Quarterly Report (10-q)

  FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2014

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT

Commission file number: 000-538-53

 

BOURBON BROTHERS HOLDING CORPORATION

 (Exact name of the registrant as specified in its charter)

 

Colorado	80-0182193
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

 

2 N. Cascade Avenue, Suite 1400

Colorado Springs, CO 80903

(Address of principal executive offices)

719-265-5821

Telephone number, including

Area code

______________________________________________

(Former name or former address if changed since last report)

Securities registered under Section 12(b) of the Exchange Act: None

Title of Each Class		Name of Each Exchange on Which Registered
NONE		NONE

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value

(Title of Class)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer o       Accelerated filer o       Non-accelerated filer o       Smaller reporting Company x

There were 48,074,654 shares of the issuer's common stock, no par value, outstanding as of October 31, 2014.

 

 

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BOURBON BROTHERS HOLDING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED SEPTEMBER 30, 2014

 

CONTENTS

 

PART I – Financial Information	1
Item 1.  Financial Statements	1
Consolidated financial statements (unaudited)
Balance sheets	2
Statements of loss	3
Statements of cash flows	4
Statement of changes in equity	5
Notes to unaudited consolidated financial statements	6
Item 2. Management’s Discussion and Analysis	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk	27
Item 4. Controls and Procedures	28
PART II – Other information	28
Item 1.  Legal Proceedings	28
Item 1A. Risk Factors	28
Item 2.  Unregistered Sales of Securities and Use of Proceeds	28
Item 3. Defaults Upon Senior Securities	29
Item 4. Mine Safety Disclosures	29
Item 5. Other Information	29
Item 6. Exhibits	29

 

 

1

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BOURBON BROTHERS HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

		September 30,				December 31,
		2014				2013
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	83,993			$	13,611
Prepaid expenses and other			159,086				5,459
Inventory			58,703				31,559
Total current assets			301,782				50,629
Deposits			80,525				18,034
Intangible asset, net			41,875				45,625
Property and equipment, net			3,033,532				2,443,575
Total assets		$	3,457,714			$	2,557,863
Liabilities and equity
Current liabilities:
Accounts payable		$	144,718			$	81,015
Accrued expenses			174,535				78,568
Related party note payable			90,000				204,877
Note payable and accrued interest			216,507				211,614
Convertible notes payable and accrued interest, current portion			60,000				60,000
Total current liabilities			685,760				636,074
Deferred rent			277,015				234,900
Convertible notes payable and accrued interest, net of current portion,
(net of $477,088 (2014) and $295,872 (2013) discount)			665,033				532,844
Total liabilities			1,627,808				1,403,818
Commitments and contingencies
Equity
Preferred stock - par value $0.001;
Authorized Series A shares - 18,242,700
Issued and outstanding Series A shares - 4,884,859 (2014) and none (2013)			248,994				-
Common stock - no par value;
Authorized shares - 100,000,000
Issued and outstanding shares - 47,973,028 (2014) and 9,629,220 (2013)			7,704,301				4,925,860
Additional paid-in capital			1,595,942				1,086,609
Accumulated deficit			(7,884,302	)			(5,297,742	)
Total Bourbon Brothers Holding Corporation ("BBHC") equity			1,664,935				714,727
Noncontrolling interest			164,972				439,318
Total equity			1,829,907				1,154,045
Total liabilities and equity		$	3,457,715			$	2,557,863

 

 

See notes to unaudited consolidated financial statements. 

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BOURBON BROTHERS HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2014				2013				2014				2013
Revenue		$	1,408,772			$	596,766			$	3,953,749			$	1,553,052
Operating expenses:
Restaurant operating costs (related party $99,100 and $284,000 for 2014),			1,458,823				611,238				4,199,909				1,713,256
exclusive of depreciation and amortization below
General and administrative			503,165				134,681				1,806,079				1,121,668
Related party management services			-				114,512				-				349,388
Selling and marketing			110,588				199				395,446				19,065
Depreciation and amortization			111,013				74,216				322,558				176,541
Impairment of franchise fees			-				250,000				-				250,000
Total operating expenses			2,183,589				1,184,846				6,723,992				3,629,918
Loss from operations			(774,817	)			(588,080	)			(2,770,243	)			(2,076,866	)
Other expense:
Interest expense			(37,755	)			(25,175	)			(90,663	)			(485,564	)
Net loss		$	(812,572	)		$	(613,255	)		$	(2,860,906	)		$	(2,562,430	)
Net loss attributable to noncontrolling interest		$	(107,793	)		$	(36,671	)		$	(274,346	)		$	(258,727	)
Net loss attributable to BBHC			(704,779	)			(576,584	)			(2,586,560	)			(2,303,703	)
Net loss		$	(812,572	)		$	(613,255	)		$	(2,860,906	)		$	(2,562,430	)
Basic and diluted net loss per share attributable to BBHC common shareholders		$	(0.02	)		$	(0.06	)		$	(0.06	)		$	(0.27	)
Weighted average number of common shares outstanding - basic and diluted			46,958,130				9,611,542				40,227,931				8,612,059

 

 

See notes to unaudited consolidated financial statements.

 

 

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BOURBON BROTHERS HOLDING CORPORATION

CONSOLIDATED STATEMENTS OF LOSS

 (Unaudited)

 

		Nine months ended
		September 30,
		2014				2013
Net cash used in operating activities		$	(1,928,188	)		$	(1,601,452	)
Cash flows from investing activities
Cash acquired in acquisition			869,907				-
Purchase of property and equipment			(303,962	)			(1,223,072	)
Net cash provided by (used in) investing activities			565,945				(1,223,072	)
Cash flows from financing activities
Proceeds from exercise of a stock options			25				4,976
Proceeds from exercise of warrants			300				-
Contribution to subsidiary by non-controlling interest			-				225,980
Sale of common stock			1,042,300				1,368,012
Proceeds from issuance of promissory notes and warrants			300,000				331,486
Proceeds from issuance of short-term promissory notes			90,000				-
Repurchase of shares for services from related party			-				(25,000	)
Net cash provided by financing activities			1,432,625				1,905,454
Net increase (decrease) in cash and cash equivalents			70,382				(919,070	)
Cash and cash equivalents, beginning			13,611				962,331
Cash and cash equivalents, ending		$	83,993			$	43,261
Supplemental disclosure of non-cash investing and financing activities:
Convertible notes and interest converted to common stock		$	-			$	830,984
Acquisition of BBHCLLC in exchange for preferred and common stock		$	1,658,612			$	-
Beneficial conversion feature		$	123,000			$	-

 

 

See notes to unaudited consolidated financial statements.

 

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BOURBON BROTHERS HOLDING CORPORATION

 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2014

(Unaudited)

 

 

																		Additional								Non-
		Common Stock								Preferred Stock								paid-in				Accumulated				Controlling
		Shares				Amount				Shares				Amount				capital				Deficit				Interest				Total
Balances January 1, 2014			9,629,220			$	4,925,860				-			$	-			$	1,086,609			$	(5,297,742	)		$	439,318			$	1,154,045
Issuance of common stock for cash			3,474,333				1,042,300				-				-				-				-				-				1,042,300
Acquisition of BBHCLLC for common and preferred shares			20,274,193				1,033,429				18,242,687				929,878				-				-				-				1,963,307
Stock issued for services			51,678				21,503				-				-				-				-				-				21,503
Exercise of stock options			91,214				25				-				-				-				-				-				25
Exercise of warrants			1,094,562				300				-				-				-				-				-				300
Conversion of preferred shares to common			13,357,828				680,884				(13,357,828	)			(680,884	)			-				-				-				-
Debt discount on convertible debt allocated to warrants and beneficial conversion feature			-				-				-				-				234,781				-				-				234,781
Stock-based compensation			-				-				-				-				274,552				-				-				274,552
Net loss			-				-				-				-				-				(2,586,560	)			(274,346	)			(2,860,906	)
Balances, September 30, 2014			47,973,028			$	7,704,301				4,884,859			$	248,994			$	1,595,942			$	(7,884,302	)		$	164,972			$	1,829,907

 

 

 

 

 

See notes to unaudited consolidated financial statements.

 

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

  

NOTE 1 – ORGANIZATION, RECENT EVENTS, BASIS OF PRESENTATION AND MANAGEMENT’S PLANS

 

Organization and Recent Events

Bourbon Brothers Holding Corporation (“BBHC” or the “Company”) is a Colorado corporation. The Company, on January 22, 2014, with approval of a majority of the Company’s shareholders, changed its name from Smokin Concepts Development Corporation to Bourbon Brothers Holding Corporation.

The Company’s subsidiary, Southern Hospitality Franchisee Holding Corporation (“SH”) entered into a franchise agreement and area development agreement with SH Franchising & Licensing LLC, dba Southern Hospitality BBQ (the “Franchisor”) in November 2011. In May 2012, SH formed Southern Hospitality Denver Holdings, LLC (“SHDH”), a wholly-owned subsidiary, and Southern Hospitality Denver, LLC (“SHD”). SHD was formed for the purpose of owning and operating the Company’s first franchised restaurant in Denver, Colorado. As of September 30, 2014, and December 31, 2013, SHD is 51% owned by SHDH and 49% owned by non-controlling interest holders, of which related parties of the Company are 22% non-controlling interest holders.

 

On September 30, 2013, the Company entered into an Acquisition Agreement with Bourbon Brothers Holding Company, LLC (“BBHCLLC”) to acquire all of the equity interests in BBHCLLC and its subsidiaries (the “BB Transaction”). BBHCLLC is a Colorado limited liability company (“LLC”) formed in May 2013, for the purpose of developing and managing all aspects of operating units related to a recently developed “Bourbon Brothers” brand.  The principals of BBHCLLC were also, at various times, on the board of directors of the Company, and therefore BBHCLLC is considered to be a related party.  As of December 31, 2013, BBHCLLC was a development stage company. BBHCLLC’s subsidiaries (all LLCs formed in April 2013) include Bourbon Brothers Restaurant Group, LLC (“BBRG”), Bourbon Brothers Franchise, LLC (“BBF”) and Bourbon Brothers Brand, LLC (“BBB”). BBRG owns the stores to encompass several Bourbon Brothers brands, and owns Bourbon Brothers Southern Kitchen Colorado Springs, LLC (“BBSK”), which opened its first restaurant in January 2014, and for which BBSK is 51% owned by BBRG as of the date of the BB Transaction. BBRG also owns Bourbon Brothers Seafood and Chophouse Colorado Springs, LLC (“BBSF”). BBB manages all aspects of the Bourbon Brothers brand and anticipates establishing licensing and royalty agreements with producers of bourbon, spices, cigars and other products that fit the Company’s core brand.  In July 2014, the Company announced that the board of directors approved a third restaurant concept, 53 Peaks Local Kitchen, a Colorado-themed, casual dining restaurant, with the first location to be in Lone Tree, Colorado.  This location is anticipated to open in the first quarter of 2015.

On January 22, 2014, the Company and BBHCLLC closed on the BB Transaction. On that date, the Company issued 20,274,193 shares of common stock to BBHCLLC Class B Non-Voting members and 18,242,687 shares of Series A Convertible Preferred Stock to BBHCLLC Class A Voting members. All outstanding options and warrants to acquire BBHCLLC units were assumed by the Company, applying a 1.82427 conversion ratio. The acquisition of BBHCLLC was accounted for using the purchase method of accounting. The purchase price was allocated among the assets acquired and liabilities assumed at their estimated fair values, which management believes approximates the net book value of the assets and liabilities.

The purchase price allocation is preliminary and subject to change, as a final analysis and review of all underlying assumptions and calculations used in the determination of the purchase price and the allocation, especially in consideration of the related party nature of the underlying transaction, has not yet been completed.  The following table summarizes the estimated fair values of BBHCLLC’s assets and liabilities acquired at the acquisition date (January 22, 2014):

 

Cash		$	869,907
Property and equipment			957,705
Other assets			270,955
Accounts payable and accrued expenses			(135,260	)
Purchase price (estimated fair value of common and preferred shares issued)		$	1,963,307

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

   

NOTE 1 – ORGANIZATION, RECENT EVENTS, BASIS OF PRESENTATION AND MANAGEMENT’S PLANS (CONTINUED)

The pro forma effects on the Company’s consolidated results of operations for the nine months ended September 30, 2014, as if the acquisition had occurred on January 1, 2014, are not material.  The pro forma effects of the acquisition related to the nine months ended September 30, 2013, as if the acquisition occurred at the beginning of the year, would have had no affect on revenues of $1,553,052, increased loss from operations to $2,587,844, increased net loss to $3,073,408 and increased net loss per share to $0.11, after giving effect to the pro forma adjustment to increase the weighted average number of common shares.

Basis of Presentation

Since inception through February 20, 2013, the Company devoted substantially all of its efforts to establishing its business.  The Company’s planned principal operations commenced on February 21, 2013, with the opening of the Southern Hospitality Denver restaurant.  As a result, the Company was no longer considered to be a development stage enterprise as of February 21, 2013.

The unaudited consolidated financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and accounting principles generally accepted in the United States (“U.S. GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures included herein are adequate to make the information presented not misleading. A description of the Company’s accounting policies and other financial information is included in the audited consolidated financial statements as filed with the SEC in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. Amounts as of December 31, 2013, are derived from those audited consolidated financial statements. These interim consolidated financial statements should be read in conjunction with the annual audited financial statements, accounting policies and notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, which has previously been filed with the SEC.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of September 30, 2014, and the results of operations and cash flows for the periods presented. All such adjustments include those that are of a normal recurring nature. The results of operations for the nine months ended September 30, 2014, 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.

Management’s Plans

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Company reported a net loss of approximately $812,600, $2.86 million, $613,300 and $2.6 million for the three and nine month periods ended September 30, 2014 and 2013, respectively, and has an accumulated deficit of approximately $7.9 million at September 30, 2014. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

The Company has devoted substantially all of its efforts to developing its business plan, raising capital, and opening and operating its Denver and Colorado Springs restaurants, as well as its planned Lone Tree, Colorado restaurant.

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 1 – ORGANIZATION, BASIS OF PRESENTATION AND MANAGEMENT’S PLANS (CONTINUED)

Management’s Plans (Continued)

The Company began revenue generating activities in late February 2013, and in January 2014, BBHCLLC’s restaurant, located in Colorado Springs, Colorado, opened and began generating revenues. The Company does not have a revolving loan agreement with any financial institution, nor can the Company provide any assurance it will be able to enter into any such agreement in the future, or be able to raise funds through a future issuance of debt or equity. The Company’s continued implementation of its business plan is dependent on its future profitability and engaging in strategic transactions, or on additional debt or equity financing, which may not be available in amounts or on terms acceptable to the Company or at all. As a consequence, if the Company is unable to achieve and maintain profitability through current restaurant operations, enter into strategic transactions, or obtain additional financing in the near term, the Company may be required to delay its business plan implementation, which would have a material adverse impact on the Company.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries.  All material intercompany accounts, transactions and profits are eliminated in consolidation.

Accounting guidance provides a framework for determining whether an entity should be considered a variable interest entity (VIE), and if so, whether the Company’s involvement with the entity results in a variable interest in the entity. If the Company determines that it does have a variable interest in the entity, it must perform an analysis to determine whether it represents the primary beneficiary of the VIE. If the Company determines it is the primary beneficiary of the VIE, it is required to consolidate the assets, liabilities and results of operations and cash flows of the VIE into the consolidated financial statements of the Company.

A company is the primary beneficiary of a VIE if it has a controlling financial interest in the VIE. A company is deemed to have a controlling financial interest in a VIE if it has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company has concluded that there are no VIE’s subject to consolidation at September 30, 2014. While the Company believes its evaluation is appropriate, future changes in estimates, judgments and assumptions in the case of an evaluation triggered by a reconsideration event as defined in the accounting standard may affect the determination of primary beneficiary status and the resulting consolidation, or deconsolidation, of the assets, liabilities and results of operations of a VIE on the Company’s consolidated financial statements.

Use of Estimates

The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues, costs and expenses during the reporting period. Actual results could differ from the estimates. Changes in estimates are recorded in the period of change.

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

   

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Fair Value Measurements

The Company accounts for financial instruments pursuant to accounting guidance which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair measurements.  To increase consistency and comparability in fair value measurements, the accounting guidance established a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 – quoted prices (unadjusted) in active markets of identical assets or liabilities;

Level 2 – observable inputs other than Level 1, quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, and model-derived prices whose inputs are observable or whose significant value drivers are observable; and

Level 3 – assets and liabilities whose significant value drivers are unobservable.

Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions.  Unobservable inputs require significant management judgments or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy.  In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement.  Such determination requires significant management judgment.  There were no financial assets or liabilities measured at fair value, with the exception of cash and cash equivalents as of September 30, 2014.

The carrying amounts of accounts payable and notes payable approximate their fair values due to their interest rates and/or  short-term maturities.  The carrying amounts of related party payables are not practicable to estimate based on the related party nature of the underlying transaction.

Non-controlling Interest

The non-controlling interest represents capital contributions, income and loss attributable to the owners of less than wholly-owned consolidated entities, and are reported in equity. From inception through September 30, 2014, in exchange for their interest in SHD, the non-controlling members contributed $897,465 in cash, of which nil and $225,980 was contributed during the nine month periods ended September 30, 2014 and September 30, 2013, respectively.

Pre-opening Costs

Pre-opening costs, such as travel and employee payroll and related training costs are expensed as incurred and include direct and incremental costs incurred in connection with the opening of each restaurant. Pre-opening costs also may include non-cash rental costs under operating leases incurred during a construction period.

Cash and Cash Equivalents

Cash equivalents include short-term highly liquid investments with an original a maturity of three months or less when purchased.  In addition, the majority of payments due from financial institutions for the settlement of debit card and credit card transactions process within two business days, and therefore these payments due are classified as cash and cash equivalents.

Inventory

Inventory consists of food and beverages and is stated at the lower of cost (first-in, first-out) or market.

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

   

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment

Management reviews property and equipment, including leasehold improvements, for impairment when events or circumstances indicate these assets might be impaired. The Company's management considers, or will consider, such factors as the Company's history of losses and the disruptions in the overall economy in preparing an analysis of its property, including leasehold improvements, to determine if events or circumstances have caused these assets to be impaired. Management bases this assessment upon the carrying value versus the fair value of the asset and whether or not that difference is recoverable. Such assessment is to be performed on a restaurant-by-restaurant basis and is to include other relevant facts and circumstances including the physical condition of the asset. If management determines the carrying value of the restaurant assets exceeds the projected future undiscounted cash flows, an impairment charge would be recorded to reduce the carrying value of the restaurant assets to their fair value. 

Leasehold improvements are stated at cost. Property and equipment costs directly associated with the acquisition, development and construction of a restaurant are capitalized. Expenditures for minor replacements, maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, and leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Property and equipment are not depreciated/amortized until placed in service. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in earnings.

Capitalized Interest

Interest on funds used to finance the acquisition and construction of a restaurant to the date the asset is placed in service is capitalized.

Leases and Deferred Rent

The Company intends to lease substantially all of its restaurant properties, and in April 2012, the Company entered into a ten-year lease for the restaurant in Denver, Colorado; the Company is also a party to a ten-year lease for its restaurant in Colorado Springs, Colorado, which commenced in January 2014. Additionally, the Company signed a ten-year lease in July 2014 for its restaurant in Lone Tree, Colorado, which is anticipated to open in late Fall 2014.  For leases that contain rent escalation clauses, the Company records the total rent payable during the lease term and recognizes expense on a straight-line basis over the initial lease term, including the "build-out" or "rent-holiday" period where no rent payments are typically due under the terms of the lease. Any difference between minimum rent and straight-line rent is recorded as deferred rent. Additionally, contingent rent expense based on a percentage of revenue is accrued and recorded to the extent it is expected to exceed minimum base rent per the lease agreement based on estimates of probable levels of revenue during the contingency period.  Long-term deposits on the Denver, Colorado Springs and Lone Tree leases in the amount of $80,525 are recorded as of September 30, 2014.  Deferred rent also includes a tenant improvement allowance the Company received in 2012 for $150,000, which is amortized as a reduction of rent expense, also on a straight-line basis over the initial term of the lease. 

Revenue Recognition

The Company began revenue-generating activities through the Denver restaurant on February 21, 2013. The Company began accounting for such revenues pursuant to SEC Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and applicable related guidance. Revenue is derived from the sale of prepared food and beverage and select retail items. Revenue is recognized at the time of sale and is reported on the Company's consolidated statements of income (loss) net of sales taxes collected. The amount of sales tax collected is included in accrued expenses until the taxes are remitted to the appropriate taxing authorities.

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

  

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Advertising Expenses

Advertising costs are expensed as incurred. Total advertising expenses were approximately $110,600 and $395,400 for the three and nine months ended September 30, 2014, and $200 and $19,100, for the three and nine months ended September 30, 2013, respectively.

Stock-Based Compensation

The Company accounts for stock-based compensation under Accounting Standards Codification (“ASC”) 718, Share-Based Payment. ASC 718 requires the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock-based compensation expense to be recognized over the period of service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using an option pricing model, typically the Black-Scholes model.

Income Taxes

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts, and for tax loss and credit carry-forwards. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.

The Company determines its income tax expense in each of the jurisdictions in which it operates. The income tax expense includes an estimate of the current income tax expense, as well as deferred income tax expense, which results from the determination of temporary differences arising from the different treatment of items for book and tax purposes.

The Company files income tax returns in the U.S. federal jurisdiction and in various state and local jurisdictions.

Many of the Company’s subsidiaries are limited liability companies (“LLC’s”) and are treated for tax purposes as pass-through entities. As a result, any taxes are the responsibility of the respective members.

The Company assesses the likelihood of the financial statement effect of a tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. Management does not believe that there are any uncertain tax positions that would result in an asset or liability for taxes being recognized in the accompanying consolidated financial statements. The Company recognizes tax related interest and penalties, if any, as a component of income tax expense.

 

Net loss per share

 

Basic net loss per share is computed by dividing the net loss applicable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if dilutive securities were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect of such inclusion would reduce a loss or increase earnings per share. For each of the periods presented in the accompanying consolidated financial statements, the effect of the inclusion of dilutive shares would have resulted in a decrease in loss per share. Common stock options, warrants and shares underlying convertible debt aggregating 9,250,445 and 1,958,512 for the periods ended September 30, 2014 and 2013, respectively, have been excluded from the calculation of diluted net loss per common share.

11

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts from Customers, which supercedes the revenue recognition in Revenue Recognition (Topic 05), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.  ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption not permitted.  The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption.

NOTE 3 – INTANGIBLE ASSETS

In 2011, the Company paid $300,000 for the non-exclusive rights and license to use the Southern Hospitality system and Southern Hospitality licensed marks in connection with the operation of ten restaurants to be owned and operated by the Company under franchise and related area development agreements.  These costs were allocable to each planned restaurant.

In September 2013, the Company terminated the Area Developer Agreement (“ADA”) with the Franchisor. As a result of the termination of the ADA, the Company determined this event impaired the intangible asset, and a resulting impairment expense was recorded in the year ended December 31, 2013, of $250,000.  The intangible asset at September 30, 2014, represents franchise license costs for the Denver restaurant (net of accumulated amortization of $8,125).

Amortization began in February 2013 with the opening of the Company’s Denver-based restaurant, with amortization expense of $1,250 and $3,750 recorded for the three months and nine months ended September 30, 2014, respectively. Amortization expense for the next five years is estimated to be as follows:

 

2014 (remaining three months)		$	1,250
2015			5,000
2016			5,000
2017			5,000
2018			5,000
Thereafter			20,625
		$	41,875

The Company licenses the rights to the trademark “Bourbon Brothers” and certain intellectual property, as defined, from a related party, Bourbon Brothers LLC (“BBLLC), for use in the Company’s business operations. BBLLC has granted an exclusive license to use and to sublicense the tradename and intellectual property for an initial ten-year term. The agreement shall automatically renew for additional terms of ten-years each without any action required by either party. This license agreement does not require the payment of royalties or any other consideration.

