UNITED STATES
SECURITES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended May 31, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________ to __________
Commission File Number 000-50643
GLOBAL ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 86-0933274
(State or other jurisdiction of (I.R.S. Identification No.)
incorporation or organization)
1600 N Desert Drive, Suite 301, Tempe, AZ 85281
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (480) 994-0772
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant of Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by check mark if the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act.): Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the issuer was $3,970,139 based on the closing price of $1.39
per share at August 13, 2008, as reported on the American Stock Exchange
At August 13, 2008, 6,625,114 shares of Global Entertainment Corporation common
stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement to be filed with the Commission for the annual
meeting of stockholders to be held October 17, 2008, are incorporated by
reference into Part III of this Annual Report on Form 10-K.
GLOBAL ENTERTAINMENT CORPORATION
ANNUAL REPORT ON FORM 10-K
INDEX
Page
----
PART I.
Item 1. Business 3
Item 1A. Risk Factors 12
Item 1B. Unresolved Staff Comments 15
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to Vote of Security Holders
PART II.
Item 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities 16
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 22
Item 8. Financial Statements and Supplementary Data 18
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 45
Item 9A(T). Controls and Procedures 45
Item 9B Other Information 46
PART III.
Item 10. Directors, Executive Officers and Corporate Governance 46
Item 11. Executive Compensation 46
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 46
Item 13. Certain Relationships and Related Party Transactions,
and Director Independence 46
Item 14. Principal Accountant Fees and Services 46
PART IV.
Item 15. Exhibits and Financial Statement Schedules 47
2
This Annual Report on Form 10-K contains "forward-looking statements" within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 regarding future events and the future results of Global
Entertainment Corporation that are based on current expectations, estimates,
forecasts, and projections as well as the beliefs and assumptions of Global
Entertainment Corporation's management. Words such as "outlook," "believes,"
"expects," "appears," "may," "will," "should," "anticipates" or the negative or
correlations thereof or comparable terminology, are intended to identify such
forward-looking statements. These forward-looking statements are only
predictions and are subject to risks, uncertainties and assumptions that are
difficult to predict, including those identified in Item 1A, Risk Factors, and
other risks identified herein and in future SEC filings and public
announcements. Therefore, actual results may differ materially and adversely
from those expressed in any forward-looking statements. You should not place
undue reliance on these forward-looking statements, which speak only as of the
date of this Annual Report. We undertake no obligation to revise or update
publicly any forward-looking statements.
PART I.
ITEM 1. BUSINESS.
OVERVIEW
Global Entertainment Corporation (referred to in this annual report as "we,"
"us," "Global" or "GEC") is an integrated event and entertainment company that
is engaged, through its wholly-owned subsidiaries, in sports management,
multipurpose events center and related real estate development, facility and
venue management and marketing, and venue ticketing. We are primarily focused on
projects located in mid-size communities.
We were organized as a Nevada corporation in August 1998, under the name Global
II, Inc. In April 2000, Global II acquired all of the outstanding shares of
Western Professional Hockey League, Inc. from WPHL Holdings, Inc., a British
Columbia, Canada corporation. Contemporaneously with the acquisition of WPHL, we
changed our name to Global Entertainment Corporation.
Our current operating subsidiaries are Western Professional Hockey League, Inc.,
Global Properties I, International Coliseums Company, Inc., Global Entertainment
Marketing Systems, Inc., Global Entertainment Ticketing and Encore Facility
Management.
Pursuant to a joint operating agreement between us and Central Hockey League,
Inc. (CHL Inc.), Western Professional Hockey League, Inc. (WPHL) operates and
manages a minor professional hockey league known as the Central Hockey League
(the League), which currently consists of 18 teams (16 expected to play in the
2008-2009 season) located in mid-market communities throughout the Central and
Western regions of the United States.
During the year ended May 31, 2007, we began operations of Global Properties I
(GPI) which provides services in targeted mid-sized communities across the
United States related to the development of multipurpose events centers and
surrounding multi-use real estate development.
GPI, along with International Coliseums Company, Inc. (ICC), develops
multipurpose events centers in mid-market communities. ICC's development of
multipurpose events centers promotes the development of the League by assisting
potential licensees in securing quality venues in which to play minor
professional hockey league games. The inter-relationship between GPI, ICC and
WPHL is a key factor in the viability of a managed multipurpose entertainment
facility.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and
sells various services related to multipurpose entertainment facilities,
including all contractually obligated income (COI) sources such as facility
naming rights, luxury suite sales, club seat license sales, and facility
sponsorship agreements.
Global Entertainment Ticketing (GetTix) provides ticketing services for the
multipurpose event centers developed by GPI and ICC, existing League licensees,
and various other entertainment venues, theaters, concert halls, and other
facilities and event coordinators. GetTix provides a full ticketing solution by
way of box office, phone, internet and print-at-home service that utilizes
distribution outlets in each market. GetTix uses third-party, state-of-the-art
software to deliver ticketing capabilities that include database flexibility,
easy season and group options, financial reporting and marketing resources.
In February 2006, we formed Encore Facility Management (Encore), a single source
management entity that provides a full complement of multipurpose events center
operational services. These services provide administrative oversight in the
3
areas of facility/property management and finance, event bookings, and food and
beverage. Encore is currently involved with facility management of a
multipurpose events centers developed by GPI and ICC. Facility management
operations are conducted under separate limited liability companies.
On August 1, 2008, we closed a transaction pursuant to which we sold
substantially all of the assets of our subsidiary Cragar Industries, Inc., a
licensor of an automotive aftermarket wheel trademark and brand - CRAGAR(R). The
assets consisted primarily of intangible property, including trademarks, service
marks and domain names. The purchase price was approximately $1.9 million in
cash. Of the cash proceeds, $0.1 million was used for transaction expense and
$1.25 million has been set aside in a restricted account as security for a
letter of credit. The remainder of the funds was made available for working
capital and general corporate purposes.
BUSINESSES AND MARKETS
THE MINOR PROFESSIONAL HOCKEY LEAGUE BUSINESS
A central component of our business is the operation of the League We believe
that the League offers a unique entertainment alternative that is not typically
available to individuals living in our targeted mid-sized communities in the
United States, and that the affordable nature of tickets, refreshments, and
merchandise at League events allows access to families and individuals at all
levels of income. The introduction of a team in these mid-sized communities
offers several potential benefits to licensees, including:
* marketing and sponsorship opportunities through the League's diverse
fan base;
* increased revenue through sales of team-licensed products and;
* opportunities to network with surrounding communities and to create
team rivalries.
The introduction of a League team also offers several potential benefits to the
mid-sized community in which each team is located, including:
* increased tax revenue through direct ticket, refreshment and licensing
sales at professional minor league hockey games and other events as
well as indirect increases in sales at restaurants, stores and hotels
surrounding the arena in which the team plays;
* increased job opportunities for community citizens working for the
team or arena as well as surrounding businesses; and
* enhanced development of property located near the multipurpose event
facility.
WPHL operates the League. During the 2008-2009 season we expect that the League
will consist of 18 teams (2 dormant and 16 active) located in mid-sized
communities throughout the Central and Western regions of the United States.
WPHL licenses 14 of the teams. The remaining 4 teams, each of which was an
original CHL, Inc. team, continue to operate under a sanction agreement that
requires direct payments to the League pursuant to the terms and conditions of
the original CHL, Inc. agreements. Pursuant to a joint operating agreement with
CHL Inc., WPHL jointly manages and operates the League under the Central Hockey
League name. WPHL also provides ongoing support and assistance to teams in
accounting, ticket sales, marketing, hockey operations, development, and media
services. WPHL provides operational manuals for each team to utilize as a guide
and point of reference. In addition, yearly league conferences are held to
provide team owners an opportunity to meet with other owners and discuss
operational concerns. Operations are governed by an oversight board.
We do not operate or manage any teams outside of the joint operating agreement
with CHL, Inc. Pursuant to the joint operating agreement between CHL Inc. and
WPHL, CHL Inc. had an option to purchase all of WPHL's interests and rights
related to WPHL teams operating under the joint operating agreement, and any
other hockey related assets of WPHL, beginning in 2011. Under the terms of a
modification to the joint operating agreement entered into in June 2008, CHL
Inc.'s purchase option has been eliminated and WPHL and CHL Inc. each now have a
right of first refusal to purchase the other's interests if a bona-fide third
party offer to purchase the entire interest is received.
4
The 16 League teams expected to play during the 2008-2009 season, are divided
into 4 divisions: Northeast, Northwest, Southeast and Southwest, as follows:
<TABLE>
<CAPTION>
Northeast Northwest Southeast Southwest
--------- --------- --------- ---------
<S> <C> <C> <C>
Bossier-Shreveport Mudbugs Colorado Eagles Corpus Christi IceRays Amarillo Gorillas
(Bossier City, LA) (Windsor, CO) (Corpus Christi, TX) (Amarillo, TX)
Memphis RiverKings Rapid City Rush Laredo Bucks Arizona Sun Dogs
(Southaven, MS) (Rapid City, SD) (Laredo, TX) (Prescott Valley, AZ)
Oklahoma City Blazers Rocky Mountain Rage Rio Grande Valley New Mexico Scorpions
(Oklahoma City, OK) (Broomfield, CO) Killer Bees (Rio Rancho, NM)
(Hidalgo, TX)
Tulsa Oilers Wichita Thunder Texas Brahmas Odessa Jackalopes
(Tulsa, OK) (Wichita, KS) (North Richland Hills, TX) (Odessa, TX)
</TABLE>
The Austin Ice Bats will not participate in the 2008-2009 season but retain
their active status in the League. Lubbock, Texas is dormant and will not
participate in the 2008-2009 season. Certain teams are past due on annual league
assessment installments for the 2008-2009 season and the schedule is subject to
change.
LICENSEE SELECTION. WPHL has not established a fixed set of prerequisites that a
prospective licensee must meet in order to be awarded a license. Instead, WPHL
recruits licensee candidates based on a variety of factors such as prior
business experience, financial strength and integrity, and probable ability to
successfully operate a sports-oriented organization.
LICENSE LOCATION SELECTION. WPHL seeks to grant licenses in communities capable
of sustaining and expanding a professional sports organization without
saturating an existing market or penetrating a market that is already serviced
by another hockey league. WPHL markets the availability of its franchising
opportunities primarily through individual association and brand identity.
License locations are determined by considering the following factors, among
others.
* PROXIMITY TO EXISTING LICENSES. WPHL seeks to grant licenses
sufficiently close to existing teams to reduce travel expenses
incurred by each team, but sufficiently far away from existing teams
to allow each team to have ample fan support.
* ARENA AVAILABILITY. Because an arena is essential to a licensee's
operations, WPHL investigates the availability of an existing arena
and assists in negotiating the arena lease. If no arena is available,
WPHL, through its affiliates ICC and GPI, works with the prospective
licensee and the municipality to provide a multipurpose arena.
* MARKET AND DEMOGRAPHIC DATA. WPHL performs a detailed review of a
prospective market's demographics, including the number of households,
average income per household, median income, prevailing wage data, and
additional general market data, to determine the suitability of the
market for a license.
* EXISTING COMPETITION. WPHL seeks to grant licenses where the new
licenses do not have direct competition with other hockey teams or
other major sports licenses. We believe the absence of direct
competition in a market allows a team to more easily develop fan
support.
5
HISTORICAL LEAGUE ATTENDANCE AND TICKET REVENUE. The following tables reflect
attendance at League events and League ticket revenues per season (unaudited).
<TABLE>
<CAPTION>
Season 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
# of Teams Playing 16 16 17 17 15 17 17
--------- --------- --------- --------- --------- --------- ---------
Regular Season 2,183,197 2,253,489 2,448,584 2,284,057 2,238,408 2,387,286 2,164,657
Playoffs 152,455 134,335 168,894 179,130 185,805 318,257 149,293
--------- --------- --------- --------- --------- --------- ---------
Total 2,335,652 2,387,824 2,617,478 2,463,187 2,424,213 2,705,543 2,313,950
========= ========= ========= ========= ========= ========= =========
Per Game Average 4,270 4,381 4,521 4,487 4,671 4,350 3,942
Season 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008
------ --------- --------- --------- --------- --------- --------- ---------
# of Teams Playing 16 16 17 17 15 17 17
Ticket Revenue
(millions) $ 13.47 $ 13.78 $ 18.01 $ 16.99 $ 18.42 $ 25.49 $ 21.70
</TABLE>
League teams played 30 home games each during the 2004-2005 season versus 32
home games each during the previous three seasons. Teams resumed a 32 home game
schedule for the 2005-2006 season.
During the five seasons prior to the 2007-2008 season, based on information from
individual league websites, the League had experienced the highest per game
attendance of all North American AA professional hockey leagues. The declines in
game average attendance and ticket revenue in the 2007-2008 season are primarily
attributable to two teams which operated in arenas with seating capacity
substantially lower than the League average.
LICENSE AGREEMENTS. WPHL has entered into separate license agreements with 14 of
the 18 teams. Under the license agreements, if conditions are met, WPHL grants
license rights for a 10-year term for a designated area, which may be renewed by
the licensee. The licensee agrees to pay fees to WPHL and WPHL agrees to provide
various services, including services relating to accounting, ticket sales,
marketing, hockey operations, media, contracting and negotiating, rulemaking,
administrative and training, and conferences. In addition, WPHL and each team
have continuing rights and obligations, with respect to record keeping, the
team's arena, participation in WPHL management, intellectual property,
confidentiality, maintenance of insurance and indemnification, among others. The
remaining 4 teams, each of which was an original CHL, Inc. team, continue to
operate under a sanction agreement that requires direct payments to the League
pursuant to the terms and conditions of the original CHL, Inc. agreements.
INITIAL LICENSE FEES AND COSTS. Unless an alternative arrangement is made with
WPHL, the current initial license fee is $1,250,000. WPHL has, in the past,
shared a portion of the initial license fee with the other WPHL teams, and
expects to continue to do so, although the sharing arrangement may be modified.
Through a variety of factors, management believes that the value of a WPHL
license has increased and WPHL has increased initial license fees to maintain a
consistent level of quality support for new Licensees.
CONTINUING LICENSE FEES. Upon the execution of a license agreement, a WPHL
licensee is responsible for continuing fees payable to WPHL. Licensees also are
responsible for continuing fees payable to the League, which fees are shared
with WPHL pursuant to the joint operating agreement between the leagues.
Continuing fees include assessment fees, advertising fees, local marketing
expenditures, transfer fees, audit fees and renewal fees, which are described
below:
* ASSESSMENT FEES. Assessment fees for WPHL licensees are $100,000
annually, $10,000 of which represents licensing fees paid to us and
$15,000 of which represents payment of officials to referee games.
Assessment fees are $90,000 annually for League licensees.
* ADVERTISING FEES. Advertising fees are 3% of gross team revenues. Fees
received from each licensee are pooled together to form an advertising
fund used for league promotion. In addition to the monthly advertising
fees, each license is required to spend a minimum of 1% of revenue on
local marketing and promotion. WPHL has the discretion not to collect
the advertising fees and to date has chosen not to collect advertising
fees from its licenses, although it retains the right to do so.
* TRANSFER FEES. In the event of a transfer of a license, a transfer fee
in the amount of the greater of $100,000 or 25% of the then-current
initial license fee is payable to WPHL. The transfer fee is
implemented to cover WPHL's administrative and other expenses in
connection with the transfer. In addition to the transfer fee, the new
licensee must complete any training programs in effect for current
licensees. All expenses associated with training must be paid by the
licensee.
* AUDIT FEES. At any given time, WPHL may conduct an audit of the books
and records of its licensees. If the audit discloses an understatement
of any of the aforementioned fees of 3% or more, the licensee is
required to pay the understated amount, the out of pocket expenses
(including accountants' and attorneys' fees) incurred by WPHL, and any
other fees relating to the audit.
* RENEWAL FEES. License agreements have a duration of 10 years. To
continue a license at the end of this period for an additional 10 year
term, licensees are required to pay a renewal fee equal to the greater
of the original initial license fee paid, or 25% of the then-current
initial license fee.
6
LICENSE SERVICES. WPHL provides the following services to WPHL teams:
* TICKET SALES. The most significant stream of revenue for a team is
derived from the generation of ticket sales. As a result, WPHL employs
a staff with extensive ticket operations experience in the hockey
industry to advise teams how to maximize ticket sales. WPHL develops
and supplies each team with ticket operations manuals and on-site and
league-wide office hiring/staff training and assists teams in
implementing this training.
* MARKETING. Name recognition and team promotion is essential to the
development and success of WPHL's teams. WPHL assists each team with
corporate sales and marketing, league licensing and merchandising,
sponsorship recruitment and game night entertainment packages. WPHL
provides marketing manuals, operational guideline handbooks, and
design concepts for the creation of uniforms and team logos.
* HOCKEY OPERATIONS. WPHL assists each team in the selection of skilled
hockey players, as well as the retention and training of hockey
coaches, trainers, and equipment managers. WPHL provides each team
with a player personnel manual, which contains information collected
from seven WPHL scouts, including player's evaluations and statistics
from over twenty leagues throughout North America. WPHL hosts annual
expansion drafts for new teams, collects and distributes information
concerning hockey operations guidelines and regulations, and provides
an officiating staff for all preseason, regular season, and playoff
season games. WPHL hires, trains, schedules and supervises all facets
of game officiating, including the employment of in excess of 50 full
and part-time officials. WPHL also provides for a facilities manager
advisory council, comprised of each team's facilities manager, to
discuss issues of each team related to facilities management.
* MEDIA. WPHL assists teams in developing public awareness through a
variety of methods. WPHL coordinates all local and national press
information, as it relates to the league; maintains an Internet
website and assists teams in the development of their individual
sites; develops schedules for all preseason, regular season, and
playoff games; and responds to media and fan inquiries. We intend to
further develop our media assistance to teams.
* CONTRACTING AND NEGOTIATING. WPHL provides teams with services such as
ice equipment supply, food and beverage service contracts and arena
lease negotiations. WPHL also assists teams with United States
immigration policies to the extent that such policies pertain to the
retention of hockey players.
* RULEMAKING AND ADMINISTRATIVE. WPHL personnel attend the preseason
training camps of teams, during which time they meet with coaches and
players to review rule changes, the established substance abuse policy
and hockey-related issues. WPHL personnel also attend the All-Star
game held in January and selected playoff games. WPHL also provides
training programs for goal judges, timekeepers and other officials.
* TRAINING AND CONFERENCES. WPHL provides the following training and
conferences to licensees:
* INITIAL TRAINING. WPHL's executive management team provides each
newly established license with a 3 day initial training program.
WPHL hosts the training seminars at their Tempe, Arizona
headquarters for the team's chief operating officer and up to
three managerial employees. The 15 hour training schedule
includes topics such as ticketing and sales, marketing,
promotions, public relations, player and personnel issues, and
merchandising and licensing. WPHL does not incur any
out-of-pocket expenses for the trainees in connection with the
training program, as all transportation costs, living expenses
and wages are the team's responsibility.
* YEARLY CONFERENCES. WPHL conducts a yearly conference for all
teams and their staffs. The conference highlights various issues
relating to ticketing operations, marketing, corporate sales,
merchandising, hockey operations, public relations and media
services, human resources, and general license development. The
conferences are an important factor in improving intra-league
relations, as licensees are able to discuss hockey and business
related issues with peer teams. The conferences include guest
speakers, workshops on topics such as revenue generation through
corporate sponsorship, marketing, and ticket sales.
PLAYER AND PERSONNEL MATTERS. The quality and success of the players associated
with each license are of significant importance to the continued viability of
the League. The following is a list of the significant factors relating to the
League's involvement with the players:
* UNION. League players were not collectively represented by a players'
union until March 2008, when players voted to institute the
Professional Hockey Players Association (PHPA) into the league. Going
forward, League players, like other comparable minor professional
hockey leagues and the National Hockey League, will be represented by
the PHPA.
* RECRUITMENT. Teams recruit hockey players through a variety of means.
Players predominantly come from the Canadian, American, and European
junior leagues, other professional leagues, and the collegiate
circuit. The League offers recruiting assistance to teams by providing
a scouting network, whose members annually produce a compilation of
scouting reports on players they have observed, which is distributed
to team coaches to review.
* SALARY AND PLAYER CAPS. The League salary cap for the 2007-2008 season
per team was $10,000 per WEEK, However the cap for the 2008-2009
season has yet to be determined and will be negotiated with the PHPA.
Players were guaranteed to be paid no less than $300 per week, with
the prevailing wage earned by a player to be $300 per week. No player
bonuses are provided outside of the salary cap. Additionally, no team
may have more than 19 players on its payroll, excluding players on
injured reserve.
7
JOINT OPERATING AGREEMENT
Pursuant to a joint operating agreement dated July 2001, CHL Inc., which was the
operator of the Central Hockey League, and WPHL, Inc., which was the operator of
WPHL, agreed to operate the leagues jointly under the trade name "Central Hockey
League." The joint operating agreement, as modified in June 2008, provides that
operations are to be governed by an oversight board consisting of five members,
two of whom are designated by CHL Inc., two of whom are designated by WPHL,
Inc., and one of whom is designated jointly. Despite the agreement to operate
the leagues jointly, each of WPHL, Inc. and CHL Inc. remain separate and
distinct legal entities and maintain separate books and records, and are solely
responsible for their own obligations. In addition, we own no interest in CHL
Inc.
Net income from hockey operations is defined under the joint operating agreement
generally as revenues from assessment fees and corporate sponsorships less
operating costs from hockey operations. Pursuant to the joint operating
agreement, net income from hockey operations is allocated to WPHL, Inc. and CHL,
Inc according to the percentage of teams originated by each league that operated
during the year. If expenses exceed operating revenue in any given period,
losses are allocated to WPHL, Inc. and CHL Inc. on a pro rata basis according to
the percentage of teams originated by each league that operated during the year
in which the loss occurs. Expansion fees, net of costs, generated from the grant
of new licenses generally are allocated 50% to the league determined to have
originated the team and 50% to operating revenue to be divided according to the
allocation formula described above.
The joint operating agreement also provides that ICC will have the sole and
exclusive right to construct arena facilities for participation in the leagues
during the term of the agreement.
The joint operating agreement, as modified in June 2008, requires the leagues to
operate jointly as the League through May 30, 2021. Under the terms of the
modification, CHL Inc.'s purchase option has been eliminated and WPHL and CHL
Inc. each now have a right of first refusal to purchase the other's interests if
a bona-fide third party offer to purchase the entire interest is received.
MULTIPURPOSE EVENTS CENTER DEVELOPMENT BUSINESS
Our multipurpose events center development business is operated through our
subsidiary entities, GPI and ICC, which develop, design and manage the
construction of multipurpose sports and entertainment arenas. These arenas have
an average seating capacity of 6,500 and are typically constructed in mid-market
communities.
GPI and ICC utilize a partnership approach with municipalities to provide a
comprehensive set of services to manage all facets of the overall center
construction process. For these services, service fees are charged and expenses
are reimbursed in the performance of such duties. There are typically three
distinct phases:
* BUSINESS PLAN DEVELOPMENT - GPI project coordinators perform market
research with outside consulting assistance, prepare an initial budget
for operation of a facility, and present the data to the owner;
* DESIGN - ICC project managers finalize conceptual drawings and
renderings in order to bring the design to completion; and
* CONSTRUCTION MANAGEMENT - ICC manages all phases of actual
construction from ground breaking to delivery.
As the municipality's partners, GPI and ICC:
* Create a business model that forecasts realistic outcomes thereby
facilitating the development of a properly structured financing plan;
* Create working alliances between nationally recognized design
professionals and architects;
* Lead the design and construction process for building premier events
facilities while maintaining sound cost controls; and
* Focus on obtaining involvement from local engineers, contractors and
subcontractors to form a solid development team that fosters local
pride and enthusiasm.
GPI and ICC have developed or managed or currently are developing or managing
the following multipurpose arena projects:
INDEPENDENCE, MISSOURI: GPI and ICC are currently managing the development of a
multi-purpose events center for the City of Independence, Missouri. Encore will
manage the building operations. GEMS will handle all sales and marketing
services. GetTix will provide exclusive ticketing services for all events. The
facility is slated to have approximately 5,800 fixed seats and an additional
second ice surface that will provide a youth hockey and skating facility for the
8
community. The facility has a scheduled opening in late 2009 and will also be
home to a League team that will serve as the primary tenant.
ALLEN, TEXAS: GPI and ICC are currently performing project management services
for the development of an events center in Allen, Texas. This facility is a
4,300 seat facility. The facility is scheduled to open in the fall of 2009. A
League team will serve as the primary tenant. Encore will manage the facility;
GetTix will provide ticketing services, and GEMS will provide sales and
marketing services.
WENATCHEE, WASHINGTON: ICC is currently managing construction of the Town Toyota
Center located in Wenatchee, Washington. This facility is a 4,300 seat facility
and is scheduled to open in the fall of 2008. Encore will manage the facility;
GetTix will provide ticketing services, and GEMS will provide sales and
marketing services.
RIO RANCHO, NEW MEXICO: In fiscal year 2007, ICC completed development of the
Santa Ana Star Center located in Rio Rancho, New Mexico. The events center is a
6,500 - 8,000 seat facility and serves as a major component of the City of Rio
Rancho's new master planned downtown. The New Mexico Scorpions, a League team,
serve as the major tenant. Encore manages the facility, GetTix provides
ticketing services for all events at this facility, and GEMS provides sales and
marketing services.
PRESCOTT VALLEY, ARIZONA: In fiscal year 2007, ICC completed development of the
Tim's Toyota Center located in Prescott Valley, Arizona. This facility is a
5,000 - 6,200 seat arena and is a major component of a 40 acre retail and
entertainment district. A League hockey team, the Arizona Sundogs, serve as the
major tenant. Encore manages the facility, GetTix provides ticketing services,
and GEMS provides sales and marketing services.
BROOMFIELD, COLORADO: In fiscal year 2007, ICC completed project management
duties under a sub-contract with Icon Venue Group for the 6,000 seat Broomfield
Event Center in Broomfield, Colorado. A League hockey team, the Rocky Mountain
Rage, serves as the major tenant.
YOUNGSTOWN, OHIO: In October 2005, ICC completed development of the Chevrolet
Center located in Youngstown, Ohio. The Chevrolet Center is a 6,500 to
8,500-seat facility serving Youngstown, Ohio and surrounding communities.
LARIMER COUNTY, COLORADO: In fiscal year 2004, ICC completed its duties as the
project manager with respect to the development of the Larimer County Fairground
and Events Center, located in Larimer County, Colorado. Eventually this complex
will consist of 12 agricultural facilities that are anchored by the 6,000-seat
multipurpose events center. Since opening, this event center has been home to
the League team, the Colorado Eagles.
HIDALGO, TEXAS: ICC oversaw the construction of a multipurpose event center in
the City of Hidalgo, Texas. This facility opened in October 2003 and is home to
the League team, Rio Grande Valley Killer Bees. GEMS provides sales and
marketing services to the facility.
FACILITY AND VENUE MANAGEMENT BUSINESS
Our facility management business is operated through our subsidiary, Encore,
which was formed as a single source management entity that provides a full
complement of operational services. These services provide administrative
oversight in the areas of facility/property management, event bookings, and food
and beverage. Encore is currently involved with facility management of
multipurpose events centers developed by GPI and ICC. Facility management
operations are conducted under separate limited liability companies.
MARKETING AND LICENSING BUSINESS
Our marketing and licensing business is operated through our subsidiary, GEMS,
which was formed for the purpose of promoting, marketing, and selling various
revenue streams created by the development and operation of multipurpose arenas
in mid-sized communities throughout the United States. GEMS contracts to sell a
variety of services, including facility naming rights, facility sponsorship
agreements, luxury suite sales, and club seat license sales. We believe that
corporate sales and licensing will enable teams to keep ticket prices affordable
and thereby increase their fan bases while simultaneously increasing total
revenue.
TICKETING BUSINESS
We operate our ticketing business through our subsidiary GetTix, a full service
ticketing company for events and venues throughout our markets. The ticketing
business generates revenues through box office, outlet, call-center, and
Internet sales.
9
GetTix is currently selling tickets primarily for venues located in the Central
and Southern United States and plans to expand into additional venues. We
anticipate that ticketing will comprise an increasingly important component of
our revenues.
OUR STRATEGY
Our strategy for growth and profitability is to leverage our existing businesses
and to capitalize on cross-revenue generation opportunities within the mid-sized
communities we serve.
Our wholly-owned subsidiaries operating in sports management, multipurpose
events center and related real estate development, facility and venue management
and marketing, and venue ticketing represent a "one-stop-shop" for all
development and post development activities related to multipurpose event
facilities.
Each subsidiary has been structured to operate independently with third party
customers as well as its sister companies, thereby allowing each subsidiary the
ability to independently promote itself and the businesses of its sister
companies. By way of example, GetTix may provide ticketing services for a
multipurpose events center developed by GPI and ICC, managed by Encore, and
maintain a ticketing relationship with an independent third party venue. In
addition, Encore may manage an event center developed by GPI and ICC, but may
also contract to manage an independent third party venue with a ticketing
contract with GetTix. These forms of cross revenue generation occur throughout
our various businesses and have been designed to increase revenues as each
individual business expands.
The key elements of our strategy are to:
EXPAND THE LEAGUE. We believe that we can expand the League by targeting and
specifically identifying mid-market communities that have a limited number of
competing live entertainment options. In particular, we believe that the
development of a multipurpose arena together with a League team offers many
communities an opportunity to generate additional revenue streams for the
community as well as additional jobs for its residents.
LEVERAGE OUR ABILITY TO COMBINE MULTIPURPOSE EVENTS CENTER DESIGN, DEVELOPMENT,
AND MANAGEMENT EXPERTISE WITH VARIOUS ENTERTAINMENT OPTIONS. We believe that our
ability to combine our offerings for League teams and other entertainment
options as anchor tenants with our design, development, and management expertise
in multipurpose arenas provides us with a potential advantage compared to other
entertainment options typically available in mid-sized communities. We believe
this combination of expertise and experience offers these communities an
opportunity to increase tax revenues, create additional job opportunities, and
broaden the variety of entertainment options available to their citizens.
LEVERAGE OUR BASE BUSINESS TO PROMOTE TICKETING SERVICES PROVIDED BY GETTIX. We
believe that our existing business structure, with the design and management of
multipurpose arenas will increase the opportunity to provide ticketing services.
In addition, current strategic alliances with third party event organizations
may provide additional revenue streams.
DEVELOP COMMERCIAL AND RESIDENTIAL REAL ESTATE ADJACENT TO MULTIPURPOSE EVENTS
CENTER DEVELOPMENT PROJECTS. We believe that the opportunity to develop
available real estate adjacent to our multipurpose events center projects will
contribute to increasing revenue and profitability while providing the mid-sized
communities we serve with needed commercial and residential real estate growth.
CAPITALIZE ON ORGANIC GROWTH OPPORTUNITIES. Internal growth and development will
also continue to be pursued. We will continue to evaluate synergistic business
opportunities that fit our current organizational structure and attempt to
capitalize on those opportunities when practical.
There can be no assurance that we will be successful in implementing our
business strategies. Factors that could impede our ability to achieve our
objectives include: our inability to secure contracts with cities or related
governmental entities to design, develop, and manage new multipurpose facilities
and adjacent real estate; our inability to secure new licensees willing and able
to pay the license fees associated with a new license or to successfully operate
a team; the inability to successfully add ticket services through GetTix, and
our inability to generate sufficient cash flow or raise additional funds
necessary to ensure adequate working capital for our intended operations.
10
COMPETITION
We seek to compete in our core historical sports-related business activities by
focusing primarily on mid-sized communities in the Central, Western and Southern
regions of the United States, including Missouri, Texas, Colorado, Kansas,
Georgia, Alabama, Louisiana, Mississippi, New Mexico, Oklahoma, Arizona, and
Tennessee. Given the demographics of these communities, major professional
sports licenses and other major entertainment providers typically do not play or
perform in these communities. As a result, we believe there is significant
demand for reasonably priced professional sporting events and other
entertainment offerings that are not typically available to citizens of these
communities. By establishing a League team in these mid-sized communities, and
possibly facilitating the development, construction and operation of a
multipurpose events center, we intend to provide reasonably priced professional
sports and other entertainment options to these typically under-served markets,
and create additional marketing and licensing business opportunities for our
other business lines.
MINOR PROFESSIONAL HOCKEY LEAGUE BUSINESS. The League principally competes as
one of four minor professional hockey leagues in operation in the United States
(AA and AAA). Head-to-head competition has not typically occurred between the
existing leagues, as each league is located in a different geographic region of
the United States. However, with recent expansion efforts, these boundaries are
beginning to become less defined and leagues are encroaching upon each other's
markets, creating heightened competition. The ECHL (formerly the East Coast
Hockey League) operates predominantly along the Eastern and Western United
States coasts. The American Hockey League is the true farm system for the
National Hockey League (NHL) and operates across the continental United States
without regional or geographical boundaries. The International Hockey League
(formerly known as the United Hockey League) operates in the North Central
United States. Finally, the League operates within the Central and Western
regions of the United States. Because established licenses currently serve
specific geographical areas, we foresee limited competition from other hockey
leagues penetrating our existing markets. Competitors attempting to enter the
market would encounter brand identity obstacles, over-saturated markets, and
difficulties in obtaining venues available for play.
We not only compete against other minor professional hockey leagues but also
against entertainment of all different types and mediums. By way of example, we
experience competition with alternative sports and entertainment venues located
within our mid-size markets, such as bowling alleys, movie theaters, other
sports events, concerts, diverse amusement facilities, and even television
broadcasting.
EVENT CENTER DEVELOPMENT AND CONSTRUCTION BUSINESS. GPI and ICC compete
primarily against larger development and construction management firms,
including International Facilities Groups, AEG and Global Spectrum.
FACILITY AND VENUE MANAGEMENT AND MARKETING BUSINESS. Encore and GEMS compete
with larger management firms including SMG and AEG as well as several other
firms including Venueworks, Sports Facility Marketing Group, Global Spectrum and
Front Row Marketing Services.
TICKETING BUSINESS. GetTix competes primarily against large and established
ticketing service firms, such as Ticketmaster, Tickets.com and Tickets West, as
well as against venues and organizations that provide their own internal
ticketing services.
INTELLECTUAL PROPERTY
We own trademarks for the following: Global Entertainment and Design, We Play
Hockey Loud, Proud to be Loud, and Grades for Blades. There can be no assurance
that our intellectual property rights will preclude competitors from designing
competitive products, that the proprietary information or confidentiality
agreements with our licensing partners and others will not be breached or
infringed, that we would have adequate remedies for any breach or infringement,
or that our trade secrets will not otherwise become known to or independently
developed by competitors. Furthermore, although there are controls within the
licensing agreements, there is no assurance that actions taken by others will
not lead to a decrease in the value of our intellectual property.
EMPLOYEES
As of May 31, 2008, we had 65 full-time employees and 230 part-time employees.
Management believes that the relationship with our employees is good. None of
our employees are represented by a labor union.
11
WEBSITE ACCESS
Our website address is www.globalentertainment2000.com. On our website we make
available, free of charge, our code of ethics. The information on our website is
not incorporated by reference into, and is not part of, this report.
ITEM 1A. RISK FACTORS.
The following risks and uncertainties could affect our future results of
operations, financial condition and the market value of our common stock.
WE MAY NOT BE ABLE TO TIMELY SECURE CONTRACTS WITH CITIES OR RELATED
GOVERNMENTAL ENTITIES TO DESIGN, DEVELOP, AND MANAGE NEW MULTIPURPOSE FACILITIES
AND ADJACENT REAL ESTATE, WHICH MAY NEGATIVELY IMPACT OUR RESULTS OF OPERATIONS.
We depend on contracts with cities or related governmental entities to design,
develop, and manage new multipurpose facilities and adjacent real estate.
Typically we must expend 20-30 months of effort to obtain such contracts. We
depend on these contracts for the revenue they generate and the facilities
resulting from these contracts are potential facilities in which our licensees
may operate. Failure to timely secure these contracts may negatively impact our
results.
WE MAY NOT BE ABLE TO SECURE NEW LICENSEES WILLING AND ABLE TO PAY INITIAL
LICENSE FEES AND COMMENCE, AND SUSTAIN OPERATIONS, WHICH MAY MEAN WE CANNOT
ACHIEVE THE CRITICAL NUMBER OF LICENSEES REQUIRED FOR PROFITABILITY.
Purchasing a license requires significant capital and commencing operation is a
significant expense which limits the pool of potential licensees We depend on a
critical mass of licensees to capture the economies of scale inherent in the
League's operations and to facilitate intra-league play. There can be no
assurance that we will be able to attract qualified candidates for licenses. We
anticipate that expansion of the League will be difficult because of the high
capital costs of licenses, competitive pressures from sports leagues and
entertainment providers both within and outside of the markets where we
currently operate, and the lack of arenas for new licensees.
The minor league hockey industry in which we conduct business is unproven and
subject to significant competition from other sports and entertainment
alternatives as well as both the National Hockey League and its minor league
hockey system, the American Hockey League, and other independent minor hockey
leagues. Even teams of the National Hockey League, which is the largest
professional hockey league with the greatest attendance, have struggled to
remain financially viable. A significant portion of our revenues result from
payments made by licensees. There can be no assurance that licensees will not
default under their license agreements.
If the League is unable to attract new licensees, or if existing licensees are
not able to make the continuing payments required by their license agreements,
we may not be able to survive. There can be no assurance that any payments will
be made by new or current licensees.
IF OUR LICENSEE'S RELATIONSHIPS WITH PLAYERS WERE TO DETERIORATE, THE LICENSEES
MAY BE FACED WITH LABOR DISRUPTIONS OR STOPPAGES, WHICH COULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The players in the League, employees of the licensees, will be represented by
the Professional Hockey Players Association in the 2008-2009 seasons. A
collective bargaining agreement has yet to be negotiated. The League and
licensees may be regularly subject to grievances, arbitration proceedings and
other claims concerning alleged past and current non-compliance with applicable
labor law and collective bargaining agreements. These matters, if resolved in a
manner unfavorable to us and our licensees, could have a material adverse effect
on our business, financial condition and results of operations
WE HAVE A HISTORY OF OPERATING LOSSES IN CERTAIN SUBSIDIARIES, WHICH MAKES IT
DIFFICULT TO DETERMINE FUTURE RESULTS.
