof, or Employee's discharge for gross misconduct as defined in Article IX, or the expiration of the term hereof, Employee agrees that he will not, for a period of one year following such termination (or expiration, as the case may be) directly or indirectly enter into or become associated with or engage in any other business (whether as a partner, officer, director, shareholder, employee, consultant, or otherwise), which business is involved in the business of developing, operating, franchising a chain of southwestern style casual dining restaurants. (B) In furtherance of the foregoing, Employee shall not during the aforesaid period of non-competition, directly or indirectly, in connection with any southwestern style casual dining restaurant chain, solicit any customer or employee of the Company who was a customer or employee of the Company during the tenure of his employment. (C) If any court shall hold that the duration of non-competition or any other restriction contained in this paragraph is unenforceable, it is our intention that same shall not thereby be terminated but shall be deemed amended to delete therefrom such 6 7 provision or portion adjudicated to be invalid or unenforceable or in the alternative such judicially substituted term may be substituted therefor. ARTICLE VII TERM This Agreement shall be for a term commencing on the date first set forth above and terminating December 31, 1998, unless sooner terminated pursuant to the terms hereof. ARTICLE VIII DISABILITY DURING TERM In the event Employee becomes totally disabled so that he is unable or prevented from performing a material portion of his usual duties hereunder for a period of four (4) months out of any six month period, and the Company elects to terminate this agreement in accordance with Article IX, paragraph (B) then, and in that event, Employee shall receive his Base Salary as provided under Article III of this Agreement for a period of six (6) months commencing from the date of such total disability but in no event to exceed the expiration of the original term of this agreement. The obligation of the Company to make the aforesaid payments shall be modified and reduced and the Company shall receive a credit for all disability insurance payments which Employee may receive from insurance policies provided by the Company. 7 8 ARTICLE IX TERMINATION This Agreement may be terminated: (A) By the Company, upon the death of Employee during the term hereof, except that the Employee's legal representatives, successors, assigns and heirs shall have those rights and interests as otherwise provided in this Agreement, including the right to receive accrued but unpaid incentive compensation and any special bonus compensation awarded by the Board of Directors in its discretion. (B) Subject to the terms of Article VIII herein, by the Company, upon written notice to the Employee, if Employee becomes totally disabled and as a result of such total disability, has been prevented from and unable to perform a material portion of his duties hereunder for a consecutive period of four (4) months out of any six month period. (C) By the Company, upon written notice from the Company to the Employee, if the Employee has committed gross misconduct in the performance of his duties and/or a material breach of the terms of this Agreement, and Employee has failed to cure such breach within twenty (20) days from the date notification setting forth such misconduct and/or breach in reasonable detail is given to Employee by the Company. (D) Upon thirty (30) days prior written notice by the Company or Employee in the event Employee, due to professional commitments existing as of the date hereof, preclude the Employee 8 9 from devoting the necessary professional time to the business and affairs of the Company. (E) In the event of the termination of this Agreement and the discharge of Employee by the Company in breach and violation of this Agreement, Employee shall not be obligated to mitigate damages by seeking or obtaining alternate employment. ARTICLE X STOCK OPTIONS As an inducement to Employee to enter into this Agreement the Company hereby grants to Employee, options to purchase shares of the Company's Common Stock, $.001 par value, upon and subject to the following conditions: (a) Subject to the terms and conditions of the Company's 1994 Employee Stock Option Plan (the "Plan"), a copy of which Employee acknowledges having been received, and the terms and conditions set forth in the Stock Option Certificate which are incorporated herein by reference, the Employee is hereby granted options to purchase 120,000 shares of the Company's Common Stock of which options to purchase 40,000 shares shall be vested on each anniversary hereof. The option shall contain such other terms and conditions as set forth in the stock option agreement. The exercise price of the options shall be $____. The foregoing options are not qualified as incentive stock options. The Options provided for herein are not transferable by Employee and shall be exercised only by Employee, unless otherwise 9 10 permitted by the Plan, or by his legal representative or executor, as provided in the Plan. Such Option shall terminate as provided in the Plan. ARTICLE XI EXTRAORDINARY TRANSACTIONS The Company's Board of Directors has determined that it is appropriate to reinforce and encourage the continued attention and dedication of members of the Company's management, including the Employee, to their assigned duties without distraction in potentially disturbing circumstances arising from the possibility of a change in control of the Company. A "Change in Control" of the Company shall be deemed to have occurred if there shall be consummated (i)(x) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's Common Stock would be converted into cash, securities or other property, other than a merger of the Company in which the holders of the Company's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger, or (y) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company, or (ii) the stockholders of the Company approved any plan or proposal for the liquidation or dissolution of the Company, or (iii) any person 10 11 (as such term is used in Sections 13(d) and 13(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become the beneficial owner (within the meaning of Rule l3d-3 under the Exchange Act) of 20% or more of the Company's outstanding Common Stock, or (iv) during any period of two consecutive years, individuals who at the beginning of such period constituted the entire Board of Directors shall cease for any reason to constitute a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of the period. The Company agrees that, if during the term hereof, or during such time as the Employee is otherwise employed by the Company, a Change in Control shall occur, all options to purchase Common Stock of the Company held by Employee, either pursuant to this Agreement or otherwise, shall immediately vest and become exercisable on the first day following a Change in Control. Further, the options shall be deemed amended to provide that in the event of termination after an event enumerated in this Article X, the options shall remain exercisable for the duration of their term; and further, at the Employee's option, an amount equal to three times the aggregate annual compensation paid to the Employee during the calendar year preceding the Change in Control shall be credited against the exercise price of any options held by Employee at the time Employee elects to exercise such options; provided, however, that if the lump sum severance payment under this Article XI, either alone or 11 12 together with other payments which the Employee has the right to receive from the Company, would constitute a "parachute payment" (as defined in Section 280G of the Internal Revenue Code of l954, as amended (the "Code")), such credit shall be reduced to the largest amount as will result in no portion of the credit under this Article XI being subject to the excise tax imposed by Section 4999 of the Code. ARTICLE XII TERMINATION OF PRIOR AGREEMENTS This Agreement sets forth the entire agreement between the parties and supersedes all prior agreements between the parties, whether oral or written, without prejudice to Employee's right to all accrued compensation prior to the effective date of this Agreement. ARTICLE XIII ARBITRATION Any dispute arising out of the interpretation, application and/or performance of this Agreement with the sole exception of any claim, breach or violation arising under Articles V or VI hereof shall be settled through final and binding arbitration before a single arbitrator in the State of Connecticut in accordance with the rules of the American Arbitration Association. The arbitrator shall be selected by the Association and shall be an attorney at law experienced in the field of corporate law. Any 12 13 judgment upon any arbitration award may be entered in any court, federal or state, having competent jurisdiction of the parties. ARTICLE XIV SEVERABILITY If any provision of this Agreement shall be held invalid and unenforceable, the remainder of this Agreement shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall remain in full force and effect in all other circumstances. ARTICLE XV NOTICE All notices required to be given under the terms of this Agreement shall be in writing and shall be deemed to have been duly given only if delivered to the addressee in person, with written acknowledgment received, or mailed by certified mail, return receipt requested, as follows: IF TO THE COMPANY: The Rattlesnake Holding Company, Inc. 3 Stamford Landing, Suite 130 Stamford, CT 06902 Attention: William J. Opper IF TO THE EMPLOYEE: Mr. Stephen A. Stein 60 Foxwood Jericho, NY 11753 or to any such other address as the party to receive the notice shall advise by due notice given in accordance with this paragraph. 13 14 Notice shall be effective three (3) days after delivery or mailing. ARTICLE XVI BENEFIT This Agreement shall inure to, and shall be binding upon, the parties hereto, the successors and assigns of the Company, and the heirs and personal representatives of the Employee. ARTICLE XVII WAIVER The waiver by either party of any breach or violation of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of construction and validity. ARTICLE XVIII GOVERNING LAW This Agreement has been negotiated and executed in the State of Connecticut, and Connecticut law shall govern its construction and validity. ARTICLE XIX JURISDICTION Any or all actions or proceedings which may be brought by the Company or Employee under this Agreement shall be brought in courts having a situs within either the State of Connecticut, and Employee and the Company each hereby consent to the jurisdiction of 14 15 any local, state or federal court located within the State of Connecticut. ARTICLE XX ENTIRE AGREEMENT This Agreement contains the entire agreement between the parties hereto. No change, addition or amendment shall be made hereto, except by written agreement signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement and affixed their hands and seals the day and year first above written. (Corporate Seal) THE RATTLESNAKE HOLDING COMPANY, INC. By: /s/William J. Opper -------------------------- William J. Opper Chairman of the Board /s/STEPHEN A. STEIN -------------------------- STEPHEN A. STEIN (Employee) 15 EX-10.23 4 LEASE AGREEMENT 1 EXHIBIT 10.23 LEASE AGREEMENT THIS LEASE AGREEMENT (hereinafter the "Lease"), is made as of the 15 day of April, 1996, by and between JACK CIOFFI TRUST, U.L.W.T. (hereinafter "Landlord"), a New York Testamentary Trust, c/o Mrs. Anastasia Cioffi Pesola, Trustee, Box 568, Windham, New York, 12496, and RATTLESNAKE OF LYNBROOK, INC. (hereinafter "Tenant"), a New York corporation having offices at 3 Stamford Landing, Stamford, Connecticut, 06902. WHEREAS, Landlord desires to lease to Tenant and Tenant desires to take and lease from Landlord the Leased Premises (hereafter defined) according to the terms and conditions set forth below. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereby agree as follows: 1. LEASE. Landlord has agreed to lease and does hereby demise and lease unto Tenant, and Tenant has agreed to lease and take and does hereby lease from Landlord, effective on the "Term Commencement Date" (hereinafter defined) the Leased Premises, to have and to hold all of the same unto Tenant, its successors and assigns, for the term, at the rentals, and upon the conditions hereinabove and hereinafter set forth and Landlord represents that it is the fee owner of the premises and improvements thereon, subject only to a first mortgage held by the Jamaica Savings Bank and which Landlord represents is current and not in default. 2. LEASED PREMISES. Landlord is the owner of certain land and a restaurant building containing approximately 7,200 square feet (hereinafter "The Building") of premises 1 2 known as 931 Sunrise Highway, Lynbrook, New York together with all extensive parking to the east of said building as is more particularly described in survey "A" attached hereto (collectively, the "Leased Premises"). Tenant agrees to maintain said area blacktop, including all pavement repairs, concrete walkings, including snow removal and exterior lighting, and shall keep the parking lot in good condition at its own expense and free from defects and municipal violations. Tenant shall include the parking lot under the insurance required under this agreement. Landlord represents that it shall deliver the premises vacant and free of all tenancies. Landlord represents and warrants to Tenant that Landlord is solely vested with fee simple title, and has full right and lawful authority to lease the Premises to Tenant pursuant to the terms hereof. Landlord further represents and warrants to Tenant that no joinder or approval of any other person or entity is required with respect to Landlord's right and authority to enter into this Lease, including any lender or mortgagee, and there is no underlying or superior lease with respect to the Premises. 3. LICENSE AGREEMENT. Landlord grants Tenant (and the demise of the Leased Premises to Tenant shall include) a non-exclusive license to use the 50 if. west of the premises for commercial access to the rear of the subject premises. Tenant agrees not to alter the curb cuts currently being used for access and not to block egress and ingress into said area. Landlord reserves the right to promulgate reasonable rules and regulations (upon prior written notice to Tenant) affecting said 50 feet west of the premises and Tenant agrees to pay half (1/2) of all of the reasonable costs incurred by Landlord for snow plowing, ground maintenance, repair of blacktop, drainage and exterior lighting of said areas. Landlord 2 3 shall maintain the licensed area in good order and repair; including all pavement repairs, concrete walking including snow removal and exterior lighting, and free from defects and municipal violations. Landlord shall not suffer or permit the soft area to be altered, or ingress or egress blocked. Landlord's bill shall be reasonably detailed. 4. TERM. The initial term of this Lease (hereinafter the "Initial Term"), shall commence on May 1, 1996 (provided the conditions set forth herein have been satisfied by Landlord) (hereinabove and hereinafter the "Term Commencement Date") and shall terminate on April 30, 2006. The parties shall execute a Lease Supplement in the form attached hereto as Exhibit "B" and made a part hereof for the purpose of confirming the Term Commencement Date. 5. RENEWAL TERM. Tenant shall have the right and option to extend the term of this Lease for Three (3) renewal terms of five (5) years each (hereinafter the "Renewal Term") which, if all are exercised by Tenant, would cause this Lease to expire on the 30th day of April, 2021, provided that (i) Tenant gives Landlord not less than six (6) months prior irrevocable written notice of its desire to extend the term hereof, and (ii) Tenant is not in default, beyond the expiration of any applicable cure period after notice to Tenant required hereunder, of any of the teens hereof at the time when such notice is given. 6. DELIVERY OF POSSESSION. Landlord shall deliver possession of the Leased Premises to Tenant on May 1, 1996, provided that Tenant has tendered to Landlord: (i) the certificate of insurance as required by paragraph 19 herein below; (ii) the sum of $42,039.18 which represents the general taxes for the 1996 lien period which Landlord shall promptly pay to the taxing authorities; and (iii) first month's rent as required under paragraph 9 below. The date of delivery of possession and Tenant's acceptance, which shall be memorialized in a writing 3 4 signed by both parties, shall be the Term Commencement Date hereunder. Notwithstanding the foregoing, Tenant shall be permitted access to the Leased Premises prior to May 1, 1996 provided Tenant complies with the foregoing requirements. Tenant's occupancy during such period shall be upon all of the terms and conditions set forth in the Lease, except for the obligation to pay Minimum Rent or additional rent. 7. UTILITIES. Prior to the Term Commencement Date, Tenant shall contact all utility companies to transfer all utilities to Tenant's account. Tenant shall assume the obligation for all utility payments, including hook-up charges and security deposits for services incurred from occupancy. Landlord shall cooperate with Tenant in connection therewith. 8. RENTAL. Tenant covenants to pay as rent for the use and occupancy of the Leased Premises the aggregate of the sums set forth below, without offset, deduction, or demand (except as otherwise provided herein) to the Landlord at its address as set forth above or to such other address as it may designate. Landlord instructs tenant to make all rent payments by direct deposit into the: Jamaica Savings Bank 303 Merrick Road Lynbrook, NY 11563 Acct. No. : 009-00704905 Acct. Name: Anastasia Cioffi Pesola Trustee U/L/W/T of Jack Cioffi Unless notified otherwise. Except as provided in paragraph "6" above and subject to paragraph 11 the first rental payment shall be due and payable on the Term Commencement Date, as that term is defined in paragraph 6 hereinabove. In the event that the Term Commencement Date shall occur on a day other than the first day of the month, the first rental payment shall be adjusted to the proportionate fraction of the whole month so that all rental payments, other than the first, shall be made and become 4 5 due and payable on the first day of each month thereafter. a. MINIMUM RENT. (i) For the initial thirty-six (36) months after the Term Commencement Date, Tenant shall pay to Landlord the base Minimum Rent at the rate of One Hundred Twenty Thousand Dollars ($120,000.00) per year (hereinafter the "Minimum Rent"), to be paid in twelve (12) equal monthly installments of Ten Thousand Dollars ($10,000.00) payable in advance on the first day of each month. (ii) Commencing on the first day of the thirty-seventh (37th) month, May 1, 1999, Tenant shall pay to Landlord the Base Minimum Rent of One Thousand Thirty-Two Thousand Dollars ($132,000.00) per year (hereinafter the "Minimum Rent") to be paid in twelve (12) equal monthly installments of Eleven Thousand Dollars ($11,000.00) payable in advance on the first day of each month. (iii) Commencing on the first day of the seventy-third (73rd) month, May 1, 2002, Tenant shall pay to Landlord the Base Minimum Rent of One Hundred Forty-Five Thousand Two Hundred Dollars ($145,200.00) per year, (hereinafter the "Minimum Rent") to be paid in twelve (12) equal monthly installments of Twelve Thousand One Hundred Dollars ($12,100.00) payable in advance on the first day of each month. (iv) Commencing on the first day of the one hundred and ninth (109th) month, May 1, 2005, Tenant shall pay to Landlord the Base Minimum Rent of One Hundred Fifty-Nine Thousand Seven Hundred and Twenty Dollars ($159,720.00) per year. (hereinafter the "Minimum Rent") to be paid in twelve (12) equal monthly installments of Thirteen Thousand Three Hundred and Ten Dollars ($13,310.00) to be paid in advance on the first day of each month. 5 6 b. PERCENTAGE RENT. Tenant shall pay to Landlord as additional rent each Lease Year accruing during the term, a percentage rent equal to the amount by which six (6%) per cent of Tenant's "Gross Sales" (hereinafter defined) exceeds the Minimum Rent payable during such Lease Year. The first Lease Year shall be defined for this paragraph as the period beginning on the Term Commencement Date and ending on the twelfth (12th) month anniversary of the Term Commencement Date. Each successive Lease Year shall mean each successive twelve (12) month period thereafter during the term of this lease. c. REPORTS. On or before the 30th day following each quarter-annual period during this term, Tenant shall provide to Landlord a report in Tenant's standard form (previously exhibited to Landlord) stating the Gross Sales from the previous quarter annual period and aggregate Gross Sales through the last day of the previous quarter annual period for the current Lease Year. In addition, within sixty (60) days after the end of each Lease Year, Tenant shall deliver a cumulative statement and pay any percentage rent due at that time. d. DEFINITION OF GROSS SALES. The term "Gross Sales" as used herein shall mean the dollar aggregate of the sales price of all goods sold from the Premises without deduction for any expenses, salaries, or rent, except for (a) exchange of merchandise between Tenant's stores (and those of Tenant's affiliates), (b) returns to shippers and manufacturers, (c) sales not in the ordinary course of Tenant's business (including, without limitation, bulk sales of Tenant's stock-in-trade and/or fixtures), (d) cash or credit refunds or credit sales not collected on transactions included in Gross Sales previously reported by Tenant, (e) the amount of any City, County, State or Federal sales luxury or excise tax on sales, (f) costs to Tenant of use of credit cards, (g) sales from vending machines, telephones lottery tickets or (h) revenue from charity or benefit events (i) sales to employees not in excess of 3% of Gross Sales. 6 7 Tenant shall keep full, complete and proper books, records and accounts of its daily Gross Sales, including cash and on credit of each separate department and concession at any tie operated in the Leased Premises at Tenant's office maintained for such purpose, for a period of at least two (2) years. Landlord and its agents and employees, upon reasonable notice, shall have the right at any and all ties not more frequently than once each year, during regular business hours, to examine and inspect all such of the books and records of Tenant (including any sales tax reports) pertaining to the business of Tenant conducted in, upon or from the Leased Premises which Tenant shall produce upon prior reasonable demand by Landlord or Landlord's agents for the purpose of investigating and verifying the accuracy of any statement of Gross Sales. Landlord may once in any Lease Year cause an audit of the Gross Sales to be made by an independent certified accountant of Landlord's selection, and if the statement of Gross Sales previously made to Landlord by Tenant shall be found to be understated by more than four (4%) percent, Tenant shall pay to Landlord the reasonable cost of such audit, as well as the additional rental shown to be payable by Tenant to Landlord; otherwise, the cost of such audit shall be paid by Landlord. Landlord agrees to keep all Gross Sales information and audit information confidential except for any controversy which shall be commenced by suit or arbitration at which tine the parties agree this confidentiality provision is waived. 9. ADDITIONAL RENT. Tenant shall pay as additional rent all real estate taxes and special and general assessments which may be levied or assessed against the Leased Premises, or installments of which become due and payable on or after May 1, 1996, and thereafter during any part of but not after the Lease term. Tenant shall pay to Landlord monthly one-twelfth (1/12) of the combined annual of all such taxes and assessments which become due and payable together with rents provided for herein. In addition, on twenty (20) days written 7 8 notice Tenant shall pay to Landlord such additional amount that when added to Tenant's annual tax payments will be sufficient to pay such taxes and assessments when they next become due. The tax escrow amount shall be adjusted annually. Landlord agrees to provide Tenant with a copy of the tax bill for each and every adjustment period. Landlord shall pay such taxes and assessments to the appropriate governmental authority when due. General real estate taxes and assessments of every nature for the first and last years of the Lease term shall be prorated on a per diem basis to reflect any partial period. Tenant shall also pay promptly, when due, any tax which is levied or assessed against the rental, whether the same be called a rental tax, excise tax, sales tax or otherwise, and shall reimburse Landlord for any such taxes which Landlord is required to pay, or in fact pays, but Tenant shall not be required to pay or reimburse Landlord for payment of any part of Landlord's general state or federal income taxes or any transfer, documentary or stamp tax, any tax for the income, profits or business of Landlord or any personal property tax of the Landlord, payroll taxes, capital levy, franchise, inheritance or estate tax of the Landlord. Tenant shall also be responsible for any other charge or expense required to be paid by the Tenant hereunder, including, but not limited to, percentage rents, assessments, maintenance charges, and utilities. 10. ADMINISTRATIVE FEE FOR LATE PAYMENT. All payments for rent due and owing from Tenant to Landlord under this Lease are due on the first (1st) of the month. With respect to any monthly payment not received by Landlord within five (5) days after the date due under the terms hereof or within twenty (20) days after written notice of billing is sent by Landlord for amounts which are not due on a monthly basis (such as annual tax escrow adjustment), Landlord may impose, Tenant hereby agrees to pay, an administrative late payment fee ("Administrative Late Payment Charge") of three (3%) percent of the outstanding sum due. 8 9 All late payments shall first be applied to the payment of the Administrative Late Payment Charge, then to the payment of past due rent. Any unpaid balance of sums owed Landlord by Tenant after said application of payment shall be due and payable immediately and must be paid in full prior to the fifth (5th) of the next following month, or be subject to an additional Administrative Late Payment Charge. There will also be a Fifty Dollar ($50.00) fee for each check returned for any reason including, but not limited to, "not sufficient funds" or invalid signature. Two (2) or more such returned checks within any twelve (12) month period shall be deemed an automatic default under the Lease and shall entitle Landlord to terminate the Lease without opportunity to cure; however, any check returned due to a bank error (as confirmed in writing to Landlord by the bank) shall not constitute a returned check for purposes of this paragraph. 11. TAX DEPOSIT. Prior to delivery of possession of the Leased Premises Tenant shall deposit with Landlord the sum of Forty Two Thousand Thirty Nine 19/100 Dollars (42,039.19) which sum represents six (6) months taxes May 1, 1996 together with the second half 1996 school property taxes due on the property June 1, 1996. Provided the Tenant makes the aforesaid payment of real estate taxes to Landlord, and provides proof of payment and evidence of the requisite insurance and tenders the first month's (July, 1996) rent, and further provided that Tenant is not otherwise in default (beyond expiration of any applicable grace period after the giving of notice required hereunder) of its obligations under the terms of this Lease, then the Landlord shall forgive the May and June 1996 Base Minimum Rent. Tenant shall pay one-twelfth (1/12) of the annual tax payments together with all subsequent rental payments. 12. OPTION TO RENEW. So long as this Lease is then in full force and effect 9 10 and Tenant is not then in default of any of its obligations under this Lease (which continues beyond expiration of any applicable grace period after the giving of notice required hereunder), Tenant shall have the exclusive right to renew this Lease for three (3) renewal terms of five (5) years each immediately following the expiration of the initial term or the first or second renewal terms, as the case may be, on the same terms and conditions as are set forth herein except that the basic Minimum Rent payable by the Tenant during the renewal terms shall be as set forth below. Tenant shall notify Landlord in writing of its intention to renew no less than six (6) months prior to the expiration of the original Lease Term or any renewal term as the case may be. Should each renewal option be properly and duly exercised in the manner prescribed by this agreement, then and in such event, the basic Minimum Rent during the respective option periods shall be as follows: MAY 1, 2006 - APRIL 30, 2007 - Base Minimum Rent of $159,720.00 per year to be paid in twelve (12) equal monthly installments of $13,310.00, to be paid in advance on the first day of each month; MAY 1, 2007 - APRIL 30, 2008 - Base Minimum Rent of $159,720.00 per year to be paid in twelve (12) equal monthly installments of $13,310.00, to he paid in advance on the first day of each month; MAY 1, 2008 - APRIL 30, 2011 - Base Minimum Rent of either (a) $175,692.00 per year to be paid in twelve (12) equal monthly installments of $14,641.00, to be paid in advance on the first day of 10 11 each month, or (b) an amount per annum (payable in equal monthly installments) equal to 50% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2005, whichever is greater, except that in lieu of such payments, Landlord shall be entitled to a Minimum Rent each year in an amount equal to 100% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2005 in the event the Landlord has not received any percentage rents as defined in paragraph 8(b) herein at any time during such three (3) year period; MAY 1, 2011 - APRIL 30, 2014 - Base Minimum Rent of either (a) $193,261.20 per year to be paid in twelve (12) equal monthly installments of $16,105.10, to be paid in advance on the first day of each month, or (b) an amount per annum (payable in equal monthly installments) equal to 50% of the increase in the Consumer Price Index during the preceding three (3)years added to the Base Rent from May 1, 2008, whichever is greater, except that in lieu of such payments, Landlord shall be entitled to a Minimum Rent each year in an amount equal to 100% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1,2005 in the event the Landlord has not received any percentage rents as defined in paragraph 8(b) herein at any time during such three (3) year period; 11 12 MAY 1, 2014 - APRIL 30, 2017 - Base Minimum Rent of either (a) $212,587.32 per year to be paid in twelve (12) equal monthly installments of $17,715.62, to be paid in advance on the first day of each month, or (b) an amount per annum (payable in equal monthly installments) equal to 50% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2014, whichever is greater, except that in lieu of such payments, Landlord shall be entitled to an increase in rent of 100% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2005 in the event the Landlord has not received any percentage rents as defined in paragraph 8(b) herein at any time during such three (3) year period; MAY 1, 2017 - APRIL 30, 2020 - Base Minimum Rent of either (a) $233,846.06 per year to be paid in twelve (12) equal monthly installments of $19,487.17, to be paid in advance on the first day of each month, or (b) an amount per annum (payable in equal monthly installments) equal to 50% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2017, whichever is greater, except that in lieu of such payments, Landlord shall be entitled to a Minimum Rent each year in an amount equal to 100% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2005 in the event the Landlord has not received any percent- 12 13 age rents as defined in paragraph 8(b) herein at any time during such three (3) year period; and MAY 1, 2020 - APRIL 30, 2021 - Base Minimum Rent of either (a) $257,230.65 per year to be paid in twelve (12) equal monthly installments of $21,435.89, to be paid in advance on the first day of each month, or (b) an amount per annum (payable in equal monthly installments) equal to 50% of the increase in the Consumer Price Index during the preceding three (3)years added to the Base Rent from May 1, 2020, whichever 15 greater, except that in lieu of such payments, Landlord shall be entitled to a Minimum Rent each year in an amount equal to 100% of the increase in the Consumer Price Index during the preceding three (3) years added to the Base Rent from May 1, 2005 in the event the Landlord has not received any percentage rents as defined in paragraph 8(b) herein at any time during such three (3) year period. For purposes of this Agreement, the term Consumer Price Index shall mean the "Consumer Price Index", All Urban Consumers, New York, NY, Northeastern, N.J., 1982-84 = 100, issued by the U.S. Department of labor, Bureau of labor Statistics. 13. USE. Tenant's use of the Leased Premises shall be limited to that of a restaurant/tavern and ancillary uses, and Tenant agrees further not to change said use without the prior written consent of landlord, Landlord agrees not to unreasonably withhold its consent. Landlord represents that the premises has a certificate of occupancy issued by the Village of Lynbrook which permits its use as a restaurant. In conducting its business upon the Leased 13 14 Premises, Tenant agrees to conform to all applicable lawful statutes, rules, regulations, orders and ordinances of duly constituted governmental authority. Tenant acknowledges that the wood deck listed on Exhibit "A" survey does not have municipal permits. Tenant agrees to procure the same from the governing municipality at its own cost and expense or to remove the same if same cannot be procured. Any modifications of or alternations to the Leased Premises (whether structural or non-structural) necessary to comply with any applicable statute, rule, regulation, order or ordinance (including the Americans with Disabilities Act), shall be the responsibility of Tenant at its sole cost and expense provided, however, that Landlord shall be responsible for all structural alterations required by law, except for those arising out of the specific manner of use or alteration of the Premises by Tenant. 14. SURRENDER OF POSSESSION. Tenant shall on or before the last day of the term hereby granted or upon the sooner termination of this Lease peaceably and quietly leave, surrender, and yield up unto Landlord the Leased Premises, free of tenancies, broom clean, and in good order and substantially the same condition as existed on the Term Commencement Date, reasonable wear and tear and damage by casualty covered by insurance excepted. 15. REMOVAL OF EQUIPMENT AND TRADE FIXTURES. Tenant shall have the right at any time during the Initial Term or the Renewal Terms, to remove from the Leased Premises any of Tenant's equipment or trade fixtures, however, Tenant shall not remove any of the following: built-in freezers and coolers; heating, ventilating, and air conditioning plants and systems; electrical and plumbing fixtures and systems; ansul systems; and like equipment and systems which constitute an integral part of the building. All damage caused to the Leased Premises by such removal shall be repaired promptly by Tenant; provided, however, that no such property shall be removed if such removal would cause permanent injury to the building 14 15 located on the Leased Premises. 16. QUIET ENJOYMENT. Landlord covenants and agrees that Tenant, upon paying all rentals and other charges provided for herein, and upon observing and keeping all of the covenants, conditions, and provisions of this Lease on its part to be observed and kept, shall lawfully and quietly hold, occupy and enjoy the Leased Premises during the term hereof, without hinderance or molestation by or from anyone claiming by, through or under Landlord, subject to the terms of this Lease. 17. CONDITION OF LEASED PREMISES. a. Landlord represents that it will assume responsibility of the structural integrity of the building otherwise, Tenant accepts the Leased Premises in "AS IS" condition, it being hereby expressly understood that Landlord has made no representations or warranties with respect to such Leased Premises and that Tenant has inspected the same and is satisfied therewith; except as otherwise provided herein, and except that Landlord represents that at the commencement of this Lease Term the heating and cooling systems shall be in good operating condition. No representations regarding the duct work shall be included in this representation. Tenant agrees to hook up all utilities prior to taking occupancy of the Leased Premises so that the heating and cooling systems can be started. Upon acknowledgement by the Tenant that the Systems are in good working order, all future maintenance, repair, replacement or alterations of the systems shall be the sole responsibility of the Tenant. Landlord further represents that the roof shall be free of leaks and shall repair, replace and maintain the roof during the term of this Lease except as otherwise provided for herein. Tenant acknowledges that there is substantial heating and cooling machinery on the roof and Tenant will take steps necessary to avoid damage to the roof during 15 16 maintenance and repair of said machinery. Landlord shall not be responsible for any damage to the roof, or repairs to the roof caused by the negligence of the Tenant, its agents, employees, and repairmen caused to the roof. In the event Landlord is required to replace the roof during the term of this Lease (or any option period), then upon completion of the roof Landlord will make Tenant a joint guarantor on any roof guarantees. Thereafter any and all subsequent repairs to the roof shall be the sole responsibility of the Tenant provided, however, if at any time during the last year of the term (provided Tenant does not exercise its option to renew the Lease) Tenant shall be required to spend in excess of $10,000 to repair or replace the roof, then Tenant shall have the right to offset the expense incurred by Tenant to repair or replace the roof against the rent payable under the Lease, which offset shall be applied equally against the remaining monthly installments over the balance of the term. Except as otherwise provided herein, during the term of this Lease, TENANT, at its sole cost and expense, shall keep the Leased Premises and every part thereof, including all buildings at any time situated thereon, in a clean condition and in good repair and shall maintain the Leased Premises so that in all respects and at all times they fully comply with all lawful health and police regulations. To the best of Landlord's knowledge, Landlord has not received notice of violation of any state, federal or local law affecting the Leased Premises including any asbestos or hazardous materials in the premises or the land, and Landlord is not aware that any of the same exists upon the Leased Premises. Landlord further represents that in the event any asbestos is subsequently discovered in the building, which reasonably appears to have been incurred or installed prior to the occupancy of the Leased Premises by the Tenant, then Landlord agrees to 16 17 spend a maximum of $25,000.00 in total for the cost of removal of the same. In the event the cost of removal exceeds $25,000.00, the Landlord has the right to terminate this Lease upon twenty (20) days notice to Tenant, provided, however, that Tenant may elect to countermand Landlord's termination notice and elect to continue with the tenancy without abatement or set off and if same shall be required, bear the additional cost of removal of the asbestos. If Tenant shall not countermand Landlord's termination notice, the Lease shall be deemed canceled and of no further force and effect. If asbestos or hazardous materials are found on the Leased Premises, the rent payable hereunder and the term of the Lease shall abate during the period of removal only if said removal substantially impairs Tenant's ability to do business or perform any alteration work. Any hazardous waste permitted or suffered upon the Leased Premises subsequent to the commencement of this Lease shall be the sole responsibility of the Tenant and any hazardous waste found to exist upon the Leased Premises prior to the commencement of the Lease shall be the sole responsibility of Landlord. b. Tenant agrees that it shall maintain the interior and exterior, non-structural, of the premises in good repair and condition during the term of this Lease and shall maintain fix, repair and if necessary replace all fencing, walkways, exterior and interior lighting and electrical, all landscaping, snow removal, walkways, garbage removal, painting, heating and cooling. The Tenant agrees to maintain the sidewalks and curbing around the perimeter of the subject premises. In the event the municipality or any governmental agency requires a sprinkler system or any other additional requirements, Tenant agrees to install same at its own cost and expense. Tenant's obligations do not include items covered under Landlord's insurance. 18. ALTERATIONS AND ADDITIONS. Tenant may remodel and alter the building 17 18 located upon the Leased Premises according to its needs, provided that: a. The written consent of Landlord in each instance is first obtained for all exterior or structural changes, which consent shall not be unreasonably withheld, or delayed. Landlord has been exhibited Rattlesnake's standard sign and has pre-approved same, provided all necessary permits are procured from the governing municipality. b. Any such alterations or additions consented to shall be erected and finished in accordance with the plans and specifications therefor, in a good and workmanlike manner and in such manner as to comply in all respects with the rules and regulations of any state, municipal, or other governmental authority having jurisdiction there over; c. Tenant shall promptly pay for all such alterations and additions, and shall discharge any and all liens filed against the Leased Premises arising out of such alterations or additions and shall indemnify, defend, and hold Landlord harmless from any claims by any contractors, subcontractors, materialmen or workers for any amounts granted by them in connection therewith; and d. Tenant shall indemnify, defend and hold Landlord harmless from any and all loss, damage, liability, cost or expense incurred by reason of any injury to any person or persons or property arising directly or indirectly out of such alterations or additions. e. If, because of any act or omission (or alleged act or omission) of Tenant or anyone claiming through Tenant, any mechanic's or other lien, charge or for the payment of money or other encumbrance shall be filed against any portion of the Leased Premises (whether or not such charge, order or encumbrance is valid or enforceable as such) Tenant shall, at its cost and expense, cause same to be discharged or bonded within thirty (30) days (or such shorter time as may be required under any mortgage provided Tenant is given 18 19 notice of such shorter period) after notice to Tenant of the filing or imposition thereof; and Tenant does hereby indemnify and hold Landlord harmless from all losses, damages, expenses, liabilities, suits, penalties, claims and obligations, including, without limitation, reasonable attorney's fees resulting therefrom. If Tenant fails to comply with the foregoing provisions, Landlord shall have the option to either pay the same or to discharge the same by bonding and Tenant hereby agrees to reimburse Landlord (as additional rent) for all reasonable costs, damages and expenses resulting therefrom or incurred in connection therewith, together with interest thereon at the then Prime Rate of Citibank, N.A. plus three (3%) per cent promptly upon demand. Tenant acknowledges that after three (3) years, or when the corporate guarantee of Rattlesnakes Holding Co., Inc., shall terminate, any alteration, addition or construction in excess of $10,000.00, Tenant shall furnish a performance bond from a company reasonably acceptable to Landlord or, in the alternative, a guarantee of performance by Rattlesnakes Holding Co., in a form and manner reasonably acceptable to Landlord. 19. INSURANCE. Tenant shall carry at its own cost and expense during the entire term of this Lease, a. workers' compensation insurance during the course of any work being performed to the premises by the Tenant; b. public liability insurance including products liability coverage and liquor law liability coverage with a combined single limit of not less than Three Million Dollars ($3,000,000.00) per occurrence for personal injury and property damage, such insurance may be provided by blanket or umbrella policies, provided same is acceptable by Landlord and Jamaica Savings Bank its successors or assigns; 19 20 c. fire, malicious mischief, vandalism, and extended coverage insuring the Leased Premises, against said risks, with a guaranteed replacement cost endorsement (whereby the insurer will be obligated to pay the full cost of repair or replacement), the proceeds of which shall be payable to Landlord in trust and used for restoration or otherwise in accordance with paragraph 21 below. Any such policies shall include a provision for ten (10) days' advance written notice to Landlord in the event of any pending change or cancellation of said insurance. d. In addition to other insurance required of it, Tenant shall maintain the following insurance policies: i. Sprinkler Leakage Insurance, only if sprinkler system is installed, if a sprinkler system is located in the Leased Premises in amounts reasonably satisfactory to Landlord and any mortgagees. ii. Worker's Compensation insurance subject to statutory limits or better in respect of any work or other operations on or about the Leased Premises. iii. Such other insurance with respect to the Leased Premises and in such amounts as Landlord from time to time may reasonably request against such other insurable hazards which at the time in question are commonly insured against in the case of property similar to the Leased Premises, provided that such other insurance are customarily in place for other similar restaurants in the area. Prior to the commencement of the term hereof, Tenant shall deliver to Landlord a certificate showing such insurance to be in effect and naming Landlord and any mortgagor as additional insureds thereon (Jamaica Savings F.S.B.) and Landlord shall maintain liability insurance (similar to the insurance required to be maintained by Tenant) in form and 20 21 content reasonably satisfactory to Tenant, covering the 50' access area. Landlord shall deliver a certificate of such insurance, naming Tenant as an additional insured, to Tenant. 20. WAIVER OF RECOVERY. Tenant hereby agrees to waive its right of recovery against Landlord for loss or damage to Tenant's contents, equipment, improvements, or other property whatsoever. It is the intent of this provision that Tenant shall rely solely on its own property insurance policies. If any of Tenant's property insurance policies require an endorsement to effect a waiver of subrogation, Tenant shall cause them to be so endorsed. Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action against each other, their agents, officers, directors, partners and employees, for any loss or damage that may occur to the Premises or personal property, including building contents, within the Premises by reason of fire or the elements of nature or other events normally covered by extended all risk property damage insurance coverage, regardless of cause or origin including negligence of Landlord or Tenant and their agents, officers, directors, partners and employees. Landlord and Tenant shall immediately give written notice of the terms of the mutual waivers contained in this paragraph to each of their respective insurance companies which have issued policies of insurance covering all risk property damage, and shall have the insurance policies properly endorsed to reflect the insurance company's acknowledgment of such waiver and the absence of any subrogation rights. Each party shall provide to the other, annually within ten (10) days after request therefor, evidence that its all risk property damage insurance policies have been so endorsed. 21. DAMAGE AND DESTRUCTION BY FIRE OR OTHER CASUALTY. In the event that the Building or Leased Premises are damaged for any reason whatsoever and Tenant is unable, in Tenant's determination, to carry on its normal business operations for a period of sixty (60) 21 22 days or more, Tenant shall have the right to terminate this Lease by giving written notice of such termination to the Landlord no later than thirty (30) days after the occurrence of such damage. Upon such termination. Tenant's obligations hereunder and each of them, including the obligation to pay rent, shall cease and determine as of the day the Leased Premises were so damaged. If, in Tenant's determination, it is unable to carry on its normal business operations for a period of less than thirty (30) days because of such damage, rent shall abate for the period the Leased Premises are untenantable. Notwithstanding the foregoing, should Landlord notify Tenant within thirty (30) days of the destruction that it intends to restore the Leased Premises, and Landlord delivers to Tenant a written estimate of its architect or engineer that the premises can be restored within ninety (90) days, then Tenant may not terminate this Lease, but, upon completion of Landlord's restoration within one hundred (100) days from Landlord's notice, shall resume its occupancy of the Leased Premises and on the 30th day following completion of Landlord's work commence paying the Basic Minimum Rent and all items of Additional Rent as they thereafter come due. In the event the Leased Premises are partially damaged by fire or other casualty and Tenant shall determine that is able to carry on its normal business operations, Tenant shall pay rent for only such portion of the Leased Premises which Landlord in its determination may reasonably occupy during the time required to make repairs. All repairs necessary to restore the Leased Premises to its original condition shall be: a. commenced within thirty (30) days after the occurrence of such damage and completed within one hundred (100) days; and b. performed in a diligent and workmanlike manner with material of at least the same quality utilized originally in the construction of the Leased 22 23 Premises. In the event that the Leased Premises are not restored by Landlord for Tenant's occupancy and full use within one hundred (100) days of any casualty, Tenant, may, at its option, notify Landlord in writing and terminate this Lease. 