 

 

12

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 4 – PROPERTY AND EQUIPMENT

As of September 30, 2014 and December 31, 2013, property and equipment consists of the following: 

		September 30,				December 31,
		2014				2013			Useful lives
		(Unaudited)
Leasehold improvements		$	2,208,643			$	2,146,322		3-10 years
Website development			21,500				13,500		3 years
Equipment			1,255,660				478,194		3-7 years
Computers and hardware			116,275				52,742		5 years
			3,602,078				2,690,758
Less accumulated depreciation			(568,546	)			(247,183	)
		$	3,033,532			$	2,443,575

 

 

The Company’s first Denver-based restaurant opened in late February 2013, for which the Company began depreciating such assets.   The Company’s Colorado Springs-based restaurant opened in late January 2014, for which the Company began depreciating such assets.  Depreciation expense was approximately $109,800, and $317,900 for the three and nine months ending September 30, 2014 and $72,000 and $173,400 for the three and nine months ending September 30, 2013, respectively.

 

NOTE 5 – NOTES PAYABLE

 

Convertible Notes:

Beginning in October 2011, the Company began selling 5% promissory notes (the “Notes”) along with shares of the Company’s common stock. Investors received one share of common stock for each one dollar of principal amount loaned to the Company. The Notes bear interest at 5% per annum, they are unsecured, and their maturity dates are seven years from their issue date. The Company sold $3,086,388 of notes from 2011 through November 2012. Quarterly payments are applied against accrued interest first, then principal. The minimum aggregate quarterly payment to Note holders is 2.5% of the Company’s portion of gross quarterly revenues from each restaurant. The first minimum quarterly payment of $7,297 was paid in May 2013 (45 days after the first calendar quarter in which the Denver restaurant opened which occurred on February 21, 2013).  

By their original terms, the Notes and accrued interest became convertible, at the option of the holder, upon the Company’s common stock becoming publicly traded on November 13, 2012. The conversion price is 80% of the 20-day average closing sales price on the date conversion is elected, but not less than $0.50 per share. The Company determined that there was a beneficial conversion feature associated with the Notes in the amount of $283,500 related to the intrinsic value of the conversion feature before the Company’s stock became public. The Company recorded the beneficial conversion feature as a discount to the note and is amortizing the amount to interest over the term of the notes.  Approximately $12,500 and $37,900 have been amortized for the three and nine months ended September 30, 2014 and $65,900 and $206,800 amortized for the three and nine months ended September 20, 2013. There were no notes or accrued interest converted into common shares during the three or nine months ended September 30, 2014.

 

13

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 5 – NOTES PAYABLE (CONTINUED)

Convertible Notes: (continued)

Beginning in August 2014, the Company began selling 6.5% promissory notes (the “2014 Notes”) along with warrants to purchase the Company’s common stock. Investors received a warrant to purchase four shares of common stock for each one dollar of principal amount loaned to the Company. The 2014 Notes bear interest at 6.5% per annum, they are unsecured, and their maturity dates are five years from their issue date. The Company sold $300,000 of notes from August 2014 through September 2014.  By their original terms, the 2014 Notes and accrued interest become convertible, at the option of the holder, after two years from the issue date. The conversion price is the lower of 80% of the 20-day average closing sales price on the date conversion is elected or $0.25 per share.

The Company estimated the liability component of the convertible debt to be approximately $65,000 by discounting the convertible notes for the relative fair value of the warrants issued with the debt, of approximately $111,500.  The warrants were issued with the convertible debt and their relative fair value was determined using the Black-Scholes options pricing model.  Additionally, the convertible notes were further discounted as the Company determined that convertible debt contained a beneficial conversion feature and recorded an additional debt discount of approximately $123,000.

 

The assumptions used in the Black-Scholes model are as follows: (1) dividend yield of 0%, (2) expected volatility of 105%, (3) weighted average risk-free interest rate of 0.78%, (4) contractual life of 3.0 years, and fair value of the Company’s ordinate shares of $0.23 to $0.30 per share.  The relative fair value attributable to the warrants and the beneficial conversion feature have been recorded as a discount and deducted from the face value of the convertible debt in the accompanying interim consolidated balance sheet.  The discount related to the warrants will be amortized over the period from the issuance to the contractual life of the warrants of three years.  The discount related to the beneficial conversion feature will be amortized over the life of the convertible notes of five years.

 

Promissory Notes:

The Company issued a promissory note with an aggregate face amount of $200,000, along with a warrant to purchase 50,000 shares of the Company’s common stock in 2013. This note bears interest at 5% per annum, is unsecured, and has a maturity date which is concurrent with the date that the current common stock offering closes in approximately early 2015. The holder of the note received additional consideration in the form of a fully vested stock warrant for the purchase of 50,000 common shares at an exercise price of $0.50 per share exercisable for three years from the date of execution of the note. The Company determined the relative fair value of the warrant to be approximately $44,000, which has been recorded as a discount to the note payable and was amortized over approximately three months (Note 7).

Related Party Promissory Notes:

On August 1, 2013, the Company entered into an unsecured promissory note with BBHCLLC. The note was for $249,301 (a balance of $204,877 at December 31, 2013) with a maturity date of February 1, 2014. The note included a 5% annual interest rate and terms in case of default in which the loan could have been converted into common stock of the Company by the note holder at no less than $0.10 a share. The note and unpaid interest was extinguished on the date the Company and BBHCLLC successfully closed the BB Transaction.

The Company issued short-term promissory notes totaling $90,000 in the third quarter 2014 to two of its current shareholders.  These notes bear interest at 10% per annum, are unsecured, and have a maturity date of 180 days after the date of execution.

 

14

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Commitments:

Franchise agreement

The Company operates its Denver restaurant property under a franchise agreement with the Franchisor under an initial ten-year term, renewable for two additional five-year terms. Pursuant to the franchise agreement, the Company was to pay royalty fees based on a percentage of gross revenues (generally between 3% and 5% of gross sales, as defined), plus additional fees and costs for marketing, training, inventory and other franchisor costs. Two officers of the Company have personally guaranteed royalty payments to the Franchisor.

In September 2013, the Company amended the Franchise Agreement with the Franchisor. The amendment resulted in a reduction in the royalty fees for the Company’s Denver restaurant to be paid to the Franchisor beginning January 1, 2014. The reduced rate is 2.5% of gross sales, subject to a monthly floor of $5,000.

For the three and nine months ended September 30, 2014 and 2013, the Company incurred franchise royalty expense of $13,600, $41,900, $27,700 and $71,200, respectively.

Leases:

 

In April 2012, the Company entered into a ten-year, non-cancellable lease for the restaurant in Denver, Colorado. This lease provides for two, five-year renewal options. Rent payments are approximately $16,000 per month plus certain common area maintenance charges, as defined, and are subject to escalation provisions.  Lease expense was approximately $48,000 and $148,000 for the three and nine months ended September 30, 2014, respectively, and $47,000 and $189,000 for the three and nine months ended September 30, 2013, respectively.  A long-term deposit on the lease in the amount of $18,034 is recorded as of September 30, 2014.

The Company has a 10-year lease with Bourbon Brothers, LLC (“BBLLC”), a related party, for the real property in connection with the restaurant location in Colorado Springs.  The lease commenced upon taking possession of the premises, on January 11, 2014.  Rent is approximately $33,341 per month for the first 60 months, and thereafter subject to adjustment every 60 months. A long-term deposit on the lease in the amount of $32,083 is recorded as of September 30, 2014. Related party lease expense was approximately $99,100 and $284,000 for the three and nine months ended September 30, 2014, respectively.

In July 2014, the Company entered into a ten-year, non-cancellable lease for the restaurant in Lone Tree, Colorado. The lease provides for an initial lease term of ten years and for two, five-year renewal options.  Rent payments are approximately $9,900 per month plus certain common area maintenance charges, and are subject to escalation provisions.  This location is anticipated to open late fourth quarter 2014. A long-term deposit on the lease in the amount of $24,614 is recorded as of September 30, 2014.

 

On January 1, 2014, the Company assumed a lease from a related party for the corporate office in Colorado Springs.  The lease is for 78 months with an unaffiliated party.  Monthly rent is $5,800 per month escalating up to $6,000 per month in year six.  A long-term deposit in the amount of $5,794 is recorded as of September 30, 2014.

The Company also paid rent and rent-related expenses to Accredited Members Acquisition Corporation (“AMAC”), a related party (Note 8), on a month-to-month basis for office space at the AMAC corporate headquarters in Colorado Springs, Colorado. This arrangement began in October 2011 and terminated July 31, 2013, as the Management Service Agreement terminated. Base rental payments were approximately $3,500 per month. Related party rent expense was approximately nil for the three and nine months ended September 30, 2014, and $4,800 and $33,400 for the three and nine months ended September 30, 2013, respectively.

 

15

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Contingencies:

From time to time, the Company may become party to litigation and other claims in the ordinary course of business. To the extent that such claims and litigation arise, management provides for them if upon the advice of counsel, losses are determined to be both probable and estimable.

NOTE 7 – EQUITY

Preferred stock:

The Company authorized the issuance of up to 18,242,700 shares of Series A convertible preferred stock in January 2014, of which 18,242,687 shares were issued on January 22, 2014. As of March 1, 2014, the holders of 13,357,828 Series A preferred shares chose to convert their Series A preferred stock into shares of the Company’s common stock at a ratio of one to one.  These Series A preferred shares were then subsequently cancelled.  As of September 30, 2014, 4,884,859 Series A convertible preferred shares remain issued and outstanding.

Each share of Series A convertible preferred is entitled to 25 votes and is convertible into shares of common stock on a one-for-one basis.  Other rights of the Series A convertible preferred are identical to the common stock rights.

Common stock:

The Company’s issued 3,474,333 common shares of stock at $0.30 per share for proceeds of $1,042,300 between March and September 30, 2014.

The Company issued 1,306,666 common shares at $0.30 per share for proceeds of $392,000 during the three months ended September 30, 2014.

In connection with services provided to the Company, the Company issued 30,000 common shares valued at $15,000 ($0.50 per share) during the nine months ended September 30, 2014.  In addition, for services provided to the Company, the Company issued 21,678 common shares valued at $6,503 ($0.30 per share) during the three and nine months ended September 30, 2014.

 Stock options:

Effective November 13, 2012, the Company adopted the 2012 Stock Option Plan (the “Plan”). Under the Plan, the Company may grant stock options, restricted and other equity awards to any employee, consultant, independent contractor, director or officer of the Company. A total of 3 million shares of common stock may be issued under the Plan (as amended on January 22, 2014).

 

 

16

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 7 – EQUITY (CONTINUED)

 

Stock options (continued):

In 2012, the Company granted stock options to the Company’s CEO to purchase an aggregate of 660,368 shares of common stock.   The Company’s CEO  was granted a five-year term option to acquire 660,368 shares of Company common stock at approximately $0.015 per share with 66,035 options vesting immediately and the remaining options vesting upon the achievement of the performance objectives determined by management, as defined.  During the three months ended March 31, 2013, the CEO exercised the vested options for $995. In March 2013, the board of directors modified the stock option agreement, revising the vesting conditions of the agreement from performance objectives to a service condition.  Under the revised agreement, 264,149 options were to vest in March 2014, and the remaining 330,184 shares vest in March 2015. The Company valued the modified options at the modification date.  Based on the Black Scholes option pricing model, the fair value of the modified share option is $1.44 per option.  In June 2013, the Company’s CEO resigned his position. In connection with his resignation, the Company agreed to accelerate the vesting of a portion of his options for 264,149 shares from March 2014 to June 2013. The Company valued the modified options at the modification date which resulted in approximately $198,000 of stock option expense recorded during the nine months ended September 30, 2013.  The CEO exercised these options in a cashless exercise, and the stock certificate was held by the Company per a lock-up provision until March 2014, at which time the certificate was released by the Company.

In March 2013, the Company granted certain members of the Denver-based restaurant management team stock options to purchase an aggregate of 90,000 shares of common stock.  These options were granted with a five-year term exercisable at approximately $1.50 per share with 45,000 options vesting immediately and the remaining shares to vest one year later in March 2014.  With the departure of two of these four employees in 2013, 40,000 stock options were forfeited and 50,000 stock options remained outstanding and vested as of March 31, 2014.  None of these options were exercised by September 30, 2014.

In March 2014, the Company granted the COO options to purchase up to 300,000 shares of common stock of the Company, vesting in equal shares annually over four years, with the first tranche vested fully by March 1, 2015, with an exercise price of $0.50 per share with a five-year term.  In addition, this person holds options for 18,243 common shares to vest evenly over two years with the first tranche vested fully by September 30, 2014, with an exercise price of $0.14 with a five-year term. In addition, this person holds options to purchase up to 30,000 shares of common stock vesting in equal parts annually over three years with the first tranche vested fully by February 5, 2015, with an exercise price of $0.45 with a five-year term.

In January 2014, the Company granted the Chairman of the Board options to purchase up to 729,707 shares of common stock of the Company vesting evenly over four years with the first tranche vested fully by January 9, 2015, with an exercise price of $0.0685 with a five-year term.

In February and March 2014, the Company granted certain members of the Denver-based restaurant management team, Colorado Springs-based restaurant management team and the corporate staff stock options to purchase an aggregate of 210,000 shares of common stock.  These options were granted with a five-year term exercisable at ranges of approximately $0.45 to $0.55 per share with options vesting evenly in tranches over three to four years with the first tranche vesting fully in February 2015.   Four persons from this management team with the granted options have since terminated with their options forfeited.  In September 2014, 91,214 options  were exercised by a member of the corporate staff for 91,214 common shares at an exercise price of $0.000274 per share. In May and June 2014, the Company granted certain members of the Denver-based restaurant staff and the Colorado Springs-based restaurant staff options to purchase an aggregate of 27,000 shares of common stock.  These options were granted with a five-year term exercisable at ranges of approximately $0.50 to $0.70 per share with options vesting in one year from the issuance date.  In July and August 2014, the Company granted certain members of the Denver-based restaurant staff and the Colorado Springs-based restaurant staff options to purchase an aggregate of 17,000 shares of common stock.  These options were granted with a five-year term exercisable at ranges of approximately $0.40 to $0.46 per share with options vesting in one year from the issuance date. In August 2014, the Company granted a certain member of the Colorado Springs based restaurant management team options to purchase 50,000 shares of common stock.  There options were granted with a five-year term exercisable at $0.45 per share with shares vesting over the next two years.

 

 

 

 

17

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

   

NOTE 7 – EQUITY (CONTINUED)

Stock options (continued):

In March 2014, the Company appointed certain officers and directors of the Company.  At the same time, the CEO announced his resignation to be effective June 1, 2014.  In connection with these changes, options were granted to two directors for 100,000 common shares each with a one year vesting term and an exercise price of $0.51 per share.  The CEO’s options had also been amended to have 304,854 shares of common stock to vest evenly over a three year vesting period with the first tranche to vest in August 2014 at an exercise price of approximately $0.000274 per share.  This person exercised a vested portion of these options for 101,618 common shares in October 2014 at $0.000274 per share.

In August 2014, the Company granted the President of the Company options to purchase up to 300,000 shares of common stock of the Company vesting evenly over three years with the first tranche vesting immediately, with an exercise price of $0.45 per share with a five-year term.

In May 2014, the Company appointed an additional director of the Company.  In connection with the appointment, options were granted to the director for 100,000 common shares with a one-year vesting term and an exercise price of $0.65 per share.  In July 2014, the Company granted additional options to a director of the Company.  Options were granted to this director for 150,000 options that vested immediately with an exercise price of $0.40 per share.

The stock-based compensation cost related to options that have been included as a charge to general and administrative expense in the statements of operations was approximately $118,900 and $227,600 for the three and nine months ended September 30, 2014, respectively, and $5,900 and $257,600 for the three and nine months ended September 30, 2013, respectively.  As of September 30, 2014, there was approximately $431,100 of unrecognized compensation cost related to non-vested stock options. The cost is expected to be recognized over a weighted-average period of less than five years.

The Company uses the Black-Scholes option pricing model to determine the weighted average fair value of options.  The weighted-average fair value of options granted during the nine months ended September 30, 2014 and 2013 was $0.57 and $0.96 per share.  The assumptions utilized to determine the fair value of options granted during the nine months ended September 30, 2014 and 2013, are as follows:

 

		2014				2013
Risk free interest rate			0.79	%			0.79	%
Expected volatility			105	%			105	%
Expected term		5 years				2-5 years
Expected dividend yield			0				0

 

The expected term of stock options represents the period of time that the stock options granted are expected to be outstanding. The expected volatility is based on the historical price volatility of the common stock of similar companies. The risk-free interest rate represents the U.S. Treasury bill rate for the expected term of the related stock options. The dividend yield represents the anticipated cash dividend over the expected term of the stock options.

On January 22, 2014, in connection with the BB transaction, all BBHCLLC options were assumed applying a conversion rate of 1.82427, resulting in a total of 879,164 options granted.

 

18

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 7 – EQUITY (CONTINUED)

Stock options (continued):

The following tables set forth the activity in the Company's Plan for the nine months ended September 30, 2014:

 

										Weighted
						Weighted				average
		Shares				average				remaining				Aggregate
		under				exercise				contractual				intrinsic
		option				price				life				value
Outstanding at January 1, 2014			50,000			$	1.50							$	-
Granted			2,992,871				0.26				-				-
Exercised			(91,214	)			*				-				-
Forfeited/cancelled			(233,000	)			0.32				-				-
Outstanding at September 30, 2014			2,718,657				0.29				4.20			$	647,666
Exercisable at September 30, 2014			401,617			$	0.67				3.67			$	59,339
* less than $0.01

 

 

The aggregate intrinsic value in the table above represents the total intrinsic value (the difference between the estimated fair value of the Company’s common stock on September 30, 2014, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had they exercised their options on September 30, 2014.

The following table summarizes the activity and value of non-vested options as of and for the nine months ended September 30, 2014:

 

					Weighted
					average
	Number of				grant date
	options				fair value
Non-vested options outstanding at January 1, 2014			25,000			$	0.96
Granted			2,992,871				0.17
Vested			(467,831	)			0.52
Forfeited/cancelled			(233,000	)			0.34
Non-vested options outstanding at September 30, 2014			2,317,040			$	0.09

 

Warrants:

In December 2012, the Company entered into an indemnification agreement with JW Roth and Gary Tedder, both directors of the Company, for their personal risk regarding personal guarantees in favor of the Franchisor, which were the subject of an Area Development Agreement between the Franchisor and SH. The personal guarantees are still in effect for the royalty payments due to the Franchisor. In addition to the indemnification agreements, the Company compensated Messrs. Roth and Tedder for their personal guarantees in the form of a warrant to purchase up to 200,000 shares, per director, exercisable for ten years at $1.00 per share with the warrant vested immediately with a cashless exercise feature.  The Company used the contractual term of the warrant, a risk free interest rate of 0.62% and a volatility of 105%.  There are no unrecognized expenses related to the warrants.

 

As of December 31, 2013, the Company had a promissory note with an aggregate face amount of $200,000 outstanding. By the original terms, the holder of the note received additional consideration in the form of an immediately vested stock warrant of 50,000 common shares at an exercise price of $0.50 per share exercisable for the three years from the date of execution of the note.  The Company used the Black Scholes pricing model to determine the fair value of the warrants.  The Company used the contractual term of the warrant, a risk free interest rate of 0.39% and a volatility of 105%. A relative fair value of approximately $44,000 was calculated based on the fair value of the warrant and note payable.

 

19

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 7 – EQUITY (CONTINUED)

Warrants (continued):

On September 1, 2013, BBHCLLC retained an individual to advertise and promote the Company. This individual was granted an aggregate of 600,000 Class B non-voting warrants that vested immediately. These warrants were granted with a three-year term exercisable at approximately $0.0005 per unit. These units converted into 1,094,562 warrants for common shares at the date of the BB Transaction.  The Company used the contractual term of the warrant, a risk free interest rate of 0.79% and a volatility of 105%. Approximately $25,000 and $99,900 has been recognized as equity-based compensation for the three and nine months ended September 30, 2014. Approximately $25,000 was expensed by September 30, 2014. This individual exercised these warrants in September 2014 for 1,094,562 common shares.

 

In May 2014, in connection with services provided to the Company, the Company issued a warrant for 30,000 common shares to exercise at $0.30 per share cancellable by the Company at any time.  The Company used the contractual term of the warrant, a risk-free interest rate of 0.39% and a volatility of 105% with a value of $12,247. In September 2014, in connection with appointments to the Board of Directors, the Company issued warrants for 200,000 common shares to exercise at $0.30 per share.  The warrants vest on September 15, 2015, a risk-free interest rate of 0.79% and a volatility of 105% with values of $34,473.

NOTE 8 – RELATED PARTY TRANSACTIONS

 

Related Party Management Agreement with AMHC Managed Services

Effective September 1, 2011, the Company entered into a management agreement (the “Management Agreement”) with AMHC Managed Services, Inc. (“AMMS”), a subsidiary of AMAC. The Company’s Chairman of the Board of Directors and officers of the Company are also officers/board members of AMAC. The significant terms of the Management Agreement provide for monthly payments to AMMS in exchange for the ability of the Company to fully utilize the management expertise, financial and accounting expertise, support staff and location of AMMS, including the expertise of the position of AMMS’ Chief Financial Officer and necessary support for compliance under the securities laws with respect to any private or public reports or registration statements the Company may file. The Management Agreement term was 12 months, and required the Company to pay AMMS a monthly fee equal to $35,000 per month. Additionally, under the Management Agreement, the Company granted AMMS a warrant to purchase 330,184 shares of Company’s common stock exercisable at $0.0007 per share, exercisable for a three-year term. The value of the warrant was determined to be approximately $49,700. The amount was recorded as a prepaid asset and was amortized over the one-year term of the Management Agreement as services are performed. AMMS exercised the warrant in full in July 2012.

The Management Agreement was renewed in October 2012 for an additional one-year period with terms similar to those of the 2011 Management Agreement. In connection with the renewed Management Agreement, the Company issued an additional warrant in October 2012 to AMMS to purchase 330,184 shares of the Company’s common stock at $0.0007 per share for a three-year term.  The value of the warrant was determined to be approximately $49,700. The amount was recorded as a prepaid asset and is being amortized over the one-year term of the Management Agreement as services are performed, of which approximately $39,400 and $10,300 was expensed in the years ended December 31, 2013 and 2012. AMMS exercised the warrant in full in October 2012. On May 17, 2013, the Company amended its terms with AMMS so that AMMS would no longer be the “Acting CFO” nor provide senior financial management services for the Company effective the same date.  Further, on June 26, 2013, the Company notified AMMS that it would terminate the Management Agreement effective July 31, 2013.  These functions were handled by the interim CEO and interim CFO for the remainder of 2013.

 

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BOURBON BROTHERS HOLDING CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

NOTE 8 – RELATED PARTY TRANSACTIONS (CONTINUED

Related Party Management Agreement with AMHC Managed Services (continued)

The Company also paid rent and rent-related expenses to Accredited Members Acquisition Corporation (“AMAC”), a related party, on a month-to-month basis for office space at the AMAC corporate headquarters in Colorado Springs, Colorado. This arrangement began in October 2011 and terminated July 31, 2013, as the Management Service Agreement terminated. Base rental payments were approximately $3,500 per month. Related party rent expense was approximately nil for the three and nine months ended September 30, 2014 and $14,300 and $28,600 for the three and nine months ended September 30, 2013.

In addition to the management fee and the rent discussed above, the Company paid AMMS for reimbursable expenses and payments made to third parties on behalf of the Company.  During the three and nine months ended September 30, 2014, the Company paid reimbursable expenses of nil with $16,300 and $40,000 paid for the three and nine months ended September 30, 2013, respectively.