Our history of losses in certain subsidiaries makes it difficult to assess our
future results of operations and to determine if we will ultimately succeed or
remain profitable. There are many events and factors that could materially and
adversely affect us, over some of which we have limited or no control,
including:
* the inability to obtain capital at times and in amounts necessary to
support our operations and intended growth;
12
* the inability to develop and expand our design, management and
construction business;
* the inability to attract and retain licensees for the minor
professional hockey league we operate and manage;
* the inability of minor professional hockey league licensees to attract
and retain the interest of the public in the markets served by the
licensees;
* competition from other hockey leagues;
* competition from alternative forms of sports and entertainment outside
the hockey industry; and
* the inability to develop and grow a customer base for our ticketing
and facility management services. There can be no assurance that we
will remain viable or that we will continue our operations for any
length of time.
WE INTEND TO EXPAND OUR BUSINESS AND MAY NOT SURVIVE IF THIS STRATEGY IS
UNSUCCESSFUL.
We intend to expand the number of professional minor league hockey licensees and
increase the number of arenas we develop and manage. There can be no assurance
that we will have available sources of funds or personnel necessary to achieve
rapid or sustained growth or that we will succeed in identifying and securing
desirable licensees and markets for expansion of the League or new facilities
and business opportunities available to expand our business. Even if we are able
to expand our business and operations, we may not be able to manage this growth
successfully. Any successful growth will require us to continue to implement and
improve our financial, accounting, and management information systems and to
hire, train, motivate, and manage additional employees. A failure to manage
growth effectively would have a material adverse effect on our business,
financial condition, and results of operations, and on our ability to execute
our business strategy successfully.
WE COMPETE AGAINST OTHER PROFESSIONAL HOCKEY LEAGUES AS WELL AS A GROWING NUMBER
OF OTHER ENTERTAINMENT ALTERNATIVES AND OUR FINANCIAL RESULTS DEPEND ON
CONTINUED FAN SUPPORT.
The League is currently one of four (4) minor professional hockey leagues in
operation in the United States. Head-to-head competition has not typically
occurred between the existing leagues, as each league has historically operated
in a different geographic region of the United States. However, with recent
expansion efforts of these leagues, the boundaries are beginning to become less
defined and leagues are encroaching upon each other's markets, creating
heightened competition.
We not only compete against other minor professional hockey leagues but also
against other professional sports and entertainment of all different types and
mediums. For example, we compete with alternative entertainment venues located
within our small to mid-size markets, such as bowling alleys, movie theatres,
other sports events, and diverse amusement facilities. In addition, hockey is a
relatively new and unfamiliar sport in many of the markets where the League
operates. As a result, many of the League's teams have had difficulty building
and maintaining a dedicated fan base. There can be no assurance that such teams
will be able to maintain or increase their fan bases or, if the League expands,
that its new teams will be able to build such a fan base. Our success depends on
the League's ability to generate and sustain fan interest. Absent a substantial
and dedicated fan base, Global Entertainment and the League may not be able to
survive. We also experience significant competition in our arena management and
ticketing businesses, primarily from much larger, better financed and more
recognized companies.
OUR CASH FLOW SEASONALITY MAY MAKE IT DIFFICULT FOR US TO MANAGE MEETING OUR
OBLIGATIONS.
A significant portion of our cash flow is generated from June 15 through
September 15 each year. The seasonality of the League's revenues may make it
difficult for us to meet current and future obligations that have payment dates
or schedules that do not correspond to the seasonality of our cash flow.
OUR EXPERIENCE IN THE ARENA DEVELOPMENT, CONSTRUCTION, FACILITY MANAGEMENT VENUE
SALES AND MARKETING AND TICKETING INDUSTRIES MAY LIMIT OUR ABILITY TO SUCCEED.
We acquired International Coliseums Company in November 2000. Prior to that
time, we were engaged exclusively in the minor league hockey industry and had no
prior experience in the development and construction of arenas. In January 2002
we formed Global Entertainment Marketing Systems to perform marketing and sales
13
activities related to multipurpose events facilities; we had no prior related
experience. We began formal ticketing operations in September 2004 with no prior
experience in the ticketing business. In September 2005 we began directly
managing the operations of multipurpose events centers with no prior experience.
Because of our recently acquired experience it is difficult to determine whether
we will be able to successfully manage these businesses and compete in these
industries.
There are several engineering and consulting firms in direct competition with
our arena development business. We also have several competitors in the facility
management and ticketing businesses. Most of these competitors have
substantially more financial resources and/or financial flexibility compared to
Global. Furthermore, the engineering and design industry is undergoing
consolidation, particularly in the United States. These competitive forces could
have a material adverse effect on our ability to successfully operate and
generate profits from our arena development business.
IF THE MARKETS IN WHICH WE OPERATE EXPERIENCE AN ECONOMIC DOWNTURN, REVENUES ARE
LIKELY TO DECLINE CAUSING OUR FINANCIAL CONDITION TO DETERIORATE.
Our revenues are likely to be significantly and adversely affected if economic
conditions in the mid-sized communities in which we operate deteriorate. In
particular, our arena development clients are likely to cut costs and delay,
curtail, or cancel projects in response to deterioration in economic conditions
either locally or nationally. These clients also may demand better pricing terms
during such periods. In addition, an economic downturn may impact the
credit-worthiness of these clients and the ability to collect cash from them to
meet the operating needs of our arena development business. Accordingly, if
current economic conditions worsen, our revenues, profits, and operating cash
are likely to be adversely impacted.
WE DEPEND ON KEY INDIVIDUALS, THE LOSS OF WHICH COULD NEGATIVELY AFFECT OUR
ONGOING OPERATIONS.
Our business depends on its ability to maintain certain key individuals and to
attract and retain additional qualified and competent personnel. The loss of the
services of Richard Kozuback, the President of Global Entertainment and Chairman
of WPHL, or other key officers and directors, could have a material adverse
effect on Global Entertainment's ability to conduct its business effectively.
In addition, the ability to attract, retain, and expand the staff of qualified
technical professionals employed by International Coliseums Company will be an
important factor in determining our future success. A shortage of professionals
qualified in certain technical areas exists from time to time in the engineering
and design industry. The market for these professionals is competitive, and we
may not be successful in our efforts to continue to attract and retain such
professionals.
WE ARE SUBJECT TO FEDERAL AND STATE REGULATIONS REGARDING FRANCHISING AND THE
FAILURE TO MAINTAIN COMPLIANCE WITH THESE LAWS COULD LIMIT OR PREVENT THE LEAGUE
FROM OPERATING.
We are subject to regulation by the Federal Trade Commission, or FTC, and state
laws that regulate the offer and sale of franchises and business opportunity
licenses, as well as state laws that regulate substantive aspects of the
licensor/licensee relationship. The FTC's rules on franchising generally require
us to furnish prospective franchisees a franchise offering circular containing
information prescribed by the FTC rules, however, there are exceptions to this
requirement based on the initial cost of a license and the licensee's financial
condition. At least fifteen (15) states presently regulate the offer and sale of
franchises and generally require registration of the franchise offering with
state authorities. Our failure to comply with these rules could result in
substantial penalties and damages, or suspension of part or all of the League's
operations.
OUR DEVELOPMENT AND MANAGEMENT OF PUBLIC VENUES MAY EXPOSE US TO LITIGATION.
Our participation in the development, operation, and management of multipurpose
sports and entertainment arenas attended by the public may expose us to
additional exposure from litigation arising from the use of such facilities by
the public. Although we maintain comprehensive general liability insurance to
protect us against the risk of loss, there can be no assurance that we will not
be a target in any potential litigation seeking substantial damages. We could be
adversely impacted if we become involved in litigation.
14
WE WILL REQUIRE ADDITIONAL CAPITAL TO SUPPORT OUR GROWTH PLANS.
We will require additional capital to continue to grow and possibly to survive.
The arena development industry, in particular, is capital intensive and requires
that we obtain additional working capital and additional funds to support our
operations. Unless we can generate sufficient levels of cash from our
operations, which we may not be able to achieve for the foreseeable future, we
will continue to rely on equity financing and long-term debt to meet our cash
requirements. There is no assurance that we will be able to maintain financing
on acceptable terms or at all. Furthermore, insufficient capital may require us
to delay or scale back anticipated future activities. In addition, if additional
capital is raised through equity-related financing, it could result in dilution
to the ownership interests of existing stockholders.
OUR COMMON STOCK IS THINLY TRADED AND YOU MAY NOT BE ABLE TO SELL THE SECURITIES
AT ALL OR WHEN YOU WANT TO DO SO.
Our common stock currently is quoted on the American Stock Exchange and
currently is thinly traded. Because of the limited public market for our common
stock, you may be unable to sell our common stock when you want to do so.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
We lease 10,392 square feet of office space for our Tempe, Arizona headquarters
pursuant to a lease with a sixty-six month initial term beginning in February
2008. This lease is renewable for an additional sixty-month period. We also
lease 461 square feet of office space to support our ticketing operations in
Austin, Texas on a month-to-month basis.
ITEM 3. LEGAL PROCEEDINGS.
As with all entertainment facilities there exists a degree of risk that the
general public may be accidentally injured at one of the facilities we develop,
design or manage. As of May 31, 2008, there were various claims outstanding in
this regard that management does not believe will have a material effect on our
financial condition or results of operations. To mitigate this risk, we maintain
insurance coverage, which we believe effectively covers any reasonably
foreseeable potential liability. There is no assurance, however, that our
insurance coverage will adequately cover all liabilities to which we may be
exposed.
We are a plaintiff and a counter-defendant in a lawsuit involving a former
licensee, Blue Line Hockey, LLC (Blue Line), which operates the Youngstown
Steelhounds. This suit was filed in Maricopa County Superior Court of Arizona on
November 7, 2006. Our claim is for approximately $115 thousand in unpaid license
and assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleges that WPHL fraudulently induced Blue Line's principal to
enter the license agreement by failing to comply with franchise disclosure
requirements, and that WPHL made fraudulent representations to induce Blue Line
into signing the license agreement. Blue Line seeks rescission of the license
agreement, reimbursement of its franchise fee, and reimbursement of travel
expenses for the 2005-2006 season. Although the outcome of this matter cannot be
predicted with certainty, we believe that we have both valid claims and valid
defenses to the counterclaims. Thus, we intend to vigorously prosecute our
claims and defend the counterclaims. No liability has been established at May
31, 2008, related to this matter.
We were a defendant in a lawsuit filed by Nustadia Developments Inc. and PBK
Architects. The suit arose out of certain contracts between us and the
plaintiffs, pursuant to which we agreed to use architectural design and
development management services of the plaintiffs with respect to certain arena
development projects. The suit sought direct damages of $4.5 million and other
unspecified damages for alleged breach of contract, tortious interference with
business expectancy, and breach of implied covenant of good faith and fair
dealing. This suit was filed in December 2005, in the Maricopa County Superior
Court of Arizona. We settled the matter in the third quarter of fiscal year 2008
and are currently waiting for dismissal.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASE OF EQUITY SECURITIES
Our common stock trades on the American Stock Exchange (AMEX) under the symbol
"GEE". As of August 13, 2008, there were approximately 700 record and beneficial
owners of our common stock.
On April 7, 2006, we completed a private placement of 1,079,000 shares of common
stock, together with warrants to purchase an aggregate of 107,900 shares of
common stock at an exercise price of $7.10 per share. On April 28, 2006, we
filed a registration statement on Form S-3 (Commission File No. 333-133633)
covering resales of the common stock issued in the private placement, which was
subsequently amended on May 8, 2006. The registration statement went effective
on June 23, 2006.
The following schedule contains the high and low closing sales prices of our
common stock, as reported by the AMEX. The quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not represent
actual transactions.
June 1, 2006 - September 1, 2006 - December 1, 2006 - March 1, 2007 -
August 31, 2006 November 30, 2006 February 28, 2007 May 31, 2007
--------------- ----------------- ----------------- ------------
$5.40 - $6.90 $5.65 - $6.02 $4.77 - $5.65 $4.85 - $5.67
June 1, 2007 - September 1, 2007 - December 1, 2007 - March 1, 2008 -
August 31, 2007 November 30, 2007 February 29, 2008 May 31, 2008
--------------- ----------------- ----------------- ------------
$4.64 - $4.98 $3.70 - $4.65 $1.18 - $3.70 $0.83 - $1.90
We have never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. In addition, our bank credit facility
restricts our ability to pay dividends. Our current policy is to retain any
earnings to finance operations and expand our business.
As of May 31, 2008, there were warrants outstanding to purchase 275,760 shares
of our common stock, in addition to the number of securities to be issued upon
exercise of outstanding options, warrants and rights, as described below. The
following schedule contains information related to the Global Entertainment
Corporation 2000 Long-Term Incentive Plan and the 2007 Long-Term Incentive Plan,
as of May 31, 2008:
<TABLE>
<CAPTION>
Number of securities
remaining available for
Number of securities future issuance under
to be issued upon Weighted-average equity compensation
exercise of exercise price of plans (excluding
outstanding options, outstanding options, securities reflected in
Plan Category warrants and rights warrants and rights column (a))
------------- ------------------- ------------------- -----------
(a) (b) (c)
<S> <C> <C> <C>
Equity compensation
plans approved by
security holders 666,517 $ 5.49 493,892 (1)
Equity compensation
plans not approved by
security holders -- -- --
------- ------ -------
Total 666,517 $ 5.49 493,892
======= ====== =======
</TABLE>
----------
(1) The number of securities remaining available for future issuance includes
286,500 securities included under the 2007 Long-Term Incentive Plan,
adopted during fiscal year 2007. This plan authorizes the Board of
Directors to grant restricted stock awards to selected officers, employees,
outside consultants and directors for up to an aggregate of 320,000 shares
of common stock. As of May 31, 2008, we had issued 33,500 shares of
restricted stock under this plan.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is management's discussion and analysis of certain significant
factors affecting our financial condition, changes in financial condition, and
results of operations during the last two fiscal years.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
This management's discussion and analysis is based on our consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent liabilities. Management bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Senior management has discussed the
development, selection and disclosure of these estimates with the Board of
Directors. Actual results may differ from these estimates.
Management believes that the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.
REVENUE RECOGNITION
* License Fees: License fees include initial acquisition fees, transfer
fees and annual assessments. Initial license fees represent amounts
received from licensees to acquire a hockey license. Transfer license
fees represent the amounts received upon transfer of ownership of an
existing license. We recognize initial fees and transfer fees when we
have met all of our significant obligations under the terms of the
license agreement. Each arrangement is unique, however, under the
standard license agreement, we are generally responsible for assisting
the licensee with facility lease contract negotiations (if a lease has
not yet been secured), venue ticketing analysis and pricing,
concessionaire negotiations and staffing advisements. These generally
occur at, or before, the time the licensee acquires a license.
Pursuant to the terms of the joint operating agreement each team in
the League pays annual assessment fees of $75 thousand, plus $15
thousand per annum for officiating costs. In addition, the teams from
WPHL pay an extra $10 thousand annually to cover our costs. The fees
are recognized ratably over the year in proportion to the expenses
expected to be incurred.
* Advertising Sales Commissions: GEMS sells certain contractual rights
including facility naming rights, luxury suite sales, club seat
license sales, and facility sponsorship agreements. The revenue from
these contracts is recognized when earned in accordance with the
contract.
* Project Management Fees: ICC receives design/build and
construction-project supervisory contract revenue from various
municipalities in connection with the construction of municipal
venues. This revenue is recognized ratably over the duration of the
contracts. Project management fees also include amounts billed
relating to furniture, fixtures and equipment, architectural fees, and
other amounts incurred on behalf of municipalities. The related
revenue and expense for these amounts are recognized in the period
incurred. Revenues and costs from fixed-price and modified fixed-price
construction contracts are recognized for each contract on the
percentage-of-completion method, measured by the percentage of costs
incurred to date to the estimated total direct costs. As contracts can
extend over one or more accounting periods, revisions in costs and
earnings estimated during the course of the work are reflected during
the accounting period in which the facts that required such revision
become known. Project management revenues are recorded based on the
gross amounts billed to a customer in accordance with EITF 99-19,
"Reporting Revenue Gross as a Principal versus Net as an Agent".
* Project Development Fees: GPI targets mid-sized communities across the
United States providing services related to the development of
multipurpose events centers and surrounding multi-use real estate
development. Project development fees are recognized according to
specific contract terms; typically 50% upon signing of a development
contract and 50% upon construction groundbreaking.
* Facility Management Fees: Encore earns fees for managing the
operations of various municipal venues. These activities include
developing operating procedures and manuals, hiring all staff,
17
supporting sales and marketing, location maintenance, concessions
coordination, preparing annual budgets, and securing and promoting
events. Revenues from facility management services are recognized as
services are rendered and consist of contract fees, which reflect the
total price of such services. The payroll costs related to employees
working at the facilities are included in cost of revenues.
* Ticket Service Fees: GetTix is a ticketing agent with various venues,
theatres, event centers, and private entities requiring services to
fulfill orders to ticketed events. Revenues are generated from the
fees charged for processing ticket orders. These revenues are
recognized upon completion of the sale. Ticketing revenues are
recorded based on the net fees retained by GetTix in accordance with
EITF 99-19.
ALLOWANCE FOR DOUBTFUL ACCOUNTS. We provide for potential uncollectible trade
and miscellaneous receivables based on specific credit information and
historical collection experience. If market conditions decline, actual
collection experience may not meet expectations and may result in increased
delinquencies.
IMPAIRMENT OF GOODWILL. Our goodwill assets totaled $519 thousand as of May 31,
2008 and relate to costs in excess of identifiable assets in the acquisition of
ICC. Goodwill is tested for impairment at least annually. For goodwill, we first
compare the fair value of a reporting unit with its carrying amount, including
goodwill. If the carrying amount of a reporting unit exceeds the fair value of a
reporting unit, additional tests would be used to measure the amount of
impairment loss, if any. We use a present value technique to measure reporting
unit fair value. If the carrying amount of any other intangible asset exceeds
its fair value, we would recognize an impairment loss for the difference between
fair value and the carrying amount. If events occur and circumstances change,
causing the fair value of a reporting unit to fall below its carrying amount,
impairment losses may be recognized in the future.
ARENA GUARANTEES: We have entered into various contracts with facilities which
guarantee certain economic performance standards. In the event these economic
performance standards are not reached, we are liable for the difference between
the actual performance and the guaranteed performance. It is often not possible
to estimate a potential liability under these guarantees because of the
conditional nature of our obligations and the unique facts and circumstances
involved in each agreement. If economic conditions, or other facts and
circumstances were to change, this could cause an increase in our potential
liability and a charge to earnings.
DEFERRED TAX ASSET. We account for deferred income taxes under the asset and
liability method, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have been
included in the consolidated financial statements or income tax returns. We
record a valuation allowance to reduce deferred income tax assets to an amount
that represents management's best estimate of the amount of such deferred income
tax asset that more likely than not will be realized. The ultimate realization
of the deferred tax asset is dependent upon the utilization of net operating
loss carry-forwards, as well as existing corporate income tax rates. Changes in
these facts and circumstances could affect the carrying value of the deferred
tax asset.
JOINT OPERATING AGREEMENT. We have entered into a joint operating agreement with
CHL Inc. Under the terms of the joint operating agreement, WPHL will handle all
operating functions of the combined league, with the profit or loss from league
operations being split between WPHL, Inc. and CHL Inc. based upon the number of
teams from the respective leagues. The allocation of expenses and division of
profits involves some degree of estimation. Changes in these estimates could
affect the allocation of profit or loss under the terms of the joint operating
agreement.
PERCENTAGE OF COMPLETION. The complexity of the estimation process and all
issues related to the assumptions, risks and uncertainties inherent with the
application of the percentage-of-completion method of accounting affects the
amounts reported in our consolidated financial statements. A number of internal
and external factors affect our percentage-of-completion estimates, including
labor rate, estimated future material prices and customer specification changes.
If our business conditions were different, or if we used different assumptions
in the application of this accounting policy, materially different amounts could
be reported in our consolidated financial statements.
YEAR ENDED MAY 31, 2008 COMPARED TO YEAR ENDED MAY 31, 2007
During fiscal year 2008 we decided to divest of Cragar. As a result, the
operations of Cragar have been classified as loss from discontinued operations
in the consolidated statements of operations for all periods presented. Revenues
and operating costs in the consolidated statements of operations now exclude all
accounts of Cragar.
18
REVENUES (in thousands):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Project management fees $ 913 7.3 $13,871 53.7 $(12,958) (93.4)
Facility management fees 3,279 26.4 4,452 17.3 (1,173) (26.3)
License fees 2,430 19.5 2,341 9.1 89 3.8
Ticket service fees 4,143 33.3 4,106 15.9 37 0.9
Project development fees 769 6.2 100 0.4 669 NM
Advertising sales commissions 767 6.2 918 3.6 (151) (16.4)
Other revenue 136 1.1 24 0.1 112 NM
------- ----- ------- ----- -------- -----
Gross Revenues $12,437 100.0 $25,812 100.0 $(13,375) (51.8)
======= ===== ======= ===== ======== =====
</TABLE>
Total revenues decreased $13.4 million, or 51.8%, to $12.4 million for fiscal
year 2008, from $25.8 million in fiscal year 2007. This decrease was the result
of ICC project management revenues which decreased $13.0 million, to $0.9
million in fiscal year 2008, from $13.9 million in fiscal year 2007. This
decrease resulted as ICC construction management projects were in the completion
stages in fiscal 2007, creating significant revenues from procurement of
furniture, fixtures, and equipment on behalf of project owners. The related
revenue and expense for these amounts are recognized in the period incurred.
Facility management fees decreased $1.2 million, or 26.3%, to $3.3 million for
fiscal year 2008 from $4.5 million in fiscal year 2007. This decrease occurred
primarily as a result of cancellation of the management contract with the
Chevrolet Center in Youngstown, Ohio. Encore's current facility management
contracts include the Santa Ana Star Center in Rio Rancho, New Mexico, and Tim's
Toyota Center in Prescott Valley, Arizona, and preopening management fees for
Wenatchee, Washington. Encore principally manages employees under each of its
current facility management contracts and, therefore, payroll costs for such
employees are recognized by Encore as revenue and are also included in cost of
revenues.
License fees increased $0.1 million, or 3.8%, to $2.4 million for fiscal year
2008 from $2.3 million for fiscal year 2007.
Ticket service fees were relatively unchanged at $4.1 million for fiscal year
2008 and the comparable prior year period.
Project development fees were $0.8 million in fiscal year 2008, compared to $0.1
million in the prior year. GPI signed project development agreements with the
City of Allen, Texas and the City of Independence, Missouri in fiscal year 2008,
and received other development fees. With the signing of the agreements with the
City of Allen and the City of Independence we recognized $0.5 million, or
approximately 50% of our contractual development fees. The agreements are
expected to yield GPI additional project management fees of $0.5 million in the
first half of fiscal 2009.
Advertising sales commission decreased $0.2 million, or 16.4%, to $0.8 million
in fiscal year 2008, compared to $0.9 million in the prior year. This decrease
occurred primarily as a result of cancellation of the GEMS contract with the
Chevrolet Center in Youngstown, Ohio. GEMS revenue for services in Wenatchee,
Washington began late in fiscal year 2008, but is not yet at a level comparable
to those from services in Youngstown, Ohio.
19
OPERATING COSTS (in thousands):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Cost of revenues $ 6,759 54.4 $20,179 78.2 $(13,420) (66.5)
General and administrative costs 8,443 67.9 8,695 33.7 (252) (2.9)
------- ----- ------- ----- -------- -----
Total Operating Costs $15,202 122.2 $28,874 111.9 $(13,672) (47.4)
======= ===== ======= ===== ======== =====
</TABLE>
Total operating costs decreased by $13.7 million, or 47.4%, to $15.2 million for
fiscal year 2008 from $28.9 million in the prior fiscal year.
Cost of revenues decreased by $13.4 million, or 66.5%, to $6.8 million for
fiscal year 2008, from $20.2 million for fiscal year 2007. This decrease
resulted primarily because 1) ICC construction management projects were in the
final stages during the prior fiscal year, which generated costs associated with
the purchase and sale of furniture, fixtures, and equipment on behalf of project
owners, and 2) facility management payroll associated with the facility in
Youngstown, Ohio, decreased due to cancellation of the management agreement.
General and administrative expenses decreased $0.3 million, or 2.9%, to $8.4
million for fiscal year 2008 from $8.7 million for fiscal year 2007. Fiscal year
2008 includes approximately $0.8 million in costs associated with litigation and
settlements and $0.2 million in severance. Fiscal year 2007 included $1.6
million in costs associated with litigation and settlements and $0.3 million
minority interest income.
LOSS FROM CONTINUING OPERATIONS (in thousands):
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
May 31, % of May 31, % of
2008 Revenue 2007 Revenue Change % Change
---- ------- ---- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Loss from Continuing Operations $(2,924) (23.5) $(2,601) (10.1) $(323) 12.4
======= ===== ======= ===== ===== ====
</TABLE>
Loss from continuing operations was $2.9 million for fiscal year 2008, compared
to net loss of $2.6 million for the fiscal year 2007. Fiscal year 2008 includes
approximately $0.8 million in costs associated with litigation and settlements,
$0.3 million loss on our investment in PVEC LLC, and $0.2 million in severance.
Fiscal year 2007 included $1.6 million in costs associated with litigation and
settlements.
LIQUIDITY AND CAPITAL RESOURCES
As of May 31, 2008, we have $0.4 million in cash and cash equivalents, including
cash collected for GetTix tickets of approximately $0.3 million for events
scheduled to occur in the future.
Cash used by operating activities for fiscal 2008 was $2.9 million compared to
cash used by operating activities of $0.9 million in the prior fiscal year. This
increase in cash used by operations is attributable primarily to:
* a reduction in trade accounts payable and accrued liabilities of $1.7
million, in part because we funded, in fiscal 2008, legal and
settlement reserves of $0.7 million existing at May 31, 2007;
* an increase in unbilled earnings on the Wenatchee project of $0.8
million; and
* an offset by a reduction in accounts receivable of $1.8 million.
A $0.4 million source of operating capital during fiscal year 2008 was League
license transfer fees. Since League license transfer fees are not regularly
recurring and are difficult to predict, there is no assurance that we will be
able to increase or sustain our operating capital through these or other
sources.
Cash used in investing activities totaled $27.9 million for fiscal year 2008,
compared to cash used in investing activities of $0.3 million in the prior
fiscal year. Of this increase, $27.7 million relates to construction of the
events center in Wenatchee, Washington. The construction costs are being funded
primarily with a construction loan with Marshall Financial Group, LLC, as
reflected as a source of funds in the financing section.
20
Cash provided by financing activities totaled $27.0 million for fiscal year
2008, primarily related to funds received from the construction loan with
Marshall Financial Group, LLC.
On August 1, 2008, we closed a transaction under which we sold substantially all
of the assets of Cragar. The assets consisted primarily of intangible property,
including trademarks, service marks and domain names. The purchase price was
approximately $1.9 million in cash. Of the proceeds, $0.1 million was used for
transaction-related costs and, as discussed in greater detail below, $1.25
million of the cash received has been set aside in a restricted account as
security for a letter of credit. The remainder of the funds was available for
working capital and general corporate purposes.
In August 2007, we entered into an agreement with Marshall Financial Group, LLC
(Marshall) to borrow up to $52.0 million for the construction of a multi-purpose
events center in Wenatchee, Washington. The outstanding principal balance of the
note bears interest at a rate of prime plus 0.25% (5.25% at May 31, 2008). The
note is payable in its entirety in August 2009. The Greater Wenatchee Regional
Events Center Public Facilities District (PFD) has exercised its option to buy
the events center upon completion of construction, scheduled in October 2008.
When this sale is completed, we will be required to pay the construction loan in
full. Consequently, as of May 31, 2008, the $26.9 million outstanding balance on
the construction loan is classified as short-term notes payable in the
consolidated balance sheet.
Financial covenants of the Marshall note require that we maintain a level of
stockholders' equity of not less than $8.0 million and unrestricted cash, cash
equivalents, time deposits and marketable securities of not less than $3.5
million. As of May 31, 2008, we were not in compliance with these financial
covenants.
Interest on the Marshall note accumulates monthly and increases both notes
payable and investment in Wenatchee project in the consolidated balance sheet.
As of May 31, 2008, $1.1 million of our initial investment in the project was
included in investment in Wenatchee project; as we did not finance this initial
investment with the loan. We expect to finance future investments in the project
with the loan. Expenditures on the project are generally incurred in one month
and financed with the loan in the following month, when a draw request is
submitted Marshall.
We have a $1.75 million line of credit that matures on November 1, 2008, and
bears interest at a rate of prime plus 2% (7.0% at May 31, 2008). As of May 31,
2008, and through the date of this filing, we have received no cash advances on
this credit facility. Effective June 2008, we are required to deposit cash in
the amount of any requested cash advances. At May 31, 2008, and as of the date
of this filing, we had a maximum borrowing capacity of $0.5 million, as a result
of a $1.25 million letter of credit in favor of Marshall, which reduced our
available line of credit. We deposited $1.25 million of the proceeds from the
disposition of Cragar with the bank in August 2008, as security for the letter
of credit. These funds are restricted, and unavailable to us, as long as the
letter of credit is outstanding. The letter of credit currently expires in
August 2009; however we expect the letter of credit to be surrendered by
Marshall in October 2008 when we intend to repay our construction loan with
proceeds from the sale of the events center in Wenatchee, Washington. The PFD
intends to issue bonds to finance its purchase of the facility. The success of
the bond issuance cannot be guaranteed.
The credit facility has been secured by substantially all of our tangible and
intangible assets. In order to borrow, we must meet certain financial covenants,
including maintaining a minimum current ratio (current assets compared to
current liabilities) of 1.05 as of the end of each fiscal quarter, a minimum
consolidated tangible net worth of $5 million as of the date of the amendment,
August 21, 2006, and an increase in tangible net worth of at least 75% of
consolidated net income plus 100% of all increases of equity (including the
amount of any stock offering or issuance) on each anniversary date of May 31
thereafter until maturity. We must maintain a zero balance for a consecutive 30
day period during the term of the facility. As of May 31, 2008, we were not in
compliance with the tangible net worth covenant; however, the bank has waived
this covenant violation.
We continue to evaluate the profitability of, and synergies among, our various
subsidiaries and may determine to dispose of one or more of them, as we move
forward with our business plan. Based on our current forecast and historical
results, we expect to have adequate cash flow from available sources to fund our
operating needs through May 31, 2009. We expect cash and cash flow will be low
in the first quarter of fiscal 2009, and remain low until the sale of the
Wenatchee events center in October 2008. We do not expect to borrow under the
letter of credit, since any advances will require us to deposit cash in the
amount of the requested advance. If we continue to not maintain compliance with
covenants, our business or profitability deteriorates or we incur unexpected
expenses or asset impairments, it could have a material adverse effect on our
liquidity and financial resources. We may be required to refinance all or part
21
of our existing debt. We cannot guarantee that we would be able to do so on
terms acceptable to us, if at all.
ECONOMIC FACTORS AND SEASONALITY
General economic factors, which are largely out of our control, may have a
materially adverse effect on our results of operations. Economic conditions may
adversely affect our customers' ability to pay for our services or interest in
our services. Economic conditions, particularly high gasoline prices, may also
have an adverse impact on arena operations, if customers of the arenas purchase
fewer tickets to arena events or decide not to renew season tickets or other
contracts.
We experience significant seasonality in our cash flows from assessment fees,
and must budget our cash flow accordingly. Approximately 75% of annual league
assessment fees are received prior to the start of the League hockey season in
October of each year.
INFLATION
We do not believe that inflation has been a material factor in our prior
operations, nor do we anticipate that general price inflation will have a
significant impact on our operations in the near future.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), "An
Interpretation of FASB Statement No. 109," which clarifies the accounting for
uncertainty in income taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
No. 48 reflects the benefit recognition approach, where a tax benefit is
recognized when it is more likely than not to be sustained based on the
technical merits of the position. We adopted FIN No. 48 on June 1, 2007, and
there was no material effect on our financial position or results of operations.
In September 2006, the Financial Accounting Standard Board issued a Statement of
Financial Accounting Standard No. 157 (SFAS 157), "Fair Value Measurements". The
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement is effective for our fiscal year
beginning June 1, 2008, and interim periods within that fiscal year. The
adoption of SFAS 157 is not expected to have a material effect on our financial
position or results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. This statement is effective for our fiscal year beginning June 1, 2008. We
do not expect SFAS No. 159 will have a material effect on our financial position
or results of operations.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51". This statement
establishes accounting and reporting standards for noncontrolling interests in a
subsidiary and for the deconsolidation of a subsidiary. The statement also
provides consolidated income statement presentation guidance and expanded
disclosures. This statement is effective for our fiscal year beginning June 1,
2008. We have not yet evaluated the effect SFAS No. 160 will have on our
financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Global Entertainment Corporation and Subsidiaries
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Global
Entertainment Corporation and subsidiaries as of May 31, 2008 and 2007, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Entertainment
Corporation and subsidiaries at May 31, 2008 and 2007, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
/s/ Semple, Marchal & Cooper, LLP
-----------------------------------------
Phoenix, Arizona
August 27, 2008
23
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 2008 and 2007
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
2008 2007
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 443 $ 4,252
Accounts receivable, net of $2 and $557
allowance at May 31, 2008 and 2007 1,111 3,420
Prepaid expenses and other assets 239 706
Income taxes receivable -- 63
Deferred income tax asset -- 14
Investment in Wenatchee project 34,473 --
Assets to be disposed 2,167 302
-------- --------
TOTAL CURRENT ASSETS 38,433 8,757
Property and equipment, net 266 149
Goodwill 519 519
Other assets 108 81
Minority interests 38 --
Assets to be disposed -- 2,800
-------- --------
TOTAL ASSETS $ 39,364 $ 12,306
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,718 $ 3,123
Accrued liabilities 750 1,605
Deferred revenues 24 240
Notes payable - current portion 27,220 --
Liabilities related to assets to be disposed 233 318
-------- --------
TOTAL CURRENT LIABILITIES 35,945 5,286
Deferred income tax liability 117 66
Notes payable - long-term portion 180 --
-------- --------
TOTAL LIABILITIES 36,242 5,352
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value; 10,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock - $.001 par value; 50,000,000 shares authorized;
6,625,114 and 6,508,173 shares issued and outstanding as of
May 31, 2008 and 2007 7 7
Paid-in capital 10,930 10,731
Retained deficit (7,815) (3,784)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 3,122 6,954
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 39,364 $ 12,306
======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
24
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended May 31, 2008 and 2007
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
2008 2007
---------- ----------
<S> <C> <C>
REVENUES:
Project management fees $ 913 $ 13,871
Facility management fees 3,279 4,452
License fees 2,430 2,341
Ticket service fees 4,143 4,106
Project development fees 769 100
Advertising sales commissions 767 918
Other revenue 136 24
---------- ----------
TOTAL REVENUES 12,437 25,812
---------- ----------
OPERATING COSTS:
Cost of revenues 6,759 20,179
General and administrative costs 8,443 8,695
---------- ----------
TOTAL OPERATING COSTS 15,202 28,874
---------- ----------
INCOME (LOSS) FROM OPERATIONS (2,765) (3,062)
OTHER INCOME (EXPENSE):
Interest income 94 247
Interest expense (40) (12)
Minority interests 38 304
Loss on investment in PVEC, LLC (251) --
Impairment of non-marketable securities -- (78)
---------- ----------
TOTAL OTHER INCOME (EXPENSE) (159) 461
---------- ----------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (2,924) (2,601)
INCOME TAX BENEFIT 105 --
---------- ----------
LOSS FROM CONTINUING OPERATIONS (2,819) (2,601)
LOSS FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES (1,212) (1,524)
---------- ----------
NET LOSS $ (4,031) $ (4,125)
========== ==========
LOSS PER SHARE:
Basic-
Loss from continuing operations $ (0.43) $ (0.40)
Loss from discontinued operations (0.19) (0.23)
---------- ----------
Net loss $ (0.62) $ (0.63)
========== ==========
Diluted-
Loss from continuing operations $ (0.43) $ (0.40)
Loss from discontinued operations (0.19) (0.23)
---------- ----------
Net loss $ (0.62) $ (0.63)
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic 6,545,292 6,502,736
========== ==========
Diluted 6,545,292 6,502,736
========== ==========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
25
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended May 31, 2008 and 2007
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Common Stock Retained
---------------------- Paid-in Earnings
Shares Amount Capital (Deficit) Total
------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 2006 6,487,492 $ 7 $ 10,666 $ 341 $ 11,014
Exercise of options 10,681 -- 9 -- 9
Issuance of restricted stock 10,000 -- 56 -- 56
Net loss for the fiscal year
ended May 31, 2007 -- -- -- (4,125) (4,125)
--------- ------ -------- -------- --------
BALANCE AT MAY 31, 2007 6,508,173 7 10,731 (3,784) 6,954
Exercise of options 13,941 -- -- -- --
Issuance of restricted stock 3,000 -- 36 -- 36
Issuance of stock 100,000 -- 163 -- 163
Net loss for the fiscal year
ended May 31, 2008 -- -- -- (4,031) (4,031)
--------- ------ -------- -------- --------
BALANCE AT MAY 31, 2008 6,625,114 $ 7 $ 10,930 $ (7,815) $ 3,122
========= ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
26
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended May 31, 2008 and 2007
(in thousands)
<TABLE>
<CAPTION>
2008 2007
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,031) $ (4,125)
Adjustments to reconcile net loss to net cash
used in operating activities-
Depreciation 142 130
Deferred income taxes 65 --
Unbilled earnings on Wenatchee project (766) (378)
Provision for doubtful accounts 121 522
Loss on investment in PVEC, LLC 251 --
Issuance of stock to vendors 163 24
Other non-cash items (2) 78
Discontinued operations and related impairment charges 828 1,003
Changes in assets and liabilities, net of businesses
acquired and disposed-
Accounts receivable 1,810 3,114
Prepaid expenses and other assets 431 (295)
Income taxes receivable 63 --
Accounts payable (877) (10)
Accrued liabilities (855) (47)
Deferred revenues (216) (960)
-------- --------
Net cash used in operating activities (2,873) (944)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (250) (86)
Investment in Wenatchee construction project (27,704) --
Discontinued operations 22 (76)
Other investing activities -- (89)
-------- --------
Net cash used in investing activites (27,932) (251)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable proceeds 27,204 --
Notes payable payments (208) --
Other financing activities -- 9
-------- --------
Net cash provided by financing activities 26,996 9
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,809) (1,186)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,252 5,438
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 443 $ 4,252
======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 36 $ 14
======== ========
Income taxes paid (received) $ (135) $ --
======== ========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
27
GLOBAL ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, NATURE OF OPERATIONS,
AND USE OF ESTIMATES
--------------------------------------------------------------------------------
DESCRIPTION OF THE COMPANY
Global Entertainment Corporation (referred to in this annual report as "we,"
"us," "Global,", "Company" or "GEC") is an integrated event and entertainment
company that is engaged, through its wholly owned subsidiaries, in sports
management, multipurpose events center and related real estate development,
facility and venue management and marketing, and venue ticketing. We are
primarily focused on projects located in mid-size communities in the United
States.