22. DEFAULT. a. If (i) Tenant defaults in the payment of any installment of rent, percentage rent, or additional rent due hereunder, and such default continues for ten (10) days after written notice thereof to Tenant, or (ii) Tenant defaults in any of the covenants, agreements, conditions, or undertakings herein contained to be kept, observed and performed by Tenant other than the payment of rent or any part thereof when due, and such default continues for thirty (30) days after written notice thereof to Tenant; or (iii) proceedings in bankruptcy or for liquidation, reorganization, or rearrangement of Tenant's affairs are instituted by or against Tenant and if not dismissed within sixty (60) days; or (iv) a receiver or trustee is appointed for all or substantially all of Tenant's business or assets on the grounds of Tenant's insolvency; or (v) a trustee is appointed for Tenant after a petition has been filed for Tenant's reorganization under the Bankruptcy Act of the United States; or (vi) Tenant makes an assignment for the benefit of its creditors; or (vii) Tenant abandons the Leased Premises; or (viii) Tenant defaults under any of the terms of any other lease or any other agreement between Landlord and Tenant; then in any of the above events, Landlord at its election, may declare the term of this Lease ended and, either with or without process of law, re-enter, expel, remove, and put out Tenant and all persons occupying the Leased Premises under Tenant, using such reasonable force as may be necessary in so doing and repossess and enjoy the Leased Premises. Such re-entry and repossession shall not work a forfeiture of the rents to be paid and the covenants to be per- 23 24 formed by Tenant during the full term of this Lease. b. Anything hereinabove contained to the contrary notwithstanding, and to the extent consistent with cure periods, if any, it is expressly understood that, with respect to any default (except nonpayment of rent) of such a nature that it cannot, with due diligence, be cured within a period of thirty (30) days, Tenant shall not be deemed in default under this Lease if Tenant shall have commenced the curing of such default within thirty (30) days after receiving written notice thereof from Landlord and so long as Tenant shall thereafter proceed with all due diligence to complete the curing of such default. c. Upon expiration of the Lease by reason of the happening of any of the events hereinabove described, or in the event of the termination of the Lease or right to possession or both, as the case may be, by summary dispossession proceedings or under any provision of law now or at any time hereafter in force, by reason of or based upon or arising out of a default under or breach of the Lease on the part of Tenant, or upon Landlord recovering possession of the Leased Premises under any of the foregoing circumstances whatsoever, whether with or without legal proceedings by reason of or based upon or arising out of a default under or breach of the Lease on the part of Tenant, Landlord may, at its option, at any time and from time to time, relet the Leased Premises or any part or parts thereof for the account of Tenant or otherwise and receive and collect the rents therefor, applying the same first to the payment of such expenses as Landlord may have incurred in recovering possession of the Leased Premises, including (i) reasonable legal expenses and attorney's fees, which shall be deemed additional rents and shall be for a sum no less than ten (10%) percent of any sum outstanding; (ii) expenses of putting the Leased Premises into good order or condition or returning the same to the pre-lease condition for re-rental, and (iii) expenses, commissions, and charges paid, 24 25 assumed, or incurred by Landlord in and about the reletting of the Leased Premises, and then to the fulfillment of the covenants of Tenant hereunder. Any such reletting herein provided for may be for the remainder of the Lease term or for a longer or shorter period. d. In any case of reletting and whether or not the Leased Premises or any part hereof be relet, Tenant shall pay to the Landlord the rent and all other charges required to be paid by Tenant up to the tine of such termination of the Lease, or of such recovery of possession of the Leased Premises by Landlord, as the case may be; and thereafter Tenant covenants and agrees, if required by Landlord, to pay to Landlord until the end of the Lease term the equivalent of the amount of all the rent reserved herein and all other charges required to be paid by Tenant less the net proceeds of reletting, if any, and the same shall be due and payable by Tenant to Landlord on each of the days rent payments are payable hereunder. In any of the circumstances hereinabove mentioned in which Landlord shall have the right to hold Tenant liable, upon the several rent days herein specified, to pay Landlord the equivalent of the amount of all the rent and all other charges required to be paid by Tenant less the net proceeds of reletting, if any, Landlord shall have the option instead of holding Tenant so liable, forthwith to recover against Tenant, as damages for the loss of the benefit of its bargain and not as a penalty, an aggregate sum which, at the time of such termination of the Lease, or of such recovery of possession of the Leased Premises by Landlord, as the case may be, represents the then present worth of the excess, if any, of the aggregate of the rent and all other charges payable by Tenant hereunder that would have accrued for the balance of the term over the aggregate rental value of the Leased Premises for the balance of such term. 23. LANDLORD'S RIGHT TO CURE. If Tenant falls to perform any of its obligations hereunder to be performed by the lessee thereunder, which continues after written notice to 25 26 Tenant and the expiration of the applicable care period, if any, Landlord, at its option, may (but shall not be required to) do the same or cause the same to be done. In addition to any and all rights and remedies of Landlord, the cost reasonably incurred by Landlord in connection with such performance by Landlord shall be additional rental due from Tenant to Landlord, payable with the next monthly payment of rent. 24. LANDLORD'S RIGHT TO INSPECT. Landlord and its agents shall have access to the Leased Premises at all reasonable times for the purposes of inspecting the Leased Premises, accompanied by a representative of Tenant. 25. INDEMNIFICATION. a. GENERAL. If Landlord shall be subject to any claim, demand, or penalty arising due to the Lease or become a party to any suit or claimed act or omission by Tenant, its employees or agents, or by reason of any act occurring on the Leased Premises, or by reason of an omission with respect to Tenant's operation of its business thereon, or by reason of a default by Tenant under the terms of this Lease, except for Landlord's negligent acts or omissions, Tenant shall indemnify and hold Landlord harmless against all judgments, settlements, penalties, and expenses (including but not limited to reasonable attorney's fees, court costs, and other expenses of litigation or administrative proceedings) incurred by or imposed upon Landlord in connection with the defense relating to such claim or litigation or administrative proceeding, and, at the election of Landlord, Tenant also shall defend Landlord. Notwithstanding anything contained herein, Tenant shall only indemnify Landlord for such claims or losses that arise from events that occurred during Tenant's occupancy. b. ENVIRONMENTAL. Tenant shall indemnify and hold Landlord harmless from and against any and all claims, demands, suits, losses, damages, assessments, 26 27 fines, penalties, costs or other expenses (including without limitation costs of investigations, costs of remediation, attorney's fees, and court costs) arising after the Term Commencement Date and in any way related to actual or threatened damage to the environment, agency costs of investigation, personal injury or death, or damage to property, due to a release or alleged release of "Hazardous Materials" (as that term is defined in paragraph 38 herein below) on or under the Leased Premises during the term of this Lease, or gaseous emissions from the Leased Premises during the term of this Lease or any other condition existing on the Leased Premises resulting from Hazardous Materials during the term of this Lease, whether such claims prove to be true or false, and, at the election of Landlord, Tenant also shall defend Landlord. Notwithstanding anything contained herein, Tenant shall only indemnify Landlord for such claims or losses that arise from events that occurred during Tenant's occupancy. c. ENFORCEMENT. Tenant also shall pay all reasonable costs and expenses, including reasonable attorney's fees, which may be incurred by Landlord in enforcing any of the covenants and agreements of this lease. All such costs, expenses, and attorney's fees shall, if paid by Landlord, together with any interest thereon, be additional rent due on the next rent date due after such payment or payments. In the event of any legal proceedings between Landlord and Tenant with respect to the subject matter of this Lease, Landlord and Tenant mutually agree to waive any right either may have to a jury trial, to the extent permitted by law. 26. ASSIGNMENT AND SUBLETTING. Tenant may not assign this Lease or sublet the Leased Premises or any part thereof, permit the sale or transfer of its interest herein by legal process or otherwise, without the prior written consent of Landlord not to be unreasonably withheld or delayed. Any provision of this Lease to the contrary notwithstanding, Tenant may assign this Lease or sublease the Premises, in whole or in part, without the express written 27 28 consent of Landlord and without affording Landlord any right to terminate this Lease, to: (i) any corporation into which or with which Tenant has merged or consolidated; (ii) any parent, subsidiary, successor, or affiliated corporation of Tenant; (iii) any person or entity that acquires all or substantially all of the assets or operations of Tenant within the metropolitan area in which the Premises are located; or (iv) any partnership greater than twenty-five (25%) per cent of which shall be owned by Tenant or the parent corporation of Tenant. Landlord shall have no obligation to consent to any assignment of a proposed tenant with a financial record any less than represented by Rattlesnakes a copy of its financial records are attached hereto as Exhibit "C". Any consent to any assignment or subletting shall not constitute a waiver of the necessity for such consent to any subsequent assignment of subletting. Upon any assignment, such assignee shall by an instrument in writing assume and agree to perform the terms hereof and Tenant shall promptly deliver a copy thereof to Landlord, and upon any sublease, such subtenant shall acknowledge the existence of this Lease and shall covenant not to do or permit to be done anything that would constitute a breach thereof, and Tenant shall promptly deliver a copy of any such sublease to Landlord. In the event Landlord consents to the assignment the equivalent of three (3) months rent including all additional rents shall be deposited with the Landlord in an interest bearing account as and for security for the faithful performance of any and all obligations under the terms of this Lease. Notwithstanding anything herein to the contrary, said assignment shall not relieve the Tenant assignee or its guarantors of performance under the terms of this Lease. Any request for consent to a proposed subtenant or assignee must be accompanied by a payment to Landlord in the amount of Five Hundred Dollars ($500.00) to compensate Landlord for its costs to review or prepare the necessary documents and/or to review 28 29 financial statements. 27. RULE AGAINST PERPETUITIES. If the term of this Lease shall not have commenced within six (6) months after the date hereof, this Lease shall become null and void and of no further force or effect. The sole remedy of Tenant in such case is the return of any monies paid to Landlord in anticipation of the Lease. Nothing contained in this paragraph shall be construed as extending any time period provided herein for the satisfaction of any conditions precedent. 28. HOLDING OVER. Tenant shall not hold over beyond the expiration or sooner termination of the term hereof. If nevertheless there by any holding over by Tenant, such shall give rise to a tenancy at the sufferance of Landlord upon the same conditions as are provided for herein but with a monthly rental for the period of such holding over which is one hundred and fifty (150%) percent of the monthly installment of rent last required to be paid by Tenant during the lease term, and interest thereon, as liquidated damages, and not as a penalty, it being agreed that damages to Landlord in such event would be difficult to ascertain and that the foregoing represents a fair estimate of such damages. Landlord's acceptance of any rent after holding over begins shall not be deemed to renew this Lease nor shall this provision be deemed to be a waiver of Landlord's rights of re-entry or any other right hereunder resulting from Tenant's breach of the covenant not to hold over or any other breach hereunder. 29. WAIVER. The failure of either party to enforce any condition or provision contained herein at any time shall not be construed as a waiver of that condition or provision nor shall it operate as a forfeiture of any right of future enforcement of any such condition or provision. 30. ACCORD AND SATISFACTION. No payment by Tenant or receipt by Landlord 29 30 of a lesser amount than the monthly rent herein stipulated shall be deemed to be other than on account of the earliest stipulated rent, nor shall any enforcement or statement on any check or any letter accompanying any check or payment as rent be deemed an accord and satisfaction. Landlord may accept such check or payment without prejudice to Landlord's right to recover the balance of such rent or pursue any other remedy provided for herein. 31. RECORDING OF LEASE. Upon the request of either party hereto, the other party shall join in the execution of a memorandum of the Lease for the purpose of recordation. The party requesting execution of such a memorandum shall bear all costs for recording the same. 32. SUBORDINATION. I. This Lease and all rights of Tenant hereunder, are and shall be subject and subordinate in all respects to all mortgages which may now or hereafter affect the Building to each and every advance made or hereafter to be made under such mortgages, and to all renewals, modifications, replacements and extensions of such mortgages and spreaders and consolidations of such mortgages. The provisions of this Article 31 shall be self-operative and no further instrument of subordination shall be required. In confirmation of such subordination, Tenant shall promptly execute and deliver any instruments that Landlord or the holder of any mortgage, or any of their respective successors in interest, may reasonably request to evidence such subordinations. Notwithstanding the foregoing, the subordination of this Lease is subject to the condition that Landlord secure a Non-Disturbance Agreement stating that the mortgagee or ground lessor, as the case may be, shall deliver to Tenant at or prior to the time that this Lease becomes so subordinate, a written agreement in recordable form whereby Tenant, so long as Tenant is not in default hereunder, may remain in possession of the Leased Premises pursuant to 30 31 the terms hereof, and this Lease shall continue in full force and effect, and without any diminution of the Tenant's rights should Landlord become in default with respect to such mortgage or ground lease or should the Leased Premises become the subject of any action for foreclose any mortgage or to dispossess Landlord. In the event of any act or omission of Landlord which would give Tenant the right, immediately or after lapse of a partial or total eviction, Tenant shall not exercise such right: a. Until it has given written notice of such act or omission to each mortgagee whose names and address shall previously have been furnished to Tenant in writing. b. Unless such act or omission shall be one which is not capable of being remedied by Landlord or any mortgagee within a reasonable period of time, until a reasonable period for remedying such act or omission shall have elapsed following the time when all such mortgages shall have become entitled under such mortgagee to remedy the same (which reasonable period shall in no event be less than the period to which Landlord would be entitled under this Lease or otherwise, after similar notice, to effect such remedy), provided any such mortgagee shall with due diligence give Tenant written notice of its intention to and shall commence and continue to remedy such act or omission, but nothing herein contained shall obligate any mortgagee to do so unless it so elects. c. If a mortgagee shall succeed to the rights of Landlord under this Lease, whether through possession or foreclosure action or delivery of a deed, then at the request of such party so succeeding to Landlord's rights (herein sometimes called "Successor Landlord") and upon such Successor Landlord's written agreement to accept Tenant's attornment 31 32 which such Successor Landlord shall agree to accept is so requested by Tenant, Tenant shall attorn to and recognize such Successor to Landlord as Tenant's landlord under this Lease, and shall promptly execute and deliver an instrument that such Successor to Landlord may reasonably request to evidence such attornment. Upon such attornment this Lease shall continue in full force and effect as, and as if it were, a direct lease between the Successor Landlord and Tenant upon all of the terms, covenants and conditions set forth in this Lease, and all such attornment except that the Successor landlord shall: (i) Not be liable for any previous act or omission of landlord under this Lease. (ii) Not be subject to any offset, not expressly provided for in this Lease, which shall have theretofore or which may thereafter accrue to Tenant against Landlord. (iii) Not be bound by any previous modification of this Lease, not expressly provided for in this Lease, other than a modification of this Lease executed by Landlord and Tenant prior to the execution of any mortgage, or by any previous prepayment of more than one months basic annual rent, unless such modification or prepayment shall have been expressly approved in writing by the mortgagee(s) through or by reason of which the Successor Landlord shall have succeeded to the rights of Landlord under this Lease. d. The term mortgagee as used herein shall include underlying leases of the building and the holder of such lease shall be deemed a "Mortgagee". II. Landlord shall use its reasonable efforts to obtain from its mortgagee a non-disturbance agreement reasonably satisfactory to Tenant. In the event the Landlord shall be unable to procure the Non-Disturbance Agreement within fifteen (15) days of the date of this Lease Agreement then either party shall have the right to terminate this Lease (unless Tenant waives this condition) and upon payment to Tenant of any monies tendered to 32 33 Landlord for security or rent, neither party shall have any further liability to the other. 33. COMMISSION. a. TENANT'S REPRESENTATIONS. Tenant represents and warrants that this Lease was brought about with the aid of Friedland Realty, Inc. and Realco Group, Inc. Tenant agrees to indemnify landlord from and against any claims that may be made against Landlord for any type of a real estate commission or finder's fee as a result of Tenant's dealings with such claimant in connection with the transaction contemplated herein, other than Friedland Realty, Inc. and Realco Group, Inc. b. LANDLORD'S REPRESENTATIONS. Landlord represents and warrants that this Lease was brought about with the aid of Friedland Realty, Inc. and Realco Group, Inc. and agrees to pay all fees due Friedland Realty, Inc. and Realco Group, Inc. Both Landlord and Tenant agree that no broker other than Friedland Realty, Inc., and Realco Group, Inc., brought about this Lease and both Landlord and Tenant agree to defend and indemnify the other as a result of this representation. 34. GENDER AND NUMBER. Words of any gender shall be held to include any other gender and words in the singular number shall be held to include the plural and vice versa, as the context may require. 35. HEADINGS. Headings of the sections hereof are inserted from conve- nience only and shall not constitute a part of this Lease. 36. NOTICE. All notices required or permitted to be given hereunder shall be in writing and sent by United States Registered or certified mail, postage prepaid, return receipt requested, or by an express delivery service which provides for return receipt, addressed 33 34 to the parties as follows: To Landlord: Jack Cioffi Trust Under Last Will and Testament c/o Anastasia Cioffi Pesola, Trustee and Anne Pesola, Ind. Box 568, Windham, New York 12496 Copy to: Phillips, Weiner & Quinn, Esqs. 101 No. Wellwood Ave. P.O. Box 405 Lindenhurst, New York 11757-0405 Attention: James F. Quinn, Esq. To Tenant: Rattlesnake of Lynbrook Inc. Attention: Stephen Stein 3 Stamford Landing Stamford, Connecticut 06902 Copy to: Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10022 Attention: Wayne Heicklen, Esq. or to such other address as the parties may direct by notice given as hereinabove provided. Notice shall be deemed given when received as evidenced by the return receipt or the date such notice is first refused, if that be the case. 37. SEVERABILITY. If any provision or provisions of this Lease or of any of the documents or instruments delivered pursuant thereto, or any portion of any provision hereof or thereof, shall be deemed invalid or unenforceable pursuant to a final determination of any court of competent jurisdiction or as a result of future legislative action, such determination or action shall be construed so as not to affect the validity or enforceability hereof or thereof and shall not affect the validity or effect of any other portion hereof or thereof, unless, as a result of such determination or action, the consideration to be received or enjoyed by any party hereto would be materially impaired or reduced. 34 35 38. ENVIRONMENTAL COVENANTS. a. Tenant shall not, and shall not permit any other person to, use any portion of the Leased Premises for any activity involving, directly or indirectly, the use, production, storage, handling, transfer, refinement, treatment, processing, transport, generation, removal, remediation, manufacture, discharge, release or disposal of any Hazardous Material, except those chemicals, lubricants and cleaning fluids customarily used in the operation and maintenance of the restaurant located upon the Leased Premises and used and stored in compliance with all legal requirements. b. For purposes of this Agreement "Hazardous Materials" shall mean petroleum and petroleum by-products; any pollutant; any contaminant; any flammable, explosive, or radioactive material; any hazardous waste, toxic substance, or related material; and any other substance or material defined or designated as a hazardous or toxic substance, material, or waste by any legal requirement applicable to the use of or any activity conducted upon the Leased Premises or the removal of which is required, or the manufacture, use, maintenance, storage, ownership, or handling of which is restricted, prohibited, regulated, or penalized by any legal requirement applicable to the use of or any activity conducted upon the Leased Premises, and shall include: (i) those substances included within the definition of "hazardous substances", "extremely hazardous", "hazardous materials", "hazardous waste", "toxic substances" or "solid waste" in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 ET SEQ., the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001-11050, the Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ., and the Hazardous Materials Transporta- 35 36 tion Act, 49 U.S.C. Section 1801 ET SEQ., and in the regulations adopted and promulgated pursuant to said laws; (ii) those substances listed in the United States Department of Transportation Table (49 C.F.R. 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302 and amendments thereto); (iii) such other substances, materials, and wastes which are regulated under any legal requirement applicable to the use of or any activity conducted upon the Leased Premises, or which are classified as hazardous or toxic under any legal requirement applicable thereto; (iv) any substance which contains polychlorinated byphenyls (PCBs), and any asbestos or asbestos containing substance; and (v) any waste, substance, or materials that exhibit any of the characteristics enumerated in 40 C.R.F. Sections 261.20-261.24, inclusive, or any "extremely hazardous" substance listed under Section 302 of the Superfund Amendment and Reauthorization Act of 1986 ("SARA") that are present in excess of or equal to threshold planning or reportage quantities defined under SARA. 39. ENTIRE AGREEMENT. This Lease constitutes the entire agreement between the parties hereto and supersedes all prior and contemporaneous agreements and undertakings of the parties pertaining to the subject matter hereof. This Lease may not be modified except by a written instrument duly executed by the party hereto against whom the modification is sought to be enforced. Within fifteen (15) days after written request from a party hereto, the other 36 37 party shall execute, acknowledge and deliver to the requesting party an estoppel certificate certifying: (i) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification; (ii) the date to which rental and other sums payable hereunder have been paid; (iii) that no notice has been received by such other party of any default which has not been cured, except as to default specified in the estoppel certificate; and (iv) such other matters as may reasonably be requested by the other party, its lender, assignee or purchaser (or proposed lender, assignee or purchaser). Any such estoppel certificate may be relied upon by any such purchaser, lender or assignee for estoppel purposes only, and no party executing such estoppel certificate shall be liable for damages or other losses as a result of inaccuracy in the information contained in such estoppel certificate. Tenant and Landlord each warrant and represent that the party signing this Lease on behalf of each has authority to enter into this Lease and to bind Tenant and Landlord, respectively, to the terms, covenants and conditions contained herein. Each party shall deliver to the other, upon request, all documents reasonably requested by the other evidencing such authority, including a copy of all corporate resolutions, consents or minutes reflecting the authority of persons or parties to enter into agreements on behalf of such party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of 37 38 the day and year first above written. WITNESS: JACK CIOFFI TRUST UNDER LAST WILL AND TESTAMENT /s/ Jeff Grann BY: /s/ ANASTASIA CIOFFI PESOLA, Trustee - ------------------------------ ---------------------------------------- Jeff Grann ANASTASIA CIOFFI PESOLA, Trustee WITNESS: RATTLESNAKE OF LYNBROOK INC. /s/ David C. ? BY: /s/ ? - -------------------------- --------------------------------------- NAME TITLE Chairman/CEO 38 39 [MAP] 40 "EXHIBIT A" 41 TOWN OF HEMPSTEAD - COUNTY OF NASSAU - --------------------------------------------------------------------------------
MAKE FUNDS PAYABLE TO: OFFICE HOURS FISCAL YEAR 1/1/96 THRU 12/31/96 ANGIE M. CULLIN 9 A.M. TO 4:45 P.M. EST. STATE AID - COUNTY $286,187,496.00 RECEIVER OF TAXES MON. THRU FRI. EST. STATE AID - TOWN $12,952,000.00 TOWN OF HEMPSTEAD TEL. COUNTY SALES TAX CREDIT $21,867,834.00 200 N. FRANKLIN STREET (516)538-1500 HEMPSTEAD, NEW YORK 11550 - ------------------------------------------------------------------------------------------------- PROPERTY DESCRIPTION EXEMPTION CONSOLIDATED TAXABLE DESCRIPTION TAX CODE TAX RATE VALUE - ------------------------------------------------------------------------------------------------- SWIS CODE SD CODE SECTION BLOCK LOT 282025 020 42 145 0109 NON-EXEMPT 458 09.920 94,600 LOT GROUP 109 LOCATION CLASS 42114 ROLL SECTION SIZE - -------------------------------------------------------------------------------------------------- TAX SERVICE CODE TAXPAYER CODE ACCOUNT LAND ASSESSMENT TOTAL ASSESSMENT - -------------------------------------------------------------------------------------------------- 0O 00000 48,350 94,600 - -------------------------------------------------------------------------------------------------- OWNER'S NAME & PROPERTY ADDRESS TAXPAYER'S NAME & TAX BILLING ADDRESS ANASTASIA CIOFFI PESOLA MARRIOTT CORP. #60050 1 MARRIOTT DR 935 SUNRISE HIGHWAY DEPT. 875.25 LYNBROOK, NY 11563 WASHINGTON, DC 20058 INDICATE NAME OR ADDRESS CHANGE ON REVERSE SIDE OF STUB - -------------------------------------------------------------------------------------------------- LEVY DESCRIPTION EX. CODE TAXABLE VALUE TAX RATE PER $100 TAX AMOUNT - -------------------------------------------------------------------------------------------------- COUNTY-GENERAL PURPOSES* 94,600 2.715 2,568.390 NASSAU COMMUNITY COLLEGE 94,600 .645 610.170 COUNTY POLICE HEADQUARTERS 94,600 2.417 2,286.482 COUNTY FIRE PREVENTION 94,600 .117 110.682 COUNTY SEWAGE DISP DIST 2** 94,600 2.483 2,348.918 VALLEY STREAM CSC DIST 2 94,600 .709 670.714 TOWN-GENERAL PURPOSES 94,600 .834 788.964 - -------------------------------------------------------------------------------------------------- FIRST HALF TAX .00 SECOND HALF TAX 4,692.16 TOTAL TAX 9,384.32 PENALTY THRU PENALTY THRU PAY THIS AMOUNT IF TOTAL TAX IS - ------------------------------------------------------------------ PAID ON OR BEFORE 2/10/96 DISCOUNT ------------------------------------- TOTAL TOTAL $9,337.40 - -------------------------------------------------------------------------------------------------- RECEIPT FOR PAYMENT OF TAXES DISCOUNT ALLOWED (-) FIRST HALF TOWN PENALTY INCLUDED SECOND HALF TOWN PENALTY INCLUDED (+) SECOND PORTION COUNTY THIRD PORTION COUNTY DATE BATCH TRANS ITEM DATE BATCH TRANS ITEM REMITTANCE [ ] REMITTANCE [ ] SUBJ. TO COLL SUBJ. TO COLL FIRST 1/2 TAX PREVIOUSLY PAID - ---------------------------------------- ----------------------------------- PAYOR (OTHER THAN OWNER) PAYOR (OTHER THAN OWNER) 1996 GENERAL TAX - SECOND HALF TOWN THIRD PORTION COUNTY - -------------------------------------------------------------------------------------------------- - ----------------------------------- 1996 GENERAL TAXES - TOWN OF HEMPSTEAD SECOND HALF - GENERAL TAXES SWIS CODE S.O.CODE SECTION BLOCK LOT DUE JULY 1, 1996 282025 020 42 145 0109 LOT GROUP 109 SECOND HALF TAX PAYABLE WITHOUT PENALTY TO AUGUST 10, 1996 SECOND HALF TAX 4,692,.16 - ----------------------------------- CASH [ ] CERT CH [ ] CK. SUBJ. [ ] IN PERSON [ ] OR M.O. TO COLL. When paying by mail, detach and return this stub with payment of the PAYOR second half tax. If paying TOTAL TAX, (other than owner) ---------------------------------------- return both first and second half DO NOT WRITE BELOW THIS LINE stubs with payment. When paying in person, bring in entire bill. Do not OWNER'S ANASTASIA CIOFFI PESOLA detach stubs. NAME 1 2004111006 96120000469216 SEE REVERSE SIDE FOR PENALTY SCHEDULE - REVIEW TAX DATA ON REVERSE SIDE
42 TOWN OF HEMPSTEAD - COUNTY OF NASSAU - --------------------------------------------------------------------------------
MAKE FUNDS PAYABLE TO: OFFICE HOURS FISCAL YEAR 7/1/95 THRU 6/30/96 ANGIE M. CULLIN 9 A.M. TO 4:45 P.M. EST. STATE AID - SCHOOL DIST. $3,000,000.00 RECEIVER OF TAXES MON. THRU FRI. TOTAL TAXES LEVIED - SCHOOL DIST. $26,939,805.43 TOWN OF HEMPSTEAD TEL. ASSESSED VALUATION - SCHOOL DIST. $57,533,605.00 200 N. FRANKLIN STREET (516)538-1500 LIBRARY RATE .000 HEMPSTEAD, NEW YORK 11550 - ------------------------------------------------------------------------------------------------- PROPERTY DESCRIPTION EXEMPTION TAXABLE DESCRIPTION TAX RATE VALUE - ------------------------------------------------------------------------------------------------- SWIS CODE SD CODE SECTION BLOCK LOT 282025 020 42 145 0109 NON-EXEMPT 39.851 94,600 LOT GROUP 109 LOCATION CLASS 42114 ROLL SECTION SIZE - -------------------------------------------------------------------------------------------------- TAX SERVICE CODE TAXPAYER CODE ACCOUNT LAND ASSESSMENT TOTAL ASSESSMENT - -------------------------------------------------------------------------------------------------- 0O 00000 48,350 94,600 - -------------------------------------------------------------------------------------------------- OWNER'S NAME & PROPERTY ADDRESS TAXPAYER'S NAME & TAX BILLING ADDRESS ANASTASIA CIOFFI PESOLA MARRIOTT CORP. #60050 1 MARRIOTT DR 935 SUNRISE HIGHWAY DEPT. 875.25 LYNBROOK, NY 11563 WASHINGTON, DC 20058 INDICATE NAME OR ADDRESS CHANGE ON REVERSE SIDE OF STUB - -------------------------------------------------------------------------------------------------- LEVY DESCRIPTION TAXABLE VALUE TAX RATE PER $100 TAX AMOUNT - -------------------------------------------------------------------------------------------------- LYNBROOK U.F.S D 94,600 39.851 37,699.046 THIS IS YOUR SCHOOL TAX BILL. ALTHOUGH SCHOOL TAXES ARE MADE PAYABLE TO THE RECEIVER OF TAXES, ALL PROCEEDS BENEFIT YOUR LOCAL SCHOOL DISTRICT AND YOUR LOCAL LIBRARY (IF APPLICABLE). PAYMENTS MADE PURSUANT TO THIS BILL DO NOT FINANCE OPERATIONS OF THE TOWN OF HEMPSTEAD. SCHOOL TAXES ARE SET BY THE VARIOUS BOARDS OF EDUCATION WHICH ARE INDEPENDENTLY ELECTED AND OVER WHICH THE TOWN OF HEMPSTEAD HAS NO CONTROL. FOR INFORMATION ABOUT TAX RATES AND AMOUNTS, CONTACT YOUR LOCAL SCHOOL DISTRICT AT THE ADDRESS PROVIDED ON THE REVERSE SIDE OF THIS BILL. - -------------------------------------------------------------------------------------------------- FIRST HALF TAX .00 SECOND HALF TAX 18,849.52 TOTAL TAX 37,699.05 PENALTY THRU PENALTY THRU PAY THIS AMOUNT IF TOTAL TAX IS - ------------------------------------------------------------------ PAID ON OR BEFORE 11/10/95 DISCOUNT ------------------------------------- TOTAL TOTAL $37,510.55 - -------------------------------------------------------------------------------------------------- RECEIPT FOR PAYMENT OF TAXES DISCOUNT ALLOWED (-) FIRST HALF TAX PAID PENALTY INCLUDED SECOND HALF TAX PAID PENALTY INCLUDED (+) DATE BATCH TRANS ITEM DATE BATCH TRANS ITEM REMITTANCE [ ] REMITTANCE [ ] SUBJ. TO COLL SUBJ. TO COLL FIRST 1/2 TAX PREVIOUSLY PAID - ---------------------------------------- ----------------------------------- PAYOR (OTHER THAN OWNER) PAYOR (OTHER THAN OWNER) 1995-1996 SCHOOL TAX - SECOND HALF - -------------------------------------------------------------------------------------------------- - ----------------------------------- 1995-1996 SCHOOL TAXES - TOWN OF HEMPSTEAD SECOND HALF - 1995-1996 SCHOOL TAX SWIS CODE S.O.CODE SECTION BLOCK LOT DUE APRIL 1, 1996 282025 020 42 145 0109 LOT GROUP 109 SECOND HALF TAX PAYABLE WITHOUT PENALTY TO MAY 10, 1996 SECOND HALF TAX 18,849.52 - ----------------------------------- CASH [ ] CERT CH [ ] CK. SUBJ. [ ] IN PERSON [ ] OR M.O. TO COLL. When paying by mail, detach and return this stub with payment of the PAYOR second half tax. If paying TOTAL TAX, (other than owner) ---------------------------------------- return both first and second half DO NOT WRITE BELOW THIS LINE stubs with payment. When paying in person, bring in entire bill. Do not OWNER'S ANASTASIA CIOFFI PESOLA detach stubs. NAME 1 2004111006 96220001884952 SEE REVERSE SIDE FOR PENALTY SCHEDULE - REVIEW TAX DATA ON REVERSE SIDE
43 EXHIBIT B Lease Agreement Supplement -------------------------- This is a supplement to the Lease Agreement dated the 15 day of April, 1996 between JOHN J. CIOFFI TRUST and RATTLESNAKE OF LYNBROOK INC. (hereinafter the "Lease"). Pursuant to the terms and conditions of the Lease, the parties thereto hereby confirm that the Term Commencement Date (as defined in the Lease is the _____ day of April, 1996. WITNESS: JACK CIOFFI TRUST UNDER LAST WILL AND TESTAMENT BY: - ------------------------------ ---------------------------------- ANASTASIA CIOFFI PESOLA, Trustee WITNESS: RATTLESNAKE OF LYNBROOK INC. ? BY: ? - ------------------------------ ---------------------------------- NAME: TITLE: Chairman/CEO 39 44 "EXHIBIT C" 45 The Rattlesnake Holding Company, Inc. [PHOTO] 1995 Annual Report Rattle Snake [logo] A new direction for the restaurant industry 46 THE RATTLESNAKE HOLDING COMPANY, INC. 1995 ANNUAL REPORT ------------------------- TO OUR SHAREHOLDERS...Before the very first nail was hammered into the wall of the very first Rattlesnake Southwestern Grill, we knew what a great casual theme restaurant chain could and should be. We analyzed the critical success factors from the most aggressive restaurant companies, and added our own studied elements to create what we believe to be one of the most exiting, growth concepts to emerge in years. We applied three basic principles for the development... ...and growth of the Company. First, in creating the Rattlesnake concept, we sought to offer something new and exciting to the dining public. We were convinced that we could create a unique dining experience and implement an innovative strategy for expansion of the Company at the same time. This second principle consisted of criteria which would permit rapid growth at significantly lower cost than comparable restaurant companies. Finally, we believed that management's success was dependent upon establishing a close proximity for restaurants in co-dependent "clusters," which permit for economies in manpower, purchasing and advertising. Based upon this triad, the Rattlesnake was born. The first three years have held great excitement for everyone at the Rattlesnake. We are very proud of our many accomplishments. The most notable being the Company's successful completion of the Initial Public Offering (IPO) of its stock. The net proceeds from the offering, $7.3 million, have provided a solid financial base for our growth. Within these three years, the Rattlesnake Southwestern Grill has grown from one to six restaurants, with annualized sales of approximately $9.0 million. The newest Rattlesnake opened in Danbury, Connecticut in August 1995 to rave reviews and strong sales levels. The 7,200 square foot former Howard Johnson's restaurant, received an extensive facelift to produce a dramatic contemporary restaurant comparable in scope and presentation to other major national theme chains. The conversion of this Rattlesnake was completed within eight weeks following the IPO, at a total cost (including lease aquisition, renovations and pre-opening costs) of approximately $480,000, or less than $67 per square foot. The Connecticut and New York cluster paved the way for a regional grouping in New Jersey. The first Rattlesnake location in the Garden State is under construction in the affluent community of Flemington with completion scheduled for mid November 1995. 47 THE RATTLESNAKE HOLDING COMPANY, INC. 1995 ANNUAL REPORT ------------------------- The Company is in substantive discussions on several locations in the metropolitan New York City area. We believe our focus on aggressive, controlled growth to be the key to the Company's success. However, we are constantly reviewing and refining the concept to enhance the performance of the existing restaurants. Our goal is to build strong "brand recognition" in our chosen markets. As a result, we are working to build sales in the existing operations and striving for a dominant position in the marketplace. To strengthen the concept, we have invested considerable capital to solidify our management foundation as a prerequisite for aggressive expansion. In this, our first year as a public company, the Rattlesnake team is confident in its abilities to cultivate new business, cement customer loyalty, strengthen unit performance, and offer an exellent, unique alternative to the dining public. As we grow the Company, the Rattlesnake will continue to forge a new direction for the restaurant industry. /s/ David C. Sederholt /s/ William J. Opper David C. Sederholt William J. Opper President and Chief Chairman of the Board and Operating Officer Chief Executive Officer [PHOTO] 48 ------------------------ A NEW DIRECTION IN RESTAURANT CONCEPTS...Through its broad-based appeal and unique market position, the Rattlesnake represents a new flavor and direction for casual theme restaurants. We offer an alterantive to both the cookie-cutter fern bars of the seventies and today's tightly focused steak, pizza and ethnic concepts which provide limited choices for their customers. Our menu offers broad-based American fare complemented by... ...the flavors of the great Southwest. This food style has its roots with European pioneers who migrated across America and blended their cooking styles with the tastes of the Native American and Mexican inhabitants. The result is a recognizable yet unique combination of flavors and textures. Offerings include a wide variety of appetizers and "finger foods" for the "grazing" crowd, along with pizzas, salads, pastas, numerous chicken selections, burgers, aged Diamond Angus steaks, Texas-style bar-b-que, and sizzlin' south-western specialties, with sensitivity to all palates. Light, healthy and low fat selections are as evident as hearty red meats and spicy bar-b-que The look is clean and contemporary with a touch of southwestern comfort. Authentic artifacts, native blankets, artwork and pottery are purchased in Arizona and Texas to adorn the walls. Muted pastels and desert colors add warmth to the rooms. Custom etched glass with Native American themes adorn some of the restaurants to add casual elegance. We create an atmosphere which is more sophisticated than most other casual theme restaurants, making guests feel special in a comfortable environment. While each site is unique architecturally, there is a common theme for each interior. From the minute you enter a Rattlesnake Southwestern Grill, and you are met by the friendly gaze of a 40 to 60 foot, full-relief, mosaic rattlesnake, you know you're in for some fun. This ceterpiece of every Rattlesnake Southwestern Grill appeals to families, young professionals and more mature markets. While being a popular fun place to bring the children, the Rattlesnake still enjoys very strong beverage/bar sales. Simply put, the Rattlesnake is a great place for the 25 to 35 year old market to gather for a good time alongside of the family market, a highly unusual circumstance. We believe that the fun should begin even before our guests are seated. Rattlesnake is the only restaurant chain we know of to employ a staff of professional magicians to entertain guests waiting for tables. The Rattlesnake Southwestern Grill is truly a new direction for the restaurant industry in its design, operation and expansion strategy. 2-3 49 THE RATTLESNAKE HOLDING COMPANY, INC. 1995 ANNUAL REPORT ------------------------- [PHOTO] A NEW DIRECTION IN EXPANSION STRATEGIES...We asked ourselves "How do we attain the most dramatic results in speed of expansion, visual impact, cost containment and return on invested capital?" We wondered why most major casual theme dining concepts needed to invest millions of dollars in new locations to attain an average sales to investment ratio of 2:1. We knew we could do better because as entrepreneurs we had done so. The competitive... [PHOTO] The architectural and decorative Southwestern theme of Rattlesnake creates a stimulating environment that offers not only high quality food and attentive service, but also a sense of superior value and satisfaction to the guest. 50 [2-PHOTOS] One of the attributes of Rattlesnake Southwestern Grill's formula is the low start-up cost for new restaurants. We take existing restaurant buildings and tailor them to fit our image. The result is a dramatic contemporary restaurant comparable in presentation to other major national theme restaurants. ...economic environment of the nineties set the tone for Rattlesnake's expansion strategy. Waste and overspending were a thing of the past. Stategic planning through the study of past mistakes and the experiences of others would lead to a new direction in the nineties and beyond. Rattlesnake's formula evolved through the study of the most positive and innovative aspects of successful restaurant companies. We also took a balanced look at the wasteful, questionable, even high risk practices which exist in the industry and incorporated the lessons learned into our plan. The Rattlesnake strategy is founded upon these priciples: (1) ACQUIRE EXISTING RESTAURANTS. Rather than directly compete in the current feeding frenzy for prime restaurant locations, Rattlesnake has adopted the strategy of acquiring pre-existing locations and converting them into Rattlesnake Southwestern Grills. Through flexible application of cosmetic rather than structural change, Rattlesnake conversions have been rapid and low cost. The logic is that these restaurants are good, prefitted sites and become available for any number of reasons other than a poor location. Most often the operator is retiring or was not prepared for the rigors and demands of the business. Hence, they choose to move on. These locations don't usually appeal to major companies who prefer raw ground, slab sites, mall locations and large development properties. Our site selection process is based upon acquiring "B" level sites in "A" level locales to create new restaurants at lower cost. The fact is, that over 80% of the nation's restaurants are independent operations and represent an extraordinary source of new sites for retrofit. (2) USE EXISTING RESOURCES. There are considerable costs associated with the industry practice of fitting out a restaurant from the ground up, or "gutting" and rebuilding a facility. By acquiring existing restaurant properties, the basic and most costly elements are already in place, such as kitchen, bathrooms, tiles, heating and air conditioning, kitchen ventilation systems, sufficient electrical power, adequate plumbing and drainage. 4-5 51 THE RATTLESNAKE HOLDING COMPANY, INC. 1995 ANNUAL REPORT ------------------------- In addition the added benefits of a site having operated as a restaurant shortens or eliminates obstacles in the permitting process. Local planning, zoning and building departments have already granted permits for a restaurant use. Liquor permits are in place and the property conforms with environmental requirements. These elements shorten the time and reduce the cost associated with the conversion and opening within six to eight weeks as opposed to eight to twelve months for major competitors. (3) REMAIN FLEXIBLE. Rather than waste time or money in making a "square peg fit into a round hole," Rattlesnake's approach to fabricate a less costly "peg" to fit into the pre-existing and more costly "hole." While certain elements of the Rattlesnake are essential to the concept, such as the custom mosaic rattlesnake bar and menu, these too are adapted and adjusted to fit into the individual environment of each new facility. (4) THE ECONOMIC MODEL MUST WORK. In evaluating a location there is a quantitative and qualitative examination which must be passed before acceptance. Demographics, density of population, household income, traffic patterns, local demand generators, etc., are evaluated. These factors are weighted against the cost of acquisition, renovation, equipment, and pre-opening soft costs. Our goal is to achieve a 4:1 sales to investment ratio and a completed restaurant at a cost of under $100 per square foot. We believe that the key to the success of any small company is in the experience of its senior management. William J. Opper, a 25-year veteran of the restaurant industry, has served as Chairman of the Board and Chief Executive Officer of the Company since its inception. Previously the principal owner of eight full service restaurants, he has also served as President of each of Rattlesnake's subsidiaries since June 1992. As co-founder of the Company, Mr. Opper has spearheaded the concept development with a vision of what the Rattlesnake should be. David C. Sederholt, having owned his own restaurant in New York City for eleven years, and serving in senior management for other companies, has served as the President of the Company since March 1994, and has been Chief Operating Officer of the Corporation and its subsidiaries since their inception. Mr. Sederholt and Mr. Opper developed the Rattlesnake concept in 1991, with Mr. Sederholt being responsible for the creation and development of the menu and operating systems as well as establishing a market identity for the concept. Peter C. Markatos joined the Company in 1993 as Executive Vice President in charge of Operations, and new store development, after merging his long successful restaurant in Yorktown Heights, NY with the Rattlesnake. His expertise in real estate, construction and restaurant operations ensure successful roll-out of the concept within our expansion criteria. 52 [PHOTO] [PHOTO] Rattlesnake Southwestern Grill is a popular choice for families, couples, singles, large parties... and just about anyone with an appetite for savory American foods with a southwestern flavor. [PHOTO] Since its inception, Rattlesnake Southwestern Grills have been guided by a vision of what casual dining could be and should be. At Rattlesnake restaurants, there is the belief that casual dining should provide the highest levels of comfort and quality while offering exceptional value. Rattlesnake offers an excellent, unique alternative to the dining public. 53 THE RATTLESNAKE HOLDING COMPANY, INC. 1995 ANNUAL REPORT ------------------------- FREQUENTLY ASKED QUESTIONS...In our extensive travels throughout the U.S., Canada and Europe, we were asked many questions by investors and shareholders. We'd like to answer some of those most often asked questions as they may be on your mind as well... Q. DO YOU PLAN TO OFFER FRANCHISES? A. We will consider franchising after we reach approximately twenty Company-owned restaurants. Our evaluation of franchising opportunities will take place only after we have refined our concept and tightened our operating formula. Q. WHAT IS RATTLESNAKE'S MANAGEMENT GOAL FOR RESTAURANT UNIT PROFITS? A. Restaurant cash flow, or EBIT/DA, is defined as gross restaurant sales minus restaurant expenses (cost of food and beverages, payroll and benefits, occupancy costs and related expenses). Our goal is to achieve an average cash flow to revenue ratio of 15% at the unit level. Continuing our expansion strategy of low cost acquisition and renovation will contribute to profitability by decreasing depreciation and amorization expenses. Q. ARE YOU MAKING PROGRESS TOWARD ATTAINING CORPORATE PROFITABILITY? A. Yes. Of course, building the infrastructure of our Company, as we have frequently pointed out, requires considerable investment. Our goal from the outset has been to build Rattlesnake into a large publicly held casual dining, theme restaurant chain. Importantly, we have not sacrificed this growth goal to try to attain short term profitability. Also noteworthy is the restructuring and reduction of $1.8 million in subordinated debt, which took place shortly after the IPO. Q. DO YOUR RESTAURANT MANAGERS GET INCENTIVES? A. Yes. Restaurant General Managers can earn up to 6% of their units, EBIT/DA. Profits and performance evaluations determine the full extent of the bonus. Q. DO YOU HAVE A TRAINING FACILITY? A. Yes. At our Hamden, Connecticut restaurant, we have, in conjunction with the existing restaurant operation, established a training facility. We expect the training function to become increasingly important as our rate of new restaurant openings accelerates. We have, incidentally, renegotiated our lease at Hamden, obtaining a considerable reduction in our rent. Furthermore, we are using the Hamden unit as a base for off-premise catering. 