In July 2013, the Company repurchased 33,334 common shares owned by AMMS for $1.50 per share for a total price of $50,000.    These shares were cancelled by the Company in July 2013.  The difference between the $1.50 per share and the fair value of the shares at the transaction date of $0.75 per share ($25,000) was recorded as an expense to related party management fees.

 

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

In this Management’s Discussion and Analysis, we provide a historical and prospective narrative of our general financial condition, results of operations, liquidity and certain other factors that may affect our future results, including:

 

·	Key events and recent developments within our Company;
·	Our results of operations for the three and nine months ended September 30, 2014 and 2013;
·	Our liquidity and capital resources;
·	Any off balance sheet arrangements we utilize;
·	Any contractual obligations to which we are committed;
·	Our critical accounting policies;
·	The inflation and seasonality of our business; and
·	New accounting standards that affect our Company.

 

The review of Management’s Discussion and Analysis should be made in conjunction with our consolidated financial statements, related notes and other financial information included elsewhere in this annual report.

 

Overview

Bourbon Brothers Holding Corporation (“BBHC” or the “Company”) is a Colorado corporation. The Company, on January 22, 2014, with approval of a majority of the Company’s shareholders, changed its name from Smokin Concepts Development Corporation to Bourbon Brothers Holding Corporation.

The Company’s subsidiary, Southern Hospitality Franchisee Holding Corporation (“SH”) entered into a franchise agreement and area development agreement with SH Franchising & Licensing LLC, dba Southern Hospitality BBQ (the “Franchisor”) in November 2011. In May 2012, SH formed Southern Hospitality Denver Holdings, LLC (“SHDH”), a wholly-owned subsidiary, and Southern Hospitality Denver, LLC (“SHD”). SHD was formed for the purpose of owning and operating the Company’s first franchised restaurant in Denver, Colorado. As of December 31, 2013, SHD is 51% owned by SHDH and 49% owned by non-controlling interest holders, of which related parties of the Company are 22% non-controlling interest holders.

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On September 30, 2013, the Company entered into an Acquisition Agreement with Bourbon Brothers Holding Company, LLC (“BBHCLLC”) to acquire all of the equity interests in BBHCLLC (the “BB Transaction”) and its subsidiaries. BBHCLLC is a Colorado limited liability company (“LLC”) formed in May 2013, for the purpose of developing and managing all aspects of operating units related to a recently developed “Bourbon Brothers” brand.  The principles of BBHCLLC were also, at various times, on the board of directors of the Company, and therefore BBHCLLC is considered to be a related party.  As of December 31, 2013, BBHCLLC was a development stage company. BBHCLLC’s subsidiaries (all LLCs formed in April 2013) include Bourbon Brothers Restaurant Group, LLC (“BBRG”), Bourbon Brothers Franchise, LLC (“BBF”) and Bourbon Brothers Brand, LLC (“BBB”). BBRG owns the stores to encompass several Bourbon Brothers brands, and owns Bourbon Brothers Southern Kitchen Colorado Springs, LLC (“BBSK”), which opened its first restaurant in January 2014. BBRG also owns Bourbon Brothers Seafood and Chophouse Colorado Springs, LLC (“BBSF”). BBB manages all aspects of the Bourbon Brothers brand and anticipates establishing licensing and royalty agreements with producers of bourbon, spices, cigars and other products that fit the Company’s core brand.

On January 22, 2014, the parties entered into a Second Amendment to the Acquisition Agreement, identifying the final conversion ratio of 1.82427.  The Second Amendment identified the number of shares to be issued by the Company in the BB Transaction as 20,274,193 shares of common stock to BBHCLLC Class B Non-Voting members and 18,242,687 shares of Series A Convertible Preferred Stock to BBHCLLC Class A Voting members.  These shares were issued at the closing of the BB Transaction.  All outstanding options and warrants to acquire BBHCLLC units were assumed by the Company, applying the conversion ratio to the number of units and strike price.

On July 15, 2014, the Company announced that a third restaurant concept was approved by the Board of Directors.  The third concept being added to the Bourbon Brothers collection is 53 Peaks Local Kitchen, a Colorado-themed, casual-dining restaurant with a mission to serve many locally sourced products. The lease for the Lone Tree, Colorado 53 Peaks location was signed in July 2014, and plans to start the remodel of the existing building are underway. 53 Peaks is expected to open its doors to the public in the first quarter of 2015.

Results of Operations – Three and Nine Months Ended September 30, 2014 and 2013

Revenues

 

During the three and nine months ended September 30, 2014, the Company generated approximately $1,408,800 and $3,953,800 in net revenue as the Company opened its first restaurant in Denver, Colorado, on February 21, 2013, followed by its second restaurant located in Colorado Springs, Colorado, on January 27, 2014. These revenue figures compare to the three and nine months ended September 30, 2013 of revenues of approximately $596,800 and $1,553,000 when the Company’s first restaurant in Denver, Colorado, opened on February 21, 2013.

Cost of Revenue – Restaurant Operating Expenses

For the three and nine months ended September 30, 2014 and 2013, the Company’s cost of revenue was approximately $1,458,800, and $4,200,000 for the three and nine months ended September 30, 2014, and $611,200 and $1,713,300 for the three and nine months ended September 30, 2013.  The cost of revenue was attributable to the two restaurants, including the cost of food, alcohol, labor and other costs of the restaurant.

 

Cost of revenue, comprised of operating expenses at the SH Denver and BBSK Colorado Springs restaurants, includes variable expenses and fluctuates with sales volumes for expenses such as food and beverage costs, payroll and franchise fees.  Fixed expenses, such as lease expenses at both restaurant locations, are also included.

 

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Operating Expenses – General and Administrative, Related Party Management Services and Selling and Marketing

For the three and nine months ended September 30, 2014, the Company’s operating expenses were approximately $2,183,600 and $6,724,000 compared to $1,184,800 and $3,630,000 for the same periods a year ago. The operating expenses in 2014 and 2013 were primarily related to expenses for preopening and ongoing operations. The Company’s largest operating expense, excluding restaurant operating expenses, during the three and nine months ended September 30, 2014 and 2013, were its general and administrative expenses totaling approximately $503,200, $1,806,100, $134,700 and $1,121,700. The increase in general and administrative costs is due to preopening and ongoing expenses for three restaurant locations primarily, including recurring corporate costs (such as payroll and related expenses).  General and administrative expenses for the three and nine months ended September 30, 2014 and 2013, also included approximately $118,900 and $227,600 for the three and nine months ended September 30, 2014, and $5,900 and $257,600 for the three and nine months ended September 30, 2013, of (non-cash) stock-based compensation. Additionally, the Company incurred approximately $110,600, $395,400, $200 and $19,000 in selling and marketing expenses during the three and nine months ended September 30, 2014 and 2013. The Company expects to incur general and administrative expenses going forward as it continues to grow its operations.  The Company anticipates that its consolidated net loss will continue for the foreseeable future due to the overall expansion of the store locations and its subsidiaries and parent company overhead.

Depreciation and Amortization

For the three and nine months ended September 30, 2014 and 2013, the Company’s depreciation and amortization was approximately $111,000, $322,500, $74,200 and $176,500.  Depreciation on fixed assets and amortization of the intangible asset for franchise fees began in February 2013 with the opening of the SH Denver restaurant.

Other income (expense)

For the three and nine months ended September 30, 2014 and 2013, the Company recognized other expense of approximately $37,800, $90,700, $25,200 and $485,600.  The decrease in interest expense comparing nine months year over year was primarily due to the decrease in the amount of promissory notes in 2014 compared to 2013 in regards to recognition of interest expense over the nine months from the discount on the promissory notes being converted to common stock.

 

Liquidity and Capital Resources

As of September 30, 2014, the Company had working capital deficiency of approximately $383,900 and had approximately $84,000 of cash, which represents a $70,400 increase in cash from December 31, 2013.  The Company’s total assets increased as of September 30, 2014, when compared to December 31, 2013, due to the acquisition with BBHCLLC and BBSK’s fixed asset additions. 

 

As noted above, the Company incurred a net loss during the three and nine months ended September 30, 2014, and 2013.  Further, as of September 30, 2014, the Company had an accumulated deficit of approximately $7,884,300.  The Company believes its Denver restaurant revenues (which began in February 2013) and its Colorado Springs restaurant revenues (which began in January 2014) which both are 51% owned by the Company, offset by the overhead of the public company administration, coupled with the high cost of build out required for each restaurant under the Company, requires the Company to seek additional capital to help fund its operations in the near term.  However, there can be no assurance that additional financing will be available to the Company on reasonable terms, if at all.  The Company’s ability to continue to pursue its plan of operations is dependent upon its ability to increase revenues and/or raise the capital necessary to meet its financial requirements on a continuing basis. The Company’s continued implementation of its business plan is dependent on its future profitability and on additional debt or equity financing, which may not be available in amounts or on terms acceptable to the Company or at all.  The Company believes the individual store performances reflect an ongoing effort to curb costs within food and labor, while also pursuing marketing activities to increase revenues during the fourth quarter of 2014.

 

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The Company’s consolidated financial statements for the three and nine months ended September 30, 2014, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Report of our Independent Registered Public Accounting Firm on the Company’s consolidated financial statements as of and for the year ended December 31, 2013, includes a “going concern” explanatory paragraph which means that the auditors stated that conditions exist that raise doubt about the Company’s ability to continue as a going concern.

Liabilities

The Company’s liabilities for notes payable and accrued interest as of September 30, 2014, is approximately $1,031,540 compared to approximately $1,009,300 as of December 31, 2013.  Accounts payable as of September 30, 2014, is approximately $144,700 compared to approximately $81,000 as of December 31, 2013.  This increase is due to the acquisition of BBHC and its subsidiaries, and the issuance of additional debt.

 

Operating Activities

 

Net cash used in operating activities was approximately $1,928,200 in the nine months ended September 30, 2014, as compared to net cash used in operating activities of approximately $1,601,500 in the same period of 2013. The increase in net cash used in operating activities in 2014 (compared to 2013) was primarily due to the expansion of the business, as compared to the 2013 period. 

Investing Activities

 

Net cash provided by investing activities in the nine months ended September 30, 2014, was approximately $566,000, as compared to net cash used in investing activities of approximately $1,223,100 for the nine months ended September 30, 2013.  Net cash provided by investing activities for the nine months ended September 30, 2014, was primarily the result of cash acquired in the BB Transaction offset by cash used for purchases of property and equipment while cash used in investing activities for the nine months ended September 30, 2013, was primarily the result of cash used for purchases of property and equipment. 

Financing Activities

 

Net cash provided by financing activities for the nine months ended September 30, 2014, was $1,432,600, compared to approximately $1,905,500 in the nine months ended September 30, 2013.  Cash provided by financing activities in 2014 and 2013 was primarily due from the sale of common stock while also issuing promissory notes. 

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our shareholders.

  

Contractual Cash Obligations

In April 2012, the Company entered into a lease that expires in August 2022, with the option to extend for two, five year periods, and requires lease payments of approximately $15,550 per month for the first year, escalating up to approximately $20,289 per month in the tenth year.

In January 2014, the Company entered into a 78 month lease with an unrelated party for its corporate office. The Company will pay approximately $5,800 per month escalating up to $6,000 per month in year 6.

In January 2014, the Company entered into a 120 month lease with a related party for its Colorado Springs-based restaurant.  The Company will pay $32,083 per month escalating by approximately 10% every 60 months.   In July 2014, the Company entered into a ten-year, non-cancellable lease for the restaurant in Lone Tree, Colorado. The lease provides for an initial lease term of ten years for two, five-year renewal options.  Rent payments are approximately $9,900 per month plus certain common area maintenance charges, and are subject to escalation provisions.  This location is anticipated to open late Fall of 2014.

 

 

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Critical Accounting Policies

 

The preparation of financial statements in conformity with U. S. generally accepted accounting principles requires management to make a variety of estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements. and (ii) the reported amounts of revenues and expenses during the reporting periods covered by the financial statements.

 

Our management routinely makes judgments and estimates about the effect of matters that are inherently uncertain. As the number of variables and assumptions affecting the future resolution of the uncertainties increase, these judgments become even more subjective and complex. Although we believe that our estimates and assumptions are reasonable, actual results may differ significantly from these estimates. Changes in estimates and assumptions based upon actual results may have a material impact on our results of operation and/or financial condition. Our significant accounting policies are disclosed in Note 2 to the Financial Statements included in this Form 10-Q.  Our critical accounting policies are outlined below.

Fair Value Measurements

The carrying value of cash and non-related party payables approximates fair value due to their short maturities. The carrying value of non-related party notes payable approximates fair value based on effective interest rates estimated to approximate market. The carrying amount of payables to related parties are not practicable to estimate based on the related party nature of the underlying transactions. 

 

Intangible assets

Intangible assets at September 30, 2014, represent franchise license costs for the Denver restaurant. These costs are amortized beginning with the restaurant opening over the ten-year term of the franchise agreement using the straight line method. The Company assesses potential impairment to intangible assets when there is evidence that events or changes in circumstances indicate that the recovery of the assets’ carrying value is not recoverable.

Property and Equipment

The Company began capitalizing certain leasehold improvements, as well as equipment the Company purchased in 2013 and 2014 and began depreciating the assets when the Denver-based restaurant opened in February 2013 and when the Colorado Springs-based restaurant opened in January 2014. Management reviews property and equipment, including leasehold improvements, for impairment when events or circumstances indicate these assets might be impaired.

The Company's management considers, or will consider, such factors as the Company's history of losses and the disruptions in the overall economy in preparing an analysis of its property, including leasehold improvements, to determine if events or circumstances have caused these assets to be impaired. Management bases this assessment upon the carrying value versus the fair value of the asset and whether or not that difference is recoverable. Such assessment is to be performed on a restaurant-by-restaurant basis and is to include other relevant facts and circumstances including the physical condition of the asset. If management determines the carrying value of the restaurant assets exceeds the projected future undiscounted cash flows, an impairment charge would be recorded to reduce the carrying value of the restaurant assets to their fair value. Leasehold improvements, property and equipment are stated at cost. Internal costs directly associated with the acquisition, development and construction of a restaurant are capitalized. Expenditures for minor replacements, maintenance and repairs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, and leasehold improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets. Construction in process (leasehold improvements in process) and other property and equipment are not depreciated/amortized until placed in service. Upon retirement or disposal of assets, the accounts are relieved of cost and accumulated depreciation and the related gain or loss is reflected in earnings.

 

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The estimated useful lives are as follows:

Leasehold improvements 10 years

Furniture and fixtures 3-10 years

Equipment 3-7 years

Leases and Deferred Rent

The Company intends to lease substantially all of its restaurant properties, and in April 2012, the Company entered into a ten-year lease for its planned restaurant in Denver, Colorado. For leases that contain rent escalation clauses, the Company records the total rent payable during the lease term and recognizes expense on a straight-line basis over the initial lease term, including the "build-out" or "rent-holiday" period where no rent payments are typically due under the terms of the lease. Any difference between minimum rent and straight-line rent is recorded as deferred rent. Additionally, contingent rent expense based on a percentage of revenue is accrued and recorded to the extent it is expected to exceed minimum base rent per the lease agreement based on estimates of probable levels of revenue during the contingency period. Deferred rent also includes tenant improvement allowances the Company may receive, which is amortized as a reduction of rent expense, also on a straight-line basis over the initial term of the lease.

Revenue Recognition

The Company began revenue generating activities through the Denver restaurant as of February 21, 2013. The Company began accounting for such revenue activities pursuant to Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin (“SAB”) No. 104, Revenue Recognition, and applicable related guidance. Revenue is derived from the sale of prepared food and beverage and select retail items. Revenue is recognized at the time of sale and is to be reported on the Company's consolidated statements of operations net of sales taxes collected. The amount of sales tax collected is included in accrued expenses until the taxes are remitted to the appropriate taxing authorities.

 

Stock-Based Compensation

The Company accounts for stock-based compensation under Accounting Standards Codification (“ASC”) 718, Share-Based Payment. ASC 718 requires the recognition of the cost of services received in exchange for an award of equity instruments in the financial statements and is measured based on the grant date fair value of the award. ASC 718 also requires the stock-based compensation expense to be recognized over the period of service in exchange for the award (generally the vesting period). The Company estimates the fair value of each stock option at the grant date by using an option pricing model, typically the Black Scholes model.

 

Recently issued and adopted accounting pronouncements

The Company reviews new accounting standards as issued.  In May 2014, the Financial Accounting Standards Board issued ASU No. 2014-09, Revenue from Contracts from Customers, which supersedes the revenue recognition in Revenue Recognition (Topic 05), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services.  ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption no permitted.  The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption. Management has not identified any other standards that it believes will have a significant impact on the Company’s consolidated financial statements.

Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

           Not applicable.

 

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of September 30, 2014, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that because of the material weaknesses in our internal control over financial reporting, as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, that our disclosure controls and procedures were not effective as of September 30, 2014.  A material weakness is a deficiency or a combination of deficiencies in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Internal Control Over Financial Reporting.

During the most recent fiscal quarter covered by this Quarterly Report, there has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the 1934 Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.    LEGAL PROCEEDINGS

None.

Item 1A.  RISK FACTORS

There have been no material changes to the risk factors set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 Item 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In July 2014, the Company granted options to a director for 150,000 common shares each which immediately vested with an exercise price of $0.40.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

In August 2014, the Company granted options to the Company’s President for 300,000 common shares each with a three year vesting term and an exercise price of $0.45.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

In July and August 2014, the Company granted certain members of the Denver-based restaurant staff and the Colorado Springs-based restaurant staff options to purchase an aggregate of 17,000 shares of common stock.  These options were granted with a five-year term exercisable at ranges approximately $0.40 to $0.46 per share with options vesting in one year from the issuance date.  None of these options were vested by September 30, 2014. In addition, a member of the Colorado Springs-based restaurant staff was granted options to purchase an aggregate of 50,000 shares of common stock with a five-year term exercisable at $0.45 per shares with options vesting evenly over the next two years.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

 

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In September 2014, in connection with appointments to the Board of Directors, the Company issued warrants for 200,000 common shares to exercise at $0.30 per share.  The warrants vest on September 15, 2015, a risk-free interest rate of 0.79% and a volatility of 105% with values of $34,473.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

Share Issuances

In connection with services provided to the Company in August 2014, the Company issued 21,678 common shares valued at $6,504 during the nine months ended September 30, 2014.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act. No commissions or other remuneration were paid in connection with these share issuances.

Beginning in August 2014, the Company began selling 6.5% promissory notes (the “2014 Notes”) along with warrants to purchase the Company’s common stock to accredited investors. Investors received a warrant to purchase four shares of common stock for each one dollar of principal amount loaned to the Company. The 2014 Notes bear interest at 6.5% per annum, they are unsecured, and their maturity dates are five years from their issue date. The Company sold $300,000 of notes from August 2014 through September 2014.  By their original terms, the 2014 Notes and accrued interest become convertible, at the option of the holder, after two years from the issue date. The conversion price is the lower of 80% of the 20-day average closing sales price on the date conversion is elected or $0.25 per share. These securities were issued in reliance on the exemptions from registration under Section 4(a)(2) of the Securities Act and Rule 506(b) of Regulation D promulgated under the Securities Act.  A Form D was filed with the SEC on August 13, 2014 for this offer and sale of securities.

In August 2014, there were 91,214 options were exercised by an officer for 91,214 common shares at an exercise price of $0.000274 per share.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

In September 2014, an individual holding warrants for 1,094,562 of common shares, exercised these warrants in September 2014 for 1,094,562 common shares.  These securities were issued in reliance on the exemption from registration under Section 4(a)(2) of the Securities Act.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

None.

Item 5. OTHER INFORMATION

None.

Item 6.  EXHIBITS 

Exhibit Number	Description
3.1.1	Amended and Restated Articles of Incorporation effective May 3, 2013.(1)
3.1.2	Amendment to Articles of Incorporation dated January 22, 2014.(2)
3.2	Bylaws, as amended May 1, 2013.(1)
10.1	Lease Agreement by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated July 9, 2014.  Filed herewith.
10.2	First Amendment to the Lease Agreement by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated September 17, 2014.  Filed herewith.
10.3	Guaranty of Lease by and between Bourbon Brothers Holding Company, LLC and Stradivarius Highlands, LLC, dated September 17, 2014.  Filed herewith.
31.1	Rule 13a-14(a)/15d-14(a) - Certification of Principal Executive Officer.  Filed herewith.
31.2	Rule 13a-14(a)/15d-14(a) - Certification of Principal Financial Officer.  Filed herewith.
32.1	Section 1350 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith.
32.2	Section 1350 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the SARBANES-OXLEY ACT of 2002. Filed herewith.
101.INS	XBRL Instance Document
101.SCH	XBRL Schema Document
101.CAL	XBRL Calculation Linkbase Document
101.LAB	XBRL Label Linkbase Document
101.PRE	XBRL Presentation Linkbase Document
101.DEF	XBRL Definition Linkbase Document

(1)	Incorporated by reference from the Company’s Current Report on Form 8-K dated April 30, 2013, and filed on May 3, 2013.

(2)	Incorporated by reference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and filed on March 19, 2014.

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In accordance with the requirements of Section 13 or 15(d) Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

 

	BOURBON BROTHERS HOLDING CORPORATION
Date:  October 31, 2014	By:	/s/  Mitchell Roth
		Mitchell Roth, President
Date:  October 31, 2014	By:	/s/ Heather Atkinson
		Heather Atkinson, CFO

 

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Exhibit 10.1

 

 

 

COMMERCIAL LEASE

This Commercial Lease ("Lease"), dated as of July 9, 2014 ("Effective Date"), is made by and between Stradivarius Highlands, LLC, a Colorado limited liability company ("Landlord"), and Bourbon Brothers Holding Company, LLC, a Colorado limited liability company ("Tenant"). Landlord and Tenant are also sometimes referred to herein, collectively, as the "Parties," or individually as a "Party".

1.            Basic Lease Terms.

 

1.1                  "Premises" means that certain real property, including all buildings, parking lots and other improvements and appurtenances, commonly known as 7431 Park Meadows Drive, Lone Tree, CO 80124, and more particularly described on Exhibit A attached hereto, consisting of approximately 5,513 square feet of retail space, including the right of Tenant, its customers, contractors, employees and agents to use the parking areas within the Premises in accordance with the Declarations.

 

1.2                  “Declarations” means the Declaration of Covenants, Conditions and Restrictions for South Hills Marketplace recorded December 1, 1993 in Book 1165 at Page 739, as amended by First Amendment to Declaration of Covenants, Conditions and Restrictions for South Hills Marketplace recorded December 1, 1993 in Book 1165 at Page 752, and Second Amendment to Declaration of Covenants, Conditions and Restrictions for South Hills Marketplace recorded November 2, 2004, at Reception No. 2004112113, Douglas County, Colorado records (the “Initial Declaration”); and Declaration of Covenants, Conditions and Restrictions for The Developer’s Parcel Within South Hills Marketplace Shopping Center recorded September 22, 1994 in Book 1220 at Page 906, Douglas County, Colorado records (the “Developer Declaration”).

 

1.3                  “Liquor License Issuance Date” means the date upon which the liquor licensing authorities for both the City of Lone Tree and the State of Colorado have issued a full On-Premises restaurant liquor license to Tenant for the Premises.

 

1.4                  “Rent Commencement Date” means the date which is the earlier of 120 days after the Liquor License Issuance Date or Tenant’s opening for business.  Landlord and Tenant shall each execute a memorandum in form and content reasonably acceptable to both Parties confirming the actual Rent Commencement Date and the Expiration Date (as defined below) once the same are known.