Our current operating subsidiaries are Western Professional Hockey League, Inc.,
Global Properties I, International Coliseums Company, Inc., Global Entertainment
Marketing Systems, Inc., Global Entertainment
Ticketing, and Encore Facility Management.
We, through our wholly owned subsidiary, Western Professional Hockey League,
Inc., are the operator of the Western Professional Hockey League (WPHL), a minor
league professional hockey organization, and are the licensor of the
independently owned hockey teams which participate in the league. WPHL has
entered into a joint operating agreement with the Central Hockey League, Inc.
(CHL Inc.). The effect of the joint operating agreement is that the two leagues
had their respective teams join together and operate under the Central Hockey
League name (as the League). The terms of the joint operating agreement define
how the League will operate.
The League is a structured licensed sports league, which includes competing
teams located in states, including Texas, Colorado, Kansas, Louisiana,
Mississippi, New Mexico, Oklahoma, and Arizona. There were 17 teams in the
2007-08 season and 18 teams in the 2006-07 season. In the 2007-2008 season 13
teams were licensed by WPHL and in the 2006-2007 season 14 teams were licensed
by WPHL. In each season, 4 teams, each of which was an original CHL, Inc. team,
continue to operate under a sanction agreement that requires direct payments to
the League pursuant to the terms and conditions of the original CHL, Inc.
agreements.
During the year ended May 31, 2007, we began operations of Global Properties I
(GPI) which provides services in targeted mid-sized communities across the
United States related to the development of multipurpose events centers and
surrounding multi-use real estate development.
GPI, along with International Coliseums Company, Inc. (ICC), develops
multipurpose events centers in mid-market communities. ICC's development of
multipurpose events centers promotes the development of the League by assisting
potential licensees in securing quality venues in which to play minor
professional hockey league games. The inter-relationship between GPI, ICC and
WPHL is a key factor in the viability of a managed multipurpose entertainment
facility.
Global Entertainment Marketing Systems, Inc. (GEMS), promotes, markets, and
sells various services related to multipurpose entertainment facilities,
including all contractually obligated income (COI) sources such as facility
naming rights, luxury suite sales, club seat license sales, and facility
sponsorship agreements.
Global Entertainment Ticketing (GetTix) provides ticketing services for the
multipurpose event centers developed by GPI and ICC, existing League licensees,
and various other entertainment venues, theaters, concert halls, and other
facilities and event coordinators. GetTix provides a full ticketing solution by
way of box office, phone, internet and print-at-home service that utilizes
distribution outlets in each market. GetTix uses third-party, state-of-the-art
software to deliver ticketing capabilities that include database flexibility,
easy season and group options, financial reporting and marketing resources.
In February 2006, we formed Encore Facility Management (Encore), a single source
management entity that provides a full complement of multipurpose events center
operational services. These services provide administrative oversight in the
areas of facility/property management and finance, event bookings, and food and
beverage. Encore is currently involved with facility management of a
multipurpose events centers developed by GPI and ICC. Facility management
operations are conducted under separate limited liability companies.
28
On August 1, 2008, we closed a transaction pursuant to which we sold
substantially all of the assets of our subsidiary Cragar Industries, Inc.
(Cragar), a licensor of an automotive aftermarket wheel trademark and brand -
CRAGAR(R). The assets consisted primarily of intangible property, including
trademarks, service marks and domain names. The purchase price was approximately
$1.9 million in cash. Of the cash proceeds, $0.1 million was used for
transaction-related costs and $1.25 million has been set aside in a restricted
account as security for a letter of credit. The remainder of the funds was made
available for working capital and general corporate purposes.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Global Entertainment Corporation and its wholly owned subsidiaries, WPHL, GPI,
ICC, GEMS, Encore, GetTix and Cragar, as well as the limited liability companies
formed for facility management. Intercompany balances and transactions have been
eliminated in consolidation.
DISCONTINUED OPERATIONS
During fiscal year 2008 we decided to divest of Cragar. As a result, the
operations of Cragar have been classified as loss from discontinued operations
in the consolidated statements of operations for all periods presented.
RECLASSIFICATIONS
Certain balances have been reclassified in the accompanying consolidated
financial statements to conform to the current year presentation.
ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
We consider all highly liquid investments purchased with an original maturity of
three months or less to be cash and cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable represent amounts due from municipalities for services in
relation to construction and project management; license fees due and
receivables from merchant banks for credit card ticket sales, and other
receivables from customers. We follow the allowance method of recognizing
uncollectible accounts receivable. The allowance method recognizes bad debt
expense based on a review of individual accounts outstanding and our prior
history of uncollectible accounts receivable. We record delinquent finance
charges on outstanding accounts receivable only if they are collected. Accounts
receivable are generally unsecured. If market conditions decline, actual
collection experience may not meet expectations and may result in increased
delinquencies.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is computed under the straight-line method for financial statement
purposes and under accelerated methods for income tax purposes. Repairs and
maintenance expenses are charged to operations as incurred. Betterment or
renewals are capitalized as incurred.
We review property and equipment for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell.
GOODWILL
We evaluate goodwill and other intangibles for impairment annually, and when
impairment indicators arise, in accordance with Statement of Financial
Accounting Standard No. 142 (SFAS142), "Goodwill and Other Intangible Assets".
29
For goodwill, we first compare the fair value of a reporting unit with its
carrying amount, including goodwill. If the carrying amount of a reporting unit
exceeds the fair value of a reporting unit, additional tests would be used to
measure the amount of impairment loss, if any. We use a present value technique
to measure reporting unit fair value. If the carrying amount of any other
intangible asset exceeds its fair value, we would recognize an impairment loss
for the difference between fair value and the carrying amount. We have not
recognized any impairment losses to date on goodwill. If events occur and
circumstances change, causing the fair value of a reporting unit to fall below
its carrying amount, impairment losses may be recognized in the future.
DEFERRED REVENUES
Deferred revenues represent various fees received for which substantially all of
the services have not yet been performed. The revenues will be recognized when
the obligations of the agreement are met and the earnings cycle has been
completed.
MINORITY INTERESTS
We have entered into a joint operating agreement with CHL Inc. Under the terms
of the joint operating agreement, WPHL will handle all operating functions of
the combined league, with the profit or loss from league operations being split
between WPHL, Inc. and CHL Inc. based upon the number of teams from the
respective leagues. We consolidate league operations and CHL Inc.'s portion of
operations is recorded as minority interests. The allocation of expenses and
division of profits involves some degree of estimation. Changes in these
estimates could affect the allocation of profit or loss under the terms of the
joint operating agreement.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable, accounts payable, accrued liabilities and notes payable are
substantially current and bear reasonable interest rates. As a result, the
carrying values of these financial instruments are deemed to approximate fair
values.
REVENUE RECOGNITION
License Fees: License fees include initial acquisition fees, transfer fees and
annual assessments. Initial license fees represent amounts received from League
licensees to acquire a hockey license. Transfer license fees represent the
amounts received upon the transfer of ownership of an existing license. We
recognize initial fees and transfer fees when we have met all of our significant
obligations under the terms of the license agreement. Each arrangement is
unique, however, under the standard license agreement, we are generally
responsible for assisting the licensee with facility lease contract negotiations
(if a lease has not yet been secured), venue ticketing analysis and pricing,
concessionaire negotiations and staffing advisements. These generally occur at
the time the licensee acquires a license. Pursuant to the terms of the joint
operating agreement, each team in the League also pays annual assessment fees of
$75 thousand, plus $15 thousand per annum for officiating costs. In addition,
the teams from WPHL pay an extra $10 thousand annually to cover our costs. The
fees are recognized ratably over the year in proportion to the expenses expected
to be incurred. At the end of the year, net profits, or losses are shared
proportionately with each member of the joint operating agreement.
Advertising Sales Commission: GEMS sells certain contractual rights, including
facility naming rights, luxury suite sales, club seat license sales and facility
sponsorship agreements. The revenue from these contracts is recognized when
earned in accordance with the contract.
Project Management Fees: ICC receives design/build and construction-project
supervisory contract revenue from various municipalities in connection with the
construction of municipal venues. This revenue is recognized ratably over the
duration of the contracts. Project management fees also include amounts we
billed relating to furniture, fixtures and equipment, architecture fees, and
other amounts we incur on behalf of municipalities. The related revenue and
expense for these amounts are recognized in the period incurred. Revenues and
costs from fixed-price and modified fixed-price construction contracts, are
recognized for each contract on the percentage-of-completion method, measured by
the percentage of costs incurred to date to the estimated total direct costs. As
contracts can extend over one or more accounting periods, revisions in costs and
earnings estimated during the course of the work are reflected during the
accounting period in which the facts that required such revision become known.
Project management revenues are recorded based on the gross amounts billed to a
customer in accordance with EITF 99-19, "Reporting Revenue Gross as a Principal
versus Net as an Agent".
30
Project Development Fees: GPI targets mid-sized communities across the United
States providing our services related to the development of multipurpose events
centers and surrounding multi-use real estate development. Project development
fees are recognized according to specific contract terms; typically 50% upon
signing of a development contract and 50% upon construction groundbreaking.
Facility Management Fees: Encore earns fees for managing the operations of
various municipal venues. These activities include developing operating
procedures and manuals, hiring all staff, supporting sales and marketing,
location maintenance, concessions coordination, preparing annual budgets, and
securing and promoting events. Revenues from facility management services are
recognized as services are rendered and consist of contract fees, which reflect
the total price of such services. The payroll costs related to employees working
at the facilities are included in cost of revenues.
Ticket Service Fees: GetTix is a ticketing agent with various venues, theaters,
event centers, and private entities requiring services to fulfill orders to
ticketed events. Revenues are generated from the fees charged for processing
ticket orders. These revenues are recognized upon completion of the sale.
Ticketing revenues are recorded based on the net fees retained by GetTix in
accordance with EITF 99-19.
ARENA GUARANTEES
We have entered into various contracts with facilities which guarantee certain
economic performance standards. In the event these economic performance
standards are not reached, we are liable for the difference between the actual
performance and the guaranteed performance. We estimate and accrue an obligation
for an estimate of our potential liability under these guarantees, taking into
consideration our experience with similar facilities, the economic environment,
among other factors. It is often not possible to estimate a potential liability
under these guarantees because of the conditional nature of our obligations and
the unique facts and circumstances involved in each agreement. If economic
conditions, or other facts and circumstances were to change, this could cause an
increase in our potential liability and a charge to earnings.
INCOME TAXES
We estimate our actual current tax exposure together with the temporary
differences that have resulted from the differing treatment of items dictated by
generally accepted accounting principles versus United States tax laws. These
temporary differences result in deferred tax assets and liabilities. On an
on-going basis, we assess the likelihood that our deferred tax assets will be
recovered from future taxable income. If we were to believe the recovery was
less than likely, we would establish a valuation allowance against the deferred
tax asset and charge the amount as an income tax expense in the period in which
such a determination was made.
Interest is charged to interest expense and penalties are charged to general and
administrative costs if there are any assessments.
STOCK-BASED COMPENSATION
We recognize compensation cost for stock-based awards issued after March 1,
2006, over the requisite service period for each separately vesting tranche, as
if multiple awards were granted. Compensation cost is based on grant-date fair
value using quoted market prices for our common stock.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial statements in
accordance with accounting principles generally accepted in the United States.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results may vary from the estimates that
were assumed in preparing the consolidated financial statements.
Material estimates include, but are not limited to, revenue recognition, the
allowance for doubtful accounts, arena guarantees, the carrying value of
goodwill, the realization of deferred income tax assets, the fair value of
liability related to the secondary guarantee related to a worker's compensation
program, and the allocation of expenses, division of profit relating to the
joint operating agreement, and the application of the percentage-of-completion
method. Due to the uncertainties inherent in the estimation process and the
significance of these items, it is at least reasonably possible that the
estimates in connection with these items could be materially revised within the
next year.
31
ACCOUNTING DEVELOPMENTS
In June 2006, the FASB issued FASB Interpretation No. 48 (FIN No. 48), "An
Interpretation of FASB Statement No. 109," which clarifies the accounting for
uncertainty in income taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. FIN
No. 48 reflects the benefit recognition approach, where a tax benefit is
recognized when it is more likely than not to be sustained based on the
technical merits of the position. We adopted FIN No. 48 on June 1, 2007, and
there was no material effect on our financial position or results of operations.
In September 2006, the Financial Accounting Standard Board issued a Statement of
Financial Accounting Standard No. 157 (SFAS 157), "Fair Value Measurements". The
statement defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP), and expands disclosures
about fair value measurements. This statement is effective for our fiscal year
beginning June 1, 2008, and interim periods within that fiscal year. The
adoption of SFAS 157 is not expected to have a material effect on our financial
position or results of operations.
In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". This statement permits entities to
choose to measure many financial instruments and certain other items at fair
value. An entity shall report unrealized gains and losses on items for which the
fair value option has been elected in earnings at each subsequent reporting
date. This statement is effective for our fiscal year beginning June 1, 2008. We
do not expect SFAS No. 159 will have a material effect on our financial position
or results of operations.
In December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51". This statement
establishes accounting and reporting standards for noncontrolling interests in a
subsidiary and for the deconsolidation of a subsidiary. The statement also
provides consolidated income statement presentation guidance and expanded
disclosures. This statement is effective for our fiscal year beginning June 1,
2008. We have not yet evaluated the effect SFAS No. 160 will have on our
financial position or results of operations.
--------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE (EPS)
--------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock is computed by dividing the net
income (loss) by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per share is computed by
dividing net income (loss) by the weighted average number of shares of common
stock and dilutive securities outstanding during the period. Dilutive securities
are not included in the weighted average number of shares when inclusion would
increase the income per share or decrease the loss per share. The computation of
diluted EPS equals the basic calculation in each year presented because common
stock equivalents were antiduilutive due to losses from continuing operations
for each of the years presented.
32
Reconciliations of the numerators and denominators in the EPS computations for
loss from continuing operation follow:
2008 2007
---------- ----------
NUMERATOR (in thousands):
Basic and diluted - loss from continuing operations $ (2,924) $ (2,601)
========== ==========
DENOMINATOR:
Basic EPS - weighted average shares outstanding 6,545,292 6,502,736
Effect of dilutive securities -- --
---------- ----------
Diluted EPS - weighted average shares outstanding 6,545,292 6,502,736
========== ==========
Number of shares of common stock which could
be purchased with average outstanding securities
not included in diluted EPS because effect would
be antidilutive-
Stock options (average price of $4.82 and $4.79) 463,622 592,827
Warrants (average price of $6.32) 275,760 275,760
Restricted stock 15,399 13,501
The impacts of all outstanding options, warrants and restricted stock
outstanding at May 31, 2008, were not included in the calculation of diluted EPS
for fiscal year 2008, because to do so would be antidilutive. They could
potentially dilute EPS in the future.
--------------------------------------------------------------------------------
INVESTMENT IN WENATCHEE PROJECT
--------------------------------------------------------------------------------
We are providing construction management services under an agreement with the
City of Wenatchee, Washington, related to a multi-purpose events center in that
city. Investment in Wenatchee project of $34.5 million on the consolidated
balance sheets represents costs and estimated earnings in excess of billings on
this construction project, which we own until construction is complete and the
facility is sold, which is expected in October 2008. Revenues earned on this
project are recorded based on the ratio of costs incurred to the total costs
expected to be incurred. For this purpose, only costs related to performance
under the contract are considered. This cost-to-cost method is used because
management believes costs are the best available measure of our progress on this
fixed-price contract, which may be modified by incentive and penalty provisions.
At May 31, 2008, investment in Wenatchee project consisted of costs incurred of
$33.4 million and estimated earnings of $1.1 million. Estimated earnings of $0.9
million have been included in project management fees and $0.2 million in
project development fees in the consolidated statements of operations through
May 31, 2008. Under the terms of our construction management agreement, we are
not able to bill the City for our services and will receive our revenue out of
the proceeds from the sale of the facility.
Costs associated with the project, including all direct and indirect costs,
including contract supervision and interest during the construction period, are
being recorded as investment in Wenatchee project until the building is
completed. Accumulated interest through May 31, 2008, totals $0.8 million. We
expect project costs to total between $52 million and $54 million. The Greater
Wenatchee Regional Events Center Public Facilities District has exercised its
option to buy the events center upon completion of construction, scheduled in
October 2008.
In August 2007, we entered into an agreement with Marshall Financial Group, LLC
(Marshall) to borrow up to $52.0 million for the construction of the facility.
As of May 31, 2008, $1.1 million of our initial investment in the project was
included in investment in Wenatchee project but we did not finance this initial
investment with the loan. We expect to finance future investments in the project
with the loan. Expenditures on the project are generally incurred in one month
and financed with the loan in the following month, when a draw request is
submitted to Marshall.
At May 31, 2008, approximately $5.6 million of payables related to expenditures
on the project were included in accounts payable.
33
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PROPERTY AND EQUIPMENT
--------------------------------------------------------------------------------
As of May 31, 2008 and 2007, property and equipment was comprised of the
following (in thousands):
2008 2007
-------- --------
Office furniture and equipment $ 308 $ 241
Computer equipment 392 369
-------- --------
700 610
Less: accumulated depreciation (434) (461)
-------- --------
$ 266 $ 149
======== ========
The initial estimated useful lives for depreciation purposes range from two to
seven years.
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PVEC, LLC JOINT VENTURE
--------------------------------------------------------------------------------
During the fiscal year ended May 31, 2006, we entered into a joint venture
partnership agreement with Prescott Valley Signature Entertainment, LLC to form
Prescott Valley Events Center, LLC (PVEC, LLC) to engage in the business of
developing, managing, and leasing the Prescott Valley Events Center in Prescott
Valley, Arizona. We are the managing member of PVEC, LLC. Construction of the
center, which opened in November 2006, was funded by proceeds from the issuance
of $35 million in Industrial Development Authority of the County of Yavapai
Convention Center Facilities Excise Tax Revenue Bonds, Series 2005 (the Bonds).
We account for our investment in PVEC, LLC under the equity method. Our interest
in this entity is not a controlling one, as we do not own a majority voting
interest and as our ability to affect the business operations is significantly
limited by the partnership operating agreement. The PVEC, LLC operating
agreement also provides that a majority-in-interest of the members may replace
the managing member, or if the managing member is in default, a
majority-in-interest of the remaining members may replace the managing member.
Each member must contribute $1 thousand for a 50% interest in the joint venture.
We will also contribute $250 thousand as preferred capital while Prescott Valley
Signature Entertainment, LLC contributed land with an approximate value of $1.5
million as preferred capital. Because we have committed to pay our initial
capital contributions, these amounts are recorded in accounts payable in our
consolidated balance sheets. Further, because PVEC LLC is sustaining losses, and
profitable future operation is not assured, we have recorded losses on our
investment, in the amount of $251 thousand, to bring our investment to zero.
Each member will receive a 5% return on preferred capital contributions and will
share equally in the gain or loss of PVEC, LLC. If funds available to PVEC, LLC
are insufficient to fund operations, the members agree to contribute 100% of the
cash needed until each member's preferred capital account balances are equal and
50% of the cash needed if its preferred capital contribution balances are equal.
PVEC, LLC is obligated to make lease payments equal to debt service payments on
the Bonds. In the event of any shortfalls in debt service payments, amounts will
first be paid by escrow accounts funded by 2% of the transaction privilege tax
(TPT) collected from the surrounding project area and from a lockbox account
containing 1) our initial contribution to PVEC of $250 thousand, 2) $100
thousand per year (increasing annually by inflation) from the Town of Prescott
Valley and 3) earnings from the events center.
We have a limited guarantee of the cash flow of PVEC, LLC as cash flows from
operations of the center are first used to pay operating expenses, second to our
base management fee (4% of the center's operating revenue), third to debt
service, then to fund other items. The maximum losses under this guarantee are
limited to our annual management fee. We do not believe any potential payments
under this guarantee would be material.
34
PVEC, LLC's fiscal year ends December 31. Unaudited financial information for
PVEC, LLC, as of and for the years ended December 31, 2007 and 2006 follows (in
thousands):
2007 2006
-------- --------
Operating Revenues $ 5,514 1,352
TPT Revenues 731 --
Operating Expenses 7,285 1,344
Interest Expense 2,432 250
Loss Before Income Tax 3,332 --
As of Period End
Property and Equipment 31,357 32,621
Total Assets 36,627 43,527
Bonds Payable 35,000 35,000
Partners' Equity (1,591) 1,740
Our consolidated financial statements reflect the following for the years ended
May 31, 2008 and 2007, related to transactions between us and PVEC, LLC (in
thousands).
2008 2007
-------- --------
Facility management fees, exclusive of payroll (Encore) $ 54 $ 52
Facility management fees, payroll related (Encore) 878 779
Advertising sales commission (GEMS) 229 180
Ticket service feees (GetTix) 192 305
Cost of revenues - facility payroll (Encore) 878 779
Accounts payable at end of period 251 225
Accounts receivable at end of period 101 84
--------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES
--------------------------------------------------------------------------------
The actual income tax benefit differs from the expected income tax benefit
computed by applying the United States Federal corporate statutory income tax
rate to loss from continuing operations for fiscal years 2008 and 2007 as
follows (in thousands):
2008 2007
-------- --------
Computed expected tax benefit $ (994) $ (884)
Meals and entertainment and
miscellaneous expenses 26 6
Exercise and sale of qualified options 25 --
Valuation allowance, primarily on benefit
of net operating loss carryforwards 1,008 1,030
State income taxes (170) (152)
------- -------
Income tax benefit $ (105) $ --
======= =======
The $105 thousand benefit is primarily current and includes a current tax
benefit of $75 thousand resulting from the carryback of net operating losses.
35
At May 31, 2008 and 2007, deferred tax assets and liabilities consisted of the
following (in thousands):
2008 2007
-------- --------
Deferred Tax Asset:
Allowance for doubtful accounts $ 1 $ 223
Net operating loss carryforwards 2,594 1,743
------- -------
2,595 1,966
Less: valuation allowance (2,595) (1,952)
------- -------
Deferred Tax Asset $ -- $ 14
======= =======
Deferred Tax Liabilites, Long Term-
depreciation $ (117) $ (66)
======= =======
We have established a valuation allowance due to the uncertainty in the
utilization of net operating loss carryforwards. In fiscal years 2008 and 2007,
the valuation allowance increased in fiscal years 2008 and 2007 to reflect the
status of net operating loss carryforwards.
The loss carryforwards acquired in the merger with Cragar were limited as to use
under IRC Section 382. In connection with the sale of Cragar in August 2008,
those carryforwards will no longer be available, to the extent not available at
May 31, 2008, and the related deferred tax assets have been written off
effective May 31, 2008. Our federal and state net operating loss carryforwards,
exclusive of those limited as to use under IRC Section 382, as of May 31, 2008,
totaled approximately $6.3 million. Net operating loss carryforwards will expire
in 2028 for federal tax purposes and 2013 for state tax purposes.
--------------------------------------------------------------------------------
NOTES PAYABLE
--------------------------------------------------------------------------------
In August 2007, we entered into an agreement with Marshall Financial Group, LLC
(Marshall) to borrow up to $52.0 million for the construction of a multi-purpose
events center in Wenatchee, Washington. The outstanding principal balance of the
note bears interest at a rate of prime plus 0.25% (5.25% at May 31, 2008). The
note is payable in its entirety in August 2009. The Greater Wenatchee Regional
Events Center Public Facilities District has exercised its option to buy the
events center upon completion of construction, scheduled in October 2008. At the
time we sell the events center we will be required to pay the construction loan
in full. Consequently, as of May 31, 2008, the $26.9 million outstanding balance
on the construction loan is classified as short-term notes payable in the
consolidated balance sheet. Interest on the Marshall note accumulates monthly
and increases both note payable and investment in Wenatchee project in the
consolidated balance sheet.
Financial covenants of the Marshall note require that we maintain a level of
stockholders' equity of not less than $8.0 million and unrestricted cash, cash
equivalents, time deposits and marketable securities of not less than $3.5
million. As of May 31, 2008, we were not in compliance with these financial
covenants.
We have a $1.75 million line of credit, with a bank, that matures on November 1,
2008, and bears interest at a rate of prime plus 2% (7.0% at May 31, 2008). As
of May 31, 2008, and through the date of this filing, we have received no cash
advances on this credit facility. Effective June 2008, we are required to
deposit cash in the amount of any requested cash advances. At May 31, 2008, we
had a maximum borrowing capacity of $0.5 million, as a result of a $1.25 million
letter of credit in favor of Marshall, which reduced our available line of
credit. We deposited $1.25 million of the proceeds from the disposition of
Cragar with the bank in August, 2008, as security for the letter of credit.
These funds are restricted, and unavailable to us, while the letter of credit is
outstanding. The letter of credit currently expires in August 2009, however we
expect the letter of credit to be surrendered by Marshall in October 2008 when
we intend to repay our construction loan with proceeds from the sale of the
events center in Wenatchee, Washington. The PFD intends to issue bonds to
finance its purchase of the facility. The success of the bond issuance cannot be
guaranteed.
The credit facility has been secured by substantially all of our tangible and
intangible assets. In order to borrow, we must meet certain financial covenants,
including maintaining a minimum current ratio (current assets compared to
current liabilities) of 1.05 as of the end of each fiscal quarter, a minimum
consolidated tangible net worth of $5 million as of the date of the amendment,
August 21, 2006, and an increase in tangible net worth of at least 75% of
consolidated net income plus 100% of all increases of equity (including the
36
amount of any stock offering or issuance) on each anniversary date of May 31
thereafter until maturity. We must maintain a zero balance for a consecutive 30
day period during the term of the facility. As of May 31, 2008, we were not in
compliance with the tangible net worth covenant; however, the bank has waived
this covenant violation.
In fiscal year 2008, we entered into a note payable in connection with
settlement of a legal matter. The note calls for 36 payments of $10 thousand
monthly through December 2010. We recorded the present value of the payments,
discounted at 7.0%, as notes payable and general and administrative costs.
In fiscal year 2008, we entered into an agreement with a vendor to finance $0.4
million of accounts payable under a note. The note bears interest at 8.3% and is
payable in monthly installments of $84 thousand through July 2008.
Principal maturities of notes payable are as follows (in thousands):
Marshal Settlement Vendor Total
Construction Note Note Notes
Fiscal Year Loan Payable Payable Payable
----------- ---- ------- ------- -------
2009 $26,867 $ 103 $ 250 $27,220
2010 -- 111 -- 111
2011 -- 69 -- 69
------- ------- ------- -------
$26,867 $ 283 $ 250 $27,400
======= ======= ======= =======
--------------------------------------------------------------------------------
EQUITY
--------------------------------------------------------------------------------
WARRANTS
During fiscal year 2006 we issued warrants to acquire shares of its common stock
to select qualified institutional and other investors and placement agents
related to a private placement of its common stock. During fiscal years 2008 and
2007, we had 275,760 warrants outstanding to purchase common stock. All of the
warrants are convertible into one share of common stock and carried initial
terms of five years. All of the warrants are vested and exercisable as of May
31, 2008.
Information with respect to warrants outstanding and exercisable at May 31,
2008, is as follows:
Number of Weighted
Warrants Average Weighted
Outstanding Remaining Average
Exercise and Contractual Exercise
Price Exercisable Term (in years) Price
----- ----------- --------------- -----
$3.50 20,000 0.80 $3.50
$3.55 39,960 0.33 3.55
$7.10 215,800 2.85 7.10
------- ----- -----
275,760 2.34 $6.32
======= ===== =====
OPTIONS
During 2000, we adopted the 2000 Long-Term Incentive Plan. The plan authorizes
our Board of Directors to grant both qualified incentive and non-qualified stock
options and restricted stock awards to selected officers, key employees, outside
consultants and directors for up to an aggregate of 750,000 shares of common
stock, as amended during fiscal year 2004. As of May 31, 2008, a total of
207,392 options remained available for issuance under the plan. These options
were issued to various directors, employees and consultants. Vesting of options
is at the discretion of the Board of Directors and all outstanding options are
fully vested as of May 31, 2008. Options issued under the plan have a maximum
term of 10 years. The exercise price of each option is equal to the market price
of our common stock on the date of grant.
37
The following summarizes option activity in fiscal years 2008 and 2007:
<TABLE>
<CAPTION>
Weighted
Weighted Average Aggregate
Average Remaining Intrinsic
Number of Exercise Contractual Value
Options Price Term (in years) (in thousands)
------- ----- --------------- --------------
<S> <C> <C> <C> <C>
Outstanding at May 31, 2006 679,000 $4.66 6.80 $ 536
Exercised (19,351) 3.54 62
Forfeited (19,750) 5.97
-------- ----- ----- -----
Outstanding at May 31, 2007 639,899 4.65 5.80 160
Exercised (65,000) 3.58 64
Forfeited (184,142) 4.60
-------- ----- ----- -----
Outstanding at May 31, 2008 390,757 $4.89 5.16 $ --
======== ===== ===== =====
</TABLE>
The following table summarizes additional information about out stock option
exercises in fiscal years 2008 and 2007.
2008 2007
-------- --------
Cashless Exercises-
Number of options exercised 65,000 16,851
Shares issued 13,941 8,181
Cash Exercises-
Number of options exercised -- 2,500
Cash proceeds (in thousands) $ -- $ 9
Additional information about outstanding options to purchase common stock as of
May 31, 2008, follows:
Number of Weighted
Options Average Weighted
Outstanding Remaining Average
Exercise and Contractual Exercise
Price Exercisable Term (in years) Price
----- ----------- --------------- -----
$3.50 166,500 4.58 $3.50
$3.55 49,757 0.33 3.55
$4.50 7,500 6.09 4.50
$5.40 60,000 7.01 5.40
$5.75 41,500 6.74 5.75
$8.50 65,500 7.47 8.50
------- ----- -----
390,757 5.16 $4.89
======= ===== =====
RESTRICTED STOCK
During fiscal 2007, we adopted the 2007 Long-Term Incentive Plan. The plan
authorizes the Board of Directors to grant restricted stock awards to selected
officers, employees, and outside consultants for up to an aggregate of 320,000
shares of common stock. Awards to non-employee directors vest over two years,
awards to officers and employees vest over four years, and awards made to
consultants or advisors shall vest as determined by the Compensation Committee
of the Board of Directors.
38
The following tables summarize restricted stock information for fiscal years
2008 and 2007:
2008 2007
-------- ---------
Restricted stock related expenses (in thousands)-
General and administrative costs $ 72 $ 24
Unrecognized compensation cost at end of period $ 53 $ 28
Weighted average period over which unrecognized
compensation will be recognized 1.9 years 0.3 years
Available for grant as of period end 286,500 305,000
<TABLE>
<CAPTION>
2008 2007
------------------------ ------------------------
Weighted Weighted
Restricted Average Restricted Average
Stock Grant Date Stock Grant Date
Shares Fair Value Shares Fair Value
------ ---------- ------ ----------
<S> <C> <C> <C> <C>
Unvested as of beginning of period 15,000 $5.87 -- $ --
Unvested as of end of period 20,500 3.82 15,000 5.87
Granted during the period 18,500 3.60 15,000 5.87
Vested during the period 13,000 5.88 -- --
</TABLE>
Restricted stock grants to consultants are revalued as of each reporting period
end until the measurement date has been reached.
OTHER EQUITY MATTERS
In February 2008, we issued 100,000 shares of common stock, valued at $1.63 per
share, in connection with the settlement of a legal matter.
We have never paid cash dividends on our common stock and do not anticipate
doing so in the foreseeable future. In addition, our bank credit facility
restricts our ability to pay dividends. Our current policy is to retain any
earnings to finance operations and expand our business.
--------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
--------------------------------------------------------------------------------
PURCHASE COMMITMENTS
In connection with the construction project in Wenatchee, Washington, we have
purchase commitments for construction, furniture and fixtures totaling
approximately $14.1 million at May 31, 2008.
OPERATING LEASES
We lease 10,392 square feet of office space for our Tempe, Arizona headquarters
pursuant to a lease with a sixty-six month initial term beginning February 2008.
The lease is renewable for an additional sixty-month period. Leasehold
improvements on at the location are depreciated over the initial lease term.
Non-level rents are recognized on a straight-line basis over the initial lease
term.
In addition we are committed under a phone agreement and maintenance contract to
pay $7 thousand monthly though June 2009.
The minimum lease payments and minimum annual fees under our operating lease and
maintenance contracts, with original terms over one year, are as follows: $365
thousand in fiscal year 2009, $283 thousand in fiscal year 2010, $289 thousand
in fiscal 2011, $295 thousand in fiscal year 2012, and $295 thousand in fiscal
year 2013.
39
LITIGATION
As with all entertainment facilities there exists a degree of risk that the
general public may be accidentally injured. As of May 31, 2008, there were
various claims outstanding in this regard that management does not believe will
have a material effect on our financial condition or results of operations. To
mitigate this risk, we maintain insurance coverage, which we believe effectively
covers any reasonably foreseeable potential liability. There is no assurance
that our insurance coverage will adequately cover all liabilities to which we
may be exposed.
We are a plaintiff and a counter-defendant in a lawsuit involving a former
licensee, Blue Line Hockey, LLC (Blue Line), which operates the Youngstown
Steelhounds. Our claim is for approximately $115 thousand in unpaid license and
assessment fees owed by Blue Line, plus our attorneys' fees. Blue Line's
counterclaim alleges that WPHL fraudulently induced Blue Line's principal to
enter the license agreement by failing to comply with franchise disclosure
requirements, and that WPHL made fraudulent representations to induce Blue Line
into signing the license agreement. Blue Line seeks rescission of the license
agreement, reimbursement of its license fee, and reimbursement of travel
expenses for the 2005-2006 season. Although the outcome of this matter cannot be
predicted with certainty, we believe that we have both valid claims and valid
defenses to the counterclaims. Thus, we intend to vigorously prosecute our
claims and defend the counterclaims. No liability has been established at May
31, 2008, related to this matter.
We were a defendant in a lawsuit filed by Nustadia Developments Inc. and PBK
Architects. The suit arose out of certain contracts between us and the
plaintiffs, pursuant to which we agreed to use architectural design and
development management services of the plaintiffs with respect to certain arena
development projects. This suit was filed in December 2005, and was pending in
the Maricopa County Superior Court of Arizona. We settled the matter with a
combination of stock, cash and a note payable in fiscal year 2008. We are
currently waiting for dismissal. Fiscal 2008 results reflect the related charges
in general and administrative costs.
Global was the claimant and counter-respondent in an arbitration against Global
Spectrum, L.P. (Spectrum). This arbitration was being conducted by the American
Arbitration Association in Phoenix, Arizona, and stemmed from a settlement
agreement entered into between Global and Spectrum. Global sought the
arbitrators' declaration that Global was not obligated to make any more payments
to Spectrum under the settlement agreement alleging that Spectrum misrepresented
material facts to induce Global to execute the settlement agreement. Fiscal 2008
results reflect charges related to settling this matter in general and
administrative costs.
International Coliseums Company was the plaintiff in a lawsuit it filed against
the City of Youngstown, Ohio. The lawsuit sought a determination that the City
took certain actions which prohibited ICC from performing as contracted under
the management agreement between the parties. We established a reserve to
reflect the estimated settlement costs in fiscal 2007 and settled the matter in
fiscal 2008. Fiscal 2007 results reflect the related charges in general and
administrative costs. The settlement eliminated the contingency related to
certain guaranteed economic performance standards in the Youngstown, Ohio
facility contract.
General and administrative costs in fiscal years 2008 and 2007, include
approximately $0.8 and $1.6 million in costs associated with litigation and
settlements.
CONTINGENCIES
Pursuant to the joint operating agreement between CHL, Inc. and WPHL, CHL, Inc.
had an option to purchase all of WPHL's interests and rights related to WPHL
teams operating under the joint operating agreement, and any other hockey
related assets of the WPHL, beginning in 2011. Under the terms of the
modification to the joint operating agreement entered into in June 2008, CHL
Inc.'s purchase option has been eliminated and WPHL and CHL Inc. each now have a
right of first refusal to purchase the other's interests if a bona-fide third
party offer to purchase the entire interest is received.
We enter into indemnification provisions under our agreements with other
companies in our ordinary course of business, typically with business partners
and customers. Under these provisions we generally indemnify and hold harmless
the indemnified party for losses suffered or incurred by the indemnified party
as a result of our activities. The maximum potential amount of future payments
we could be required to make under these indemnification provisions is
unlimited. We have not incurred material costs to defend lawsuits or settle
claims related to these indemnification agreements. As a result, we believe the
estimated fair value of these agreements is minimal. Accordingly, we have no
liabilities recorded for these agreements as of May 31, 2008.
40
As of May 31, 2008, we have entered into various employment contracts with key
employees. Under certain circumstances we may be liable to pay amounts based on
the related contract terms.
GUARANTEES
We have entered into a contract with the entertainment facility in Rio Rancho,
New Mexico which guarantees certain economic performance standards. The term of
this contract is for a period of 10 years and expires in December 2014. In the
event these economic performance standards are not reached, we are obligated to
subsidize the difference between the actual performance and the guaranteed
performance. There are no recourse provisions under this agreement. The maximum
amount of future payments we could be required to make under the performance
guarantee is theoretical due to various unknown factors. However, the subsidy
would be limited to the cumulative operating losses of the facility for each
year of the guarantee. We have never made a material subsidy from this guarantee
and do not believe that any potential subsidy would be material.