54 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Management's Discussion and Analysis The following discussion of the results of operations and financial condition should be read in conjunction with the Company's audited consolidated financial statements and notes thereto. Introduction Rattlesnake Holding Company. Inc., is the parent corporation of six subsidiary companies operating at individual restaurant locations, utilizing the unique Rattlesnake Southwestern Grill concept. The following table identifies the six operating locations and the date operations commenced at each of those locations: Operations Commencement Restaurant Locations Date - -------------------- ---- Danbury, Connecticut August 1995 White Plains, New York June 1995 Fairfield, Connecticut July 1994 Yorktown Heights, New York April 1994 Hamden, Connecticut December 1993 South Norwalk, Connecticut June 1992 In its three years of operation, the Company has endeavored to establish the foundation for future growth by opening six restaurants in clustered segments in Connecticut, New York and New Jersey. To support its expansion strategy, the Company has increased the size of its corporate staff and successfully completed the Public Offering of its common stock on June 29, 1995. The Public Offering generated net proceeds of $6,578,334, after deducting underwriters fees and expenses and other costs, for the purpose of expansion, increased marketing efforts and extinguishment of debt. The Company has succeeded in achieving the initial phase of its expansion strategy by opening three additional restaurants in fiscal 1995. The Company is proceeding with the opening of a new restaurant in Flemington, New Jersey scheduled for November 1995. The first of the three restaurants opened in 1995 was in Fairfield, Connecticut. The Company took over the renovation in May 1994 and commenced operations six weeks later on July, 1994. The 5,520 square foot White Plains restaurant opened on June 10, 1995, six weeks after the Company took possession of the property. The complete cost of this location's renovation, leasehold improvements, equipment, furniture and fixtures was approximately $200,000 exclusive of lease acquisition costs. Danbury, a 7,152 square foot former Howard Johnson's, was completely converted into a Rattlesnake Southwestern Grill within an eight week period after receiving the Public Offering proceeds. The Company's strategy of aggressive growth, utilizing a low cost restaurant concept adaptable to different leasehold configurations in a short construction timetable, has been accomplished consistently for the existing properties. The Company has been able to identify numerous sites for potential development over the next fiscal year; however, there can be no assurance that in the future the Company will be able to continue to identify suitable locations or open new restaurants on a consistent basis within the historical time frames or cost levels. As is traditional with the opening of new restaurant sites, the start up period of 90 to 120 days reflects cost ratios at higher than normal operating levels. The Company requires the presence of a training team consisting of seasoned employees from the other restaurants during the startup period to train inexperienced personnel. In addition, this lack of experience results in higher food and beverage costs until the staff becomes expert in the use of Company recipes and procedures. The Company's new restaurants can be expected to incur above normal costs during the first three to four months of operation due to the above mentioned factors. Achieving optimum performance as a mature restaurant may require between twelve and twenty-four months. As projected, the Company has progressively increased its corporate staff and marketing efforts as integral components of its expansion program. These increases have resulted in higher general and administrative expenses for fiscal 1995. For example, the Company has added positions in administration, accounting and operations to react to the growth and in anticipation of the projected expansion. In order to accommodate the growth in personnel, the Company added additional office space. The Company has made further investments in its computer systems to improve its point of sales and restaurant operations information systems. The Company has also significantly increased its promotional expenditures to support its new restaurant locations and has expanded its marketing personnel. The Company's restaurants have achieved market acceptance, with the continued exception of the Hamden location which continues to perform below projected levels despite continued efforts to achieve profitable operations. As part of its efforts to improve the operational performance of the Hamden facility, the Company continues to pursue its strategy to develop the facility into a center for off-premise catering. Plans to utilize the unit as a central commissary will parallel the development of the off-premise catering program in order to achieve the economies afforded through cross utilization. Restaurant managers at the new locations receive training at the Hamden facility and proposals have been presented for the Company to provide vocational training under governmental grants. Management will continue to evaluate the operating performance of Hamden on an on-going basis throughout fiscal year 1996. 55 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Effective June 30, 1994, the Company adopted a fiscal year end of June 30. Previously, the year-end of the Company and its subsidiaries was December 31. Fiscal year ended June 30, 1995 as compared with fiscal year ended June 30, 1994 GENERAL DISCUSSION Gross restaurant sales increased 231% to $5,340,657 for the fiscal year ended June 30, 1995 from $1,613,535 for the six months ended June 30, 1994. The increase in gross restaurant sales resulted from the increase in the number of restaurants operating during the period. On the restaurant store level, operating earnings before interest, taxes, depreciation and amortization (EBIT/DA) increased to $510,602 for fiscal year ended June 30, 1995, from $196,402 for the six months ended June 30, 1994. For the fiscal year ended June 30, 1995, the Company generated a net loss of $2,758,371 as compared to a net loss of $906,494 for the six months ended June 30, 1994, an increase of $1,851,877 or 204%. The increased net loss was principally attributable to several factors including a $527,938 increase in the amortization of debt issuance costs and a $194,202 increase in interest expense, related to debt issued during fiscal 1995. Additionally, selling, general and administrative expenses for the fiscal year increased by $1,193,857 and is principally attributable to investments in preparation for the implementation of the Company's expansion strategy through an increase in corporate staff, increased advertising and marketing expenditures, as well as other expenses associated with opening new restaurants. Restaurant operating profits, defined as excess of restaurant sales over restaurant costs and expenses, were $119,516 for the fiscal year ended June 30, 1995, as compared with $53,247 for the six months ended June 30, 1994. This increase was principally attributable to the continued expansion of the Company and maturity of certain restaurant locations, offset by lower operating results for newly opened restaurants. Of the Company's more mature units, only the Hamden location continues to generate operating losses. During fiscal 1995, the Company opened two new restaurants (Fairfield, July 1994 and White Plains, June 1995) and had one restaurant reach its first anniversary of operation (Yorktown, April 1994). As is traditional with the opening of new restaurant sites, the start up period of 90 to 120 days reflects cost ratios at higher than normal operating levels. The lack of experience of the new personnel, results in higher food and beverage costs until the staff becomes expert in the use of Company recipes and procedures. Additionally, promotional expenditures typically are higher than normal during the initial period of a restaurant opening. The Company's new restaurants can be expected to incur above normal costs during the first three to four months of operation due to the above mentioned factors. Achieving optimum performance as a mature restaurant takes a minimum of twelve months. Additionally, management believes that individual restaurant site sales should improve prospectively as market acceptance for new restaurants generally range between 18 to 24 months. RESTAURANT SALES Gross restaurant sales increased 231% to $5,340,657 for the fiscal year ended June 30, 1995 from $1,613,535 for the six months ended June 30, 1994. The increase in restaurant sales resulted from the increase in the number of restaurants operating during the fiscal 1995 period. At June 30, 1994, the Company operated three restaurants, as compared to the five restaurants operated at June 30, 1995. FOOD AND BEVERAGE COSTS Food and beverage costs remained relatively constant as a percentage of gross restaurant sales at 32.2% in fiscal year ended June 30, 1995 as compared to 32.1% for the six months ended June 30, 1994, despite the opening of three facilities in fiscal year 1995 and the typically higher costs associated with new facilities. The cost of food and beverage sales increased to $1,719,457 for the fiscal year ended June 30, 1995, as compared with $517,613 for the six months ended June 30, 1994. The stability of the food and beverage cost rates was attributable to enhanced controls, revised recipes, improved inventory utilization, increased purchasing efficiencies and improved training methods, despite increases in the cost of beef, fish and produce in fiscal 1995. RESTAURANT SALARIES AND FRINGE BENEFITS Restaurant salaries and fringe benefits, which consist of direct salaries of restaurant managers, hourly employee wages and related fringe benefits, increased to $1,804,129 for the fiscal year ended June 30, 1995 as compared to $541,803 for the six months ended June 30, 1994. This increase is attributable to the opening of additional restaurants during fiscal 1995. As a percentage of restaurant sales, these costs increased to 33.8% in fiscal 1995 from 33.6% in fiscal 1994, principally due to additional restaurant management and operating personnel in newly opened restaurants. The Company believes that the management component of restaurant salaries should moderate in the future, as existing restaurant supervisory personnel can manage the anticipated growth in restaurants in fiscal 1996. Occupancy and Related Expenses Occupancy and other related expenses, which include linen, repairs, maintenance, utilities, rent, insurance and other occupancy related expenses, increased to $1,306,469 for the fiscal year ended June 30, 1995 from $357,717 for the six months ended June 30, 1994. As a percentage of gross restaurant sales, these costs increased to 24.5% in fiscal 1995 from 22.2% in fiscal 1994. The increase can be attributed primarily to rents paid for additional restaurants opened during 1995 and those operating the full fiscal year. Company management estimates that its occupancy cost ratios should moderate in future periods, as a result of continued modification of the Rattlesnake Southwestern Grill restaurant concept and improved site selection. DEPRECIATION AND AMORTIZATION EXPENSE Depreciation and amortization expenses, including the amortization of pre-opening store expenses, decreased as a percentage of gross restaurant sales to 7.3% for the fiscal 10 - 11 56 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES LIQUIDITY Prior to the completion on June 29, 1995 of an initial public offering of 1,495,000 shares of common stock, the Company had financed the opening of additional restaurants and its initial operating losses principally through the private placement of a $1,800,000 unit offering, consisting of 9% subordinated notes and 105,768 shares of common stock. The subordinated notes matured one year from the date of issuance, subject to a 180 day extension period exercisable at the option of the Company. The subordinated notes bore interest at 9%, commencing on the date of issue, increasing to 11% for the 180 day extension period, with all interest and principal payable at the maturity of the subordinated notes. The notes originally matured at various dates from November 1994 through September 1995. The Company subsequently exercised its option to extend the maturity dates. During December 1994 and January 1995, the Company received $500,000 in proceeds from a new unit offering, each unit consisting of a $20,000 principal amount six-month 12% convertible subordinated note and 3,650 common stock purchase warrants exercisable at $11.80 per share until March 1997 (the "Units"). The due date of these notes was extended for six months in consideration of a reduction of the conversion price and warrant exercise price to $4.00 and $4.50, respectively, and an increase in the number of warrants per Unit to 7,300. On April 5, 1995, the Company entered into an agreement to continue its participation in a discounted meal program in exchange for $100,000 in temporary financing. During May and June 1995, the Company sold to four investors an aggregate $510,000 principal amount of 12% convertible promissory notes, which were automatically converted into shares of common stock at the rate of $4.00 per share on June 29, 1995. Additional financing sources included financing provided by the sellers of restaurant locations and temporary short-term financing, which was principally provided by related parties. On June 29, 1995, the Company completed an initial public offering of 1,300,000 shares of its common stock and 195,000 additional shares pursuant to the exercise of the over-allotment option by the Underwriter at $5.50 per share. The net proceeds of the offering, after deducting underwriters' commissions and fees of $986,700 and offering costs of $657,466, was $6,578,334. The proceeds of the offering were received on July 7, 1995. In July 1995, the Company redeemed $225,000 of the notes and restructured the remaining principal amount outstanding of $1,575,000. This redemption was partially funded by a $50,000 note payable issued in June 1995 by the Company, with interest at 9%, and repaid in July 1995, together with 10,000 shares of common stock. Each $25,000 principal amount of Notes was exchanged as follows: (i) $8,334 paid in August and September 1995 (the "First Payment") (aggregating $516,667); and (ii) a 9% $8,333 Series A Note (the Series A Notes) due 13 months after the first payment and a 9% $8,333 Series B Note (the Series B Notes) due five years after the first payment were issued to each Noteholder with the First Payment. Each Series B Note is convertible into common stock thirteen months after issuance at a conversion price equal to $3.85 per share, with piggy-back registration rights for the shares underlying the Series B Notes. Each Series B Note is redeemable with 30 days prior written notice at any time after the closing bid price of the common stock is 150% of the conversion price for the ten consecutive trading days ending within 15 days of the date of notice of redemption. In July 1994, a $50,000 note payable to a related party was exchanged, together with accrued interest for a $52,500 note payable bearing interest at 9%, and was satisfied in August 1995. The Company's cash position increased by $2,914 during the year ended June 30, 1995, principally as a result of cash used in operating activities of $85,876 and cash used in investing activities of $464,690, offset by cash generated from financing activities of $555,480. Net cash used in operating activities consisting primarily of the $2,758,371 net loss for the year, offset by depreciation and amortization of $1,420,314 and increases in accounts payable and accrued expenses. The Company utilized $464,690 for investing activities, principally for capital expenditures and lease acquisition costs. The Company generated $555,480 in cash from financing activities during the year ended June 30, 1995, principally consisting of additional debt financings. In January 1995, the Company entered into an agreement to purchase the lease of a new facility located in Danbury, Connecticut for $35,000 which was paid upon consummation of the lease purchase agreement. The Company incurred additional costs associated with this location approximating $500,000 which were paid primarily from the proceeds of the IPO. In April 1995, the Company purchased certain leasehold assets of a new facility located in White Plains, New York for $500,000, of which $30,000 was paid on signing of the contract, $50,000 was paid on closing and $120,000 was paid from the proceeds of the IPO. The Company has also entered into a 15 year lease with an initial monthly rent of $7,500 plus insurance, taxes and maintenance. In September 1995, the Company entered into an asset purchase agreement under which it will acquire furniture, fixtures and other assets of a restaurant located in Flemington, New Jersey for $365,000, consisting of $265,000 in cash and a $100,000 five year note, bearing interest at prime plus 1%. The Company also entered into a related seven year lease agreement for this property, with minimal annual rentals of $80,400, with contingent rental provisions based upon a percentage of gross sales. 57 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES At June 30, 1995, the Company has available a net operating loss carryforward (NOL) for Federal and State income tax purposes of approximately $4,200,000, which are available to offset future taxable income, if any, before 2010. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, a change in more than 50% in the beneficial ownership of the Company within a three-year period (an "Ownership Change"), will place an annual limit on the Company's ability to utilize its existing NOL carryforwards to offset taxable income in current and future periods. The Company believes that an ownership change has occurred and will cause the annual limitations to apply. The Company has not determined what the maximum annual amount of taxable income is that can be reduced by the NOL carryforwards. The Company initially utilized the proceeds from its June 1995 initial public offering of common stock to pay approximately $750,000 of the restricted 9% subordinated notes, $200,000 relating to the acquisition of the White Plains, New York facility, $265,000 relating to the acquisition of the Flemington, New Jersey facility and to satisfy short-term indebtedness, principally payable to related parties. The Company estimates that it will expend approximately $2,000,000 in the development of six additional Rattlesnake Southwestern Grill restaurants in fiscal 1996. Additionally, the Company anticipates significantly increased expenditures in marketing, advertising and promotional programs. Future debt service requirements include the potential payment of $500,000 if the 12% promissory notes are not converted into common stock by December 1995 and approximately $600,000 of the 9% subordinated notes in 1996. The Company may consider entering into joint ventures for restaurants, whereby the Rattlesnake Southwestern Grill concept will be implemented in locations where the joint venture would provide a portion of the financing for the new facility. The Company also has an option to purchase the building housing the Fairfield facility for $425,000, of which $125,000 must be paid upon the exercise of the option, and has an option to purchase the building at the Danbury facility for $1,365,000. The Company is currently negotiating with several financial institutions to establish a credit line facility. The Company believes that the combination of the proceeds of the Public Offering and improved operating results will provide sufficient liquidity to fund current operations and debt service requirements, as well as implementing the Company's expansion plan in fiscal 1996. SEASONALITY AND EXTERNAL INFLUENCES ON QUARTERLY RESULTS The Company's sales and earnings fluctuate seasonally. Historically, the Company's highest sales levels are in the quarters ending June 30 and September 30. In addition, quarterly results have been and, in the future are likely to be, substantially affected by the timing of new restaurant openings. Because of the seasonality of the Company's business and the impact of new restaurant openings, results for any quarter are not necessarily indicative of the results that may be achieved for a full fiscal year and cannot be used to indicate financial performance for the entire year. EFFECTS OF INFLATION AND CHANGING PRICES The impact of general inflation in the Company's operations has not been significant to date and the Company believes inflation will continue to have an insignificant impact on the Company. 12 - 13 58 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets
June 30, -------- 1995 1994 ---- ---- Assets Current assets: Cash $ 28,316 $ 25,402 Accounts receivable 27,138 16,426 IPO receivable 7,260,800 -- Inventory 91,334 73,437 Pre-opening costs 18,081 37,515 Debt issuance costs 72,114 802,230 Prepaid expenses and other current assets 9,555 16,891 ------------ ---------- Total current assets 7,507,338 971,951 Property and equipment, net 1,082,873 969,583 Intangible assets, net 1,499,478 1,079,510 Other assets 203,538 62,932 ------------ ---------- $ 10,293,227 $ 3,083,976 ------------ ---------- Liabilities and Stockholders' Equity Current liabilities: Current maturities of notes payable 1,530,572 1,661,958 Accounts payable 754,186 253,406 Accrued expenses 805,422 127,988 Other current liabilities 350,542 147,999 ------------ ---------- Total current liabilities 3,440,722 2,191,351 Notes payable, net of current maturities 1,768,301 465,107 ------------ ---------- Total liabilities 5,209,023 2,656,458 ------------ ---------- Stockholders' equity: Preferred stock, $.10 par value, 5,000,000 shares authorized, none issued and outstanding -- -- Common stock, $.001 par value- 20,000,000 shares authorized, 2,558,565 and 905,493 issued and outstanding, in 1995 and 1994, respectively 2,559 905 Additional paid-in capital 9,279,649 1,866,246 Accumulated deficit (4,198,004) (1,439,633) ------------ ---------- 5,084,204 427,518 ------------ ---------- Commitments and contingencies $ 10,293,227 $ 3,083,976 ------------ ----------
See accompanying notes to consolidated financial statements. 59 Consolidated Statements of Operations
Six months Year ended ending Year ended June 30, June 30, December 31, 1995 1994 1993 ----------- ----------- ----------- Restaurant sales $ 5,340,657 $ 1,613,535 $ 1,337,042 Costs and expenses: Cost of food and beverage sales 1,719,457 517,613 489,051 Restaurant salaries and fringe benefits 1,804,129 541,803 383,455 Occupancy and related expenses 1,306,469 357,717 174,654 Depreciation and amortization expense 391,286 143,155 73,528 ----------- ----------- ----------- Total restaurant costs and expenses 5,221,341 1,560,288 1,120,688 Selling, general and administrative 1,583,458 389,601 434,310 Amortization of debt issuance costs 1,027,751 499,813 90,655 Interest expense 264,279 70,077 41,341 Miscellaneous expenses 2,199 250 9,766 ----------- ----------- ----------- Total expenses 8,099,028 2,520,029 1,696,760 ----------- ----------- ----------- Net loss $(2,758,371) $ (906,494) $ (359,718) ----------- ----------- ----------- Net loss per share $ (2.46) $ (0.84) $ (0.21) ----------- ----------- ----------- Weighted average number of common and common equivalent shares outstanding 1,122,678 1,074,513 1,704,513 ----------- ----------- -----------
See accompanying notes to consolidated financial statements. 14 - 15 60 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows
Six months Year ended ending Year ended June 30, June 30, December 31, 1995 1994 1993 ------------ ---------- ---------- Cash flows from operating activities: Net loss $(2,758,371) $(906,494) $(359,718) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 1,420,314 638,306 164,183 Stock issued for services provided -- -- 20,000 Issuance of stock in connection with debt restructuring 55,000 -- -- Changes in assets and liabilities, net of acquisition: Increase in accounts receivable (10,712) (11,637) (1,461) Increase in inventory (17,897) (41,016) (14,394) (Increase) decrease in prepaids and other assets (31,445) (7,099) 5,093 Increase in pre-opening cost (21,697) (12,379) (72,971) Increase in accounts payable and accrued expenses 1,178,214 231,580 20,549 Increase in other current liabilities 100,718 63,561 9,818 ------------ ---------- ---------- Net cash used in operating activities (85,876) (45,178) (228,901) ------------ ---------- ---------- Cash flows from investing activities: Capital expenditures (314,242) (446,623) (340,094) Payments for acquisitions of leaseholds and lease costs (150,448) (105,000) (100,000) Payments for acquisition, net of cash acquired -- (94,038) -- ------------ ---------- ---------- Net cash used in investing activities (464,690) (645,661) (440,094) ------------ ---------- ---------- Cash flows from financing activities: Net proceeds from issuance of stock -- 25,000 75,000 Payments for purchases of treasury stock -- -- (30,000) Proceeds from issuance of convertible notes 510,000 -- -- Net proceeds from private placement 383,263 532,686 709,026 Proceeds from borrowings 484,250 255,000 247,330 Principal repayment of borrowings (141,567) (208,083) (233,044) IPO costs (682,466) -- -- ------------ ---------- ---------- Net cash provided by financing activities 553,480 604,603 768,312 ------------ ---------- ---------- Net increase (decrease) in cash 2,914 (86,236) 99,317 Cash, beginning of period 25,402 111,638 12,321 ------------ ---------- ---------- Cash, end of period $ 28,316 $ 25,402 $ 111,638 ------------ ---------- ---------- Cash paid during the period for: Interest $ 57,686 $ 10,086 $ 32,352 ------------ ---------- ---------- Income taxes $ 2,199 $ 750 $ 250 ------------ ---------- ----------
See accompanying notes to consolidated financial statements. 61 Consolidated Statements of Stockholders' Equity Year ended June 30, 1995, six months ended June 30, 1994 and year ended December 31, 1993
Addi- Total tional Accum- stock- Common Common paid-in Treasury ulated holders shares stock capital stock Deficit equity --------- -------- ----------- ------- ------------ ----------- Balance, December 31, 1992 721,702 $ 722 $ 69,278 $ -- $(173,421) $(103,421) Purchase of treasury stock -- -- -- (25,000) -- (25,000) Proceeds received from issuance of common stock and sale of treasury stock -- -- 40,625 9,375 -- 50,000 Issuance of treasury stock for services -- -- 16,875 3,125 -- 20,000 Issuance of stock in connection with acquisition of leaseholds -- -- 311,700 12,500 -- 324,200 Proceeds received from issuance of common stock 4,452 4 24,996 -- -- 25,000 Net proceeds received from issuance of common stock in connection with private placement 130,120 130 638,669 -- -- 638,799 Net loss -- -- -- -- (359,718) (359,718) --------- -------- ----------- ------- ------------ ----------- Balance, December 31, 1993 856,274 856 1,102,143 -- (533,139) 569,860 Issuance of stock in connection with acquisition of leaseholds 12,466 12 150,488 -- -- 150,500 Proceeds received from issuance of common stock 2,226 2 24,998 -- -- 25,000 Net proceeds received from issuance of common stock in connection with private placement 34,527 35 588,617 -- -- 588,652 Net loss -- -- -- -- (906,494) (906,494) --------- -------- ----------- ------- ------------ ----------- Balance, June 30, 1994 905,493 905 1,866,246 -- (1,439,633) 427,518 Issuance of stock in connection with refinancing of debt 10,000 10 54,990 -- -- 55,000 Net proceeds received from Initial Public Offering 1,495,000 1,495 6,576,839 -- -- 6,578,334 Net proceeds received from issuance of common stock in connection with private placement 20,570 21 253,452 -- -- 253,473 Conversion of debt to equity 127,500 128 509,872 -- -- 510,000 Issuance of warrants in connection with private placement of debt -- -- 18,250 -- -- 18,250 Net loss -- -- -- -- (2,758,371) (2,758,371) --------- -------- ----------- ------- ------------ ----------- Balance, June 30, 1995 2,558,563 $ 2,559 $ 9,279,649 $ -- $(4,198,004) $ 5,084,204 --------- -------- ----------- ------- ------------ -----------
See accompanying notes to consolidated financial statements. 16 - 17 62 Notes to Consolidated Financial Statements June 30, 1995, June 30, 1994 and December 31, 1993 1. ORGANIZATION AND DESCRIPTION OF BUSINESS (a) Description of Business The Rattlesnake Holding Company, Inc. and subsidiaries (the Company), currently operates six restaurants in White Plains and Yorktown Heights, New York and Hamden, Fairfield, South Norwalk, and Danbury, Connecticut and plans to open two additional restaurants in 1995. Company restaurants feature casual dining utilizing a southwestern theme. (b) Organization On August 31, 1993, the Company entered into a merger agreement with Rattlesnake Ventures. Inc. (Ventures), in which the shareholders of Ventures exchanged each share of Ventures common stock for 40,525 shares of $0.01 par value common stock of the Company. Ventures was established on March 15, 1992 for purposes of operating a Rattlesnake restaurant in South Norwalk, Connecticut. The transaction has been accounted for in a manner similar to a pooling of interests and the accompanying consolidated financial statements are presented as if the merger was effective March 15, 1992. In December 1994, an amendment to the Company's Certificate of Incorporation was approved and adopted to (i) effect a 1:2.8077 reverse split of the Company's common stock (ii) change the par value of the Company's common stock from $.01 to $.001 per share (iii) increase the authorized capital stock of the Company to 20,000,000 shares of $.001 par value common stock and 5,000,000 shares of $0.10 par value preferred stock, and (iv) change the Company's fiscal year end from December 31st to June 30th. In March 1995, an additional reverse common stock split of 1:2 was approved by the Company's Board of Directors. All references in the accompanying consolidated financial statements and notes thereto relating to share and per share data have been adjusted retroactively to reflect the stock splits. On June 29, 1995, the Company completed an initial public offering (IPO) of 1,300,000 shares of its common stock and 195,000 additional shares pursuant to the exercise of the over-allotment option by the underwriter at $5.50 per share, The net proceeds of the offering, after deducting underwriters' commissions and fees of $986,700 and offering costs of $657,466, was $6,578,334. The proceeds from this offering will be used for working capital, marketing, and advertising, the implementation of the Company's expansion strategy and to repay subordinated debt (note 8). The underwriter received warrants to purchase 130,000 shares of common stock at a price of 120% of the offering price for a term of four years commencing from the date of the offering. Upon the closing of the offering, the Company executed a three year consulting agreement, under which the underwriter will receive $30,000 annually for providing financial advisory and other consulting services. (c) Financing Arrangements The Company had previously financed its operations primarily through the private placement of a $1,800,000 unit offering, consisting of 9% subordinated notes and 105,768 shares of common stock, a $500,000 unit offering consisting of 12% convertible subordinated notes and 182,500 common stock purchase warrants and $510,000 of 12% subordinated notes, which were required to be converted into 127,500 shares of common stock upon the consummation of the IPO. Effective June 29, 1995 the Company completed an initial public offering, the conversion of the $510,000 subordinated notes and subsequently completed a restructuring of the $1,800,000 subordinated notes (Note 8). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation The consolidated financial statements included the accounts of the Company and its wholly-owned subsidiaries. The consolidated financial statements have been presented on a historical cost basis for the consolidated statements of operations. All significant inter-company balances and transactions have been eliminated in consolidation. (b) IPO Receivable On June 29, 1995, the Company completed an initial public offering of 1,495,000 shares of common stock. The proceeds of the offering, net of underwriters commissions and fees, was $7,260,800 and is recorded as IPO receivable at June 30, 1995. These proceeds were subsequently received on July 7, 1995. (c) Accounts Receivable Accounts receivable consist principally of bank credit card accounts receivable. (d) Inventories Inventories consist primarily of restaurant food items and supplies and are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. (e) Pre-Opening Costs Certain costs relating to hiring and training costs of opening new restaurants are capitalized and amortized over a twelve month period commencing upon restaurant opening. At June 30, 1995 and June 30, 1994, such costs amounted to $18,081 and $37,515, respectively. (f) Debt Issuance Costs Debt issuance costs are principally associated with the subordinated notes component of the Company's $1,800,000 unit offering, are capitalized and amortized ratably over the 63 initial one year term of the debt. Accumulated amortization at June 30, 1995 and June 30, 1994 was $1,609,083 and $590,468, respectively. Amortization expense was $1,018,625, $499,813 and $90,655 for the year ended June 30, 1995, the six month period ended June 30, 1994 and the year ended December 31, 1993, respectively. (g) Property and Equipment Property and equipment is stated at cost. Depreciation is calculated primarily on the straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life or the lease term of the related asset. The estimated useful lives are as follows: Restaurant equipment 5-7 years Furniture and fixtures 5-7 years Leasehold improvements 5-15 years (h) Intangible Assets Intangible assets consist principally of costs to acquire leased facilities. These leasehold costs are amortized over the life of the related lease, generally 5 to 15 years. Accumulated amortization at June 30, 1995 and June 30, 1994 was $194,939 and $44,459, respectively. Amortization expense was $150,480, $33,336 and $7,025 for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993, respectively. (i) Other Assets The Company utilizes an outside service to provide financing and promotional activities. The costs relating to these activities are capitalized and are being amortized over the repayment period. (j) Reclassification Certain reclassifications of prior period balances have been made to conform with the fiscal 1995 presentation. 3. Restaurant Acquisition In November 1993, the Company entered into an agreement to acquire 100% of the outstanding common stock of Pen-Z Corp. (Pen-Z). This transaction was completed in February 1994. Pen-Z operated a leased restaurant facility in Yorktown Heights, New York. Terms of the acquisition included $100,000 in cash, a $300,000 note payable and 36,084 shares of common stock. Based upon the results of an independent appraisal, the stock was valued at $324,200 at the time of issuance. The acquisition has been accounted for as a purchase transaction. Pursuant to the terms of this transaction, the Company entered into a lease agreement with a trust of the former 100% shareholder of Pen-Z to lease the facility for a ten year period, with a five year renewal option and acquired certain restaurant equipment from the trust for a $100,000 note payable. 4. Property and Equipment Property and equipment consists of the following:
June 30, -------- 1995 1994 ---------- --------- Restaurant equipment $ 458,006 $ 369,866 Furniture and fixtures 262,105 171,817 Leasehold improvements 700,462 564,648 ---------- --------- 1,420,573 1,106,331 Less accumulated depreciation and amortization (337,700) (136,748) ---------- --------- $1,082,873 $ 969,583 ---------- ---------
Related depreciation and amortization expenses were $200,592, $71,688 and $56,234 for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993. 5. Other Assets Other assets consist of the following:
June 30, 1995 1994 ---------- --------- Deposits $ 38,781 $ -- Promotional meal programs 164,757 62,932 ---------- --------- $ 203,538 $ 62,932 ---------- ---------
6. Capital Structure As more fully described in note 1(b), the Company entered into a merger agreement on August 31, 1993 and amended its Certificate of Incorporation in December 1994 to increase the authorized capital stock and effect a 1:2.8077 reverse stock split. In March 1995, an additional 1:2 reverse common stock split was approved by the Company's Board of Directors. To date, the Board of Directors has not declared any dividends on common stock. The Board of Directors has the authority to establish the specific provisions of the preferred stock, i.e., liquidation rights, dividend parameters, at the date of issuance. 64 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES 7. Notes Payable Notes payable consists of the following:
June 30, 1995 1994 ---------- --------- Subordinated notes payable due at various dates in fiscal 1995 and 1996, with interest at 9% (11% for the extension period) (including $175,000 held by a related party) $1,800,000 $1,400,000 Notes payable to a related party, due on demand with interest at 15% - 50,000 Note payable to related party, with interest of 9%, paid on August 17, 1995 52,500 - Note payable to related party, with interest of 12%, paid on December 21, 1994 - 20,000 Note payable to related party, with interest of 12% paid on January 12, 1995 - 10,000 Subordinated 12% convertible notes payable, net of $9.125 unamortized discount, due on December 10, 1995 490,875 - Note payable to shareholder relating to the acquisition of Pen-Z Corp., payable in monthly payments of $2,700 and $2,998 at June 30, 1995 and 1994 with interest at 1% over prime (9.50% and 8.75% at June 30, 1995 and June 30, 1994 respectively) through May 2009 294,186 299,189 Note payable relating to acquisition of leasehold, due in monthly installments of $1,500 through January 1996 with interest at 5% 11,223 29,549 Note payable for the purchase of furniture and equipment, due in monthly installments of $1,292 including interest at 21.6% through March 1996 10,701 21,112 Note payable relating to acquisition of leasehold, due in monthly installments of $1,436, including principal and interest at 8.5%, paid on July 18, 1995 38,660 51,155 Note payable to a related party, due in monthly installments of $2,076, including principal and interest at 9%, paid on July 21, 1995 43,522 58,686 Note payable to a related party, due in monthly installments of $1,270, including principal and interest at 18% through February 1998 32,081 40,681 Notes payable to a related party, due in monthly installments of $1,050, including principal and interest at 12%, paid on August 1, 1995 7,063 16,963 Note payable to a stockholder relating to purchase of furniture and equipment, due in monthly installments of $900 and $999 at June 30, 1995 and 1994, respectively, including principal and interest at prime plus 1% through 2009 98,063 99,730 Note payable relating to acquisition of leasehold, non-interest bearing, paid in August 1994 - 30,000 Note payable relating to acquisition of lease with interest of 8% due on June 30, 1995 and paid on July 14, 1995 120,000 - Note payable relating to acquisition of lease, due on monthly installments of $2,867, including principal and interest at 8% through July 2010. $300,000 - ---------- --------- 3,298,875 2,127,065 Less current maturities 1,530,572 1,661,953 ---------- --------- $1,768,301 $ 465,107 =========== =========
Notes payable to shareholders and other related parties (Company officers and directors) were $1,002,414 and $770,249 at June 30, 1995 and 1994, respectively. In July 1994, a $50,000 note payable to a related party was exchanged, together with accrued interest for a $52,500 note payable bearing interest at 9%, and was satisfied in August 1995. As indicated in note 8, the Company restructured the terms of the $1,800,000 subordinated notes payable in July 1995. At June 30, 1995, the classification of long-term debt reflects the restructured payment terms of the aforementioned debt, Maturities of these notes is as follows: June 30: 1996 $1,530,572 1997 577,279 1998 29,617 1999 22,016 2000 23,975 Thereafter 1,115,414 ---------- $3,298,873 ----------
65 8. Financing Arrangements Commencing in November 1993, the Company sold through a private placement a $1,800,000 unit offering, with each $25,000 unit consisting of 1,469 shares of common stock and a $25,000 subordinated note. The subordinated notes mature in one year from the date of issuance, subject to a 180 day extension period, exercisable at the option of the Company. The subordinated notes bear interest at 9%, commencing on the date of issue, increasing to 11% for the 180 day extension period, with all interest payable at the maturity of the subordinated notes. The underwriter of the private placement's compensation arrangement included the receipt of 82,367 shares of common stock and a 9.33% commission. The value of the common stock issued to the underwriter was determined by an independent appraisal, based upon the value of the stock at the various dates in which the units were sold, ranging between $7.40 and $12.46 per share. Debt issuance costs were calculated based upon the relative proportional value of the common stock and subordinated notes payable. At June 30, 1995 and June 30, 1994, the Company had outstanding $1,800,000 and $1,400,000, respectively, of the unit offering In July 1995, the Company redeemed $225,000 of the notes and restructured the remaining principle amount outstanding of $1,575,000. This redemption was partially funded by a $50,000 note payable issued in June 1995 by the Company, with interest at 9%, and repaid in July 1995, together with 10,000 shares of common stock, valued at the IPO price of $5.50 per share. The value of the common stock was recorded as interest expense by the Company. Each $25,000 principal amount of Notes was exchanged as follows: (i) $8,334 paid in August and September 1995 (the "First Payment"); and (ii) a 9% $8,333 Series A Note (the Series A Notes) due 13 months after the first payment, and a 9% $8,333 Series B Note (the Series B Notes) due five years after the first payment were issued to each Noteholder with the First Payment. Each Series B Note is convertible into common stock thirteen months after issuance at a conversion price equal to 70% of the initial public offering price of the common stock sold, with piggy-back registration rights for the shares underlying the Series B Notes. Each Series B Note is redeemable with 30 days prior written notice at any time after the closing bid price of the common stock is 150% of the conversion price for the ten consecutive trading days ending within 15 days of the date of notice of redemption. During December 1994 and January 1995, the Company received $500,000 in proceeds from a new unit offering, each unit consisting of a $20,000 principal amount six-month 12% convertible subordinated note and 3,650 common stock purchase warrants exercisable at $11.80 per share until March 1997 (the "Units"). The due date of these notes was extended to December 10, 1995 in consideration of a reduction of the conversion price and warrant exercise price to $4.00 and $4.50, respectively and an increase in the number of warrants per Unit to 7,300. The value of the warrants, $0.10 per share was determined by an independent appraisal and has been recorded as a debt discount and additional paid in capital. During May and June 1995, the Company sold $510,000 12% subordinated debt, automatically convertible into shares of Common Stock at the rate of $4.00 per share upon the effective date of the initial public offering. 9. Accrued Expenses and Other Liabilities (a) Accrued Expenses Accrued expenses consist of the following:
June 30, -------- 1995 1994 ---- ---- Other $227,370 $ 26,785 Interest payable 207,787 59,991 Professional fees 191,421 - Accrued payroll 178,844 41,212 -------- -------- $805,422 $127,988 -------- --------
(b) Other Liabilities The Company has entered into a marketing agreement whereby it receives temporary financing in exchange for participating in a discounted price meal program. At June 30, 1995 and June 30, 1994, the balances outstanding under this program were $350,542 and $147,999, which are guaranteed by certain officers and directors of the Company, and are included in other liabilities in the accompanying consolidated balance sheets. 10. Income Taxes In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes". SFAS 109 requires a change from the deferred method of accounting for income taxes of APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company adopted the provisions of SFAS 109 in 1992. There was no income tax expense for any period presented due to losses incurred by the Company. 20 - 21 66 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1995 and 1994 are presented below:
June 30, -------- 1995 1994 ---- ---- Deferred tax assets: Net operating loss carry forward $1,103,000 $589,000 ---------- -------- Total gross deferred tax assets 1,103,000 589,000 Less valuation allowance 1,013,000 578,000 ---------- -------- Net deferred tax assets 90,000 11,000 ---------- -------- Deferred tax liabilities: Depreciation and amortization 90,000 11,000 ---------- -------- Net deferred tax liability 90,000 11,000 ---------- -------- $ -- $ -- ---------- --------
The valuation allowance for deferred tax assets as of June 30, 1995 and June 30, 1994 was $1,013,108 and $578,000, respectively. The change in the total valuation allowance for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993 was $435,000, $359,000 and $219,000, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the net operating losses and temporary differences become deductible. Management considers projected future taxable income and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company will need to generate future taxable income of approximately $2,758,000. At June 30, 1995 and June 30, 1994, the Company has net operating loss carry forwards for Federal and State income tax purposes of approximately $4,200,000 and $1,400,000, respectively (the NOL carry forwards), which are available to offset future taxable income, if any, through 2010. Losses for income tax purposes for the year ended June 30, 1995, six month period ended June 30, 1994 and the year ended December 31, 1993 were approximately $2,758,000, $906,000, and $360,000 respectively. Based upon the limited operating history of the Company and losses incurred to date, management believes that the value of the deferred tax asset is impaired and has fully reserved the deferred tax asset. In accordance with Section 382 of the Internal Revenue Code of 1986, as amended, as it applies to the NOL carry forwards, a change in more than 50% in the beneficial ownership of the Company within a three-year period (an "Ownership Change") will place an annual limitation on the Company's ability to utilize its existing NOL carry forwards to offset United States Federal taxable income in future years. Generally, such limitation would be equal to the value of the Company as of the date of the Ownership Change multiplied by the Federal long-term tax exempt Interest rate, as published by the Internal Revenue Service. The Company believes that an Ownership Change has occurred due to changes in the beneficial ownership of the Company's Common Stock in the current three-year testing period immediately prior to the initial public offering and would cause the annual limitations as described above to apply. The Company has not determined what the maximum annual amount of taxable income is that can be reduced by the NOL carry forwards. 11. commitments and Contingent Liabilities Commitments The Company's operations are principally conducted in leased premises. Remaining lease terms range from 2 to 10 years. Certain leases contain contingent rental provisions based upon a percentage of gross sales. As of June 30, 1995, the Company has non-cancelable operating lease commitments as follows: 1996 $ 579,395 1997 511,571 1998 498,822 1999 438,735 2000 424,525 Thereafter 1,911,210 ---------- $4,364,716 ----------
Certain shareholders and directors have personally guaranteed lease payments for two locations, Contingent rental payments on building leases are typically made based on the percentage of gross sales on the individual restaurants that exceed predetermined levels. The percentage of gross sales to be paid and related gross sales level vary by unit. There were no contingent rental payments in any of the periods presented. Rent expense was $329,000, $109,000 and $58,000 for the periods ended June 30, 1995, June 30, 1994 and December 31, 1993, respectively. Pursuant to a restaurant lease agreement, the Company has an option to purchase the facility for $445,000 if executed prior to May 31, 1995 or $425,000 thereafter. Pursuant to the provisions of the purchase option, the Company would remit a $145,000 down payment and the remainder would be financed by the seller through a five year $300,000 note, bearing interest at a rate not to exceed 8.5%. Pursuant to a leasehold acquisition agreement, the Company paid $65,000 and issued a warrant to purchase 15,000 shares of the Company's common stock at an exercise price of $5.00 per share, exercisable until October 31, 1997. Pursuant to a restaurant lease agreement, the Company has the option to purchase a facility during the period January 1995 through January 2000 for a purchase price ranging between $1,365,000 to $1,580,000. In August 2, 1995, the Company executed an agreement with a public relations firm providing for annual compensation of $24,000 and an option to purchase 20,000 shares of the Company's common stock at a price of $5.50 per share, exercisable for a six year period. 67 The Company entered into an agreement with a financial advisory firm for a thirty six month period beginning in September 1995. The firm received $50,000 and warrants to purchase 50,000 shares of the Company's common stock, exercisable within five years at a price of $7.00 per share. 12.Employee Benefit Plans (a) Stock Option Plan In December 1994, the Company adopted the 1994 Employees Stock Option Plan (the Employees Plan), which provides for the issuance of incentive stock options (ISO's) and non-qualified options (Non-ISO's) to officers and key employees. Up to 1,000,000 shares of the Company's common stock have been reserved for issuance under the Plan. The Plan is currently administered by the Board of Directors of the Company. The term of the options is generally for a period of 5 years. The exercise price for non-qualified options outstanding under the Employees Plan can be no less than 100% of the fair market value, as defined, of the Company's common stock at the date of the grant. For ISO's, the exercise price can be generally no less than the fair market value of the Company's common stock at the date of the grant, with the exception of any employee who prior to the granting of the option, is a 10% or greater stockholder as defined, for which the exercise price can be no less than 110% of the fair market value of the Company's common stock at tho date of grant. In December 1994, the Company adopted the non-Executive Director Stock Option Plan (the Director Plan), which provides for the issuance of non-ISO's to non-executive directors, as defined, and members of any advisory board established by the Company who are not full-time employees of the Company. The Company has reserved 500,000 shares for issuance under the provisions of the Director Plan. The Director Plan provides that each non-executive director will automatically be granted an option to purchase 25,000 shares upon joining the Board of Directors and on each September 1st thereafter, provided such person has served as a director for the 12 months immediately prior to such September 1st. Similarly, each eligible director of an advisory board will receive options to purchase 15,000 shares upon joining the advisory board, and on each September 1st thereafter, an option to purchase 7,500 shares of the Company's common stock, providing such person has served as a director of the advisory for the previous 12 month period. The exercise price for options granted under the Director Plan shall be 100% of the fair market value of the Common Stock on the date of grant. Activity in non-ISO's was as follows:
Number Option Price of Shares per Share --------- --------- Options outstanding June 30, 1994 - $ -- Options Granted 672,000 4.50 Exercised Options - - --------- --------- Options outstanding June 30, 1995 672,000 $4.50 --------- ---------
Through June 30, 1995, the Company did not grant any ISO's. Options representing 100,000 shares are exercisable as of the date of grant and 114,400 annually thereafter. The Employees and Director Plans expire in December 2004, unless terminated earlier by the Board of Directors under conditions specified in the respective Plans. No Options have been exercised as of June 30, 1995. (b) Employment Agreements The Company and its Chairman, President and Executive Vice President (collectively, the Senior Management Group) entered into employment agreements in December 1994 for a period commencing in December 1994 through December 1997. The agreements provide for annual compensation for the Senior Management Group collectively of $250,000, increasing by 10% annually, plus certain other benefits. The agreements also provide for annual aggregate incentive compensation for the Senior Management Group based on consolidated pre-tax earnings of the Company, as defined, as follows:
Pre-tax earnings Percentage - ---------------- ---------- $0 - $1,000,000 10.0% $1,000,001 - 2,000,000 7.5% $2,000,001 and over 5.0%
The agreement also provides that upon a change in control, as defined, that all stock options held by the employee become immediately exercisable and that a credit equivalent to three times the employee's annual compensation be credited against the exercise price of the options. (c) Other Benefits The Company provides, on a contributory basis, medical benefits to active employees. The Company does not provide medical benefits to retirees. 13. Litigation The Company is a defendant in litigation arising from the normal course of its affairs. Management is of the opinion, pursuant to the advice of counsel, that settlement, if any, of the aforementioned litigation will not have a material adverse impact on the financial position or results of operation of the Company. 14. Earnings Per Share The Company has presented historical earnings per share information assuming the reverse stock split outlined in note 1(b) occurred on March 15, 1992. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin topic 4:D, stock and stock options granted during the 12-month period preceding the date of the Company's initial public offering (IPO) have been included in the calculation of weighted average common shares outstanding for periods prior to the IPO, including years where the impact of such 22 - 23 68 THE RATTLESNAKE HOLDING COMPANY, INC. AND SUBSIDIARIES incremental shares is anti-dilutive. The computation of weighted average common shares outstanding follows:
June 30, Dec. 31, 1994 1993 --------- --------- Weighted average common shares and equivalents outstanding, exclusive of issuance within 12 months prior to IPO 905,493 856,274 Shares issued within 12 months prior to the IPO assumed to be outstanding for the entire period 30,570 79,789 Incremental shares assumed to be outstanding relating to stock options granted within 12 months prior to IPO 67,200 67,200 Incremental shares assumed to be outstanding relating to warrants granted within 12 months of IPO 20,750 20,750 Incremental shares assumed to be outstanding relating to potentially dilutive securities issued within 12 months of IPO 50,500 50,500 --------- --------- Weighted average common shares and equivalent outstanding 1,074,513 1,074,513 --------- ---------
For the year ended June 30, 1995, weighted average common shares and equivalents outstanding are 1,122,678. The 12% percent convertible notes do not meet the criteria of a common stock equivalent, as its yield at the time of issuance is greater than the AA corporate bond yield. 15. Subsequent Events On September 12, 1995, the Company entered into an asset purchase agreement under which it will acquire furniture, fixtures and other assets of a restaurant located in Flemington, New Jersey for $365,000, consisting of $265,000 in cash and a $100,000 five year note, bearing interest at prime plus 1%. The Company also entered into a related seven year lease agreement for this property, with minimal annual rentals of $80,400, with contingent rental provisions based upon a percentage of gross sales. Independent Auditors' Report The Board of Directors and Stockholders The Rattlesnake Holding Company, Inc. We have audited the accompanying consolidated balance sheets of The Rattlesnake Holding Company, Inc. and subsidiaries as of June 30, 1995 and 1994 and the related consolidated statements of operations, stockholders' equity and cash flows for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993. These consolidated 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 generally accepted auditing standards. Those standards, require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Rattlesnake Holding Company, Inc. and subsidiaries as of June 30, 1995 and 1994, and the results of their operations and their cash flows for the year ended June 30, 1995, the six months ended June 30, 1994 and the year ended December 31, 1993 in conformity with generally, accepted accounting principles. Our report on the 1994 and 1993 financial statements contained an explanatory paragraph indicating that the Company financed its operations principally through the private placement of a $1,800,000 unit offering, consisting of 9% subordinated notes and 105,768 shares of common stock and a $500,000 unit offering consisting of 12% convertible subordinated notes and 182,500 common stock purchase warrants. The subordinated notes matured in various amounts during the period May 1995 through September 1995 and the convertible subordinated notes were to mature in various amounts during the period June 1995 through July 1995. In the opinion of management, the Company would not generate sufficient operating cash flow to repay the subordinated or convertible subordinated notes. The Company utilized a portion of the proceeds received from the June 29, 1995 initial public offering of 1,495,000 shares of common stock to partially repay the 9% subordinated notes and restructured the terms of the remaining outstanding indebtedness. [logo] KPMG Peat Marwick LLP /s/ KPMG Peat Marwick LLP September 27, 1995 Stamford, Connecticut 69 Rider to Lease dated January 18, 1995 by and between: RYMSBRAN CONTINENTAL CORP., D.I.P. as Landlord and Holy Cow Restaurant Associates, Inc. as Tenant attached hereto and made a part thereof. 40. A. Tenant covenants and agrees to pay annual base rent to Landlord at the following rates: 1. $120,000.00 annually for the two year period commencing February 1, 1995, through January 31, 1997, payable in equal monthly installments of $10,000.00; 2. $129,600.00 annually for the two year period commencing February 1, 1997, through January 31, 1999, payable in equal monthly installments of $10.800.00; 3. $139,968.00 annually for the two year period commencing February 1, 1999, through January 31, 2001, payable in equal monthly installments of $11,664.00; 4. $151,165.44 annually for the two year period commencing February 1, 2001, through, January 31, 2003, payable in equal monthly installments of $12,597.12; 5. $163,258.68 annually for the two year period commencing February 1, 2003, through January 31, 2005, payable in equal monthly installments of $13,604.89; 6. $176,319.36 annually for the two year period commencing February 1, 2005, through January 31, 2007, payable in equal monthly installments of $14,693.28. B. Should Tenant not then be in default in any of its obligations under this Lease, Tenant shall have the right to extend the term of this Lease for an additional period of three [3] years at Tenant's sole discretion. Should Tenant choose to exercise this right of renewal, the rent schedule shall be as follows: 1. $185,135.28 annually for the period commencing February 1, 2007, through January 31, 2008, payable in equal monthly installments of $15,427.94; 2. $194,392.08 annually for the period commencing February 1, 2008, through January 31, 2009, payable in equal monthly installments of $16,199.34; 3. $204,111.72 annually for the period commencing February 1, 2009 through January 31, 2010 payable in equal monthly installments of 17,009.31. C. Should Tenant choose to exercise this option to renew, it shall notify Landlord no later than one hundred eighty [180] days prior to the expiration of the initial twelve year term of this Lease. Should Tenant fail to so notify Landlord, it shall be 1 70 deemed as a declination by Tenant to exercise this option. 41. Provided that Tenant promptly commences alterations to make the premises ready for occupancy in accordance with this lease, and continues therewith diligently and in good faith then, notwithstanding anything contained in this lease or this rider to the contrary, the obligation of tenant to pay rent is abated and waived by the Landlord for four [4] months from the date of this lease. Tenant may enter the premises under this lease upon execution of the lease to commence alterations. Rental obligations hereunder, however, shall commence on June 15, 1995. Thereafter, all rents shall become due on the first day of each month, as per the rent schedule contained above, in this Rider. 42. Upon the execution of this lease, Tenant shall pay to Landlord the sum of $10,000 representing payment of partial rent due for the month of October, 2006. At or before February 18, 1995, Tenant shall pay to Landlord an additional $10,000, representing partial payment for rent due for the months of October and November 2006. At or before March 18, 1995 Tenant shall pay to Landlord an additional $9,386.56, representing the balance of rent due for the month of November, 2006. Notwithstanding the foregoing, if Tenant surrenders the premises to the Landlord on or before the end of the sixth month of the term of this lease due to Tenants's inability to obtain a Liquor License or any public assembly permit required by the City of New York in order for Tenant to operate the leased premises for the purpose set forth in paragraph 71 herein, resulting from location, physical configuration of the leased premises, or the Landlord's disability and not caused by the Tenant, then in that event the Tenant shall have the right to terminate this lease, the Landlord shall return $19,386.56 to the tenant, and neither party shall have any further obligations one to the other. Payment of the foregoing sum of $19,386.56 by the Landlord to Tenant under such circumstances is personally guaranteed by Michael Aryeh. 43. In the event Tenant shall not remit full rent due to Landlord by the tenth [10th] day of the month for wich said rent is due, a late fee of $100.00 shall be added to the rent due, and shall be considered "additional rent" within the definitions as set forth in the instant lease. The foregoing is not intended and shall not be construed as an interest charge, but rather to reimburse and defray Landlord's expenses in connection with handling delinquencies in the payment of annual fixed rent. Notwithstanding the foregoing, in no event shall the payments to be made pursuant to this Article exceed the applicable usury ceiling which would be imposed were the late charge deemed to be interest rather than a delinquency charge, and provisions hereof are not intended to limit Landlord's remedies pursuant to this lease, but shall be in addition to the remedies and rights otherwise provided in this lease. 44. For the Purpose of this Article: (1.)(a) "Taxes" shall mean the real estate taxes, assessments, levies, and special assessments imposed upon the entire commercial portion of the building and the land on which the commercial portion of the building stands by any governmental body or authority having jurisdiction thereover. If at any time during the term of this Lease the methods of taxation for real estate prevail at the commencement of the 2 71 term hereof shall be altered so that in lieu of, or as a substitute for the whole or any part of, the taxes, assessments, or levies, now levied, assessed or imposed on real estate and the improvements thereof, there shall be levied, assessed and imposed (i) a tax, assessment, or levy, wholly or partially as a capital levy or otherwise on the rents received therefrom, or (ii) a license fee measured by the rent payable by Tenant to Landlord, or (iii) any other such additional or substitute tax, assessment, or levy, then all such taxes, assessments, or levies, or the part thereof so measured or based shall be deemed to be included within the term "Taxes" for the purpose hereof, to the extent that any of the items set forth in (i) through (iii) above would be payable if the demised premises were the only property of the Landlord subject to such items. (b) "Base Tax" shall mean Taxes for the Tax year of July 1, 1994 to June 30, 1995, wich Base Tax is $234,000.00 (C) "Tenant's Proportionate Share" shall be ten [10%] percent of the increased amount, if any. (d) "Tax Year" shall mean the fiscal year for which Taxes are levied by the governmental authority having jurisdiction thereover. (2.) If the Taxes for any Tax Year shall be more than the Base Tax, Tenant shall pay to Landlord as additional rent for such Tax Year an amount equal to Tenant's Proportional Share of the amount by which the Taxes for such Tax Year are greater than the Base Tax. (The amount payable by Tenant is hereinafter called the "Tax Payment.") The Tax Payment shall be prorated, if necessary, to correspond with that portion of a Tax Year Occurring within the term of this lease. The Tax Payment shall be payable by Tenant within thirty [30] days after receipt of a demand from Landlord therefor, which demand shall be accompanied by a copy of the tax bill together with Landlord's computation of the Tax Payment. (3.) With respect to any period at the expiration of the term of this lease which shall constitute a partial Tax Year, Landlord's statement shall apportion the amount of the additional rent due hereunder. The obligation of tenant in respect of such additional rent applicable for the last year of this lease or part there or shall survive the expiration of the term of this lease. (4.) Nothing herein contained shall require or be construed to require Tenant to pay any inheritance, estate, succession, transfer, gift, franchise, income, profit or excess profit, capital stock, capital levy, corporate or unincorporated business tax or other similar tax. (5.) Landlord and Tenant acknowledge and agree that Tenant's Proportionate Share shall be as provided in subparagraph (1) of this Article, notwithstanding the fact that such percentage may be different from the proportion of the demised premises to the commercial portion of the building. 45. Tenant represents that it has inspected the premises and the improvements thereon and the equipment therein, and is thoroughly acquainted with their condition and agrees to accept the premises "as is". It is understood and agreed that no representations either express or implied have been made as to the condition of the premises and/or the fixtures therein by Landlord. 3 72 46. Tenant agrees that during the term of this lease, it will keep and maintain the demised premises and all appurtenances thereto and keep each and every part thereof in good order, condition and repair. 47. Tenant shall be solely responsible for the cleaning and maintenance of all sidewalks directly in front of the demised premises. Tenant agrees that it shall conduct no business, and display no wares on the sidewalks adjacent to the building, and that it shall indemnify, defend and hold Landlord harmless against any claims, violations, etc., that may result from the obstruction of the sidewalks in any way by the Tenant. 48. Tenant shall be responsible for and shall maintain any existing heating, ventilating and air conditioning system ("HVAC System"). 49. Tenant shall be responsible for the maintenance of all plumbing lines, electrical lines and equipment, and gas lines, if any, which exclusively service the demised premises and are located in the demised premises, or which were installed by Tenant. Tenant shall also be responsible for the cleanliness of all entrances and exits leading to or from the demised premises and for the maintenance and cleanliness of all glass windows, doors, window sashes and frames. 50. Tenant, at its sole cost and expense, shall maintain adequate extermination and pest control services in and about the demised premises to prevent any infestation by rodents, insects and other pests. 51. Tenant shall not, at any time during the term hereof, permit any odors to emanate from the demised premises above and beyond what would reasonably be expected from the operation of a restaurant and bar, it being understood that the demised premises are located in a residential building and the peace and comfort of the tenants and owners thereof are of paramount importance to Landlord. Likewise, it is understood that Tenant has the right to provide entertainment, including musical entertainment, to its patrons. Tenant agrees that any such entertainment shall not be of such a loud or boisterous nature so as to unreasonably disturb or interfere with the quiet enjoyment of the premises by the residential or other commercial tenants of the building. 52. Tenant shall install (if necessary) and/or maintain the existing Hood and Duct Protection System so as to meet all requirements of the Insurance Service Office of New York or any successor organization. The manufacture, design, installation and maintenance of such Hood and Duct Protection System. including an automatic dry chemical fire extinguishing system, which shall further be in compliance with the administrative codes of the City of New York and all other applicable laws, codes, ordinances and regulations and the applicable standards of the National Board of Fire Underwriters. Furthermore, throughout the term of this lease, tenant shall obtain and keep in force service contracts with persons or companies, for the maintenance of the Hood and Duct Protection System. 53. Tenant shall not dispose of cooking oils or fats in the sanitary sewer system. 54. Tenant shall, at its expense, install (if necessary) and/or maintain the existing grease trap in the waste lines of the demised premises for the purpose of preventing an accumulation of grease. Tenant covenants at all times during the Term to keep the 4 73 drain, waste, and sewer pipes and connections in the demised premises free from obstruction to the reasonable satisfaction of Landlord and its agents and in compliance with the administrative codes of the City of New York, and all other applicable laws, codes, ordinances, and regulations. Furthermore, throughout the term of this lease, tenant shall obtain and keep in force service contracts with persons or companies, for the maintenance of the grease trap. 55. Tenant agrees to provide for its own garbage disposal with a private sanitation company at its sole cost and expense. Tenant agrees to comply with all applicable rules and ordinances relating to trash disposal, and agrees to be solely responsible for any violations issued as a result of the improper storage or disposal of trash. 56. Tenant shall pay all charges for its use of electricity for the entire term of this Lease. Tenant's usage of electricity is currently measured by a separate meter, the maintenance and repair of which shall be at the sole cost and expense of Tenant. Landlord represents that the meter is currently in good operating condition. 57. Tenant acknowledges that, except as provided in Article 30 of the printed portion of the lease, Landlord shall not be required to furnish any utilities whatsoever to the demised premises. Tenant agrees to make its own arrangements for the furnishing of gas, electric and hot water services to the demised premises, and, to the extent no meters by which to measure Tenant's consumption of such utilities exist or are in disrepair. Tenant shall, at its own cost and expense, install and/or repair said meters. 58. In the event of any dispute between Tenant and Landlord under this Lease, Tenant shall nevertheless pay all rent as herein provided, without offset or deduction of any kind, pending resolution of the dispute. 59. Tenant hereby indemnifies and agrees to hold Landlord harmless from and against any and all liability, damages, expense, costs, suits, fines, claims or judgments (including attorney's fees and disbursements) arising from injury to persons or property or to or upon the demised premises and or any part thereof from any matter or thing growing out of Tenant's use, occupation, maintenance or control thereof, unless caused by the negligence of the Landlord and/or its agents or invitees. Tenant shall, at its sole cost and expense, defend any and all suits or actions that may be brought against Landlord or in which Landlord may be impleaded with others upon any such above mentioned claim or claims and shall satisfy, pay and discharge any and all judgements that may be recovered against Landlord in any such action or actions in which Landlord may be a party defendant. Tenant shall keep the demised premises free and clear of any and all mechanics' liens or other similar liens or charges incidental to work done or material supplied in or about the premises. 60. Tenant shall at its sole cost and expense, provide and keep in force for the benefit of Landlord as an additional named insured, a general liability policy protecting both Landlord and Tenant against any liability occasioned by accident in the amount of $500,000.00 in respect to injuries to any one person and in the amount of $1,000,000.00 in respect to any one accident in the demised premises. The above policy shall be obtained by Tenant and delivered to Landlord, and Tenant hereby agrees to pay all the premiums therein and to submit the bill to Landlord evidencing 5 74 payment of said premium of the policy within ten (10) days from the date of commencement of said policy. In the event of Tenant's failure to do so, Landlord may procure said insurance, and the cost thereof shall be paid by Tenant to Landlord as additional rent. This policy shall include any damages resulting from the erection and the existence of an awning should an awning or canopy be erected. 61. Tenant shall at all times carry its own water damage and fire insurance covering the demised premises and the Tenant's personalty. Said policy shall name Landlord as an additional named insured, and shall provide coverage equal to at least 100% of the full replacement value of the property. Tenant further agrees to furnish the Landlord with the name of the insurance company and the policy number of said insurance. Tenant agrees that it shall maintain and repair any and all windows and plate glass in the demised premises. 62. Tenant shall at all times carry necessary Workmen's Compensation Insurance and shall furnish to the Landlord the name of the company and the numbers of the policies. 63. A. Notwithstanding anything to the contrary contained in Article 11, Tenant may not sublet the demised premises or assign this Lease without Landlord's prior written consent, which consent shall not be unreasonably withheld or unreasonably delayed, provided that: (1) Tenant shall submit to Landlord a written request for Landlord's consent to such subletting or assignment at least fifteen (15) days before the commencement date of such sublease or the effective date of the assignment, which request shall contain or be accompanied by the following: (i) the name and address of the proposed sublessee or assignee, (ii) the terms and conditions of the proposed subletting or assignment; and (iii) a complete and current financial statement and any other pertinent information; (2) The proposed subtenant or assignee will conduct substantially the same type of business as Tenant, and will not sell kosher cuisine. (3) The proposed subtenant or assignee shall not then be an existing tenant or occupant of the building or a related corporation of any other tenant or a party who dealt with Landlord for the rental of any space in the building and shall not be a person then negotiating with Landlord for the rental of space in the building; (4) In the event of a subletting, the sublease shall be expressly subject to all of the covenants, agreements, terms, provisions and conditions of this lease, except such as are not relevant or applicable and except as expressly set forth to the contrary in this Article, and in the event of cancellation, termination or surrender of this Lease, whether voluntary, involuntary or by operation of Law, prior to the expiration of the sublease, the proposed subtenant agrees to make full and complete attornment to Landlord for the balance of the term of the sublease, which attornment shall be evidenced by an agreement in form and substance satisfactory to Landlord; (5) Tenant shall not be in default beyond any applicable grace period in the performance of any of its obligations under this Lease, either at the time of Landlord's consent to such subletting or assignment is requested, or at the commencement of the term of any proposed sublease, or upon the effective date of any assignment; 6 75 (6) In the event of an assignment, the proposed assignee shall execute, acknowledge and deliver to Landlord, prior to the effective date of the proposed assignment, an agreement in form and substance satisfactory to Landlord whereby the assignee shall agree to be bound by and assume all the covenants, agreements, terms, provisions and conditions set forth in this Lease on the part of Tenant to be performed; (7) Tenant shall pay to Landlord, promptly upon demand therefor, the reasonable cost of Landlord's attorneys' fees and disbursements in connection with reviewing the proposed sublease or assignment, not to exceed the sum of $750.00; (8) No subletting or assignment shall be deemed to be a consent to any further subletting or assignment; nor shall any subletting relieve Tenant of its obligations or liabilities hereunder; nor shall any assignment relieve Tenant of its obligations and responsibilities incurred to Landlord prior to any such assignment; (9) In the event of a subletting, Tenant shall pay or cause to be paid to Landlord promptly upon Landlord's consent to such subletting, a sum equal to the then current one month's rent, which sum shall be held by Landlord as a security deposit, and shall be returned to the Tenant upon the end of the term of this lease, or which shall be applied by the Landlord to cure any default of the terms herein by Tenant. (10) No sublease or assignment shall apply to less than the entire demised premises, without Landlord's written consent, except that if Tenant conducts a cabaret/club separate and distinct from the restaurant portion of the demised premises. Tenant shall be permitted to sub-let and/or assign either or both such portions of the demised premises in accordance with the terms of this lease. (11) As a condition to Landlord's approval of any subletting or assignment of this lease, the principal shareholders of any proposed sublesee or assignee shall execute the limited guaranty attached hereto as Exhibit "A". B. Any transfer of fifty percent [50%] or more in interest of Tenant (whether stock, partnership interest or otherwise) by any party or parties in interests whether in a single transaction or a series of related or unrelated transactions, shall be deemed an assignment of this lease within the meaning of this Article, except for a transfer or related series of transfers upon or as a result of the death of a shareholder or partner of Tenant or between shareholders or partners as the case may be, or between immediate family members of any shareholder or partner. C. Notwithstanding anything contained herein to the contrary, Tenant shall have the one time right to assign this lease to a corporation entity in which Tenant holds at least thirty percent [30%] of the outstanding shares thereof, and under the condition that, subsequent to any such assignment, and to the termination of this lease, Tenant shall continue to personally supervise, the daily operations of the business operating under the authority of this lease, and Tenant shall sign a limited personal guarantee, in the form attached hereto as Exhibit "A", which shall guarantee payment of rent until the premises are surrendered to the landlord. Tenant shall furnish landlord with written notice thirty [30] days prior to any such proposed assignment. Any notice must be furnished no less than thirty days prior to said date. 64. Tenant shall, at its own cost and expense, obtain any and all permits necessary for the carrying on of its business. Tenant acknowledges and agrees that Landlord shall not be responsible for any violations issued by any governmental 7 76 department, board or agency with regard to the demised premises arising out of the Tenant's use of the premises unless caused by the Landlord, and that Tenant shall correct and remove of record all such violations promptly after they are noted or issued. 65. Landlord and Tenant warrant and represent that they have dealt with no broker in the negotiation of this lease other than Al Broser and Stu Morden. Landlord has entered into a separate agreement for the payment of any commissions to said Brokers. Landlord and Tenant agree to indemnify and hold each other harmless from any and all claims for commissions based upon this lease by any other broker, with whom Landlord and/or Tenant are alleged to have dealt. 66. A. If any of the provisions of this Lease, or the application thereof to any person or circumstance, shall be held invalid or unenforceable, the remainder of this Lease, or the application of such provision or provisions to persons or circumstances other than those as to whom or which it is held invalid or unenforceable, shall not be affected thereby, and every provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. B. Notwithstanding anything to the contrary contained in Article 9 of this Lease, Landlord shall not be liable for any damage or injury to Tenant and/or the business of Tenant resulting from any damage to the demised premises or the building to the repair thereof for any reason whatsoever unless caused by its negligence. C. Tenant hereby indemnifies and agrees to hold Landlord harmless from and against any loss, cost, liability, claim, damage, fine, penalty and expense (including reasonable attorneys' fees and disbursements) resulting from delay by Tenant in surrendering the demised premises upon the termination of this lease as provided in Article 21 of this Lease, including any claims made by any succeeding tenant or prospective tenant founded upon such delay. D. This lease is submitted to Tenant for signature with the understanding that it shall not bind Landlord or Tenant unless and until it is duly executed by both Tenant and Landlord and an executed copy delivered to Tenant. E. If any provision contained in this rider is inconsistent or in conflict with any printed provision of this lease, the provision contained in this rider shall supersede said printed provision and shall control. 67. A. in the event Tenant remains in possession of the demised premises after the termination of this lease without entering into a new lease, or if Tenant shall not vacate and surrender actual possession upon any other termination of this lease, Landlord may re-enter and by any lawful act recover possession of the demised premises. Tenant shall also thereupon be liable to Landlord for any and all actual costs, expenses and damages, including without limitation, reasonable legal costs and expenses incurred by Landlord in regaining actual possession of the demised premises. B. In the alternative, in the event Tenant remains in possession of the demised premises after the termination of this lease without entering into a new lease, or if Tenant shall not vacate and surrender actual possession upon any other termination of 8 77 this lease, Tenant, at the option of Landlord shall be deemed to be occupying the demised premises as a Tenant from month to month, at a monthly rental equal to one and one half [1 1/2] times the rent payable during the last month of the term of this lease, subject to all of the terms of this lease insofar as the same are applicable to a month to month tenancy. 68. Tenant hereby acknowledges that Landlord has the right to conduct structural renovations on the building. Tenant hereby agrees to hold Landlord harmless from any claim regarding loss or interruption of its business, utilities, etc., which may occur as a result of these renovations or repairs unless such repairs block a substantial area of ingress or egress to the leased premises, in which event the rent shall abate until such time as the blockage has been removed. 69. Tenant shall have the right to conduct any non-structural repairs, alterations, etc. on or to the demised premises, provided that Tenant obtains Landlord's prior written consent to any such work, which consent shall not be unreasonably withheld. Tenant agrees to furnish Landlord with plans, drawings, specifications, details, and other pertinent information so as to give Landlord as detailed notice as possible as to any such contemplated work. Landlord agrees that, given adequate description of contemplated work, and if such work is of a character generally compatible with the level of the quality of the building in general, consent shall not be unreasonably withheld or delayed. In the event Landlord does not respond to Tenant's request within five [5] business days of its receipt of such request, it shall be deemed consent. 70. Tenant shall have the right to install a sign identifying its business on the outside of the building and to install an awning in size and shape as permitted by the applicable ordinances, rules and regulations of the City of New York. 71. Tenant may use the demised premises as a restaurant/bar, catering facility and/or cabaret featuring live entertainment and dancing. Landlord represents that it knows of no reason why the leased premises may not be used for the foregoing purposes. The premises may not be used as a business featuring strip tease, "lap dancing" or topless dancing. 72. During the term of this lease and any agreed upon extension, Landlord will not lease any additional space in the entire commercial premises controlled by it located at 250 West 86th Street and 2341-2359 Broadway to a restaurant with a "steak house" theme. 73. Within 30 days of the day of this lease, Landlord will provide Tenant with a fully executed non-disturbance agreement in the form attached hereto as Exhibit " ", which shall be executed by any lender holding a mortgage on all or any portion of the leased premises. If Landlord is unable to provide such fully executed non-disturbance agreement to Tenant within 30 days of the day of this lease, Tenant shall have the right to cancel this lease, in which event Landlord shall return any monies paid by Tenant to Landlord pursuant to paragraph 42 herein, and neither party shall have any further obligation one to the other. 9 78 /s/ /s/ - ---------------------------------- ---------------------- RYMSBRAN CONTINENTAL CORP., D.I.P. HOLY COW RESTAURANT LANDLORD ASSOCIATES, INC., TENANT /s/ Michael Aryeh - ---------------------------------- Michael Aryeh, Individual Guarantor, as to the guaranty provisions contained in par. 42 STATE OF NEW YORK) COUNTY OF )ss.: On this day of January, 1995, before me personally came to me known, who being by me duly sworn, did depose and say that he resides at , NY, that he is the of RYMSBRAN CONTINENTAL CORP., D.I.P., the corporation described in and which executed the foregoing instrument, that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was affixed by order of the Board of Directors of said corporation, and that HE signed HIS name thereto by like order. NOTARY PUBLIC STATE OF NEW YORK) COUNTY OF )ss.: On this day of January, 1995, before me personally came , to me known, and known to me to be the individual described in and who executed the foregoing instrument and acknowledged to me that he executed the same. NOTARY PUBLIC 10 79 SECOND AMENDMENT TO LEASE MADE JANUARY, 1972 BY AND BETWEEN S. LAWRENCE HORNSTEIN, AS LANDLORD, AND BRESSOR CORP., AS TENANT This Second Amendment to the Lease made January, 1972 by and between S. Lawrence Hornstein, as Landlord, and Bressor Corp., as Tenant (the "Lessee") is made as of August 11, 1995 by PLAINVIEW REALTY ASSOCIATES, INC., SUCCESSOR IN INTEREST TO S. LAWRENCE HORNSTEIN, hereinafter called Landlord, and AMERICAN THEME DINER AND RESTAURANT CORP., hereinafter called Tenant. 1. In the event of any inconsistency between the provisions of this amendment and those contained in the Lease to which this amendment is made a part, the provisions of this amendment shall govern and be binding. 2. Article "2" of the Lease is amended to read as follows: Term. The term of this Lease shall be deemed to have commenced on January 1, 1972 and shall end 60 years after the commencement thereof. 3. Article "3" of the Lease and First Amendment is supplemented as follows: A. The minimum rent for the period from January 1, 2007 until December 31, 2011 shall be $51,000.00 per annum payable in equal installments of $4,250.00 per month. B. The minimum rent for the period from January 1, 2012 until December 31, 2016 shall be $60,000.00 per annum payable in equal installments of $5,000.00 per month. C. The minimum rent for the period from January 1, 2017 until December 31, 2021 shall be $69,000.00 per annum payable in equal installments of $5,750.00 per month. D. The minimum rent for the period from January 1, 2022 until December 31, 2026 shall be $79,350.00 per annum payable in equal installments of $6,612.50 per month. E. The minimum rent for the period from January 1, 2027 until December 31, 2031 shall be $91,252.00 per annum payable in equal installments of $7,604.38 per month. F. The rents specified in paragraphs A, B, C, D and E above are 80 minimum annual rentals for each of the years set forth therein. Tenant shall pay Landlord such annual rental plus any increase as determined in accordance with the provisions of subparagraph "G" below. G. (1) (a) As promptly as possible for the five year period commencing January 1, 2007 and continuing through the year commencing January 1, 2011, Landlord shall compute any increase in the cost of living for the period commencing January 1, 2006 until the then current year based upon the then applicable Revised Consumers Price Index-Cities (the "Index"), published by the Bureau of Labor Statistics of the United States Department of Labor. (b) The "Base Index Number" for this five (5) year period shall be the Index Number indicated for the City of New York, entitled "all items", for the month of January 2006. The "current Index number" shall be the corresponding Index number for the month of January for the then current year. (2) (a) As promptly as possible for the five year period commencing January 1, 2012 and continuing through the year commencing January 1, 2016, Landlord shall compute any increase in the cost of living for the period commencing January 1, 2011 until the then current year based upon the then applicable Revised Consumers Price Index-Cities (the "Index"), published by the Bureau of Labor Statistics of the United States Department of Labor. (b) The "Base Index Number" for this five (5) year period shall be the Index Number indicated for the City of New York, entitled "all items", for the month of January 2011. The "current Index number" shall be the corresponding Index number for the month of January for the then current year. (3) (a) As promptly as possible for the five year period commencing January 1, 2017 and continuing through the year commencing January 1, 2021, Landlord shall compute any increase in the cost of living for the period commencing January 1, 2016 until the then current year based upon the then applicable Revised Consumers Price Index-Cities (the "Index"), published by the Bureau of Labor Statistics of the United States Department of Labor. 81 (b) The "Base Index Number" for this five (5) year period shall be the Index Number indicated for the City of New York, entitled "all items", for the month of January 2016. The "current Index number" shall be the corresponding Index number for the month of January for the then current year. (4) (a) As promptly as possible for the five year period commencing January 1, 2022 and continuing through the year commencing January 1, 2026, Landlord shall compute any increase in the cost of living for the period commencing January 1, 2021 until the then current year based upon the then applicable Revised Consumers Price Index-Cities (the "Index"), published by the Bureau of Labor Statistics of the United States Department of Labor. (b) The "Base Index Number" for this five (5) year period shall be the Index Number indicated for the City of New York, entitled "all items", for the month of January 2021. The "current Index number" shall be the corresponding Index number for the month of January for the then current year. (5) (a) As promptly as possible for the five year period commencing January 1, 2027 and continuing through the year commencing January 1, 2031, Landlord shall compute any increase in the cost of living for the period commencing January 1, 2026 until the then current year based upon the then applicable Revised Consumers Price Index-Cities (the "Index"), published by the Bureau of Labor Statistics of the United States Department of Labor. (b) The "Base Index Number" for this five (5) year period shall be the Index Number indicated for the City of New York, entitled "all items", for the month of January 2026. The "current Index number" shall be the corresponding Index number for the month of January for the then current year. (6) The current Index Number shall be divided by the Base Index Number, and the integer 1 shall be subtracted from such quotient. Any resulting positive number shall be deemed to be the percentage of increase in the cost of living. (For example, if the current Index number for January 2007 is 125 and the base Index EX-10.24 5 FORM OF SERIES C NOTE 1 EXHIBIT 10.24 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THIS NOTE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN EXCHANGE AGREEMENT OF EVEN DATE HEREWITH (THE "EXCHANGE AGREEMENT"). Series C 15% Subordinated Promissory Note Due August 6, 1997 , 1996 $__________________ The Rattlesnake Holding Company, Inc., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to or registered assigns, on August 6, 1997 (the "Due Date"), the principal amount of Dollars ($ ) and to pay interest on the Due Date (computed on the basis of a 360-day year of twelve 30-day months) on the unpaid portion of said principal amount from the date hereof at the rate of 15% per annum. Both the principal hereof and interest hereon are payable at the principal office of the Company in Stamford, Connecticut, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. 1. Authorized Issue. This Note is one of a duly authorized issue of Series C 15% Subordinated Promissory Notes due the Due Date (herein called the "Notes") made or to be made by the Company in the aggregate amount of up to $600,000, in original authorized principal amount, similar in terms except for dates, principal amounts and named payees, issued by the Company pursuant to an Exchange Agreement among the Company and certain Series C Subordinated Promissory Note holders. 2. Transfer and Exchange. This Note is transferable on the Note Register of the Company at the expense of the Company (except for any stamp tax or other governmental charge with respect to any transfer) upon surrender of this Note for transfer at the principal office of the Company, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the holder of this Note or his attorney duly authorized in writing, and thereupon one or more new Notes, each in the denomination for the same aggregate principal amount as the Note 2 surrendered, and dated the date to which interest has been paid on the Notes, will be issued to the designated transferee or transferees. This Note is exchangeable for a like aggregate principal amount of Notes of different denominations, as requested by the holder or his attorney surrendering the same. The Company and its agents may treat the holder of this Note as the owner for purposes of receiving payment as herein provided and for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected by notice to the contrary. Any new Note or Notes to be delivered to you or upon your order, pursuant to this Section 2, in substitution for or in lieu of any Note held by you, will be delivered to you at your address as shown on the records of the Company, or at such other address as you may request, without any expense to you in connection with such delivery and insured to your satisfaction. 3. Prepayment Provisions. (a) This Note may be prepaid, at the option of the Company, as a whole or in part, pro rata as to each Note holder, at any time or from time to time, in each case on any date on or after the date of issuance and prior to maturity, at a redemption price of l00% of the principal amount of such Note, together with accrued interest through the date of prepayment. (b) If this Note is called for prepayment pursuant to subsection 3(a) of this Note, the Company shall give written notice to the holder of this Note not less than 30 nor more than 60 days prior to the date fixed for the prepayment thereof. Such notice and all other notices to be given to any holder of a Note shall be mailed by registered mail to the holder thereof at the address shown on the Note Register. Upon notice of any prepayment being given as provided in this subsection 3(b), the Company covenants and agrees that it will prepay on the date therein fixed for prepayment the entire principal amount of this Note so as to be prepaid as specified in such notice as the principal amount thereof, together with interest accrued thereon to such date fixed for prepayment, plus the applicable premium, if any. (c) Upon any partial prepayment of the Notes, upon presentation as herein provided, there shall be paid to the holder the principal amount of the portion of the Notes so to be prepaid with the unpaid interest accrued in respect thereof, and either (i) the Note to be partially prepaid shall be surrendered by the holder, in which event the Company shall execute and deliver to or on the order of such holder, at the expense of the Company, a new Note for the principal amount of the Note remaining unpaid, dated as of the date to which interest has been paid on the Note surrendered, and registered in the name of the holder, or (ii) if 2 3 the holder and the Company shall so determine, the Note to be partially prepaid need not be so surrendered, but may be made available to the Company, at the place of payment specified herein, for notation thereon of the payment of the portion of the principal so paid, in which case the Company shall make such notation and return the Note to or on the order of such holder. (d) All Notes which may be prepaid in full shall not be considered outstanding for purposes of this Section 3. 4. Subordination of Indebtedness. (a) This Note is issued subject to the provisions of this Section 4; and each person taking or holding this Note, accepts and agrees to be bound by these provisions. (b) This Note is a junior unsecured general obligation of the Company and is fully subordinated to all "senior indebtedness" of the Company now existing or hereafter incurred. Senior indebtedness is all indebtedness, liabilities and obligations of the Company for money borrowed from banks, savings and loan associations, the Small Business Administration and other financial institutions, and their affiliates, and any deferrals, renewals or extensions of any such senior indebtedness and notes or other instruments or evidences of indebtedness issued in respect of or in exchange for any such senior indebtedness or any funding to pay or replace any such senior indebtedness or credit unless in the instrument creating or evidencing the same, or pursuant to which it is outstanding, it is provided that such indebtedness or such deferral, renewal or extension thereof is not senior in right of payment to this Note. No payment or distribution of any kind or character on account of principal, premium, if any, or interest on this Note shall be permitted during the continuance of any default in the payment of principal, premium, if any, or interest on any senior indebtedness. 5. Default. If one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), and the holder of any Note shall have given fifteen (15) days prior written notice to the Company by certified or registered mail, return receipt requested, and the Company shall not have cured such default within such period: (i) default in the due and punctual payment of the principal of, or interest on, any Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or 3 4 (ii) default by the Company in any provision of the Exchange Agreement executed in connection with the sale and purchase of the Notes; or (iii) the Company makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or (iv) an order, judgment or decree is entered adjudicating the Company or any subsidiary bankrupt or insolvent; or (v) the Company petitions or applies to any tribunal for the appointment of a trustee or receiver of the Company, or of any substantial part of the assets of the Company, or commences any proceedings (other than proceedings for the voluntary liquidation and dissolution of a subsidiary) relating to the Company or an subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction whether now or hereafter in effect; or (vi) any such petition or application is filed, or any such proceedings are commenced, against the Company, and the Company by any act indicates its approval thereof, consent or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee or receiver, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (vii) any order, judgment or decree is entered in any proceedings against the Company or any subsidiary decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (viii) any order, judgment or decree is entered in any proceedings against the Company or any subsidiary decreeing a split-up of the Company which requires the divestiture of a substantial part of the consolidated assets of the Company and its subsidiaries, or the divestiture of the stock of a subsidiary and such order, judgment or decree remains unstayed and in effect for more than 60 days. Then and in each and every such case, so long as such Event of Default shall not have been remedied the holder of any Note, by notice in writing to the Company, may declare the principal of this Note then outstanding and the interest accrued thereon if not already due and payable, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Note contained to the contrary notwithstanding. 4 5 6. Miscellaneous. (a) To the extent permitted by applicable law, the Company hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish, the benefit and advantage of any valuation, stay, appraisement, extension or redemption law now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or otherwise, based on the Notes or on any claim for principal or interest on the Notes. (b) Each Note is issued upon the express condition, to which each successive holder expressly assents and by receiving the same agrees, that no recourse under or upon any obligation, covenant or agreement of the Notes, or for the payment of the principal of, or premium, if any, or the interest on, a Note, or for any claim based on a Note, or otherwise in respect hereof, shall be had against any incorporator or any past, present or future stockholder, officer or director, as such, of the Company or of any successor corporation, whether by virtue of the constitution, statute or rule of law or by any assessment or penalty or otherwise howsoever, all such individual liability being hereby expressly waived and released as a condition of and as a part of the consideration for the execution and issue of the Notes; provided, however, that nothing herein shall prevent enforcement of the liability, if any, of any stockholder or subscriber to capital stock upon or in respect of capital stock not fully paid. (c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of any Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of any such Note if mutilated, the Company will make and deliver a new Note of like tenor in lieu of any such Note so lost, stolen, destroyed or mutilated. Any new Note made and delivered in accordance with the provisions of this subsection 6(c) shall be dated as of the date from which unpaid interest has then accrued on the Note so lost, stolen, destroyed or mutilated. (d) Any notice or demand which by any provision of the Notes is required or provided to be given or served to or upon the Company shall be deemed to have been sufficiently given or served for all purposes by being sent as registered mail, postage prepaid, addressed to the Company at its principal office. (e) No course of dealing between the Company and the holder of any Note or any delay on the part of the holder in exercising any rights under a Note shall operate as a waiver of any rights of any holder of the Note. 7. Binding Effect. The Company agrees that the provisions of this Note shall bind and shall inure to the benefit of the parties hereto and their successors and assigns. 5 6 8. Amendment and Waiver. Except as otherwise provided herein, this Note may be amended, and the performance and observance of any term of this Note may be waived, with (and only with) the written consent of the Company and such Note purchaser as to whom performance is to be waived. 9. Interest Rate. If any interest rate specified herein is held to be impermissible, then the rate charged on the indebtedness represented hereby shall be reduced to the highest rate then permitted by law. 10. Communications. All notices and other communications provided for hereunder or under the Notes shall be in writing, and, if to you, shall be delivered or mailed by registered mail addressed to you at your address as shown in the records of the Company in this Note hereto or to such other address as you may designate to the Company in writing and, if to the Company, shall be delivered or mailed by registered mail to the Company at 3 Stamford Landing - Suite 130, Stamford, Connecticut 06902, or to such other address as the Company may designate to you in writing. 11. Delaware Law. This Note shall be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of law, and cannot be changed, discharged or terminated orally but only by an instrument in writing signed by the party against whom enforcement of any change, discharge or termination is sought. 12. Headings. The headings of the sections of this Note are inserted for convenience only and do not affect the meaning of such section. IN WITNESS WHEREOF, THE RATTLESNAKE HOLDING COMPANY, INC. has caused this Note to be signed in its corporate name by a duly authorized officer and to be dated the date and year first above written. THE RATTLESNAKE HOLDING COMPANY, INC. By___________________________________ William J. Opper Chairman of the Board of Directors 6 EX-10.25 6 NOTE AGREEMENT 1 EXHIBIT 10.25 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. 