 

1.5                  "Abated Rent Period" means the period commencing on the Rent Commencement Date and ending on the day 150 days after the Rent Commencement Date.  During such period, Minimum Base Rent shall be abated and shall become due and payable only if an Event of Default occurs during the Abated Rent Period, Lease Year 1 or Lease Year 2 of the Initial Term.  All other Rent shall not be abated.

 

1.6                  "Term" means the Initial Term, as may be extended pursuant to the terms and conditions set forth in Exhibit C attached hereto.

 

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1.7                  "Initial Term" means the period commencing on the Rent Commencement Date and expiring on the Expiration Date, which consists of (a) the Abated Rent Period, (b) the period of 10 consecutive Lease Years, and (c) any partial month between the Rent Commencement Date and the commencement of Lease Year 1.

 

1.8                  “Expiration Date” means the date which is the last day of the 10^th Lease Year of the Initial Term.

 

1.9                  “Lease Year” shall mean a fiscal period beginning on the first day of the calendar month following the Rent Commencement Date (and each anniversary thereof) and expiring on the last day of the 12^th month thereafter.  However, in the event the Rent Commencement Date is the first day of a calendar month, then the first Lease Year shall commence on the Rent Commencement Date.

 

1.10                  "Extension Option" means an option to extend the then current lease term for an Option Term (as defined in Exhibit C attached hereto), on the terms and conditions set forth on Exhibit C attached hereto.  Tenant shall have a total of two Extension Options, such that this Lease may be extended for up to two (2) Option Terms.

 

1.11                   "Minimum Base Rent" means the rent reserved for the Initial Term (not including any Option Term) of $1,128,786.75, which amount is payable in monthly installments as follows:

 

Months During Term		Rent Per Sq. Ft.				Monthly Installments Of Minimum Base Rent
1 through 12 (Lease Year 1)*		$	19.50			$	8,958.63
13 through 24 (Lease Year 2)		$	19.50			$	8,958.63
25 through 36 (Lease Year 3)		$	19.50			$	8,958.63
37 through 48 (Lease Year 4)		$	19.50			$	8,958.63
49 through 60 (Lease Year 5)		$	19.50			$	8,958.63
61 through 72 (Lease Year 6)		$	21.45			$	9,854.49
73 through 84 (Lease Year 7)		$	21.45				9,854.49
85 through 96 (Lease Year 8)		$	21.45			$	9,854.49
97 through 108 (Lease Year 9)		$	21.45			$	9,854.49
109 through 120 (Lease Year 10)		$	21.45			$	9,854.49

* Minimum Base Rent is abated during the Abated Rent Period.

Minimum Base Rent during any Option Term means the aggregate annual Minimum Base Rent for each Lease Year during such Option Term calculated as provided in Exhibit C attached hereto, and such Minimum Base Rent shall be payable in monthly installments as provided in Exhibit C attached hereto.

1.12                  "Percentage Rent" means five percent (5%) of Tenant’s Gross Sales during each Lease Year in excess of $2,500,000.00.

 

1.13                  “Rent” has the meaning ascribed to it in Section 4.4, below.

 

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1.14                  "Triple Net Expenses" means all costs and expenses necessary to own, operate and maintain the Premises, including, but not limited to, utilities (including, without limitation, electric, gas, water, and sewer), insurance (including, without limitation, Landlord’s insurance costs for fire and casualty, loss of rents, and liability insurance of the Premises), taxes, assessments and governmental charges payable with respect to the Premises, costs otherwise payable by Landlord pursuant to any Permitted Exceptions, repairs, replacement costs (due to ordinary or extraordinary wear and tear or catastrophe), trash and snow/ice removal (including removal from parking areas, abutting roadways and walkways), landscaping and lawn maintenance, painting, sign installation and maintenance, repair and replacement of utility systems, depreciation of machinery and equipment used in such repair and replacement, cost of all personnel to implement such services, and Tenant’s pro rata share (on the basis of retail square footage) of all costs whatsoever (including, without limitation, costs similar to those enumerated above) payable by Landlord with respect to the operation, maintenance, repair or replacement of common areas.  Triple Net Expenses do not include maintenance of structural elements including foundations, walls, roof, and roof covering, which shall be maintained at Landlord’s expense.  All Triple Net Expenses are chargeable to and payable by Tenant. The foregoing list of items is provided for illustrative purposes only and shall not be deemed a full, complete or exhaustive list of all possible Triple Net Expenses.

 

1.15                  "Security Deposit" means the sum of $24,613.58.

 

1.16                  "Permitted Use" means use of the Premises solely as a restaurant, serving southern comfort food and BBQ.  Beer, wine and liquor may be served on the Premises to the extent allowed by a validly issued On-Premises restaurant liquor license issued to Tenant in accordance with Section 1.3.

 

1.17                  Real Estate Brokers.

 

1.17.1                          Representation.  The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in this transaction: Justin Kliewer, Newmark Grubb Knight Frank, represents Landlord exclusively ("Landlord's Broker"); and SullivanHayes Brokerage represents Tenant exclusively ("Tenant's Broker").

 

1.17.2                      Payment to Brokers.  Payment to Brokers shall be pursuant to applicable listing agreements.

 

1.18                Party Addresses.

 

1.18.1                      Landlord's Address:

 

Attn:  Stephen L. Owen

450 E. 17^th Avenue, Suite 120A

Denver, CO 80203

Facsimile:                                                                  

Email:  [e-mail]             

                                                     

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1.18.2                      Tenant's Address:

Attn: ___________

_________________

Facsimile:                                                                  

Email:

1.19       "Guaranty" [intentionally omitted]

 

1.20         Exhibits.  Attached hereto are the following exhibits, which are made a part of this Lease:

 

Exhibit A:                          Legal Description

Exhibit B:                          Guaranty [intentionally omitted]

Exhibit C:                          Addendum Relating to Extension Options

Exhibit D:                          Work Letter

2.            Demise.

 

2.1     Demise.  In consideration of the payment of the Rent reserved, the mutual covenants, and each and every act to be performed by Landlord and Tenant under this Lease, Landlord hereby lets and demises the Premises to Tenant and Tenant hereby leases the Premises from Landlord for the Term and upon the terms and conditions set forth in this Lease.

 

2.2    Permitted Exceptions.  This Lease and all of Tenant's rights hereunder are subject to all the matters, restrictions and encumbrances of record (whether now existing or hereafter arising), including, without limitation, the Declarations, and all restrictions in this Lease (collectively, the "Permitted Exceptions").  Landlord reserves to itself the right, from time to time, to grant, without the consent or joinder of Tenant, such easements, rights and dedications that Landlord deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use or occupancy of the Premises by Tenant.  When granted or recorded, such easements, rights, dedications, maps and restrictions will be additional Permitted Exceptions.  Tenant agrees to sign any documents reasonably requested by Landlord to effectuate any such easements, rights, dedications, maps or restrictions.  Tenant shall have no right to seek damages or to cancel or terminate this Lease, and the rights and obligations of Landlord and Tenant hereunder otherwise shall not be affected, because of any rights, changes or other matters allowed or set forth in the Permitted Exceptions.

 

2.3    Quiet Possession.  Upon payment by Tenant of all Rent and other charges and the performance of all the covenants, conditions and provisions on Tenant's part to be observed and performed under this Lease, Tenant shall have quiet possession of the Premises for the Term, subject to all terms of this Lease and the Permitted Exceptions.

 

3.            Delivery of Premises; Condition.

 

3.1    Delivery of Premises.  Subject to Section 3.5, below, Landlord will use commercially reasonable efforts to deliver possession of the Premises to Tenant on the Effective Date.  If Landlord does not deliver possession of the Premises to Tenant on the Effective Date, Landlord shall not be liable to Tenant for any damages, the Lease will remain in full force and effect, and the obligations of Tenant under this Lease will not be affected.  If Landlord does not deliver possession of the Premises to Tenant within 30 days after the Effective Date and provided that Tenant is not responsible for such delay, Tenant may elect to cancel this Lease by giving written notice to Landlord within 10 days after the 30-day period ends.  If Tenant gives such notice, the Lease shall be cancelled, each party shall return all things of value received from the other, and neither Landlord nor Tenant shall have any further obligations under the Lease.  If Tenant does not give such notice, Tenant's right to cancel the Lease shall expire and the Term shall commence upon the delivery of possession of the Premises to Tenant.  If delivery of possession of the Premises to Tenant is delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to this Lease setting forth the new Rent Commencement Date and new Expiration Date of the Lease.

 

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3.2    Condition.  Tenant will accept the Premises in "AS-IS" condition on the Effective Date and without warranty of any kind, express or implied; provided, however, that Landlord represents to Tenant that Landlord has no actual knowledge of the release, discharge, escape, or emission of any Hazardous Substance, as defined in Section 7.1.1, below, that requires remediation under applicable law, at the Premises, other than those matters expressly disclosed to Tenant.  The foregoing in no way imposes on Landlord any duty to investigate or otherwise determine if there are any Hazardous Substances in, on or under the Premises.  The foregoing representation shall expire on the first anniversary of the date on which Tenant first opens for business at the Premises, as provided in Section 3.6, below.

 

3.3    Tenant Acknowledgments.  Tenant acknowledges that:  (a) neither Landlord nor Landlord's agents or employees have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant's business or for any other purpose; (b) neither Landlord nor its agents or employees have agreed to undertake any alterations or construct any improvements to the Premises; (c) Tenant has been advised to satisfy itself with respect to the condition of the Premises including without limitation the HVAC, electrical and fire sprinkler systems and any structural or environmental matters and the present and future suitability of the Premises for Tenant's intended use; (d) Tenant has been advised to satisfy itself with respect to the Premises' compliance with the Americans with Disabilities Act and all other Applicable Requirements.  As used in this Lease, “Applicable Requirements” means all municipal, county, state and federal laws, ordinances, rules and regulations, orders, permits and zoning, the requirements of any applicable fire insurance underwriter or rating bureau and any covenants, restrictions or other matters of record relating to the Tenant, the Premises or the use thereof (collectively, "Applicable Requirements").  Tenant further acknowledges, by taking possession of the Premises, that as of the delivery of possession:  (e) Tenant has been given access to the Premises and has made such investigation as it deems necessary with reference to the matters set forth in this Section, is satisfied with reference thereto, and assumes all responsibility therefor as the same relate to Tenant's occupancy of the Premises and/or the terms of this Lease; and (f) neither Landlord nor any of its agents or employees has made any oral or written representations or warranties with respect to said matters or the condition of the Premises other than as expressly set forth in this Lease.

 

3.4   Early Occupancy.  If Tenant with Landlord's written permission totally or partially occupies the Premises prior to the Effective Date, all of the terms of this Lease will be in effect during such early occupancy except that the obligation to pay Minimum Base Rent will be abated for such period.  Any such early occupancy will not affect the Rent Commencement Date or Expiration Date.

 

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3.5   Tenant Compliance.  Landlord shall not be required to tender possession of the Premises to Tenant until Tenant compies with its obligations to provide the Security Deposit and evidence of insurance to Landlord.  Pending delivery of such items, Tenant shall be required to perform all of its obligations under this Lease.

 

3.6   Open for Business.  Subject to (a) Landlord’s performance of its obligations under this Lease, (b) Tenant’s ability to obtain all necessary permits for the operation of its business in the Premises, and (c) the provisions of this Lease regarding damage and condemnation, Tenant agrees to open for business to the public on or before the Rent Commencement Date.

 

4.            Rent.

 

4.1   Minimum Base Rent.  Throughout the Term, Tenant covenants and agrees to pay to Landlord the Minimum Base Rent in advance in monthly installments as set forth in Section 1 as rent for the Premises on or before the first day of each calendar month during the Term.  The first month’s Minimum Base Rent shall be due on Tenant’s execution of this Lease.  Minimum Base Rent and any other charges for any period during the Term which is for less than one full calendar month shall be prorated based upon the actual number of days of said month.

 

4.2   Percentage Rent.  Commencing at the beginning of Lease Year One and for each Lease Year thereafter (including each Lease Year in any Option Term), in addition to Minimum Base Rent, Tenant will pay to Landlord as “Percentage Rent” five percent (5%) of Gross Sales (as defined below) in each Lease Year in excess of $2,500,000.00.

 

4.2.1                      "Gross Sales" means the actual sales or rental price of all goods, wares, and merchandise sold, leased, licensed, or delivered, and the actual charges for all services performed by Tenant or by any subtenant, licensee, or concessionaire in, at from, or arising out of the use of the Premises, wholesale and retail, whether cash, credit, exchange, or otherwise, without reserve or deduction for inability or failure to collect.  Gross Sales will include without limitation, sales, rentals, and services (1) when the order for them originate in, at, from, or arising out of the use of the Premises, whether delivery or performance is made from the Premises or from some other place, (2) made or performed by mail, telephone, telegraph, electronic mail, text, video, Internet or future technological means, (3) made or performed by means of mechanical or other vending devices in the Premises, or (4) that Tenant or any subtenant, licensee, concessionaire, or other person in the normal and customary course of its business would credit or attribute to its operations in any part of the Premises.  Any deposit that is not refunded will be included in Gross Sales.  Each installment sale or credit sale will be treated as a sale for the full price in the month during which the sale is made, regardless of whether or when Tenant receives payment for it.  Gross Sales will not be reduced by any franchise, occupancy, capital stock, income, or similar tax based on income or profits.  Gross Sales does not include tips or gratuities.

 

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4.2.2                      Payment of Percentage Rent; Tenant’s Recordkeeping Requirements; Audit Rights.  By the 30^th day after the end of each quarter during the Term, Tenant shall provide Landlord a statement showing the Gross Sales for such quarter and shall pay to Landlord the amount due as Percentage Rent for such quarter.  Within 90 days after the end of each Lease Year during the Term, Tenant shall provide Landlord a statement showing the Gross Sales for such Lease Year.  If such statement shows an amount owing by Tenant that is less than the Percentage Rent paid by Tenant for the Lease Year, the excess will be held by Landlord and credited against the next payment of Percentage Rent; however, if the Term has ended and Tenant was not in default at its end, Landlord will refund the excess to Tenant.  If such statement shows an amount owing by Tenant that is more than the Percentage Rent previously paid by Tenant for such Lease Year, Tenant will pay the deficiency to Landlord within 30 days after the delivery of such statement.  Each statement of Gross Sales furnished by Tenant will be certified as correct by the individual primarily responsible for maintaining the books and records of Tenant and authorized by Tenant so to certify (and will show the computations of Gross Sales for Tenant and each of its subtenants, licensees, and concessionaries separately).  Tenant agrees to keep records of Gross Sales for at least three years after the expiration of the respective Lease Year (even after the end of the Term); such records will be kept in accordance with generally accepted principles of retail store accounting.  Landlord and/or its agents may at reasonable times, and upon 48 hours prior notice to Tenant, inspect and audit such records at the Premises or such other location as Tenant may maintain such records in the Denver, Colorado metropolitan area within 36 months after the period in question.  After such period, Landlord will have no right to audit such records unless a subsequent examination of a later Lease Year reveals an underpayment of Percentage Rent in that Lease Year.  If an audit or examination by Landlord, or its representative, discloses that Tenant has failed to report all Gross Sales accurately, and that the total amount of the underreported Gross Sales exceeds 2% of the Gross Sales previously reported by Tenant for any period examined, or the total amount of the underreported Gross Sales results in Tenant owing additional Percentage Rent in excess of $5,000, Tenant will reimburse Landlord for all reasonable expenses incurred by Landlord in performing the examination, in addition to all additional Percentage Rent found to be owed by Tenant pursuant to this Section.  Additional Percentage Rent will bear interest at the lesser of 18% per annum or the highest rate allowed by law from the date on which the additional Percentage Rent was due until it is paid in full with interest.  If an examination by Landlord or its representative discloses that Tenant has overreported Gross Sales and that as a result of the overreporting Tenant has overpaid Percentage Rent, Landlord will give Tenant credit against future Rent due and owing by Tenant for the balance of the overpaid Percentage Rent after deducting from the overpayments all reasonable expenses incurred by Landlord in conducting its examination. All moneys paid to Landlord under this Section may be intermingled with other moneys of Landlord and shall not bear interest. In the event of a default by Tenant in the performance of its obligations under this Lease, then any balance of funds paid to Landlord under the provisions of this Section may, at the option of Landlord, be treated as an additional Security Deposit.

 

(a)          Sublease.  If Tenant subleases, licenses, or in any manner allows use of space in the Premises (to the extent permitted hereunder), for the purpose of making sales or rentals of goods or provision of services (the "subtenant"), Tenant is responsible for ensuring that the subtenant's books and records conform to the requirements in this Lease.  Tenant will include in its monthly report of Gross Sales, but separately noted, the Gross Sales of the subtenant.  In addition, Tenant will report as additional Gross Sales all rentals, commissions, revenue, income or other compensation received by Tenant from the subtenant as payment for use of the Premises, or part of the Premises.  The failure of any subtenant to maintain its books and records of account as required in this subsection, or to report correctly Gross Sales, will be deemed a failure on the part of the Tenant to conform to the requirements of this Lease.

 

 

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4.2.3                       Radius.  During the Term, and for so long as Tenant is operating a restaurant (the “Operation”) on the Premises, if Tenant or any Tenant Affiliate shall open a restaurant which is substantially similar in menu and appearance as the Operation within the Radius Area (defined below) (a “Radius Restaurant”), then the Gross Sales (as defined in this Lease) of such Radius Restaurant shall be included in the Gross Sales made from the Premises and the Percentage Rent hereunder shall be computed upon the aggregate of the Gross Sales made from the Premises and by such Radius Restaurant and Tenant shall report and maintain records of such sales in the manner provided in Section 4.2.2.  The “Radius Area” shall be the area within a five (5) mile radius of the Premises.  Notwithstanding anything to the contrary contained herein, the terms of this Section 4.2 shall not apply to any Operation operated by Tenant or any Tenant Affiliate after the expiration or earlier termination of this Lease.

 

For purposes of this Lease, "Tenant Affiliate" shall mean any party (including any person or entity) that, directly or indirectly, (i) controls; or (ii) is controlled by; or (iii) is under common control with Tenant and, without limiting the generality of the foregoing, shall include: (iv) any party who is also a director or officer of, a member or manager of, partner in, trustee of, or blood or legal relative, guardian or representative of Tenant, or any party who acts or serves in a similar capacity with respect to Tenant; (v) any party of which or whom Tenant is also a director or officer, member, manager, partner, trustee, or blood or legal relative, guardian or representative, or with respect to which or whom, Tenant acts or serves in a similar capacity; and (vi) any party who directly or indirectly is also the legal or beneficial owner of or controls more than fifty percent (50%) of any class of equity securities or membership interests of Tenant. For purposes of this definition, "control" (including, with correlative meanings, the terms “controlled by" and "under common control with"), as used with respect to any party, shall mean the possession, directly or indirectly, of the power to cause the direction of the management and policies of such party, whether through the ownership of voting securities, the ownership of membership interest, by contract or otherwise.  Notwithstanding the foregoing, any shareholder of Bourbon Brothers Holding Corporation, a publicly traded company, shall not be deemed a Tenant Affiliate for purposes of this subsection 4.2.3 except to the extent such shareholder owns or operates a substantially similar business in the Bourbon Brothers family of companies.

4.2.4                      Notwithstanding the payment of Percentage Rent, it is expressly agreed that Landlord is not to be construed a partner of Tenant in the conduct of Tenant’s business.  The relationship between the Parties to this Lease is and shall at all times remain that of landlord and tenant.

 

4.3   Developer Declaration.  Commencing on the Rent Commencement Date, Tenant shall timely pay to the appropriate party under the Developer Declaration all sums properly due and payable by Landlord pursuant to the Developer Declaration for all periods during the Term.

 

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4.4   Additional Rent.  All other monetary obligations (including, without limitation, Triple Net Expenses payable to Landlord) of Tenant to Landlord under the terms of this Lease (except for Minimum Base Rent, Percentage Rent and Security Deposit) constitute rent and are referred to as "Additional Rent."  (Minimum Base Rent, Percentage Rent, amounts payable under Section 4.3, and Additional Rent are collectively referred to as "Rent.")  Tenant covenants and agrees to pay to Landlord all amounts of Additional Rent when due or in installments in advance as Landlord may require in its discretion, or as otherwise provided in this Lease.

 

4.5   Payment.  Payment of Rent shall be made to Landlord at its address stated in Section 1 (or to such other persons or place as Landlord may from time to time designate in writing) without notice, demand, offset or deduction.

 

5.            Security Deposit.  At the time of Tenant's execution of this Lease, Tenant shall deliver the Security Deposit to Landlord as security for the full, faithful and timely performance of each and every provision of this Lease to be performed by Tenant.  If Tenant defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the payment of Rent, Landlord may, in Landlord's discretion, use, apply or retain all or any part of the Security Deposit for the payment of any Rent, or any other sum in default, or for the payment of any other amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default.  If any portion of the Security Deposit is so used, applied, or retained, Tenant shall within five (5) days after written demand deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount.  Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall not be entitled to interest on the Security Deposit.  The Security Deposit shall not be deemed a limitation on Landlord's damages or a payment of liquidated damages or a payment of the Rent due for the last month of the Term.  The Security Deposit or any remaining balance of the Security Deposit shall be returned to Tenant two (2) years from the date that Landlord received the Security Deposit from Tenant if, and only if, Tenant fully, faithfully and timely performs every provision of this Lease to be performed by it up to that date; if an Event of Default has occurred during such two-year period, (a) Landlord shall not be obligated to return the Security Deposit until expiration of the Term, including all Option Terms, and (b) Tenant shall comply with the provisions of this Section 5 throughout the Term, including all Option Terms.  Landlord may deliver the Security Deposit to the purchaser of the Premises in the event the Premises are sold, and after such time, Landlord will have no further liability to Tenant with respect to the Security Deposit.

 

6.            Use; Compliance; Landlord's Access.

 

6.1                  Permitted Use.  Tenant (and any subtenants or assignees of Tenant, if permitted by this Lease) shall use and occupy the Premises only for the Permitted Use, and for no other purpose.

 

6.2                  Prohibited Uses.  Notwithstanding Section 6.1, Tenant shall not use or permit the use of the Premises in a manner that is unlawful (including, without limitation, any manner that is lawful under Colorado law but unlawful under federal law), that creates damage, waste, or a nuisance, or that overloads the floors or impairs the structural soundness of the Premises.  Tenant shall not conduct, nor permit to be conducted, any auction upon the Premises without Landlord's prior written consent.  Landlord shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.  Without limiting the foregoing prohibitions, the use of the Premises in connection with any aspect of the marijuana industry, including, without limitation, the growing, financing, warehousing, processing, sale or use of marijuana or any derivative substances for medical, recreational, or any other uses, is expressly prohibited.

 

 

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6.3                  Operation of Tenant's Business.  Tenant covenants and agrees to operate its business upon the Premises diligently and continuously throughout the Term.  Tenant will operate its business upon the Premises in a first class and reputable manner.  Tenant shall keep the Premises well lighted and in a safe, neat and clean condition throughout the Term.  Tenant agrees to take such actions as may be necessary or as Landlord may require to prevent or remedy any nuisance to or impact on the improvements related to the Permitted Use.  Tenant shall not permit or suffer the Premises, or the walls or floors thereof, to be endangered by overloading.

 

6.4                  Parking.  Landlord grants to Tenant, its employees, agents, servants, customers and other invitees an exclusive license for the Term to use the parking lot on the Premises.

 

6.5                  Signs.  Tenant shall not place any sign upon the Premises without Landlord's prior written consent, which shall not be unreasonably withheld.  Landlord agrees to allow Tenant to install and maintain the maximum signage permitted under Applicable Requirements.  All signs must comply with all Applicable Requirements, including, but not limited to, any applicable city and county code requirements.  Except as provided above, Tenant shall be solely responsible for all costs associated with the installation and maintenance of the signs.  At the expiration of this Lease, Tenant shall remove all signs, at its sole expense, and shall repair any damage resulting from the installation or removal of the signs.