In February 2008, we entered into a management agreement with the City of Allen,
Texas relative to a multi-purpose event center to be constructed in that city.
The initial term of this agreement is fifteen years, with an option by the city
to renew for an additional five years under certain conditions. This agreement
includes a guarantee that the event center will operate at a break-even point
and without cost to the city, not including any capital reserves and any other
off-sets described in the agreement. This guarantee requires that all amounts
reasonably required for the operation and maintenance of the event center will
be generated by the operation of the event center, or otherwise paid by us.
Should we be obligated to fund any operational shortfalls, the agreement
provides for reimbursement to us from future profits from the event center. The
maximum amount of future payments we could be required to make under this
operational guarantee is theoretical due to various unknown factors. However,
the guarantee would be limited to the operational loss from the facility for
each year of the guarantee, less any reimbursements from the facility. We do not
believe that any potential guarantee payments would be material based on the
operating results of similar facilities. The facility is expected to open in the
fall of 2009.
In May 2008, we entered into a management agreement with the City of
Independence, Missouri relative to a multi-purpose event center to be
constructed in that city. The initial term of this agreement ends fifteen years
from facility opening. The city may renew the agreement for an additional five
years under the same terms. The facility is expected to open in the fall of 2009
and has an operating year ended June 30. Our compensation under the agreement
may only come from the facility operating account, which is to be funded by
facility operations, as defined in the agreement. The management agreement
includes a guarantee that we will subsidize the operations of the facility to
the extent that funds in the facility operating account and a temporary
operating account are not adequate. Under the terms of the agreement the city
shall advance $500 thousand to fund a temporary operating reserve account, which
may be used to fund shortfalls in the facility operations account. Excess funds
in the facility operating account each operating year, after paying operating
expenses, our base Encore fee and GEMs commission, are to be used in the
following priority: 1) to reimburse us for any subsidy payments we have made, 2)
to replenish the temporary operating reserve account 3) to fund the capital
reserve account and 4) to pay on a co-equal basis our incentive fee and deposits
to three additional reserve accounts. The maximum amount of future payments we
could be required to make under the guarantee is theoretical due to various
unknown factors. However, once the temporary operating reserve account is
depleted, the guarantee subsidy payments would be limited to the operational
loss each operating year, plus the amount of our Encore and GEMs fees. We do not
expect to make guarantee subsidy payments based on operating results of similar
facilities, however, no assurance can be made that a payment pursuant to this
guarantee would not be paid in the future and that such payment would not be
material.
In addition, under the terms of the management agreement with the City of
Independence, an amount not to exceed $0.50 per ticket, and excess operating
funds, are to be used to fund a capital reserve account up to $150 thousand
dollars in each of the first five operating years and up to $250 thousand
thereafter. Should the capital reserve account not be fully funded for two
consecutive years, the management agreement terminates, unless the city elects
to renew the agreement.
As of May 31, 2008, we provide a secondary guarantee on a standby letter of
credit in favor of Ace American Insurance Company for $1.5 million related to a
guarantee under a workers compensation program. This letter of credit is fully
collateralized by a third party and our secondary guarantee of this letter of
credit does not affect our borrowing capacity under our line of credit. No
amounts have been drawn on this letter of credit as of May 31, 2008. We believe
the amount of payments under this guarantee is negligible, and as such, have
assigned no value to this guarantee at May 31, 2008.
41
In addition to our commitments and guarantees described above we also have the
commitments and guarantees described in the PVEC, LLC Joint Venture Note.
--------------------------------------------------------------------------------
RELATED PARTY TRANSACTIONS
--------------------------------------------------------------------------------
We entered into an advisory service agreement in October 1999 with a related
party. The agreement engages the related party, a shareholder, to act as our
exclusive financial advisor. In consideration for the advisory services, we are
also obligated to pay specific fees. The related party would receive 10% of the
gross proceeds of any private placement of equity, 5% of the gross proceeds of
any private placement of debt, and 4% of the gross proceeds of any public
placement of equity or debt. A fee would also be received if we are involved in
a merger or acquisition. The fees are to be (i) 5% of the consideration from $1
to $3 million, plus (ii) 4% of the consideration from $3 million to $6 million,
plus (iii) 3% of the consideration from $6 million to $9 million, plus (iv) 2%
of the consideration from $9 million to $12 million, plus (v) 1% of the
consideration in excess of $12 million.
This related party has the right of first refusal to act as our exclusive
financial advisor for a period of two years from the date of successfully
closing a financing, as described above, for a transaction involving the
purchase, sale, merger, consolidation or business combination. We and the
related party will enter into an agreement appropriate and customary for
services and compensation that is competitive to market conditions at the time
the right is exercised.
Effective February 14, 2006, the agreement was replaced by a two year consulting
agreement with Miller Capital Corporation and a two year agreement for
investment banking services with Miller Capital Markets, LLC incorporating
similar terms as described above. Miller Capital Corporation and Miller Capital
Markets, LLC are related to the shareholder. The consulting agreement provided
for service fees of $180 thousand per year, effective June 1, 2006, and for the
related party to receive a restricted stock grant consisting of six thousand
shares of common stock. The agreements were extended another two years effective
February 14, 2008.
During the fiscal years ended May 31, 2008 and 2007, fees and expenses of
approximately $199 thousand and $246 thousand, were incurred under these
agreements. In addition, we incurred $25 thousand for due diligence reports in
each year. At May 31, 2008 and 2007, $23 thousand and $17 thousand was payable
to Miller Capital Corporation.
--------------------------------------------------------------------------------
CONCENTRATION OF CREDIT RISK, BUSINESS AND REVENUE
--------------------------------------------------------------------------------
We maintain cash at various financial institutions. Accounts at each United
States financial institution are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $100 thousand. At May 31, 2008 and 2007, we had
uninsured cash and cash equivalents in the amounts of approximately $0.4 million
and $3.8 million. To mitigate this risk, we select financial institutions based
on their credit ratings and financial strength.
Our business activities and accounts receivable are with customers in various
industries located throughout the United States. We perform ongoing credit
evaluations of our customers and maintain allowances for potential credit
losses.
The League operates primarily in mid-sized communities in the Central, Western
and Southern regions of the United States, including Texas, Colorado, Kansas,
Mississippi, Louisiana, New Mexico, Oklahoma, and Arizona. Our facility
management fees are derived from events centers operating in the Arizona and New
Mexico. Should these geographic areas sustain an economic downturn that could
have a significant negative impact on our operating results.
For the years ended May 31, 2008 and 2007, we recognized approximately 40% of
our revenue from three event centers which we manage, and from which we derived
Encore, GEMs and GetTix revenue. One of those centers is no longer under
management, the contract having terminated in the second quarter of fiscal year
2008.
42
--------------------------------------------------------------------------------
EMPLOYEE BENEFIT PLAN
--------------------------------------------------------------------------------
We maintain a 401(k) profit sharing plan allowing substantially all full-time
employees to participate. Under the terms of the Plan, the employees may elect
to contribute a portion of their salary to the Plan. The matching contributions
are at the discretion of the Board of Directors. For the years ended May 31,
2008 and 2007, the Company did not make contributions to the Plan.
--------------------------------------------------------------------------------
SEGMENT INFORMATION
--------------------------------------------------------------------------------
Each of our subsidiaries is a separate legal entity with a separate management
structure. Our corporate operations exist solely to support our subsidiary
segments. As such, certain corporate overhead costs are allocated to the
operating segments. There are no differences in accounting principles between
the operations.
At May 31, 2008 and 2007, goodwill relates to our ICC segment.
The investment in Wenatchee construction project of $34.5 million in 2008,
relates to our corporate operations segment.
Loss on our investment in PVEC, LLC is a loss of our corporate operations
segment. The amount of our equity method investment in PVEC, LLC is currently
zero.
The following is a summary of certain financial information for our areas of
operation (in thousands):
<TABLE>
<CAPTION>
For the Year Ended
----------------------------------------------------------
Income (Loss)
From Continuing Purchases of
Gross Operations Before Property and Identifiable
Revenues Income Taxes Depreciation Equipment Assets
-------- ------------ ------------ --------- ------
<S> <C> <C> <C> <C> <C>
May 31,2008 (c)
Global Entertainment Corporate Operations $ 244 $(3,207) $ 68 $ 199 $35,705 (a)
Central Hockey League/WPHL 2,294 246 4 -- 549
Global Properties I 619 (200) 2 -- 447
International Coliseums 1,063 394 5 4 47
Encore Facility Management 3,279 (581) 1 -- 11
Global Entertainment Marketing Systems 767 (53) 3 47 42
Global Entertainment Ticketing 4,171 477 59 -- 396
Discontinued Operations -- -- -- -- 2,167
------- ------- ------- ------- -------
Global Entertainment Corporation, consolidated $12,437 $(2,924) $ 142 $ 250 $39,364
======= ======= ======= ======= =======
May 31,2007
Global Entertainment Corporate Operations $ -- $(1,001) $ 25 $ 44 $ 5,199
Central Hockey League/WPHL 2,364 (1,085) 13 1 686
Global Properties I 100 (714) 1 2 343
International Coliseums 13,871 (b) 196 (b) 7 -- 2,028 (b)
Encore Facility Management 4,452 (1,290) 1 -- 262
Global Entertainment Marketing Systems 918 296 5 -- 250
Global Entertainment Ticketing 4,107 997 78 39 436
Discontinued Operations -- -- -- -- 3,102
------- ------- ------- ------- -------
Global Entertainment Corporation, consolidated $25,812 $(2,601) $ 130 $ 86 $12,306
======= ======= ======= ======= =======
</TABLE>
43
----------
(a) Global Entertainment Corporate Operations assets include the investment in
Wenatchee project of $34.5 million at May 31, 2008. Global Entertainment
Corporate Operations assets include cash and cash equivalents of $443
thousand at May 31, 2008, and $4,252 thousand at May 31, 2007.
(b) International Coliseums gross revenues for fiscal year 2007 include
revenues for furniture, fixtures and equipment, as well as management fees
and other items on projects not recurring in fiscal 2008. Assets as of May
31, 2007, include receivables for such items, not in receivables as of May
31, 2008, as well as retainage receivables on those projects.
(c) As originally reported, in fiscal year 2007, all Global Entertainment
Corporate Operations actual costs were allocated to the operating segments
as a management fee. In fiscal year 2008, the management fee is fixed at a
lower rate. Fiscal year 2007, amounts have been restated to reflect
management fees consistent with 2008.
--------------------------------------------------------------------------------
DISCONTINUED OPERATIONS
--------------------------------------------------------------------------------
On August 1, 2008, we closed a transaction under which we sold substantially all
of the assets of Cragar Industries, Inc. (Cragar), a licensor of an automotive
aftermarket wheel trademark and brand name - CRAGAR(R). The assets consisted
primarily of intangibles, including trademarks, service marks and domain names.
The purchase price was approximately $1.9 million in cash. Of the cash proceeds,
$0.1 million was used for transaction-related costs and $1.25 million has been
set aside in a restricted account as security for a letter of credit. The
remainder of the funds was available for working capital and general corporate
purposes.
The purchase price of $1.9 million was allocated $1.8 million to the trademarks,
with the remainder to tooling, inventory and other assets.
We expect other cash flows from Cragar in fiscal 2009, to consist primarily of
the collection of receivables and payment of liabilities existing as of the date
of sale, which were largely unchanged from those existing at May 31, 2008.
The following table presents selected operating data for Cragar for fiscal years
2008 and 2007 (in thousands):
2008 2007
-------- --------
Revenues $ 775 $ 638
Loss on disposal (1,148) --
Loss before income taxes (1,212) (1,524)
Loss from discontinued operations, net of income tax (1,212) (1,524)
The assets and liabilities of Cragar, included in our consolidated balance
sheets at May 31, 2008 and 2007, in assets to be disposed and liabilities
related to assets to be disposed were as follows (in thousands):
2008 2007
-------- --------
Receivables $ 116 $ 205
Prepaid expenses and other assets 154 169
Deferred income tax asset 134 --
Trademarks 1,763 2,728
------ ------
Assets to be disposed $2,167 $3,102
====== ======
Accounts payable $ 37 $ 141
Accrued liabilities 120 105
Deferred income tax 22 --
Deferred revenues 54 72
------ ------
Liabilities related to assets to be disposed $ 233 $ 318
====== ======
Cragar trademarks were not subject to amortization. Assets not subject to
amortization were tested for impairment at least annually. An independent
business valuation was performed as of May 31, 2007, for the purpose of testing
the carrying value of trademarks related to our investment in Cragar. During
fiscal year 2007, we determined that, based on estimated future cash flows, the
carrying amount of Cragar trademarks exceeded fair value by $906 thousand;
accordingly, an impairment loss of that amount was recognized in fiscal year
2007, and is now classified in loss from discontinued operations in the
consolidated statement of operations. We had evaluated the recoverability of the
trademarks as of February 29, 2008, and believed no additional impairment
existed at that date. Subsequent to that date, we decided to liquidate our
investment in Cragar. Included in the loss on disposition of $1.1 million is a
$1.0 million write-down of the trademarks to the value assigned in the purchase
price allocation.
44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINIANCIAL DISCLOSURE.
None
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including
the Chief Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of May 31, 2008. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that these disclosure controls and procedures are effective. There
were no changes in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.
Our management, including its principal executive officer and the principal
financial officer, do not expect that our disclosure controls and procedures
will prevent all error and all fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. Further, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, controls may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may deteriorate.
Because of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and may not be detected. We
monitor our disclosure controls and procedures and internal controls and makes
modifications as necessary; our intent in this regard is that the disclosure
controls and procedures will be maintained as dynamic systems that change
(including with improvements and corrections) as conditions warrant.
Management's Annual Report on Internal Control over Financial Reporting and
Changes in Internal Controls.
Our management is responsible for establishing and maintaining an effective
internal control over financial reporting as this term is defined under Rule
13a-15(f) of the Exchange Act and has made organizational arrangements providing
appropriate divisions of responsibility and has established communication
programs aimed at assuring that its policies, procedures and principles of
business conduct are understood and practiced by its employees. All internal
control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement preparation and
presentation.
We have assessed the effectiveness of our internal control over financial
reporting as of May 31, 2008, the period covered by this Annual Report on Form
10-K, as discussed above. In making this assessment, we used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO") in INTERNAL CONTROL--INTEGRATED FRAMEWORK. Based on these criteria and
our assessment, we have determined that, as of May 31, 2008, our internal
control over financial reporting was effective.
This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
45
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There have not been changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of fiscal 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers, as well as persons beneficially owning more
than 10% of our outstanding common stock, to file certain reports of ownership
with the SEC within specified time periods. Such officers, directors and
shareholders are also required by SEC rules to furnish us with copies of all
Section 16(a) forms they file.
Based solely on our review of such forms received by us during the fiscal year
ended May 31, 2008, or written representations from certain reporting persons,
we believe that between June 1, 2007 and May 31, 2008, all Section 16(a) filing
requirements applicable to its officers, directors and 10% shareholders were
complied with, except that: (i) James Yeager failed to timely file an initial
filing in connection with his appointment as an officer September 1, 2007, and
failed to timely file with respect to a grant of restricted stock October 17,
2007, (ii) James Domaz failed to timely file an initial filing in connection
with his appointment as an officer August 20, 2007, and failed to timely file
with respect to a grant of restricted stock on October 17, 2007, and (iii)
Richard Kozuback failed to timely file with respect to the exercise of options
November 3, 2007.
Other information required to be disclosed by this Item 10 will be included
under the caption "Directors, Executive Officers and Corporate Governance" of
our Proxy Statement to be filed relating to the Annual Meeting of Shareholders
for the fiscal year ended May 31, 2008, which is hereby incorporated by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information on our directors and officers will be included under the caption
"Executive Compensation" of our Proxy Statement to be filed relating to the
Annual Meeting of Shareholders for the fiscal year ended May 31, 2008, which is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
Information on equity compensation plans and beneficial ownership of our voting
securities by each director and all officers and directors as a group, and by
any person known to beneficially own more than 5% of any class of voting
security will be included under the caption "Beneficial Ownership of the
Company's Securities" of our Proxy Statement to be filed relating to the Annual
Meeting of Shareholders for the fiscal year ended May 31, 2008, which is hereby
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
Information on certain relationships and related transactions will be included
under the caption "Certain Relationships and Related Parties" of our Proxy
Statement to be filed relating to the Annual Meeting of Shareholders for the
fiscal year ended May 31, 2008, which is hereby incorporated by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Information on principal accountant fees and services will be included under the
caption "Principal Accountant Fees and Services" of our Proxy Statement to be
filed relating to the Annual Meeting of Shareholders for the fiscal year ended
May 31, 2008, which is hereby incorporated by reference.
46
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Exhibit Index attached hereto.
47
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized on August 29, 2008.
Global Entertainment Corporation
(Registrant)
By /s/ W. James Treliving
----------------------------------------------
W. James Treliving
Chairman of the Board
By /s/ Richard Kozuback
----------------------------------------------
Richard Kozuback
Director / President & Chief Executive Officer
By /s/ James Yeager
----------------------------------------------
James Yeager
Chief Financial Officer / Treasurer
By /s/ Michael L. Bowlin
----------------------------------------------
Michael L. Bowlin
Director
By /s/ Michael L. Hartzmark
----------------------------------------------
Michael L. Hartzmark
Director
By /s/ Terry S. Jacobs
----------------------------------------------
Terry S. Jacobs
Director
By /s/ Stephen A McConnell
----------------------------------------------
Stephen A McConnell
Director
By /s/ George Melville
----------------------------------------------
George Melville
Director
By /s/ Mark Schwartz
----------------------------------------------
Mark Schwartz
Director
48
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated herein pursuant to
Regulation SB-601:
EXHIBIT
3.1 Amended and Restated Articles of Incorporation, dated April 14,
2000. (1)
3.2 Bylaws dated April 18, 2000. (2)
3.2.1 First Amendment to the Bylaws dated May 20, 2008. (3)
10.1 2007 Long-Term Incentive Plan, dated (4)
10.2 Employment Agreement between Global Entertainment Corporation and
Richard Kozuback, dated April 18, 2000(5)
10.3 Joint Operating Agreement, between Western Professional Hockey
League, Inc. and Central Hockey League, Inc. dated January 19,
2001 (6)
10.4 Modification to Joint Operating Agreement, dated June 4, 2008 *
10.5 Form of License Agreement between Western Professional Hockey
League, Inc. and licensees (7)
10.6 Form of Amendment to of License Agreement between Western
Professional Hockey League, Inc. and licensees (8)
10.7 Asset Purchase Agreement between Danbom Temporary, Inc. and Cragar
Industries, Inc., dated July 31, 2008 (9)
10.8 Construction-Term Loan Agreement by and among Marshall Financial
Group, LLC and Wenatchee Events Center, LLC dated August 2, 2007 *
10.9 Amended and Restated Lease with Purchase Option Agreement between
Wenatchee Events Center, LLC and the Greater Wenatchee Regional
Events Center Public Facilities District and City of Wenatchee,
dated May 30, 2007 *
10.10 Investment Banking Services Agreement between Global Entertainment
Corporation and Miller Capital Markets, LLC, dated December 14,
2007 *
10.11 Consulting Agreement between Global Entertainment Corporation and
Miller Capital Corporation, dated February 14, 2008 *
10.12 Form of License Agreement between WPHL and franchises, effective
February 28, 2008 *
21 Subsidiaries *
31.1 Certifications Pursuant to 18 U.S.C. Section 1350-Section 302,
signed by Richard Kozuback, Chief Executive Officer.*
31.2 Certifications Pursuant to 18 U.S.C. Section 1350-Section 302,
signed by James Yeager, Chief Financial Officer.*
32 Certification Pursuant to 18 U.S.C. Section 1350-Section 906,
signed by Richard Kozuback, Chief Executive Officer and James
Yeager, Chief Financial Officer.*
----------
* Filed herewith.
(1) Incorporated herein by reference to Exhibit 3.1 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(2) Incorporated herein by reference to Exhibit 3.2 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(3) Incorporated herein by reference to Exhibit 3.1 of our current report on
Form 8-K, as filed with the Commission on June 17, 2008.
(4) Incorporated herein by reference to Exhibit 4.5 of our Registration
Statement on Form S-8 (No. 333-150246) as filed with the Commission on
April 15, 2008.
(5) Incorporated herein by reference to Exhibit 10.4 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(6) Incorporated herein by reference to Exhibit 10.5 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(7) Incorporated herein by reference to Exhibit 10.6 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(8) Incorporated herein by reference to Exhibit 10.7 of our Registration
Statement on Form S-4 (No. 333-109192), as filed with the Commission on
September 26, 2003.
(9) Incorporated herein by reference to Exhibit 3.1 of our current report on
Form 8-K, as filed with the Commission on August 8, 2008.
Exhibit 10.4
MODIFICATION OF JOINT OPERATING AGREEMENT
Western Professional Hockey League, Inc. ("WPHL"), a Texas corporation, and
Central Hockey League, Inc. ("CHL"), an Illinois corporation, enter into this
Modification of Joint Operating Agreement as follows:
WHEREAS, the parties entered into a Joint Operating Agreement dated as of
July 19, 2001 (the "JOA"); and
WHEREAS, the parties desire to modify certain provisions of the JOA to
resolve disputes among themselves and to create greater certainty in the
operation of the JOA; and
WHEREAS, this Modification Agreement represents a compromise agreement and,
along with the parties' Settlement Agreement and Mutual Release of even date, is
intended to resolve all disputes among the parties except as expressly reserved
hereunder.
NOW, THEREFORE, for good and valuable consideration had among the parties,
the sufficiency of which is hereby acknowledged, the parties agree to modify the
JOA as set forth herein.
1. Paragraph II.1 of the JOA shall be modified by deleting the existing
provision in its entirety and replacing it with the following:
Governance. Notwithstanding any other provision of this Agreement,
WPHL and CHL shall remain separate legal entities, shall maintain separate
books and records, and shall be solely responsible for their own
obligations.
The League shall be governed by an oversight board (the "Board")
consisting of two representatives of WPHL, two representatives of CHL, and
a fifth member to be mutually agreed upon by the WPHL and the CHL.WPHL
hereby appoints Rick Kozuback and one member to be determined as its
current Board representatives to serve indefinitely until written notice of
a change is delivered by WPHL to CHL. CHL hereby appoints Lester Rosen and
Jeff Lund as its current Board representatives to serve indefinitely until
written notice of a change is delivered by WPHL to CHL. Unless a member is
unable to serve due to illness or other compelling circumstances, no
changes in board membership shall be made more than once per calendar year.
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 1 OF 6
All changes in board membership shall be made by written notice to all
members, to be effective no earlier than fourteen (14) days after the date
of such notice.
The Board shall meet not less than four (4) times each calendar year,
two of such meetings to be held in person at the League's All-Star Game and
during the League's Summer Conference. The other meetings may be by
conference call or other telecommunications arrangement on not less than
two weeks notice to each board member. Notice must be in writing. A minimum
of three (3) directors must be present to constitute a quorum. The
Commissioner shall be responsible for the distribution of written board
minutes not more than twenty (20) days following each board meeting. If no
comments are received within ten (10) days from any Board member, such
minutes shall be deemed approved. Board members shall be reimbursed for all
reasonable expenses incurred solely and directly in connection with board
service.
The general duty of the Board shall be to set policy for the
operations of the League by the Staff. Oversight of League Operations shall
be generally vested in an Executive Committee of the Board consisting of
the Commissioner and a representative from WPHL and CHL. WPHL hereby
appoints Rick Kozuback and CHL hereby appoints Jeff Lund as respective
representatives to the Executive Committee. Any matter except the annual
operating budget upon which the Executive Committee is in agreement shall
be deemed to be approved by the Board. The entire Board shall approve
annual operating budgets for each season by an affirmative vote of not less
than three (3) members not later than June 1 of each year. The Board shall
receive the proposed budget not later than fourteen (14) days prior to the
vote on approval of such budget. The members of the Executive Committee,
expect the league Commissioner, shall receive compensation of $8,500 per
year.
The Board shall approve budgets, determine compensation for league
personnel, approve financial statements, close out the year, , acquire
errors and omission Insurance, and approve any change of trademarks. The
Board may review policy and existence of Letters of Credit, League
expansion, team transfers, control changes, benefits for league personnel,
legal settlements in excess of $50,000, workers compensation insurance
carriers and coverage, and League office relocations.
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 2 OF 6
2. Management. Paragraph II.2 of the JOA is modified by deleting the
existing provision in its entirety and replacing it with the following:
The League operations shall be run by the WPHL Staff as currently
identified on the attached Exhibit "A." WPHL and the CHL hereby designate
Duane Lewis, WPHL Vice President Operations, as the acting Commissioner.
The Commissioner shall serve indefinitely until written notice of a change
is delivered by WPHL to CHL. Changes of personnel among the Staff may be
made by the Commissioner in his/her reasonable discretion. Written notice
of such changes shall be provided to the Board at the next regularly
scheduled meeting of the Board.
The Commissioner may add personnel in addition to the designated Staff
or incur additional, controllable, non-budgeted expense as required for the
effective operation of the League. Provided, however, any deviation from
any budgeted expense in excess of ten percent (10%) must be approved in
advance by the Executive Committee.
The Staff shall maintain all appropriate financial records including
an interim balance sheet, quarterly and year-to-date income statements,
accounts payable aging and accounts receivable aging. The Staff shall
provide each Board member with reasonable access to such records not less
than quarterly. Further, any member of the JOA may conduct an audit of the
JOA books and records at their own expense not more than once per year.
3. Expansion Fees The third sentence in Section 5 of the JOA entitled
"Expansion" is hereby amended in its entirety to read as follows:
"Expansion Fees, other than fees for the three teams exempted herein,
shall be divided as follows: in the event the expansion team is generated
by WPHL (other than persons whose salaries or wages are being fully paid
under the JOA) or in the event the expansion team is generated by CHL
(other than persons whose salaries or wages are being fully paid under the
JOA), then the originating entity (either WPHL or CHL) shall be paid 50% of
the expansion fee with the remaining 50% to be added to Operating Revenue
under the JOA; or in the event the expansion team is generated by persons
whose salaries or wages are being fully paid under the JOA, then the entire
amount of the expansion fee will be added to Operating Revenue.".
Notwithstanding the above if WPHL or its affiliates have built a new
building for the expansion team then they are entitled to the 50% share of
the associated expansion fee. In instances which do not fall in any of the
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 3 OF 6
above categories as reasonably determined by a vote of the full Board, the
entire amount of the expansion fee will be added to Operating Revenue."
4. Section 10 of the JOA entitled "Purchase Option" is hereby deleted in
its entirety and either party is given a right of first refusal to promptly
purchase the other if a bona-fide, third party, offer to purchase the entire
ownership interest, and only such interest, is received by either party and the
receiving party is willing to accept such offer.. By way of example but not as a
limitation, if a third party offers to purchase a group of businesses under the
Global Entertainment umbrella, one of which is the WPHL, there will be no right
of first refusal
5. Paragraph II.7 of the JOA shall be expanded by adding the following at
the end thererof:
"CHL and WPHL shall use their commercially reasonable efforts to
enforce the obligations hereunder of each of their respective Teams
(including payment of all dues, fees, fines, ETC.)"
6. Paragraph II.17 of the JOA is modified to change the address for notices
to WPHL, counsel for WPHL and to add the counsel for CHL as follows:
J. Scott Rose Kenneth Wagner
Jackson Walker L.L.P. Latham, Wagner, Steele & Lehman, P.C.
112 E. Pecan, Suite 2400 1800 S. Baltimore, Suite 500
San Antonio, Texas 78205 Tulsa, OK 74119
Counsel for WPHL Counsel for CHL
WPHL
1600 N. Desert Drive
Tempe, AZ 85281
7. The Joint Operating Agreement is hereby extended for an additional Ten
years.
8. In all their public representations, the parties shall use commercially
reasonable efforts to avoid inaccurately depicting the relationship between
Western Professional Hockey League, Inc. d/b/a Central Hockey League, Central
Hockey League, Inc., and Global Entertainment Corporation.
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 4 OF 6
9. Paragraph II.19 of the JOA is modified to incorporate the terms of this
Modification as part of the JOA. No agreements, written or oral, other than the
JOA, Settlement Agreement and Mutual Release and this Modification form the
basis of any agreement between WPHL and CHL.
10. The parties acknowledge they have settled existing disputes between
them and have entered into a Settlement Agreement and Mutual Release that is
executed contemporaneously with this Modification. In the event of a conflict
relating to the claims settled, the Settlement Agreement and Mutual Release
shall govern.
[SIGNATURE PAGE FOLLOWS]
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 5 OF 6
CENTRAL HOCKEY LEAGUE, INC.
by: /s/ Horn Chen
-------------------------------------
its: President
------------------------------------
WESTERN PROFESSIONAL HOCKEY LEAGUE, INC.
by: /s/ Rick Kozuback
-------------------------------------
its: President & CEO
------------------------------------
MODIFICATION OF JOINT OPERATING AGREEMENT - PAGE 6 OF 6
Exhibit 10.8
CONSTRUCTION-TERM LOAN AGREEMENT
by and among
MARSHALL FINANCIAL GROUP, LLC,
a Delaware limited liability company
and
WENATCHEE EVENTS CENTER, LLC,
a Washington limited liability company
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS...................................................... 1
Section 1.1 Defined Terms............................................. 1
ARTICLE II COMMITMENT TO MAKE ADVANCES, DISBURSEMENT PROCEDURES AND
DEPOSIT OF FUNDS................................................ 5
Section 2.1 The Advances.............................................. 5
Section 2.2 Advance Requirements...................................... 5
Section 2.3 Disbursement Procedures for Advances...................... 6
Section 2.4 Deposit of Funds by Borrower.............................. 7
Section 2.5 Disbursements Without Receipt of Draw Request............. 7
Section 2.6 Interest Reserve.......................................... 8
Section 2.7 Intentionally Omitted..................................... 8
Section 2.8 Project Contingency....................................... 8
ARTICLE III CONDITIONS OF LENDING.......................................... 8
Section 3.1 Conditions Precedent to Lending........................... 8
Section 3.2 Further Conditions Precedent to All Advances.............. 11
Section 3.3 Conditions Precedent to the Final Advance................. 12
Section 3.4 Insurance................................................. 13
Section 3.5 Casualty/Destruction...................................... 15
Section 3.6 No Waiver................................................. 15
ARTICLE IV WARRANTIES, REPRESENTATIONS AND COVENANTS OF BORROWER........... 15
Section 4.1 Representations and Warranties............................ 15
Section 4.2 Covenants................................................. 17
Section 4.3 Negative Covenants........................................ 19
Section 4.4 Environmental Representation, Warranties and Covenants,
and Indemnities........................................... 20
ARTICLE V EVENTS OF DEFAULT; RIGHTS AND REMEDIES........................... 21
Section 5.1 Event of Default Defined.................................. 21
Section 5.2 Rights and Remedies....................................... 24
ARTICLE VI MISCELLANEOUS................................................... 24
Section 6.1 Inspections............................................... 24
Section 6.2 Indemnification by Borrower............................... 25
Section 6.3 Fees...................................................... 25
Section 6.4 Addresses for Notices..................................... 25
Section 6.5 Amendments, Determinations by Lender, Consents, Etc....... 26
Section 6.6 Time of the Essence....................................... 26
Section 6.7 Waivers................................................... 26
Section 6.8 Remedies Cumulative....................................... 26
Section 6.9 Governing Law and Entire Agreement........................ 26
Section 6.10 Counterparts............................................. 26
Section 6.11 Term..................................................... 26
Section 6.12 Successors and Assigns................................... 26
Section 6.13 Offsets.................................................. 27
Section 6.14 Headings................................................. 27
Section 6.15 Accounting............................................... 27
Section 6.16 Not Joint Venturer....................................... 27
Section 6.17 Adequacy of Loan Proceeds................................ 27
Section 6.18 Participations........................................... 27
Section 6.19 Relationship to Other Documents.......................... 27
Section 6.20 Reappraisals............................................. 27
Section 6.21 Construction Signage..................................... 28
CONSTRUCTION-TERM LOAN AGREEMENT
THIS CONSTRUCTION-TERM LOAN AGREEMENT ("AGREEMENT") is made and entered
into this __ day of August 2007, by and among MARSHALL FINANCIAL GROUP, LLC, a
Delaware limited liability company ("LENDER"), and WENATCHEE EVENTS CENTER, LLC,
a Washington limited liability company ("BORROWER") and GLOBAL ENTERTAINMENT
CORPORATION, a Nevada corporation ("GUARANTOR").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender extend to it a
construction-term loan as more fully described in this Agreement (the "LOAN");
and
WHEREAS, Lender has agreed to extend the Loan to Borrower upon the terms
and subject to the conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINED TERMS. As used in this Agreement the defined terms in
this ARTICLE I, and any other terms defined in this Agreement, i.e., those terms
beginning with a capital letter, will have the meanings ascribed to each such
term (such meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) "ADVANCE" - An advance of the Commitment by Lender to Borrower
pursuant to ARTICLE II hereof.
(b) "AFFILIATE" - When used with reference to any Person, (a) each Person
that, directly or indirectly, controls, is controlled by or is under
common control with, the Person referred to, (b) each Person that
beneficially owns or holds, directly or indirectly, 5% or more of any
class of voting Equity Interests of the Person referred to, (c) each
Person, 5% or more of the voting Equity Interests of which is
beneficially owned or held, directly or indirectly, by the Person
referred to, and (d) each of such Person's officers, directors, joint
venturers and partners. For these purposes, the term "control"
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of the Person in
question, whether by contract, ownership of voting securities,
membership interests or otherwise.
(c) "AGREEMENT" - This Construction-Term Loan Agreement, including any
amendment hereof or supplement hereto.
1
(d) "ARCHITECT" - The project architect as may be retained by Borrower:
Sink Combs Dethlefs.
(e) "ARCHITECT'S CONTRACT" - The agreement between Borrower and the
Architect as to preparation of the Drawings and Specifications for the
Project and the supervision of the construction of the Project.
(f) "CERTIFICATE OF COMPLETION" - The certificate from General Contractor
and/or Architect certifying those items referred to in Section 3.3(a)
hereof.
(g) "CITY" - City of Wenatchee, Washington.
(h) "COMMITMENT" - The commitment of Lender to make advances to Borrower
to construct the Project in an aggregate principal amount of up to and
including FIFTY TWO MILLION AND NO/100 DOLLARS ($52,000,000.00).
(i) "COMMITMENT TERMINATION DATE" - August __, 2009, or the date of the
termination of Lender's Commitment pursuant to SECTION 5.2 hereof,
whichever date occurs earlier.
(j) "CONSTRUCTION CONTRACT" - The agreement between Borrower and the
General Contractor for the construction of the Project.
(k) "CONTRACTOR" - Any General Contractor, who shall be engaged to work on
or to furnish materials, labor and supplies for the Project.
(l) "DISBURSING AGENT" - Stewart Title Guaranty Company.
(l) "DISBURSING AGREEMENT" - The Disbursing Agreement of even date
herewith, executed by and between Borrower, Lender and the Disbursing
Agent pertaining to the disbursement of the Advances to or on behalf
of Borrower.
(m) "DRAW REQUEST" - The Draw Request form that is submitted to Lender
when Advances are requested in the form attached hereto as EXHIBIT A
and incorporated herein by reference.
(n) "DRAWINGS AND SPECIFICATIONS" - The drawings and specifications as may
be prepared by the Architect for the Project.
(o) "ENVIRONMENTAL INDEMNITY AGREEMENT" - The Environmental Indemnity
Agreement of even date herewith from Borrower and Guarantor in favor
of Lender.
(p) "ENVIRONMENTAL LAWS" - Any international, federal, state or local
statute, law, regulation, order, consent, decree, judgment, permit,
license, code, covenant, deed restriction, common law, treaty,
convention, ordinance or other requirement relating to public health,
safety or the environment, including, without limitation, those
relating to releases, discharges or emissions to air, water, land or
2
groundwater, to the withdrawal or use of groundwater, to the use and
handling of polychlorinated biphenyls or asbestos, to the disposal,
treatment, storage or management of hazardous or solid waste or
Hazardous Substances or crude oil, or any fraction thereof, or to
exposure to toxic or hazardous materials, to the handling,
transportation, discharge or release of gaseous or liquid Hazardous
Substances and any regulation, order, notice or demand issued pursuant
to such law, statute or ordinance, in each case applicable to the
Mortgaged Property of Borrower, including without limitation the
following: (i) the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Re-authorization Act of 1986; (ii) the Solid Waste Disposal Act, as
amended by the Resource Conservation and Recovery Act of 1976 and the
Hazardous and Solid Waste Amendments of 1984; (iii) the Hazardous
Materials Transportation Act, as amended; (iv) the Federal Water
Pollution Control Act, as amended by the Clean Water Act of 1976; (v)
the Safe Drinking Water Act; (vi) the Clean Air Act, as amended; (vii)
the Toxic Substances Control Act of 1976; (viii) the Occupational
Safety and Health Act of 1977, as amended; (ix) the Emergency Planning
and Community Right-to-Know Act of 1986; (x) the National
Environmental Policy Act of 1975; (xi) the Oil Pollution Act of 1990;
and any similar or implementing state law; and any other state or
federal statute and any further amendments to these laws providing for
financial responsibility for cleanup or other actions with respect to
the release or threatened release of Hazardous Substances or crude
oil, or any fraction thereof and all rules and regulations promulgated
thereunder.
(q) "EQUITY" - The difference between the Project Cost and the Commitment,
being the amount Borrower is required to invest in the Project in
accordance with the provisions of SECTION 3.1 of this Agreement.
(r) "EVENT OF DEFAULT" - One of the Events of Default specified in SECTION
5.1 hereof.
(s) "GUARANTOR" - Global Entertainment Corporation, a Nevada corporation.
(t) "GUARANTY" - That certain Guaranty of Completion of even date herewith
executed and delivered by Guarantor.
(u) "GENERAL CONTRACTOR" - Hunt Construction Group, Inc.
(v) "HARD COSTS" - The costs of constructing the Project that are set
forth as Hard Costs on the Project Cost Statement.