15% Promissory Note Due January 2, 1997 of THE RATTLESNAKE HOLDING COMPANY, INC. July 31, 1996 $425,000 The Rattlesnake Holding Company, Inc., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to GUY B. SNOWDEN, 4080 Ibis Point Circle, Boca Raton, FL 33431 or registered assigns, on the 2nd day of January, 1997 (the "Due Date"), the principal amount of Four Hundred Twenty Five Thousand and 00/100 Dollars ($425,000.00) together with interest on the unpaid portion of said principal amount from the date hereof at the rate of l5% per annum (computed on the basis of a 360-day year of twelve 30-day months). Interest shall be payable on the 30th day of each month commencing on August 30, 1996 and be payable in arrears. Both the principal hereof and interest hereon are payable at the principal office of the Company in Stamford, Connecticut, in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts. 1. Transfer and Exchange. This Note is transferable on the Note Register of the Company at the expense of the Company (except for any stamp tax or other governmental charge with respect to any transfer) upon surrender of this Note for transfer at the principal office of the Company, accompanied by a written instrument of transfer in form reasonably satisfactory to the Company duly executed by the holder of this Note or his attorney duly authorized in writing, and thereupon one or more new Notes, each in the denomination of $50,000 or an integral multiple thereof and for the same aggregate principal amount as the Note surrendered, and dated the date to which interest has been paid on the Notes, will be issued to the designated transferee or transferees. This Note is exchangeable for a like aggregate principal amount of Notes of different denominations, as requested by the holder or his attorney surrendering the same. The Company and its agents may treat the holder of this Note as the owner for purposes of receiving payment as herein provided and for all other purposes, whether or not this Note be overdue, 2 and neither the Company nor any such agent shall be affected by notice to the contrary. Any new Note or Notes to be delivered to you or upon your order, pursuant to this Section 4, in substitution for or in lieu of any Note held by you, will be delivered to you at your address as shown on the records of the Company, or at such other address within the United States of America as you may request, without any expense to you in connection with such delivery and insured to your satisfaction. 2. Prepayment Provisions. This Note may be prepaid, at the option of the Company, as a whole or in part, at any time or from time to time and prior to maturity, by payment of al outstanding principal amount of such Note, together with accrued interest through the date of prepayment. 3. Default. If one or more of the following events (herein called "Events of Default") shall occur for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), and the holder of this Note shall have given fifteen (15) days prior written notice to the Company by certified or registered mail, return receipt requested, and the Company shall note have cured shall default within such period: (i) default in the due and punctual payment of the principal of, or interest on, any Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; (ii) without the holder's prior written consent the Company grants a security interest or lien to a third party with respect to the Company's leasehold interest in its restaurant property located at 55 Miller Street Fairfield, Connecticutt; or (iii) the Company makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or (iv) an order, judgment or decree is entered adjudicating the Company or any subsidiary bankrupt or insolvent; or (v) the Company petitions or applies to any tribunal for the appointment of a trustee or receiver of the Company within the meaning of the Securities Act, or of any substantial part of the assets of the Company, or commences any proceedings (other than proceedings for the voluntary liquidation and dissolution of a subsidiary) relating to the Company or any 2 3 subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction whether now or hereafter in effect; or (vi) any such petition or application is filed, or any such proceedings are commenced, against the Company, and the Company by any act indicates its approval thereof, consent or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee or receiver, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (vii) any order, judgment or decree is entered in any proceedings against the Company or any subsidiary within the meaning of the Securities Act decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days; or (viii) any order, judgment or decree is entered in any proceedings against the Company or any subsidiary decreeing a split-up of the Company which requires the divestiture of a substantial part of the consolidated assets of the Company and its subsidiaries, or the divestiture of the stock of a subsidiary and such order, judgment or decree remains unstayed and in effect for more than 60 days; Then and in each and every such case, so long as such Event of Default shall not have been remedied, the holder of any Note, by notice in writing to the Company, may declare the principal of this Note then outstanding and the interest accrued thereon if not already due and payable, to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, anything in this Note contained to the contrary notwithstanding. 4. Miscellaneous. (a) To the extent permitted by applicable law, the Company hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish, the benefit and advantage of any valuation, stay, appraisement, extension or redemption law now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or otherwise, based on the Notes or on any claim for principal or interest on the Note. (b) This Note is issued upon the express condition, to which each successive holder expressly assents and by receiving the same agrees, that no recourse under or upon any obligation, covenant or agreement of the Note, or for the payment of the principal of, or premium, if any, or the interest on, the Note, or for any claim based on the Note, or otherwise in respect hereof, shall be had against any incorporator or any past, present or future stockholder, officer or director, as such, of the Company or 3 4 of any successor corporation, whether by virtue of the constitution, statute or rule of law or by any assessment or penalty or otherwise howsoever, all such individual liability being hereby expressly waived and released as a condition of and as a part of the consideration for the execution and issue of the Note. (c) Upon receipt by the Company of evidence satisfactory to it of the loss, theft, destruction or mutilation of the Note and of indemnity reasonably satisfactory to it, and upon reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of any such Note if mutilated, the Company will make and deliver a new Note or like tenor in lieu of the Note so lost, stolen, destroyed or mutilated. Any new Note made and delivered in accordance with the provisions of this subsection 4(c) shall be dated as of the date from which unpaid interest has then accrued on the Note so lost, stolen, destroyed or mutilated. (d) Any notice or demand which by any provision of the Note is required or provided to be given or served to or upon the Company shall be deemed to have been sufficiently given or served for all purposes by being sent as registered mail, postage prepaid, addressed to the Company at its principal office. (e) No course of dealing between the Company and the holder of the Note or any delay on the part of the holder in exercising any rights under the Note shall operate as a waiver of any rights of any holder of the Note. (f) The Company hereby waives presentment and notice of dishonor. In the event the holder is successful in any action at law or equity to enforce the provisions of this Note, the Holder shall be entitled to recover from the Company all reasonable attorney's fees and costs of collection. 5. Binding Effect. The Company agrees that the provisions of this Note shall bind and shall inure to the benefit of the parties hereto and their successors and assigns. 6. Amendment and Waiver. This Note may be amended, and the performance and observance of any term of this Note may be waived, with (and only with) the written consent of the Company and such Note purchaser as to whom performance is to be waived. 7. Interest Rate. If any interest rate specified herein is held to be impermissible, then the rate charged on the indebtedness represented hereby shall be reduced to the highest rate then permitted by law. 8. Communications. All notices and other communications provided for hereunder or under the Notes shall be in writing, and, if to you, shall be delivered or mailed by 4 5 registered mail addressed to you at your address as shown in the records of the Company in this Note hereto or to such other address as you may designate to the Company in writing and, if to the Company, shall be delivered or mailed by registered mail to the Company at 3 Stamford Landing, Suite 130, Stamford, Connecticut 06902, attention: Office of the President, or to such other address as the Company may designate to you in writing. 9. Delaware Law. This Note shall be construed in accordance with and governed by the laws of the State of Delaware without regard to principles of conflicts of law, and cannot be changed, discharged or terminated orally but only by an instrument in writing signed by the party against whom enforcement of any change, discharge or termination is sought. 10. Counterparts. This Note may be executed simultaneously in any number of counterparts each of which when so executed and delivered shall be an original, but such counter parts together shall constitute but one and the same instrument. 11. Headings. The headings of the sections of this Note are inserted for convenience only and do not affect the meaning of such section. IN WITNESS WHEREOF, the undersigned has caused this Note to be signed in its corporate name by a duly authorized officer and to be dated the date and year first above written. THE RATTLESNAKE HOLDING COMPANY, INC. By /William J. Opper ---------------------------------- William J. Opper Chairman 5 EX-10.26 7 OPTION AND ESCROW AGREEMENT 1 EXHIBIT 10.26 OPTION AND ESCROW AGREEMENT AGREEMENT dated as of August , 1996, between CFT RESTAURANT CORP. ("CFT"), LAND AND BUILDING GROUP ("LBG"), RATTLESNAKE OF MILFORD, INC. ("RMI"), RATTLESNAKE HOLDING CORP. ("RHC"), FRANK TUMMINELLO ("FT"), CHARLES TUMMINELLO ("CT") and THOMAS E. DUNN ("TD") and PRYOR, CASHMAN, SHERMAN & FLYNN, ("Escrow Agent"). STATEMENT OF FACTS: ------------------- The parties to this Agreement have agreed upon the form and content of that certain (a) Assets Sale/Purchase Agreement between RMI and CFT (the "Assets Agreement"), (b) First Amendment and Restated Lease between LBG and RMI (the "Lease"), (c) Consulting Agreement among FT, CT, TD, RMI and RHC, and (d) Common Stock Purchase Warrant made by RHC that are attached to this Agreement. The foregoing described documents contain all of the material terms of the transaction contemplated by the parties hereto. CFT, RMI and LBG have executed two (2) counterparts of each of the Assets Agreement and the Lease (collectively, the "Documents") and delivered same to Escrow Agent to be held and disbursed in accordance with terms and conditions of this Agreement. The parties now desire to set forth the terms and conditions pursuant to which the Documents shall be held in escrow and disbursed by Escrow Agent, and CFT, LBG, FT, CT and TD (collectively, the "Optionors") desire to grant RMI and RHC (collectively, the "Optionees") the right to cause the Documents to be released from escrow upon, and subject to, the terms and conditions herein contained. NOW, THEREFORE, for $10.00 and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. CFT, LBG and RMI have executed and delivered the Documents to Escrow Agent, and Escrow Agent agrees to hold and disburse the same in accordance with the terms of this Agreement. 2. Optionors hereby grant Optionees the option (the "Option") to cause the Escrow Agent to date and release the Documents from Escrow in accordance with paragraph 3 below. Optionees shall exercise the Option by giving written notice to Escrow Agent and to Optionors attorney, Robert Malone, Esq., Coughlin & Malone, 92 Cherry Street, Milford, Connecticut, 06460 ("Malone") at any time within the Option Period (as hereinafter defined). For purposes hereof, the "Option Period" shall mean the period between the date hereof and September 1, 1996 provided, however, that Optionor shall have the right to extend the Option Period for an additional month to October 1, 1996 by paying the amount of $15,000 to Optionors' at any time on or prior to September 1, 1996, and the right to further extend the Option Period for an additional month to November 1, 1996 by paying the 2 amount of $15,000 to Optionors at any time on or prior to October 1, 1996. If Optionees shall not give written of the exercise of the Option on or before the end of the Option Period or if Optionees shall fail to deliver any payment to Optionors on or before the date herein required, the Option shall be deemed null and void, and of no further force or effect, and Escrow Agent shall destroy the Documents. All payments under this Option shall be made payable to CFT on behalf of the Optionors. Optionors acknowledge that the amount of $15,000 has been paid to CFT at the execution of this Agreement representing Option consideration for the period prior to September 1, 1996. 3. If Optionees shall give written notice of the exercise of the Option in accordance with paragraph 1 above, Escrow Agent is authorized and directed to date the Documents as of the date the notice of Option is received by Escrow Agent and disburse one original counterpart of each of the Documents to Malone, on behalf of Optionors, and to RMI, on behalf of Optionees. Upon the disbursement of the Documents as hereinabove provided, the same shall be deemed fully effective in accordance with their respective terms. 4. Each of the parties hereto represent and warrant to the other that they have the full right, power and authority to execute this Agreement and the Documents, and the individuals executing this Agreement on behalf of each entity have the full right, power and authority to do so. 5. It is agreed that the duties of the Escrow Agent are only as herein specifically provided, and subject to the provisions of this Section, are purely ministerial in nature, and the Escrow Agent shall incur no liability whatsoever except for willful misconduct or gross negligence, as long as the Escrow Agent has acted in good faith. The parties hereto each release the Escrow Agent from any act done or omitted to be done by the Escrow Agent in good faith in the performance of its duties hereunder. The Escrow Agent is acting as a stakeholder only with respect to the Documents. The parties hereto each agree, jointly and severally, to fully indemnify and hold the Escrow Agent harmless from and against all liabilities, damages, costs and expenses (including, without limitation, reasonable attorneys fees) incurred by the Escrow Agent with respect to the performance of its duties hereunder. Upon making delivery of the Documents in the manner herein provided, the Escrow Agent shall have no further liability hereunder. In the event there is any dispute under this Agreement, the Escrow Agent shall (i) continue to hold the Documents until the Escrow Agent has received written notice from all parties hereto directing the disbursement of the Documents, in which case the Escrow Agent shall then disburse the Documents in accordance with such direction, or (ii) in the event of litigation between the parties, deliver the Documents to the clerk of the court in which said litigation is pending, or (iii) take such affirmative steps as -2- 2 3 the Escrow Agent may, at the Escrow Agent's option, elect in order to terminate the Escrow Agent's duties including, but not limited to, depositing the Documents in any court which the Escrow Agent shall select in Connecticut, and commencing an action for interpleader, the costs thereof to be borne by whichever of Seller or Buyer is the losing party. Escrow Agent shall have the right to represent RMI and RHC in any litigation arising out of this Agreement. 6. This Document may be executed in counterpart. IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the day above written. CFT Restaurant Corp. BY: /s/ Thomas E. Dunn, President ----------------------------------- Rattlesnake of Milford, Inc. By: /s/ ---------------------------------- Rattlesnake Holding Corp. By: /s/ ---------------------------------- /s/ Frank Tumminello ---------------------------------- Frank Tumminello, Individual and for Land & Building Group /s/ Charles Tumminello ---------------------------------- Charles Tumminello, and for Land & Building Group /s/ Thomas E. Dunn ---------------------------------- Thomas E. Dunn, and for Land & Building Group Pryor, Cashman, Sherman & Flynn By: ------------------------------- -3- 4 ASSETS SALE/PURCHASE AGREEMENT ------------------------------ The parties to this Agreement (this "Agreement"), dated as of June , 1996, are RATTLESNAKE OF MILFORD, INC., a Connecticut corporation (hereinafter referred to as the "Buyer"), and CFT RESTAURANT CORP., a Connecticut corporation (hereinafter referred to as the "Seller"). RECITALS OF FACT: ----------------- WHEREAS, the Seller is the owner/operator of a restaurant located at 1360 Boston Post Road, Milford, Connecticut (the "Premises"); WHEREAS, the Seller desires to sell, and the Buyer desires to purchase, certain assets of the Seller as more particularly described herein, upon the terms and subject to the conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Buyer and Seller hereby agree as follows: 1. PURCHASE AND SALE OF ACQUIRED ASSETS Subject to the terms and conditions set forth in this Agreement, at the Closing referred to in Section 3 hereof, the Seller shall sell, assign, transfer and deliver to Buyer, and the Buyer shall purchase, acquire and take assignment from the Seller of, all of the fixtures, furnishings, equipment and personal property owned by Seller and located on, or used in connection with, the Premises including, without limitation, the items listed on EXHIBIT A attached hereto and made a part hereof (hereinafter collectively called the "Acquired Assets"), free and clear of any mortgage, pledge, lien, security interest, encumbrance, restriction or charge of any kind ("Encumbrances"). In addition, the Seller and the Buyer shall execute and deliver an assignment of lease with respect to the Premises in substantially the form attached hereto as EXHIBIT B and made a part hereof (the "Assignment of Lease") whereby the Seller shall assign to the Buyer, and the Buyer shall assume from the Seller, all of the Seller's right, title and interest in and under that certain lease dated July 7, 1988 (the "Lease") with respect to the Premises between Land & Building Group ("LBG"), as landlord, and the Seller, as tenant. 2. PURCHASE PRICE; PAYMENT; ADJUSTMENTS 2.1 PURCHASE PRICE. The aggregate consideration payable to the Seller for the Acquired Assets and the Assignment of Lease (the 5 "Purchase Price") shall equal Three Hundred Forty Five Thousand ($345,000.00) Dollars, which shall be allocated as follows: (a) $295,000.00 payable in respect of the Assignment of Lease; and (b) $50,000.00 payable in respect of the Acquired Assets. 2.2 PAYMENT. The Purchase Price shall be payable as follows: (a) Within 3 days after the full execution and delivery of this Agreement, $34,500.00 by check, subject to collection, of the Buyer to the order of Coughlin & Malone, as Escrow Agent (hereinafter called the "ESCROW AGENT"), to be deposited in a Trustee (IOLTA) Account and held in escrow in accordance with Section 10 of this Agreement. Such amount is hereinafter collectively called the "DEPOSIT"; (b) upon the Closing (as such term is defined below), by the Buyer executing and delivering to Seller a promissory note in the principal amount of One Hundred Thousand ($100,000.00) Dollars in the form, and upon the terms, covenants and conditions, set forth on EXHIBIT C annexed hereto and made a part hereof (hereinafter called the "NOTE") ; and (c) upon the Closing, an amount (hereinafter called the "BALANCE OF THE PURCHASE PRICE") equal to the amount by which the Purchase Price exceeds the sum of (i) the Deposit (including, without limitation, all interest on the Deposit, which interest shall be credited against the Purchase Price at Closing), plus (ii) the principal amount of the Note, by certified or bank check of Buyer or by wire transfer of immediately available federal funds. 2.3 ADJUSTMENTS. The following items shall be prorated and adjusted as of 11:59 p.m. of the day preceding the Closing Date: (a) the fixed rent and all other charges payable under the Lease; and (b) all other items typically adjusted between a purchaser and a seller in a similar transaction in the Connecticut area. In addition, the parties shall adjust all items of unopened liquor and alcoholic beverage inventory at Seller's cost on a dollar for dollar basis (not to exceed $15,000.00) 3. CLOSING 3.1 TIME AND PLACE. The closing of the transfer and delivery of the documents and instruments necessary to consummate the purchases and sales contemplated by this Agreement (the "Closing") shall be held at the offices of Buyer, 3 Stamford Landing, Stamford, Connecticut, at 10:00 a.m. on the date that is forty (40) days following the date of this Agreement, or at such other time and place as the Buyer and the Seller may agree subject to the 2 6 provisions of Section 8.8 and the other terms and conditions of this Agreement. The date on which the Closing is actually held hereunder is sometimes referred to herein as the "Closing Date". 3.2 TRANSACTIONS AT CLOSING. At the Closing hereunder: (a) The Buyer shall pay to the Seller the Balance of the Purchase Price by (i) delivery of a certified bank check payable to the order of the Seller or by wire transfer of immediately available federal funds, and (ii) by execution and delivery to Seller of the Note. The Deposit shall be dispersed in accordance with the provisions of Section 10 below. (b) The Seller shall duly execute and deliver to the Buyer or its nominee or nominees such bills of sale, certificates of title and other instruments of assignment or transfer with respect to the Acquired Assets as the Buyer may reasonably request and as may be necessary to vest in the Buyer good record and marketable title to all of the Acquired Assets, including, but not limited to, the General Assignment and Bill of Sale substantially in the form attached hereto as EXHIBIT D and made a part hereof. (c) The Seller shall provide a certificate of good standing for the Seller in a form provided by the Secretary of State of Connecticut dated as of a date not more than ten (10) days prior to the Closing Date. (d) The Seller shall execute and deliver to the Buyer, and the Buyer shall execute and deliver to Seller, the Assignment of Lease. 4. REPRESENTATIONS AND WARRANTIES OF THE SELLER The Seller represents and warrants to the Buyer that the statements contained in this Section 4 are true, correct and complete as of the date of this Agreement and will be true, correct and complete as of the Closing Date as if made on the Closing Date. 4.1 ORGANIZATION OF THE SELLER; AUTHORITY. The Seller is a corporation duly authorized, validly existing and in good standing under the laws of the State of Connecticut. The Seller has all requisite power and authority to own and hold the Acquired Assets, to carry on its business and to own or lease and operate its properties, including, without limitation, the Premises, as such business is now conducted and such properties are now owned, leased or operated. The Seller has all requisite power, authority and capacity to execute and deliver this Agreement and all other agreements, documents and instruments contemplated hereby and to carry out all actions required of it pursuant to the terms of this Agreement. 3 7 4.2 CORPORATE APPROVAL; BINDING EFFECT. The Seller has obtained all necessary authorizations and approvals from its Board of Directors and stockholders required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Seller and constitutes the legal, valid and binding obligation of the Seller, enforceable against Seller in accordance with its terms. 4.3 NONCONTRAVENTION. Neither the execution and delivery of this Agreement by the Seller nor the consummation by the Seller of the transactions contemplated hereby will constitute a violation of, or be in conflict with, or constitute or create a default under, or result in the creation or imposition of any Encumbrance upon any property of the Seller (including, without limitation, any of the Acquired Assets) pursuant to (a) the charter documents or Bylaws of the Seller, each as amended to date; (b) any agreement or commitment to which the Seller is a party or by which the Seller or any of its properties (including, without limitation, any of the Acquired Assets) is bound or to which the Seller or any of such properties is subject; or (c) any statute or any judgment, decree, order, regulation or rule of any court or governmental authority. 4.4 GOVERNMENTAL CONSENT. No consent, approval or authorization of, or registration, qualification of filing with, any governmental agency or authority is required for the execution and delivered of this Agreement and all other agreements, documents and instruments contemplated hereby. 4.5 TITLE TO ACQUIRED ASSETS. The Seller is the lawful owner of, has good and valid record and marketable title to, and has the full right to sell, convey, transfer, assign and deliver all of the Acquired Assets, without any restrictions of any kind whatsoever. All of the Acquired Assets are entirely free and clear of any Encumbrances other than the Permitted Encumbrances. At Closing, the Seller will convey the Acquired Assets to the Buyer by bills of sale and transfer effective to vest in the Buyer, and the Buyer will have, good and valid record and marketable title to all of the Acquired Assets, free and clear of all Encumbrances. 4.6 THE LEASE; THE PREMISES. The Lease is in full force and effect and neither LBG nor Seller is in default of any of their respective obligations thereunder. Except for Seller, there are no tenants or other parties in possession of any part of the Premises, and except for LBG there are no other parties who have a right to possession of, or title to, any part of the Premises. Seller is not aware of any pending or threatened condemnation or similar proceeding affecting any part of the Premises. Except as set forth on Schedule 4.6 hereto, there are no oral or written contracts, commitments, understandings or agreements affecting the Premises. 4 8 4.7 HAZARDOUS MATERIALS. To the best of Seller's knowledge, no toxic material, pollutant, petroleum products, asbestos, hazardous waste or hazardous substance of a kind or in a quantity prohibited or deemed unsafe under any law or governmental rule or regulation and no hazardous or unsafe level of radon gas (hereinafter collectively called "HAZARDOUS MATERIALS") are located upon or within the Premises (or any portion thereof). To the best of Seller's knowledge, the Premises have never been used for the storage, handling, manufacturing, discharge or disposal of Hazardous Materials or for industrial purposes, and there are not now, and there never have been, underground tanks for gasoline, oil or any other liquid products within the Premises. 4.8 LITIGATION, ETC. No action, suit, proceeding or investigation is pending or, to the knowledge of the Seller, threatened, relating to or affecting the Premises or any of the Acquired Assets or relating to or affecting the activities of the Seller carried on the Premises or with any of the Acquired Assets, or that questions the validity of this Agreement or challenges any of the transactions contemplated hereby, nor is there any basis for any such action, suit, proceeding or investigation. The Seller is not aware of any actions, suits, proceedings or claims affecting any part of the Premises, or affecting Seller with respect to the ownership, occupancy, use or operation of any part of the Premises pending or threatened in or before any court, agency, commission or board. No petition in bankruptcy (voluntary or otherwise), assignment for the benefit of creditors, or petition seeking reorganization or arrangement or other action under Federal or State bankruptcy laws is pending or threatened against, or contemplated by the Seller. 4.9 CONFORMITY TO LAW. To Seller's knowledge, the Seller has complied with, and is in compliance with, (a) all laws, statutes, governmental regulations and all judicial or administrative tribunal orders, judgments, writs, injunctions, decrees or similar commands applicable to its business, the Premises and all of the Acquired Assets (including, without limitation, any labor, environmental, occupational health, zoning or other law, regulation or ordinance), (b) all unwaived terms and provisions of all contracts, agreements and indentures to which the Seller is a party, or by which the Seller or any of the Acquired Assets is subject, and (c) its charter documents and Bylaws, each as amended to date. The Seller has not committed, been charged with, or been under investigation with respect to, or does there exist, any violation of any provision of any federal, state or local law or administrative regulation in respect of its business, the Premises or any of the Acquired Assets. 4.10 BOOKS AND RECORDS. All accounts, books, ledgers and official and other records of whatsoever kind material to the Business have been fully, properly and accurately kept and 5 9 completed in all respects, and there are no material inaccuracies or discrepancies of any kind contained or reflected therein, and collectively they fairly present the financial position of the Seller. The Seller does not have any of its records, systems, controls, data or information recorded, stored, maintained, operated or otherwise wholly or partly dependent on or held by any means (including any electronic, mechanical or photographic process, whether computerized or not) which (including all means of access thereto and therefrom) are not under the exclusive ownership and direct control of the Seller. The Seller keeps its records and books of account in conformity with generally accepted accounting principles. 4.11 RESTRICTIVE DOCUMENTS. The Seller is not subject to, or a party to, any charter, bylaw, mortgage, lien, lease, license, permit, agreement, contract, instrument, law, rule, ordinance, regulation, order, judgment or decree, or any other restriction of any kind or character, which would prevent consummation of the transactions contemplated by this Agreement or the compliance by the Seller with the terms, conditions and provisions hereof. 4.12 CONTRACTS AND AGREEMENTS. There are no service or other contracts or agreements affecting Seller, the Acquired Assets, the Lease or the Premises which will be binding upon or assumed by Buyer including, without limitation, any employment or union agreements or obligations. 4.13 BROKERS. The Seller acknowledges that no broker or finder was employed in connection with the transactions contemplated in this Agreement, other than as set forth in Section 8.7 below. 5. REPRESENTATIONS AND WARRANTIES OF THE BUYER 5.1 ORGANIZATION AND GOOD STANDING OF BUYER. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. The Buyer has all requisite power, authority and capacity to execute and deliver this Agreement and all other agreements, documents and instruments contemplated hereby and to carry out all actions required of it pursuant to the terms of this Agreement. 5.2 CORPORATE APPROVAL; BINDING EFFECT. The Buyer has obtained all necessary authorizations and approvals from its Board of Directors and stockholders required for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and constitutes the legal, valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms. 6 10 5.3 ENVIRONMENTAL REVIEW OF PREMISES. The Buyer acknowledges that prior to the execution of this Agreement it has had the opportunity to have an environmental inspection or Phase I environmental audit conducted on the Premises. 5.4 BROKERS. The Buyer acknowledges that no broker or finder was employed in connection with the transactions contemplated in this Agreement, other than as set forth in Section 8.7 below. 6. INDEMNIFICATION 6.1 INDEMNIFICATION BY SELLER. Seller shall defend, indemnify and hold the Buyer harmless from and against any taxes, penalties, interest, claims, suits, damages, liabilities, costs and other expenses, including, without limitation, reasonable attorneys' fees and litigation costs, experts' fees and house counsel expenses suffered or incurred by the Buyer as a result of the inaccuracy of any representation and/or warranty contained in this Agreement or the inaccuracy of any instrument, certification or affidavit executed pursuant to this Agreement. The representations, warranties, covenants and agreements made by Seller in this Agreement shall be true and correct as of the Closing and shall survive closing for a period of one (1) year. 6.2 INDEMNIFICATION BY BUYER. The Buyer shall defend, indemnify and hold Seller harmless from and against any taxes, penalties, interest, claims, suits, damages, liabilities, costs and other expenses, including, without limitation, reasonable attorneys' fees and litigation costs, experts' fees and house counsel expenses suffered or incurred by Seller as a result of the inaccuracy of any representation and/or warranty contained in this Agreement or the inaccuracy of any instrument, certification or affidavit executed pursuant to this Agreement. The representations, warranties, covenants and agreements made by the Buyer in this Agreement shall be true and correct as of the Closing and shall survive closing for a period of one (1) year. 7. CONDUCT OF BUSINESS BY SELLER PENDING CLOSING 7.1 CARRY ON IN REGULAR COURSE. The Seller agrees to conduct its business in the ordinary course of business and shall maintain the Acquired Assets and the Premises in good operating condition and repair, and make all necessary renewals, additions and replacements thereon, and shall carry on its respective business diligently and substantially in the same manner as heretofore conducted. Without limiting the immediately preceding sentence, pending the closing Date, the Seller will not permit the Premises or any of the Acquired Assets to be subjected to any Encumbrance, will not permit to be sold, transferred or otherwise disposed of 7 11 any of the Acquired Assets, and will not agree, whether or not in writing, to do any of the foregoing. 7.2 EXCLUSIVE DEALING. The Seller shall not, directly or indirectly, encourage, initiate or engage in discussions or negotiations with, or provide any information to, any corporation, partnership, person or other entity or group, other than the Buyer and its representatives, concerning any purchase of Seller's business or any of the Acquired Assets. 7.3 NOTIFICATIONS BY SELLER. The Seller shall promptly advise Buyer in writing of any facts of which the Seller becomes aware indicating the inaccuracy of any of the representations or warranties of the Seller contained in this Agreement, and the Seller shall promptly provide the Buyer with copies of any written notices which Seller gives or receives relating to the Premises including, without limitation, any notice received from or given to LBG. 7.4 MAINTENANCE OF PROPERTY. The Seller shall cause the Premises to be kept in its present physical condition, and shall not suffer or permit any excavation or waste upon the Premises. The Seller shall fully and timely perform all of its obligations under the Lease and maintain the same in full force and effect prior to Closing. The Seller shall pay all taxes and assessments imposed against the Premises in a timely manner. 8. OTHER COVENANTS AND AGREEMENTS 8.1 CONFIDENTIAL INFORMATION. Any and all non-public information disclosed by the Buyer to the Seller or by the Seller to the Buyer as a result of the negotiations leading to the execution of this Agreement, or in furtherance thereof, shall remain confidential, except to the extent that the Buyer in its reasonable judgment, must disclose any such information to its advisers and consultants, or to banks, venture capitalists and other institutional lenders or investors in the process of procuring the loan or investment of funds for the purchase contemplated herein. If the closing does not take place for any reason, each of the Seller and the Buyer agrees not to further divulge or disclose or use for its benefit or purposes any such information at any time in the future unless it has otherwise become public. The information intended to be protected shall include but not be limited to, financial information and customer and supplier lists, and anything else having an economic or pecuniary benefit to the Buyer or the Seller, respectively. 8.2 EMPLOYEE MATTERS. The Seller shall pay on or before the Closing Date, all bonus, profit-sharing, severance, pension, vacation, personal and sick day and other amounts owing and accrued 8 12 as of such date relating to the Seller's employees and/or consultants and in no event shall any liability for any such amounts be or be deemed to be assumed by the Buyer. The Buyer may offer employment to some or all employees of Seller employed on the Closing Date, as it may determine in its sole discretion, upon such terms and conditions as it may determine in its sole discretion. It is understood that any such offer of employment shall be for no fixed duration and shall be terminable at the will of the Buyer and each such employee. 8.3 EXPENSES. All expenses of the preparation, execution and consummation of this Agreement and of the transactions contemplated hereby, including, without limitation, attorneys', accountants' and outside advisers' fees and disbursements, shall be borne by the party incurring such expenses. In addition, the Seller shall pay all taxes imposed with respect to this transaction including, but not limited to, any sales taxes imposed upon the sale of the Acquired Assets and the Assignment of Lease. 8.4 RISK OF LOSS. The risk of any loss, damage or destruction to the Premises and the Acquired Assets from fire or other casualty or cause shall be borne by the Seller at all times prior to the Closing. 8.5 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants hereto contained in this Agreement or otherwise made in writing in connection with the transactions contemplated hereby shall survive the Closing (for a period of one (1) year) and any investigation at any time made by or on behalf of the parties hereto. If either party shall have breached any of its representations and warranties or any other term of this Agreement, such party shall be liable to the non-breaching party for the fees and expenses of counsel to the non-breaching party in any litigation arising out of such breach. 8.6 PUBLIC STATEMENTS OR RELEASES. The parties hereto each agree that prior to the Closing no party to this Agreement will make, issue or release any public announcement, statement or acknowledgment of the existence of the transactions provided for herein without first obtaining the consent of the other parties hereto. Nothing contained in this Section 8.6 shall prevent any party from making such public announcements as such party may consider necessary in order to satisfy such party's legal or contractual obligations. 8.7 BROKER/REALTORS FEES. The Seller and Buyer each represent and state that the only broker/agent due any commission is Friedland Realty, Inc. and that any fees due shall be paid by Rattlesnake Holding Company. The Seller and the Buyer mutually agree to indemnify, defend and hold each other harmless from and against any and all claims, suits, liabilities, damages, costs and 9 13 expenses (including, without limitation, the reasonable attorneys' fees and costs of suit) incurred by such party to be indemnified hereunder in the event the other party breaches its representation contained in this Section. This Section shall survive the Closing or any termination of this Agreement. 8.8 CONDITIONS TO CLOSING. Buyer's obligation to pay the Balance of the Purchase Price and otherwise close and consummate the transactions contemplated by this Agreement is contingent upon the following: (a) The representations and warranties of the Seller set forth in Section 4 and elsewhere in this Agreement shall be true, complete and correct as of the Closing Date as if made on such date and Seller shall have delivered to the Buyer a certificate of its President dated the Closing Date certifying to that effect; (b) The Seller shall have delivered to Buyer a fully executed estoppel certificate (hereinafter called the "ESTOPPEL") from LBG in the form annexed hereto as EXHIBIT E and made a part hereof; (c) LBG and the Buyer shall have entered into the First Amendment and Restated Lease in the form attached hereto as EXHIBIT F and made a part hereof; (d) Seller shall have delivered to the Buyer (i) a non-disturbance agreement from ___________ , the holder of the existing mortgage affecting the Premises dated ___________ in the original principal amount of $________ (the "Mortgage"), and (ii) the unconditional consent of such mortgagee to (x) the Assignment of the Lease and the sale of the Acquired Assets to Buyer and the other transactions provided for hereunder, and (y) the alterations to the Premises necessary or desirable for Buyer to retrofit the Premises for the operation of a Rattlesnake restaurant, to the extent such consent is required under the provisions of the Mortgage. Seller represents that the Mortgage is the only mortgage affecting the Premises, and that the Lease is the only lease affecting the Premises; and (e) Buyer shall have obtained all permits, licenses and approvals necessary to permit Buyer to operate its business on the Premises (including, without limitation, a liquor license) and to retrofit such Premises for the operation of a Rattlesnake restaurant. Buyer agrees to make prompt application for all of the foregoing. If the foregoing contingencies have not been satisfied on or before the date that is forty (40) days after the date of this Agreement, either Seller or Buyer may terminate this Agreement by giving written notice to the other, in which event the Deposit shall promptly be returned to Buyer. Notwithstanding the foregoing, 10 14 however, if Seller shall exercise its right to terminate this Agreement after such fortieth (40th) day as aforesaid, Buyer shall have the right, within five (5) days after Seller's termination notice is given, to countermand Seller's termination notice, in which event this Agreement shall continue in full force and effect, Buyer shall be deemed to have waived the foregoing contingencies, and the Closing Date shall occur within five (5) days after Buyer's countermand notice has been given. 9. GENERAL 9.1 NOTICES. All notices, demands and other communications hereunder shall be in writing and shall be made by hand delivery, first-class mail (registered or certified, return receipt requested, postage prepaid), or reputable national overnight air courier (e.g. Federal Express), addressed as follows: (a) If to the Seller, to: --------------------- CFT Restaurant Corp. c/o Mr. Thomas Dunn 10 Partridge Lane Milford Connecticut 06902 With a Copy Sent Contemporaneously to: -------------------------------------- Robert J. Malone, Esquire Coughlin & Malone 92 Cherry Street P.0. Box 209 Milford, CT 06460-0209 (b) If to the Buyer. to: -------------------- Rattlesnake of Milford, Inc. c/o Rattlesnake Holding Corp. 3 Stamford Landing Stamford, Connecticut 06902 With a Copy Sent Contemporaneously to: -------------------------------------- Wayne Heicklen, Esq. Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10022 or to such other address as the party receiving such notice shall have properly designated by notice to the other party hereto in accordance with this Section 9.1. Notices may be given by a party's attorney. 11 15 Each such notice shall be deemed given at the time delivered by hand, if personally delivered; five (5) business days after being deposited in the mail, postage prepaid, if mailed; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. 9.2 ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by all of the parties hereto. 9.3 GOVERNING LAW. The validity and construction of this Agreement shall be governed by the internal substantive laws of the State of Connecticut. 9.4 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon inure to the benefit of the heirs and successors of each of the parties. Neither this Agreement nor the obligations of any party hereunder shall be assignable or transferable by such party without the prior written consent of the other party hereto; PROVIDED, HOWEVER, that nothing contained in this Section 9.4 shall prevent the Buyer, without the consent of the Seller, from transferring or assigning this Agreement or its rights or obligations hereunder to (a) another entity controlling, under the control of or under common control with the Buyer, and/or (b) to its lenders as security. 9.5 NO IMPLIED RIGHTS OR REMEDIES. Except as otherwise expressly provided herein, nothing herein expressed or implied is intended or shall be construed to confer upon or to give any person, firm or corporation, other than the Seller and the Buyer and their respective shareholders, any rights or remedies under or by reason of this Agreement. 9.6 AMENDMENTS. This Agreement may not be changed orally, but only by an agreement in writing signed by the Seller and the Buyer. 9.7 FURTHER ASSURANCES, ETC. Each party shall, from time to time, execute, acknowledge and deliver such further instruments, and perform such additional acts, as the other party may reasonably request in order to effectuate the intent of this Agreement. Nothing contained in this Agreement shall be deemed to create any rights or obligations of partnership, joint venture or similar association between the Seller and the Buyer. 9.8 MISCELLANEOUS. If any term or provision of this Agreement, or the application thereof to any person or circumstance, shall, to any extent, be invalid or unenforceable, the remainder of this Agreement, or the application of such term or 12 16 provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforceable to the fullest extent permitted by law. The captions in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope of this Agreement or the scope or content of any of its provisions. 10. ESCROW PROVISIONS 10.1 ESCROW DEPOSIT. The Deposit shall be held by the Escrow Agent, in trust, on the terms hereinafter set forth and subject to the respective rights of the parties as to the payment of the Deposit as set forth elsewhere in this Agreement. 10.2 DEPOSIT IN ACCOUNT. The Escrow Agent shall, at the direction of the Buyer, deposit the Deposit in one or more interest-bearing accounts in a commercial bank in Connecticut. 10.3 DELIVERY OF DEPOSIT. The Escrow Agent will deliver the Deposit to Seller or to Buyer, as the case may be, under the following conditions: (a) to Seller on the Closing Date in the event a Closing shall occur pursuant to this Agreement; or (b) to Seller upon receipt of written demand therefor (hereinafter called "SELLER'S DEMAND FOR DEPOSIT"), stating that the Buyer has failed to pay the Balance of the Purchase Price in accordance with the terms of this Agreement, or that Buyer has otherwise breached or defaulted in any of its material obligations under this Agreement, and the facts and circumstances underlying such default; PROVIDED, HOWEVER, that the Escrow Agent shall not honor such demand until at least five (5) days after the Escrow Agent shall have delivered a copy of Seller's Demand for Deposit to Buyer in accordance with the provisions of Section 10.4 below, nor thereafter if the Escrow Agent shall have received a Notice of Objection (as such term is defined in Section 10.4 below) from Buyer within such five (5) day period; or (c) to Buyer upon receipt of written demand therefor (hereinafter called "BUYER'S DEMAND FOR DEPOSIT") stating that this Agreement has been terminated in accordance with the provisions hereof, or that any of Seller's representations or warranties are not true and correct in any material respect, or that Seller has otherwise breached or defaulted in any of its obligations under this Agreement, and the facts and circumstances underlying such default; PROVIDED, HOWEVER, that the Escrow Agent shall not honor such demand until at least five (5) days after the Escrow Agent shall have delivered a copy of Buyer's Demand for Deposit to Seller 13 17 in accordance with the provisions of Section 10.4 below, nor thereafter if the Escrow Agent shall have received a Notice of Objection from Seller within such five (5) period. 10.4 Notice of Objection. -------------------- (a) Within two (2) business days following delivery to Escrow Agent of Seller's Demand for Deposit or Buyer's Demand for Deposit, as the case may be, the Escrow Agent shall deliver a copy thereof to the other party as provided in this Section 10. The other party shall have the right to object to the delivery of the Deposit by sending written notice (hereinafter called a "NOTICE OF OBJECTION") of such objection to the Escrow Agent, which Notice of Objection shall be deemed null and void and ineffective if such Notice of Objection is not received by the Escrow Agent within the time periods prescribed in Section 10.3 above. Such notice shall set forth the basis for objecting to the delivery of the Deposit. Upon receipt of a Notice of Objection, the Escrow Agent shall promptly send a copy thereof to the party who sent the Demand for Deposit. (b) In the event the Escrow Agent shall have received a Notice of Objection within the time period prescribed in Section 10.4(a), the Escrow Agent shall (i) continue to hold the Deposit until the Escrow Agent has received written notice from both Seller and Buyer directing the disbursement of the Deposit, in which case the Escrow Agent shall then disburse the Deposit in accordance with such direction, or (ii) in the event of litigation between Seller and Buyer, deliver the Deposit to the clerk of the court in which said litigation is pending, or (iii) take such affirmative steps as the Escrow Agent may, at the Escrow Agent's option, elect in order to terminate the Escrow Agent's duties including, but not limited to, depositing the Deposit in any court which the Escrow Agent shall select in Connecticut, and commencing an action for interpleader, the costs thereof to be borne by whichever of SelLer or Buyer is the losing party. 10.5 LIABILITY OF ESCROW AGENT. It is agreed that the duties of the Escrow Agent are only as herein specifically provided, and subject to the provisions of this Section, are purely ministerial in nature, and the Escrow Agent shall incur no liability whatsoever except for willful misconduct or gross negligence, as long as the Escrow Agent has acted in good faith. Seller and Buyer each release the Escrow Agent from any act done or omitted to be done by the Escrow Agent in good faith in the performance of its duties hereunder. 10.6 INDEMNIFICATION OF ESCROW AGENT. The Escrow Agent is acting as a stakeholder only with respect to the Deposit. Seller and Buyer each agree, jointly and severally, to fully indemnify and hold the Escrow Agent harmless from and against all liabilities, damages, costs and expenses (including, without limitation, 14 18 reasonable attorneys fees) incurred by the Escrow Agent with respect to the performance of its duties hereunder. Upon making delivery of the Deposit in the manner herein provided, the Escrow Agent shall have no further liability hereunder. 