 

6.6                  Permits; Liquor License.  Tenant shall use commercially reasonable efforts to obtain, and shall diligently pursue immediately upon execution of this Lease, any approvals or licenses from any governmental entity necessary for the Permitted Use and to serve beer, wine and spirits on the Premises in accordance with Section 8.5, below.

 

6.7                  Security Measures; No Services Provided by Landlord.  Tenant hereby acknowledges that the Rent payable to Landlord hereunder does not include the cost of guard service or other security measures, and that Landlord shall have no obligation whatsoever to provide same or any other services.  Tenant assumes all responsibility for the protection of the Premises, Tenant, its agents, employees, contractors, licensees, visitors and invitees and their property from the acts of third parties, and for the provision of all services necessary for operation and use of the Premises.

 

6.8                  Tenant's Compliance with Applicable Requirements.  Tenant shall, at Tenant's sole cost and expense, fully, diligently and in a timely manner comply at all times during the Term with all Applicable Requirements now in effect or which may hereafter come into effect, including, without limitation, payment of all amounts Landlord is obligated to pay under the Declarations or other matters of record affecting the Premises.  Tenant shall, within five days after receipt of Landlord's written request, provide Landlord with copies of all documents and information, including but not limited to permits, registrations, manifests, applications, reports and certificates, evidencing Tenant's compliance with any Applicable Requirements specified by Landlord, and shall immediately upon receipt give notice to Landlord in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Tenant or the Premises to comply with any of the Applicable Requirements.

 

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6.9                  Access for Inspections.  Landlord, Landlord's agents, employees, contractors and designated representatives, and the holders of any mortgages, deeds of trust or ground leases on the Premises ("Landlord's Lender") shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Tenant with this Lease and all Applicable Requirements, and Landlord shall be entitled to employ experts and/or consultants in connection therewith to advise Landlord with respect to Tenant's activities, including but not limited to Tenant's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance (defined below) on or from the Premises.  The costs and expenses of any such inspections shall be paid by the party requesting same, unless (a) there exists a violation of Applicable Requirements; (b) a contamination, caused or materially contributed to by Tenant, is reasonably found to exist or to be imminent; or (c) the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination.  In such case, Tenant shall, upon request, reimburse Landlord or Landlord's Lender, as the case may be, for the costs and expenses of such inspections.

 

6.10                  Access for Showings.  Landlord and Landlord's employees, agents, contractors and other authorized representatives shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times upon not less than one business day's prior notice for the purpose of showing the same to prospective purchasers, lenders or tenants, or making such alterations, repairs, improvements or additions to the Premises as Landlord may deem necessary, or performing any obligation of Landlord under this Lease.  All such activities shall be without abatement of Rent.  Landlord shall not place a “For Sale” or “For Lease” sign on the Premises, so long as Tenant is conducting business on the Premises and not in Default under the Lease.  For purposes of this Section 6.10, Tenant shall be deemed to be conducting business on the Premises during times of remodeling or other periods of less than 30 days during which  the Premises is not open for business to the public  Landlord may at any time place on the Premises any ordinary "For Sale" signs and Landlord may during the last twelve months of the Term hereof place on the Premises any ordinary "For Lease" signs.

 

7.            Hazardous Substances.

 

7.1                  Definitions.

 

7.1.1                      "Hazardous Substance" means any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either:  (a) potentially injurious to the public health, safety or welfare, the environment, the Premises and any improvements located thereon; (b) regulated or monitored by any federal, state, or local governmental authority; or (c) a basis for potential liability of Landlord or Tenant to any governmental agency or third party under any applicable statute or common law theory.  Hazardous Substance includes, without limitation, flammables, explosives, radioactive materials, hazardous waste and hazardous materials, toxic waste and toxic materials, petroleum products, or any similar substance or derivative of any substance.

 

 

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7.1.2                      "Reportable Use" means (i) the installation or use of any above or below ground storage tank; (ii) the manufacture, generation, possession, storage, handling, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority; and (iii) the presence at, upon, under, or within the Premises of a Hazardous Substance with respect to which any of the Applicable Requirements require that a notice be given to persons entering or occupying the Premises or neighboring properties.

 

7.2                  Restrictions.  Tenant shall not cause or suffer to occur the release, discharge, escape, or emission of any Hazardous Substance at, upon, under, or within the Premises or any contiguous or adjacent premises, including, without limitation, through the plumbing or sanitary sewer system.  Tenant shall not engage in any activities that could result in, give rise to, or lead to the imposition of liability upon Tenant or Landlord or the creation of a lien upon the building or land upon which the Premises is located.  Tenant shall not engage in any activity at, upon, under, or within the Premises which constitutes a Reportable Use of a Hazardous Substance without the express prior written consent of Landlord and compliance in a timely manner (at Tenant's sole cost and expense) with all Applicable Requirements.  Notwithstanding the foregoing, Tenant may, without Landlord's prior consent but upon written Notice to Landlord and in compliance with all Applicable Requirements, use any ordinary and customary materials reasonably required to be used by Tenant in the normal course of the Permitted Use, so long as such use is not a Reportable Use and does not expose the Premises and any improvements located thereon to any meaningful risk of contamination or damage or expose Landlord or Tenant to any liability therefor.  In addition, Landlord may (but without any obligation to do so) condition its consent to any Reportable Use of any Hazardous Substance by Tenant upon Tenant's giving Landlord such additional written assurances as Landlord, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefor including, but not limited to, Tenant's installation (and, at Landlord's option, removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit.

 

7.3                  Duty to Inform Landlord.  If Tenant knows, or has reasonable cause to believe, that there had been a release, discharge, escape, or emission (whether past or present) of any Hazardous Substance or a Hazardous Substance has otherwise come to be located at, upon, under, or within the Premises, other than as previously consented to in writing by Landlord, Tenant shall immediately give Landlord written notice thereof, together with a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, order, action, proceeding, or any other correspondence given to, or received from, any governmental authority or private party concerning the presence, spill, release, discharge of, or exposure to, such Hazardous Substance including, but not limited to, all such documents as may be involved in any Reportable Use involving the Premises.

 

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7.4                  Landlord's Right of Environmental Audit.  Landlord may, upon reasonable notice to Tenant, be granted access to and enter the Premises no more than once annually to perform or cause to have performed an environmental inspection, site assessment, or audit.  Such environmental inspector or auditor may be chosen by Landlord, in its sole discretion, and be performed at Landlord's sole expense.  To the extent that the report prepared upon such inspection, assessment, or audit indicates the presence of Hazardous Substances in violation of federal, state, or local laws or regulations, or provides recommendations or suggestions to prohibit the release, discharge, escape, or emission of any Hazardous Substances at, upon, under, or within the Premises, or to comply with federal, state, or local laws or regulations, Tenant shall promptly, at Tenant's sole expense, comply with such recommendations or suggestions, including but not limited to performing such additional investigative or subsurface investigations or remediation(s) as recommended by such auditor or inspector.

Notwithstanding the above, if at any time Landlord has actual notice or reasonable cause to believe that Tenant has violated, or permitted any violations of any federal, state, or local laws or regulations, the Landlord will be entitled to perform its environmental inspection, assessment, or audit at any time, notwithstanding the above-mentioned annual limitation, and Tenant shall reimburse Landlord for the cost or fees incurred for such as Additional Rent.

7.5                  Indemnification.  Tenant shall indemnify, protect, defend and hold Landlord, its managers, members, officers, directors, agents, employees and contractors harmless from and against any and all damages, liabilities, judgments, costs, claims, liens, expenses, penalties, loss of permits and attorneys' and consultants' fees and costs arising out of or involving any Hazardous Substance brought onto the Premises by or for anyone other than Landlord.  Tenant's obligations under this Section shall include, but not be limited to, the effects of any contamination or injury to any person, property or the environment created or suffered by Tenant, and the cost of investigation (including consultants' and attorneys' fees and costs or testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease.  No termination, cancellation or release agreement entered into by Landlord and Tenant shall release Tenant from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Landlord in writing at the time of such agreement.  This Section shall survive the expiration or sooner termination of this Lease.

 

8.            Tenant's Work; Alterations.

 

8.1                  Tenant's Work.  All finish work including installation of trade fixtures and furnishings, required to make the Premises suitable for Tenant's occupancy and operation of its business therein shall be referred to herein as "Tenant's Work."  All of Tenant’s Work shall be completed by Tenant at its expense and in accordance with the Work Letter attached as Exhibit D.  Prior to  performing the Tenant's Work, Tenant shall obtain Landlord's written approval of Tenant's plans and specifications (including, without limitation, Alterations, signs, colors, materials, and lighting for the Premises), deposit with Landlord certificates of insurance as required pursuant to Exhibit D, and comply with other requirements which may be set forth herein or reasonably imposed by Landlord.  Landlord shall use commercially reasonable efforts to approve or reject Tenant’s plans and specifications within fifteen (15) days of receipt.  Landlord's review of Tenant's plans and specifications are solely for Landlord's convenience, and Landlord's approval of such plans and specifications shall not constitute evidence of compliance of such plans with any applicable local or state governmental code or regulation governing the same or the adequacy thereof for Tenant's proposed use of the Premises.

 

8.2                  Alterations.  Tenant shall not make any alterations, additions, or improvements ("Alterations") to the Premises without Landlord's prior written consent, which Landlord may withhold, condition or deny in its commercially reasonable discretion (provided, however, that conditions similar to those set forth on Exhibit D shall be deemed reasonable); all Alterations shall: (a) not change the general character of the Premises or reduce the fair market value of the Premises below its fair market value prior to the Alterations; (b) be made with due diligence, in a good and workmanlike manner, and in compliance with all Applicable Requirements; (c) be promptly and fully paid for by Tenant; and (d) be made under the supervision of an architect or engineer reasonably satisfactory to Landlord and in accordance with plans and specifications and cost estimates approved in writing by Landlord.    Landlord's review of Tenant's plans and specifications are solely for Landlord's convenience, and Landlord's approval of such plans and specifications shall not constitute evidence of compliance of such plans with any applicable local or state governmental code or regulation governing the same or the adequacy thereof for Tenant's proposed use of the Premises.  Promptly after the completion of any Alterations, Tenant will give Landlord a copy of "as built" drawings of the Alterations.  All Alterations, whether temporary or permanent in character, made in or upon the Premises by Tenant, including, but not limited to, all fixtures and anything that by its nature is intended to be connected, attached or affixed to the Premises (such as the bar and furniture and equipment bolted, screwed or otherwise attached to the Premises in any manner), will immediately upon completion or installation become Landlord's property and, except as expressly provided elsewhere in this Lease, at the end of the Term of this Lease, will remain on the Premises without compensation to Tenant.  By notice given to Tenant, Landlord may require that any Alterations be removed by Tenant.  In that event, Tenant will remove the Alterations at Tenant's sole cost and will restore the Premises to the condition in which they were before the Alterations were made, reasonable wear and tear excepted.  Tenant understands and agrees that in the event actions, alterations or improvements are required in order to bring the Premises into compliance with any Applicable Requirements because of Tenant's intended use, Tenants shall be solely responsible for any and all associated costs relative thereto.  Tenant further indemnifies, defends and agrees to hold Landlord, its managers, members, officers, directors, agents, employees and contractors harmless from any and all claims and liabilities that may arise by virtue of Tenant's use of the Premises in violation of any Applicable Requirements.

 

8.3                  Notice of Non-Liability.  Within five days after submitting any planned Alterations to Landlord for approval, but prior to commencing any planned Alterations, Tenant shall post and keep posted until completion of such work, in a conspicuous place upon the doors providing entrance to the Premises, and shall personally serve upon the contractors or subcontractors performing such work, a notice, in a form provided or approved by Landlord and in accordance with local law, stating that Landlord's interest in the Premises shall not be subject to any lien for such work.

 

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8.4                  Liens.  Tenant shall not do or suffer anything to be done whereby the Premises, or any part thereof, may be encumbered by a mechanic's, materialmen's, or other lien for work or labor done, services performed, materials, appliances, or power contributed, used, or furnished in or to the Premises or in connection with any operations of Tenant, or similar lien, and, if, whenever and as often as any mechanic's lien or similar lien is filed against the Premises, or any part thereof, purporting to be for or on account of any labor done, materials or services furnished in connection with any work in or about the Premises, done by, for or under the authority of Tenant, or anyone claiming by, through or under Tenant, Tenant shall discharge the same of record within 30 days after service upon Tenant of notice of the filing thereof; provided, however, Tenant shall have the right to remove the lien by bonding same in accordance with applicable law and to contest any such lien; provided further that Tenant shall diligently prosecute any such contest, at all times effectively staying or preventing any official or judicial sale of the Premises under execution or otherwise, and, if unsuccessful, satisfy any final judgment against Tenant adjudging or enforcing such lien or, if successful, procuring record satisfaction or release thereof. Tenant shall indemnify, defend and hold the Landlord harmless from and against any costs or damages incurred by Landlord as a result of any mechanic's or other liens filed against the Premises or any other property of Landlord which is for or on account or any labor done, or materials or services furnished in connection with any work in or about the Premises, done by for or under the authority of Tenant, or anyone claiming by, through or under Tenant. In the event a stay is obtained, Tenant shall obtain title insurance in the amount of the lien or liens (including interest and costs) for the benefit of Landlord should Landlord desire the same for any period during which a lien or liens exist. In such event Tenant shall, if necessary, pay required title insurance premiums, post bond sufficient to satisfy the title insurer's requirements, pay escrow costs and fees, pay the attorneys' fees of Landlord, and sign indemnity agreements required by and in favor of the title insurer.

 

8.5                  Opening of Tenant’s Business/Contingency.  Commencing on the Effective Date, Tenant agrees that it shall diligently and in good faith pursue all licenses, permits and approvals necessary to operate its business (including, without limitation, a On-Premises restaurant liquor license to sell beer, wine and spirits) and shall copy Landlord on all submittals, notices and meetings related to such licenses, permits and approvals.  Tenant shall submit to the proper authorities all applications for such permits (or for the transfer of existing permits on the Premises, if applicable) within thirty (30) days after the Effective Date.  Should Tenant have any complications obtaining required licenses, permits and approvals, Tenant shall notify Landlord and Landlord shall, at no cost to Landlord, cooperate with Tenant in obtaining such licenses, permits and approvals.  This Lease is contingent upon Tenant obtaining a  On-Premises restaurant liquor license to sell beer, wine and spirits on the Premises by the Contingency Deadline.  In the event that Tenant fails to obtain all necessary licenses, permits and approvals within 90 days after the Effective Date (the "Contingency Deadline"), and Landlord has not waived this contingency in writing, Landlord may terminate this Lease.  Upon such termination, and provided Tenant has satisfied all of Tenant's obligations hereunder in vacating and surrendering the Premises upon termination, Tenant shall be entitled to a refund of the Security Deposit and first month’s rent.  Notwithstanding the foregoing, Tenant covenants and agrees that Tenant shall diligently pursue a On-Premises restaurant liquor license for the Premises, and Tenant shall engage an attorney specializing in liquor license law to assist in securing such liquor license.

 

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9.            Maintenance and Repair.

 

9.1                  Landlord's Obligations.   Subject to the remainder of this Section 9 and all provisions in this Lease relating to damage, destruction or condemnation of the Premises and to Tenant's indemnification of Landlord, Landlord shall maintain, repair and keep in at least the same condition as of the Effective Date (ordinary wear and tear excepted) the foundation, the roof, any roof coverings, and exterior walls (excluding the interior and exterior finish surfaces of exterior walls, windows, window frames and doors) of any building on the Premises.  If Landlord shall be called upon to make any such repairs occasioned by the negligent act or omission of Tenant, its employees, agents, servants, customers and other invitees, the entire cost of such repair shall be borne by Tenant.  Except as provided above, it is intended by the Parties hereto that Landlord have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of Tenant.  It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.  Landlord shall use reasonable efforts to cause any necessary repairs to be made promptly; provided, however, that Landlord shall have no liability whatsoever for any delays in causing such repairs to be made, including, without limitation, any liability for injury to or loss of Tenant's business, nor shall any delays entitle Tenant to any abatement of Rent or damages, or be deemed an eviction of Tenant in whole or in part.  The performance of Landlord's obligations hereunder shall be subject to delays attributable to force majeure.

 

9.2                  Tenant's Obligations.  Subject to provisions in this Lease relating to damage, destruction or condemnation of the Premises, Tenant shall, at Tenant's sole expense, keep the Premises in good order, condition and repair (whether or not the need for such repairs occurs as a result of Tenant's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, interior walls, the interior and exterior finish surface of exterior walls, ceilings, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises.  Tenant, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices.  Tenant's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair.  Tenant shall, during the Term of this Lease, keep the exterior appearance of the Premises in the same condition as the Effective Date consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary the exterior repair of the Premises.  Tenant is responsible for removal of snow and ice.

 

9.3                  HVAC.  Tenant shall, at Tenant's sole cost and expense, procure and maintain a contract, with copies to Landlord, in customary form and substance, for and with a contractor specializing and experienced in the inspection, maintenance and service of the heating, air conditioning and ventilation system for the Premises.  However, Landlord reserves the right, upon notice to Tenant, to procure and maintain the contract for the heating, air conditioning and ventilating systems, and if Landlord so elects, Tenant shall reimburse Landlord, upon demand, for the cost thereof.

 

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9.4                  Landlord Remedy.  In addition to other rights and remedies available to Landlord pursuant to this Lease, if Tenant fails to perform Tenant's obligations, Landlord may enter upon the Premises after ten days' prior written notice to Tenant (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Tenant's behalf, and put the Premises in good order, condition and repair, at Tenant's expense.

 

10.            Insurance; Indemnity.

 

10.1                  Landlord's Insurance.  The Landlord shall provide and keep in force Special Form coverage insurance with respect to and for the full replacement cost of the Premises (excluding those portions of the Premises required to be insured by Tenant pursuant to Section 10.2.2), subject to such deductibles and exclusions as Landlord may deem appropriate and such terms and conditions as Landlord shall from time to time determine reasonable and sufficient.  Any insurance provided for in this Section 10.1 may be maintained by means of a policy or policies of blanket insurance, covering additional items or locations or insureds. All costs associated with such insurance, including premiums and deductibles, to the extent relating to the Premises (“Insurance Costs”), shall be Triple Net Expenses payable by Tenant as Additional Rent.

 

10.1.1                      Estimated Payments.  On or before the first day of each month after the Rent Commencement Date, Tenant shall pay to Landlord the Estimated Insurance Cost (as defined below) for that month.  If the Rent Commencement Date starts on any day other than the first day of the month, Landlord will provide to Tenant, within 30 days after the first day of the next month or as soon thereafter as practicable, a statement of the actual Insurance Cost for the period of time from the Rent Commencement Date to the first day of the next month, and Tenant shall pay to Landlord the amount due as actual Insurance Cost.  The “Estimated Insurance Cost” for each month of Lease Year One shall be $332.25.  The Estimated Insurance Cost is subject to revision according to this Section 10.1.1 and Section 10.1.2.  Within 60 days of the last day of each Lease Year of the Term, or as soon thereafter as practicable, Landlord will give Tenant written notice of Landlord’s Estimated Insurance Cost for each month of the ensuing Lease Year.  On or before the first day of the month during that ensuing Lease Year, Tenant will pay to Landlord the Estimated Insurance Cost for that month; however, if such notice is not given until after the new Lease Year has begun, Tenant will continue to pay on the basis of the prior Lease Year’s Estimated Insurance Cost until the month after such notice is given.  In the month Tenant first pays Landlord’s new Estimated Insurance Cost, Tenant will pay to Landlord the difference between the new Estimated Insurance Costs and the amount paid to Landlord on the basis of the prior year’s Estimated Insurance Cost, for each month which has elapsed since the new Lease Year began.  If at any time or times it reasonably appears to Landlord that the amount payable for the Insurance Cost will vary from Landlord’s estimate, then Landlord may, by written notice to Tenant, revise Landlord’s estimate for such Lease Year, and subsequent payments by Tenant for such Lease Year will be based upon Landlord’s reasonable revised estimate.  All moneys paid to Landlord under this Section 10 may be intermingled with other moneys of Landlord and shall not bear interest. In the event of a default by Tenant in the performance of its obligations under this Lease, then any balance of funds paid to Landlord under the provisions of this Section may, at the option of Landlord, be treated as an additional Security Deposit.

 

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10.1.2                          Annual Settlement.  Within 60 days after the end of each Lease Year or as soon thereafter as practicable, Landlord will deliver to Tenant a statement of actual Insurance Costs for such Lease Year, prepared and certified by Landlord.  Such certified statement will be final and binding upon Landlord and Tenant unless Tenant objects by written notice to Landlord within 30 days after it is given to Tenant.  If such statement shows an amount owing by Tenant that is less than the Estimated Insurance Cost previously made by Tenant for such Lease Year, the excess will be held by Landlord and credited against the next payment of Estimated Insurance Cost; however, if the Term has ended and Tenant was not in default at its end, Landlord will refund the excess to Tenant.  If such statement shows an amount owing by Tenant that is more than the estimated payments previously made by Tenant for such calendar year, Tenant will pay the deficiency to Landlord within 30 days after the delivery of such statement.  Landlord's delay in delivering the statement required by this subsection shall not in any manner relieve Tenant of its obligations hereunder.

 

10.2                  Tenant's Insurance.  Tenant covenants to obtain on or before the date on which the Landlord delivers possession of the Premises to Tenant, and to keep in full force and effect during the Term the following insurance policies, provided that all such coverage shall be at least as broad as coverage under the applicable Insurance Services Office Inc. (ISO) form and (notwithstanding any limits specified below) at no time shall any of the limits be less than those customarily carried by tenants or owners of premises similar to the Premises, for uses similar to Tenant’s Permitted Use of the Premises, in the Denver, Colorado metropolitan area:

 

10.2.1                      Commercial general liability insurance with respect to the business carried on, in or from the Premises and the use and occupancy thereof, covering bodily injury, death and damage to property of others (including assumed contractual liability with respect to the liabilities assumed by Tenant under this Lease, personal and advertising injury and medical payments); with combined single limits of not less than $1,000,000 for bodily injury and property damage in respect of any one accident or occurrence, with a $2,000,000 annual aggregate.

 

10.2.2                      Liquor liability insurance coverage for bodily injury, death, and property damage arising out of the sale or consumption of alcoholic beverages on the Premises with combined single limits of not less than $1,000,000 for bodily injury and property damage in respect of any one accident or occurrence, with a $2,000,000 annual aggregate.

 

10.2.3                      An umbrella policy covering both general liability and liquor liability with combined single limits of not less than $2,000,000 for bodily injury and property damage in respect of any one accident or occurrence, with a $3,000,000 annual aggregate.

 

10.2.4                      Special Form coverage insurance, with respect to those portions of the Premises which Tenant is required to maintain and repair pursuant to this Lease, which include all leasehold improvements in the Premises, whether installed by Landlord or Tenant (including, without limitation, the entire storefront, all ceilings, interior walls, floor coverings and glass, and the heating, ventilating and cooling equipment serving the Premises) and with respect to all of the Tenant's furnishings, fixtures and personal property in the Premises.  Such insurance shall include plate glass, fire, extended coverage, vandalism, and malicious mischief insurance and such other insurance as Tenant may deem prudent covering all of Tenant's stock in trade, fixtures, furniture, furnishings, floor coverings and equipment in the Premises.

 

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10.2.5                      Business Interruption insurance (including extra expense coverage) in an amount sufficient to cover lost profits and overhead, including Rent, for twelve (12) months.

 

10.2.6                      Automobile liability insurance;

 

10.2.7                      Workers' Compensation Insurance in compliance with the Applicable Requirements.

 

10.2.8                      To the extent of Tenant's Work or any Alterations, Builder's Risk insurance for the full replacement cost of the building and in form acceptable to Landlord;

 

10.2.9                      Any other insurance, including, without limitation, flood insurance, as may be required by Landlord from time to time in its reasonable discretion.