(w) "HAZARDOUS SUBSTANCE" - Any hazardous or toxic material, substance or
waste, pollutant or contaminant that is regulated under any statute,
law, ordinance, rule or regulation of any local, state, regional or
federal authority having jurisdiction over the Mortgaged Property of
Borrower, or its use, including, but not limited to any material,
substance or waste, that is: (i) defined as a hazardous substance
under any Environmental Laws; (ii) a petroleum hydrocarbon, including
crude oil or any fraction thereof and all petroleum products; (iii)
polychlorinated biphenyls; (iv) lead; (v) urea formaldehyde; (vi)
3
asbestos or asbestos containing materials; (vii) flammable explosives;
(viii) infectious materials; (ix) radioactive materials; (x) mold; or
(xi) defined or regulated as a hazardous substance or hazardous waste
under any rules or regulations promulgated under any Environmental
Laws.
(x) "INSPECTING ENGINEER" - The inspecting engineer retained by the
Lender: LM Consultants, Inc.
(y) "LEASE" - Amended and Restated Lease with the Purchase Option
Agreement dated May 30, 2007, made by Borrower as Lessor and WPFD, as
Lessee.
(z) "LOAN DOCUMENTS" - This Agreement, the Note, the Mortgage, the
Guaranty, the Environmental Indemnity Agreement and all other security
or collateral documents executed by Borrower and/or Guarantor in
connection herewith or therewith for the benefit of Lender.
(aa) "MORTGAGE" - The Deed of Trust of even date herewith, executed by
Borrower to Lender creating a first priority mortgage on the Mortgaged
Property and a security interest in all of the personal property
located thereon as security for payment of the Note.
(bb) "MORTGAGED PROPERTY" - The land and improvements (including the
Project) situated in Chelan County, Washington, and other personal
property located thereon, as more particularly described in the
Mortgage.
(cc) "NOTE" - The promissory note from Borrower to Lender of even date
herewith in the original principal amount of FIFTY TWO MILLION AND
NO/100 DOLLARS ($52,000,000.00).
(dd) "PERSON" - Natural persons, corporations, limited liability companies,
limited liability partnerships, limited liability limited
partnerships, limited partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations,
whether or not legal entities, and governments and agencies and
political subdivisions of those governments.
(ee) "PROJECT" - The construction of Greater Wenatchee Regional Events
Center on the Mortgaged Property as more fully described in the Lease,
the Construction Contract and the Drawings and Specifications.
(ff) "PROJECT BUDGET" - The total cost of completing the Project.
(gg) "PROJECT COST" - Approximately $54,000,000.00 being the estimated
amount necessary to complete the construction of the Project,
including hard and soft costs.
(hh) "PROJECT COST STATEMENT" - The certificate of Borrower in which
Borrower certifies to Lender the total of all Hard Costs and Soft
Costs necessary to complete the Project in accordance with the
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Drawings and Specifications, and certifies to Lender the amount and
source of Borrower's Equity, all as verified by Inspecting Engineer.
(ii) "PROJECT DOCUMENTS" - Collectively the Construction Contract, the
Architect's Contract, the Drawings and Specifications, the Sworn
Construction Statement, the Project Cost Statement, and all other
contracts of Borrower or the General Contractor with respect to the
Project.
(jj) "SOFT COSTS" - The cost of constructing the Project that are set forth
as Soft Costs on the Project Cost Statement.
(kk) "SUBSTANTIAL COMPLETION" - The date on which General Contractor and
the Architect issue a Certificate of Substantial Completion of the
Project and Borrower demonstrates compliance with the conditions of
SECTION 3.3 of this Agreement.
(ll) "SWORN CONSTRUCTION STATEMENT" - The form of document attached hereto
as Exhibit C.
(mm) "TITLE COMPANY" - Stewart Title Guaranty Company.
(nn) "WPFD" - Greater Wenatchee Regional Events Center Public Facilities
District, a Washington municipal corporation.
ARTICLE II
COMMITMENT TO MAKE ADVANCES,
DISBURSEMENT PROCEDURES AND DEPOSIT OF FUNDS
Section 2.1 THE ADVANCES. Lender agrees, on the terms and subject to the
conditions hereinafter set forth, to make Advances to Borrower from time to time
during the period from the date hereof to the Commitment Termination Date in an
aggregate principal amount of up to and including the maximum amount of the
Commitment, to pay for or to reimburse Borrower or its Affiliates, for the
payment of the costs actually incurred in connection with the Project, that
shall include but not be limited to costs of permits, licenses, labor, supplies,
materials, services, equipment and insurance premiums, but shall not include any
profit to Borrower acting in the capacity as developer or general contractor.
The obligation of Borrower to repay the Advances shall be evidenced by the Note,
containing the terms relating to maturity, interest rate, and other matters as
set forth therein. All Advances shall be disbursed by the Disbursing Agent
pursuant to the terms and conditions hereof and the Disbursing Agreement. As
used herein, the term "Disburse" or "Disbursement" shall mean the disbursement
of Advances made or to be made by the Disbursing Agent as provided herein and in
the Disbursing Agreement.
Section 2.2 ADVANCE REQUIREMENTS. Subject to the requirements of SECTION
2.3 below, Advances shall be made as follows:
(a) INITIAL ADVANCE. Initial Advance shall be made in the total amount of
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up to approximately $5,939,744.38 to be used for closing and other
costs and expenses of the Project.
(b) CONSTRUCTION ADVANCES. Construction Advances shall be made by Lender
in the total amount of up to approximately $46,060,255.62 as provided
in this Agreement. Construction Advances to be used for the
development of the Project and as otherwise set forth in the Project
Budget.
Section 2.3 DISBURSEMENT PROCEDURES FOR ADVANCES.
(a) Whenever Borrower desires to obtain an Advance hereunder, such
requests to be made no more frequent than monthly, Borrower shall
submit to Lender and the Disbursing Agent a Draw Request, duly
executed on behalf of Borrower setting forth the information requested
therein. Each Draw Request shall be submitted at least ten (10)
business days before the date the Advance is desired. With respect to
Hard Costs, each Draw Request shall be limited to amounts equal to (i)
the total costs actually incurred and paid or owed by Borrower to the
date of such Draw Request for work on the Project acceptably
completed, as approved by Lender, plus (ii) the cost of materials and
equipment not incorporated in the Project, but delivered to and
suitably stored at the Project site, less (iii) 5 percent (5%) (or
such lesser hold back as is authorized by Lender), which hold back
shall be retained by Lender until Substantial Completion of the
Project (the "RETAINAGE"), and less prior Advances. Notwithstanding
anything herein to the contrary, no Advance for material stored at the
Project site will be made by Lender unless Borrower shall advise
Lender of its intention to so store materials prior to their delivery
and provides suitable security for such storage. With respect to all
Soft Costs, each Draw Request shall be limited to the total of such
costs actually incurred by Borrower to the date of such Draw Request,
less prior Advances for such costs. Each Draw Request shall be
accompanied by a certification by the General Contractor that (i) the
Project is being constructed in accordance with the Drawings and
Specifications in a good and workmanlike manner and that the work has
been completed and the materials are in place as indicated in the Draw
Request, (ii) the undisbursed amount of the Commitment is in an amount
sufficient to pay the remaining unpaid costs and expenses anticipated
to complete the Project, and (iii) such other and further
certificates, opinions, inspections, reports and other information as
may be requested by Lender from time to time at its sole discretion.
All Advances will be made in accordance with the amounts assigned to
the various items in the Sworn Construction Statement and the Project
Cost Statement (as amended from time to time to reflect authorized
change orders), and no Advance will be made for any amount in excess
of the values assigned such items in the Sworn Construction Statement
and the Project Cost Statement. Each Draw Request shall constitute an
affirmation by Borrower that, to its knowledge, all representations
and warranties set forth in ARTICLE IV are true and correct as of the
date of such Draw Request.
(b) At the time of submission of each Draw Request, Borrower shall submit
to Lender and the Disbursing Agent the following:
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(i) A written lien waiver with respect to all Hard Costs from each
Contractor for work done and materials supplied by it that were
paid for pursuant to the preceding Draw Request.
(ii) Documentation reasonably acceptable to Lender (receipts, canceled
checks and the like) evidencing payment of all Soft Costs that
were paid in connection with the immediately preceding Draw
Request, excluding amounts drawn for payment of interest on the
Advances or fees due to Lender.
(iii)Such other supporting evidence as may be requested by Lender or
the Disbursing Agent to substantiate all payments that are to be
made out of the relevant Draw Request and/or to substantiate all
payments then made with respect to the Project.
(c) If on the date an Advance is desired Borrower has performed all of its
agreements and complied with all requirements therefor to be performed
or complied with hereunder including satisfaction of all applicable
conditions precedent contained in ARTICLE III hereof, Lender shall
transmit to the Disbursing Agent the amount of the requested Advance,
less amounts owing to Lender (which will be applied directly by
Lender), and the Disbursing Agent will disburse such funds pursuant to
and in accordance with the terms of the Disbursing Agreement. Each
Advance shall bear interest at the rate provided in the Note from the
date such Advance is transmitted by Lender to the Disbursing Agent.
Section 2.4 DEPOSIT OF FUNDS BY BORROWER. If Lender shall at any time
determine that the undisbursed amount of the Commitment is less than the amount
required to pay all costs and expenses of any kind that may be reasonably
anticipated in connection with the Project, and if Lender shall thereupon send
written notice thereof to Borrower specifying the amount required to be
deposited by Borrower with the Disbursing Agent to provide sufficient funds to
complete the Project, Borrower shall, within twenty (20) calendar days of
receipt of any such notice, deposit with the Disbursing Agent the amount of
funds specified in Lender's notice. Borrower shall also deposit with the
Disbursing Agent, without demand by Lender, funds equal to any increase in the
Project Cost resulting from an authorized change order. Borrower agrees that any
funds deposited with the Disbursing Agent shall be disbursed by the Disbursing
Agent before any further disbursements of the Commitment.
Section 2.5 DISBURSEMENTS WITHOUT RECEIPT OF DRAW REQUEST. Notwithstanding
anything herein to the contrary, so long as any Event of Default has occurred
and remains outstanding, Lender, upon written notice to Borrower, shall have the
irrevocable right at any time and from time to time to cause an advance of the
Commitment or a disbursement of funds that are on deposit with Lender or the
Disbursing Agent to pay principal or interest on the Note as and when said
payments become due and to pay any and all costs and expenses referred to in
SECTION 6.03 hereof, and following the occurrence of an uncured Event of Default
to pay any and all costs and expenses necessary to complete the Project, or to
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satisfy any obligation of Borrower pursuant to the terms of this Agreement or
the other Loan Documents, all without receipt of a Draw Request from Borrower.
Section 2.6 INTEREST RESERVE. A sum in the amount of ($2,329,066.00) shall
be unfunded and reserved for the funding of interest owed on the Loan (the
"INTEREST RESERVE"). Funds shall be advanced for the payment of accrued interest
on Borrower's request, except as provided in SECTION2.05 above. It is the intent
of the parties hereto, that all Advances made pursuant to a Draw Request shall
include, but not be limited to, an Advance from the unfunded Interest Reserve to
pay interest then due under the Loan. It is the further intent of the parties
hereto that in the event an interest payment is due under the terms of the Note
but (i) no Draw Requests has been made; or (ii) a Draw Request has been
submitted such that the interest payment cannot be timely made as part of the
Draw Request, THEN Lender may draw from the Interest Reserve to pay such accrued
interest then due. If at any time the Interest Reserve is exhausted or Lender
determines, at its sole discretion, it is insufficient due to interest rate
adjustments, Borrower will, within 10 calendar days of Lender's request, deposit
with Lender an amount sufficient for the funding of interest payments over the
remaining term of the Loan.
Section 2.7 Intentionally Omitted.
Section 2.8 PROJECT CONTINGENCY. A sum in the amount of $1,252,035.00 shall
be unfunded and reserved for Project Cost overruns.
ARTICLE III
CONDITIONS OF LENDING
Section 3.1 CONDITIONS PRECEDENT TO LENDING. The obligation of Lender to
make the initial Advance hereunder shall be subject to the condition precedent
that Borrower shall be in compliance with the conditions contained in SECTION
3.2 and the further condition precedent that Lender shall have received the
following:
(a) The Note, Mortgage, Guaranties, UCC Financing Statements,
Environmental Indemnity Agreement and other Loan Documents to which
Borrower and/or Guarantor as required hereunder are party duly
executed and delivered to Lender, all of which shall be reasonably
satisfactory to Lender and Lender's legal counsel in form and content.
(b) A current appraisal prepared by a state licensed appraiser approved by
Lender indicating an appraised value of the Mortgaged Property as
follows: minimum initial value of Land of at least $1,740,000.00, as
well as "as built" projected appraised value of the Project of at
least $53,100,000.00. The appraisal shall be addressed to Lender and
state that it has been prepared on Lender's behalf. The form of the
appraisal and the appraisal methods shall otherwise be reasonably
satisfactory to Lender and shall conform to all requirements of State
and Federal law. Upon completion of construction, at the expense of
Borrower, the appraiser shall reinspect and recertify the value of the
Mortgaged Property "as built."
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(c) A "marked-up commitment" for a mortgagee's title insurance policy duly
endorsed by the Title Company that: (i) names Lender as primary
insured in the full principal amount of the Commitment; (ii) insures
the Mortgage to be a valid first lien on the Mortgaged Property; and
(iii) is free from exceptions for (1) matters that would be disclosed
by a survey or inspection, (2) mechanics', contractors' or
materialmen's liens and lien claims, (3) rights and claims of parties
in possession, (4) easements or claims of easements not shown by the
public records, and (5) other exceptions not specifically approved by
Lender and as set forth in EXHIBIT B to the Mortgage. All real estate
taxes are current and all levied and pending assessments not
delinquent as of the date of the Mortgage shall be paid in full. The
policy shall include a Form 3.0 zoning endorsement, an ALTA Form 9
comprehensive endorsement, and such other endorsements as Lender may
reasonably require under the circumstances.
(d) An ALTA survey of the Mortgaged Property, satisfactory to Lender and
the Title Company, prepared by a registered land surveyor, which will
include the legal description and area of the Mortgaged Property, show
and certify to the perimeter lot lines, dimensions and vectors, the
location of all existing footings, foundations and improvements,
utilities, easements, rights of way, building set back lines, curb
lines and encroachments, as may be applicable, and the intended
location of the Project according to the Drawings and Specifications
to be submitted and approved by Lender as provided herein. Said survey
shall be prepared for Lender's and the Title Company's benefit and
shall be certified by the surveyor in form reasonably acceptable to
Lender and Title Company. The survey shall be updated, as reasonably
necessary to show the footings or foundations of the Project when the
footings or foundation is completed, and shall be updated again to
show the location of the "AS-BUILT" Project prior to the final
disbursement of Loan proceeds.
(e) Copies of all building and other permits necessary for construction of
the Project. Lender shall also receive a certificate of the Architect
or engineer to the effect that all permits required by any
governmental authority for construction and operation of the Project
have been obtained.
(f) Evidence satisfactory to Lender that the Project complies with all
building codes and zoning and subdivision ordinances applicable
thereto, and that the Project and its use thereof are in compliance
with all other state, federal, and local laws and regulations.
(g) Copies of the contracts between Borrower and the Architect, and
between Borrower and the General Contractor, as well as the contracts
between the General Contractor and all major subcontractors as
identified on Exhibit B attached hereto. The Construction Contract
shall be a fixed-price or maximum-cost contract. All such contracts
shall be in form reasonably satisfactory to Lender and Lender's legal
counsel and shall, together with the Drawings and Specifications, be
assigned to Lender. The Architect, the General Contractor, and any
subcontractors or other contractors, if required by Lender, shall
consent to such assignments. Borrower shall also provide to Lender any
contract entered into by Borrower, or any proposed tenants or
franchisees doing business on the property of Borrower, directly with
9
any contractor, engineer, architect or professional concerning the
provision of materials and/or labor and/or services to the Project.
(h) Current financial statements, certified as true and correct by the
party giving the same. All such financial statements shall (i)
indicate all assets, liabilities, contingent liabilities and income,
and (ii) include separate financial statements for each significant
asset (e.g., if partnership interests are shown as an asset, the
financial statements of the partnership shall also be provided). All
financial and credit information must be satisfactory to Lender in
form and substance.
(i) Satisfactory soil test borings and soil reports that are acceptable to
Lender.
(j) Written evidence from the proper municipal authorities and public
utility companies that all utilities, sewage and related services are
or will be available to the Mortgaged Property upon completion of the
Project.
(k) All reciprocal easement agreements, maintenance agreements, and other
easements relating to the Mortgaged Property as Lender or Lender's
legal counsel may require, if any, for parking, access, utility and
other purposes, all of which shall be reasonably satisfactory to
Lender and Lender's legal counsel in form and content.
(l) Evidence reasonably satisfactory to Lender that no petroleum product
or other Hazardous Substance is present on the Mortgaged Property, and
that no asbestos-containing products, urea-formaldehyde foams or PCB's
are being used in the construction of the Project. Such evidence shall
include a Phase I Environment Report and a Phase II Environmental
Report, prepared by a licensed engineer or other qualified
environmental consultant reasonably acceptable to Lender. The report
shall be addressed to Lender and state that it was prepared for
Lender. If the report indicates that petroleum products or other
Hazardous Substances are present, the report shall identify such
materials and shall analyze (including cost and time factors)
recommended methods of removal. Borrower warrants that no asbestos
containing-products, urea-formaldehyde foam insulation or PCB's will
be used in the construction or equipping of the Project.
(m) The Sworn Construction Statement, completed and executed by General
Contractor based on the current Drawings and Specifications as part of
the Contractor's Sworn Construction Statement of even date herewith.
(n) The Project Cost Statement.
(o) An Estoppel from WPFD in form acceptable to Lender.
(p) Intentionally Omitted.
(q) Assignment of that certain Amended and Restated Lease With Purchase
Option Agreement between Borrower and WPFD dated May 30, 2007.
10
(r) Evidence prepared by an independent accountant that Borrower has
injected $2,000,000.00 of cash Equity into the Project.
(s) Evidence of the financial and legal capacity of the City to perform
its commitment to guarantee shortfalls in rent payments due under the
Lease and to contribute $4,000,000 of the puchase price if WPFD
exercises its purchase option under the Lease, including (without
limiting the generality of the foregoing) current financial statements
in form acceptable to Lender, an acceptable analysis of the taxing
capacity of the City, and an opinion of the City's bond counsel as to
the enforceability of the Lease and such guarantee, the agreement to
make such contribution and all related City obligations with respect
to the Lease.
(t) Evidence that the developer fee payable to International Coliseum
Company in connection with the Project, in the amount of $250,000, has
been forfeited.
(u) Evidence that Guarantor will subordinate to the Loan the payment of
$380,000 of its project management fee until Project completion, and
will convert an additional $200,000 of such fee to be used as
additional contingency which may be paid upon Borrower reaching
certain construction milestones, provided, however, that any project
management fee in excess of $580,000 shall be payable in the ordinary
course of business.
(v) Evidence that BBP Two LLC has agreed to defer payment of $971,000 of
Project costs that are to be reimbursed by Borrower until the Loan is
paid in full, and receipt of a subordination of such payment rights to
the repayment of the Loan.
(w) Evidence satisfactory to Lender that Borrower has expended or has
deposited with the Disbursing Agent not less than the amount of the
required Equity in payment of costs and expenses incurred in
connection with the Project that would be otherwise properly payable
from an Advance, together with satisfactory lien waivers for Hard
Costs paid with such funds.
(x) Evidence of stockholder equity of Guarantor in a total amount of not
less than $9,000,000.00 (excluding receivables from affiliates or
related entities). Evidence of such tangible net worth shall be
provided on an internally prepared financial statement prepared in
accordance with Generally Accepted Accounting Principles ("GAAP").
(y) Evidence of liquidity (in the form of cash or cash equivalents, time
deposits and marketable securities) of Guarantor in a total amount of
not less than $3,500,000.00. Evidence of such liquidity shall be
prepared by a third party acceptable to Lender (via bank statements or
statements provided by a broker-dealer).
(z) The Disbursing Agreement, duly executed by the Disbursing Agent,
Borrower and Lender in form and substance acceptable to Lender in its
sole discretion.
(aa) Delivery of a payment and performance bond from General Contractor,
11
together with a dual oblige rider naming Lender, in form and substance
acceptable to Lender in its sole discretion.
(bb) Payment to Lender of a commitment fee of $780,000.00 to be disbursed
on closing from the loan proceeds.
(cc) Guarantor will deliver an irrevocable letter of credit from an
institution and in a form acceptable to Lender in the amount of
$1,250,000.00 to serve as additional collateral and which may be used
to cure an Event of Default.
Section 3.2 FURTHER CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of
Lender to make an Advance hereunder including each subsequent Advance shall be
subject to the condition precedent that Borrower shall be in compliance with all
conditions set forth in SECTION 3.1 and further conditions precedent that on the
date of each Advance:
(a) No Event of Default hereunder, or event that would constitute such an
Event of Default but for the requirement that notice be given or that
a period of grace or time elapse, shall have occurred and be
continuing and all representations and warranties made by Borrower in
ARTICLE IV shall continue to be true and correct as of the date of
such Advance.
(b) No determination shall have been made by Lender that the undisbursed
amount of the Commitment is less than the amount required to pay all
costs and expenses of any kind that may be anticipated in connection
with the Project; or if such a determination has been made and notice
thereof sent to Borrower, Borrower has deposited the necessary funds
with the Disbursing Agent or Lender in accordance with SECTION 2.3
hereof.
(c) The disbursement requirements of SECTION 2.2 hereof and of the
Disbursing Agent set forth in the Disbursing Agreement have been
satisfied.
(d) If required by Lender or Disbursing Agent, Lender and the Disbursing
Agent shall be furnished with an updated Sworn Construction Statement
for the Project.
(e) Borrower shall have provided to Lender such evidence of compliance
with all applicable provisions of this Agreement as Lender may
reasonably request.
(f) No license or permit necessary for the construction of the Project
shall have been revoked or the issuance thereof subjected to challenge
before any court or other governmental authority having or asserting
jurisdiction thereover.
Section 3.3 CONDITIONS PRECEDENT TO THE FINAL ADVANCE. The obligation of
Lender to make the final Advance and to release the Retainage shall be subject
to the condition precedent that Borrower shall be in compliance with all
conditions set forth in SECTIONS3.1 and 3.2 and, further, that the following
conditions shall have been satisfied:
(a) The Project, including all landscape and parking requirements, has
been substantially completed in accordance with the Drawings and
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Specifications and evidenced by a Certificate of Completion delivered
to Lender and Lender shall have received a Certificate of Completion
from the General Contractor and the Architect certifying that (i) the
construction of the Project has been substantially completed in
accordance with the Drawings and Specifications (with the exception of
any minor items ["PUNCH LIST ITEMS"]) (ii) all labor, services,
materials and supplies used in the Project have been paid for or will
be paid for from the proceeds of the final Advance and (iii) the
completed Project conforms with all applicable zoning, land use
planning, building and environmental laws and regulations of the
governmental authorities having jurisdiction over the Project and the
Mortgaged Property. The General Contractor shall also deliver to
Lender a list of Punch List Items acceptable to Lender, specifying
dates by which the Punch List Items shall be completed, together with
General Contractor's written contract to complete the Punch List Items
as specified. The amount of the final Advance and/or the Retainage to
be released shall be reduced by an amount equal to110% of the
scheduled value of the Punch List Items, which sum shall be held by
Lender pending the completion of the Punch List Items to the
satisfaction of Lender.
(b) Lender has received each of the following documents and approvals,
each of which shall be satisfactory to Lender and Lender's legal
counsel:
(i) An as-built survey;
(ii) A final Sworn Construction Statement executed by the General
Contractor and Borrower;
(iii)A final Certificate of Occupancy or equivalent issued by the
appropriate municipal or governmental inspecting authority;
(iv) All necessary and appropriate Inspecting certifications;
(v) An approval for disbursement from the Inspecting Engineer after
its final inspection of the Project.
(vi) A title endorsement from the Title Company that reflects the
absence of any liens or other matters affecting title that are
objectionable to the Lender.
(vii)Final lien waivers executed by the General Contractor and all
subcontractors.
Section 3.4 INSURANCE. Borrower shall obtain and shall continuously
maintain thereafter the following policies of insurance:
DURING CONSTRUCTION AND PRIOR TO COMPLETION
BUILDER'S RISK INSURANCE - Builder's Risk Insurance written on a completed
value basis in an amount equal to the full replacement cost of the building
and improvements at the date of completion with coverage available on the
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so-called non-reporting "all risk" form of policy, including coverage
against collapse and water damage, with standard non-contributing mortgagee
clauses, such insurance to be in such amounts and form and written by such
companies as shall be approved by Lender which approval shall not be
unreasonably withheld, conditioned or delayed, and the insurance
certificates evidencing such policies (together with appropriate
endorsement thereto, evidence of payment of premiums thereon and written
agreements by the insurer or insurers therein to give Lender thirty (30)
days' prior written notice of any intention to cancel).
CONTRACTOR'S LIABILITY - Contractor's Comprehensive General Liability
Insurance [including operations, product liability, contingent liability
operations, operations of subcontractors, completed operations, contractual
liability insurance and comprehensive automobile liability insurance
(including hired and non-owned liability)] and with combined single limit
and general aggregate coverage for personal and bodily injury and property
damage of at least $1,000,000.00 for each occurrence, $2,000,000.00 general
aggregate and with $2,000,000.00 excess liability coverage.
WORKER'S COMPENSATION - Statutory worker's compensation coverage in the
required amounts.
FLOOD - Flood insurance if any part of the Mortgaged Property now (or
subsequently determined to be) is located in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards
and in which flood insurance has been made available under the National
Flood Insurance Act of 1968 (and amendment or successor act thereto) in an
amount at least equal to the lesser of the full replacement cost of all
buildings and equipment on the Mortgaged Property, the outstanding
principal amount of the Note or the maximum limited of coverage available
with respect to the buildings and equipment under said Act;
AFTER COMPLETION
ALL RISK - All risk/open perils special form property insurance with
extended coverages including any building contents, sprinkler coverage,
Contingent Operations of Building Laws/Ordinance or Law Endorsement
(including demolition cost, loss to undamaged portions of any buildings and
increased cost of construction) with limits of 100% replacement cost and
with no co-insurance provision or if the insurance carrier requires,
co-insurance provisions with an agreed amount endorsement in amount
acceptable to Lender, and with no exclusions for terrorism or terrorist
acts.
BOILER AND PRESSURE VESSELS - Insurance against loss or damage from i)
leakage of sprinkler systems and ii) explosion of steam boilers, air
conditioning equipment, high pressure piping, machinery and equipment,
pressure vessels or similar apparatus now or hereafter installed in any
improvements on the Mortgaged Property and including broad form boiler and
machinery insurance (without exclusion for explosion) covering all boilers
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or other pressure vessels, machinery and equipment (including electrical
equipment, sprinkler systems, heating and air conditioning equipment,
refrigeration equipment and piping) located in, on or about the Mortgaged
Property and any improvements thereon in an amount at least equal to the
full replacement cost of such equipment and the building or buildings
housing the same;
RENTS/INCOME - Rents Loss or Business Interruption insurance covering risk
of loss due to the occurrence of any hazards insured against under the
required fire and extended coverage insurance in an amount equal to one (1)
year's loss of income as such income may change from time to time due to
changes in income from the Mortgaged Property;
FLOOD - Flood insurance if any part of the Mortgaged Property now (or
subsequently determined to be) is located in an area identified by the
Federal Emergency Management Agency as an area having special flood hazards
and in which flood insurance has been made available under the National
Flood Insurance Act of 1968 (and amendment or successor act thereto) in an
amount at least equal to the lesser of the full replacement cost of all
buildings and equipment on the Mortgaged Property, the outstanding
principal amount of the Note or the maximum limited of coverage available
with respect to the buildings and equipment under said Act;
CGL - Commercial general public liability insurance (including product
liability, completed operations, contractual liability, host liquor
liability, broad form property damage, and personal injuries, including
death resulting therefrom) and with combined single limit and general
aggregate coverage for personal and bodily injury and property damage of at
least $1,000,000.00 for each occurrence, $2,000,000.00 general aggregate
and with $2,000,000.00 excess liability coverage.
Maximum deductible on all coverages and policies shall be no greater than
$10,000.00. The insurance carrier must be rated A, Class XII, or better, by
Best's Rating Service. Such insurance policies shall be written on forms and
with insurance companies satisfactory to Lender, shall be in amounts sufficient
to prevent Borrower from becoming a co-insurer of any loss thereunder, shall
insure Lender as a first mortgagee on the casualty and business
interruption/loss of rents coverage under a standard mortgagee clause and shall
name Lender as an "additional insured" on all required liability coverages and
policies. Insurance certificates evidencing such insurance and evidence of
payment of premiums thereon and written agreements by the insurer or insurers
therein to give Lender thirty (30) days' prior written notice of any intention
to cancel. If no such copy is available, Lender will accept a binder for a
period not to exceed ninety (90) days. Borrower shall, within thirty (30) days
prior to the expiration of any such policy, deliver insurance certificates
evidencing the renewal of such insurance together with evidence of the payment
of current premiums therefor. Any vacancy, change of title, tenant occupancy or
use, physical damage, additional improvements or other factors affecting any
insurance contract must be promptly reported to Lender. All binders,
certificates of insurance, and original or certified copies of policies must
name Borrower as a named insured, or as an additional insured, must include the
complete and accurate property address and must bear the original signature of
the issuing insurance agent. In the event of a foreclosure or trustee's sale
under the Mortgage or any acquisition of the Mortgaged Property by Lender all
15
such policies and any proceeds payable therefrom, whether payable before or
after a foreclosure sale, or during the period of redemption, if any, shall
become the absolute property of Lender to be utilized at its discretion. In the
event of foreclosure or the failure to obtain and keep any required insurance
Borrower empowers Lender to effect the above insurance upon the Mortgaged
Property at Borrower's expense and for the benefit of Lender in the amounts and
types aforesaid for a period of time covering the time of redemption from sale,
and if necessary therefore, to cancel any or all existing insurance policies.
Borrower agrees to pay Lender such fees as may be permitted under applicable law
for the reasonable costs incurred by Lender in determining, from time to time,
whether the Mortgaged Property are located within an area having special flood
hazards. Such fees shall include the fees charged by any organization providing
for such services.
Section 3.5 CASUALTY/DESTRUCTION. In the event of any fire, accident or
other casualty causing loss, damage or destruction to the Mortgaged Property, or
any part thereof, any and all insurance proceeds received in respect thereof in
excess of $100,000.00 shall be held by Lender in trust, so long as no Event of
Default has occurred and is continuing, and shall be made available to Borrower
and disbursed from time to time to Borrower and/or its Affiliates to repair and
restore any such damage pursuant to Lender's disbursement procedures which are
generally utilized by Lender for construction loans to its customers.
Section 3.6 NO WAIVER. The making of any Advance prior to fulfillment of
any condition thereof shall not be construed as a waiver of such condition, and
Lender reserves the right to require fulfillment of any and all such conditions
prior to making any subsequent Advance.
ARTICLE IV
WARRANTIES, REPRESENTATIONS AND COVENANTS
OF BORROWER
Section 4.1 REPRESENTATIONS AND WARRANTIES. Borrower and Guarantor
represent and warrant as follows:
(a) The Loan Documents to which Borrower is and/or Guarantor are party
have been duly executed and delivered to Lender by Borrower and/or
Guarantor, as applicable, and each Loan Document constitutes the
legal, valid and binding obligations of Borrower and/or Guarantor
enforceable in accordance with the terms thereof (subject, as to
enforceability, to limitations resulting from bankruptcy, insolvency
and other similar laws affecting creditors' rights generally).
(b) The Project and the intended use thereof for the purpose and in the
manner contemplated by this Agreement to Borrower's and Guarantor's
knowledge are permitted by and comply in all material respects with
all presently applicable use or other restrictions and requirements in
prior conveyances, zoning ordinances and all development, pollution
control, water conservation, environmental and other laws,
regulations, rules and ordinances of the United States and the State
of Washington and the respective agencies thereof, and the political
subdivision in which the Mortgaged Property is located.
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(c) There is no suit, action or proceeding pending or, to the knowledge of
Borrower and/or Guarantor threatened against or affecting Borrower
and/or Guarantor before or by any court, arbitrator, administrative
agency or other governmental authority that if adversely determined
would materially and adversely affect Borrower and/or Guarantor, or
the businesses, properties, operations, assets or condition (financial
or otherwise) of Borrower and/or Guarantor or the validity of any of
the transactions contemplated by the Loan Documents, or Borrower's
and/or Guarantor's ability to perform the obligations hereunder or
thereunder or as contemplated hereby or thereby.
(d) Borrower and Guarantor have filed all federal and state tax returns
and informational reports required to be filed, which returns properly
reflect the taxes owed by them for the period covered thereby and
Borrower and Guarantor have paid all taxes that are due pursuant to
said returns and paid all present installments of any assessments,
fees and other governmental charges upon it or upon its property.
(e) No consent, approval or authorization of or permit or license from or
registration with or notice to any federal or state regulatory
authority or any third party, to Borrower's and Guarantor's knowledge,
is required in connection with the making or the performance of the
Loan Documents, the Project, or with respect to any other aspect of
the Project or the Mortgaged Property, or, if so required, such
consent, approval, authorization, permit or license has been requested
and obtained or such registration made or notice given or such other
appropriate action taken on or prior to the date hereof (other than
with respect to the occupancy of the Mortgaged Property that cannot be
obtained until completion of the Project) except for interim
certificates, permits and approvals to be issued during the course of
construction.
(f) Borrower is not and Guarantor is not in default of a material
provision under any material agreement, instrument, decree or order to
which either is a party or to which any parties' property are bound or
affected.
(g) There has been no material adverse change in the financial condition
of Borrower or Guarantor since the date of certification of Borrower's
and Guarantor's financial statements previously delivered to Lender.
Section 4.2 COVENANTS. On and after the date hereof and until payment in
full of the Note and payment and performance of all other obligations of
Borrower hereunder, and so long as any portion of the Loan referenced herein
remain in effect, Borrower agrees as follows:
(a) The Mortgaged Property shall comply with all applicable restrictions,
conditions, ordinances, regulations and laws of governmental
departments and agencies having jurisdiction over the Mortgaged
Property, and shall not violate any private restrictions or covenants
or encroach upon or interfere with easements affecting the Mortgaged
Property, and that Borrower will commence and carry on continuously,
diligently and with reasonable dispatch, the construction of the
Project in conformance to the Drawings and Specifications, free from
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all mechanic's, laborer's and material man's liens and in a good and
workmanlike manner, and complete the same prior to the maturity date
of the Note.
(b) To keep, perform, enforce and maintain in full force and effect all of
the terms, covenants, conditions and requirements of the Project
Documents (other than immaterial terms approved by Lender in the
reasonable exercise of its discretion); not to amend, modify,
supplement, terminate, cancel or waive any of the terms, covenants,
conditions or requirements of any of said documents without the prior
written consent of Lender; and to execute and deliver such amendments,
modifications, supplements and extensions of said documents as may be
reasonably requested by Lender.
(c) To use all commercially reasonable efforts to require the General
Contractor and each Contractor to comply with all rules, regulations,
ordinances and laws bearing on its conduct in the construction of the
Project.
(d) To furnish to Lender as soon as possible and in any event within ten
(10) days after Borrower has obtained knowledge of the occurrence of
an event that would constitute an Event of Default hereunder or a
violation of any of the covenants or obligations of Borrower under
this Agreement or that would cause any of the representations or
warranties hereunder to be false or misleading in any respect, or an
event that with the giving of notice or lapse of time or both would
constitute an Event of Default, that is continuing on the date of such
statement, in which case Borrower shall deliver a signed statement
setting forth the details of such violation or event and the action
that has been taken, is being taken, or that Borrower proposes to
take, to correct the same.
(e) To hold Lender harmless, and Lender shall have no liability or
obligation of any kind to Borrower, creditors of Borrower or any third
party, in connection with any defective, improper or inadequate
workmanship performed in or about, or materials supplied to the
Mortgaged Property, or any mechanic's, supplier's or material man's
liens arising as a result of such defective, improper or inadequate
workmanship or materials, and upon Lender's request, to replace or
cause to be replaced, any such defective, improper or inadequate
workmanship or materials.
(f) To pay and discharge all taxes, assessments and governmental charges
or levies imposed upon Borrower or upon its income or profits, or upon
its assets or properties, prior to the date on which penalties attach
thereto, and all lawful claims that, if unpaid, might become a lien or
charge upon the property or assets of Borrower; provided, however,
that Borrower shall not be required to pay any such tax, assessment,
charge, levy or claim, the payment of which is being contested in good
faith and by proper proceedings and for which it shall have set aside
adequate reserves.
(g) To keep the Mortgaged Property and all improvements, buildings and
fixtures thereon in good working order and condition.
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(h) As soon as available, and within one hundred twenty (120) days after
the end of each calendar year, a copy of the annual financial
statements of Borrower, that shall include the balance sheet of
Borrower as at the end of such year and related statements of income
and expenses, statement of changes in financial position, a statement
of changes in capital accounts and a statement of allocation of
distribution of profits and losses of Borrower, all in reasonable
detail, prepared in accordance with GAAP (or tax accounting reconciled
to GAAP) and reviewed by a reputable accounting firm. Such statements
shall be accompanied by the annual federal income tax returns of
Borrower, including all schedules, for the preceding taxable year as
filed with the Internal Revenue Service unless an extension has been
obtained for filing taxes and then within thirty (30) days after final
filing.
(i) As soon as available, and within one hundred twenty (120) days after
the end of each calendar year, Guarantor will provide to Lender, a
current financial statement of Guarantor which statement shall include
an itemization of all assets and liabilities of the Guarantor
scheduled by item and type, all investments and contingent liabilities
and adequate to disclose the net worth of Guarantor at such point in
time. Such financial statement shall be personally certified by
Guarantor and shall be accompanied by the annual federal income tax
returns of Guarantor, including all schedules and K-1s as applicable,
for the preceding taxable year as filed with the Internal Revenue
Service unless an extension has been obtained for filing taxes and
then within thirty (30) days after final filing.