10.7 EXECUTION OF AGREEMENT BY ESCROW AGENT. The Escrow Agent has executed this Agreement in order to confirm that the Escrow Agent is holding and will hold the Deposit in escrow, pursuant to the provisions hereof. IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers, as an instrument under seal, as of the date and year first above written. IN THE PRESENCE OF: BUYER RATTLESNAKE OF MILFORD, INC. BY: - ------------------------ -------------------------- - ------------------------ SELLER CFT RESTAURANT CORP. BY: /s/ Charles Tumminello - ------------------------ -------------------------- Section 10 agreed to: COUGHLIN & MALONE, AS ESCROW AGENT By: --------------------- 15 19 IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers, as an instrument under seal, as of the date and year first above written. IN THE PRESENCE OF: BUYER RATTLESNAKE OF MILFORD, INC. BY: - ------------------------ ------------------------------ - ------------------------ SELLER CFT RESTAURANT CORP. BY: /s/ Thomas E. Dunn, President - ------------------------ ------------------------------- Section 10 agreed to: COUGHLIN & MALONE, AS ESCROW AGENT By: --------------------- 20 EXHIBIT B ASSIGNMENT OF LEASE ------------------- THIS ASSIGNMENT OF LEASE ("Assignment") dated this __ day of June, 1996, made by CFT RESTAURANT CORP., a Connecticut Corporation having an address c/o Mr. Thomas Dunn, 10 Partridge Lane, Milford, Connecticut 06902 (hereinafter "Assignor") in favor of RATTLESNAKE OF MILFORD, INC., a Connecticut Corporation having an address at 3 Stamford Landing, Stamford, Connecticut 06902 (hereinafter "Assignee"). FOR AND IN CONSIDERATION of Ten ($10.00) Dollars and other good and valuable consideration paid by Assignee to Assignor, the receipt and sufficiency of which is acknowledged, Assignor hereby assigns, sets over and transfers unto Assignee all of its right, title and interest in and to that certain lease dated July 7, 1988 (the "Lease") made between Land and Building Group, as Landlord, and Assignor, as Tenant, subject to the covenants, conditions and limitations therein contained. TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever from and after the date hereof. IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the day and year first above written. CFT RESTAURANT CORP. By: -------------------------- Name: Title: 21 EXHIBIT C PROMISSORY NOTE $100,000.00 Stamford, Connecticut _______________, 1996 FOR VALUE RECEIVED, the undersigned, RATTLESNAKE OF MILFORD, INC., a Connecticut corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of CFT RESTAURANT CORP., a Connecticut corporation (the "Lender"), the principal sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) on __________, 2001 (the "Maturity Date"), or such lesser amount as remains outstanding under this Promissory Note on the Maturity Date. The Borrower may prepay all or any part of the principal of this Promissory Note at any time prior to the Maturity Date without penalty or premium. The Borrower shall pay interest on any and all amounts outstanding under this Promissory Note at the rate of one percent above the prime lending rate as announced by Citibank, N.A., New York from time to time. All accrued and unpaid interest on this Promissory Note shall be payable semi-annually on the last business day of [insert dates that are 6 and 12 months respectively after date of Note] in each year, commencing [insert date that is 6 months after date of Note], and on the Maturity Date. Both principal and interest are payable in lawful money of the United States of America in same day funds at the address of the Lender set forth in that certain Assets Sale/Purchase Agreement dated as of _________, 1996 between Borrower and Lender. Borrower also shall pay all costs associated with the enforcement and collection of amounts due hereunder, including fees and expenses of Lender's counsel. Presentment, protest, notice of nonpayment and protest and all other similar notices are hereby waived by the Borrower. This Promissory Note shall be interpreted and the rights and liabilities of the parties hereto determined in accordance with the laws of the State of Connecticut applicable to agreements made and to be performed entirely within such state. Whenever possible each provision of this Promissory Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Promissory Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Promissory Note. The provisions of this 16 22 Promissory Note shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit of Lender and its successors and assigns. RATTLESNAKE OF MILFORD, INC. By:__________________________ Name: Title: Rattlesnake Holding Corp. shall guaranty the full repayment of the above Promissory Note. 17 23 EXHIBIT D GENERAL ASSIGNMENT AND BILL OF SALE KNOW ALL MEN BY THESE PRESENTS, that CFT RESTAURANT CORP., a Connecticut Corporation having an address c/o Mr. Thomas Dunn, 10 Partridge Lane, Milford, Connecticut 06902 (hereinafter "Assignor") in consideration of the sum of One Dollar ($1.00) and other good and valuable consideration paid, the receipt of which is hereby acknowledged, does hereby convey and assign to RATTLESNAKE OF MILFORD, INC., a Connecticut Corporation having an address at 3 Stamford Landing, Stamford, Connecticut 06902 (hereinafter "Assignee"), its successors and assigns, all of Seller's right, title and interest in and to all fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus, appliances and other articles of personal property located at, or otherwise used in connection with the operation of, the premises commonly known as 1360 Boston Post Road, Milford, Connecticut, including, without limitation, the items described in EXHIBIT A annexed hereto. TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever. IN WITNESS WHEREOF, the Assignor has caused these presents to be executed this ____ day of June, 1996. CFT RESTAURANT CORP. ASSIGNOR By:________________________ Name: Title: RATTLESNAKE OF MILFORD, INC. ASSIGNEE By:_________________________ Name: Title: 24 EXHIBIT E LAND AND BUILDING GROUP C/O THOMAS DUNN 10 PARTRIDGE LANE MILFORD, CONNECTICUT 06460 June , 1996 RATTLESNAKE OF MILFORD, INC. 3 STAMFORD LANDING STAMFORD, CONNECTICUT 06902 Re: 1360 Boston Post Road, Milford, Connecticut (the "Premises") ------------------------------------------------ Dear Sir/Madam: The undersigned ("LANDLORD"), being the landlord under that certain lease dated July 7, 1988 (the "LEASE") between LAND AND BUILDING GROUP, as landlord, and CFT RESTAURANT CORP. ("CFT"), as tenant, which Lease covers the Premises, hereby certifies to RATTLESNAKE OF MILFORD, INC. as successor-in-interest to CFT ("Rattlesnake"), with the understanding that Rattlesnake is relying on the representations contained herein as a material inducement for their accepting an assignment of the Lease: 1. The Lease constitutes the entire agreement between Landlord and CFT and is unmodified and in full force and effect. 2. There are no defaults on the part of CFT or Landlord under the Lease. 3. All net rent and additional rent and any other charges due to Landlord under the Lease have been paid through the date hereof. 4. No actions, whether voluntary or otherwise, are pending against Landlord under the bankruptcy laws of the United States or any State thereof. Signed, LANDLORD: LAND AND BUILDING GROUP By:____________________ Name: Title: EX-10.27 8 RESTATED LEASE 1 EXHIBIT 10.27 FIRST AMENDMENT AND ------------------- RESTATED LEASE -------------- THIS INDENTURE, made by and between LAND AND BUILDING GROUP, a Connecticut General Partnership having an address c/o Mr. Thomas Dunn, 10 Partridge Lane, Milford, Connecticut 06460 (hereinafter called "Landlord"), and RATTLESNAKE OF MILFORD, INC., a Connecticut Corporation having an address at 3 Stamford Landing, Stamford, Connecticut 06902 (hereinafter called "Tenant"). W I T N E S S E T H T H A T: WHEREAS, the Landlord is the owner of certain land with the building thereon containing approximately 9,200 square feet of net rentable area located at 1360 Boston Post Road, Milford, Connecticut, including all parking areas appurtenant to the building (sometimes referred to hereafter as the "Premises" or the "Demised Premises"). WHEREAS, pursuant to an Agreement to Lease (the "Original Lease") dated July 7, 1988, Landlord leased the Premises to CFT Restaurant corp ("CFT"). WHEREAS, pursuant to an Assets Sale/Purchase Agreement, between CFT and Tenant (the "ASPA"), CFT agreed, inter alia, to assign all of its rights, titles and interest in, to and under the Original Lease to Tenant and, pursuant to an Assignment of Lease of even date herewith, CFT assigned all of its rights, titles and interest in, to and under the Lease to Tenant. NOW, THEREFORE, in consideration of the respective provisions and agreements hereinafter contained, and for Ten Dollars ($10.00) and other good and valuable consideration, the mutual receipt and legal sufficiency of which is hereby acknowledged, Landlord and Tenant hereby agree to amend and restate the Original Lease in its entirety upon, and subject to, the terms, covenants and conditions herein contained. 1. DEMISE/TERM. Landlord hereby leases to Tenant, and Tenant hires from Landlord, the Premises for the term herein stated upon and subject to, the terms, covenants and conditions set forth herein. The term of the Lease shall commence on the date hereof and shall expire on the last day of the month during 2 which the date that is ten (10) years following the Full Rent Commencement Date (as such term is hereinafter defined) shall occur. When the full Rent Commencement Date has been determined, the parties shall enter into a supplementary agreement confirming same and the expiration date hereof. 2. RENT ---- (a) Commencing on the Full Rent Commencement Date and continuing for the balance of the term, Tenant shall pay to the Landlord as Base Rent on the 1st day of each and every month, in advance, without setoff or deduction of any kind, the sum of TEN THOUSAND AND NO/100 ($10,000.00) DOLLARS per month. Said payments shall be subject to additional rent and adjustments as hereinafter provided in this Lease. If the Full Rent Commencement Date shall occur on a date that is other than the 1st day of a month, then the Base Rent shall be proportionately adjusted. For purposes of this Lease, the "Full Rent Commencement Date" shall mean the date that is forty five (45) days after all the following have occurred: (i) Landlord shall have delivered, and Tenant shall have accepted, possession of the Premises in the condition required under the Lease, (ii) Tenant shall have obtained all permits and other approvals (including, without limitation, approvals from any mortgagee that may be required) for the commencement of construction of its work to prepare the Premises for its occupancy, (iii) Landlord shall have delivered to Tenant a non-disturbance agreement from the holder of any mortgage affecting the Premises substantially in the form annexed hereto as Exhibit A, and (iv) all contingencies set forth in Section 8.8 of the ASPA shall have been satisfied and the closing under the ASPA shall have occurred. (b) Tenant shall pay Landlord each lease year as additional rental, any ad valorem real property taxes, sewer use taxes, assessments and governmental charges of any sort whatsoever imposed on the Demised Premises during the term of this Lease (collectively "Real Estate Taxes") provided, however, that Real Estate Taxes shall not include any transfer or documentary stamp 2 3 tax, any tax upon the income or profits of Landlord, or any capital levy, franchise, inheritance or estate taxes. Landlord represents that the Premises are separately assessed for Real Estate Taxes. Tenant shall pay Landlord, together with the Base Rent, an amount equal to $______ representing 1/12th of the estimated Real Estate Taxes for each lease year, which obligation shall commence on the date Tenant accepts possession of the Premises, and Landlord shall pay, prior to the due date, all Real Estate Taxes imposed against the Premises during the term and deliver proof thereof, and copies of all tax bills to Tenant. (A copy of the applicable tax bills or bills provided to the Tenant shall be sufficient evidence of the amount of the Real Estate so imposed). If Tenant's estimated tax payments shall exceed the actual amount thereof, Landlord shall promptly refund the difference, and if the actual amount of Real Estate Taxes shall exceed the estimated payments, Tenant shall, within twenty (20) days after Landlord's demand, pay any such shortfall. Landlord shall have the right to make such demand, and to adjust the amount of the estimated Real Estate Tax payment Tenant is required to pay, in the event Landlord is notified of an increase in the amount of Real Estate Taxes. Tenant shall have the right to contest the Real Estate Taxes, and Landlord shall cooperate with Tenant in connection therewith. (c) Tenant shall pay directly (i) to the taxing authorities any personal property taxes imposed against the Premises during the term, and (ii) for any maintenance costs, sewage use or service fee or tax or a sewer assessment, utilities, including electricity, water, gas, and heating oil, landscaping services and maintenance, snow removal, rubbish removal and hot water. (d) In the event any monies due from the Tenant are not paid within ten (10) days after the due date, interest at the rate of fifteen (15%) percent per annum upon the unpaid balance of such monies due until date of payment, together with costs and reasonable attorney's fees for collection, if any, shall be paid. 3 4 (e) All payments to the Landlord shall be made by checks or drafts on good funds payable to the order of Landlord, or Landlord's designated payee, and shall be mailed and delivered to such payee, at Land & Building Group, c/o Thomas Dunn, 10 Partridge Lane, Milford, Connecticut 06460, or such other address as the Landlord hereunder may direct by written notice delivered to Tenant, pursuant to the notice provision of this lease. 2. USE. --- The Tenant covenants and agrees that the Demised Premises and all parts thereof shall be used only for the following: a restaurant for the retail sale of liquor and food and uses appurtenant thereto. The Landlord shall not be liable in any event whatsoever for any nuisance or claimed nuisance arising out of or connected with the Tenant's occupancy of the Demised Premises, or for any damage to any property (including property of the Tenant) or for any injury, including death as the result thereof, to any person or persons arising out of or connected with the Demised Premises or the occupancy thereof by the Tenant or that may happen on or about the Demised Premises, or the property, or for any injury or damages to the Demised Premises or to any property of the Tenant or of any person or persons contained thereon, whether occurring by reason of any existing or future condition, defect, matter or thing on or about the Demised Premises or the property, except if due to the acts, omissions or negligence of Landlord, its agents or representatives. Landlord represents that, to its knowledge, the use of the Premises as a restaurant for the sale of food and liquor is permitted by all laws, rules and regulations affecting the Premises, that there is sufficient parking to comply with zoning law, and that the Premises is in compliance with, and there are no violations of, any building code or similar rule, regulation or order affecting the Premises. 3. INSURANCE --------- (a) Tenant shall purchase and keep in full force and effect, during the entire lease term hereof, at his sole cost and 4 5 expense, public liability and property damage insurance in which the Landlord and the Tenant shall be named as insured in companies reasonably acceptable to the Landlord to protect both the Landlord and the Tenant against any liabilities from damages or injuries to persons or property incident to the use of or resulting from any accident in or about said Demised Premises from any cause whatsoever in the amount of at least Three Million Dollars ($3,000,000.00) from injury or death to any one person and Five Million Dollars ($5,000,000.00) for injury arising out of any one incident, accident or occurrence and replacement cost with respect to damage to the improvements upon the real property. Such policy or policies shall be in such form and with such insurance companies as shall be reasonable satisfactory to the Landlord with provisions for at least ten (10) days notice to Landlord for cancellation. Certificates of all insurance policies required by any of the terms of this lease shall be promptly furnished to the Landlord and the Tenant shall submit to Landlord annually, on the anniversary date of this lease, copies of all paid premiums for any such insurance policies. The Tenant is to obtain a written obligation on the part of the insurance carriers to notify the Landlord in writing prior to any cancellation of insurance, and the Tenant agrees that if the Tenant does not keep such insurance in full force and effect the Landlord may take out the necessary insurance and pay the premium and the repayment thereof to the Landlord shall be deemed to be part of the rental and payable as such on the next day upon which the rent becomes due. Tenant agrees that he shall keep all his furniture, fixtures, and equipment in the Demised Premises, whether owned by Landlord or by Tenant, insured to the extent of full insurance value thereof, against loss or damage by fire with the usual extended coverage endorsements. It is understood and agreed that the Tenant assumes all risk of damage to his own property and that of his agents, arising from any cause whatsoever, including, without limitation, loss by theft or otherwise. In that event that during the term hereof and as the 5 6 result of any act or neglect of Tenant, his invitee, agents, employees, or representatives, of the nature of the business conducted in or at the building shall be increased over the rate then existing as of the date hereof, the Tenant, on demand, shall pay to the Landlord as additional rent a sum equal to any increase in the cost of such insurance caused by such increase in said insurance rate. Nothing herein contained shall diminish any other rights granted to Landlord under any other provision of this lease if such act or neglect hereinbefore stated constitutes a breach of any term of this lease. Except for claims arising out of acts caused by the negligence of the Landlord, agents or its representatives, Tenant agrees to indemnify, and save harmless the Landlord and its officers, directors, agents and employees from and against all liability (statutory or otherwise), claims, suits, demands, judgements, costs, interest and expenses, including counsel fees and disbursements incurred in the defense thereof to which the Landlord or any such officer, director, agent or employee may be subject or suffer whether by reason of, or by reason of any claim for, injury to or death of, any person or persons or damage to property (including any loss of use thereof) or otherwise arising from or connection with the use of the Demised Premises, or from any work or thing whatsoever done in any part of the Demised Premises, or from any work or thing whatsoever done in any part of the Demised Premises during the term of this lease or during the period of time, if any, prior to the commencement of such term that the Tenant may have been given access to such part for the purpose of doing work otherwise, or arising from any condition of the Demised Premises due to or resulting from any default by the Tenant, in the keeping, observance or performance of any covenant, agreement, term, provision or condition contain ed in this Lease or from any act or negligence of the Tenant or any of his officers, directors, agents, contractors, servants, employees, licensees or invitees, whether the Landlord may be legally liable therefor or not. Tenant shall have the right to maintain all insurance 6 7 required of it under blanket or umbrella policies. Tenant shall name Landlord and its mortgagee as additional insureds under its insurance policies. (b) Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action against each other, their agents, officers, directors, partners and employees, for any loss or damage that may occur to the Premises or personal property, including building contents, within the Premises by reason of fire or the elements of nature or other events normally covered by extended all risk property damage insurance coverage, regardless of cause or origin including negligence of Landlord or Tenant and their agents, officers, directors, partners and employees. Landlord and Tenant shall immediately give written notice of the terms of the mutual waivers contained in this paragraph to each of their respective insurance companies which have issued policies of insurance covering all risk property damage, and shall have the insurance policies properly endorsed to reflect the insurance company's acknowledgment of such waiver and the absence of any subrogation rights. Each party shall provide to the other, annually within ten (10) days after request therefor, evidence that its all risk property damage insurance policies have been so endorsed. (c) Tenant shall during the term maintain in full force and effect all risks, property damage insurance and a standard extended coverage endorsement issued by an insurance carrier licensed to business in Connecticut reasonably acceptable to Landlord covering the improvements on the Premises to the extent of its full replacement value exclusive of foundation and excavation costs. Tenant shall name Landlord and its mortgagee as additional insureds on such policy, shall deliver an insurance certificate to Landlord, and such policy shall provide that it cannot be cancelled without ten (10) days prior notice to Landlord. 4. LANDLORD'S RIGHT OF ENTRY ------------------------- 7 8 Landlord, its agents and representatives, at all reasonable times upon prior reasonable notice may enter said Premises by a master key, or otherwise, for the purpose of (1) inspection thereof, (2) after default by Tenant making such repairs or replacements to said Premises as the Landlord may deem reasonably necessary and appropriate for the maintenance of its equity interest therein, although nothing herein contained shall be deemed to require the Landlord to make any such repairs or replacements except as otherwise incumbent upon him to do under provisions of this lease, (3) exhibiting the said Premises to prospective tenants during the last six (6) months of the term, or exhibiting then to prospective purchasers or other persons at any time throughout said term, and (4) during the last six (6) month period, provided Tenant shall have vacated the said Premises, to decorate, remodel, alter and otherwise prepare the said Premises for occupancy, and any such entry by or on behalf of Landlord shall not be or constitute an eviction or deprivation of any right of Tenant, and shall not alter the obligations of Tenant hereunder or create any right in Tenant adverse to the interest of Landlord. Landlord shall perform any work to the Premises at such times and in such a manner as shall cause the least practicable interference with Tenant's business. 5. ALTERATIONS ----------- Tenant shall not make any improvements, additions or alterations to, nor do any work to the Demised Premises that are structural in nature without obtaining Landlord's consent (which will not be unreasonably withheld or delayed) and, to the extent required under any mortgage, Landlord's mortgagee's prior written consent. Any improvements, additions or alterations shall be made at Tenants' sole cost and expense. Any improvements, additions and alterations shall be made pursuant to the following terms and conditions: (a) Plans and specification of such alteration shall be submitted to the Landlord at least twenty-one (21) days prior to the intended commencement of such alteration, and the Tenant 8 9 shall not proceed with alteration within a period of twenty-one (21) days after delivery of such plans and specifications unless it has, within said period, obtained a written approval from Landlord to the extent the same is required. To proceed with such alteration, the Landlord must grant such written approval or, if such twenty one (21) day period shall expire without objection by Landlord, Landlord shall be deemed to have approved such work. (b) Prior to commencement of such alterations, Tenant shall furnish to Landlord certificates evidencing the issuance of workmen's compensation insurance and general contractors' liability insurance, the latter in amounts equal to that required to be maintained by Tenant as elsewhere described in this lease throughout the rest of the term as to liability insurance, insuring both Landlord and Tenant as to any injuries which may occur in the course of said work, either to workmen to the general public, both as to personal injury and property damage, and such insurance shall, when delivered in the form of certificates to the Landlord, bear evidence of payment of premiums therefor. (c) Tenant shall provide a Certificate of Occupancy to the Landlord upon completion of any such work to the premises. 6. MECHANIC'S LIEN --------------- The Tenant shall not suffer or permit any mechanics' or artisans' or other liens to be filed or placed or exist against the fee of the Demised Premises nor against the Tenant's leasehold interest in said Demised Premises by reason of work, labor, services or materials supplied or claimed to have been supplied to the Tenant or anyone holding the Demised Premises or any part there of or under the Tenant, and nothing in this lease contained shall be deemed or construed in any way as constituting the consent or request of the Landlord, expressed or implied by inference or otherwise, to any contractor, subcontractor, laborer or materialman for the performance of any labor or the furnishings of any materials for any specific improvements, 9 10 alterations or repair of or to the Demised Premises or any part thereof, nor as giving the Tenant any right, power or authority to contract for or permit the rendering of any services or the furnishing of any materials that would give rise to the filing of any mechanics' or other liens against the fee of the Demised Premises. If any such mechanics' or other lien shall at any time be filed against the Demised Premises in connection with work performed at the request of the Tenant, the Tenant shall cause the same to be discharged of record within thirty (30) days after the date of filing the same at Tenant's expense, or, in addition to any other right or remedy of the Landlord, the Landlord may, but shall not be obligated, upon prior notice to Tenant, to discharge the same either by paying the amount claimed to be due or by procuring the discharge of such lien by deposit in court or bonding and in any such event the Landlord shall be entitled, if the Landlord so elects, to compel the prosecution of an action for the foreclosure of such mechanic's lien by the lienor and to pay the amount of the judgment, if any, in favor of the lienor with interest, costs and allowance, all at Tenant's expense. 7. OPTION TO EXTEND ---------------- (a) The term of this lease may be extended at the option of the Tenant for two (2) successive periods of five (5) years each by providing written notice to the Landlord sixty (60) days prior to the expiration of the then existing term. (b) Each extended term shall be upon the same terms, covenants, and conditions, with the Base Rent to increase to Twelve Thousand ($12,000.00) Dollars per month. Payment of all additional rent and other charges required to be made by the Tenant as provided in this lease for the initial term shall continue to be made during each of such extended terms. The Tenant shall not be permitted to extend this lease beyond the two extended terms. Any termination of this lease during the initial term or during any extended term shall terminate all rights of extension hereunder. 8. BROKERAGE FEES -------------- 10 11 Landlord and Tenant each represent and warrant to the other that the only brokers/agents due any commission is Friedland Realty, Inc. and Century 21 Milford, that any commission due Friedland Realty, Inc. or Century 21 Milford shall be paid by Tenant. 9. REPAIRS AND MAINTENANCE OF THE PROPERTY --------------------------------------- Tenant shall take good care of the non-structural elements of the Demised Premises and the fixtures, plumbing, heating, air conditioning and electric systems, and appurtenances located within the Demised Premises or its ceiling, and at its sole cost and expense maintain and repair the same as and when needed to preserve them in working order and condition. All damage or injury to the Demised Premises and to its fixtures, appurtenances and equipment caused by the Tenant, or resulting from fire, explosion, short circuits, flow or leakage of water, steam or by frost or by bursting or leaking of pipes or plumbing works, to the extent the foregoing are caused by the Tenant in moving in or out of the building or installing or removing any of the Tenant's property or fixtures, of from any other cause of any other kind or nature whatsoever due to the carelessness, omission, neglect, improper conduct of or other cause of Tenant, his servants, employees, agents or licensees shall be repaired and restored promptly by Tenant at his sole cost and expense to the satisfaction of Landlord. If the Tenant fails to make such repairs and restorations and such failure continues beyond the expiration of the applicable cure period and the giving of notice required hereunder, same may be made by Landlord at Tenant's expense. The Tenant further agrees to keep said Demised Premises in a clean and sanitary condition and free from trash, and other objectionable matter. Tenant shall be responsible for and shall retain janitorial services for the proper maintenance of the Premises. Tenant shall not permit, allow or cause any noxious, disturbing, or offensive odors, fumes, gases or any smoke, dust, steam, or vapors, or any loud or disturbing noise to originate in or be emitted from said Demised Premises. Tenant shall keep the 11 12 Premises free and clear of rodents, bugs and vermin. Tenant agrees that he will store all trash, rubbish, and garbage within a sealed container upon the Demised Premises, or in a common area in such manner as to assure that neither odors or unsightly conditions will result in the manner in which same is stored and agrees that he will enter into a contract with a independent third party to cause all trash, rubbish and garbage to be removed from the Demised Premises on a reasonably regular basis throughout the term of the lease. Tenant further agrees to permit no waste upon the Demised Premises and upon termination of this lease surrender possession of the same in as good condition as at the commencement of the lease, reasonable wear and tear, casualty and condemnation excepted. It is expressly understood that the Landlord is only responsible for maintenance, repairs and replacements to the roof (excepting any gutters or leaders), the utility lines to the point of entry to the building, the foundation, bearing walls and other structural elements of the Premises (herein collectively referred to as "structural" or "structural parts") unless the conditions necessitating the repairs to such structural parts shall have been caused by the Tenant, its agents or servants. Landlord shall perform such obligations it is required to perform under this Section 9. If Landlord shall fail to perform such obligations, Tenant may, after ten (10) days' written notice to Landlord, perform such obligations on Landlord's behalf at Tenant's reasonable expense. If Landlord shall not reimburse Tenant for its expenditures within ten (10) days after Tenant's written demand therefor, Tenant shall have the right to offset the rent payable hereunder to the extent of its expenditures. 10. COMPLIANCE WITH LAWS AND REGULATIONS ------------------------------------ The Tenant shall during the term of this lease, use and occupy said Premises for the purpose stated in Section 2, above, and Tenant shall not use of permit the same to be used for any other purpose or purposes without the prior written consent of Landlord. Tenant, at all times, shall fully and promptly comply 12 13 with all laws, ordinances, orders and regulations of any lawful authority having jurisdiction of said Premises, including, but not limited to, such as shall relate to the cleanliness, safety, occupation and use of said Premises and the nature, character and manner of operation of the business conducted in or at such Premises and with the rules and regulations of the New Haven Board of Fire Underwriters and the fire insurance company insuring the Premises. Tenant shall, at his sole expense, comply with all present and future laws, orders and regulations of the federal, state, county and municipal authorities, and with any direction of any public officer or officers, pursuant to law, which shall impose any violation, order or duty with respect to Demised Premises or the use or occupation and any alterations or improvements made on the Premises by the Tenant thereof except that Landlord shall comply with all laws or requirements which require structural (as defined in Section 9) repairs, replacements or alterations to the Premises. Tenant shall not do or permit to be done any act or thing upon said Demised Premises which will invalidate or be in conflict with fire insurance policies covering the building of which Demised Premises form a part, and fixtures and property therein, and shall not do or permit to be done, any act or thing upon said Demised Premises which shall or might subject Landlord to any liability or responsibility for injury to any person or persons or to property by reason of any business or operation being carried on upon said Demised Premises or for any other reason. Except as agreed herein, Tenant at his sole expense shall comply with all rules, orders, regulations or requirements of the Board of Fire Underwriters, or any other similar body, and shall not do, or permit anything to be done, in or upon said Demised Premises, or bring or keep anything therein, except as now or hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire Insurance Rating Organization, or other authority having jurisdiction. 11. LANDLORD'S LIABILITY -------------------- 13 14 Unless caused by Landlord's acts, omissions or negligence, or that of its agents, Landlord or its agents shall not be liable for any damage to any property of the Tenant, in the Demised Premises. Landlord or its agents shall not be liable for any injury or damage to persons or property resulting from fire, explosion, falling plaster, steam, electricity, water, rain, snow or leaks from any part of said building or from the pipes, appliances or plumbing works or from the roof, street or sub-surface of from any other place or by dampness or by any other cause of whatsoever nature, nor shall Landlord be liable for any such damage caused by other tenants or persons in said building, of which the Demised Premises are part, or caused by operations in construction of any private, public or quasi-public work; nor shall Landlord be liable for any latent defect or any existing or future condition in the Demised Premises; nor shall the Landlord be liable by reason if inconvenience, annoyance or injury to business arising alterations or improvements in or to any portion of the Building. The foregoing shall not apply, however, to any breach of Landlord's representations herein contained. Tenant shall reimburse and compensate Landlord as additional rent within twenty (20) days after rendition of a statement for all expenditures made by or damages or fines sustained or incurred by Landlord due to Non-performance or non-compliance with or breach or failure to observe any term, covenant or condition of this lease upon Tenant's part to be kept, observed, performed or complied with. Tenant shall give immediate notice to Landlord in case of fire or accident in the Demised Premises or defect therein. 12. INDEMNIFICATION --------------- If Tenant shall be in default which continues after written notice to Tenant and the expiration of the applicable cure period provided for hereunder in the observance of any term or covenant on Tenant's pert to be observed or performed under or by virtue of any of the terms or provisions in any article of this lease, Landlord may after written notice to the Tenant perform the same 14 15 for the account of Tenant, including the prosecution or defense of any action or proceeding, all at Tenant's reasonable expense. In the event that the Tenant is in arrears in payment of any sums due under this lease, the Tenant waives the Tenant's right, if any to designate the items against which any payments made by the Tenant are to be credited, and the Landlord may apply any payments made by the Tenant to any items the Landlord sees fit, irrespective of and not withstanding any designation or request by the Tenant as to the items against which any such payment shall be credited. The Landlord reserves the right, without liability to the Tenant and without constituting any claim or constructive eviction, to suspend furnishing or rendering to the Tenant any property, material, labor, utility or other service, wherever the Landlord is obligated to furnish or render the same at the expense of the Tenant, in the event that the Tenant is in arrears in paying the Landlord therefor at the expiration of twenty (20) days after the rendering of any such bill or statement and any grace period provided for hereunder. 13. ACCEPTANCE OF PREMISES ---------------------- Landlord or Landlord's agents have made no representations or promises with respect to the said building or Demised Premises except as herein expressly set forth or to induce the Tenant to rent the said Demised Premises are in good condition at the time that the tenant takes possession of the Demised Premises. The Tenant herewith agrees that he has examined the Demised Premises and is fully satisfied with the physical condition thereof and will make all alterations and repairs necessary for the use of the Demised Premises except as herein specifically set forth, Except as provided above, the taking possession of the Demised Premises by Tenant should be conclusive evidence as against Tenant that he accepts same "as is" and that said Demised Premises were in good and satisfactory condition at the time such possession was so taken. Landlord represents, however, that, as of the date Tenant accepts possession of the Premises (i) to its knowledge, there will be no "Hazardous Materials" (defined below) 15 16 upon the Premises, (ii) the roof will be free from leaks and the HVAC system (4 units) is in working order, (iii) the Premises will be in compliance with law (including the Americans with Disabilities Act and all fire codes), and (iv) there will be adequate utilities available for Tenant's use. Subject to the foregoing and the other representations of Landlord herein contained, Tenant has inspected the Demised Premises and the equipment and will accept the same in "as is" condition. 14. CONDITION ON TERMINATION ------------------------ Prior to the expiration of the term of this lease, Tenant shall quit and surrender to Landlord the Demised Premises, in good order and condition, ordinary wear and casualty, condemnation and Landlord's obligations excepted and except as provided herein, Tenant shall remove all of his personal moveable, but (at Tenant's option) not built-in property. Tenant's obligation to observe or perform this covenant shall survive the expiration or other termination of term of this lease. Except as specifically provided herein, if Tenant fails to remove all of his personable moveable, but not built-in fixtures, appliances and effects from the Demised Premises, either upon the termination of his possession of the Demised Premises or upon the termination of this lease, the Landlord, at its option, may remove the same in any manner that the Landlord may choose and may elect to store or otherwise dispose of the said effects without liability to the Tenant for the loss thereof, at Tenant's expense; or, the Landlord, at its option, without notice, may sell such effects, or any of the same, at private sale and without legal process, for such prices as Landlord may obtain, and apply the proceeds of such sale against any amounts due under this lease from the Tenant to the landlord and against the expense incident to the removal and sale of such effects, retaining the surplus, if any, as compensation for his incidental damages. 15. HOLDING OVER ------------ 16 17 In the event that the Tenant shall remain in possession of the Demised Premises after the expiration of either the original term of this lease or of any extended term without having executed a new written lease with the Landlord, such holding over shall not constitute a renewal or extension of this lease. The Landlord may, at its option, elect to treat the Tenant as one who has not removed at the end of its term, and thereupon be entitled to all the remedies against the Tenant provided by law in that situation, of the Landlord may elect, at its option, to construe such holding over a tenancy from month to month, subject to all the terms and conditions of this lease, except as to duration thereof, and the monthly payment for rent of the Demised Premises shall be one and a half (1-1/2) times the rate as that in effect during the last month of the preceding term. 16. PEACEFUL POSSESSION ------------------- Landlord covenants and agrees with Tenant that upon Tenant paying the rent and additional rent and observing and performing all the terms, covenants and conditions, on Tenant's part to be observed and performed, tenant may peaceably and quietly enjoy the Demised Premises hereby demised subject, nevertheless, to the terms and conditions of this lease. 17. LANDLORD'S COVENANT ------------------- The Landlord covenants and warrants that it has full right and authority to execute and perform this lease and to grant the estate demised herein and covenants that the Tenant on performing its obligations hereunder shall peaceably and quietly hold and enjoy the Premises through the term. 18. EMINENT DOMAIN -------------- The parties hereto agree that should the Demised Premises, or any substantial part hereof, or any substantial part of the common elements of the entire Premises be taken or condemned by competent authority for public or quasi-public use, then and in that event this lease shall cease and come to an end as of the time of such actual taking, and the rent shall be paid up to such time of actual taking and then and thenceforth all obligations of 17 18 the parties hereunder, the one to the other, shall cease. It is expressly agreed that the Tenant shall not be entitled to any part of any award by way of condemnation, appeal therefrom or settlement which may be obtained by the Landlord as a result of such taking, or in the event of partial taking, nor shall the Tenant have any right to appear as a party in any condemnation proceeding or appeal therefrom nor from any partial taking. In the event that a part of the Demised Premises, being less than a substantial part, shall be taken or condemned by competent authority for public or quasi-public use, there shall be an abatement of rent to be agreed upon between the parties and this lease shall be deemed to cease and terminate to such portion to be taken (notwithstanding the lack of such agreement upon abatement of rent), and it is expressly agreed that the tenant shall not be entitled to any part of the award by way of condemnation, appeal therefrom or settlement which may be obtained by the Landlord as the result of such taking, nor shall the Tenant have any right to appear as a party in any condemnation proceeding or appeal therefrom. In the event the parties are not able to agree upon the amount of abatement in such event, then the parties shall submit the question of such abatement to arbitration pursuant to the Rules of the American Arbitration Association. Nothing heretofore contained shall prohibit the Tenant from seeking such relief from said taking authority as is provided tenants by reason of the statutes empowering such condemnation; provided, however, that such award to Tenant, whether by way of administrative relief or otherwise, shall be not recoverable if, as the result thereof, the amount which the Landlord will otherwise be entitled to recover shall be diminished thereby. 19. ASSIGNMENT AND SUBLETTING ------------------------- Except as otherwise expressly permitted hereunder, Tenant shall not assign or in any manner transfer this lease or any estate, interest or benefit therein, or sublet said Premises or any part or parts thereof or permit the use of the same or any 18 19 part thereof by anyone other than Tenant, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. To the extent Landlord's consent is required, consent by Landlord to any assignment or transfer of interest under this lease, or subletting of said Premises or any part thereof shall not constitute consent to any other assignment, transfer of interest, or subletting, nor shall such consent relieve tenant of any obligations hereunder. (a) Upon obtaining a proposed assignee or subtenant, upon terms satisfactory to Tenant, Tenant shall, if Landlord's consent is required with respect to such transaction, submit to Landlord in writing at least thirty (30) days prior to the effective date of the proposed sublease or assignment; (1) the name of the proposed assignee or subtenant; (2) the terms and conditions of the proposed assignment or subletting; and (3) the nature and character of the business of the proposed assignee or subtenant and any other information reasonably requested by Landlord. (b) If the Demised Premise or any part thereof be sublet or occupied by any person or persons other than Tenant, Landlord may, after default by Tenant, collect rent from the subsequent or occupant and apply the net amount collected to the rent herein reserved; but no assignment, subletting, occupancy or collection of rent shall be deemed a waiver of the covenants in this article, nor shall it be deemed acceptance of the assignee, subtenant or occupant as a tenant, or a release of Tenant from the full performance by Tenant of all the terms, condition and covenants of this lease. (c) Each permitted assignee or transferee shall assume and be deemed to have assumed this lease and shall be remain liable jointly and severally with Tenant for the payment of rent and additional rent and for the due performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the term of this lease. No assignment shall be binding on Landlord unless such assignee or Tenant shall deliver to Landlord a duplicate original of the instrument of 19 20 assignment, in form reasonably satisfactory to Landlord, containing a covenant of assumption by the assignee of all of the obligations aforesaid and shall obtain from Landlord the aforesaid written consent prior thereto. (d) No attempted assignment or subletting, where approved by Landlord or not, shall relieve Tenant or any of his obligations under this lease nor any other act of non-act of Landlord. (e) Any provision of this Lease to the contrary notwithstanding, Tenant may assign this Lease or sublease the Premises, in whole or in part, without the express written consent of Landlord to: (i) any corporation into which or with which Tenant has merged or consolidated; (ii) any parent, subsidiary, successor, or affiliated corporation of Tenant; (iii) any person or entity that acquires all or substantially all of the assets or operations of Tenant within the metropolitan area in which the Premises are located; (iv) any partnership greater than twenty-five percent (25%) of which shall be owned by Tenant or the parent corporation of Tenant; (v) any franchisee of Tenant; or (vi) to any individual, entity or other party so long as the primary use of the Premises continues to be a restaurant and tavern for the retail sale of liquor and food and uses appurtenant thereto as permitted hereunder. No assignment shall operate to release Tenant of its liabilities and obligations arising hereunder after the date of such assignment. The assignee shall agree in writing to assume and perform all of the terms and conditions of this Lease on Tenant's part to be performed from and after the effective date of such assignment. (f) In the event that, at any time after the second (2nd) anniversary of the date of this Agreement, this lease shall be assigned or all or substantially all of the entire Premises shall be sublet to any party other than one described in Section 19(e)(i) through and including (iv) above, then Tenant or such assignee or subtenant (as the case may be) shall be required to post with Landlord a security deposit in the amount of triple 20 21 (i.e., three times) the then (i.e., as of the effective date of the assignment or subletting) monthly Base Rent payable under this lease. The foregoing security deposit shall be deposited by Landlord in a separate bank account and returned to Tenant at the expiration of the term, unless Tenant shall have committed an "event of default" hereunder which remains uncured, in which event Landlord shall be permitted to apply the security deposit as and to the extent permitted by applicable law. 20. BANKRUPTCY ---------- If, at any time during the term hereby demised, a petition shall be filed in bankruptcy by or against the Tenant, if the Tenant shall make an assignment for the benefit of creditors or a receiver shall be appointed over the assets of the Tenant, whether by voluntary or involuntary act, of if an attachment, lien or execution shall be levied upon the assets of the Tenant located in the Demised Premises and such attachment shall not be released within thirty (30) days after levy, then upon the happening of any of the aforesaid events with respect to Tenant or any successor tenant under this lease or subtenant of the Premises, and upon the option of the Landlord, this lease shall expire and terminate with the same force and effect as if the time of the happening of any such event were the date herein fixed for the expiration of the term of this lease. It is further stipulated and agreed that in the event of the termination of the term of this lease by the happening of any of such events, Landlord shall forthwith, upon such termination, and any other provisions of this lease to the contrary notwithstanding, become entitled to recover as and for liquidated damages caused by such breach of the provisions of this lease, an amount equal to the difference between the then cash value of the rent reserved hereunder for the unexpired portion of the term hereby demised, and the rental value of the Demised Premises for such unexpired portion of the term hereby demised, unless the statute which governs or shall govern the proceeding in which such damages are to be proved, limits or shall limit the amount 21 22 of such claim capable of being so proved, in which case Landlord shall be entitled to prove as and for liquidated damages an amount equal to that allowed by or under any such statute. The provisions of this paragraph shall be without prejudice to Landlord's right to prove in full, damages for rent accrued prior to the termination of this lease, but not paid. The provisions of this lease shall be without prejudice to any rights given to Landlord by a pertinent statute to prove for any amount allowed thereby. In making any such computation, the then cash rental value of the Demised Premises shall be deemed prima facie to be the rental realized upon any reletting. If such reletting cannot be accomplished by Landlord within a reasonable time after such termination of this Lease, then cash rental value of the future rents hereunder reserved to the Landlord for the unexpired portion of the term hereby Demised shall be deemed to be such sum which, if invested as six (6%) percent simple interest, will produce the rental value over the period of time in question. 21. TENANT'S DEFAULT ---------------- The happening of any one or more of the following listed events (hereinafter referred to as "event of default") shall constitute a breach of this Lease agreement on the part of Tenant: (a) The failure of Tenant to pay Base Rent or any additional rent on the due date hereunder and the continued failure to pay the same for ten (10) days after written notice to Tenant. (b) The failure of the Tenant to fully and promptly perform any act required of it in the performance of this Lease or to otherwise comply with the terms or provisions thereof within thirty (30) days after notice thereof to Tenant by Landlord; provided said thirty (30) day period shall be extended if within said thirty (30) day period Tenant has commenced to cure said default and is diligently pursuing same. No part of this clause shall be applicable to nonpayment of Base Rent, but it shall be 22 23 applicable to payments of additional rent and other payments of money required hereunder. (c) Any default by Tenant or Rattlesnake Holding Corp. under that certain Consulting Agreement among Frank Tumminello, Charles Tumminello, Thomas Dunn, Tenant and Rattlesnake Holding Corp. which continues for 20 days after written notice to the defaulting party. (d) Upon the happening of any event of default, Landlord, if it shall elect, may (1) collect each installment of rental hereunder as and when the same matures, or (2) Landlord, or any other person by its order, may re-enter the said Premises, without process of law, and without being liable to any prosecution therefor, and may either elect to terminate this Lease, or if the Landlord desires, not terminate the Lease, but terminate the right to possession and occupancy and relet the said Premises too any person, firm or corporation, as the agent of the Tenant or otherwise, for whatever rent it shall obtain, applying the avails for such letting first to the payment of such expenses as the Landlord may incur in the re-entering and reletting of same, and then to the payment of the rent due hereunder and the fulfillment of the Tenant's covenants, and paying over to the Tenant the balance, if any; and in case of its deficiency, the Tenant shall remain liable therefor. Tenant hereby waives the service of a notice to quit pursuant to Connecticut General Statutes. Tenant agrees to pay a reasonable attorney's fee and all costs if it becomes necessary for Landlord to employ an attorney to collect any of the rent or enforce any of the provisions of this Lease, and of any other cost of collection or enforcement of any provision of this Lease, or any cost of retaking or reletting said Premises, including but not limited to, the payment of a commission for brokerage, and Tenant expressly waives all exemptions secured to the Tenant under the laws of the State of Connecticut or of any State of the United States as against the collection of any debt herein or hereby incurred or secured. If Tenant is late paying any installment of rent or additional rent, the provisions of Section 2(d) above shall apply. 