 

10.2.10                      All insurance obtained by Tenant shall be primary.  Except as otherwise approved in writing by Landlord, all insurance obtained by Tenant shall be on forms, in amounts and with insurers approved by Landlord, which approval shall not be unreasonably withheld, shall name Landlord and the holder of any first mortgage encumbering the Property as insured parties, as their interests may appear; and shall provide that the insurance coverage shall not be canceled or altered except upon 30 days' prior written notice to Landlord and the holder of any such first mortgage.  Furthermore, such insurance shall contain a waiver of rights of subrogation as among Tenant, Landlord, any ground lessor, and any mortgagee of Landlord in substantially the following form:  "The insurance shall not be invalidated should the insured waive in writing, prior to a loss, any or all right of recovery against any party for loss occurring to the property described herein." Tenant shall obtain and file with Landlord certificates of insurance evidencing the insurance coverage required above and shall deliver such certificates to Landlord on or before the date of Tenant's occupancy and from time to time thereafter as may be reasonably required by Landlord to establish Tenant's insurance coverage.

 

10.3                  Increase in Premiums.  Without Landlord's prior written consent, Tenant shall not carry any stock of goods or do anything in or about the Premises which would in any way tend to increase insurance rates or invalidate any policy on the Premises or insuring Landlord's operation of the Premises.  If Landlord shall consent to such use, Tenant agrees to pay, as Additional Rent, any increase in premiums for insurance against loss by standard fire and extended coverage resulting from the business carried on in the Premises by Tenant.

 

10.4                  Waiver of Subrogation.

 

Landlord and Tenant intend for their insurers to be solely responsible for their respective property losses.  Accordingly, without affecting any other rights or remedies, Tenant and Landlord each hereby fully release and relieve the other, their respective shareholders, partners, members, officers, directors, managers, employees and agents, and waive their entire right to recover damages against the other, their respective shareholders, partners, members, officers, directors, managers, employees and agents, for loss of or damage to its property arising out of or incident to the perils required to be insured against under this Section 10, or which is covered by any other insurance actually carried by Tenant or Landlord, to the extent of the limits of such policy.  The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Landlord or Tenant, as the case may be, so long as the insurance is not invalidated thereby. The Tenant shall cause all other occupants of the Premises, if any, claiming by, under or through Tenant to execute and deliver to Landlord such a waiver of claims and to obtain such a waiver of subrogation.

 

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10.5                  Indemnity.  Tenant shall indemnify, protect, defend and hold harmless the Premises, Landlord and its members, managers, employees, agents, contractors, partners and Lenders from and against any and all claims, actions, demands, suits, proceedings, orders, losses (including loss of rents), damages, liens, judgments, penalties, attorneys and consultants' fees, expenses and/or liabilities (collectively, "Claims") arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Tenant; the conduct of Tenant's business on the Premises; any act, omission, fault or neglect on or about the Premises of Tenant, its agents, employees, contractors, subtenants, licensees, visitors, or invitees; or any violation of any terms hereof by Tenant, except to the extent such Claim is the result of Landlord's gross negligence or willful misconduct.  If any action or proceeding is brought against Landlord by reason of any of the foregoing matters, Tenant shall upon notice defend the same at Tenant's expense by counsel reasonably satisfactory to Landlord and Landlord shall reasonably cooperate with Tenant in such defense.  Landlord need not have first paid any such claim in order to be defended or indemnified.  This Section shall survive the expiration or sooner termination of this Lease.

 

10.6                  Waiver of Liability.  Landlord and Landlord’s agents and employees shall not be liable for, and Tenant waives all claims for, damage to property sustained by Tenant, employees, agents or contractors, or any other person claiming through Tenant, resulting from any accident in or upon the Premises or the Property of which they shall be a part, including, but not limited to, claims for damage resulting from:  (1) any equipment or appurtenances becoming out of repair; (2) Landlord’s failure to keep the Property or the Premises in repair; (3) injury done or occasioned by wind, water, or other act of God; (4) any defect in, or failure of, plumbing, heating, or air-condition equipment, electric wiring, or installation thereof, gas, water and steam pipes, stair, porches, railings, or walks; (5) broken glass; (6) the backing-up of any sewer pipe or downspout; (7) the bursting, leaking, or running of any tank, tub, sink, sprinkler system, water closet, water pipe, drain, or any other pipe or tank in, upon, or about the Property or Premises; (8) the escape of steam or hot water; (9) water, snow, or ice being upon, or coming through the roof, skylights, doors, stairs, walks, or any other place upon, or near such Property, or the Premises, or otherwise; (10) the falling of any fixtures, plaster, or stucco; (11) fire or other casualty; (12) any act, omission, or negligence of co-Tenants, or of other persons or occupants of the property, or of adjoining or contiguous buildings, or of adjacent or contiguous property.  Landlord shall not be liable to Tenant for any damage by or from any act or negligence of any co-tenant or other occupant of the Property or the Premises, or by any owner or occupant of adjoining or contiguous property.  Landlord shall not be liable for any injury or damage to person or property resulting in whole or in part from the criminal activities of others.  To the extent not covered by normal fire and extended coverage insurance, Tenant agrees to pay for all damage to the Property and the Premises.

 

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11.            Taxes.

 

11.1                  Definition.  As used herein, the term "Real Property Taxes" shall mean any form of tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage, business improvement or other improvement district thereof, levied against any legal or equitable interest of Landlord in the Premises or any portion thereof, Landlord's right to rent or other income therefrom, and/or Landlord's business of leasing the Premises.  The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring or changes in Applicable Requirements taking effect, during the Term of this Lease including, but not limited to, any change in ownership of the Premises or any improvements thereon, the execution of this Lease, or any modification, amendment or transfer of this Lease, or the construction or installation of any additions, alterations or improvements on or to the Premises, whether or not any of the foregoing are contemplated by the Parties.

 

11.2                  Real Property Taxes.

 

11.2.1                      Payment By Landlord.  Subject to Tenant's obligation to pay Landlord as set forth below, Landlord shall pay the Real Property Taxes applicable to the Premises during the Term of this Lease.  If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Tenant's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Landlord shall reimburse Tenant for any overpayment.

 

11.2.2                      Tenant's Payment.  Tenant shall pay Landlord the amount of all Real Property Taxes applicable to the Premises during the Term.  Landlord may, at Landlord's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Landlord by Tenant, either: (i) in a lump sum amount equal to the installment due, at least 20 days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Minimum Base Rent.  If Landlord elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent.  When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes.  If the amount collected by Landlord is insufficient to pay such Real Property Taxes when due, Tenant shall pay Landlord, upon demand, such additional sums as are necessary to pay such obligations.  All moneys paid to Landlord under this Section may be intermingled with other moneys of Landlord and shall not bear interest.  In the event of a default by Tenant in the performance of its obligations under this Lease, then any balance of funds paid to Landlord under the provisions of this Section may, at the option of Landlord, be treated as an additional Security Deposit.

 

11.3                  Joint Assessment.  If the Premises are not separately assessed, Tenant's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Landlord from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.

 

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11.4                  Personal Property Taxes.  Tenant shall pay, prior to delinquency, all taxes assessed against and levied upon Tenant's Alterations, trade fixtures, furnishings, equipment and all personal property of Tenant.  When possible, Tenant shall cause such property to be assessed and billed separately from the real property of Landlord.  If any of Tenant's said personal property shall be assessed with Landlord's real property, Tenant shall pay to Landlord the taxes attributable to Tenant's property within ten days after receipt of a written statement.

 

12.            Utilities.  Tenant shall pay, prior to delinquency, for all water, gas, heat, light, power, telephone, telecommunications, and other utilities and services supplied to the Premises, together with any taxes thereon and hook-up or connection fees associated therewith.  Without limiting the foregoing, all telecommunications services (voice, video and data) desired by Tenant shall be obtained at Tenant's sole cost and risk from providers authorized by Landlord and the appropriate governmental authorities to provide such services to the Premises.  If any utility services are not separately metered to Tenant, Tenant shall pay a reasonable proportion to be determined by Landlord, of all charges jointly metered.

 

13.            Damage or Destruction.

 

13.1                  General.  If the Premises are damaged by fire or other casualty, Landlord shall give Tenant notice of the certification of a competent architect, in good standing, as to the number of days from the occurrence of such casualty within which the Premises, with the exercise of reasonable diligence, can be made fit for occupancy (the "Repair Period"), and the election, if any, which Landlord has made according to this Section.  The architect shall be selected by Tenant subject to Landlord's approval, which approval shall not be unreasonably withheld.  Such notice will be given before the 60th day after such casualty, and the date of such notice shall be referred to herein as the "Notice Date."  If there is damage to the Premises as described in this Section, and if the Lease is not terminated as provided in this Section, then this Lease shall remain in full force and effect, and the parties waive any provisions of any law to the contrary.

 

13.2                  Minor Casualty.  If the Premises are damaged by fire or other insured casualty to the extent that the Repair Period does not exceed 180 days, Landlord will diligently pursue the repair of damage to the Premises (excluding Alterations).  In that event, this Lease shall continue in full force and effect, except that Minimum Base Rent shall be abated on a pro rata basis based on the portion of the Premises the use of which Tenant is deprived during the Repair Period.

 

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13.3                  Major Casualty; End of Term.  If (a) the Premises are damaged by fire or other insured casualty to the extent that the Repair Period exceeds 180 days, or (b) the Premises are damaged to any extent by any casualty and, on the Notice Date, the remainder of the Term is less than 24 months (and Tenant fails to exercise, within 15 days following the Notice Date, any remaining option to extend the Term), then Landlord may, at Landlord's option, diligently pursue the repair of damage to the Premises (excluding Alterations).  If Landlord elects to repair such damage during the Repair Period, Minimum Base Rent will be abated on a pro rata basis during the Repair Period, based on the portion of the Premises the use of which Tenant is deprived during the Repair Period.  If Landlord elects not to repair such damage during the Repair Period, this Lease shall terminate effective on the date of termination set forth in the notice, and Minimum Base Rent shall be abated on a pro rata basis based on the portion of the Premises the use of which Tenant is deprived during the period from the date of the casualty to the date of termination of the Lease.

 

13.4                  Limitation.  Notwithstanding any other provision of this Lease, if the proceeds of Landlord's insurance are insufficient to pay for the repair of any damage to the Premises, or if the casualty is of such a nature so as to not be insured under Landlord's insurance, then Landlord will have the option to repair such damage or cancel this Lease as of the date of such casualty by written notice to Tenant.  If a fire or other casualty is the result of the willful misconduct or negligence or failure to act of Tenant, its agents, contractors, employees or invitees, there will be no abatement of Minimum Base Rent as otherwise provided for in this Section 13.  Notwithstanding any provision of this Lease to the contrary, Landlord shall not be liable to Tenant for any damage or losses to the Tenant that are occasioned by the damage to or destruction of the Premises or by the repair or restoration of the Premises.

 

13.5                  Tenant's Repair.  If Landlord is obligated or elects to repair any damage to the Premises, Tenant shall promptly replace or fully repair all inventory, goods, exterior signs, trade fixtures, equipment, display cases and Tenant's Alterations.  Tenant shall continue the operation of its business in the Premises during the Repair Period to the extent reasonably practical from the standpoint of good business.

 

14.            Condemnation.  If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs.  Landlord may terminate this Lease as to the portion of the Premises not taken if Landlord determines, in its discretion, that the taking renders operation of the Premises uneconomical.  If more than ten percent (10%) of any portion of the Premises occupied by a building, or more than twenty-five percent (25%) of the land area portion of the Premises not occupied by a building, is taken by Condemnation, Tenant may, at Tenant's option, to be exercised in writing within ten days after the condemning authority shall have taken possession), terminate this Lease as of the date the condemning authority takes such possession.  If neither Landlord nor Tenant terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Minimum Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation.  Condemnation awards and/or payments shall be the property of Landlord, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages.  All Alterations made to the Premises by Tenant, for purposes of Condemnation only, shall be considered the property of Tenant and Tenant shall be entitled to any and all compensation which is payable therefor.

 

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15.            Assignment and Subletting.

 

15.1                  Landlord's Consent Required.

 

15.1.1                      Tenant shall not voluntarily or by operation of law assign, transfer, mortgage or encumber all or any part of Tenant's interest in this Lease, or sublet all or any part of the Premises, in each case without Landlord's prior written consent.  The consent of Landlord required hereunder shall not be unreasonably withheld; provided, however, that Landlord and Tenant agree that it shall not be unreasonable for Landlord to withhold its consent to any proposed assignment or subletting if Landlord and Tenant and/or the proposed subtenant or assignee are unable to agree on the terms of Landlord's consent or for any of the following reasons, which are not exclusive:

 

15.1.1.1                      The proposed assignee or subtenant is not a reputable party of sufficient financial net worth and financial stability or otherwise not creditworthy;

 

15.1.1.2                      The proposed assignee or subtenant is of a character or engaged in a business which is not in keeping with the Lease or the standards of Landlord for the Premises;

 

15.1.1.3                      The proposed assignee or subtenant has previously materially defaulted under a lease or been evicted or sued for damages by a prior landlord; or

 

15.1.1.4                      Tenant is in violation of any term or provision of this Lease at the time of the request for consent or on the proposed effective date of the assignment or sublease.

 

15.1.2                      A change in the control of Tenant, including the transfer, on a cumulative basis, of fifty percent (50%) or more of the voting control of Tenant shall constitute an assignment requiring consent.

 

15.1.3                      The involvement of Tenant or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Tenant's assets occurs, which results or will result in a reduction of the Net Worth of Tenant by an amount greater than twenty-five percent (25%) of the Net Worth of Tenant as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Landlord has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Landlord may withhold its consent.  "Net Worth of Tenant" shall mean the net worth of Tenant (excluding any guarantors) established under generally accepted accounting principles.

 

15.1.4                      An assignment or subletting without consent shall, at Landlord's option, be a default.  If Landlord elects to treat such unapproved assignment or subletting as a default, Tenant shall have no right to cure, notwithstanding Section 17.1.2 below, and Landlord may terminate this Lease.

 

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15.1.5                      Tenant's remedy for any violation of this Section 15.1 by Landlord shall be limited to injunctive relief.

 

15.2                  Terms and Conditions Applicable to Assignment and Subletting.

 

15.2.1                      Regardless of Landlord's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or subtenant of the obligations of Tenant under this Lease, (ii) release Tenant of any obligations hereunder or any guarantor of any obligations under the Guaranty, or (iii) alter the primary liability of Tenant for the payment of Rent or for the performance of any other obligations to be performed by Tenant.

 

15.2.2                      Landlord may accept Rent or performance of Tenant's obligations from any person other than Tenant pending approval or disapproval of an assignment.  Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Landlord's right to exercise its remedies for Tenant's violation of any term or provision of this Lease.

 

15.2.3                      Landlord's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.

 

15.2.4                      Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Landlord's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or subtenant ("Request").  Tenant agrees to provide Landlord with such other or additional information and/or documentation as may be reasonably requested.

 

15.2.5                      Any assignee of, or subtenant under this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Tenant during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Landlord has specifically consented to in writing.

 

15.3                  Excess Consideration.  Any Rent or other consideration Tenant realizes as a result of any assignment or sublease in excess of the Rent payable by Tenant to Landlord hereunder (prorated to reflect obligations allocable to any portion of the Premises subleased), after amortization of the reasonable cost of any tenant improvements made to prepare the Premises for occupancy by the transferee for which Tenant has paid, shall belong and be payable to Landlord.

 

16.            Surrender.

 

16.1                  No Right to Holdover.  Tenant has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease.  If Tenant remains in possession of the Premises or any part thereof after the expiration or termination of this Lease, such occupancy shall be a tenancy-at-sufferance, at a Minimum Base Rent equal to 150% of the Minimum Base Rent applicable during the month immediately preceding the expiration or termination, together with all other sums comprising Rent hereunder, and otherwise subject to all the provisions of this Lease.  Any options granted under the terms of this Lease shall be of no further force or effect during said tenancy-at-sufferance.  Nothing contained herein shall be construed as consent by Landlord to any holding over by Tenant or as a limitation of Landlord's rights and remedies should Tenant hold over.

 

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16.2                  Restoration.  Tenant shall surrender the Premises by the Expiration Date or any earlier termination date, clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted.  Ordinary wear and tear shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Tenant performing all of its obligations under this Lease.  Unless Landlord requires removal, and except as otherwise agreed or specified herein, the Premises, as surrendered, shall include any Alterations; provided, however, that Tenant shall restore the terrace area and all exterior portions of the Premises (including removal of any fences or walls) to the same condition and configuration as existed on the Effective Date of this Lease.  The obligation of Tenant shall include the repair of any damage occasioned by the installation, maintenance or removal of Tenant's property, furnishings, equipment, and Alterations and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Tenant, all as may then be required by the Applicable Requirements and/or good practice.  Tenant shall pay Landlord all expenses incurred in connection with such items including, but not limited to, the costs of repairing any damage to the Premises caused by removal of such items.  Notwithstanding the foregoing, and, except where expressly provided in the Lease, all Alterations, including, but not limited to, all fixtures and anything that by its nature is intended to be connected or affixed to the Premises, shall not be removed by the Tenant and must remain on the Premises.  Tenant's obligation hereunder shall survive the expiration or sooner termination of the Lease.

 

16.3                  Removal of Tenant's Property.  Subject to the terms of any security interest of Landlord, within 15 days following the expiration or termination of this Lease or repossession of the Premises by Landlord without termination, whichever first occurs, by way of default or otherwise, Tenant shall remove all goods, merchandise, equipment (except to the extent such equipment constitutes fixtures), furniture and other materials, supplies and tangible personal property of every nature belonging to Tenant presently or which may hereafter be situated on the Premises (collectively "Tenant's Property").  Tenant shall remove any Alterations (including, without limitation, equipment which constitute fixtures or other Tenant improvements) only if and to the extent required by Landlord by notice to Tenant pursuant to Section 8.2, above.  Any and all Tenant's Property not removed within such 15-day period shall irrevocably become the sole property of Landlord.  Tenant waives all rights to notice and all common law and statutory claims and causes of action which it may have against Landlord subsequent to said 15-day period as regards the storage, destruction, damage and loss of use and ownership of the Tenant's Property affected by the terms of this Section.  Tenant acknowledges Landlord's need to relet the Premises upon termination of this Lease or repossession of the Premises, and understands that the forfeitures and waivers provided herein are necessary to facilitate such reletting.  Nothing in this Section shall constitute the assumption or waiver by Landlord of any obligation of Tenant with respect to such Tenant's Property.  Tenant shall indemnify Landlord and hold Landlord entirely harmless from any cost, expense, claim, liability or obligation with respect to Tenant's Property, including without limitation any cost of removal, disposal, restoration of the Premises or otherwise.  Notwithstanding anything to the contrary in this Section, Landlord shall have the absolute right to disclaim any interest in any or all of such Tenant's Property, in which case Landlord shall not be deemed to have ever been in title to such Tenant's Property.

 

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17.            Default; Remedies.

 

17.1                  Default by Tenant.  Each of the following shall constitute an "Event of Default" by Tenant under this Lease:

 

17.1.1                      If Tenant fails to pay when due any Rent or amounts payable by Tenant under the terms of this Lease.

 

17.1.2                      If Tenant violates or fails to comply with any provision of this Lease applicable to Tenant, and such violation or failure continues for a period of ten (10) days after written notice thereof by Landlord to Tenant, or, if such violation or failure to comply cannot be reasonably cured within such 10-day period, if Tenant shall not in good faith commence to cure such violation or failure to comply within such 10-day period or shall not diligently complete such cure within 30 days after such notice from Landlord.  The previous sentence notwithstanding, if such violation or failure to comply causes or results in (i) a dangerous condition on the Premises or (ii) any insurance coverage carried by Landlord or Tenant with respect to the Premises being jeopardized, then an Event of Default shall exist if such violation or failure to comply is not cured as soon as reasonably possible after notice thereof by Landlord to Tenant, and in any event is not cured within ten days after such notice.  For purposes of this subsection 17.1.2, financial inability shall not be grounds for failure to immediately cure any violation of, or failure to comply with, the provisions of this Lease.

 

17.1.3                      If Tenant shall fail to occupy and use the Premises within 15 days after the Expiration Date or shall leave the Premises unoccupied for 15 consecutive days or shall vacate and abandon the Premises.

 

17.1.4                      If Tenant's interest under this Lease or in the Premises shall be transferred to or pass to or devolve upon any other party in violation of this Lease; or if Tenant records this Lease or any memorandum thereof.

 

17.1.5                      If Tenant's interest under this Lease or in the Premises shall be taken upon execution or by other process of law directed against Tenant, or shall be subject to any attachment at the instance of any creditor or claimant against Tenant and said attachment shall not be discharged or disposed of within 15 days after the levy thereof.

 

17.1.6                      If Tenant shall file a petition in bankruptcy or insolvency or for reorganization or arrangement under the bankruptcy laws of the United States or under any similar act of any state, or shall voluntarily take advantage of any such law or act by answer or otherwise, or shall be dissolved or shall make an assignment for the benefit of creditors or if involuntary proceedings under any such bankruptcy or insolvency law or for the dissolution of Tenant shall be instituted against Tenant or a receiver or trustee shall be appointed for the Premises or for all or substantially all of the property of Tenant, and such proceedings shall not be dismissed or such receivership or trusteeship vacated within 60 days after such institution or appointment.

 

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17.2                  Landlord's Remedies.  Upon the occurrence of any Event of Default, Landlord shall have the right, at Landlord's election, then or at any time thereafter, to exercise any one or more of the following remedies to the fullest extent allowed by applicable law:

 

17.2.1                      Landlord may, without releasing Tenant from any obligations under this Lease, make any payment or take any action as Landlord may deem necessary or desirable to cure any such Event of Default in such manner and to such extent as Landlord may deem necessary or desirable, and Landlord may do so without demand on, or written notice to, Tenant and without giving Tenant an opportunity to cure such Event of Default.  Tenant covenants and agrees to pay to Landlord, within ten days after demand, all advances, costs and expenses of Landlord in connection with the making of any such payment or the taking of any such action, including reasonable attorney's fees, together with interest at the rate described in Section 17.4, from the date of payment of any such advances, costs and expenses by Landlord.

 

17.2.2                      Landlord may terminate this Lease, effective at such time as may be specified by written notice to Tenant, and demand (and, if such demand is refused, recover) possession of the Premises from Tenant.  Tenant shall remain liable to Landlord for damages in an amount equal to the Rent and sums which would have been owing by Tenant hereunder for the balance of the Term had this Lease not been terminated, less the net proceeds, if any, of any reletting of the Premises by Landlord subsequent to such termination, after deducting all Landlord's expenses in connection with such recovery of possession or reletting.  Landlord shall be entitled to collect and receive such damages from Tenant on the days on which the Rent and amounts would have been payable if this Lease had not been terminated.  Alternatively, at the option of Landlord, Landlord shall be entitled to recover forthwith from Tenant, as damages for loss of the bargain and not as a penalty, an aggregate sum which, at the time of such termination of this Lease, represents the present value of the excess, if any, of (i) the aggregate of the Rent and other sums payable by Tenant hereunder that would have accrued for the balance of the Term over (ii) the amount, if any, of such Rent and other sums which Tenant establishes Landlord can reasonably expect to recover by reletting the Premises for the remainder of the Term, taking into consideration loss of Rent while finding a new tenant, tenant improvements and rent abatements necessary to secure a new tenant, leasing brokers' commissions and other costs which Landlord might incur in leasing the Premises to a new tenant plus any other sum of money and damages owed by Tenant to Landlord for events or actions occurring prior to the date of termination.  Such present value shall be calculated at the rate commonly called the discount rate for 90-day commercial paper in effect at the Federal Reserve Bank of Kansas City, Missouri on the date of termination of this Lease.