(j) Beginning with the first quarter after the completion of the Project,
as soon as available, and within thirty (30) days after the end of
each quarter, a copy of the quarterly financial statement of Borrower
that shall include the balance sheet of Borrower as at the end of such
quarter and related statements of income and expenses, statement of
changes in financial position, a statement of changes in capital
accounts and a statement of allocation of distribution of profits and
losses of Borrower, all in reasonable detail, prepared in accordance
with GAAP (or tax accounting reconciled to GAAP).
(k) Guarantor shall maintain throughout the term of the Loan, unrestricted
liquidity in a total amount for Guarantor of not less than
$3,500,000.00 in cash, cash equivalents, time deposits and marketable
securities. Evidence of such liquidity shall be prepared by a third
party reasonably acceptable to Lender (via bank statements or
statements provided by a broker-dealer), and shall be provided to
Lender at loan closing and quarterly no less than forty-five (45) days
following the end of each quarter.
(l) Within ten (10) days after Lender's request therefor, Borrower shall
deliver to Lender such other information as Lender may reasonably
request from time to time.
(m) Borrower shall maintain and preserve its existence as a limited
liability company or other form of business organization, as the case
may be, and all rights, privileges, licenses, patents, patent rights,
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copyrights, trademarks, trade names, franchises and other authority to
the extent material and necessary for the conduct of its respective
business in the ordinary course as conducted from time to time.
Without at least 30 days prior written notice Borrower shall not (i)
change its legal name, (ii) change its state of organization, or (iii)
change the location of its chief executive office.
(n) Guarantor must maintain a level of stockholder equity of no less than
$8,000,000.00 to be measured on a quarterly basis on internally
prepared financial statements prepared according to GAAP and provided
to Lender no less than 60 days following the of each quarter;
provided, however, that such minimum level shall increase to
$9,000,000.00 as of July 31, 2008.
Section 4.3 NEGATIVE COVENANTS. Borrower agrees that without the prior
written consent of Lender:
(a) Borrower shall not grant any security interest in the Mortgaged
Property or any part thereof, or create or permit to be created or
allow to exist any mortgage, encumbrance or other lien upon the
Mortgaged Property.
(b) Borrower shall not agree or consent to any material changes in the
Project Documents; provided however, changes to the Project Documents
which do not affect the aesthetics or diminish the value of the
Project and which are in an amount not exceeding $100,000 in the
aggregate shall not require Lender consent or approval or be in
violation of this section.
(c) Borrower shall not incorporate in the Project any materials, fixtures
or property that are subject to the claims of any other person,
whether pursuant to conditional sales contract, security agreement,
lease, mortgage or otherwise.
(d) Borrower shall not assume, guaranty, or become an obligor or surety
for the obligations of any third party except for those certain
payment obligations undertaken and assumed by Borrower in the
aggregate principal amount of $2,283,303.96 pursuant to the terms set
forth in Section 4 of that certain Tri-Party Agreement dated May 17,
2007 made by and among Blodgett Construction Associates, Inc., a
Washington corporation, BBP Two, LLC, a Washington limited liability
company, Bethlehem Construction, Inc., a Washington corporation and
Borrower.
(e) Borrower shall not incur any indebtedness other than the Loan and
trade payables in the ordinary course of its business and that certain
indebtedness in the aggregate principal amount of $2,283,303.96 as
evidenced by that certain promissory note payable to Bethlehem
Construction, Inc. as required by Section 4 of said Tri-Party
Agreement.
Section 4.4 ENVIRONMENTAL REPRESENTATION, WARRANTIES AND COVENANTS, AND
INDEMNITIES. To induce Lender to make and fund the Loan, Borrower and Guarantor
hereby represent, warrant, covenant and agree as follows:
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(a) That, except as heretofore disclosed to Lender in writing (i) the
Mortgaged Property has never been used by Borrower or to their
knowledge by any previous owners or occupants or current occupants to
generate, manufacture, refine, transport, treat, store, handle or
dispose of any Hazardous Substances and no such Hazardous Substances
exist on the Mortgaged Property or in its soil or groundwater (other
than those utilized during the course of construction of the Project),
(ii) the Project will not be constructed with asbestos, asbestos
containing materials, urea formaldehyde insulation or any other
chemical or substance that has been determined to be a hazard to
health and/or the environment, (iii) there does not presently exist,
nor to best of their knowledge have there been in the past, electrical
transformers or other equipment that have dielectric fluid-containing
polychlorinated biphenyls (PCBs) located in, on or under the Mortgaged
Property, (iv) to their knowledge, the Mortgaged Property has never
contained any underground storage tanks, (v) neither Borrower nor
Guarantor have received or have knowledge of any summons, citation,
directive, letter or other communication, written or oral, from any
local, state or federal governmental agency concerning the existence
of Hazardous Substances on the Mortgaged Property or in the immediate
vicinity of the Mortgaged Property or the releasing, spilling,
leaking, pumping, pouring, emitting, emptying, or dumping of Hazardous
Substances onto the Mortgaged Property or into waters or other lands.
(b) That Borrower shall (i) comply and shall cause all occupants of the
Mortgaged Property to comply with all federal, state and local laws,
rules, regulations and orders with respect to the discharge,
generation, removal, transportation, storage and handling of Hazardous
Substances, (ii) remove any Hazardous Substances immediately upon
discovery of the same in accordance with applicable laws, ordinances
and orders of governmental authorities having jurisdiction thereof,
(iii) pay or cause to be paid all costs associated with such removal,
(iv) prevent the migration of Hazardous Substances from or through the
Mortgaged Property onto or under other properties, (v) keep the
Mortgaged Property free of any lien imposed pursuant to any state or
federal law, rule, regulation or order in connection with the
existence of Hazardous Substances on the Mortgaged Property, (vi) not
install or permit to be incorporated into any improvements in the
Mortgaged Property or to exist in or on the Mortgaged Property any
asbestos, asbestos containing materials, urea formaldehyde insulation
or any other chemical or substance that has been determined to be a
hazard to health and/or the environment, (vii) not cause or permit to
exist, as a result of an intentional or unintentional act or omission
on the part of Borrower, or any occupant of the Mortgaged Property, a
releasing, spilling, leaking, pumping, emitting, pouring, emptying or
dumping of any Hazardous Substances onto the Mortgaged Property or
into waters or other lands, and (viii) give all notifications and
prepare all reports required by Environmental Laws or any other law
with respect to Hazardous Substances existing on, released from or
emitted from the Mortgaged Property. Without limiting the generality
of the foregoing, Borrower shall remidiate all Hazardous Substances
identified in the Phase 2 Environmental Site Assesment prepared by
Cascade Earth Services ("CES") dated August 1, 2007 (the "Phase 2
Report") in accordance with the remediation plan prepared by CES and
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meeting the substantive requirements of the Model Toxics Control Act
(Chapter 70.105D RCW), and thereafter obtain a No Further Action
Determination from the State of Washington Department of Ecology under
its Voluntary Cleanup Program.
(c) That if either Borrower or Guarantor fail to diligently dispose of or
secure any Hazardous Substance after discovery thereof in full
compliance with all applicable laws and regulations, Lender may at its
option, but without any obligation whatsoever, proceed to so dispose
of or secure the Hazardous Substance or take such other action
necessitated or resulting therefrom at the cost and expense of
Borrower. Borrower and Guarantor further agree that in the Event of
Default or if any Hazardous Substance is discovered in, on or under
the Mortgaged Property or is attributable to or affects the Mortgaged
Property, Borrower and Guarantor shall, at their expense, permit an
environmental inspection, audit, assessment, or other testing or
monitoring of the Mortgaged Property, for the sole benefit of Lender,
to be conducted by Lender or by an independent agent selected by
Lender.
(d) Borrower and Guarantor acknowledge and agree that their obligations
under this SECTION 4.4 are not and shall not be deemed to constitute
mortgage debt, that such obligations are not secured by the Mortgage,
and that such obligations shall not be terminated or otherwise
affected by the sale of the Mortgaged Property in satisfaction or
partial satisfaction of the Note, any foreclosure of the Mortgage or
by any proceeding or deed in lieu of foreclosure or by any payment or
performance of any other indebtedness or obligation or by any passage
of title to Lender or by any disposition by Lender of all or any part
of the Mortgaged Property or by any other action or thing, including
any anti-deficiency provisions of applicable law, and that such
obligations are totally independent of and unaffected by the terms of
any Loan Documents or other writing or agreement, and Borrower and
Guarantor specifically forever waive any and all claims and defenses
to the contrary. The obligations of Borrower and Guarantor under this
SECTION 4.4 shall survive payment of the Note.
ARTICLE V
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
Section 5.1 EVENT OF DEFAULT DEFINED. As used herein, the term Event of
Default shall include each or all of the following events:
(a) Borrower shall fail to pay any principal or interest due under the
Note or any other amount payable hereunder when due.
(b) Borrower or Guarantor shall default in the performance of any
agreement, term, provision, condition, or covenant required to be
performed or observed by Borrower or Guarantor hereunder or under the
Loan Documents (other than non payment and other than a covenant or
agreement or default that is elsewhere in this Agreement or in the
Loan Documents specifically dealt with) required to be performed or
observed by Borrower or Guarantor hereunder or any other Loan Document
or other agreement with or in favor of Lender which is not cured
22
within thirty (30) days of delivery of written notice of default, or
if the breach is of such a nature that it cannot reasonably be cured
or remedied within the thirty (30) day period, the time period for
cure shall be extended for such period as may be necessary to cure
such failure with reasonable diligence, but not to exceed ninety (90)
days after such written notice.
(c) Any financial information, statement, certificate, representation or
warranty given to Lender by Borrower (or any of their representatives)
or Guarantor in connection with entering into this Agreement or the
other Loan Documents and/or any borrowing hereunder, or required to be
furnished under the terms hereof or the Loan Documents, shall prove to
be untrue in any material respect (as determined by Lender in the
exercise of its reasonable judgment) as of the time when given.
(d) Borrower or Guarantor (or their respective Affiliates) shall be in
default under the terms of any loan agreement, promissory note,
guaranty, lease, conditional sales contract or other agreement,
document or instrument evidencing, governing or securing any
indebtedness owing by Borrower or Guarantor to Lender or any of its
Affiliates, and the period of grace, if any, to cure said default
shall have passed, unless such default or the underlying claim is
being contested by Borrower or Guarantor based on a legitimate, good
faith argument and Borrower or Guarantor has bonded or reserved
sufficient monies to satisfy such default or underlying claim.
(e) Borrower or Guarantor shall be in default under the terms of any loan
agreement, promissory note, lease, conditional sale contract or other
agreement, document or instrument evidencing, governing or securing
any indebtedness in excess of $100,000 owed by Borrower or Guarantor
to any third party, and the period of grace, if any, to cure said
default shall have passed, unless such default or the underlying claim
is being contested by Borrower or Guarantor based on a legitimate,
good faith argument and Borrower or Guarantor have bonded or reserved
sufficient monies to satisfy such default or underlying claim.
(f) Any final judgment shall be obtained against Borrower or Guarantor
that, together with all other outstanding unsatisfied judgments
against Borrower or Guarantor shall exceed the sum of $100,000 and
shall remain unvacated, unbonded or unstayed for a period of thirty
(30) days following the date of entry thereof, unless such default or
the underlying claim is being contested by Borrower or Guarantor based
on a legitimate, good faith argument and Borrower or Guarantor has
bonded or reserved sufficient monies to satisfy such default or
underlying claim.
(g) Borrower or Guarantor shall cease to exist (ii) Guarantor shall
attempt to revoke Guarantor's Guaranty or Guaranty becomes
unenforceable in whole or in part for any reason; or (iii) any
bankruptcy, insolvency or receivership proceedings, or an assignment
for the benefit of creditors, shall be commenced by Borrower or any
Guarantor under any federal or state law; or (iv) if an order for
relief under any present or future federal bankruptcy act or similar
state or federal law shall be entered against Borrower or Guarantor,
or if a petition or answer requesting or proposing the entry of such
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order for relief or the adjudication of Borrower or Guarantor as a
debtor or a bankrupt or its or their reorganization under any present
or future state or federal bankruptcy act or any similar federal or
state law shall be filed in any court and such petition or answer
shall not be discharged or denied within sixty (60) days after the
filing thereof or; (v) Borrower or Guarantor shall become the subject
of any out-of-court settlement with substantially all of its
creditors; or (vi) Borrower or Guarantor is unable or admits in
writing its inability to pay its debts as they mature.
(h) There is a material adverse change in the financial condition of
Borrower or Guarantor, or in any collateral securing the Loan.
(i) Borrower shall enter into any merger or consolidation transaction, or
liquidate or dissolve itself (or suffer any liquidation or
dissolution), or convey, sell, lease, transfer or otherwise dispose
of, in one transaction or a series of related transactions, all or a
substantial part of its property, business, or assets, except as
permitted by this Agreement or unless the prior written consent of
Lender is first obtained.
(j) A survey shows that the Project encroaches upon any easements,
unvacated street, building or parking set-backs, or upon any adjoining
property to an extent deemed material by Lender.
(k) The construction of the Project is abandoned or shall be unreasonably
delayed or be discontinued for a period of forty-five (45) consecutive
calendar days or such number of days as is deemed to be reasonable by
Lender under the particular circumstances of the delay, in each
instance, for reasons other than acts of God, fire, storm, strikes,
blackouts, labor difficulties, riots, inability to obtain materials,
equipment or labor, governmental restrictions or any similar cause
over that Borrower is unable to exercise control.
(l) Lender shall determine that additional sums are to be deposited with
Lender to provide for the completion of the Project and Borrower shall
fail to deposit such sums as required by said SECTION 2.4 of this
Agreement.
(m) Borrower has failed to inject additional equity or provide additional
collateral as required under SECTION 7.20.
(n) All or any portion of the Project or the Mortgaged Property, or the
legal, equitable or any other interest therein, shall be sold,
transferred, assigned, leased or otherwise disposed of except as
permitted by this Agreement or unless the prior written consent of
Lender is first obtained.
(o) At the time any Advance is requested by Borrower, the title to the
Mortgaged Property is not reasonably satisfactory to Lender,
regardless of whether the lien, encumbrance or other question existed
at the time of any prior Advance.
(p) The Project is materially damaged or destroyed by other casualty and
the loss, in the reasonable judgment of Lender, is not adequately
covered by insurance actually collected or in the process of
collection.
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(q) Borrower and the General Contractor shall fail to comlete the "Value
Engineering Changes" under Section 5.2.2 of the General Contract, and
Borrower shall fail to deliver an executed Sworn Construction
Statement which reflects such "Value Engineering Changes", within 120
days of the date hereof.
(r) An Event of Default occurs under any of the Loan Documents. Reference
is hereby made to the Loan Documents for additional occurrences
constituting an Event of Default hereunder.
Section 5.2 RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default
Lender may, at its option, exercise any and all of the following rights and
remedies (and any other rights and remedies available to it):
(a) Lender may terminate the Commitment and any further obligation to fund
Advances hereunder.
(b) Lender may, by written notice to Borrower, declare immediately due and
payable all unpaid principal of and accrued interest on the Note,
together with all other sums payable hereunder, and the same shall
thereupon be immediately due and payable without presentment or other
demand, protest, notice of dishonor or any other notice of any kind,
all of which are hereby expressly waived; provided, however, that upon
the filing of a petition commencing a case naming Borrower and/or
Guarantor as debtor under the United States Bankruptcy Code, the
principal of and all accrued interest on the Note shall be
automatically due and payable without any notice to or demand on
Borrower or any other party.
(c) Lender shall have the right, in addition to any other right of
set-off, upon prior written notice to Borrower, to apply any amounts
Borrower has deposited with Lender against any sums due pursuant to
the Note and Mortgage.
(d) In addition to and not in lieu of all other rights and remedies
hereunder, if Lender has not received, within 10 days of written
notice, any financial information, statement and/or certificate,
required to be furnished under the terms hereof or the Loan Documents,
Lender shall have the right to assess a late fee in the amount of $25
per document, per day.
(e) Lender shall have the right, in addition to any other rights provided
by law or in equity, to enforce its rights and remedies under the Loan
Documents.
ARTICLE VI
MISCELLANEOUS
Section 6.1 INSPECTIONS. Borrower shall be responsible for making
inspections of the Project during the course of the construction of the Project
25
and shall determine to its own satisfaction that the work done or the materials
supplied by the Contractors to whom payment is to be made out of each Advance
has been properly done or supplied in accordance with the applicable contracts
with such Contractors. If any work or materials supplied by a Contractor are not
satisfactory to Borrower, Borrower will immediately notify Lender in writing of
such fact. It is expressly understood and agreed that Lender or Inspecting
Engineer may conduct such inspections of the Project as Lender may reasonably
deem necessary for the protection of Lender's interest, and that any such
inspections of the Project by Lender or Inspecting Engineer will be made and
will be issued solely for the benefit and protection of Lender, and that
Borrower will not be entitled to rely thereon, but shall reimburse Lender for
any out-of-pocket costs and expenses associated therewith.
Section 6.2 INDEMNIFICATION BY BORROWER. Borrower shall bear all loss,
expense (including reasonable attorneys' fees) and damage in connection with and
agrees to indemnify and hold harmless Lender, its agents, servants and employees
for, from and against all claims, demands and judgments made or recovered
against Lender, its agents, servants and employees, because of bodily injuries,
including death, at any time resulting therefrom, and/or because of damages to
property of Lender or others (including loss of use) from any cause whatsoever,
arising out of, incidental to, or in connection with the Project or the
operation of the Mortgaged Property, whether or not due to any act of omission
or commission, including negligence of Borrower or any Contractor or of their
employees, servants or agents, except for Lender's gross negligence and willful
misconduct. Borrower's liability hereunder shall not be limited to the extent of
insurance carried by or provided by Borrower or subject to any exclusions from
coverage in any insurance policy. The obligations of Borrower under this SECTION
6.2 shall survive the repayment of the Note. Whenever Borrower is obligated to
indemnify or defend Lender under the terms of this Agreement or under the terms
of any other Loan Document, such indemnity obligations shall run to the favor of
Lender and its directors, officers, employees, agents, contractors,
subcontractors, licensees, invitees, successors and assigns.
Section 6.3 FEES. Borrower shall reimburse Lender upon demand for all costs
and expenses including without limitation, reasonable attorneys' fees, appraisal
fees (including reasonable appraisal fees incurred by Lender under SECTION 6.20
of this Agreement), survey fees, inspection fees, closing charges, documentary
or tax stamps, recording and filing fees, Inspecting Engineer fees, insurance
premiums and service charges, paid or incurred by Lender in connection with (i)
the preparation, negotiation, approval, execution and delivery of the Loan
Documents, and any other documents and instruments related hereto or thereto,
(ii) the negotiation of any amendments or modifications to any of the foregoing
documents, instruments or agreements and the preparation of any and all
documents necessary or desirable to effect such amendments or modifications,
(iii) the review and approval of documents submitted to Lender pursuant to any
of the provisions hereof including the Draw Requests to be submitted in
accordance with SECTION 2.2 hereof, and (iv) the enforcement by Lender during
the term hereof or thereafter of any of the rights or remedies of Lender
hereunder or under any of the foregoing documents, instruments or agreements or
under applicable law, including, without limitation, reasonable costs and
expenses of collection of any amount due to Lender under the Note or any of the
Loan Documents, whether or not suit is filed with respect thereto and whether
such costs are paid or incurred, or to be paid or incurred, prior to or after
entry of judgment, and all reasonable costs and expenses including all
26
reasonable attorneys' fees incurred by Lender as a result of the bankruptcy or
insolvency of Borrower.
Section 6.4 ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing (including telegraphic communication)
and mailed or delivered, if to Borrower, at its address: c/o Global
Entertainment Corp., 4909 E McDowell Road, Suite 104, Phoenix, AZ 85008; if to
Guarantor at its address: 4909 E McDowell Road, Suite 104, Phoenix, AZ 85008;
and if to Lender, at its address: 225 South Sixth Street, Suite 2900,
Minneapolis, MN 55402, Attention: Commercial Real Estate Department, or as to
each party, at such other address as shall be designated by such party in a
written notice to the other party. All such notices and communications shall,
when mailed or delivered, be effective when deposited in the mails or delivered
to Borrower, Guarantor or Lender, addressed as aforesaid.
Section 6.5 AMENDMENTS, DETERMINATIONS BY LENDER, CONSENTS, ETC. This
Agreement and the Loan Documents may not be amended or modified, nor may any of
their terms (including, without limitation, terms affecting the maturity of or
rate of interest on the Note) be modified or waived, except by written
instruments signed by Lender, Borrower and/or Guarantor, as applicable. In any
instance where the consent or approval of Lender may be given or is required, or
where any determination, judgment or decision is to be rendered by Lender under
this Agreement or under any Loan Document, the granting, withholding or denial
of such consent or approval and the rendering of such determination, judgment or
decision shall be made or exercised by Lender at its sole and exclusive option
and in its sole and absolute discretion.
Section 6.6 TIME OF THE ESSENCE. Time is of the essence in the performance
of this Agreement.
Section 6.7 WAIVERS. No waiver by Lender of any right or remedy hereunder
shall operate as a waiver of any other right or remedy, or of the same right or
remedy on a future occasion. No delay on the part of Lender in exercising any
right or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude other or future
exercise thereof or the exercise of any other right or remedy.
Section 6.8 REMEDIES CUMULATIVE. The rights and remedies herein specified
of Lender are cumulative and not exclusive of any rights or remedies that Lender
would otherwise have at law or in equity or by statute.
Section 6.9 GOVERNING LAW AND ENTIRE AGREEMENT. Borrower, Guarantor and
Lender, by their execution of this Agreement, expect and intend that this
Agreement be governed by and construed under the laws of the State of Washington
and Borrower, Guarantor and Lender consent to the jurisdiction of the State of
Washington for all purposes. The Loan Documents contain the entire agreement of
the parties on the matters covered herein and therein.
Section 6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but such counterparts shall together constitute one and the same instrument.
27
Section 6.11 TERM. This Agreement, and the terms and conditions hereof,
shall survive the execution and delivery of the Note and other Loan Documents
and shall remain in full force and effect until the Note is paid in full. The
representations, warranties, covenants and agreements of Borrower and Guarantor
survive the execution and delivery of the Note and other Loan Documents, and
where applicable, survive the repayment of the Note.
Section 6.12 SUCCESSORS AND ASSIGNS. This Agreement, and the terms and
provisions hereof, shall be binding upon Borrower and Guarantor and each of its
respective heirs, successors and permitted assigns, and shall inure to the
benefit of Lender, its successors and assigns; provided, however, that Borrower
may not transfer or assign this Agreement, including, without limitation, its
right to borrow hereunder, without the prior written consent of Lender.
Section 6.13 OFFSETS. As additional security for the payment of the Note
and the other obligations of Borrower under this Agreement and the other Loan
Documents and any other obligations of Borrower to Lender of any nature
whatsoever (collectively the "OBLIGATIONS"), Borrower hereby grants to Lender a
security interest in, a lien on and an express contractual right to set off
against all depository account balances, cash and any other property of Borrower
now or hereafter in the possession of Lender. Lender may, at any time upon the
occurrence of an Event of Default hereunder (notwithstanding any notice
requirements or grace/cure periods under this or other agreements between
Borrower and Lender) set off against the Obligations as are then due or have
been accelerated, all upon contemporaneous notice or demand of any kind to
Borrower.
Section 6.14 HEADINGS. The descriptive headings for the several Sections of
this Agreement are inserted for convenience only and shall not define or limit
any of the terms or provisions hereof.
Section 6.15 ACCOUNTING. Unless otherwise expressly provided herein, or
unless Lender otherwise consents in writing, all accounting terms used herein
that are not expressly defined in this Agreement shall have the meanings
respectively given to them in accordance with generally accepted accounting
principles and all financial statements and reports furnished to Lender
hereunder shall be prepared, and all computations and determinations pursuant
hereto shall be made, in accordance with generally accepted accounting
principles and practices, consistently applied.
Section 6.16 NOT JOINT VENTURER. Lender is not, and shall not by reason of
any provision of any of the Loan Documents, be or be deemed to be a joint
venturer with or partner or agent of Borrower.
Section 6.17 ADEQUACY OF LOAN PROCEEDS. Lender has not made, nor shall it
be deemed to have made, any representation or warranty that the Commitment is or
will be sufficient to complete the Project.
Section 6.18 PARTICIPATIONS. Lender may, in its sole discretion, sell in
whole or in part, assign and convey to one or more financial institutions
undivided participation interests in and to the Loan and the Loan Documents and
Borrower hereby consents to the same, and the disclosure of all financial
information of Borrower necessary to effectuate the same.
28
Section 6.19 RELATIONSHIP TO OTHER DOCUMENTS. The warranties, covenants and
other obligations of Borrower and the rights and remedies of Lender that are
outlined in this Agreement and the other Loan Documents are intended to
supplement each other. In the event of any inconsistencies in any of the terms
in this Agreement and/or the Loan Documents, all terms shall be cumulative so as
to give Lender the most favorable rights set forth in the conflicting documents.
Section 6.20 REAPPRAISALS. Lender shall have the right (but not the
obligation) to obtain an update of the existing appraisal of the Mortgaged
Property or a new appraisal of the Mortgaged Property for the sole benefit of
Lender but at the sole cost and expense of Borrower under the following
circumstance:
(a) If, for any reason development of the Project is delayed by more than
forty-five (45) days beyond the development schedule Lender may
obtain, at the Borrower's expense, one or more new or updated
appraisals of the Project by an appraiser acceptable to Lender. If the
estimated as-improved market value of the Project, as reported in the
new or updated appraisal, results in a ratio of aggregate Loan
advances to Project value that is greater than 98%, the Borrower shall
within 5 business days of Lender's demand inject additional cash
equity or provide additional collateral acceptable to Lender to reduce
such ratio to 98% or less.
In any such event, Borrower shall fully cooperate with Lender and Lender's
appraiser as may be necessary and shall allow Lender and/or Lender's appraiser
complete access to the Mortgaged Property for the purpose of completing such
appraisal of the Mortgaged Property.
Section 6.21 CONSTRUCTION SIGNAGE. To the extent permitted by law, during
construction, Lender may place a sign on the Mortgaged Property specifying that
it is participating in the financing of the Project. Further, Lender may
publicize the financing and may include a general description of the Project in
publicity releases.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT AND ALL OTHER LOAN
DOCUMENTS SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE
ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES, EXCEPT THOSE CONTAINED IN THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS, MAY BE LEGALLY ENFORCED. YOU MAY CHANGE
THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT. THIS NOTICE SHALL
ALSO BE EFFECTIVE WITH RESPECT TO ALL OTHER CREDIT AGREEMENTS NOW IN EFFECT
BETWEEN YOU AND LENDER. A MODIFICATION OF ANY OTHER CREDIT AGREEMENTS NOW IN
EFFECT BETWEEN YOU AND LENDER, WHICH OCCURS AFTER RECEIPT BY YOU OF THIS NOTICE,
MAY BE MADE ONLY BY ANOTHER WRITTEN INSTRUMENT. ORAL OR IMPLIED MODIFICATIONS TO
SUCH CREDIT AGREEMENTS ARE NOT ENFORCEABLE AND SHOULD NOT BE RELIED UPON.
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
LENDER:
MARSHALL FINANCIAL GROUP, LLC,
a Delaware limited liability company
By: /s/ Tim Ring
-----------------------------------
Name: Tim Ring
Its: Authorized Signatory
BORROWER:
WENATCHEE EVENTS CENTER, LLC,
a Washington limited liability company
Name: /s/ J. Craig Johnson
---------------------------------
Its: CFO
GUARANTOR:
GLOBAL ENTERTAINMENT
CORPORATION, a Nevada corporation
Name: /s/ J. Craig Johnson
---------------------------------
Its: CFO
30
Exhibit 10.9
AMENDED AND RESTATED
LEASE WITH PURCHASE OPTION AGREEMENT
between
WENATCHEE EVENTS CENTER, LLC
(Lessor)
and
GREATER WENATCHEE REGIONAL EVENTS CENTER
PUBLIC FACILITIES DISTRICT
(Lessee)
and
CITY OF WENATCHEE
(Obligor)
May 30, 2007
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS .......................................................2
1.1 "ADA"..................................................................2
1.2 "Affiliate"............................................................2
1.3 "Agreement"............................................................2
1.4 "Architect"............................................................2
1.5 "Business Day".........................................................2
1.6 "Calendar Year"........................................................2
1.7 "Closing"..............................................................2
1.8 "Closing Date".........................................................2
1.9 "Construction Contract"................................................2
1.10 "Construction Documents"...............................................2
1.11 "Construction Drawings"................................................3
1.12 "Construction Lender"..................................................3
1.13 "Construction Loan" o.................................................3
1.14 "Contingency"..........................................................3
1.15 "Contract Documents"...................................................3
1.16 "Contract Savings".....................................................3
1.17 "Contractor(s)"........................................................3
1.18 "Design Development"...................................................3
1.19 "Detailed Specifications"..............................................3
1.20 "Drawings".............................................................3
1.21 "Effective Date".......................................................3
1.22 "Environmental Conditions".............................................4
1.23 "Environmental Reports"................................................4
1.24 "Environmental Law"....................................................4
1.25 "Escrow Agent".........................................................4
1.26 "Final Completion Date"................................................4
1.27 "Final Completion of Public Facilities District Improvements
(or Final Completion)"................................................4
1.28 "General Construction Contract"........................................5
1.29 "General Contractor"...................................................5
1.30 "Hazardous Substances".................................................5
1.31 "Indemnified Parties"..................................................6
1.32 "Land".................................................................6
1.33 "Law"..................................................................6
1.34 "Lease"................................................................6
1.35 "Lease Payment Date"...................................................6
1.36 "Lease Payments".......................................................6
1.37 "Leased Premises"......................................................6
1.38 "Lessee" or "Public Facilities District".......,.......................6
1.39 "Lessee's Architectural Representative"................................7
1.40 "Lessor"...............................................................7
1.41 "Mandatory Improvements"...............................................7
1.42 "Mediator".............................................................7
1.43 "Permit(s)"............................................................7
1.44 "Permit Allowance".....................................................7
1.45 "Permitted Exceptions".................................................7
1.46 "Person"...............................................................7
1.47 "Personal Property"....................................................7
1.48 "PFD"..................................................................7
1.49 "Project"..............................................................7
1.50 "Project Budget........................................................7
1.51 "Project Requirements".................................................8
1.52 "Project Schedule".....................................................8
1.53 "Property".............................................................8
1.54 "Public Facilities District Improvements"..............................8
1.55 "Punch-list"...........................................................8
1.56 "Real Property"........................................................8
1.57 "Regional Events Center"...............................................8
1.58 "Requirements of Law"..................................................8
1.59 "Savings"..............................................................8
1.60 "Schematic Design Documents"...........................................8
1.61 "Service Contracts"....................................................9
1.62 "Stated Contingency"...................................................9
1.63 "Substantial Completion Date"..........................................9
1.64 "Substantial Completion of Public Facilities District Improvements"....9
1.65 "Substantially Complete" or "Substantially Completed"..................9
1.66 "Taxes"...............................................................10
1.67 "Title Company".......................................................10
1.68 "Title Policy"........................................................10
1.69 "Unavoidable Delay"...................................................10
1.70 "Warranty Period".....................................................10
ARTICLE II GREATER WENATCHEE REGIONAL EVENTS CENTER DEVELOPMENT..............11
2.1 Development of Public Facilities District Improvements................11
2.2 Parking Requirements..................................................11
ARTICLE III DESCRIPTION OF PROPERTY..........................................11
3.1 Agreement to Lease....................................................11
3.2 Agreement to Purchase.................................................11
3.3 Identification of Personal Property...................................12
3.4 Service Contracts.....................................................12
3.5 Ice Rink Fixtures and Equipment.......................................12
ARTICLE IV DUE DILIGENCE.....................................................12
4.1 Project
Information..................................................................12
ARTICLE V CONSTRUCTION OF REGIONAL EVENTS CENTER IMPROVEMENTS................12
5.1 Construction of Public Facilities District Improvements...............12
5.2 [This Section intentionally left blank.]..............................12
5.3 Schedule for Design and Construction..................................13
5.4 Selection of Development Team for Project.............................13
5.5 Plans and Specifications..............................................13
5.6 Dispute Resolution Process............................................14
5.7 Permits; Costs; Compliance with Legal Requirements....................15
5.8 Construction Contract.................................................15
5.9 Construction of Project...............................................16
5.10 Changes to the Work...................................................17
5.11 Inspections...........................................................17
5.12 Construction Loans....................................................18
5.13 Termination of Agreement..............................................18
5.14 As-Built Plans and Specifications; Manuals; Warranties; Permits
and Licenses.........................................................18
5.15 Construction Covenants and Warranties.................................18
5.16 Disclaimer............................................................20
5.17 Enforcement of Warranties.............................................21
5.18 Architect's Administration of the Contract............................22
5.19 Project Manager.......................................................22
ARTICLE VI LEASE TERM........................................................22
ARTICLE VII LEASE PAYMENTS...................................................23
7.1 Lease Payments........................................................23
7.2 Additional Rent.......................................................24
7.3 Defeasance............................................................24
ARTICLE VIII USE.............................................................24
8.1 Use of Premises.......................................................24
8.2 Quiet Enjoyment.......................................................25
ARTICLE IX ABSOLUTE NET LEASE................................................25
9.1 Absolute Net Lease....................................................25
9.2 Lease - Non-terminable................................................25
9.3 Taxes and Utility Charges.............................................26
9.4 Compliance with Laws..................................................26
9.5 Lessee's Right to Contest.............................................26
ARTICLE X ENVIRONMENTAL CONDITION OF THE PROPERTY............................27
10.1 Environmental Information.............................................27
10.2 Lessor's Representations and Warranties Regarding Environmental
Conditions...........................................................27
10.3 Survival..............................................................27
10.4 Supersedure...........................................................27
ARTICLE XI REPRESENTATIONS AND WARRANTIES....................................28
11.1 Lessor's Representations and Warranties...............................28
11.2 Lessee's Representations and Warranties...............................29
ARTICLE XII POSSESSION.......................................................29
ARTICLE XIII FIRE AND EXTENDED COVERAGE INSURANCE............................30
ARTICLE XIV LIENS............................................................30
ARTICLE XV OPTIONS TO PREPAY LEASE AND PURCHASE LEASED PREMISES..............30
15.1 Option to Purchase....................................................30
15.2 Exercise of Option....................................................31
15.3 Conveyance of Leased Premises.........................................31
15.4 Option to Partially Prepay Lease......................................31
15.3 Option Not Exercised..................................................31
15.6 Title to Real Property................................................31
15.7 Title to Personal Property and Intangible Property....................32
ARTICLE XVI CLOSING..........................................................32
16.1 Closing Procedures....................................................32
16.2 Delivery by Lessor....................................................32
16.3 Delivery by Lessee....................................................34
16.4 Proration's...........................................................34
16.5 Costs and Expenses....................................................34
16.6 Recordation...........................................................35
16.7 Effect of Damage or Destruction of Property...........................35
ARTICLE XVII DESTRUCTION OF LEASED PREMISES..................................35
ARTICLE XVIII DEFAULT; REMEDIES..............................................35
18.1 Corrective Work.......................................................35
18.2 Specific Performance..................................................36
18.3 Waiver................................................................36
ARTICLE XIX MISCELLANEOUS....................................................36
19.1 Incorporation of Recitals; Definitions................................36
19.2 Notices...............................................................36
19.3 Amendment, Waiver, Assignment.........................................37
19.4 Lessee's Disclaimer...................................................38
19.5 Survival..............................................................38
19.6 Captions..............................................................38
19.7 Brokerage Fees........................................................38
19.8 Joint Venture.........................................................38
19.9 Severability..........................................................39
19.10 Further Assurances....................................................39
19.11 Merger of Prior Agreements............................................39
19.12 Fair Construction.....................................................39
19.13 Authority.............................................................39
19.14 Time is of the Essence................................................39
19.15 Arbitration...........................................................39
19.16 Non-Waiver of Governmental Rights.....................................39
19.17 Agreement for Exclusive Benefit of Lessor and Lessee..................40
19.18 Interest on Past-Due Obligations......................................40
19.19 Governing Law.........................................................40
19.20 Memorandum of Agreement...............................................40
EXHIBITS
Exhibit A Legal Description of Land -- Regional Events Center Improvements
Exhibit B Construction Documents for Regional Events Center Improvements
Exhibit C Legal Description - Ice Rink Property
Exhibit D Schedule of Fixtures and Equipment
Exhibit E Project Budget (Revised)
Exhibit F First Revised Project Schedule
Exhibit G List of Environmental Reports
Exhibit H Lease Payments (Revised)
LEASE AGREEMENT
THIS AMENDED AND RESTATED LEASE WTTH PURCHASE OPTION AGREEMENT (the
"Agreement") is made and entered into as of this 30th day of May, 2007, by and
between WENATCHEE EVENTS CENTER, LLC, a Washington limited liability company
("Lessor"), and GREATER WENATCHEE REGIONAL EVENTS CENTER PUBLIC FACILITIES
DISTRICT, a Washington municipal corporation
("Lessee" or "Public Facilities District"), and the CITY OF WENATCHEE, a
Washington
Municipal Corporation ("Obligor") with reference to the following facts:
RECITALS
A. On June 15, 2006 Lessee was formed by an inter-local agreement to create
a regional (nine-jurisdiction) public facilities district ("PFD").
B. Lessee is interested in constructing and leasing a regional events
center to be located in Wenatchee.
C. Lessor is the contract purchaser pursuant to a real estate purchase and
sale agreement for the purchase of the real property described on Exhibit "A"
which sale shall be closed by purchaser on or before August 1, 2007. Failure to
close as set forth herein shall be deemed a material default subject to
enforcement pursuant to Article XVIII of this Agreement.
D. Lessor proposes to design, develop, finance, construct, complete and
thereafter lease to Lessee a regional events center with associated parking area
to be constructed on privately owned property of Lessor in Wenatchee,
Washington.
E. Lessee is interested in leasing a regional events center facility to
achieve multiple public facilities district objectives including, but not
limited to, improving the financial stability and general economic vitality of
the district, increasing tax revenues, creating jobs, providing artistic and
cultural opportunities and important public spaces for the residents of the
district
F. Lessee's desire to lease the regional events center is on the express
condition, among others, that construction of the project commence in accordance
with RCW 82.14.390, not later than February 1, 2007, which condition has been
satisfied.