22. CHANGES AND WAIVER ------------------ This Lease or any covenant, agreement or conditions contained herein cannot be terminated, altered, waived or 23 24 modified in any way on behalf of the Landlord except by an instrument in writing. Receipt of rent shall not be deemed or construed to be a waiver of any other rent or charges due or of the rights of the Landlord under a breach of any covenant or conditions herein contained, nor shall any waiver be claimed as to any provision of this Lease unless the same be in writing. Acceptance of the keys shall not be tantamount to or evidence of a surrender. The failure of Landlord to seek redress for violation of, or to insist upon the strict performance of, any covenant or condition of this Lease, or any of the Rules and Regulations set forth or hereafter adopted by Landlord, shall not prevent a subsequent act which would have originally constructed a violation, from having all the force and effect of an original violation. 23. OBLIGATION TO PAY RENT ---------------------- This Lease and the obligation of Tenant to pay rent hereunder and perform all of the other covenants and agreements hereunder on the part of the Tenant to be performed shall in no way be affected, impaired or excused and Landlord shall have no responsibility or liability because Landlord does not fulfill any of its obligations under this Lease or to supply, or is delayed in supplying any service expressly or impliedly to be supplied or is unable to make or is delayed in making repairs, additions alterations or decoration or does not supply or is delaying in supplying any equipment or fixtures if Landlord does so because of strike or labor troubles or any outside cause whatsoever including, but limited to, accidents, repairs, government preemption or by reason of any law, rule, recommendation, request, order or regulation of any department or subdivision thereof of any government authority, agency or subdivision, or by reason of the conditions of supply and demand which have been or are affected by any emergency, shortage or crisis, or in the event of any business interruption due to measures taken by the federal, state, county or municipal authorities, including but not being limited to, highway or street repair, changes or 24 25 restrictions in the flow of traffic or in parking provisions, and condemnation or razing of adjacent buildings or because of the breakdown of any equipment or any other cause beyond the Landlord's control. No diminution or abatement of rent, or other compensation, shall be claimed or allowed for inconvenience or discomfort arising from the making of repairs or improvements to the building or to this appliance nor for any space taken to comply with any, law ordinance, or order of a government authority. 24. CONTINGENCY ----------- This Lease is contingent upon the occurrence of the closing under that the ASPA. 25. NOTICE ------ Any and all notices, demands, approvals, consents or other communications, legal or otherwise required by or incidental to any provision of this lease shall be in writing and, shall be delivered to the respective parties by registered or certified mail, return receipt requested, postage prepaid, or by overnight courier, at the following addresses or at such further address as shall be notified in writing: (a) To the Landlord: Land & Building Corp. c/o Mr. Thomas Dunn 10 Partridge Lane Milford, Connecticut 06460 (b) To the Tenant: Rattlesnake of Milford, Inc. c/o Rattlesnake Holding Corp. 3 Stamford Landing Stamford, Connecticut 06902 With a Copy Sent Contemporaneously to: -------------------------------------- Wayne Heicklen, Esquire Pryor, Cashman, Sherman & Flynn 410 Park Avenue New York, New York 10022 26. APPROVAL BY LANDLORD -------------------- If, at any time, the terms of this Lease require the approval by a party for any act by the other, such approval shall be in writing. 25 26 27. STATUS OF PARTIES ----------------- The execution of this Lease, or the performance of any act pursuant to the provisions thereof, shall not be deemed or construed to have the effect of creating between the Landlord and Tenant the relationship of principal or agent or of partnership or of joint venture and the relationship between them shall be that only of Landlord and Tenant. 28. SUBORDINATION ------------- It is further agreed that this Lease shall not be a superior lien against said entire Premises in respect to any mortgages that are now and that hereinafter may be placed against said Premises and the recording of such mortgage or mortgages shall have preference and precedence regardless of the date of record. Tenant further agrees to execute, at no cost or expense to Tenant, any document reasonably requested by Landlord to evidence or further effectuate this provision of this Lease, and failing such execution, Tenant shall be liable to Landlord for all damages, including reasonable attorney's fees, incurred by Landlord as a result of such refusal. The term "mortgage" shall include each and every form and type of security instrument. It is further understood by Landlord and Tenant that reference to the execution of an additional instrument or evidence of subordination is not necessary for this subordination to be effective. 29. PREJUDGMENT REMEDY ------------------ The Tenant, for itself and for all persons claiming through or under it, hereby acknowledges that this Lease constitutes a commercial transaction as such term is used and defined in the Connecticut General Statutes, or its successor provisions if amended, and hereby expressly waives any and all rights which are or may be conferred upon the Tenant by said Act to any notice or hearing prior to a prejudgment remedy under the Connecticut General Statutes, or their successor provisions if amended, inclusive of said statutes. Said waiver is intended as a waiver in accordance with the Connecticut General Statutes. Tenant 26 27 further waives any and all rights which are or may be conferred by any present or future law to redeem the said Premises, or to any new trial in any action or ejectment under any provision of law, after re-entry thereupon, or upon any part thereof, by the Landlord, or after any warrant or dispossess or judgment in ejectment. If the Landlord shall acquire possession of the said Premises by summary proceedings, or in any other lawful manner without judicial proceedings, it shall be deemed a re-entry within the meaning of that word as used in this Lease. In the event that the Landlord commences any summary proceedings or action of nonpayment of rent or other charges provided for in this Lease, the Tenant shall not interpose any counterclaim of any nature or description in any proceeding or action, except for those which are mandatory. The Tenant and the Landlord both waive a trial by jury of any or all issues arising in any action or proceeding between the parties hereto or their successors, under or connected with this Lease, or any of its provisions. 30. INTERPRETATION -------------- Words of any gender used in this Lease shall be construed to include any other gender, words in the singular number shall be construed to include the plural, when the context or sense of this lease requires. 31. BINDING EFFECT -------------- This lease, together with any and all addenda or amendments hereto, shall inure to the benefit of the respective parties hereto, their successors, heirs, personal representatives or assigns (provided that any assignment by the Tenant shall be effective only if made in strict accordance with the terms of this lease). 32. CHANGES TO MADE IN WRITING -------------------------- No changes or other modification of this Lease shall be binding upon a party to this Lease unless in writing and signed by a duly authorized officer or agent of the party to be charged therewith. 33. INVALIDITY OF PARTICULAR PROVISIONS ----------------------------------- 27 28 If any term or provision of this Lease or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term or provision to person or circumstances other than those as to which it held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. 34. BENEFIT AND GOVERNING LAW ------------------------- This Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns, and all the provisions hereof shall be governed by and construed in accordance with the laws of the State of Connecticut. 35. RECORDATION ----------- Tenant agrees not to record or cause to be recorded this Lease, however, upon Tenant's request, Landlord shall execute a Notice of Lease and record same on the Land Records of the City of Milford. 36. LANDLORD'S DEFAULT ------------------ Should Landlord fail to perform any of its obligations under this Lease, in addition to all other remedies available to Tenant under this Lease or at law or in equity, in the event Landlord does not fully perform such obligation within thirty (30) days after Tenant first gives Landlord written notice such failure or, if the performance of such obligation cannot be reasonably completed within such 30-day period, in the event Landlord fails to commence within such 30-day period and thereafter diligently pursue to completion the performance of such obligation, then Tenant may (but shall not be obligated to) perform the obligation of Landlord and the reasonable cost thereof shall be payable from Landlord to Tenant upon demand. If Landlord fails to reimburse Tenant on demand for the reasonable cost of performing Landlord's obligation, or if Landlord fails to timely pay to Tenant any other amount due to Tenant under this Lease within thirty (30) 28 29 days after Tenant gives Landlord written notice of such past due amount, then Tenant may in either of such events deduct any such amounts owing from Landlord, plus interest thereon at 2% above the Prime Rate of Citibank, N.A. from time to time in effect, Minimum Rent or other charges due or to become due Landlord under this Lease. If Tenant has not received or received credit for all such amounts and interest thereon at the expiration of the term of this Lease, Tenant may, at its option, extend the term of this Lease on the same terms and conditions then in effect until all such amounts and interest thereon are fully paid by application of all Base Rent and other charges accruing during such extended term. 37. HAZARDOUS MATERIALS ------------------- For purposes of this Lease, "Hazardous Materials" shall mean any chemical, substance, material or combination thereof which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, infectiousness or other harmful or potentially harmful properties or effects, including petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls ("PCBs") and all of those chemicals, substances, materials or combinations thereof that are listed, defined or regulated in any manner by any environmental law. Landlord hereby represents and warrants to Tenant that: (a) to Landlord's knowledge, the Premises has not been used for the disposal of refuse or waste, or for the generation, processing, manufacture, storage, handling, treatment, release, discharge or disposal of any Hazardous Materials; (b) the Premises is in compliance with all environmental laws; and (c) no (i) asbestos-containing materials, (ii) machinery, equipment or fixtures containing PCBs, (iii) storage tanks for gasoline or any other substance or (iv) urea formaldehyde foam insulation has been installed, used, stored, handled or placed on the Premises by Landlord or, to Landlord's knowledge after due inquiry, by any other party. 38. FORCE MAJEURE ------------- 29 30 Landlord and Tenant shall be excused for the period of any delay in performance of any obligations hereunder when prevented from doing so by the wrongful or negligent acts or omissions of the other party or by causes beyond either party's control, which shall include all labor disputes, civil disturbance, war, war-like operations, invasions, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fires or other casualty, inability to obtain any material or service or acts of God. Notwithstanding the foregoing, nothing contained in this paragraph shall excuse either party from paying in a timely fashion any payments due under the terms of this Lease. 39. ESTOPPELS --------- Within fifteen (15) days after written request from a party hereto, the other party shall execute, acknowledge and deliver to the requesting party an estoppel certificate certifying: (i) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification); (ii) the date to which rental and other sums payable hereunder have been paid; (iii) that no notice has been received by such other party of any default which has not been cured, except as to defaults specified in the estoppel certificate; and (iv) such other matters as may reasonably be requested by the other party, its lender, assignee or purchaser (or proposed lender, assignee or purchaser). Any such estoppel certificate may be relied upon by any such purchaser, lender or assignee for estoppel purposes only, and no party executing such estoppel certificate shall be liable for damages or other losses as a result of inaccuracy in the information contained in such estoppel certificate. 40. NON-DISTURBANCE --------------- Notwithstanding anything to the contrary herein contained, the subordination of this lease to any mortgage or underlying lease or other security agreement now or hereafter affecting the 30 31 Premises is subject to the condition that Landlord obtain for Tenant's benefit a non-disturbance agreement for Tenant's benefit from each holder of a mortgage, grounded lessor or interest holder substantially in the form annexed hereto as Exhibit A. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the day and year first written above. IN THE PRESENCE OF: LANDLORD LAND & BUILDING GROUP BY: - ------------------------ ---------------------------- ITS PARTNER - ------------------------ TENANT RATTLESNAKE OF MILFORD, INC. - ------------------------ BY: ---------------------------- ITS PRESIDENT - ------------------------ 31 32 IN WITNESS WHEREOF, the parties have hereunto set their hands and seals the day and year first written above. IN THE PRESENCE OF: LANDLORD LAND & BUILDING GROUP BY: - ------------------------ ---------------------------- ITS PARTNER BY: /s/ Charles Tumminello - ------------------------ ---------------------------- Charles Tumminello TENANT RATTLESNAKE OF MILFORD, INC. BY: /s/ ? - ------------------------ ---------------------------- ITS PRESIDENT - ------------------------ 33 STATE OF ) ) ss: City of Milford, March , 1996 COUNTY OF ) Personally appeared , who acknowledged himself to be the President of Rattlesnake of Milford, Inc., and that he, as such President, being authorized so to do, executed the foregoing for the purposes therein contained. __________________________ Notary Public My Commission Expires: Notarial Seal: STATE OF CONNECTICUT ) ) ss: City of Milford, March , 1996 COUNTY OF NEW HAVEN ) Personally appeared , who acknowledged himself to be the General Partner of Land & Building Group, and that he, as such General Partner, being authorized so to do, executed the foregoing for the purposes therein contained. __________________________ Notary Public My Commission Expires: Notarial Seal: 34 EXHIBIT A --------- SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT is entered into as of the __ day of ________________, 19__, between _______________________________, a ________________________ , with a place of business at __________________________________________, ________ ("Mortgagee"), and _________________________________, a __________________________________, with a place of business at ______________________, ________________________, _________________________ ("Tenant"). RECITALS A. Mortgagee has made a loan to _______________________________ ("Landlord") in the original principal amount of $__________________ (the "Loan"). B. Mortgagee is the holder of a mortgage or deed of trust securing the Loan (the "Mortgage") covering that certain parcel of land owned by Landlord and described on Exhibit A attached hereto and made a part hereof, together with the improvements erected thereon, commonly known as"________________ "(the "Premises"). C. By a certain Lease entered into between Landlord and Tenant, dated as of __________________________, 19__ (the "Lease"), landlord leased to Tenant the Premises. D. A copy of the Lease has been delivered to Mortgagee, the receipt of which is hereby acknowledged. E. The parties hereto desire to effect the subordination of the Lease to the Mortgage and to provide for the non-disturbance of Tenant by the holder of the Mortgage or any purchaser under a foreclosure or deed in lieu thereof. AGREEMENT In consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Mortgagee hereby consents to and approves the Lease and all of the terms and conditions thereof. 2. Tenant covenants and agrees with Mortgagee that the Lease is hereby made and shall continue hereafter to be subject and subordinate to the lien of the Mortgage, and to all modifications and extensions thereof, with the same force and effect as if the Mortgage had been executed and delivered prior to the execution and delivery of the Lease and without 35 regard to the order of priority of recording the Mortgage, subject, however, to the provisions of this Agreement. 3. Tenant certifies that the Lease is presently in full force and effect and unmodified and Tenant as of this date has no knowledge of any default, charge, lien or claim of offset under the Lease. 4. Mortgagee agrees that, so long as Tenant is not in default under the Lease: (a) Tenant shall not be named or joined as a party or otherwise in any suit, action or proceeding for foreclosure by the Mortgagee or to enforce any rights under the Mortgage or the Loan. (b) The possession by Tenant of the Premises and Tenant's rights under the Lease shall not be disturbed, affected or impaired by (i) any suit, action or proceeding under the Mortgage or the Loan or for foreclosure under the Mortgage, or any other enforcement of any rights under the Mortgage or any other documents pertaining to the Loan, (ii) any judicial or non-judicial foreclosure, sale or execution of the Premises or the Shopping Center, or any deed given in lieu of foreclosure, or (iii) any default under the Mortgage or the Loan. (c) All condemnation awards and insurance proceeds paid or payable with respect to the Premises or any other part of the Shopping Center and received by Mortgagee shall be applied and paid in the manner set forth in the Lease. (d) Neither the Mortgage nor any other security instrument executed in connection with the Loan shall cover or be construed as subjecting in any manner to the lien thereof any trade fixtures, signs or other personal property at any time furnished or installed by or for Tenant in or on the Premises. 5. If Mortgagee or any future holder of the Mortgage or any other transferee under the Mortgage shall become the owner of the Shopping Center or any part thereof by reason of foreclosure of the Mortgage, or if the Shopping Center or any part thereof shall be sold as a result of any action or proceeding to foreclose the Mortgage, or by transfer of ownership by deed given in lieu of foreclosure, the Lease shall continue in full force and effect, without necessity for executing any new lease, as a direct lease between Tenant and the then owner of the Premises as "Landlord" under the Lease, upon all of the same terms, covenants and provisions contained in the Lease, and in such event: (a) Tenant shall be bound to such new owner under all of the terms, covenants and provisions of the Lease for the remainder of the term thereof (including also any extension periods, if Tenant elects or has elected to exercise its option to extend the term) and Tenant hereby agrees to attorn to such new owner and to recognize such new owner as "Landlord" under the Lease; and (b) Such new owner shall be bound to Tenant under and hereby assumes all of the terms, covenants and provisions of the Lease for the remainder of the term thereof 36 (including also any extension periods, if Tenant elects or has elected to exercise its option to extend the term), and Tenant shall, from and after the date such new owner succeeds to the interest of "Landlord" under the Lease, have the same remedies against such new owner for the breach of any covenant contained in the Lease; provided, however, that such new owner shall not (i) be bound by any rent or additional rent which Tenant might have paid for more than one month in advance to any prior landlord (including Landlord), or (ii) be personally liable for any breach of the Lease by or other act or omission of any prior landlord (including Landlord) or (iii) be bound by any amendment or modification of the Lease made without Mortgagee's consent which would reduce fixed annual rent or any other monetary obligation of Tenant under the Lease. 6. Any notices or communications given under this Agreement shall be in writing and shall be deemed given on the earlier of actual receipt or three (3) days after deposit in the U.S. Mail, by registered or certified mail, return receipt requested, postage prepaid, at the respective addresses set forth above, or at such other address as the party entitled to notice may designate by written notice as provided herein. 7. This Agreement shall bind and inure to the benefit the parties hereto and their respective successors and assigns. 8. This Agreement contains the entire agreement between the parties and cannot be changed, modified, waived or cancelled except by an agreement in writing executed by the parties against whom enforcement of such modification, change, waiver or cancellation is sought. 37 9. This Agreement and the covenants contained herein shall run with and shall bind the Premises. EXECUTED as of the date first written above. MORTGAGEE: ---------------------------- By: ------------------------- Name: ----------------------- Title: ---------------------- TENANT: ---------------------------- By: ------------------------- Name: ----------------------- Title: ---------------------- 38 STATE OF Section ----------------- COUNTY OF Section ------------------ The foregoing instrument was acknowledged before me this ___ day of _______, 19___, by _____________________________,______________________________ _____ of________________________________________________________,a ___________ ____________________________, on behalf of such______________________________. ___________________________________________ Notary Public in and for the State of______ My Commission Expires:_____________________ 39 STATE OF Section ----------------- COUNTY OF Section ------------------ The foregoing instrument was acknowledged before me this ___ day of _______, 19___, by _____________________________,______________________________ _____ of________________________________________________________,a ___________ ____________________________, on behalf of such______________________________. ___________________________________________ Notary Public in and for the State of______ My Commission Expires:_____________________ EX-10.28 9 CONSULTING AGREEMENT 1 AGREEMENT made , 1996 between FRANK TUMMINELLO, CHARLES TUMMINELLO and THOMAS E. DUNN, hereinafter known as "FT, CT & TD" and RATTLESNAKE OF MILFORD, INC., hereinafter known as "R of M" and RATTLESNAKE HOLDING CORP., hereinafter known as "RHC". WHEREAS above individuals, FT, CT & TD, have been directors and officers of CFT Restaurant Inc., hereinafter known as "CFT", which is a Connecticut Corporation and which has conducted a retail restaurant business at 1360 Boston Post Road, Milford, Connecticut, and WHEREAS R of M desires to retain FT, CT & TD's experience and abilities in the business of the retail food preparation and sale, and has offered to engage them to render consultative and advisory services to it, and WHEREAS CFT has assigned (or is assigning as of the date of this Agreement) to R of M all of its interests in and to that certain lease (the "Lease") dated July 7, 1988 between Land and Building Group, as Landlord, and CFT, as Tenant, for the premises located at 1360 Boston Post Road, Milford, Connecticut (the "Premises"), which lease is being amended by that certain First Amended and Restated Lease (such lease, as amended, the "Lease"). WHEREAS FT, CT & TD desires to accept such engagement, upon the terms and conditions hereinafter set forth, NOW, therefore, in consideration of the premises and the mutual covenants herein contained, it is agreed as follows: 1. TERM AND DUTIES. R of M hereby employs FT, CT & TD for a period of six (6) months beginning on the date of the First Amendment and Restated Lease, for no more than two (2) hours a week total for all FT, CT & TD for consultation and communication by way of telephone, fax or personal contact at FT, CT & TD's option, as a general advisor and consultant to management on all matters pertaining to the business of R of M, and to render such additional services as are pertinent thereto, the services to be of a similar nature as those FT, CT & TD perform for CFT prior to the sale of its business and assets to R of M. FT, CT & TD shall report and be responsible only to the Board of Directors of RHC and shall devote their best efforts and such time as shall be necessary to perform his duties and to advance the interest of R of M, subject to reasonable vacations compatible with their position and with due regard to the preservation of their health. RHC recognized that FT, CT & TD's association with CFT during the many years past has created goodwill of unique value to R of M in the operation of the restaurant business. Accordingly, it is expressly understood that the inability of FT, CT & TD to render services to R of M by reason of absences, or temporary of permanent illness, disability, death or incapacity, or for any other reasonable cause, shall not constitute a failure by them to perform their obligations hereunder and shall not be deemed a 2 breach or default by them hereunder. Notwithstanding anything to the contrary herein contained, it is understood and agreed that FT, CT and TD are to function in an advisory capacity only, and FT, CT and TD shall have no authorization, power or authority to act on behalf or bind R of M in any manner whatsoever. 2. COMPENSATION. As full and complete compensation for any and all services which FT, CT & TD may render to R of M in the business of the R of M, R of M and/or RHC, as provided below shall pay to FT, CT & TD the following: (a) RHC shall issue its Common Stock Purchase Warrant in the form annexed hereto as Schedule 1, in the aggregate amount of 100,000 shares as follows: 40,000 to Frank Tumminello 40,000 to Thomas E. Dunn 20,000 to Charles Tumminello, or their respective heirs or successors (b) R of M shall pay, guaranteed by RHC, to FT, CT & TD or their heirs, and/or estate in the pro rata distributions of 40% to FT, 40% to TD and 20% to CT the following monies: (1) Seven and Three Quarters Per Cent (7 3/4%) of the Gross Sales in excess of One Million Nine Hundred Thousand ($1,900,000.00) Dollars (the "Breakpoint") in any Lease Year (defined below) occurring during the term of the Lease (including any extension periods) payable as provided below, and (2) A one time payment of the sum of $50,000.00 due the said FT, CT & TD the first time R of M attains Gross Sales of Two Million Five Hundred Thousand ($2,500,000.00) Dollars in a Lease year, and (3) A one time payment of the sum of $25,000.00 due the said FT, CT & TD the first time R of M attains Gross Sales of Four Million ($4,000,000.00) Dollars in a Lease Year. The said payments referred to in 1, 2 and 3 shall be paid or the estate of FT, CT & TD throughout and during the lease and any extensions thereof between CFT and R of M. The payment set forth in (b)(i) above shall be paid on the first day of the calendar month following the month in which the Breakpoint for such Lease Year is attained. 3 The term "Gross Sales" as used herein shall be construed to include the entire amount of the actual sales price, whether for cash or otherwise, of all sales of merchandise or services and other receipts whatsoever of all business conducted in or from the Premises, known as 1360 Boston Post Road, Milford, Connecticut by R of M, all concessionaires or otherwise, including, without limitations: mail, catalogue, closed circuit television, computer, other electronic or telephone orders received or filled at the Premises; all deposits not refunded to purchasers; orders taken, although said orders may be filled elsewhere; and the entire amount of the actual sales price and all other receipts for sales and services by R of M, any concessionaire or otherwise in or from the Premises. A "sale" shall be deemed to have been consummated for the purposes of this Agreement, and the entire amount of the sales price shall be included in Gross Sales, at such time as (i) the transaction is initially reflected in the book or records of R of M or concessionaire (if a concessionaire makes the sale), or (ii) R of M concessionaire receives all or any portion of the sales price, or (iii) the applicable goods or services are delivered to the customer, whichever first occurs, irrespective of whether payment is made in installments, the sale is for cash or for credit, or all or any portion of the sales price has actually been paid at the time of inclusion in Gross Sales or at any other time. No deduction shall be allowed for direct or indirect discounts, rebates, credits or other reductions to employees or others, unless such discounts, rebates, credits or other reductions are generally offered to the public on a uniform basis. For purposes hereof, the "First Lease" means the period commencing on the Rent Commencement Date under the Lease and ending on the last day of the calendar month immediately preceding the one year anniversary of the Rent Commencement Date, and the next and each successive Lease Year shall consist of each yearly period thereafter. Notwithstanding the foregoing, however the following items should be excluded from Gross Sales: (a) the amount of any sales tax, use tax, gross receipts tax, successor tax or similar tax by whatever name called, imposed by a federal, state, municipal or governmental authority directly on sales and collected from customers; (b) proceeds of claims for damage to or loss of merchandise; (c) the exchange of merchandise between the stores of Tenant where such exchange is made solely for the convenient operation of the business of Tenant and not for the purpose of depriving Landlord of the benefit of a sale which otherwise would be made from the Premises; (d) proceeds from the sale of trade fixtures, machinery and equipment; (e) the amount of any cash or credit refund made upon any sale from the Premises previously included in Gross Sales; (f) any redeemed gift certificates; (g) discounted sales to employees not in exceed 5% of Gross Sales in any Lease Year; (h) license fees and rents paid by sub-tenants and concessionaires. 3. ARBITRATION. Any controversy or claim arising out of or relating to this agreement shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered in such arbitration may be entered in any court having jurisdiction thereof. Reasonable attorneys fees shall be awarded to the prevailing party by the arbitrator. 4. WAIVER, MODIFICATION, OR CANCELLATION. Any waiver, 4 alteration, or modification of any of the provisions of this agreement or cancellation or replacement of this agreement shall not be valid unless in writing and signed by the parties. 5. CONSTRUCTION. This agreement shall be governed by the Laws of Connecticut. 6. ASSIGNMENT. This agreement shall inure to the benefit of and bind the parties hereto and their respective legal representatives, successors, and assigns. 7. RHC and R of M hereby agree that should they fail to make any payment due FT, CT and TD as set forth herein then in that event RHC and R of M shall pay FT, CT and TD a late payment fee equal to 5% of the payment due said FT, CT and TD, in addition to the amount so due, and any reasonable attorneys fees and collection expenses which are incurred by FT, CT and TD in order to enforce their rights pursuant to this agreement. 8. RECORD AND BOOKS OF ACCOUNT. R of M shall prepare and keep full, complete and proper books and source documents of the Gross Sales, whether for cash, credit or otherwise, and of the operations of each subtenant, concessionaire, licensee and/or assignee, and shall require and cause all such parties to prepare and keep books, source documents, records and accounts sufficient to substantiate those kept by R of M. The books and source documents to be kept by R of M shall include, without limitation, true copies of all state and local sales and use tax returns and reports, records of inventories and receipts of merchandise, daily receipts from all sales and other pertinent original sales records and record of any other transactions conducted in or from the Premises by R of M and any other persons conducting business from the Premises. R of M shall record at the time of each sale or other transaction all receipts from such sale or other transaction, whether for cash, credit or otherwise, in a cash register or cash registers having a cumulative total which shall be sealed. 5 All of the foregoing books, source documents and records shall at all reasonable times be open to the inspection of, and may be copied or extracted from, in whole or in part, by FT, CT and TD or their authorized representative or agent for a period of at least three (3) years after the expiration of each Lease Year. R of M shall furnish to FT, CT and TD within fifteen (15) days after the expiration of each month of each Lease Year, a complete statement, certified by R of N, of the amount of Gross Sales, as defined herein made from the Premises during such period. R of M shall furnish to FT, CT and TD, within sixty (60) days after the expiration of each Lease Year, a complete statement, certified by the chief financial officer or chief executive officer or outside accountant employed by R of M, showing in all reasonable detail the amount of such Gross Sales made by R of M from the Premises during the preceding Lease Year or Partial Lease Year. R of M shall require all of its subtenants, concessionaires, licensees and/or assignees, if any, to furnish a similar statement. If R of M or assignees, subtenants or concessionaires fails to furnish to FT, CT and TD any monthly or annual statement of Gross Sales within the time required by agreement then R of M shall be in breach hereunder and entitle FT, CT & TD to all remedies provided in this agreement or by law to FT, CT and TD. In addition, if R of M or any subtenant, concessionaire, licensee and/or assignee, if any, fails to furnish any two (2) consecutive monthly or annual statements of Gross Sales within the time required by this agreement then FT, CT and TD shall have the right with ten (10) days' prior written notice to conduct an audit and any and all charges occasioned by reason thereof shall be the sole obligation of R of M and payable on demand. 9. AUDIT. ------ a) RIGHT TO EXAMINE BOOKS. R of M shall make available to FT, CT and TD within ten (10) days following their request for the same at R of M's principal business office in the United States for examination, extracting and/or copying all books, source documents, accounts, records and sales tax reports of R of M and any subtenants, concessionaires, licensees and/or assignees filed with applicable government agencies in order to verify the amount of Gross Sales in and from the Premises. b) AUDIT. At their option, FT, CT and TD may at any time upon ten (10) days' prior written notice to R of M, cause a complete audit to be made by a certified public accountant selected by FT, CT and TD (hereinafter "auditor") of the records R of M and/or any subtenants, concessionaires, licensees and/or assignees relating to the Premises for the period covered by any statement issued or required to be issued by R of M or a 6 concessionaire as above set forth herein. R of M shall make available to auditor at R of M's principal business office in the United States, within ten (10) days following FT, CT and TD's notice requiring such audit, all of the books, source documents, accounts, records and sales tax reports and sales tax reports of R of M and/or any of its subtenants, concessionaires, licensees and/or assignees which auditor deems necessary or desirable for the purpose of making such audit. If such audit discloses that Gross Sales as previously reported for the period audited were understated, R of M shall immediately pay to FT, CT and TD the additional Percentage Rent due for the period audited. Further, if such understatement was in excess of three percent (3%) of actual Gross Sales as disclosed by such audit, R of M shall immediately pay to FT, CT and TD the cost of such audit. 10. The waiver by either party of a breach of any provision of this Agreement shall not operate as or be construed a waiver of any subsequent breach thereof. 11. Every provision of this Agreement is intended to be severable, and if any term or provision of this Agreement shall be invalid, illegal or unenforceable for any reason whatsoever, the validity, legality and unenforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 12. Notwithstanding anything to the contrary contained in this Agreement, this Agreement shall only become effective upon the occurrence of the Closing under the ASPA. In the event the Closing under the ASPA shall not occur for any reason whatsoever, this Agreement shall be deemed null and void and of no force or effect, and neither party shall have any obligation to the other hereunder. In witness whereof the parties hereto have executed this agreement the day and year first above written. RATTLESNAKE HOLDING CORP. - ------------------------------- BY Frank Tumminello --------------------------------- /s/ Charles Tumminello Rattlesnake of Milford, Inc. - ------------------------------ Charles Tumminello BY - -------------------------- --------------------------------- Thomas E. Dunn 7 SCHEDULE 1 ---------- NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1922, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED I THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. THE TRANSFERABILITY OF THIS WARRANT IS RESTRICTED AS PROVIDED IN SECTION 2 Warrant No.14 July , 1996 THE RATTLESNAKE HOLDING COMPANY, INC. COMMON STOCK PURCHASE WARRANT For good and valuable consideration, the receipt of which is hereby acknowledge by THE RATTLESNAKE HOLDING COMPANY, INC., a Delaware corporation (the "Company"), Is hereby granted the right to purchase, at any time from the date hereof until 5:00 P.M., New York City time, on July , 2001 up to 100,000 paid and non-assessable shares of the Company's Common Stock, $.001 par value per share ("Common Stock"). This warrant is exercisable at a par share price of 133% of prior 5 day average "bid" price prior to closing under the assets sale/---agreement (the "Exercise Price") payable in cash or by certified or official bank check in New York Clearing House funds, subject to adjustment as provided in Section 1 hereof. Upon surrender of this Warrant with the annexed Subscription Form duly executed, together with payment of the Exercise Price for the shares of Common Stock purchased at the Company's principal executive offices ) presently located at 3 Stanford Landing - Suite 130, Stanford, Connecticut 08902) the registered holder of the Warrant )"holder") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. 1. Exercise of Warrant. -------------------- 1.1 The purchase rights represented by this Warrant are exercisable at the option of the holder hereof, in whole or in part (but not as to fractional shares of the Common Stock) during any period in which this Warrant may be exercised as set forth above. In the case of the purchase of less than all the shares of Common Stock purchasable under this Warrant, the Company shall cancel this Warrant upon the surrender thereof and shall execute and deliver a new Warrant of like tenor for the balance of the shares of Common Stock purchasable hereunder. 1.2 The issuance of certificates for shares of Common Stock upon the exercise of this Warrant shall be made without charge to the holder hereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall be issued in 8 the name of, or in such names as may be directed by, the holder hereof; provided, however, that the company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuances and delivery of such certificates in a name other than that of the holder and the company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the company that such tax has been paid. 1.3 In case at any time or from time to time the Company shall subdivide as a whole, split its Common Stock or issue a dividend payable in shares or otherwise, the number of shares of Common Stock than outstanding into a greater or lesser number of shares, the Warrant Price then in effect shall be increased or reduced proportionately, and the number of shares issuable upon exercise of this Warrant shall accordingly be increased or reduced proportionately. 1.4 In case of any reclassification or change of outstanding shares of Common Stock issuable upon exercise of this Warrant (other than change in par value, or from par value to no par value, or from no par value to par value, or as a result or a subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger in which the Company is continuing corporation and which does not result in any reclassification or change of outstanding shares of Common Stock, other than a change in number of the shares issuable upon exercise of the Warrant) or in case of any sale or conveyance to another corporation of the property of the company as an entirety or substantially as an entirety, the holder of this Warrant shall have the right thereafter to exercise this Warrant into the kind and amount of shares of Stock and other securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of share of Common Stock of the Company for which the Warrant might have been exercised immediately prior to such reclassification, change, consolidation, merger, sale or conveyance. The above provisions of this Section 1.4 shall similarly apply to successive reclassification and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. 1.5 The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon exercise of this Warrant as herein provided, such number of shares of Common Stock as shall than be issuable upon the exercise of this Warrant. The Company covenants that all shares of Common Stock which shall be so issuable shall be duly and validly issued an fully-paid and non-assessable. 2. Restrictions on Transfer. ------------------------- The holder acknowledges that he has been advised by the Company that this Warrant and the shares of Common Stock (the "Warrant Shares") issuable upon exercise thereof (collectively the "Securities") have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), that the Warrant is being issued, and the shares issuable upon exercises of the Warrant will be issued, on the basis of the statutory exemption provided by section 4(2) of the Securities Act relating to transactions by an issuer not involving any public offering, and that the 9 Company's reliance upon this statutory exemption is based in part upon the representations made by the holder contained herein. The holder acknowledges that he has been informed by the Company of, or is otherwise familiar with, the nature of the limitations imposed by the Securities Act and the rules and regulations thereunder on the transfer of securities. In particular, the holder agrees that no sales, assignment or transfer of the Securities shall be valid or effective, and the Company shall not be reguired to give any effect to any such sales, assignment or transfer, unless (i) the sale, assignment or transfer of the Securities is registered under the Securities Act, and the Company has no olbigations or intention to so register the Securities except as may otherwise be provided herein, or (ii) the Securiites are sold, asigned or transferred in accordance with all the requirements and limitations of Rule 144 under the Securities Act or such sale, assignment, or transfer is otherwise exempt from registration under the Securities Act. The holder represnets and warrants that he has acquired this Warrant and will acquire the Securities for his own account for investment and not with a view to the sale or distribution thereof or the granting of any paticipation therein, and that he has no present intention of distributing or selling to others any of such interest or granting any participation therein. The holder acknowledges that the securities shall bear the following legend: "These securites have not been registered uner the Securiites Act of 1933. Such securities may not be sold or offered for sale, transferred,hypothecated or otherwise assigned in the absence of an effective registration statement with respect thereto under such Act or an opinion of counsel to the Company that an exemption from registration for such sale, offer, transfer, hypothecation or other assignment is availabe under such Act." 3. Registration Rights. -------------------- 3.1 (A) The Company shall advise the holder of this Warrant or of the Warrant Shares or any than holder of Warrants or Warrant Shares (such persons being collectively referred to herein as "holders") by written notice at least four weeks prior to the filing of any registration statement under the Securities Act of 1933 (the "Act") covering securities of the Company, except on Forms S-4 or S-8, and upon the request of any such holder within ten days after the date of such invoice, include in any such registration statement such information as may be required to permit a public offering of the Warrant Shares. The Company shall supply prospectuses and other documents as the holder may reasonably request in order to facilitate the public sale or other disposition of the Warrant Shares, qualify the Warrant Shares for sale in such states as any such holder reasonably designates and do any and all other acts and things which may be necessary or desirable to enable such Holders to consummate the public sale or other disposition of the Warrant Shares, and furnish indemnification in the manner as set forth in Subsection 3.2 of this Section 3. Such holders shall furnish information and indemnification as set forth in Subsection 3.2 of this Section 3. For the purpose of the foregoing, inclusion of the Warrant Shares in a Registration Statement pursuant to this sup-paragraph 3.1 under a condition that the offer and/or sale of such Warrant Shares not commence until a date not to exceed 90 days from the effective date of such registration statement shall be deemed to be in compliance with the sub-paragraph 3.1. 10 (B) (I) If the Company shall have not filed a registration statement subject to Section 3.1 (A) prior to August 1, 1998, the holders of the Warrants and/or Warrant Shares representing a "Majority", as defined below, shall have the right exercisable by written notice to the Company, to have the Company prepare and file with the Commission, on one occasion, a registration statement and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Underwriter and such holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale of their respective Warrant Shares for nine(9) consecutive months by such holders and any other holders of the Warrants and/or Warrant Shares who notify the Company within ten(10) days after receiving notice from the Company of such request. (ii) The Company covenants and agrees to give written notice of any registration request under this Section 3.1(b) by any holder or holders to all other registered holders of the Warrants and the Warrant Shares within ten (10) days from the date of the receipt of any such registration request. (iii) For purposes of this Warrant, the term "Majority" in reference to the holders of Warrants or Warrant Shares, shall mean in excess of fifty percent (50%) of the then outstanding Warrants or Warrant Shares that (I) are not held by the Company, an affiliate, officer or agent thereof or any of their respective affiliates, member of their family, persons acting as nominees or in conjunction therewith or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. 3.2 The following provisions of this Section 3 shall also be applicable to the exercise of the registration rights granted under this Section 3.1: (A) The foregoing registration rights shall be contingent on the holders furnishing the Company with such appropriate information (relating to the intentions of such holders) as the Company shall reasonably request in writing. Following the effective date of such registration, the Company shall upon the request of any owner of Warrants and/or Warrant Shares forthwith supply such number of prospectuses meeting the requirements of the Act as shall be requested by such owner to permit such holder to make a public offering of all Warrant Shares from time to time offered or sold to such holder, provided that such holder shall from time to time furnish the Company with such appropriate information (relating to the intentions of such holder) as the Company shall request in writing. The Company shall also use its best efforts to qualify the Warrant Shares for sale in such states as such holder shall reasonably designate. (B) The Company shall bear the entire cost and expense of any registration of securities initiated by it under Subsection 3.1 of this Section 3 notwithstanding that Warrant Shares subject to this Warrant may be included in any such registration. Any holder whose Warrant Shares are included in any such registration statement pursuant to this section 3 shall, however, bear the fees of his own counsel and any registration fees, transfer taxes or underwriting discounts or commissions applicable to the Warrant Shares sold by him pursuant thereto. 11 (C) The Company shall indemnify the hold harmless each such holder and such underwriter, within the meaning of the Act, who may purchase from or sell for any such holder any Warrant Shares from and against any all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereto or any registration statement under the Act or any prospectus included therein required to be filed or furnished by reason of this Section 3 or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement therein not misleading except insofar as such losses, claims, damages or liabilities are caused by any such untrue statement or alleged untrue statement or omission or alleged omission based upon information furnished or required to be expressly for use therein, which indemnification shall include each person, if any, who controls any such underwriter within the meaning of such Act; provided, however, that the Company shall not be obliged so to indemnify any such holder or underwriter or controlling person unless such holder or underwriter shall at the same time agree to indemnify the Company, its directors, each officer signing the related registration statement and each person, if any, who controls the Company within the meaning of such act, from and against any and all losses, claims, damages and liabilities caused by any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any prospectus required to be filed or furnished by reason of this Section 3 or caused by any omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading insofar as such losses, claims, damages or liabilities are caused by any untrue statement furnished in writing to the Company by any such holder or underwriter expressly for use therein. 