 

17.2.3                      Landlord may reenter and take possession of the Premises or any part thereof, without demand or Notice, and repossess the same and expel Tenant and any party claiming by, under or through Tenant, and remove the effects of both using such force for such purposes as may be necessary, without being liable for prosecution on account thereof or being deemed guilty of any manner of trespass, and without prejudice to any remedies for arrears of Rent or right to bring any proceeding for breach of covenants or conditions.  No such reentry or taking possession of the Premises by Landlord shall be construed as an election by Landlord to terminate this Lease unless a written notice of such intention is given to Tenant.  No notice from Landlord hereunder or under a forcible entry and detainer statute or similar law shall constitute an election by Landlord to terminate this Lease unless such notice specifically so states.  Landlord reserves the right, following any reentry or reletting, to exercise its right to terminate this Lease by giving Tenant such written notice, in which event this Lease will terminate as specified in such Notice.  After recovering possession of the Premises, Landlord may, from time to time, but shall not be obligated to, relet the Premises, or any part thereof, for the account of Tenant, for such term or terms and on such conditions and upon such other terms as Landlord, in its discretion, may determine.  Landlord may make such repairs, alterations or improvements as Landlord may consider appropriate to accomplish such reletting, and Tenant shall reimburse Landlord upon demand for all costs and expenses, including attorneys' fees, which Landlord may incur in connection with such reletting.  Landlord may collect and receive the rents for such reletting but Landlord shall in no way be responsible or liable for any failure to relet the Premises, or any part thereof, or for any failure to collect any rent due upon such reletting.  Notwithstanding Landlord's recovery of possession of the Premises, Tenant shall continue to pay on the dates herein specified the Rent and other amounts which would be payable hereunder if such repossession had not occurred, less a credit for the net amounts, if any, actually received by Landlord through any reletting of the Premises.

 

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17.2.4                      After repossession of the Premises, Landlord may procure the appointment of a receiver to take possession and collect rents and profits of the business of Tenant.  The receiver may carry on the business of Tenant and take possession of the personal property used in the business of Tenant, including inventory, trade fixtures, and furnishings, and use them in the business without compensating Tenant.  Proceedings for appointment of a receiver by Landlord, or the appointment of a receiver and the conduct of the business of Tenant by the receiver, shall not terminate this Lease, unless Landlord has given written notice of termination to Tenant.

 

17.2.5                      In the event that Landlord commences summary proceedings in the nature of a forcible entry and detainer or unlawful detention for non-payment Rent or for Tenant's failure to perform its other obligations hereunder, Tenant shall not file a counterclaim against Landlord in the summary proceedings, nor shall Tenant consolidate claims against Landlord in said proceedings; however, Tenant does not waive its right hereunder to bring any later action against Landlord for damages.  If Tenant should contest such summary proceedings, it shall post a bond in favor of Landlord for the amount of Rent due and for future damages upon termination of this Lease.  LANDLORD AND TENANT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN THE EVENT OF ANY PROCEEDINGS.

 

17.2.6                      Nothing contained in this Lease shall limit or prejudice the right of Landlord to prove and obtain as liquidated damages in any bankruptcy, insolvency, receivership, reorganization or dissolution proceeding an amount equal to the maximum allowable by any statute or rule or law governing such proceeding in effect at the time when such damages are to be proved, whether or not such amounts be greater, equal or less than the amounts recoverable, either as damages or Rent, under this Lease.

 

17.2.7                      No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.

 

17.2.8                      Upon any Event of Default, Landlord may proceed directly against Tenant or any other party guaranteeing or responsible for the performance or Tenant's obligations under this Lease, including any assignee or subtenant, without first exhausting Landlord's remedies against any other person or entity responsible therefor to Landlord, or any security held by Landlord.

 

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17.3                  Expenses of Enforcement. If any Party brings an action or proceeding involving the Premises to enforce the Terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees.  Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment.  The term, "Prevailing Party" shall include, without limitation, a Party who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party of its claim or defense.  The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred.  In addition, Landlord shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such default.

 

17.4                  Late Payment.  Tenant covenants and agrees to pay to Landlord a late payment fee for any installment of Minimum Base Rent, Percentage Rent or Additional Rent that Tenant fails to pay when due in an amount equal to the greater of $500.00 or 5% of such installment; provided that no such late payment shall be due in the event payment of such installment of Minimum Base Rent, Percentage Rent or Additional Rent is made by Tenant within three days after such payment is due.  In addition, all Rent and other payments due hereunder, upon becoming due under this Lease and remaining unpaid when due, shall bear interest until paid at the rate of 18% per annum, compounded monthly.

 

17.5                  Default by Landlord.  Except as expressly provided elsewhere in this Agreement, in the event of any default by Landlord, Tenant's exclusive remedy shall be an action for damages, Tenant hereby waiving the benefit of any laws granting it a lien on the personal property of Landlord and/or upon rent due Landlord, but prior to any such action Tenant will give Landlord written notice specifying such default with particularity, and Landlord shall thereupon have 30 days in which to cure any such default and in the event said default cannot reasonably be cured within said 30-day period, Landlord shall not be in default hereunder so long as Landlord commences such cure within said 30-day period and diligently pursues said cure.  Unless and until Landlord fails to so cure any default after such notice, Tenant shall not have any remedy or cause of action by reason thereof.  Tenant may, at its election, cure such default after expiration of said 30-day period and Landlord shall pay the reasonable costs thereof within ten business days of receipt of Tenant's demand and invoices, but Tenant shall have no right to offset rent for any such amount.

 

17.6                  Limitation of Landlord's Liability.  Landlord shall not be liable for harm, injury (including illness and emotional distress), death or damage to the person or goods, wares, merchandise or other property of Tenant, Tenant's employees, contractors, invitees, customers, or any other person in or about the Premises, or to Tenant or its business, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects or pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any variation or interruption of utility (including telecommunications) services, or from any other cause, whether such injury or damage results from Landlord's negligence or conditions arising upon the Premises or from any other sources or places.  Notwithstanding Landlord's negligence or breach of this Lease, Landlord shall under no circumstances be liable for injury to Tenant's business or for any loss of income or profit therefrom or for any other consequential damages suffered by Tenant.  This Section shall survive the expiration or sooner termination of this Lease.

 

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17.7                  Definition of Landlord.  The term "Landlord" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises.  In the event of a transfer of Landlord's title or interest in the Premises or this Lease, Landlord shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit and any prorated portion of the Rent paid in advance held by Landlord.  Upon such transfer or assignment and delivery of such amount, the prior Landlord shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Landlord.  Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Landlord shall be binding only upon the Landlord as hereinabove defined for the duration of such Landlord's ownership of the Premises.  The obligations of Landlord under this Lease shall not constitute personal obligations of Landlord, the individual members, managers, or partners of Landlord or its or their individual members, managers, partners, directors, officers or shareholders, and Tenant shall look to the Premises, and to no other assets of Landlord, for the satisfaction of any liability of Landlord with respect to this Lease, and shall not seek recourse against the individual members, managers, or partners of Landlord, or its or their individual members, managers, partners, directors, officers, employees, agents, or shareholders, or any of their personal assets for such satisfaction.

 

18.            Notices.

 

18.1                  Notice Requirements.  All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier such as FedEx, DHL, UPS, or Airborne) or may be sent by regular, certified or registered mail or U.S.  Postal Service Express Mail, with postage prepaid, or by facsimile or electronic mail transmission, and shall be deemed sufficiently given if served in a manner specified in this Section.  The addresses set forth in Section 1 shall be that Party's address for delivery or mailing of notices.  Either Party may by written notice to the other specify a different address for notice, except that upon Tenant's taking possession of the Premises, the Premises shall constitute Tenant's address for notice.  A copy of all notices to Landlord shall be concurrently transmitted to such party or parties at such addresses as Landlord may from time to time hereafter designate in writing.

 

18.2                  Date of Notice.  Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon.  Notices sent by regular mail shall be deemed given five days after the same is addressed as required herein and mailed with postage prepaid.  Notices delivered by United States Express Mail or a nationally recognized overnight courier (including FedEx, DHL, UPS and Airborne) that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or such courier.  Notices transmitted by facsimile transmission, electronic mail or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail.  If notice is received on a non-business day, it shall be deemed received on the next business day.

 

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19.            Estoppel Certificates.  Tenant shall at any time upon not less than ten (10) business days' prior written notice from Landlord execute, acknowledge and deliver to the Landlord a statement in writing with a copy of this Lease, including all amendments, modifications or supplements thereto, certifying (i) that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), (ii) the date through which the Rent and other charges have been paid, including the amount of Rent, expenses or charges paid in advance, if any, (iii) the last day of the Term, (iv) acknowledging that there are not, to Tenant's actual knowledge without inquiry, any uncured defaults on the part of Landlord, or claims against Landlord under the Lease, or, if there are any, specifying such defaults or claims, (v) that to Tenant's actual knowledge without inquiry no event has occurred which, following notice or the passage of time or both, will result in a default by Landlord, or if there is any, stating the event and anticipated default and (vi) such other matters as may be reasonably requested by Landlord (and the standard form of any Lender shall be presumed, which presumption shall be rebuttable, to be reasonable).  Any such statement shall be in form satisfactory to Landlord and may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises or any part of it or of the business of Landlord.  If Tenant shall fail to execute or deliver the Estoppel Certificate within such ten day period, Landlord may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by Landlord, (ii) there are no uncured defaults in Landlord's performance, and (iii) not more than one (1) month's rent has been paid in advance.  Prospective purchasers and encumbrancers may rely upon Landlord's Estoppel Certificate, and Tenant shall be estopped from denying the truth of the facts contained in said Certificate.

 

20.            Financial Statements.  Tenant shall provide Landlord with copies of its most current financial statements promptly after request by Landlord but not more than once annually.  Also, if Landlord desires to finance, refinance, or sell the Premises, or any part thereof, Tenant shall deliver to any potential lender or purchaser designated by Landlord such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Tenant's financial statements for the past three years.  All such financial statements shall be received by Landlord and such lender or purchaser in confidence and shall be used only for the purposes of assessing the Tenant's ability to perform its obligations under this Lease.

 

21.            Subordination; Attornment; Non-Disturbance.

 

21.1                  Subordination.  This Lease and any option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof.  Tenant agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Landlord under this Lease.  Any Lender may elect to have this Lease and/or any option granted hereby superior to the lien of its Security Device by giving written notice thereof to Tenant, whereupon this Lease and such options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.

 

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21.2                  Attornment.  Subject to the non-disturbance provisions of Section 21.3, Tenant agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior Landlord or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Tenant might have against any prior Landlord, or (iii) be bound by prepayment of more than one (1) month's rent.

 

21.3                  Non-Disturbance.  With respect to Security Devices entered into by Landlord after the execution of this Lease, Tenant's subordination of this Lease shall be subject to receiving a non-disturbance agreement from the Lender which provides that Tenant's possession of the Premises will not be disturbed so long as Tenant is not in Default under this Lease and attorns to the record owner of the Premises.

 

21.4                  Self-Executing.  The agreements contained in this Section shall be effective without the execution of any further documents; provided, however, that, upon written request from Landlord or a Lender in connection with a sale, financing or refinancing of the Premises, Tenant shall execute such further writings as may be reasonably required to separately document any subordination and/or attornment provided for herein.

 

22.            Waivers.  No waiver by Landlord of the violation of any term, covenant or condition hereof by Tenant, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent violation by Tenant of the same or of any other term, covenant or condition hereof.  Landlord's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Landlord's consent to, or approval of, any subsequent or similar act by Tenant, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent.  The acceptance of Rent by Landlord shall not be a waiver of any such violation or any Event of Default by Tenant.  Any payment by Tenant may be accepted by Landlord on account of moneys or damages due Landlord, notwithstanding any qualifying statements or conditions made by Tenant in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Landlord at or before the time of deposit of such payment.

 

23.            Accord and Satisfaction.  No payment by Tenant, nor receipt by Landlord, of a lesser amount than the Rent herein stipulated shall be deemed to be other than on an account of the earliest stipulated Rent, nor shall any endorsement or statement on any check or any letter accompanying any check or payment as Rent be deemed an accord and satisfaction, and Landlord shall accept such check for payment without prejudice to Landlord's right to recover the balance of such Rent or pursue any other remedy available to Landlord.  Tenant expressly waives any right it may have to claim that any payment due from Tenant to Landlord hereunder, which payment is less than the full amount due to the Landlord or claimed by Landlord, shall be deemed an accord and satisfaction.  This waiver of Tenant's right to claim an accord and satisfaction shall be without regard to whether or not a dispute exists with regard to the amount claimed by Landlord.  No payment by Tenant, nor receipt by Landlord, of a lesser amount than the full amount due pursuant to this Lease shall be deemed to be other than on an account of Tenant toward the amount claimed by Landlord, nor shall any letter or statement accompanying any such payment be deemed an accord and satisfaction, and Tenant hereby waives its right to so claim.

 

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24.            Force Majeure.  Whenever a period of time is provided in this Lease for either party to do or perform any act or thing, except for the payment of monies by Tenant, there shall be excluded from the computation of such period of time any delays due to strikes, riots, acts of God, shortages of labor or any cause or causes, whether or not similar to those enumerated, beyond the parties' reasonable control or the reasonable control of their agents, servants, employees and any contractor engaged by them to perform work in connection with this Lease.

25.            No Recording.  Tenant shall under no circumstances record this Lease or any memorandum of this Lease.

 

26.            Severability.  The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

 

27.            Days.  Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days, and "business days" shall mean all days except for Saturdays, Sundays, and legal holidays of the federal government or State of Colorado.

 

28.            Time of Essence.  Time is of the essence with respect to the performance of all obligations to be performed under this Lease.

 

29.            No Prior or Other Agreements.  This Lease contains the entire agreement between the Parties with respect to any matter mentioned herein, and supersedes all other prior or contemporaneous agreements, arrangements or understandings concerning the subject matter hereof.

 

30.            Covenants and Conditions; Covenant Dependency; Construction of Agreement.  All provisions of this Lease to be observed or performed by Tenant are both covenants and conditions.  All provisions of this Lease to be performed by Landlord are covenants and not conditions.  The obligation of Tenant to pay Rent hereunder is independent of each and every other covenant, duty or obligation of Landlord herein, and is not subject to deduction or offset.  In construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease.  Whenever required by the context, the singular shall include the plural and vice versa.  This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it.

 

31.            Binding Effect/Choice of Law.  This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the state in which the Premises are located.  Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.

 

32.            Termination; Merger.  Unless specifically stated otherwise in writing by Landlord, the voluntary or other surrender of this Lease by Tenant, the mutual termination or cancellation hereof, or a termination hereof by Landlord for violation of any term or provision hereof by Tenant, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Landlord may elect to continue any one or all existing subtenancies.  Landlord's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Landlord's election to have such event constitute the termination of such interest.

 

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33.            Amendments.  This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification.  As long as they do not materially change Tenant's obligations hereunder, Tenant agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.

 

34.            Provisions Negotiated and Independent Attorney Disclaimer.  Each and every provision of this Lease has been independently, separately, and freely negotiated by the parties as if this Lease were drafted by both Landlord and Tenant.  The parties, therefore, waive any statutory or common law presumption which would serve to have this document construed in favor of, or against, either party. Neither Landlord nor any affiliate thereof is authorized to give legal or tax advice; no representation or recommendation is made by Landlord or its agents, employees or affiliates as to the legal sufficiency, legal effect or tax consequences of this document or any transaction relating thereto, since these are matters which should be discussed with an attorney.  Landlord assumes no duty or obligation to advise as to these matters.

 

35.            Authority.  If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf.  Each party shall, within thirty (30) days after request, deliver to the other party satisfactory evidence of such authority.

 

36.            Multiple Parties.  If more than one person or entity is named herein as either Landlord or Tenant, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.

 

37.            Relationship of Parties.  Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or a partnership or a joint venture between the parties hereto, it being agreed that neither the method of computation of Rent nor any other provision of this Lease shall be deemed to create any relationship between the parties hereto other than the relationship of Landlord and Tenant.

 

38.            Brokers.  Tenant and Landlord each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers) in connection with this Lease that is entitled to any commission or finder's fee in connection herewith.  Tenant and Landlord do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.  This Section shall survive the expiration or sooner termination of this Lease.

 

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39.            Offer.  Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party.  This Lease is not intended to be binding until executed and delivered by all Parties hereto.

 

The parties hereto have executed this Lease as of the Effective Date.

LANDLORD:

Stradivarius Highlands, LLC,
a Colorado limited liability company

By:  Stephen Owen

Stephen L. Owen, Manager

TENANT:

Bourbon Brothers Holding Company, LLC

a Colorado limited liability company

By:  Mitchell Roth

Mitchell Roth, President

 

 

 

 

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EXHIBIT A

PREMISES DESCRIPTION

Lot 3,
Parkway Subdivision, Filing No. 2-4^th Amendment,
County of Douglas,
State of Colorado.

 

 

 

 

 

 

 

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EXHIBIT B

GUARANTY

[intentionally omitted]

 

 

 

 

 

 

 

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EXHIBIT C

EXTENSION OPTIONS ADDENDUM

1.    General.  Except as the context otherwise requires and unless otherwise expressly provided in this Addendum, the capitalized terms in this Addendum to the Lease have the same meanings as similarly capitalized terms in the Lease.

 

2.    Extension Options.

 

a.            First Extension Option.  Provided that there is no outstanding Event of Default when (i) the Tenant gives the Landlord written notice of its intention to exercise its rights under this Section 2(a), or (ii) the Initial Term expires, the Tenant shall have the option to extend the Initial Term (the "First Extension Option") for a period of sixty (60) months commencing upon the expiration of the Initial Term (such extension is referred to as the "First Option Term").  The Tenant shall exercise the First Extension Option by giving the Landlord written notice to that effect at least 180 days prior to the expiration of the Initial Term.   If the Tenant does not give to the Landlord written notice of the exercise of the First Extension Option at least 180 days prior to the expiration of the Initial Term, then both the First Extension Option and the Second Extension Option (defined below) shall terminate and be of no further force and effect.  If the Tenant exercises the First Extension Option as provided in this Section 2(a), the respective rights, duties and obligations of the Landlord and the Tenant during the First Option Term shall be governed by the terms and conditions of the Lease, except that the Minimum Base Rent shall be as set forth below, there shall be no abatement of rent, and Tenant shall thereafter only have the Second Extension Option.

 

b.            Second Extension Option.  Provided that Tenant properly exercised the First Extension Option, and provided further that there is no outstanding Event of Default when (i) the Tenant gives the Landlord written notice of its intention to exercise its rights under this Section 2(b), or (ii) the First Option Term expires, the Tenant shall have the option to extend the Initial Term (the "Second Extension Option") for another  period of sixty (60) months commencing upon the expiration of the First Option Term (such extension is referred to as the "Second Option Term"). The Tenant shall exercise the Second Extension Option by giving the Landlord written notice to that effect at least 180 days prior to the expiration of the First Option Term.   If the Tenant does not give to the Landlord written notice of the exercise of the Second Extension Option at least 180 days prior to the expiration of the First Option Term, then the Second Extension Option shall terminate and be of no further force and effect. If the Tenant exercises the Second Extension Option as provided in this Section 2(b), the respective rights, duties and obligations of the Landlord and the Tenant during the Second Option Term shall be governed by the terms and conditions of the Lease, except that the Minimum Base Rent shall be as set forth below, there shall be no abatement of rent, and Tenant shall have no further right to extend or renew the Term of the Lease.

 

c.            Extension Options; Option Terms.  The First Option Extension and the Second Option Extension are sometimes referred to collectively as the "Extension Options" or individually as an "Extension Option."  The First Option Term and the Second Option Term are sometimes collectively referred to as the "Option Terms" or each as an "Option Term."

 

 

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3.            Minimum Base Rent for the First Option Term.  If the Tenant exercises an Extension Option as provided in Section 2(a) or 2(b), above, the Minimum Base Rent for the  Option Terms shall be as follows:

Months During First Option Term		Rent Per Sq. Ft.				Monthly Installments Of Minimum Base Rent
1 through 12 (Lease Year 1)		$	24.13			$	11,085.72
13 through 24 (Lease Year 2)		$	24.13			$	11,085.72
25 through 36 (Lease Year 3)		$	24.13			$	11,085.72
37 through 48 (Lease Year 4)		$	24.13			$	11,085.72
49 through 60 (Lease Year 5)		$	24.13			$	11,085.72

Months During Second Option Term		Rent Per Sq. Ft.				Monthly Installments Of Minimum Base Rent
1 through 12 (Lease Year 1)		$	27.15			$	12,473.16
13 through 24 (Lease Year 2)		$	27.15			$	12,473.16
25 through 36 (Lease Year 3)		$	27.15			$	12,473.16
37 through 48 (Lease Year 4)		$	27.15			$	12,473.16
49 through 60 (Lease Year 5)		$	27.15			$	12,473.16

4.            Additional Rent for Option Terms.  Additional Rent (including increases thereof from amounts payable during the last Lease Year of the Initial Term) shall be payable by the Tenant to the Landlord for each Option Term as provided in the Lease.

5.            Percentage Rent for Option Terms.  Percentage Rent shall be payable by the Tenant to the Landlord for each Option Term as provided in the Lease.

6.            Extension Options Personal.  The two (2) Extension Options are each personal to the Tenant and may be exercised only by the Tenant while occupying the Premises and may not be assigned, voluntarily or involuntarily, to any person, whether in connection with or separate from the Lease.

 

 

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EXHIBIT D

WORK LETTER

This Work Letter is attached to and made part of that certain Lease by and between Stradivarius Highlands LLC, as Landlord, and Bourbon Brothers Holding Company, LLC, as Tenant (the "Lease").  Terms used in this Exhibit (including Exhibit 1 hereto) shall have the same meanings as set forth in the Lease.  All work that is necessary for Tenant to commence its business in the Premises, including installation of trade fixtures and furnishings ("Tenant's Work"), shall be installed by Tenant, at Tenant's sole cost and expense.  Plans and specifications for such Tenant's Work (the "Plans") shall be subject to Landlord's prior written approval.  Any Tenant's Work, whether installed upon Tenant's initial opening for business or upon Tenant's alterations or additions to the Premises pursuant to Section 8 of the Lease shall be completed by Tenant in strict accordance with Exhibit 1 to this Work Letter.  Tenant guarantees that the Contractor will fully and promptly comply with its obligations as set forth in paragraphs (i) and (j) of Exhibit 1.

 

 

 

 

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EXHIBIT 1 TO WORK LETTER

Procedure and Schedules for

Completion of Tenant's Work

The contracts to be entered into by and between Tenant and Tenant's contractor (the "Contracts") in connection with the performance of Tenant's Work shall conform to and incorporate the following requirements.  In the event of any conflict between any terms or provisions of the Contracts and the terms and provisions set forth below, the terms and provisions set forth below shall control.

1.            Commencement of Construction.  Tenant shall promptly after the Possession Date submit its plans and specifications for Tenant's Work to Landlord for review and approval.  Following Landlord's approval of Tenant's final plans, no changes shall be permitted thereto without the consent of Landlord, such consent not to be unreasonably withheld as long as the same do not involve structural alterations, do not adversely impact the electrical, mechanical, life safety, HVAC, plumbing or other utility systems servicing the Premises and do not affect the exterior of the Premises.

2.            General Requirements.

a.            Tenant shall submit to Landlord, in writing, at least ten days prior to the proposed date for commencement of construction of any Tenant's Work, the following information:

(i)            The names and addresses of the general, mechanical and electrical contractors Tenant intends to engage for the construction of Tenant's Work and copies of the Contracts to be executed between Tenant and such contractors.  As used in this Work Letter, the term "Contractor" shall mean Tenant's general contractor or, if Tenant does not use a general contractor, all contractors with whom Tenant contracts directly for any part of Tenant's Work.  The term "Subcontractors" shall mean all entities contracting with the Contractor to complete any part of Tenant's Work.