G. Lessee desires to lease from Lessor and Lessor desires to lease to
Lessee the Property (as hereinafter defined) on the terms and conditions set
forth herein.
H. Lessee is authorized by RCW Chapter 35.57 to lease, acquire and transfer
real and personal property, and intends to finance its lease or purchase of the
regional events center facility and associated parking area with the proceeds of
tax exempt financing, to be repaid in part with sales taxes received pursuant to
RCW Chapter 82.14.
I. BBP Two, TLC was originally identified as Lessor in the September 28,
2006 original Lease Agreement. This Amended and Restated Lease with Purchase
Option Agreement is entered into as a replacement for the original Lease
Agreement which has been terminated by mutual agreement of BBP Two, LLC and the
Public Facilities District.
NOW, THEREFORE, in consideration of the mutual covenants, conditions and
provisions contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby mutually acknowledged, the parties
agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following capitalized terms shall have the
following meanings:
1.1 "ADA" means the Americans With Disabilities Act of 1990, 42 U.S.C.
Section 1201, et seq., as amended from time to time.
1.2 "Affiliate" means any Person or entity related to, owned by, in common
ownership with or affiliated with a person or entity that is a parent company or
constituting a shareholder or member of a person or in which such Person has or
holds an equity or other interest.
1.3 "Agreement" means this Amended and Restated Lease With Purchase Option
Agreement, as the same may be amended, supplemented or modified from time to
time.
1.4 "Architect" means Sink Combs Dethlefs Architects, collectively, or
such other architect licensed to practice in the State of Washington as may from
time to time be hired by Lessor in connection with the design of the Regional
Events Center Improvements.
1.5 "Business Day" means any day other than a Saturday, Sunday or legal
holiday that Lessee's offices are open.
1.6 "Calendar Year" means a calendar year commencing with January 1 and
ending with December 31.
1.7 "Closing" means the delivery of documents and funds to the Escrow Agent
with appropriate instructions that are necessary for the completion of the lease
and/or purchase of the Property in accordance with the terms and conditions of
this Agreement.
1.8 "Closing Date" means the date on which the Closing occurs.
1.9 "Construction Contract" means the General Construction Contract for
construction services entered into by Lessor, and the General Contractor, for
construction of the Public Facilities District Improvements.
1.10 "Construction Documents" means the Final Public Facilities District
approved Construction Drawings and related Project Manual, inclusive of Division
1 General
2
Requirements and Technical Divisions 2 through 14 for the Public Facilities
District Improvements approved by Lessor and Lessee for the construction of the
Public Facilities District Improvements, including technical drawings,
schedules, diagrams, plans and specifications setting forth in detail the
requirements for construction, itemization of furniture, fixtures, equipment and
furnishings to be installed and providing information customarily required for
the use of the building trades and the general construction contract for
construction of the Public Facilities District Improvements. The Construction
Documents shall be revised to reflect the Project as described in the Project
Budget (revised), Exhibit "E" to this Agreement
1.11 "Construction Drawings" means Drawings setting forth in detail the
requirements for the construction of the Public Facilities District
Improvements.
1.12 "Construction Lender" means the financial lending institution selected
by the Lessor.
1.13 "Construction Loan" means a loan obtained from the Construction Lender
for the purpose of paying Project construction costs. o
1.14 "Contingency" means Stated Contingency and Design Contingency.
1.15 "Contract Documents" means the documents identified in the General
Construction Contract as "contract documents."
1.16 "Contract Savings" means the amount, if any, by which a bid accepted
for each major subcontract element identified in the Project Budget is less than
the amount for the major subcontract element in the Project Budget, plus the
amount of unused Stated Contingency as of the Final Completion of the Public
Facilities District Improvements.
1.17 "Contractor(s)" means the General Contractor and any other
construction contractors with whom Lessor contracts for construction of all or
any portion of the Project
1.18 "Design Development" means that phase of design of the Project
providing for development of plans and specifications for the Project based upon
the Schematic Design Documents; as such term is generally understood in the
construction industry.
1.19 "Detailed Specifications" means the Final Public Facilities District
approved written detailed requirements for materials, equipment, construction
systems, standards and workmanship for the construction of the Project as issued
by the Architect as Final Construction Documents for the Project.
1.20 "Drawings" means all graphic and pictorial documents depicting the
design, location and dimensions of the elements of the Public Facilities
District Improvements and also include itemization of furniture, fixtures,
equipment and furnishings to be installed and include plans, elevations,
sections, details, schedules and diagrams for the Public Facilities District
Improvements.
1.21 "Effective Date" means the date this Lease was entered into as set
forth above.
3
1.22 "Environmental Conditions" means conditions involving the presence of
Hazardous Substances in soil, surface waters, groundwater and sediments.
1.23 "Environmental Reports" means all environmental reports, audits,
sampling results and other information in Lessor's possession or control
regarding the Environmental Conditions, a complete listing of which is set forth
on Exhibit G attached to this Agreement.
1.24 "Environmental Law" means, as amended from time to time, local, state
or federal laws, rules, ordinances, regulations, applicable permits and
applicable orders now or hereafter enacted relating to (a) the protection of
human health or the environment or (b) the use, storage, generation, production,
treatment, emission, discharge, remediation, removal or disposal of Hazardous
Substances; including, without limitation, the Federal Comprehensive
Environmental Response Compensation, and Liability Act of 1980, 42 U.S.C.
Section 9601 et 02., and the Washington Model Taxies Control Act, RCW Chapter
70.105D.
1.25 "Escrow Agent' means First American Title Insurance Company, or
another nationally recognized title insurance company selected by Lessor and not
objected to by Lessee which shall act as the escrow agent and provide the title
insurance policies to be delivered in connection with the Closing.
1.26 "Final Completion Date" means total Project will be substantially
complete not later than September 17, 2008.
1.27 'Final Completion of Public Facilities District Improvements (or Final
Completion)" means the date by which the following events have occurred:
(a) Certificate of Occupancy. The City of Wenatchee shall have issued a
final unconditional certificate of occupancy for the Public Facilities District
Improvements permitting their use and occupancy as a regional events center and
it is available for occupancy and normal operations.
(b) Contractor's Certification. The contractor shall have issued its
"Certificate of Substantial Completion" for the Public Facilities District
Improvements together with its Affidavit of Payment of Debts and Claims, AIA
Forms 706 and 706A together with final waivers and releases of lien in form
satisfactory to Lessee from such material men, laborers, contractors and
subcontractors as Lessee may require.
(c) Punch-list Items Completed. Following Substantial Completion of the
Public Facilities District Improvements, Lessor, the Architect and Lessee shall
prepare a Punch-list for the Public Facilities District Improvements. All
Punch-list items for the Public Facilities District Improvements shall have been
completed to the reasonable satisfaction of Lessee, or if not completed, the
parties shall have agreed upon a holdback of 150% of the cost estimated by
Lessee to complete the Punch-list items.
(d) Construction Lessor shall have provided evidence reasonably
satisfactory to Lessee that all construction costs for the Public Facilities
District Improvements have been paid in full including evidence of full payment
for any Personal Property. The issuance of the Title Policy insuring the Lessee
4
against any material or labor liens and the submission of invoices with evidence
of payment by Lessor shall be evidence acceptable to Lessee of the payment of
all construction costs.
(e) No Construction Liens. The period for filing construction liens for the
Public Facilities District Improvements shall have expired or releases or
discharges of construction liens in form and substance satisfactory to Lessee
have been obtained by the contractor in accordance with the articles and
conditions of the construction contract for the Public Facilities District
Improvements.
(f) As-Built Plans and Specifications. Lessor shall have provided Lessee
with a complete and detailed set of "as-built" plans and specifications for the
Project (to be provided on CAD or other format satisfactory to Lessee) together
with all technical, service, instruction and procedure manuals, warranties,
permits and licenses and an as- built survey of the Real Property showing all
improvements located thereon.
1.28 "General Construction Contract" means the agreement between the Lessor
and the General Contractor; for construction of the Public Facilities District
Improvements.
1.29 "General Contractor" means Hunt Construction Group or other General
Contractor as selected by the Lessor.
1.30 "Hazardous Substances" means:
(a) Those substances included within the definitions of "hazardous
substances," "hazardous materials," "toxic substances," or "solid waste" in the
Federal Resource Conservation and Recovery Act of 1976, 42 U.S.C. Section 6901
et the Federal .Comprehensive Environmental Response, Compensation, and
Liability act of 1980, 42 U.S.C. Section 9601 et mg., the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et and the Toxic Substance Control
Act, 15 U.S.C. Section 2601 et seq., and in the regulations promulgated pursuant
to said laws, all as amended from time to time;
(b) Those substances defined as "dangerous wastes," "hazardous wastes" or
as "hazardous substances" under the Water Pollution Control Act, RCW 9048.010 et
seq., the Hazardous Waste Management Statute, RCW 70.105.010 et mi., the
Washington Toxic Substance Control Act RCW 70.1058.010 et seq., the Washington
Model Toxics Control Act, RCW 70.105D.010 et seq., and the Toxic Substance
Control Act, 15 U.S .C. Section 2601 et seq., and in the regulations promulgated
pursuant to said laws, all as amended from time to time;
(c) Those substances listed in the United States Department of
Transportation Table (49 C.F.R. 172.101 and amendments thereto) or by the
Environmental Protection Agency (or any successor agency) as hazardous
substances (40 C.F.R. Part 302 and amendments thereto);
(d) Storm water discharge regulated under any federal, state or local law,
ordinance or regulation relating to storm water drains, including, but not
limited to, Section 402(p) of the Clean Water Act, 33 U.S.C. Section 1342 and
the regulations promulgated hereunder, all as amended from time to time.
5
(e) Such other substances, material and wastes which are dangerous or
injurious to human health or become regulated under applicable local, state or
federal law, or the United States government, or which are classified as
hazardous or toxic under federal, state or local laws or regulations, all as
amended from time to time, or which are deemed dangerous or injurious to human
health; and
(f) Any material, waste or substance which is (A) petroleum, (B) asbestos,
(C) polychlorinated biphenyls, (D) designated as a "hazardous substance"
pursuant to Section 311 of the Clean Water Act, 33 U.S.C. Section 1251, et gm.
(33 U.S.C. Section 1321) or listed pursuant to Section 307 of the Clean Water
Act (33 U.S.C. Section 1317), (E) flammable explosives, (F) radon gas, (0) lead
or lead-based paint, (H) radioactive materials, (1) coal combustion by-products,
(J) urea formaldehyde foam insulation, or (K) mold. Mold includes any form of
multicellular fungi that live on plant or animal matter and in indoor
environments.
1.31 "Indemnified Parties" means Lessee and its successors and assigns,
including any Person who acquires all or any part of the Real Property by any
sale, assignment, deed-in-lieu of foreclosure under any deed of trust on
Lessee's interest in the Real Property, or otherwise.
1.32 "Land" means that certain real property located in the City of
Wenatchee, Chelan County, Washington, more particularly described in Exhibit A
attached hereto and by this reference incorporated herein.
1.33 "Law" means any constitution, statute, ordinance, regulation, rule,
resolution, judicial decision, administrative order or other requirement of any
federal, state, county, municipal or other governmental agency or authority
having jurisdiction over the parties or the Property, or both, in effect either
at the time of execution of this Agreement or at any time during the term of
this Agreement, including without limitation, any regulation or order of a quasi
official entity or body (e.g. board of fire examiners, public utilities, design
review boards or hearing examiners); all rules, laws and regulations arising
under Title 111 of the Americans with Disabilities Act and the regulations
issued hereunder by the United States Department of Justice.
1.34 "Lease" means this Lease by and between Lessor and Lessee.
1.35 "Lease Payment Date" means commencing thirty (30) days after
substantial Completion Date, either (i) if certificates of participation are
issued as provided in Exhibit H, principal payments shall be due each December 1
and interest payments shall be due each June 1 and December 1 during the
remaining term of the Lease, or (ii) if certificates of participation are not
issued as provided in Exhibit H, the first day of each month during the
remaining term of the Lease.
1.36 "Lease Payments" means as provided in Exhibit H.
1.37 "Leased Premises" means the Land together with the Improvements.
1.38 "Lessee or "Public Facilities District" means Greater Wenatchee
Regional Events Center Public Facilities District; a Washington municipal
corporation.
6
1.39 "Lessee's Architectural Representative" means Robert Knowles, or such
other Person as may be designated by Lessee to Lessor in writing nuns time to
time.
1.40 "Lessor" means Wenatchee Events Center, LW, a Washington limited
liability company.
1.41 "Mandatory Improvements" means those improvements that are part of the
Project and are described in the Construction Documents.
1.42 "Mediator" means a natural person not employed by Lessor, Lessee or
any affiliate or subsidiary of either of them who shall also be a professional
mediator with at least five (5) years experience in complex commercial real
estate disputes approved by Lessor and Lessee whom Lessee and Lessor shall
mutually designate to act as a dispute' resolution mediator to assist in
resolution of such dispute pursuant to Section 5.6 below.
1.43 "Permit(s)" has the meaning stated in Section 5.15(b) below.
1.44 "Permit Allowance" means the sum of Seventy-Five Thousand Dollars
($75,000.00), which amount is included within the Lease Payments as the
anticipated cost to be Incurred by Lessor in obtaining permits and licenses from
the applicable regulatory agencies required to construct the Project.
1.45 "Permitted Exceptions" has the meaning set forth in Section 15.6
below.
1.46 "Person" means a natural person, corporation, trust, partnership,
limited partnership, Limited Liability Company, government subdivision or
agency, Municipal Corporation, city or other legal entity.
1.47 "Personal Property" means all personal property located on or in or
used in connection with the Public Facilities District Improvements or which
will be Stalled or incorporated into the Public Facilities District Improvements
as part of the Project including but not limited to those items of personal
property identified in the Detailed Specifications.
1.48 "PFD" means that certain inter-local agreement approved June 15, 2006
to create a regional public facilities district.
1.49 "Project" means the total design, development, and construction,
including all professional design services, and all labor, materials and
equipment used or incorporated in the design, development and construction of
the Public Facilities District Improvements, all as more fully described in the
Schematic Design Documents. The Project shall include work consistent with and
reasonably inferable from the approved Project Requirements as being necessary
to produce the intended results and all work necessary to render the Public
Facilities District Improvements fully operational.
1.50 "Project Budget" means the budget for the development and construction
of the Project approved by Lessee and Lessor, a copy of which is attached to
this Agreement as Exhibit E.
7
1.51 "Project Requirements" means the Construction Documents and Detailed
Specifications and as issued by the Architect and as otherwise specifically
agreed to by Lessor and Lessee.
1.52 "Project Schedule" means the schedule for design, development, repair,
renovation and construction of the Project as revised from time to time by
Lessor and lessee. The First Revised Project Schedule is set forth in Exhibit F
attached hereto and by this reference incorporated herein.
1.53 "Property" means the Real Property, Personal Property, Service
Contracts, and other items to be leased, sold and transferred to Lessee as
described in Section 3.1 below.
1.54 "Public Facilities District Improvements" means the Regional Events
Center and associated facilities.
1.55 '2,Ea" means a list of items required to be completed prior to Final
Completion that are minor items which do not affect Lessee's ability to use the
Public Facilities District Improvements for their intended use.
1.56 "Real Property" means the Land and the Public Facilities District
Improvements, together with all rights, privileges, easements and appurtenances
thereto.
1.57 "Regional Events Center" means a multi-purpose event center facility,
consisting of a total of approximately 161,000 square feet, which shall include
a main arena, a practice ice facility, exhibition and meeting rooms, restaurant
and food service facilities, team changing and showering rooms, viewing suites,
offices, media and broadcasting suites, and technical support areas, and related
support facilities including service areas, sidewalks, public stairs, corridors,
hallways, lobbies, public restrooms, retail space, loading dock, storage and
administrative spaces and on-site parking area. The main arena fixed seating
capacity shall be approximately 4,300 with a maximum variable seating capacity
of approximately 5,600 for certain event configurations.
1.58 "Requirements of Law" means all requirements relating to land and
building construction (including those specifically applicable to Lessee's
contemplated use of the Public Facilities District Improvements), including,
without limitation, planning, zoning, public works and procurement, prevailing
wage, subdivision, environmental, air quality, flood hazard, fire safety, the
Americans with Disabilities Act and other governmental approvals, permits,
licenses and/or certificates as may be necessary from time to time to comply
with all the foregoing and other applicable statutes, rules, orders,
regulations, laws, ordinances, and covenants, conditions and restrictions, which
now apply to and/or affect the design, construction, existence, intended use
operation and/or occupancy of the Real Property, the Project or any part
thereof.
1.59 "Savings" means the amount equal to eighty percent (80%) of the
Contract Savings, as defined in Section 1.16.
1.60 "Schematic Design Documents" means the Construction Documents and
other documents illustrating the scale and relationship of the Regional Events
Center and its various components including, but not limited to, furniture,
8
furnishings and equipment, sidewalks, lighting, landscaping and other ancillary
improvements. The Schematic Design Documents shall include a conceptual site
plan and preliminary building plans, sections, elevations and Detailed
Specifications.
1.61 "Service Contacts" means all architectural drawings, plans and
specifications, consulting agreements, engineer's reports, design contracts,
utility contracts, water and sewer service contracts, other contracts of any
nature, maintenance contracts, management contracts, certificates of occupancy,
warranties, permits, licenses, approvals, soil reports, and other contracts or
documents of any nature relating to the Project entered into by Lessor pursuant
to the provisions of this Agreement.
1.62 "Stated Contingency" means the amount of $500,000 identified as the
general contingency in the Project Budget which may be used in the manner
described in Section 5.10(6) of this Agreement.
1.63 "Substantial Completion Date" means the date on which Substantial
Completion of the Public Facilities District Improvements has occurred.
1.64 "Substantial Completion of Public Facilities District Improvements"
means the date on which the following events have occurred:
(a) Completion of Construction. The Regional Events Center is
SubstantiallyComplete.
(b) Architect's Certification. The Architect shall have issued its
"Certificate of Substantial Completion ALA Document 0704," stating that the
construction of the Public Facilities District Improvements is substantially
completed in strict accordance with the o Construction Documents.
(c) Certificate of Occupancy The City of Wenatchee shall have issued a
temporary certificate of occupancy for the Public Facilities District
Improvements permitting the use and occupancy of the Regional Events Center as a
multi-purpose regional events center.
(d) Lessee Acceptance. Lessee shall have confirmed that the Public
Facilities District Improvements have been completed in strict accordance with
the Construction Documents subject to completion of normal punch-list items.
(e) Fixtures and Equipment. All furniture, furnishings, fixtures and
equipment specified in the Construction Documents for the Public Facilities
District Improvements or required for the operation of a multi-purpose regional
events center under applicable law have been installed and are in good working
order, condition and repair.
(f) And shall be no later than September 17, 2008.
1.65 "Substantially Complete" or "Substantially Completed" means, for the
Public Facilities District Improvements, that the Public Facilities District
Improvements have been constructed in substantial accordance with the
Construction Documents and (a) all elements 'required for the functioning of the
Public Facilities District Improvements shall be operational and in good working
9
order and condition including, but not limited to, satisfying applicable
Requirements of Law; (b) the Regional Events Center shall be weather tight and
waterproof; (c) the fire and life safety systems within the Regional Events
Center shall be operational and in good working order and condition; (d)
elevators shall operate and function in good working order and condition but may
still require touch up installation and cleaning; (e) the mechanical and
electrical systems, including the HVAC system shall be individually tested and
in good working order able to support the Regional Events Center and shall also
be tested to assure that the Regional Events Center systems operate on an
integrated basis, but the HVAC system may still require final balancing work;
(f) the finish work is substantially completed, including but not limited to any
public lobbies, decks, patios, elevators, restrooms, HVAC, plumbing, fire and
life safety, sprinkler and electrical systems, doors, partitions, cabinetry,
floor coverings, including removal of all construction debris; (g) the computer
system for the Regional Events Center has been installed and is operational in
accordance with the applicable specifications; (h) all site utilities,
sidewalks, driveways, street improvements, public spaces, landscaping, street
furniture, fencing, and lighting have been substantially completed and
construction barricades and equipment have been removed; (i) all lighting,
furniture, furnishings, fixtures and equipment have been installed in the
Regional Events Center; except in each case minor punch list items which do not
materially affect use and occupancy of the Regional Events Center as a
first-class multi-purpose regional events center;
1.66 "Taxes" means all real property taxes and assessments (including
assessments for special improvements), license and permit fees, charges for
public utilities, leasehold excise taxes, other excise taxes, levies, sales, use
and occupancy taxes, and any taxes levied or assessed in addition to or in lieu
of, in whole or in part, such taxes, assessments or other charges and all other
governmental impositions and charges of every kind and nature, general and
special, ordinary and extraordinary, foreseen and unforeseen of every character.
1.67 "Tide Company" means First American Tide Insurance Company, or another
nationally recognized title insurance company selected by Lessor, and not
objected to by Lessee, which will be issuing the title insurance policy to be
issued at the Closing.
1.68 "Title Policy" has the meaning set forth in Section 15.6 below.
1.69 "Unavoidable Delay" means, with respect to a party, strikes, acts of
God, unavoidable casualties and similar events beyond the control of the party
which, after the exercise of due diligence to mitigate the effects thereof,
delay construction of the Public Facilities District Improvements. Delay or work
stoppage caused by appeals of permits issued by the City of Wenatchee or other
municipal agencies and necessary to authorize the construction of the Project
shall constitute Unavoidable Delay. The inability to obtain construction or
other financing to pay for all or any portion of the Project Costs shall not
constitute Unavoidable Delay. Lessor shall provide written notice to Lessee
within ten days of the date it becomes aware, or should have become aware, of a
condition resulting in an unavoidable delay.
1.70 "Warranty Period" means that period commencing on Final Completion of
Public Facilities District Improvements and expiring one (1) year thereafter.
Notwithstanding the foregoing, if any longer warranty or guarantee period is
specified for any particular equipment, materials, structural component of the
10
Project (including, but not limited to skylights and roof) or workmanship under
this Agreement or any contract in connection with the design, development, or
construction of the Project, the longer warranty period or guarantee period
shall govern. Lessor shall convey to Lessee such warranties with the Operation
and Maintenance Manuals.
ARTICLE II
GREATER WENATCHEE REGIONAL EVENTS CENTER DEVELOPMENT
2.1 Development of Public Facilities District Improvements. Lessor has
acquired or intends to acquire fee title to the Land. Lessor shall construct on
the Land, the Public Facilities District Improvements. The Public Facilities
District Improvements and certain personal property to be located on or used in
connection with the Public Facilities District Improvements are more
particularly described in the Schematic Design Documents prepared by Lessor and
approved by Lessee, a copy of which is attached hereto as Exhibit B and by this
reference incorporated herein.
2.2 Parking Requirements. The Project includes 600 On-Site Parking Stalls.
The Lessee will provide the remainder of the required parking stalls off-site
through shared parking agreements with surrounding property owners to satisfy
local code requirements to obtain a certificate of occupancy. At Closing, Lessor
shall assign to Lessee all of Lessor's right, title and interest in and to the
On-Site Parking Facilities at no additional cost to Lessee.
ARTICLE III
DESCRIPTION OF PROPERTY
3.1 Agreement to Lease. Lessor hereby agrees to lease to Lessee and Lessee
hereby agrees to lease from Lessor, subject to the terms and conditions set
forth in this Agreement, the following upon Final Completion of the Project:
(a) The Land and Public Facilities District Improvements (Leased Premises);
(b) Fixtures and equipment, shown on Exhibit D.
3.2 Agreement to Purchase. Lessor hereby agrees to sell to Lessee and
Lessee agrees to purchase from Lessor provided Lessee exercises its option to
purchase:
(a) All interest of Lessor in any intangible personal property owned by
Lessor and used in connection with the ownership, use and operation of the
Project; and, to the extent the same are approved by Lessee pursuant to the
provisions of this Agreement, any and all contracts and lease rights,
warranties, guarantees, agreements, licenses and other rights relating to the
ownership, use or operation of all or any part of the Property, including, but
not limited to any warranty or other right under the Construction Contract, all
of Lessor's rights under the Contract Documents, and all of Lessor's rights in
the Construction Documents; and
(b) All Service Contracts.
11
3.3 Identifications of Personal Property. Upon Final Completion of the
Project and in any event no later than thirty (30) days prior to Closing, Lessor
and Lessee shall identify all Personal Property, including any personal property
identified in the Detailed Specifications.
3.4 Service Contracts. Lessee specifically acknowledges and agrees that
Service Contacts do not include any architectural agreements, construction
contracts, subcontracts, or other agreements relating to the design or
construction of the Project, except for the assignment of any warranties
contained therein to Lessee upon Closing pursuant to Article XVI of this
Agreement
3.5 Ice Rink Fixtures and Equipment. Lessee or Obligor, as a portion of
Obligor's local match required by RCW 82.14.390(4), and as partial consideration
for Lessor's obligations hereunder, agrees, following completion of the 2007 -
2008 ice arena season, to convey to Lessor the following fixtures and equipment,
currently located on the Ice Rink Property, legally described in Exhibit C, to
be incorporated into the Leased Premises: Heating and cooling units, dasher
boards and glass, floor coverings, hockey goals and netting, scoreboard,
bleachers, and Zamboni. This conveyance is conditioned upon Lessor being in
substantial compliance with the Project Schedule, Exhibit F.
ARTICLE IV
DUE DILIGENCE
4.1 Project Information.
(a) Lessee acknowledges that, prior to the Effective Date, Lessee has had
the opportunity to prepare, review and copy all studies relating to the Property
and Project that Lessee has determined, in the exercise of its reasonable
business judgment, are necessary for Lessee to evaluate the suitability and
feasibility of the Property and the Project for Lessee's intended uses.
(b) Lessor acknowledges that, prior to the Effective Date, Lessor has had
the opportunity to detente the availability of the permits and financing
necessary to construct and complete the Project, and otherwise satisfy Lessor's
obligation under this Agreement
ARTICLE V
CONSTRUCTION OF REGIONAL EVENTS CENTER IMPROVEMENTS
5.1 Construction of Public Facilities District Improvements. Lessor agrees
to diligently design, construct, and complete the Public Facilities District
Improvements on the Property on or before the Substantial Completion Date, at
Lessor's sole cost and expense, in a good and workmanlike manner, free and clear
of all liens, all in accordance with the terms of this Agreement and all
Requirements of Law.
5.2 (This Section intentionally left blank.
12
5.3 Schedule for Design and Construction. Lessor and Lessee acknowledge and
agree that the initial Project Schedule attached hereto as Exhibit F, shall
govern the performance of the work.
5.4 Selection of Development Team for Project. Lessor has or intends to
employ the following Persons in connection with the Project:
(i) Architect Sink Combs Dethlefs Architects
(ii) General Contractor: Hunt Construction Group
(iii) Project Manager: International Coliseums Company (ICC)
(iv) Structural Engineers: Martin/Martin Consulting Engineers
(v) Land Surveyors: Munson Engineers
(vi) Mechanical Design Building Engineers: M-E Engineers. Inc.
(vii) Geotechnical Engineers: Nelson Geotechnical Associates. Inc.
(viii) Environmental Consultants: Cascade Earth Sciences
(ix) Electrical Design Engineers: M-E Engineers. Inc.
(x) Traffic Consultant: Heffron Transportation. Inc.
(xi) Civil Engineer: Pacific Engineering and Design
Lessor shall select other professionals as necessary or desirable for the
design, permitting, development mid construction of the Project. Lessor shall
pay all amounts payable to the design professionals outlined above and any other
professionals hereinafter engaged by Lessor in commotion with the performance of
its duties and responsibilities under this Agreement Lessor shall enter into all
contracts for the design, permitting, development and construction of the
Project.
5.5 Plans and Specifications.
(a) Schematic Design Documents. As of the date of this Agreement, Lessee
has reviewed and approved the Project Requirements, which are incorporated into
the Schematic Design Documents listed on Exhibit B to this Agreement. In
addition, Lessee has reviewed and approved the Project Budget setting forth an
itemization of the major components of the Project that will be constructed by
subcontractors and including the Design Contingency and Stated Contingency. Upon
execution of this Agreement, Lessor shall, in conjunction with the Architect,
commence and complete Design Development, Construction Drawings. and permit
applications necessary for the construction of the Public Facilities District
Improvements.
(b) Lessee's Review. Following execution of this Agreement, Lessor shall
cause Architect to prepare Design Development Drawings, which shall be
consistent with the Schematic Design Documents in all material respects and
shall submit the Design Development Drawings to Lessee for its review and
approval. Following approval of the Design Development Drawings, Lessor shall
cause Architect to prepare Construction Documents consistent with the
Lessee-approved Design Development Drawings, and submit the Construction
Documents to Lessee for its review and approval. Following approval of
13
Construction Documents, Lessor shall deliver Lessee an updated Project Budget
prepared by Lessor on the basis of the approved Construction Documents. Lessee
shall give Lessor written notice within thirty (30) days following the later of
its receipt of the Design Development Drawings and Construction Drawings, as the
case may be, of Lessee's approval or disapproval, which notice shall, in the
case of disapproval, specify Lessee's reason for disapproval. Lessee shall only
disapprove Design Development Drawings and Construction Drawings which (i) do
not comply with all Requirements of Law, (ii) fail to materially comply with the
Schematic Design Documents,(iii) propose changes in the size, quality,
appearance, layout or configuration of the Public Facilities District
Improvements contemplated by the Schematic Design Documents, (iv)adversely
impact the construction schedule for the Public Facilities District
Improvements, or (v) increase the project budget.
(c) Resubmittals. If objections or comments are submitted in writing in
accordance with the preceding paragraph, Lessor shall cause the Architect to
make changes in the plans, drawings and/or specifications consistent with
objections or comments made by the Lessee and shall resubmit the same in
accordance with the foregoing schedule for further review. The process of
resubmittal and review shall continue until Lessee and Lessor have approved the
Design Development Drawings and Construction Documents.
(d) Permit and Working Drawings. Lessor shall cause the Architect and other
design professionals to prepare any Drawings or other documents in addition to
the Construction Documents that may be required to be submitted for the issuance
of building permits and other permit applications in accordance with Section 5.7
hereof, and as required for construction of the Project by the General
Contractor.
(e) Value Engineering. "The Lessor shall have the right to value engineer
and propose changes to the Design Specifications 1.23 and the Drawings 1.24 in
order to keep this project within the Project budget. The value engineering must
be consistent with the integrity and scope of the project as outlined in the
schematic drawings and detailed specifications, be within reasonable engineering
standards, and have no adverse effect on the functionality, aesthetics, and long
term operating and maintenance costs. The value engineering by the Lessor with
an accompanying detailed comparative analysis shall be presented to Robert
Knowles, the Lessee's representative in regard to this project, for review and
approval on behalf of Lessee. Lessee's approval shall not be =reasonably
withheld. The parties agree the Public Facilities District improvements will be
constructed by Lessor for a GUARANTEED MAXIMUM cost of $52,809,670, inclusive of
Construction Loan Financing Cost, with a contract savings pass-back of 80% to
the Lessee and 20% to the Lessor, all as set forth in this Lease.
(f) Changes to Construction Documents. After completion and approval, there
shall be no change in the Construction Documents without the prior written
consent of Lessee.
5.6 Dispute Resolution Process. Lessee and Lessor agree to follow the
independent resolution process set forth in this Section 5.6 to resolve disputes
regarding preparation of the Design Development Documents, Construction Drawings
14
and changes to Construction Documents in an economic and time efficient manner
so that the documents conform to the requirements of this Agreement, the Project
Schedule is not adversely impacted, and the Public Facilities District
Improvements as constructed will satisfy the Project Requirements.
(a) Disputes Resolution Mediator. In the event that a dispute arises
between Lessee and Lessor during (i) the Design Development phase of the Project
regarding the adequacy of any Drawing, specification or the responsibility for
any cost of any addition or change (e.g., whether any Design Development is
consistent with and reasonably inferable from the Project Requirements), or (ii)
during the preparation of the Construction Documents concerning whether the
Construction Drawings are consistent with the Design Development phase of the
Project, the parties shall proceed in good faith to resolve such dispute as
expeditiously as possible and shall cooperate so that the progress of the design
and construction of the Project is not delayed. If, however, the parties are
unable to resolve the dispute, either party may, by delivering written notice to
the other, refer the matter to the Mediator.
(b) Dispute Resolution Process. Within the five (5) business day period
following receipt of notice referring the matter to the Mediator, all involved
participants in such matter, that is Lessor, Lessee, Lessee's Construction
Representative, Architect and General Contractor, if necessary, shall submit all
necessary material and information with respect to the matter in dispute to the
Mediator. The Mediator shall be entitled to consult independently, or with all
or any of the parties or their respective consultants as the Mediator determines
necessary. If such dispute cannot be resolved by the parties within three (3)
business days following intervention of the Mediator, then either party may
exercise its rights and remedies under this Agreement
5.7 Permits: Costs: Compliance with Legal Requirements. Lessor shall secure
all Permits. Included within the Lease Payments is the Permit Allowance, which
is attributable to the anticipated cost of permits and licenses required for the
Project. If the actual cost incurred by Lessor for permit and license fees
payable to regulatory authorities is less than the Permit Allowance, Lessee
shall receive a credit toward the payment of the Lease Payments equal to the
difference. If the actual cost incurred by Lessor for permit and license fees
payable to regulatory authorities is more than the Permit Allowance, then Lessee
shall pay the difference as an increase in the Lease Payments. Lessor shall
cause all work on the Property to be performed in accordance with this Agreement
and all Requirements of Law and an directions and regulations' of all
governmental agencies and the representatives of such agencies having
jurisdiction over the Project and/or the Property. Lessee shall have the right
to review and approve the terms and conditions of any mitigation measures that
will affect the Property following completion of the Project.
5.8 Construction Contract. The Construction Contract shall require that
prior to the execution of subcontracts for major subcontract elements of the
Project separately stated in the Project Budget; the Contractor shall request
competitive bids from qualified subcontractors for each major subcontract
element. Each major subcontract element of the Project shall be awarded to the
lowest responsive and qualified bidder as determined by the General Contractor.
The bid amounts obtained from the lowest responsive and qualified bidder shall
be utilized in determining the amount of Contract Savings.
15
Because this is a design build/fast track project, Lessor is working with
certain major subcontractors to perform work on a design build concept. These
subcontracts have been negotiated on a time and material not to exceed basis and
will not be competitively bid.
5.9 Construction of Project.
(a) Commencement of Construction. Lessor shall cause the General Contractor
to commence construction of the Public Facilities District Improvements as soon
as practicable following receipt of necessary permits, and shall thereafter
cause construction of the Project to be diligently and continuously prosecuted
in accordance with the Construction Contract, the approved Construction
Documents and the Project Schedule subject only to Unavoidable Delays. Lessor
shall keep Lessee informed of the progress and quality of the work on a timely
basis. All work shall be performed in a good and workmanlike manner, shall be
free of defects in the work and materials and shall be constructed and in
accordance with the Construction Documents, the requirements of this Agreement
and Requirements of Law. The Lesser shall use its reasonable best efforts to
cause the Project to be Substantially Complete on or before the Substantial
Completion Date.
(b) Mandatory Improvements. Lessor shall cause the Mandatory Improvements
to be substantially completed not later than August 1, 2008, which date shall
not be extended for any Unavoidable Delays, subject to the provisionso of
Section 5.13.
(c) Delays. The existence of Unavoidable Delays shall excuse Lessor for
resulting delays and changes in the Project Schedule, except as provided in
Section 5.9(6) above. There shall not be any adjustment to the Lease Payments
for additional costs resulting from any Unavoidable Delays, If Final Completion
of the Public Facilities District Improvements has not been completed by the
date set forth in Section 5.9 (b), then Lessee may elect, but shall not be
obligated, to lease the Public Facilities District Improvements in their then
existing condition, and the Lease Payments shall be adjusted to an amount equal
to the following:
i. The cost incurred by Lessor in acquiring the Land; plus
ii. The amount expended by Lessor through the date Lessee acquires the
Public Facilities District Improvements in completing the Project to the extent
these costs are not included within the sums due the General Contractor; plus
iii. The amount paid by Lessor to the General Contractor pursuant to
the General Construction Contract, which shall in no event be greater than the
total amount of the General Construction Contact multiplied by the percentage of
completion of the work to be performed under the General Construction Contract
as of the date the Lessee acquires the Public Facilities District Improvements.
(d) Prevailing Wages. All Contractors and subcontractors employed for the
construction of the Public Facilities District Improvements shall pay prevailing
wages in the community for labor employed on the Project as defined in Chapter
39.12 of the Revised Code of Washington. Lessor shall provide an Affidavit of
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Prevailing Wages Paid prior to closing the transaction verifying Lessor's
compliance with this section.
5.10 Changes to the Work-
(a) Changes to Construction Documents There shall be no changes in the
Construction Documents except as agreed in writing by Lessee and Lessor.
Following approval of the Construction Documents, Lessee may request changes in
the Construction Documents, If Lessee requires any improvement or deviation in
the Construction Documents from the design or level, of quality reflected in the
Schematic Design and Detail Specifications as listed on Exhibit B, any resulting
increase in the cost of design or construction will be charged to Lessee. Lessee
must provide written notice to Lessor and Architect of any changes in the work
requested by Lessee. Lessor may refuse to approve or adopt any change in the
work requested by Lessee unless Lessor and Lessee execute an amendment to this
Agreement increasing the Lease Payments by the amount of the cost increase and
Lessee shall provide Lessor assurances reasonably satisfactory to Lessor that
Lessee has funds available to pay for any resulting increase in the Project
Costs. Any change in the Construction Documents requested by Lessee that does
not alter the design or level of quality reflected in the Schematic Design and
Detail Specifications as listed on Exhibit B shall not result in any additional
charge to. Lessee or increase in the Lease Payments.
(b Use of Stated Contingency: Savings. The Project Budget includes the
Stated Contingency. Lessor shall have the right to use the Stated Contingency at
Lessor's discretion to pay for any increases in the cost of the Project, other
than costs incurred in satisfying Lessor's indemnification obligations under the
Agreement, until the Stated Contingency has been exhausted. The Lease Payments
shall not increase except as provided in Section 5.10(a) above as a result of
the use of the Stated Contingency.