4. Miscellaneous ------------- 4.1 All the covanants and agreements made by the Company in this warrant shall bind its successors and assigns. 4.2 No recourse shall be had for any claim based hereon or otherwise in any manor in respect hereof, against any incorporator, stockholder, officer or director, past, present or future, of the Company or of any predecessor corporation, whether by virtue of any constitutional provision or statute or rule of law, or by the enforcement of any agreement or penalty or in any other manner, all such liability being expressly waived and released by the acceptance hereof and as part of the consideration of the issue hereof. 4.3 No course of dealing between the Company and the holder hereof shall operate as a waive of any right of any holder hereof, and no delay on the pat of the holder in exercising any right hereunder shall so operate. 4.4 The Warrant may be amended only by a written instrument executed by the Company and the holder hereof. Any amendment shall be endorsed upon this Warrant, and all future holders shall be bound thereby. 4.5 All communications provided for herein shall be sent, except as may be otherwise specifically provided, by registered or certified mail, if to the holder of this Warrant, to 12 the address shown on the books of the Company, and if to the Company, to 3 Stanford Landing, Suite 130, Stanford, Connecticut 06902, attention: Office of the President, or such other address as the Company may advise the holder of this Warrant in writing. Notices shall be deemed given when mailed. 4.6 The provisions of this Warrant shall in all respects be constructed according to, and the rights and liabilities of the parties hereto shall in all respects be governed by, the laws of the State of Delaware. This Warrant shall be deemed a contract made under the laws of the State of Delaware and the validity of this Warrant all rights and liabilities hereunder shall be determined under the laws of said state. 4.7 The headings of the Sections of this Warrant are inserted for convenience only and shall not be deemed to constitute a part of this Warrant. IN WITNESS WHEREOF, THE RATTLESNAKE HOLDING COMPANY, INC., has caused this Warrant to be executed in its corporate name by its officer, and its seal to be affixed hereto. Dated: October , 1996 Stanford, Connecticut THE RATTLESNAKE HOLDING COMPANY, INC. By: --------------------------------- William J. Opper Chairman of the Board 13 SUBSCRIPTION FORM TO: THE RATTLESNAKE HOLDING COMPANY, INC. 3 Stanford Landing Suite 130 Stanford, CT 06902 The undersigned holder hereby irrevocably elects to exercise the right to purchase Shares of common stock covered by this Warrant according to the conditions hereof and herewith makes full payment of the Exercise price of such shares. Kindly deliver to the undersigned a certificate representing the Shares. INSTRUCTIONS FOR DELIVERY Name: ---------------------------------------------------------------- (please typewrite or print in block letters) Address: ------------------------------------------------------------- Dated: ---------------------------- Signature: ----------------------- 14 SUBSCRIPTION FORM TO: THE RATTLESNAKE HOLDING COMPANY, INC. 3 Stanford Landing Suite 130 Stanford, CT 06902 The undersigned holder hereby irrevocably elects to exercise the right to purchase Shares of common stock covered by this Warrant according to the conditions hereof and herewith makes full payment of the Exercise price of such shares. Kindly deliver to the undersigned a certificate representing the Shares. INSTRUCTIONS FOR DELIVERY Name: ---------------------------------------------------------------- (please typewrite or print in block letters) Address: ------------------------------------------------------------- Dated: ---------------------------- Signature: ----------------------- EX-10.29 10 AGREEMENT OF SALE 1 EXHIBIT 10.29 AGREEMENT OF SALE ----------------- AGREEMENT OF SALE, made August 6, 1996, between KINGS CASTLE CATERERS, INC., c/o DiConza, Larocca & DiCunto, LLP, 478 Bay Ridge Parkway, Brooklyn, New York, ("Seller"), and RATTLESNAKE OF BAY RIDGE, INC., 1 Stamford Landing, Stamford, Connecticut, ("Purchaser"). W I T N E S S E T H: -------------------- WHEREAS, Purchaser desires to acquire, and Seller desires to sell, certain assets of the Seller hereinafter specified, upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the covenants and agreements hereafter set forth, and other valuable consideration, the receipt and sufficiency of which hereby is acknowledged, the parties hereto agree as follows: 1. AGREEMENT TO SELL. Seller agrees to sell, transfer and deliver to Purchaser, and Purchaser agrees to purchase, upon the terms and conditions hereinafter set forth, the following assets of Seller (collectively, the "Assets"): (a) the equipment, furniture, fixtures and improvements located at Short Ribs Restaurant & Bar, 9101 Third Avenue, Brooklyn, New York 11209, more particularly itemized in Exhibit B, annexed, and; (b) a sub-lease of the prime lease dated the 1st day of December, 1995, with rider dated February 1, 1996, between 9103 Third Avenue Realty Corp. , as Landlord, and Kings Castle Caterers, Inc., as Tenant, copies of which are annexed hereto as Exhibit A (the "Lease" and "Sub-Lease"). The sale hereunder shall not include, and Seller shall retain, the name "Short Ribs" and "Short Ribs Restaurant & Bar", all cash, securities, cash equivalents and accounts receivable and all other assets, property and rights of Seller and the business, including without limitation the property described in Exhibit C hereto (the "Excluded Assets"). 2 2. PURCHASE PRICE. The purchase price to be paid by Purchaser is $465,000.00, payable as follows: (a) $46,500.00 upon execution of this agreement, by check subject to collection. The nonpayment of said check shall give Seller the right to declare this agreement null and void, in addition to pursuing all other remedies against Purchaser on said check or as otherwise permitted by law. Said check is payable to the order of the Escrow Agent hereinafter identified, and the proceeds of said check shall be held in escrow as hereinafter provided. (b) $173,500.00 at the closing. (c) $245,000.00 at the closing by the execution and delivery of a Promissory Note by Purchaser to Seller in said amount. Said Promissory Note shall be self-liquidating over a period of eighty (80) months and shall bear interest at the rate of prime plus one (1%) percent as established by the Chase Manhattan Bank and reported in the Wall Street Journal, adjusted monthly. The Promissory Note shall be secured by a Security Agreement and UCC Financing Statements creating a security interest in the assets of the business to be established by Purchaser to operate a restaurant and bar ("Business") at the premises (the "Security Agreement). The Promissory Note shall be guaranteed by the Rattlesnake Holding Company Inc., 1 Stamford Landing, Stamford, Connecticut. The guaranty shall be delivered at Closing. The purchase price is comprised of the following components: Furniture, Fixtures & Equipment: $ Sub-Lease: $ The parties agree to use the foregoing allocation, which was the result of arm's length negotiations, for purposes of all Federal, State and local tax returns. Purchaser agrees to pay at the Closing the applicable New York State Sales Taxes on the furniture, fixtures and equipment transferred, and to indemnify and hold harmless the Seller from any and all claims for taxes due as a result thereof. This provision shall survive the Closing. 2 3 3. ACCEPTABLE FUNDS. All money payable under this agreement, unless otherwise specified, shall be paid either: (a) in cash, but not more than $1,000 shall be paid in cash; (b) by good certified check of Purchaser, or official check of any bank, savings bank, trust company, or savings and loan association which is a member of the New York Clearing House, payable to the direct order of Seller; or (c) as otherwise agreed to in writing by the parties or their attorneys. 4. THE CLOSING. The "closing" means the settlement of the obligations of Seller and Purchaser to each other under this agreement, including the payment of the purchase price to Seller as provided in Article 1 hereof and the delivery of the closing documents provided for in Article 5 hereof. The closing shall be held at the offices of DiConza, Larocca & DiCunto, LLP, 478 Bay Ridge Parkway, Brooklyn, NY 11209, at 10 A.M. on or about five (5) days after receipt of Landlord's written consent to Sub-lease Agreement. (the "closing date"). 5. CLOSING DOCUMENTS. At the closing Seller shall execute and deliver to Purchaser: (a) a Bill of Sale for all furniture, fixtures and equipment; (b) Sub-Lease substantially in the form of Exhibit A hereto; (c) Landlord's consent to Sub-Lease Agreement in the form annexed hereto; (d) such other instruments as may be necessary or proper to transfer to Purchaser all other ownership interests in the Assets to be transferred under this agreement; (e) evidence that any existing violations have been satisfied and removed of record; (f) Memo of Lease fully executed, in recordable form, in the form attached. At the closing Purchaser shall execute and deliver to Seller: (a) the Promissory Note, Security Agreement and UCC Financing Statements and Guaranty provided for in Article 2 hereof. 3 4 6. THE SECURITY AGREEMENT. The Security Agreement shall create a security interest in the property described in Exhibit B. Purchaser agrees to perfect the security interest of the Security Agreement by executing and delivering to Seller appropriate Financing Statements and extensions and renewals thereof, in accordance with the provisions of the Uniform Commercial Code, and all other instruments or documents as may be reasonably requested by Seller. All filing fees in connection therewith shall be paid by Purchaser. 7. CLOSING ADJUSTMENTS. The following items shall be apportioned as of midnight of the day preceding the closing date: (a) rent, including any additional rent, under the Lease; (b) taxes; (c) water and sewer charges. Any errors or omissions in computing apportionments shall be corrected after the closing. 8. WAIVER OF BULK TRANSFER REQUIREMENTS. The parties waive compliance with the bulk transfer provisions of the Uniform Commercial Code which may be applicable to this transaction. Seller agrees to hold harmless Purchaser against all claims made by the creditors of Seller. At the closing, Seller shall deposit with the Escrow Agent hereinafter identified the Promissory Note to be held in escrow, for a period of ninety (90) days, as security for the payment of any and all liabilities due the State and City of New York for taxes. During the time that the Promissory Note is so held in escrow, payments due on the Promissory Note shall be made by Purchaser to the Escrow Agent. The Promissory Note so made shall be released from escrow and delivered to Seller after ninety (90) days or at such time as a receipt or receipts evidencing payment of said sales tax liabilities of Seller, or appropriate releases, are delivered to Purchaser, whichever shall first occur, with payments to be so released within ninety (90) days thereafter. Seller's obligations as to said taxes shall remain, and Purchaser shall have a right of set-off against the Note for payments made by it as a result of the non-payment of same by Seller, as a result of any misrepresentations or failure to perform. 4 5 9. USE OF PURCHASE PRICE TO PAY ENCUMBRANCES. If there is any lien or encumbrance against the Assets, or anything else affecting this sale, which Seller is obligated to pay and discharge at the Closing, Seller shall use any portion of the balance of the purchase price to discharge it, or Seller may allow to Purchaser the amount thereof as a credit at the Closing. Purchaser agrees to provide separate certified checks as reasonably requested to assist in clearing up these matters. 10. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser as follows: (a) Seller has full power and authority to conduct its business as now carried on, and to carry out and perform its undertakings and obligations as provided herein. (b) No action, approval, consent or authorization of any governmental authority is necessary for Seller to consummate the transactions contemplated hereby. (c) Seller is the owner of and has good and marketable title to the Assets, free of all liens, claims and encumbrances, except as may be set forth herein. (d) There are no violations of any law or governmental rule or regulation pending against Seller or the Assets. (e) There are no judgments, liens, suits, actions or proceedings pending, or to its knowledge threatened, against Seller or the Assets. (f) Except as set forth in sub-paragraph 11(d) herein, Seller has not entered into, and the Assets are not subject to, any: (i) written contract or agreement for the employment of any employee of the business; (ii) contract with any labor union or guild; (iii) pension, profit-sharing, retirement, bonus, insurance, or similar plan with respect to any employee of the business; or (iv) similar contract or agreement affecting or relating to the Assets. (g) The Lease is the only agreement between Landlord and Seller with respect to the premises demised thereunder, and is in full force and effect and without any default by Seller, or Landlord, thereunder. (h) Seller has no knowledge of any environmental or hazardous conditions at the premises, including the presence of asbestos; 5 6 (i) Seller has no knowledge of any other parties having rights or interest in or to the premises. 11. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and warrants to Seller as follows: (a) Purchaser has full power and authority to carry out and perform its undertakings and obligations as provided herein. (b) No action, approval, consent or authorization of any governmental authority is necessary for Purchaser to consummate the transactions contemplated hereby. (c) There are no judgments, liens, suits, actions or proceedings pending or, to the best of Purchaser's knowledge, threatened against Purchaser or its property. (d) Purchaser agrees to assume the obligations of Seller pursuant to the security alarm equipment lease agreement annexed as EXHIBIT D. Purchaser further agrees to defend, indemnify, and hold Seller harmless, from and against any and all claims resulting from the future use of the alarm system. This provision shall survive the Closing. 12. NO OTHER REPRESENTATIONS. Purchaser acknowledges that neither Seller nor any representative or agent of Seller has made any representation or warranty (expressed or implied) regarding the Assets or the business, or any matter or thing affecting or relating to this agreement, except as specifically set forth in this agreement. Seller shall not be liable or bound in any manner by any oral or written statement, representation, warranty, agreement or information pertaining to the Assets or the business or this agreement furnished by any broker, agent or other person, unless specifically set forth in this agreement. Purchaser has inspected the Assets, Purchaser agrees to take the Assets "as is" and in their present condition, subject to reasonable use, wear, tear and deterioration between now and the closing date. 13. CONDITIONS TO CLOSING. The obligations of the parties to close hereunder are subject to the following conditions, any of which may be waived by the benefited party: (a) All of the terms, covenants and conditions to be complied with or performed by the other party under this agreement on or before the closing shall have been complied with or performed in all material respects. 6 7 (b) All representations or warranties of the other party herein are true in all material respects as of the closing date. (c) On the closing date, there shall be no liens or encumbrances against the Assets, except as may be provided for herein. Seller promptly shall notify the lessor under the Lease (the "Lessor") of the proposed Sub-Lease to Purchaser, and shall request the consent of the Lessor thereto. Seller and Purchaser shall furnish to the Lessor such information as may reasonably be required in connection with the procuring of such consent, and shall otherwise cooperate with the Lessor and with each other in an effort to expeditiously procure such consent. Neither Seller nor Purchaser shall be obligated to make any payment to obtain such consent. If the Lessor shall fail or refuse to grant such consent in writing in the form of a Landlord's Consent Agreement, within ten (10) days after the date of this agreement (the "Outside Date"), or shall require as a condition of the granting of such consent that additional consideration be paid to the Lessor which neither Seller nor Purchaser is willing to pay, then either Seller or Purchaser may terminate this agreement, by written notice to the other delivered within ten (10) days after the Outside Date. If this agreement is terminated as provided above in this Article 13, Seller shall direct Escrow Agent to return, without interest, the down payment and Escrow Agent shall so return same, whereupon all rights of Purchaser hereunder and to the business shall terminate, and neither Seller nor Purchaser shall have any further claim against the other hereunder. If Purchaser shall be entitled to decline to close the transactions contemplated by this agreement, but Purchaser nevertheless shall elect to close, Purchaser shall be deemed to have waived all claims of any nature arising from the failure of Seller to comply with the conditions or other provisions of this agreement of which Purchaser shall have actual knowledge at the closing. 14. ESCROW CONDITIONS. Concurrently with the execution of this agreement, Purchaser has delivered to DiConza, Larocca & DiCunto, LLP, having an address at 478 Bay Ridge Parkway, Brooklyn, NY 11209 ("Escrow Agent"), Purchaser's check in the amount of $46,500.00, being the amount to be paid by Purchaser upon the execution of this agreement (the "down payment"). At the closing, Seller is to deliver to said Escrow Agent the Promissory Note to be held in escrow, as provided in Article 8 above. 7 8 Escrow Agent shall hold the down payment and the Promissory Note in accordance with this agreement, or a joint instruction signed by Seller and Purchaser, or separate instructions of like tenor signed by Seller and Purchaser, or a final judgment of a court of competent jurisdiction. Escrow Agent hereby is authorized and directed to deliver the down payment to Seller if, as and when title closes. 15. LIQUIDATED DAMAGES. If Purchaser defaults under this agreement, Seller as its sole remedy shall be entitled to declare this agreement null and void and to receive from Escrow Agent and to retain the down payment and any other sums paid by Purchaser hereunder as liquidated damages, whereupon this agreement shall terminate and neither Seller nor Purchaser shall have any further claim against the other. The parties acknowledge that the actual damages sustained by Seller in the event of such default are difficult, if not impossible, to ascertain. 16. BROKERAGE. The parties hereto represent and warrant to each other that they have not dealt with any broker or finder in connection with this agreement or the transactions contemplated hereby, other than Friedland Realty, Inc., whose commission shall be paid by Seller and no other broker or any other person is entitled to receive any brokerage commission, finder's fee or similar compensation in connection with this agreement or the transactions contemplated hereby. Each of the parties shall indemnify and hold the other harmless from and against all liability, claim, loss, damage or expense, including reasonable attorneys' fees, pertaining to any other broker, finder or other person with whom such party has dealt. No action or inaction of Seller or Purchaser, including the giving of notices, shall affect, change or discharge the obligations of the Purchaser's Guarantor hereunder. 17. ASSIGNMENT. Purchaser shall not assign this agreement without the prior written consent of Seller in each instance. Any attempted assignment without Seller's consent shall be null and void. 18. NOTICES. All notices, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been properly given if delivered by hand or by registered or certified mail, return receipt requested, with postage prepaid, to Seller or Purchaser, as the case may be, at their addresses first above written, or at such other addresses as they may designate by notice given hereunder. All notices shall be copied to the respective party's attorneys as follows: To the Purchaser, copy to: ATTN: ANDREW S. LEVINE, ESQ., PRYOR, CASHMAN, SHERMAN & FLYNN, 410 PARK AVENUE, NEW YORK, NEW YORK 10022-4441; To the Seller, copy to: ATTN: RICHARD A. KAPLIN, ESQ., DIcONZA, LAROCCA & DIcUNTO, 478 BAY RIDGE PARKWAY, BROOKLYN, NEW YORK 11209- 2720. 8 9 19. ENTIRE AGREEMENT. This agreement contains all of the terms agreed upon between Seller and Purchaser with respect to the subject matter hereof. This agreement has been entered into after full investigation. All prior oral or written statements, representations, promises, understandings and agreements of Seller and Purchaser are merged into and superseded by this agreement, which alone fully and completely expresses their agreement. 20. CHANGES MUST BE IN WRITING. No delay or omission by either Seller or Purchaser in exercising any right shall operate as a waiver of such right or any other right. This agreement may not be altered, amended, changed, modified, waived or terminated in any respect or particular unless the same shall be in writing signed by the party to be bound. No waiver by any party of any breach hereunder shall be deemed a waiver of any other or subsequent breach. 21. CAPTIONS AND EXHIBITS. The captions in this agreement are for convenience only and are not to be considered in construing this agreement. The Exhibits annexed to this agreement are an integral part of this agreement, and where there is any reference to this agreement it shall be deemed to include said Exhibits. 22. GOVERNING LAW. This agreement shall be governed by and construed in accordance with the laws of the State of New York. If any provisions of this agreement shall be unenforceable or invalid, such unenforceability or invalidity shall not affect the remaining provisions of this agreement. 23. BINDING EFFECT. This agreement shall not be considered an offer or an acceptance of an offer by Seller, and shall not be binding upon Seller until executed and delivered by both Seller and Purchaser. Upon such execution and delivery, this agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and permitted assigns. 24. OPTION PERIOD. Notwithstanding the prior provisions of this Agreement, upon execution hereof, Purchaser shall deliver a bank, certified or attorney escrow check in the amount of $20,000.00, which shall be deposited by and held in escrow by DiConza, Larocca & DiCunto, LLP, attorney for Seller. The $20,000.00 deposit shall be held in a non-interest bearing account until October 1, 1996. (the "Expiration Date"). At or prior to the Expiration Date, Purchaser shall be required to deposit an additional down payment of $26,500.00, representing the balance of the full deposit due under the Agreement of Sale, in which event, the terms and conditions of this Agreement shall be fully effective. In the event Purchaser shall fail to deposit the additional sum of $26,500.00 within the required period or otherwise notifies Seller 9 10 in writing of its intention not to proceed with the Agreement of Sale, then, in either event, the initial $20,000.00 deposit shall be forfeited by the Purchaser. In such event, DiConza, Larocca & DiCunto, LLP shall be authorized to release the initial deposit of $20,000.00 to Seller and the Agreement shall terminate and be of no further force and effect, with neither party having any further claims as against the other. IN WITNESS WHEREOF, the parties have executed this agreement the date first above written. KINGS CASTLE CATERERS, INC. Witness: BY: /s/ Jerry Pellegrino, President - ---------------------------- ------------------------------------- Jerry Pellegrino, President RATTLESNAKE OF BAY RIDGE INC. Witness: By: /s/ William Opper - ---------------------------- ------------------------------------- William Opper, C.E.O. 10 11 EXHIBIT A The Lease and Sub-Lease 11 12 RIDER TO LEASE -------------- The provisions of this rider are hereby incorporated into and made a part of the lease to which this rider is annexed. If there is any conflict between the provisions of this rider and the remainder of this lease, the provisions of this rider shall govern. 2. RENT Tenant covenants to pay to Landlord as a net minimum rent (the "fixed rent") during the term of this lease as follows: Year Annual Rent Monthly Rent Year 1 $81,600.00 $6,800.00 Year 2 84,048.00 7,004.00 Year 3 86,569.44 7,214.00 Year 4 90,032.22 7,502.00 Year 5 94,533.83 7,877.00 Year 6 99,260.52 8,270.00 Year 7 99,260.52 8,270.00 Year 8 99,260.52 8,270.00 Year 9 99,260.52 8,270.00 Year 10 99,260.52* 8,270.00 * TO BE PRORATED The fixed rent shall be payable in advance in equal monthly installments on the first day of each calendar month. If the term of this lease does not commence on the first day of a month, the fixed rent for the month in which the term of this lease commences shall be appropriately apportioned. The first installment of fixed rent shall be paid simultaneously with the execution of this lease. Tenant also covenants to pay, from time to time as provided in this lease, as additional rent, all other amounts and obligations which Tenant assumes or agrees to pay under this lease. In the event of any failure on the part of Tenant to pay any additional rent, Landlord shall have all the rights, powers and remedies provided for in this lease, at law, in equity or otherwise, in the case of nonpayment of fixed rent. Tenant's obligations to pay fixed rent and additional rent shall survive the expiration of the lease term or earlier termination of this lease, arising out of Tenant's default. All fixed rent and additional rent (collectively hereinafter referred to as "rent") shall be paid in such coin or currency (or, subject to collection, by good check payable in such coin or currency) of the United States of America as at the time shall be legal tender for the payment of public and private debts, at the office of Landlord as set forth above, or at such place and to such person as Landlord from time to time may designate. 13 All rent shall be paid to Landlord without notice, demand, counterclaim, setoff, deduction or defense, and nothing shall suspend, defer, diminish, abate or reduce any rent, except as otherwise specifically provided in this lease. 3. Work To Be Performed ----------------------- Tenant at Tenant's sole cost and expense shall perform the work and make the installations in the demised premises set forth in Paragraph "18" hereto. Tenant shall obtain all necessary governmental approvals in connection therewith. Tenant has examined and inspected the demised premises. Tenant agrees to accept possession of the demised premises "AS IS" except as otherwise expressly provided herein. Landlord shall not be responsible for making any improvements, alterations or repairs therein or for spending any other money to prepare the demised premises for Tenant's occupancy, except as expressly provided herein. All other improvements and alterations to the demised premises prior to or at any time after the commencement of the term of this lease shall be made at Tenant's sole cost and expense, in accordance with the provisions of this lease. 4. Alterations and Additions ---------------------------- Tenant shall be entitled to make all non-structural alterations or additions to the demised premises without the prior written consent of Landlord in each instance, so long as all alterations are consistent with the design and furnishings of other Rattlesnake restaurants. Owner shall be responsible for all structural repairs to the demised premises, including the roof. In the event Owner fails to make required structural repairs which impact on Tenant's use of the demised premises, Tenant may undertake such repairs on thirty (30) days' prior written notice and may set-off the cost of such repairs as against rent due. 5. Liens -------- Tenant shall indemnify and hold Landlord harmless from and against any and all bills for labor performed or equipment, fixtures and materials furnished to or for Tenant, and from and against any and all liens or claims therefor or against the demised premises or the building of which it forms a part, and from and against any and all liability, claim, loss, damage or expense, including reasonable attorneys' fees, in connection with any work performed by or for Tenant. The demised premises and the building shall at all times be free of liens for labor and materials supplied or claimed to have been supplied to or on behalf of Tenant, and no financing statements or other security instruments shall be filed against the demised premises or the building or the contents thereof, except for new fixture financing. Landlord agrees to execute releases and/or acknowledgements to confirm this. 2 14 If, in connection with any work being performed by or for Tenant or any subtenant, or in connection with any materials being furnished to Tenant or any subtenant, any mechanic's lien or other lien or charge shall be filed or made against the demised premises or any part thereof, or if any such lien or charge shall be filed or made against Landlord as owner, then Tenant, at Tenant's expense, within thirty (30) days after such lien or charge shall have been filed or made, shall cause the same to be canceled and discharged of record by payment thereof or filing a bond or otherwise. Nothing in this lease shall constitute any consent or request by Landlord, express or implied, for the performance of any labor or services or the furnishing of any materials or other property in respect of the demised premises or any part thereof, nor as giving Tenant any right, power or authority to contract for or permit the performance of any labor or services or the furnishing of any materials or other property in any fashion that would permit the filing or making of any lien or claim against Landlord, the demised premises or the building. 6. Waste Removal ---------------- Tenant, at Tenant's expense, shall contract for the removal, on a daily basis, of all Tenant's garbage waste. Tenant, at Tenant's expense, shall cause the demised premises to be exterminated from time to time to the satisfaction of Landlord. 7. Licenses And Permits ----------------------- Tenant agrees to secure and maintain, at its own expense, all licenses and permits from Federal, State and local authorities as may be necessary for the conduct of Tenant's business, and shall comply with all applicable laws, rules and regulations. Landlord does not represent that any license or permit which may be required will be granted or, if granted, will continue in effect or be renewed. Tenant's obligations under this lease shall in no way be affected by Tenant's inability to secure or maintain any license or permit. 8. Utility Services ------------------- Tenant shall pay all charges for all public or private utility services provided to the demised premises which accrue on or after the commencement date of this lease, shall comply with all contracts relating to such services, and shall do all other things required for the maintenance and continuance of all such services. 3 15 Utilities shall include, but not limited to, all gas, electric, water, sewer and telephone services. Tenant, at its sole cost and expense, shall make all arrangements with the public utility company serving the demised premises for obtaining and paying for electricity and other utility services at the demised premises, including without limitation arrangements pertaining to the installation and use of meters, pans, risers, wiring, panel boards, feeders and other conductors and equipment, if necessary. Landlord shall not be liable or responsible for charges for electricity at the demised premises, or any loss, damage or expense which Tenant may sustain or incur if either the quantity or character of electric service is changed or is no longer available or suitable for Tenant's requirements. Tenant covenants and agrees that its use of electric current shall never exceed the capacity of the existing conductors, feeders, risers, wiring installations or other equipment servicing the building. 9. Compliance With Paramount Lease ---------------------------------- This lease is subject and subordinate to the terms, covenants and conditions of that certain Lease Agreement dated December 1, 1995, with Rider dated February 1, 1996, by and between 9103 Third Ave. Realty Corp., as Landlord and Kings Castle Caterers, Inc., as Tenant (the "Paramount Lease"), as modified by the Landlord Consent Agreement. 9103 Third Ave. Realty Corp. shall be referred to herein as either Prime Landlord or Owner. Tenant, at Tenant's sole cost and expense, shall observe, perform and comply with all of the terms, covenants and conditions of the Paramount Lease to be observed, performed or complied with by the lessee thereunder, other than the provisions for the payment of rent. All rent payments under this lease must be made directly to the Landlord hereunder and NOT to the Owner. In the event of any default in the observance, performance or compliance with any such term, covenant or condition of the Paramount Lease, other than the payment of rent, other than the payment of rent, as claimed by Owner, Landlord, in addition to its other rights and remedies hereunder, shall be entitled to cure such default under the Paramount Lease, and all sums advanced or incurred by Landlord in connection therewith shall be paid by Tenant to Landlord on demand as additional rent hereunder. 10. Limited Liability --------------------- Tenant agrees that, notwithstanding any other provision of this lease, Landlord shall not be under any personal liability under this lease and, if Landlord defaults hereunder, Tenant shall look solely to the interest of Landlord or its successor in the demised premises for the satisfaction of any judgment or other judicial process requiring the payment of money by Landlord based 4 16 upon any default hereunder, and no other assets of Landlord or any such successor shall be subject to levy, execution or other enforcement procedure for the satisfaction of any such judgment or process. 11. Indemnification By Tenant ----------------------------- Tenant shall indemnify and hold Landlord (and any fee owner, mortgagee or lessor under any superior lease) harmless from and against any and all liability, claim, loss, damage or expense, including reasonable attorneys , fees, by reason of any injury to or death of any person or persons, or injury or damage to property, or otherwise, arising from or in connection with the occupancy or use of the demised premises or any work, installation or thing whatsoever done in, at or about the demised premises, or from any act, omission or negligence of Tenant or any contractors, agents, employees, customers, subtenants, licensees, guests or invitees of Tenant. 12. Insurance ------------- Tenant, at all times during the term of this lease and at Tenant's expense, shall provide and keep in force with insurers reasonably approved by Landlord comprehensive public liability and property damage insurance protecting Landlord against any and all liability occasioned by negligence, occurrence, accident, disaster and other risks included under "extended coverage" policies, occurring in or about the demised premises or any part thereof, in amounts approved from time to time by Landlord, which amounts at the date hereof shall be, in the case of public liability, $1,000,000 per person and $3,000,000 per accident, and $500,000 in the case of property damage, and insurance against such other hazards and in such amounts as is customarily carried by tenants in similar restaurants, as Landlord reasonably may request. All insurance maintained by Tenant pursuant to this Article 12 shall name Landlord, Tenant and Owner as additional insureds, shall provide that any loss shall be payable to Landlord notwithstanding any act or failure to act or negligence of Landlord, Tenant or any other person, shall provide that no cancellation, reduction in amount or material change in coverage thereof will be effective until at least ten days after receipt by Landlord of written notice thereof, and shall be satisfactory to Landlord, acting reasonably, in all other respects. Notwithstanding the above, all casualty loss payments below $50,000.00 may be paid directly to Tenant so long as they are used to repair or restore the demised premises. In the event of a casualty loss, Landlord may not terminate this lease unless consented to by Tenant or unless there shall be less than two (2) years remaining on this lease. All repairs required as a result of 5 17 casualty loss shall be expeditiously commenced and completed by Tenant. Upon the execution of this lease and thereafter not less than fifteen days prior to the expiration date of any policy delivered pursuant to this Article 12, Tenant shall deliver to Landlord the originals of all policies or renewal policies or Certificates of Insurance, as the case may be, required by this lease, bearing notations evidencing the payment of the premiums therefor. If at any time Tenant shall neglect or fail to provide or maintain insurance or to deliver insurance policies or certificates in accordance with this Article 12, Landlord may, upon notice to Tenant, effect such insurance as agent for Tenant, by taking out policies in a company satisfactory to Landlord, and the amount of the premiums paid for such insurance shall be paid by Tenant to Landlord on demand. 13. Assignment and Subletting ----------------------------- Tenant expressly covenants that Tenant shall not voluntarily or involuntarily assign, encumber, mortgage or otherwise transfer this lease, or sublet the demised premises or any part thereof, or suffer or permit the demised premises or any part thereof to be used or occupied by others, by operation of law or otherwise, without the prior written consent of Landlord in each instance. Absent such consent, any act or instrument purporting to do any of the foregoing shall be null and void. Landlord's consent to any proposed assignment or subletting may not be unreasonably withheld, or delayed. Failure to respond within thirty (30) days shall be deemed a consent. If Tenant desires to assign this lease or sublet all or any portion of the demised premises, Tenant shall submit to Landlord in writing: the name and address of the proposed assignee or subtenant; a counterpart of the proposed agreement of assignment or sublease and all other instruments or agreements pertaining thereto; such information as to the nature and character of the business of the proposed assignee or subtenant, and the proposed use of the space, as Landlord reasonably may request; banking, financial or other credit information relating to the proposed assignee or subtenant, to the extent available to Tenant, sufficient to enable Landlord to determine the financial responsibility and character of the proposed assignee or subtenant. Tenant shall pay all of Landlord's costs and expenses, including reasonable attorneys' fees, incurred in connection with the review, preparation and execution of any documents pertaining to any proposed assignment or sublease. In the event of an assignment or subletting, Tenant shall continue to remain fully obligated under the terms of this lease. 6 18 14. Brokerage ------------- Landlord and Tenant represent and warrant that they have not dealt with any broker in connection with this lease or the negotiation or execution thereof other than Friedland Realty, Inc., who is being paid by Landlord. Each party agrees to indemnify and hold the other harmless from and against any claims, damage, liability or expense, including attorneys' fees, pertaining to any other broker with whom they have dealt. 15. Notices ----------- All notices required or permitted to be given hereunder shall be sent by registered or certified mail, return receipt requested, addressed to Landlord or Tenant at the address hereinabove stated, or to Tenant at the demised premises, or to such other address as either party hereafter may designate by notice hereunder. In addition, written notice shall be sent to DiConza, Larocca & DiCunto LLP, 478 Bay Ridge Parkway, Brooklyn, New York 11209, as attorneys for Landlord and to Pryor, Cashman, Sherman & Flynn, 410 Park Avenue, New York, New York 10022-4441, as attorneys for Tenant. 16. Miscellaneous ----------------- The submission of this lease to Tenant shall not be construed as an offer or option, and Tenant shall not have any rights hereunder unless and until Landlord shall execute a copy of this lease and deliver the same to Tenant. 17. Option To Extend -------------------- Provided that the Tenant is not in default beyond any notice and grace period under any of the terms herein, Tenant shall have the option to renew this lease for the period, commencing on the 1st day of the first month immediately following the expiration of this lease and ending on the 30th day of January in the Year 2011. In order to exercise this option to extend the term of the lease, Tenant must give Landlord written notice by Certified Mail, Return Receipt Requested, on or before December 1st, 2005. All of the terms and conditions of this lease will remain in full force and effect during the extension period; except that the rent payable during the extension period shall be $104,196.00 per year, in equal monthly installments of $8,683.00 each. 7 19 18. Improvements ---------------- The Tenant acknowledges that the demised premises requires substantial improvements which by their very nature will become attached to and will improve the structure of the premises for the benefit of the Landlord and the Owner of the property. The following improvements will be made by the Tenant at its own cost and expense during the term of this lease: (a) new oil burner, (b) new fifteen (15) ton air conditioning unit, and (c) new upgraded 400 - 800 AMP electrical service. The Tenant has examined the subject premises and is aware of these required improvements. The Tenant shall be responsible for the cost of these improvements. 19. Real Estate Taxes --------------------- Tenant shall pay, during the term of this lease, the additional rent provided for in this Article. As used herein, the following terms shall have the meanings set forth below. "Real Estate Taxes" shall mean all real estate taxes, assessments, water charges and sewer rents, and other taxes and charges of every nature and kind whatsoever, whether general or special, ordinary or extraordinary, foreseen or unforeseen, of every character, which at any time may be assessed, levied, charged, confirmed or imposed on or in respect of or be a lien upon the building. "Real Estate Taxes" shall exclude income, franchise, inheritance or similar taxes; provided, however, that if the method of taxation or assessment shall be changed so that the whole or any part of the Real Estate Taxes theretofore payable with respect to the building instead shall be levied, charged, assessed or imposed in whole or in part on the income or rents received by Landlord from the building or shall otherwise be imposed against Landlord in the form of a franchise tax or otherwise, then the same shall be deemed Real Estate Taxes for purposes of this Article. "Escalation Year" shall mean each twelve month period or portion thereof, ending on June 30th, occurring within the term of this lease. "Base Year" shall mean the twelve month period ending on June 30th, 1996. The "building" shall mean the land and the building of which the demised premises forms a part, known as 9101 Third Avenue, in the City of New York, Borough of Brooklyn. 8 20 "Tenant's Share" shall mean 50% percent. Tenant shall pay to Landlord, as additional rent, an amount equal to Tenant's Share of the amount of the Real Estate Taxes payable during the term hereof. Such additional rent may be billed by Landlord at or about the dates on which installments of Real Estate Taxes are due and payable by Landlord, or within twelve (12) months thereafter, and such additional rent shall be payable by Tenant to Landlord within ten days after being billed therefor. The Real Estate Taxes actually payable by Landlord shall be used in computing the additional rent hereunder. If Landlord receives a refund of any Real Estate Taxes paid during any year on which additional rent shall have been based, as a result of a reduction of Real Estate Taxes by final determination of legal proceedings, settlement or otherwise, the additional rent shall be recomputed based on the net refund, after deducting Landlord's expenses, and Tenant shall receive a credit for or refund of any overpayment of additional rent. Landlord shall not be obligated to contest the levy or assessment of any Real Estate Taxes, and it shall be at Landlord's sole discretion whether any such contest shall be undertaken by Landlord. Tenant shall also have the right to take and prosecute all such proceedings and if so taken, may proceed at its own expense and may prosecute the proceeding, including settlement and discontinuance. In no event shall the annual fixed rent under this lease be reduced by virtue of this Article. The additional rent provided herein shall be apportioned as of the expiration of the lease term or earlier termination of this lease. The obligations of Tenant to pay additional rent as provided for herein shall survive the expiration of the lease term or earlier termination of this lease. The additional rent provided for herein shall be collectible by Landlord in the same manner as the regular installments of fixed rent due under this lease. No delay or failure by Landlord in preparing or delivering any statement or demand for any additional rent shall constitute a waiver of, or impair Landlord's rights to collect, such additional rent. 20. Security Deposit -------------------- Tenant has deposited with Landlord the sum of $6,800.00 as security for the full and faithful performance and observance by Tenant of the terms, covenants and conditions of this lease. If Tenant defaults in the performance or observance of any term, 9 21 covenant or condition of this lease, including without limitation the obligation of Tenant to pay any rent or other sum required hereunder, Landlord may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any rent or any other sum as to which Tenant is in default or for any sum which Landlord may expend or may be required to expend by reason of Tenant's default, including without limitation any damages or deficiency accrued before or after summary proceedings or other re-entry by Landlord. If Tenant shall fully and faithfully observe and perform all of the terms, covenants and conditions of this lease, the security, without interest, shall be returned to Tenant after the end of the first six (6) months of this lease. 21. Non-disturbance Agreement ----------------------------- Landlord shall use its best efforts to obtain a Non-disturbance Agreement protecting the respective interests of the Landlord and the Tenant in the subject premises in the form of agreement annexed hereto and made a part hereof. In the event that the holder of any current mortgage against the subject premises is unwilling to execute a Non-disturbance Agreement in either the form annexed hereto or in some other form acceptable to both Landlord and Tenant, then, in such event, the parties shall have the following rights and obligations. In the event a foreclosure action is instituted and both the Landlord and Tenant are named as parties thereto, then in such event, the Landlord shall have the option of purchasing the mortgage, in which case the action against the Landlord and Tenant shall be discontinued. At such time, Landlord shall either discharge the mortgage of record or enter into a Non-disturbance Agreement with the Tenant in the form annexed hereto. Landlord shall be obligated to advise Tenant within thirty (30) days of the commencement of the foreclosure action whether or not it intends to purchase the mortgage. In the event Landlord elects not to so purchase or fails to advise Tenant that it intends to purchase the mortgage, then, in such event, Tenant shall have the option of purchasing the defaulted mortgage from the holder thereof. In such event, Tenant shall have the right to offset as against future rent due, the amount paid to purchase the 10 22 defaulted mortgage. Thereafter, Tenant shall assign the mortgage to the Landlord without additional consideration. KINGS CASTLE CATERERS, INC. BY: --------------------------------------- LANDLORD RATTLESNAKE OF BAY RIDGE, INC. BY: --------------------------------------- TENANT 11 23 EXHIBIT B The Equipment, Furniture, Fixtures and Improvements Located at Short Ribs Restaurant & Bar 11 24 EXHIBIT C Excluded Assets --------------- 1. Grandfather Clock 2. Frozen Drink Machines (2) 3 Bar stock 4. Restaurant inventory 5. Stained glass 12 25 EXHIBIT D Security Alarm Equipment Lease Agreement EX-10.30 11 ASSIGNMENT AND ASSUMPTION AGREEMENT 1 EXHIBIT 10.30 ASSIGNMENT AND ASSUMPTION AGREEMENT ----------------------------------- AGREEMENT made this 23 day of August, 1996, by and between HOLY COW RESTAURANTS ASSOCIATES, INC., having an address at 2345 Broadway, New York, New York 10024 ("ASSIGNOR") and RATTLESNAKE OF 86th STREET, INC., having an address at 3 Stamford Landing, Stamford, Connecticut 06902 ("ASSIGNEE"). STATEMENT OF FACTS ------------------ Pursuant to that certain Lease dated January 18, 1995 (the "LEASE") Rymsbran Continental Corp. DIP ("LANDLORD") leased to Assignor, and Assignor hired from Landlord, that certain premises known as 2341-2359 Broadway, a/k/a 250 West 86th Street, New York, New York more particularly described in the Lease (the "PREMISES"). Assignor now desires to assign to Assignee, and Assignee has agreed to assume, all of Assignor's rights, titles and interests in, to and under the Lease upon, and subject to, the terms, covenants and conditions herein contained. NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable consideration, the mutual receipt and legal sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. Assignor hereby assigns unto Assignee, all of Assignor's right, title and interest in, to and under the Lease, to have and to hold the same unto Assignee, its successors and assigns, subject to the terms, covenants and conditions set forth in the Lease. Assignee hereby assumes all of the terms, covenants, conditions and obligations on the part of Assignor to be performed under the Lease arising or accruing from and after the date hereof, and Assignee covenants to fully perform and abide by the same including, without limitation, those which govern the permitted use of the Premises, and those which govern Assignee's right to further assign its interest in the Lease or sublet the Premises. 2. Assignor shall indemnity, defend and save Assignee harmless from and against any and all claims, suits, actions, damages, charges, liabilities, costs and expenses (including, without limitation, reasonable attorney's fees and disbursements) that Assignee may sustain by reason of Assignor's failure to observe or perform any of the terms, covenants or conditions of the Lease arising or accruing prior to the date hereof. 3. Assignee shall indemnify, defend and save Assignor harmless from and against any and all claims, suits, actions, damages, charges, liabilities, costs and expenses (including, without limitation, reasonably attorney's fees and disbursements) that Assignor may sustain by reason of Assignee's failure to observe or perform any of the terms, covenants or conditions of the Lease arising or accruing from and after the date hereof. 2 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the day and year first above written. ASSIGNOR: HOLY COW RESTAURANT ASSOCIATES, INC. By: /s/ ? , Pres. ------------------------------------ ASSIGNEE: RATTLESNAKE OF 86TH STREET, INC. By: /s/ ? , CEO/Chairman. ------------------------------------ EX-21 12 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARES 1. Pen-Z Corp. 2. Rattlesnake Ventures, Inc. 3. Rattlesnake-Fairfield, Inc. 4. Rattlesnake (Hamden), Inc. 5. Rattlesnake-Danbury, Inc. 6. Rattlesnake-Lynbrook, Inc. 7. Rattlesnake-White Plains, Inc. 8. Rattlesnake-Flemington, Inc. 9. Rattlesnake of 86th Street, Inc. -----END PRIVACY-ENHANCED MESSAGE-----