(ii)            A schedule setting forth the proposed date for commencement of construction of Tenant's Work and the proposed date of completion of construction of Tenant's Work.

(iii)            An itemized statement of estimated construction costs, including architectural, engineering and contracting fees.

(iv)            Evidence of insurance as required herein.

b.            Tenant shall secure, pay for and maintain, or cause its Contractor to secure, pay for and maintain, during the continuance of construction or installation of any Tenant's Work upon the Premises, all of the insurance policies set forth below (in each case in form, content and amount satisfactory to Landlord):

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(i)            Commercial General Liability Insurance providing coverage for bodily injury and property damage, with a combined single coverage limit of not less than $1,000,000.00 and containing a Contractor's Protective Liability endorsement.  Said policy shall provide for explosion and collapse coverage, if applicable, and contractual liability coverage and shall insure Tenant and Landlord against any and all claims for personal injury (including death resulting therefrom) and damage to the property of others arising from Contractor's operations under the Contracts, whether performed by the Contractor and/or the Subcontractors.

(ii)            Tenant or Contractor shall provide Owner's Protective Liability Insurance insuring against any and all liability or claims for death or bodily injury (or death resulting therefrom), property damage, liability of others, or a combination thereof which may arise from the completion of Tenant's Work with a combined single coverage limit of not less than $1,000,000.00 and any other liability for damages against which the Contractor and/or Subcontractors are customarily required to insure.

(iii)            Tenant shall provide a complete Value Form "All Physical Loss" Builders' Risk coverage on Tenant's Work upon the Premises as it relates to the Premises, naming the interests of Landlord, the Contractor and all Subcontractors, as their respective interests may appear, within a radius of 100 feet of the Premises.

(iv)            Worker's Compensation Insurance (including Employees' Liability Insurance) in the statutory amount covering all employees of Contractor and Subcontractor employed or performing services on the Premises, in order to provide the statutory benefits required by the laws of the State of Colorado.

(v)            All insurance policies shall name Landlord as additional insured.  Certificates of Insurance shall provide that no change or cancellation of such insurance coverage shall be undertaken without 30 days' written Notice to Landlord.  Tenant shall not permit and the Contracts shall prohibit the Contractor from commencing any Tenant's Work until all required insurance has been obtained and certified copies of policies have been delivered to Landlord.

c.            The Contractor and any Subcontractors engaged by Tenant shall be licensed contractors capable of performing quality workmanship, and working harmoniously with other contractors on the Premises.

d.            The Contracts shall comply in all respects with applicable federal, state, county and/or local statutes, ordinances, regulations, laws and codes.  All required building and other permits in connection with the construction and completion of Tenant's Work shall be obtained and paid for by Tenant.

e.            The Contracts shall be in writing, and no Tenant's Work shall be done except pursuant to the Contracts.  The Contracts shall be subject to Landlord's prior written consent, which consent shall not be unreasonably withheld, and the Contracts shall not be further amended or modified without approval by Landlord.

f.            Tenant's Work shall be subject to the inspection and approval by Landlord and its engineer and/or architect.  Tenant warrants to Landlord that all work performed and material and equipment installed as part of Tenant's Work shall meet or exceed the standards of materials and workmanship (as judged by Landlord and its engineer) presently existing or contemplated at the Building.  Tenant further warrants to Landlord that all Tenant's Work shall comply with all Applicable Requirements, including, without limitation, the Americans with Disabilities Act.  Landlord shall have the right at any time during the performance of Tenant's Work or thereafter to require replacement and reconstruction, at Tenant's expense, of Tenant's Work not conforming to these standards or to the Contracts.

g.            The Contracts shall include a statement requiring the Contractor and all Subcontractors, laborers and materialmen to execute a lien waiver for any interim and final payments.  A copy of the executed waiver is to be immediately forwarded to Landlord.

h.            Prior to commencement of any Tenant's Work, Tenant shall obtain from Landlord the Landlord's Notice which provides that Landlord is not responsible for the payment for such work and setting forth such other information as Landlord may deem necessary.  Tenant shall post copies of the Notice on the main entry to the Premises and at other locations which will be visible by parties performing any work on the Premises.  Tenant shall provide Landlord with evidence of posting, including a photograph and a notarized statement confirming such posting.  Tenant and Contractor shall not remove, destroy, deface or otherwise modify the Notice.

i.            The Contracts shall contain provisions requiring that the Contractor shall indemnify, defend and hold harmless Landlord and its representatives, agents and employees from and against all claims, damages, losses and expenses, including, but not limited to, reasonable attorneys' fees arising out of or resulting from the performance of Tenant's Work and which are: (i) caused in whole or in part by any negligence or omission of Contractor, any Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, loss, damage or expense is caused in part by a party indemnified hereunder; or (ii) attributable to bodily injury, sickness, disease or death, or the destruction of tangible property, including loss or use resulting from any of the foregoing acts.  In any and all claims against Landlord or its representatives, agents or employees by an employee of Contractor, any Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, the indemnification obligation under this paragraph shall not be limited in any way by any limitation on the amount or type of damages, compensation or benefits payable by or for Contractor or any Subcontractor under the Worker's Compensation Act, disability benefit acts or other employee benefits acts.

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j.            The Contracts shall contain provisions requiring that, in the event a Subcontractor or materialman files a mechanic's lien as a result of performing any portion of the Tenant's Work pursuant to the Contracts, then, provided Contractor has been paid for such work, Contractor shall indemnify Tenant and Landlord from said lien and shall, when requested by Tenant and/or Landlord, furnish Tenant and Landlord (as Landlord or Tenant may specify) either: (i) a bond sufficient to discharge the lien; (ii) a cash escrow of a sum equal to 150% of the amount of such lien; or (iii) a title endorsement through Landlord's title insurance commitment or policy insuring against loss or damage resulting from such lien.   In the event that Contractor fails to provide a bond, cash escrow or title endorsement, or otherwise fails to fully satisfy and obtain the release of any lien or claim in accordance with the provisions hereof, Contractor shall be obligated to refund to Tenant or Landlord, as the case may be, all monies that the Tenant or Landlord have paid in discharging any such lien, including all costs and reasonable attorneys' fees incurred by Landlord or Tenant in settling, defending against, appealing or in any other manner involving any such lien.

k.            Tenant shall be responsible for all costs directly and indirectly related to Tenant's Work.  This also includes any fees for architecture, engineering and administration as incurred by Landlord in regard to the Premises.

 

 

 

 

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Exhibit 10.2

 

 

FIRST AMENDMENT

TO

LEASE AGREEMENT

THIS FIRST AMENDMENT TO LEASE AGREEMENT (this “Amendment”) is made and entered into this 17th day of September, 2014, among Stradivarius Highlands, LLC, a Colorado limited liability company (the “Landlord”), Bourbon Brothers Holding Company, LLC, a Colorado limited liability company whose address is 2 N. Cascade Ave., Ste. 1400, Colorado Springs, Co 80903 (“Original Tenant”), 53 Peaks Lone Tree, LLC, a Colorado limited liability company whose address is 2 N. Cascade Ave., Ste. 1400, Colorado Springs, Co 80903 (“Assignee”) and Bourbon Brothers Holding Corporation, a Colorado corporation whose address is 2 N. Cascade Ave., Ste. 1400, Colorado Springs, Co 80903 (“Guarantor”).

Recitals

A.	Landlord and Original Tenant are parties to that certain Lease Agreement dated July 9, 2014, pursuant to which Landlord agreed to lease to Original Tenant (which mistakenly used the name “Bourbon Brothers, LLC”) the premises located at 7431 Park Meadows Drive, Lone Tree, CO 80124.

B.

Section 1.16 of the Lease provides that the “Permitted Use” of the Lease is “solely as a restaurant, serving southern comfort food and BBQ.”  Original Tenant has requested that the Lease be amended to change the Permitted Use in accordance with this Amendment in order to facilitate the Assignment of the Lease to Assignee (as described in Recital C).

C.

Original Tenant desires to assign all of its interest in the Lease to Assignee in accordance with Section 15.1 of the Lease by execution of the Lease Assignment and Assumption attached hereto as Exhibit A (the “Assignment”), and Guarantor desires to issue to Landlord a guaranty in the form attached hereto as Exhibit B (the “Guaranty”) in order to induce Landlord to enter into this Amendment and consent to the Assignment.

D.	The parties desire to enter into this Amendment to change the Permitted Use, to correct Original Tenant’s name throughout the Lease, to document Landlord’s consent to the Assignment, and to obligate Guarantor to issue the Guaranty to Landlord.

Agreements

In consideration of the Recitals and the mutual promises and agreements of the parties, the parties hereto agree as follows:

1.	Capitalized Terms.  Any capitalized term used in this Amendment and not otherwise defined herein shall have the meaning ascribed to it in the Lease.

2.

Identity of Tenant.  The parties hereto acknowledge that the Tenant under the Lease was and is intended to be Bourbon Brothers Holding Company, LLC, and that the parties to the Lease made a mutual mistake in listing the Tenant as Bourbon Brothers, LLC.  Bourbon Brothers, LLC is not and never was the Tenant under the Lease.  The Lease is hereby corrected by deleting all references to the Tenant as Bourbon Brothers, LLC and replacing them with “Bourbon Brothers Holding Company, LLC,” such that the Original Tenant hereunder is properly identified as the Tenant throughout the Lease, as amended hereby.  Furthermore, Original Tenant and Landlord hereby ratify, confirm and approve such correction, and Original Tenant hereby adopts and assumes all Tenant liabilities and obligations under the Lease (regardless of when such liabilities and obligations accrued) and agrees to fully perform the same in all respects.

 

 

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3.

Assignment of Lease. Subject to Section 15.1 of the Lease, the Landlord hereby consents to the Assignment. Following the Assignment, Original Tenant shall have no rights under the Lease, but shall remain fully liable under the Lease and shall not be released from its obligations thereunder, and Assignee shall have all the rights and be fully liable for all obligations of Tenant under the Lease.  Neither Original Tenant nor Assignee shall further assign the Lease or otherwise transfer its interest to any person or entity except in strict accordance with the terms of the Lease, as amended.

4.	Permitted Use.  Section 1.16 of the Lease is hereby deleted in its entirety and replaced with the following:

5.	Guaranty.  In consideration of Landlord’s agreement to consent to the Assignment and to enter into this Amendment, Guarantor shall execute and deliver to Landlord the Guaranty immediately upon execution of this Amendment.

6.

Construction; No Further Amendments.  Each reference in the Lease to “this Lease,” “hereunder,” “hereof,” “herein,” or any other word or words of similar import shall mean and be a reference to the Lease as amended hereby.  Except as amended by this Amendment, the Lease shall remain in full force and effect in accordance with the respective terms and conditions thereof.

7.	Counterparts.  This Amendment may be executed in one or more counterparts, all of which taken together shall constitute one instrument.  A facsimile or other electronic copy of a signature on this Amendment shall be acceptable as and deemed to be an original signature.

 

 

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IN WITNESS WEHREOF, this Amendment is executed as of the day and year first written above.

LANDLORD:

Stradivarius Highlands, LLC,

a Colorado limited liability company

By: John Kelly Greene

Name: John Kelly Greene

Title: Manager

TENANT:

Bourbon Brothers Holding Company, LLC,

a Colorado limited liability company

By: Mitchell Roth

Name: Mitchell Roth

Title: President

ASSIGNEE:

53 Peaks Lone Tree, LLC,

a Colorado limited liability company

/s/ Shawn Owen

Shawn Owen, Manager

GUARANTOR:

Bourbon Brothers Holding Corporation,

a Colorado corporation

/s/ Mitchell Roth

Mitchell Roth, President

 

 

 

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Exhibit 10.3

 

 

GUARANTY OF LEASE

In order to induce STRADIVARIUS HIGHLANDS, LLC, a Colorado limited liability company (the “Landlord”), to enter into, execute, and deliver that certain First Amendment to Lease Agreement dated as of  September 17, 2014 (the “Amendment”) with BOURBON BROTHERS HOLDING COMPANY, LLC, a Colorado limited liability company (“Original Tenant”), 53 PEAKS LONE TREE, LLC, a Colorado limited liability company (“53 Peaks”), and BOURBON BROTHERS HOLDING CORPORATION, a Colorado corporation (the “Guarantor”), correcting and amending that certain Commercial Lease dated as of July 9, 2014 (collectively with the Amendment, the “Lease”) by and between Landlord and Original Tenant, Guarantor, whose mailing address is 2 N. Cascade Ave., Ste. 1400, Colorado Springs, CO 80903, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, makes this guaranty in favor of the Landlord and covenants and agrees as follows:

1.            The Lease. The Guarantor acknowledges that it has examined, approved, and is fully familiar with all of the terms, covenants, and conditions of the Lease. Except as the context otherwise requires and unless otherwise expressly provided in this Guaranty, the capitalized terms in this Guaranty have the same meanings as similarly capitalized terms defined in the Lease.  The Guarantor acknowledges that the Original Tenant assigned all of its interest in the Lease to 53 Peaks in accordance with the Amendment and that certain Lease Assignment and Assumption dated as of September 17, 2014 by and between Original Tenant and 53 Peaks (the “Assignment”).  All references to the “Tenant” in this Guaranty shall be references to 53 Peaks.

2.            Reliance. The Guarantor acknowledges that the Landlord would not enter into the Amendment with Original Tenant and 53 Peaks in the absence of this Guaranty.

3.            Consideration; Representations and Warranties. The Guarantor warrants and represents to the Landlord as follows:

(a)            As of the date hereof, the Guarantor is the sole member of Original Tenant and 53 Peaks;

(b)            The Guarantor is a publically traded company with EIN 80-0182193;

(c)            There is adequate consideration for the giving of this Guaranty and the Guarantor derives direct and indirect benefits from the Lease and the Assignment; and

(d)            The Guarantor is duly organized, validly existing, and in good standing and has all requisite power and authority to conduct business in the State of Colorado, and the individuals executing this Guaranty on behalf of the Guarantor warrant and represent that this Guaranty and their execution and delivery of this Guaranty have been duly authorized by the entity, all necessary action for the due execution and delivery of this Guaranty has been taken, and this Guaranty is the valid, legal, and binding obligation of the entity, enforceable in accordance with its terms.

Upon execution of this Guaranty, the Guarantor shall deliver to the Landlord such evidence of its existence, entity authority, and authorization of the signatories to this Guaranty as the Landlord reasonably may require.

4.            Guaranty. The Guarantor guarantees to the Landlord, from and after the date hereof, that:

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(a)            53 Peaks shall pay all Rent and all other amounts payable by Tenant under the Lease as and within the time periods provided in the Lease and perform all covenants, terms, and conditions of the Lease required of the Tenant under the Lease in the manner and within the time periods required under the Lease.

(b)            If any Event of Default occurs under the Lease, the Guarantor shall pay to the Landlord the Rent and all other amounts payable by Tenant under the Lease, any arrears thereof, and any and all damages and injuries that may be suffered by the Landlord as a result of such Event of Default, plus any and all expenses, including reasonable legal fees, incurred by the Landlord in enforcing its rights under the Lease and this Guaranty.

(c)            The Guarantor shall indemnify and save Landlord harmless from any loss, costs or damages arising out of any failure to pay all Rent and all other amounts payable by Tenant under the Lease, or the failure of Tenant to perform any of the terms, covenants, conditions and provisions of the Lease.

5.            No Discharge. This Guaranty is primary, absolute, and unconditional and shall not be deemed to be waived, released, discharged, mitigated, impaired, or affected in any respect by, and the Guarantor, without affecting its liability hereunder in any respect, consents to and waives notice of:

(a)            Modifications to the terms of the Lease, whether by operation of law or otherwise, including, without limitation, any increase or decrease in Rent, and all other amounts payable by Tenant under the Lease or any component thereof, any extension of the term thereof or any movement of the Tenant to other premises leased by Landlord.

(b)            Extension of time to pay any Rent or any other amounts payable by Tenant under the Lease or the release of the whole or any part of the obligation to pay such Rent or any other amounts payable by Tenant under the Lease.

(c)            Events of Default or other defaults by the Tenant under the Lease.

(d)            Disputes between the Landlord and the Tenant concerning the Lease and settlement or adjustment of any such disputes.

(e)            Acceptance or release of any security given by the Tenant in connection with the Lease.

(f)            Acceptance of promissory notes or any other form of obligation for the payment of Rent or any other amounts payable by Tenant under the Lease, which shall not be deemed to satisfy any obligation of the Tenant to the Landlord until paid.

(g)            Arrangement or settlement made in or out of court in the event of receivership, liquidation, dissolution, readjustment, bankruptcy, reorganization, arrangement, or assignment for the benefit of creditors of the Tenant.

 

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(h)            Release or discharge of the Tenant in any bankruptcy, reorganization, or insolvency proceedings.

(i)            The subsequent reorganization, merger or consolidation of the Tenant or any other change in the ownership composition, nature, personnel, or location of the Tenant.

(j)            Any subletting, assignment, mortgage, encumbrance or other transfer.

(k)            Waiver of or failure of the Landlord to enforce any term, covenant, or condition of the Lease or any right under the Lease.

(l)            Any other thing whatsoever, whether or not specified in this Guaranty, which may be done or waived by or between the Landlord and the Tenant.

6.            Obligations Covered. The obligations of the Guarantor under this Guaranty cover all obligations, including future obligations, of the Tenant to the Landlord under the Lease. Each obligation of the Guarantor hereunder shall mature at the same time as the obligation of the Tenant under the Lease. The obligations of the Guarantor under this Guaranty are independent of the obligation of the Tenant under the Lease. The Landlord may proceed directly against the Guarantor under this Guaranty without being required to proceed against the Tenant or any security given by the Tenant to the Landlord under the Lease or to exhaust any other rights or remedies it may have against the Tenant, and the obligations of the Guarantor under this Guaranty shall not be deemed to be waived, released, discharged, mitigated, impaired, or affected in any respect by reason of any action or proceeding taken against the Tenant or any security given by the Tenant to the Landlord under the Lease, including termination of the Lease and recovery of possession of the Premises. The Landlord shall not be required to include the Guarantor as a party in any such action or proceeding.

7.            Waivers. The Guarantor shall not be entitled to assert, and the Guarantor waives, any defense in law or equity that would not be available to the Tenant in an action against the Tenant by the Landlord. The Guarantor waives any defense arising out of any disability or other defense of the Tenant, including cessation, impairment, modification, or limitation, from any cause or liability of the Tenant or of any remedy for the enforcement of such liability.

8.            Guaranty Irrevocable. This Guaranty shall be irrevocable until the expiration or, subject to the provisions of Section 6 of this Guaranty, earlier termination of the Lease and the performance of the Tenant of all its obligations under the Lease, including any of the obligations that survive the expiration or earlier termination of the Lease. This Guaranty shall not be modified or terminated orally, but only by a writing expressly providing for such modification or termination and signed by the Landlord.

9.            Application of Proceeds. Any sums of money that the Landlord receives from or on behalf of the Tenant may be applied by the Landlord to reduce any obligation of the Tenant to the Landlord, as the Landlord, in its sole discretion, deems appropriate.

10.            Subordination of Indebtedness. The Guarantor agrees that any indebtedness of the Tenant to the Guarantor, whether now existing or hereafter created, shall be subordinated to any indebtedness of the Tenant to the Landlord.

 

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11.            Notices. Any notice, demand, or communication required to be given by one party to the other shall be in writing and addressed to the Landlord at its address set forth in the Lease or to the Guarantor at its address set forth above, as the case may be, or to such other address(es) and/or to such other parties as one party may from time to time reasonably designate in writing to the other party, and shall be (a) hand delivered, (b) deposited with the United States Postal Service, certified with return receipt requested, with postage fully prepaid thereon, or (c) delivered by an overnight courier service that confirms delivery. Either party may, by written notice similarly given, designate a different address for notice purposes. Notice shall be effective on receipt or refusal to receive, in the event of hand delivery; or upon receipt or refusal to receive (but in no event more than three (3) days after the date deposited), if deposited with the United States Postal Service; or upon receipt or refusal to receive, if delivered by overnight courier service.

12.            Waiver of Acceptance. The Guarantor waives notice of acceptance of this Guaranty.

13.            Severability. If any provision of this Guaranty or the application thereof to any particular circumstances is found to be invalid, the validity of the remaining provisions of this Guaranty or the application of such provision to other circumstances shall not be affected by such finding, and the provisions of this Lease shall otherwise be enforceable to the fullest extent permitted by law.

14.            Assignees of Tenant. The word “Tenant” as used in this Guaranty shall be deemed to and shall include any assignee to whom the Lease shall have been assigned with or without the Landlord’s consent and whether or not in accordance and in compliance with the provisions of the Lease.

15.            Binding Effect; Assignment. This Guaranty shall inure to the benefit of the Landlord and its heirs, personal representatives, successors, and assigns. This Guaranty shall be binding upon the Guarantor and its heirs, personal representatives, successors, and assigns.  This Guaranty will follow the Lease and, in the event the Lease is transferred, assigned or conveyed by Landlord, then this Guaranty will be deemed to have been transferred, assigned or conveyed by Landlord together therewith with respect to the obligations contained therein, and such party or parties may enforce this Guaranty in accordance with its terms as if such party or parties had been originally named Landlord hereunder.  The Guarantor may not assign this Guaranty without the prior written consent of Landlord, which consent may be withheld, conditioned or delayed in Landlord’s sole discretion.

16.            Waiver of Trial by Jury. The Guarantor waives trial by jury in any action or proceeding arising out of this Guaranty or the Lease or the relationship between the Landlord and the Guarantor.

17.            Governing Law, Jurisdiction and Venue.  This Agreement shall be governed by and construed in accordance with the laws of the State of Colorado applicable to contracts to be performed solely within such state.  The District Court of the City and County of Denver, State of Colorado, shall have exclusive jurisdiction, including in personam jurisdiction, and shall be the exclusive venue for any and all controversies and claims arising out of or relating to this Agreement.

 

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18.            Captions for Convenience. The headings and captions in this Guaranty are for convenience only and shall not be considered in interpreting the provisions of this Guaranty.

IN WITNESS WHEREOF, the Guarantor has duly executed this Guaranty of the Lease as of September 17, 2014.

BOURBON BROTHERS HOLDING CORPORATION, a Colorado corporation

By: Mitchell Roth

Name: Mitchell Roth

Title: President

 

 

 

 

 

 

 

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Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Mitchell Roth, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Bourbon Brothers Holding Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5.	The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent function):

a)  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

October 31, 2014

/s/ Mitchell Roth Mitchell Roth President, as person performing the duties of the Principal Executive Officer

 

 

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Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Heather Atkinson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Bourbon Brothers Holding Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent function):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

October 31, 2014				/s/ Heather Atkinson Heather Atkinson Chief Financial Officer

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Exhibit 32.1

CERTIFICATION OF PRESIDENT OF BOURBON BROTHERS HOLDING CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350 and in connection with the accompanying report on Form 10-Q for the period ended September 30, 2014 that is being filed concurrently with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of Bourbon Brothers Corporation (the "Company") hereby certifies that:

1.  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

October 31, 2014				/s/ Mitchell Roth Mitchell Roth President, as person performing the duties of Principal Executive Officer

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Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER OF BOURBON BROTHERS HOLDING CORPORATION
PURSUANT TO 18 U.S.C. SECTION 1350

Pursuant to 18 U.S.C. Section 1350 and in connection with the accompanying report on Form 10-Q for the period ended September 30, 2014 that is being filed concurrently with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned officer of Bourbon Brothers Holding Corporation (the "Company") hereby certifies that:

1.  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

October 31, 2014				/s/ Heather Atkinson Heather Atkinson Chief Financial Officer