5.11 Inspections. Lessee, Lessee's Construction Representative and other
agents designated by Lessee shall have the opportunity, but not the duty, to
inspect the construction work from time to time as it progresses. The frequency
and level of inspections shall be determined by Lessee. Lessor shall keep at the
Property for Lessee one record copy of all Construction Documents, all drawings,
specifications, addenda, change orders and other modifications, in good order
and marked currently to record changes and selections made during construction
together with approved shop drawings, product data, samples and similar requited
submittals. Lessor shall immediately forward to Lessee's Construction
Representative Project correspondence and field communications concerning
changes in the work or delays to .the Project on any issue that might cause an
increase to the cost of the Project or a delay in the Substantial Completion
Date or the Final Completion Date. All records maintained by any of the
Contractors, including, but not limited to elevations of footings and floor
locations, shall be made available to Architect and/or Lessee upon request and,
upon completion of the Project, duplicate originals shall be delivered to
Lessee. Lessor shall record the progress of the Project Lessor shall submit
written monthly progress reports to Lessee including information on each
Contractor mid each Contractor's work, as well as the entire Project, showing
percentages of completion. If during the course of such construction, Lessee or
its agents or designees shall determine that the construction is not proceeding
in accordance with the Construction Documents, Lessee shall be entitled to, but
shall be under no obligation to, give notice in writing to Lessor specifying the
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particular deficiency or omission, and Lessor shall be responsible to cause the
General Contractor to correct the noted deficiency or omission. The failure by
Lessee to provided any notice of any observed deficiency or omission shall not
give rise to any liability S Lessee and shall not be considered a waiver of any
right of Lessee under this Agreement, including without limitation, the
enforcement of the representations and warranties of Lessor under this Agreement
and the warranties of the General Contractor under the General Construction
Contract with respect to the completion of the Property in accordance with the
Construction Documents.
5.12 Construction Loans. The Lessor shall have the right to encumber the
Land by a deed of trust securing payment of the Construction. The Project
construction costs that are included in the Construction Loan shall not exceed
Forty-eight Million Five Hundred Thousand Dollars ($48,500,000). The
Construction Loan shall not be modified, altered, revised or amended in any
manner which would in any material respect adversely affect the rights of Lessee
under this Agreement. The Construction Loan documents shall require the
Construction Lender to notify Lessee of any default by Lessor under the
Construction Loan. Lessor shall not further mortgage, encumber or suffer to be
encumbered all or any portion of the Property without the prior written consent
of Lessee. Lessor may assign the right to receive payment of the Lease Payments
as provided under Article VII, at Closing to the Construction Lender too secure
Lessor's obligations under the Construction Loan.
5.13 Termination of Agreement. In the event Lessor has not completed the
Mandatory Improvements prior to September 17, 2008, Lessor shall be obligated to
pay, as liquidated damages, the amount of $5,000 per day for a maximum of 30
days. If the Mandatory Improvements are not completed by October 17, 2008,
Lessor shall be subject to such additional damages as may be proven, and
specifically to such consequential damages as may be suffered by Lessee due to
contractual obligations for use of the Leased Premises.
5.14 As-Built Plans and Specifications; Manuals; Warranties; Permits and
Licenses. On or before Final Completion of the Public Facilities District
Improvements Lessor shall provide Lessee with a complete and detailed set of
"as-built" plans and specifications for the Project (to be provided on CAD, or
such other format approved by Lessee), together with all technical, service,
instruction and procedure manuals, warranties, permits and licenses.
5.15 Construction Covenants and Warranties. Lessor hereby warrants and
covenants to Lessee as follows:
(a) Lessor shall cause the construction of the Project and installation of
any Personal Property to be pursued diligently-until completed in a good and
workmanlike manner and substantially in accordance with this Agreement,
Construction Documents and all Requirements of Law (including all Environmental
Laws) so that the Project will be completed and lien-free on or before the Final
Completion Date, provided this shall not be construed to prohibit the Lessor to
encumber the Property to secure the construction loan.
(b) During the course of such construction, Lessor shall make all
applications for, and thereafter obtain, any and all permits, licenses,
variances and other approvals issued by appropriate governmental authorities
having jurisdiction over the Property or Lessor and relating to the
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construction, operation, use or occupancy of the Public Facilities District
Improvements, or any portion thereof or relating to any zoning, land use,
subdivision, environmental, building and construction laws and/or regulations
restricting, regulating or otherwise affecting the use, occupancy or enjoyment
of the Public Facilities District Improvements, as the same may be issued,
modified or amended from time to time (hereinafter collectively "Permits" and as
to each, "Permit").
(c) No amendment or change in any Permit and no amendment or change in o
zoning or any other land use control has been sought or obtained or will be
sought or obtainedo with respect to the Property without the prior written
approval of Lessee.
(d) Lessor shall maintain the following insurance policies until Final
Completion: (i) "All Risk" Builder's Risk Insurance including collapse coverage
and coverage for material in storage and while in transit on a Completed Value
non-reporting form for one hundred percent (100%) of the insurable replacement
value of the Property on a replacement cost basis on all materials, equipment
and supplies which are to become a permanent part of the Property, while
awaiting erection and until completion; (ii) Worker's Compensation Insurance
including Employer's Liability to provide statutory benefits as required by
applicable law or laws; (iii) Commercial General Liability Insurance on an
"occurrence" basis for hazard of operations, independent contractors, products
and completed operations for a period of two (2) years after completion of work
and contractual liability, such liability insurance to include Broad Form
Property Damage and afford coverage for explosion, collapse and underground
hazards and personal injury liability insurance, all with limits of not less
than Two Million Dollars ($2,000,000); and (iv) Comprehensive Automobile
Liability covering owned, non-owned and hired vehicles used in connection with
the Property with limits not less than One Million Dollars ($1,000,000).All such
insurance shall remain in force until the Closing Date (as defined below) and
shall be with companies satisfactory to Lessee. Each such policy shall provide
that the same may not be cancelled or amended by any party for any reason
whatsoever, without giving Lessee at least thirty (30) days prior written notice
of any proposed cancellation or amendment, and each such liability policy shall
include Lessee as a named insured.
(e) All work performed on, oor to be performed on, Personal Property,
materials, machinery or equipment delivered to or installed on or in, or to be
delivered or installed on or in, the Regional Events Center are, or will be,
subject to written guarantees or warranties usually and customarily obtained or
delivered and all of Lessor's rights pursuant to such guarantees or warranties
as well as under any construction agreements or service contracts are, or will
be, in full force and effect, enforceable according to their respective terms,
without defense or set-off, and assignable to Lessee; provided, however, that
Lessee shall not be deemed to have assumed liability to Lessor or to any other
person as a result of accepting any such assignment, such assignment being for
the sole benefit of Lessee.
(f) Lessor shell provide a warranty that all work performed on and all
Personal Property, material and equipment furnished to and installed in or on
the Public Facilities District Improvements will substantially conform with the
Construction Documents, as to kind, quality, function of equipment and
characteristics of material and workmanship, and will remain in conformity
therewith for a period of one (1) year commencing as of the date of Final
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Completion of the Project (the "Warranty Period"). Notwithstanding the foregoing
if any longer warranty or guarantee period is specified for any particular
equipment, materials or workmanship under this Agreement or any contract or
under any subcontract in connection with the construction and installation of
the completion of the Project or installation of any personal property or under
the laws of the State of Washington, the longer warranty or guarantee period
shall govern. Lessor shall, at Lessor's expense and without cost to, and to the
satisfaction of Lessee, immediately upon notice from Lessee sent at any time
between the date of this Agreement and that date which is twelve (12) months
following the expiration of the applicable Warranty Period, replace, correct or
repair (i) any work, personal property, material and equipment which is at
variance from the Construction Documents; (ii) any defects, faults or
imperfections in such work, personal property, material or equipment which may
appear prior to the expiration of the applicable Warranty Period; and (iii) any
damages, defects or faults in the Project and Personal Property resulting from
any of the foregoing. In the event that Lessor fails to cure any defect in
accordance with Lessee's notice thereof within fifteen (15) days after Lessor's
receipt of such notice, or if the nature of such cure is such that it cannot be
completed within such fifteen (15) day period, Lessor fails to commence such
cure within such fifteen (15) day period or, once commenced, fails to diligently
prosecute such cure to completion within sixty (60) days following Lessee's
notice, Lessee, at Lessor's sole cost and expense, may take whatever steps
Lessee deems reasonably necessary to correct such defect and any costs incurred
by Lessee in connection therewith shall be payable by Lessor upon demand. Any
action taken by Lessee under this Section 5.15 shall not be deemed to be a
waiver by Lessee of Lessor's failure to perform nor limit or abridge any other
right or remedy Lessee may have as a result of such failure, whether provided
under this Agreement, or otherwise at law or in equity. The obligations of
Lessor under this Section 5.15 shall be deemed satisfied if (i) the warranties
under the General Construction Contract provide tile same warranty terms and
remedies as stated in this Section 5.15 and (ii) Lessor, upon Final Completion
of the Public Facilities District Improvements, assigns to Lessee all warranties
under the General Construction Contract.
5.16 Disclaimer.
(a) Lessee Not Liable for Construction of Project. Notwithstanding any
other provision of this Agreement to the contrary, Lessee is under no obligation
to, nor shall it construct or supervise the construction of the Project. It is
understood and agreed that Lessee's right to inspect the Project prior to the
Closing Date is for the sole purpose of protecting its rights as a contract
vendee under this Agreement. No part of the cost of construction of the Project
shall ever become an obligation of Lessee. Lessee is not responsible to any
Contractors or to any subcontractors under any subcontracts for design,
development, repair, renovation or construction of the project or any other
third parties for any purpose whatsoever. Nothing contained in this Agreement
shall be construed as the consent or request of Lessee, express or implied, for
the performance of any labor or services or for the furnishing of any materials
or equipment for any construction, alteration, addition, repair or demolition of
or to the Property (or any part thereof). Lessor shall include in the
Construction Contract and the contracts for architectural and engineering
services the following or substantive equivalent disclaimer NOTICE IS HEREBY
GIVEN THAT GREATER WENATCHEE REGIONAL EVENTS CENTER PUBLIC FACILITIES DISTRICT
WILL NOT BE LIABLE FOR ANY LABOR, SERVICES, MATERIALS OR EQUIPMENT FURNISHED OR
TO BE FURNISHED TO LESSOR, OR ANYONE HOLDING AN INTEREST IN THE PROPERTY (OR ANY
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PART THEREOF) THROUGH OR UNDER LESSOR, AND THAT NO CONSTRUCTION OR OTHER LIENS
FOR ANY SUCH LABOR, SERVICES, MATERIALS OR EQUIPMENT SHALL ATTACH TO OR AFFECT
THE INTEREST OF LI3SSEE IN THE PROPERTY.
(b) Indemnification.Lessor shall protect, defend, indemnify and hold Lessee
and its officials, officers, employees and agents harmless from and against any
and all liabilities, obligations, damages, penalties, charges, costs and
expenses including, without limitation, reasonable attorneys fees, which Lessee
may suffer or incur in connection with its ownership or use of the Property
resulting from any action or inaction of Lessor or its agents, employees,
Contractors or subcontractors occurring before the Closing Date. To the maximum
extent permitted by law, Lessor shall indemnify and defend Lessee and its
officials, officers, employees and agents from and be liable for all damages and
injury which shall be caused to owners of property on or in the vicinity of the
construction of the Project or which shall occur to any person or persons or
property whatsoever arising out of this Agreement, whether or not such injury or
damage is caused by negligence of the Lessor or caused by the inherent nature of
the construction of the Project. To the extent a court determines RCW 4.24.115
applies, Lessee shall not be entitled to such indemnification for damage caused
to Lessee or any third party by reason of the sole negligence of Lessee or
damage caused by the concurrent negligence of Lessee to the extent of such
concurrent negligence. The foregoing indemnification shall survive the Closing
Date.
IT IS SPECIFICALLY AND EXPRESSLY UNDERSTOOD THAT THE INDEMNIFICATION PROVIDED
HEREIN CONSTITUTES THE LESSOR'S WAIVER OF IMMUNITY UNDER INDUSTRIAL INSURANCE,
TITLE 51 RCW, SOLELY FOR THE PURPOSES OF THIS INDEMNIFICATION. THIS WAIVER HAS
BEEN MUTUALLY NEGOTIATED BY THE PARTIES. THE PROVISIONS OF MS SECTION THALL
SURVIVE THE EXPIRATION OR TERMINATION OF THIS AGREEMENT.
(c) Notice of Claims. Promptly upon receipt by Lessee of notice of any
action or proceeding for which Lessor have agreed to indemnify Lessee, Lessee
shall give Lessor written notice of such claim or the commencement of such
action or proceeding and Lessor shall thereafter vigorously defend on behalf of
Lessee, but at the sole cost and expense of Lessor, any such action or
proceeding for which indemnification is sought Failure to promptly give Lessor
such notice shall not constitute a bar to the indemnification obligations of
Lessor hereunder unless such delay has resulted in substantial prejudice to
Lessor in the defense of such claim or action. No settlement of any such action
or proceeding shall be made without Lessee's written approval which approval
shall not be unreasonably withheld (unless Lessee has previously been discharged
from all liability in connection with such action or proceeding).
5.17 Enforcement of Warranties. After Closing, Lessee acknowledges that it
shall be fully responsible for maintenance and repair of the Public Facilities
District Improvements, subject to the right to recover under any applicable
warranty. Lessor shall take all actions reasonably requested by Lessee to
enforce or otherwise obtain the benefit of any warranty received from the
General Contractor or any other Contractors or any subcontractor thereof, or any
supplier, material-men or manufacturer relating to the Project but shall incur
no additional expense or liability in that connection.
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5.18 Architect's Administration of the Contract.
(a) Lessor shall cause the Architect to provide administration of the
Construction Contract as described in the Contract Documents, (1) during
construction, (2) until final payment is due and (3) from time to time during
the Warranty Period. The Architect will have authority to act only to the extent
provided in the Contract Documents, unless otherwise modified in writing in
accordance with other provisions of the Construction Contract.
(b) Lessor shall cause the Architect to visit the site at intervals
appropriate to the state of the Contractor's operations (1) to become generally
familiar with and to keep the Public Facilities District informed about the
progress and quality of the portion of the Project Work completed, (2) to
endeavor to guard the Public Facilities District against defects and
deficiencies in the Project Work, and (3) to determine in general if the Project
Work is being performed in a. manner indicating that the Project Work, when
fully completed, will be in accordance with the Contract Documents. However, the
Architect will not be required to make exhaustive or continuous on-site
inspections to check the quality or quantity of the Project Work.
(c) Under the direction of Lessor, the Architect will prepare Change Orders
and Construction Change Directives and may authorize minor changes in the
Project Work as approved by the Public Facilities District
(d) The terms "Work," "Change Orders," and "Construction Change Directives"
shall mean as the same are defined in the Contract Documents.
5.19 Project Manager, International Coliseums Company ("ICC") shall serve
as "Project Manager" for the Project to provide project management services for
Lessor, including, without limitation: (i) the selection and oversight of
architects and engineers, licensed to practice in the State of Washington that
will design and develop the Project; (ii) in conjunction with the assistance of
Contractor, the preparation of the Project Budget, the preparation and
management of the construction management plan for the Project, and the
preparation of other project schedules, including schedules to identify
"critical path" items for the accomplishment of the Project; and (iii) the
selection, acquisition and installation of furniture, fixtures and furnishings
for the Project. ICC shall provide services for Lessor throughout the pre-design
phase, schematic design phase, design development phase, construction
documents/drawings phase, construction phase and post-construction phase of the
Project.
ARTICLE VI
LEASE TERM
This Lease is effective upon its execution by Lessor and Lessee; provided,
however, that the obligation of the Lessee to make Lease Payments hereunder
shall not commence unless and until the Substantial Completion Date. This Lease
shall terminate on September 1, 2031or when all Lease Payments have been paid,
whichever is earlier, unless terminated prior thereto in accordance with the
provisions of this Lease.
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ARTICLE VII
LEASE PAYMENTS
7.1 Lease Payments.
(a) Lease Payment Obligation to Arise Only Upon Substantial Completion
Date. The obligation of the Lessee to make Lease Payments hereunder shall not
commence until the Substantial Completion Date.
(b) Principal Component of Lease Payments. The principal component of the
Lease Payments is reflected in Exhibit H as the total principal amount of Lease
Payments. The parties farther agree to the amortization schedules set forth in
the attached Exhibit H. Provided, that the Lease Payments shall be adjusted to
reflect a credit to Lessee of 80% of Contract Savings.
(c) Interest Component of Lease Payments. The interest component of Lease
Payments, representing interest on the principal component of Lease Payments is
set forth in Exhibit H.
(d) Pledge to Pay Lease Payments. From and after the Substantial Completion
Date, the Lessee shall make all Lease Payments as determined in accordance with
Section 7.1 at such times and in such amounts as set forth in Exhibit H;
provided, however, that the Lessee's obligation to make any such Lease Payment
may be satisfied, in whole or in part, from funds on deposit and available for
such purpose in the Lease Payment Fund. The obligation of the Lessee to make the
Lease Payments constitutes a limited tax general obligation of the Lessee. The
Lessee hereby pledges all Sales Tax Revenue and other revenue from the operation
of the Public Facilities District Improvement for the payment of the Lease
Payments. Lessee further pledges to levy the Sales Tax at the rate of 0.033% as
provided in Chapter 82.14.390 RCW so long as this Lease is in effect.
(e) City of Wenatchee Obligations. To the extent that the Lessee does not
have non-voted general obligation debt capacity at least equal to the principal
amount of the Lease Payments at the time the Lessee's obligation to make Lease
Payments commences, the City of Wenatchee (the "City" or "Obligor") shall be
obligated to pay the proportionate amount of Lease Payments in excess of the
Lessee's non-voted debt capacity until such time as the Lessee's debt o capacity
at least equals the principal amount of the then remaining Lease Payments. The
City covenants that as long as it is obligated to make Lease Payments that each
year it will include in its budget and levy ad valorem taxes upon all the
property within the City subject to taxation in an amount that will be
sufficient, together with other money of the City legally available for such
purposes, to pay the principal of and interest on the Lease Payments as the same
become due.
In addition, prior to the time the Lessee's obligation to make Lease
Payments commences, the City agrees that it will enter into a contingent loan
agreement with the Lessee that commits the City to make loans to the Lessee if
and when the Lessee does not have sufficient money to pay the Lease Payments
when due. To the extent that this Lease has not been assigned by the Lessor to a
bank trust department or nonprofit corporation pursuant to Exhibit H, the Lessor
shall be a third party beneficiary of the contingent loan agreement.
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(f) Books and Records. Lessor shall keep or cause to be kept full and
detailed accounts and records of all costs incurred in connection with the
Project, together with supporting statements, bills, vouchers, receipts,
memoranda, correspondence and similar data relating thereto in a form acceptable
to Lessee. Lessor's records shall be maintained in a manner that allocates
costs, in a manner consistent with generally accepted accounting principles.
Lessee or its designated representative shall be afforded access to inspect,
review, copy and audit all such records and supporting data. Sixty (60) days
prior to the estimated date for Finalo Completion of the Project, Lessor shall
deliver to Lessee an accounting, in a form and substance satisfactory to Lessee
and certified by Lessor, setting forth a detailed itemization of all costs
incurred in the Project Lessee and its accountants shall have the right to
review during normal business hours, and following prior -written notice given
by Lessee to Lessor at least five (5) business days prior to the requested
review, the accounting together with the records and supporting data referenced
above to determine the accuracy of the Project costs as set forth in the
accounting delivered by Lessor.
7.2 Additionall Rent.
(a) After Substantial Completion. On or after the Substantial Completion
Date Lessee shall be liable for Additional Rent for costs not otherwise provided
for by the Lease Payments calculated pursuant to Section 7.1 above. Such costs
may include: Lessee-Initiated Change Orders in accordance with Section 5.10
hereof, and taxes and utility charges for which the Lessee is liable pursuant to
Section 9.3 hereof (herein referred to as "Additional Rent"). Due to the
contingent nature of such Additional Rent, it shall not constitute debt of the
Lessee for purposes of debt limitations established by RCW 39.36.020. The Lessee
shall have no obligation to pay Additional Rent prior to the Substantial
Completion Date.
(b) Securitization of Lease. It is the expectation of Lessor and Lessee
that the payments due under this Lease will be securitized in the form of lease
revenue bonds or certificates of participation. In such event the Lease Payments
described in Section 7.1 and Additional Rent described in Section 7.2(a) shall
constitute the full extent of the Lessee's obligations hereunder.
7.3 Defeasance. In the event that money and/or "Government Obligations," as
such obligations are now or may hereafter be defined in Ch. 39.53. RCW, maturing
at such time or times and bearing interest to be earned thereon in amounts
sufficient to pay or prepay all Lease Payments and Additional Rent due under
this Lease in accordance with the terms of this Lease, are irrevocably set aside
and pledged in a special account to effect such payment or. Prepayment, then no
further payments need be made of any Lease Payments under this Lease and the
Lessor shall not be entitled to any lien, benefit or security in the Leased
Premises, except the right to receive the funds so set aside and pledged, and
Lessor shall have no further obligation to the Lessee hereunder.
ARTICLE VIII
USE
8.1 Use of Premises. From and after the Substantial Completion Date, the
Lessee may use the Leased Premises for the occupancy, use, maintenance and
operation of a regional events center and all uses incidental thereto, including
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but not limited to, any other use permitted by law or by the Certificate of
Occupancy.
8.2 Quiet Enjoyment. Upon payment by Lessee of the Lease Payments herein
provided, and upon the observance and performance of the covenants, terms and
conditions on the Lessee's part to be observed and performed, Lessor covenants
that Lessee shall peaceably and quietly hold and enjoy the Leased Premises for
the term hereby demised without hindrance or interruption by Lessor or any
person or persons lawfully or equitably claiming by, through or under the
Lessor.
ARTICLE IX
ABSOLUTE NET LEASE
9.1 Absolute Net Lease. This Lease is an "absolute net lease," and the
Lessee's obligations to make Lease Payments as provided in Section 7.1 of this
Lease, to pay Additional Rent AS provided in Section 7.2 of this Lease, and to
perform and observe all other covenants and agreements of the Lessee contained
herein shall be absolute and unconditional, and the failure by the Lessee to
make such Lease Payments and to pay Additional Rent at the times and in the
amounts as provided in Sections 7.1 and 7.2 hereof shall constitute an Event of
Default under this Lease. All Lease Payments shall be made without notice or
demand and without setoff, counterclaim, abatement, deduction or defense
whatsoever. Following Substantial Completion, notwithstanding the Lessor's
obligation to complete punch-list items, the Lessee shall assume the sole
responsibility for the condition, use, operation, maintenance, repair and
management of the Leased Premises, and Lessee will, at its cost and expense,
keep and maintain the Leased Premises in good repair and condition and in
compliance with all applicable laws, rules, regulations, statutes, and
ordinances, and will make all structural and nonstructural, and ordinary and
extraordinary changes, repairs and replacements which may be required to be made
upon or in connection with the Leased Premises in order to keep the same in good
repair and condition, reasonable wear and tear and ordinary use excepted;
provided, however, that nothing herein shall be construed to release the Lessor
from completion of the punch-list items, and if the Lessor should fail to
complete the punch-list items within a reasonable time, the Lessee may institute
such legal action against the Lessor as the Lessee may deem necessary to compel
the performance of such obligation or to recover damages therefore.
Notwithstanding anything in this Lease to the contrary, Lessee shall have no
obligations to indemnify Lessor for any claims, loss, liabilities or damages
arising from the negligence or willful misconduct of Lessor, its employees or
agents.
9.2 Lease - Non-terminable. Except as otherwise expressly provided herein,
this Lease shall not terminate, nor shall Lessee have any right to terminate
this Lease or to be released or discharged from any obligations or liabilities
hereunder for any reason, including, without limitation, damage or destruction
of the Public Facilities District Improvements, it being the intention of the
parties hereto that all Lease Payments payable by Lessee hereunder shall
continue to be payable in all events in the manner and at the times herein
provided unless the obligation to pay the same shall be terminated pursuant to
the express provisions of Section 5.13 or Section 15.1 of this Lease. In that
connection, Lessee hereby waives, to the extent permitted by applicable law, any
and all rights that it may now have or that may at any time hereafter be
conferred upon it, by statute or otherwise, to terminate, cancel, quit or
surrenders this Lease except in accordance with the express terms hereof and
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agrees that if, for, any reason whatsoever, this Lease shall be terminated in
whole or in part by operation of law or otherwise except as specifically
provided in Section 5.13 or Section 15.1 of this Lease, Lessee will nonetheless
pay to Lessor (or to whosoever shall be entitled thereto as expressly provided
herein)' an amount equal to each Lease Payment at the time such payment would
have become due and payable in accordance with the terms hereof had such
termination not occurred.
9.3 Taxes and Utility Charges: The Lessee shall pay as Additional Rent all
charges for utility, communication and other services rendered to or used on or
about the Leased Premises assessed and payable from and after the Substantial
Completion Date. Lessee also covenants to and agrees to pay all taxes and
assessments levied upon the Leased Premises that are payable after the
Substantial Completion Date and to pay a prorated share of taxes and assessments
paid by Lessor prior to the Substantial Completion Date and applicable to any
period after the Substantial Completion Date; provided, however, that if any
such taxes or assessments may be paid in installments without penalty, the
Lessee shall have the right to pay any such taxes or assessments in
installments, and provided further that the Lessee shall also be liable for any
property taxes assessed with respect to the Leased Premises after the
Substantial Completion Date.
9.4 Compliance with The Lessee shall at all times from and after the
Substantial Completion Date, at the Lessee's own cost and expense, perform and
comply with all laws, rules, orders, ordinances, regulations and requirements
now or hereafter enacted or promulgated (including, without limitation. all
zoning, pollution and environmental requirements, hereinafter referred to as
"Environmental Requirements"), of every government and municipality having
jurisdiction over the Leased Premises and of any agency thereof, relating to the
Leased Premises, or the Improvements thereon, or the facilities or equipment
thereon or therein, or the streets, sidewalks, curbs and gutters adjoining the
Leased Premises, or the use or operation of the Leased Premises, whether or not
such laws' rules, orders, ordinances, regulations or requirements so involved
shaft necessitate structural changes, .improvements, interference with use and
enjoyment of the Leased Premises, replacements or repairs, and Lessee shall so
perform and comply, whether or not such laws, rules, orders, ordinances,
regulations or requirements shall now exist or shall hereafter be enacted or
promulgated, and whether or not such laws, rules, orders, ordinances,
regulations or requirements can be said to be within the present contemplation
of the parties hereto.
9.5 Lessee's Right to Contest. The Lessee shall have the right to contest,
by appropriate legal proceedings, any tax, charge, levy, assessment, lien or
other encumbrance, and/or any law, rule, order, ordinance, regulation or other
governmental requirement affecting the Leased Premises, and to postpone payment
of or compliance the same during the pendency of such contest, provided that:
(i) the Lessee shall not postpone the payment of any such tax, charge,
levy, assessment, lien or other encumbrance for such length of time as shall
permit the Leased Premises, or any lien thereon created by such item being
contested, to be sold by any federal, state, county or municipal authority for
the non-payment thereof;
(ii) Lessee shall not postpone compliance with any such law, rule, order,
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ordinance, regulation or other governmental requirement if Lessor will thereby
be subject to criminal prosecution, or if any municipal or other governmental
authority shall commence a process according to applicable law to carry out any
act to comply with the same or to foreclose or sell any lien affecting all or
part of the Leased Premises which shall have arisen by reason of such
postponement or failure of compliance;
(iii) Lessee shall proceed diligently and in good faith to resolve such
contest;
(iv) Such contest shall be in compliance with all laws, rules, orders,
ordinances, regulations or other governmental requirements; and
(v) Lessee shall not postpone compliance with any such laws, rules, orders,
ordinances, regulations or other governmental requirements if the same shall
invalidate any insurance required by this Lease.
ARTICLE X
ENVIRONMENTAL CONDITION OF IRE PROPERTY
10.1 Environmental Information. Lessee shall have the right following the
Effective Date to have its own environmental assessment made of the Land, which
additional environmental assessment may include further sampling and analysis.
The cost of such further sampling and analysis shall be borne by Lessee.
10.2 Lessor's Representations and Warranties Regarding Environmental
Conditions. Lessor has no knowledge of any Hazardous Substances presently
located on or under the Land other than as disclosed in the Environmental
Reports. The Lessor has not received any written notice alleging violation of
any Environmental Laws with respect to the Land, nor, to the best of the
Lessor's knowledge, have there been any written claims, demands, or suits made
against any Person regarding potential liability for environmental response
costs or natural resource damages in connection with the Property other than
shown in the Environmental Reports.
10.3 Survival. The representations, covenants, warranties and
indemnifications by Lessor contained in this Article X shall survive the closing
of the sale of the Real Property for a period of twenty-five (25) years and
shall not expire until the expiration of said 25-year period.
10.4 Supersedure. This Article X supersedes any limitation oor expiration
on representations, warranties or indemnification provisions, and any
indemnifications, with respect to environmental matters set forth elsewhere in
this Agreement.
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ARTICLE XI
REPRESENTATIONS AND WARRANTIES
11.1 Lessor's Representations and Warranties. In order to induce Lessee to
enter into this Agreement and the transactions contemplated hereby, Lessor makes
the following representations and warranties as of the date of this Agreement
and again as of the Closing Date:
(a) Lessor is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Washington and qualified to
do business in the State of Washington. Lessor has full power to enter into this
Agreement, to execute and deliver the Deed and all other documents required in
this transaction, and to perform all of the terms, conditions and provisions
hereof and as set forth in such documents. The acceptance and performance of the
terms and provisions of this Agreement have been duly authorized and approved by
all necessary parties and this Agreement is binding upon Lessor in accordance
with its terms.
(b) At the Closing Date, Lessor shall have good, marketable and
indefeasible title to all of the Property subject only to the Permitted
Encumbrances, and Lessor is aware of no other matters which adversely affect
title thereto.
(c) The Property will be subject to no encumbrances, defects, liens,
adverse claims or other matters known to Lessor or of which Lessor is or may be
aware except the Permitted Exceptions, and there will be no commitments or
agreements, including leases, of any kind or character relating to the Property.
In particular, Lessor has delivered to Lessee complete copies of all contracts
of any nature with respect to the Property and is unaware of any defaults either
by Lessor or by contracting parties with respect thereto, and to the best of
Lessor's knowledge no basis exists for any default thereunder. It is understood
and agreed that Lessor shall be responsible for any existing service,
maintenance and operating contracts which Lessor has entered into, and that such
contacts shall not be assumed by Lessee except in the event and to the extent
that such contracts have been approved by Lessee and specifically assumed by
Lessee at the Closing by Lessee's execution of the assignment of Service
Contracts.
(d) Other than disclosed by Lessor to Lessee as of the Effective Date,
there is no claim, litigation, proceeding, or governmental investigation
pending, or so far as is known to Lessor, threatened against or relating to
Lessor's properties or business, the Property, or the transactions contemplated
by this Agreement, or any dispute arising out of any contact or commitment
entered into regarding the Property, nor is there any basis known to Lessor for
any such action.
(e) Neither the execution of this Agreement, the consummation of the
transactions contemplated hereby, nor the fulfillment of the terms hereof, will
conflict with or result in a breach of any of the terms, conditions or
provisions of, or constitute a default under, any agreement or instrument to
which Lessor is, or is asserted to be, a party affecting the Property or to
which the Property is subject or any applicable laws or regulations of any
governmental body having jurisdiction.
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(f) Lessor has not committed nor obligated itself in any manner whatsoever
to sell the Property or any portion thereof to any party other than Lessee.
Lessor has not hypothecated or assigned the rents or income from the Property in
any manner.
(g) Lessor has not received any notices from any insurance companies,
governmental agencies or from any other parties with respect to any violations
or other matters concerning the Property.
(h) Lessor agrees to keep the Property free from liens which might result
and to indemnify, defend, protect and hold Lessee harmless from any such liens
and all attorneys' fees and other costs incurred by reason thereof. The
provisions of this subsection (h) shall not limit the right of Lessor to contest
in good faith claims of liens asserted in connection with the Project so long as
Lessor is able to satisfy the requirements of Article VIII as of the date of
Closing.
(i) All certificates, schedules and other documents containing factual
information to be delivered by Lessor, or by Lessor's officers and other agents
pursuant to or in connection with this Agreement, are and shall be true and
correct and do not and shall not contain any untrue statement of a material fact
or omit to state any material fact the disclosure of which is necessary to make
the statements contained therein and herein, in light of the circumstances under
which they are made, not misleading.
(j) As of the date of this Agreement, there is no, and at the Closing Date
there will be no, labor dispute with any construction, maintenance or other
personnel or employees of Lessor that could adversely affect the use operation
or value of the Property. Lessor hereby agrees to defend, protect, indemnify and
hold Lessee harmless from any and all loss, damage, liability or expense,
including attorneys' fees and costs, Lessee may suffer as a result of any breach
of or any inaccuracy in the foregoing representations and warranties.
11.2 Lessee's Representations and Warranties. Lessee represents (which
representations shall be deemed to have been made again on the Closing Date) and
agrees to indemnify Lessor from and against any loss or damage, including
reasonable attorneys' fees and expenses, as a result of any inaccuracy in such
representations, that (a) Lessee is a municipal corporation validly existing
under the laws of the State of Washington and is qualified to do business in
Washington; (b) Lessee has taken all steps necessary to authorize the
transaction contemplated by this Agreement; (c) the officer executing this
Agreement and all other documents in connection with this transaction is fully
authorized and empowered to do so, and (d) upon execution by Lessee, this
Agreement represents the lawful and binding obligation of Lessee.
ARTICLE XII
POSSESSIONS
Possession of the Property shall be delivered to Lessee on the Closing Date
free and clear of all leases, licenses or other agreements granting any Person
the right to use or occupy all or any portion of the Property. Lessor shall
afford authorized representatives of Lessee reasonable access to the Property
29
for the purposes of satisfying Lessee with respect to the representations,
warranties, and covenants of Lessor contained herein and with respect to
satisfaction of any conditions precedent to the Closing contained herein.
ARTICLE XIII
FIRE AND EXTENDED COVERAGE INSURANCE
From and after the Substantial Completion Date or the date the Lessee takes
possession of the Leased Premises, whichever is earlier, the Lessee shall
maintain, or cause to be maintained, in full force and effect, fire and extended
coverage insurance covering the Improvements in such amounts and covering such
risks as the Lessee may require from time to time. Such insurance shall be
carried with financially responsible insurance companies authorized to do
business in the State of Washington, and may be carried under a policy or
policies covering other property owned or controlled by Lessee, or the Lessee
may be self- insured. The Lessee shall furnish to Lessor, on or before the
effective date of any such policy or self insurance, and annually thereafter
certificates of insurance evidencing that the insurance required by this Article
XBI are in force and effect on the specified date and that the premiums
therefore have been paid. Lessee agrees that such policies shall contain a
provision that the same may not be cancelled without at least thirty (30) days'
prior written notice being given by the insurer to Lessor. The amount of
insurance maintained by Lessee in compliance with this Article XIII shall be in
such amounts as may be established by the Lessee from time to time. The proceeds
from any such insurance shall be paid to the Lessee.
ARTICLE XIV
LIENS
The Lessee shall not create, incur, assume or suffer to exist any mortgage,
pledge, lien, charge, encumbrance or claim on or with respect to the Leased
Premises. The Lessee shall promptly, at its own expense, take such action as may
be necessary to duly discharge or remove any such mortgage, pledge, lien,
charge, and encumbrance or claim if the same shall arise at any time. The Lessee
shall reimburse the Lessor for any expense incurred by Lessor (including
reasonable attorneys' fees) to discharge or remove any such Lessee-incurred
mortgage, pledge, lien, charge, encumbrance or claim.
ARTICLE XV
OPTIONS TO PREPAY LEASE AND PURCHASE LEASED PREMISES
15.1 Option to Purchase. Provided that the Lessee is not in default under
this Lease (including payment of any Additional Rent then due and owing), the
Lessee shall have the option to purchase the Leased Premises and thereby
terminate this Lease at any time on or after Substantial Completion by giving
notice of its election to exercise its option and paying the Lease Payments. The
Lease Payments of the Leased Premises shall be an amount equal to the total
outstanding principal amount of Lease Payments set forth on Exhibit H, plus
interest accrued thereon to the date of prepayment at the applicable rate(s) set
forth on Exhibit H, plus an option exercise fee of one dollar ($1.00).
30
15.2 Exercise of Option. The Lessee shall give Lessor not less than 90 days
prior written notice of its election to exercise its option to purchase under
Section 15.1 hereof. The Lease Payments shall be paid in cash or same-day
available funds by 10:00 a.m. Seattle time on the payment date specified in such
notice (or such other date as the Lessee and Lessor may mutually, agree).
15.3 Conveyance of Leased Premises. On the payment date specified in the
notice of election to exercise purchase option, or such other date as the Lessee
and Lessor may mutually agree, Lessor shall convey the Leased Premises to the
Lessee by Statutory Warranty Deed, and this Lease shall terminate. Nothing
herein shall be construed to require the Lessee to exercise the purchase option
herein granted.
15.4 Option to Partially Prepay Lease. The Lessee shall have the option to
partially prepay the principal component of the Lease Payments, in $5,000
increments, in inverse order of maturities (as represented by the principal
portion of the Lease Payments due each year as set forth in Exhibit H). Notice
of such intent to prepay shall be given to the Lessor in writing not less than
90 days in advance of the intended prepayment date. Such prepayment may be at
any time on or after the Substantial Completion Date. By 10:00 a.m. Seattle time
on the date set for such prepayment, the Lessee shall pay to Lessor in cash or
same-day available funds, an amount equal to the principal portion of Lease
Payment to be prepaid, together with interest thereon to the date of prepayment
Upon such prepayment, the term of this Lease shall be deemed modified such that
this Lease terminates on the Lease Payment Date for the last outstanding Lease
Payment not prepaid.
15.5 Option Not Exercised. If the Lessee does not exercise the purchase
option hereunder upon termination of this Lease, then, after giving the Lessee
ninety (90) days' written notice, Lessor may sell the Leased Premises to any
third party. The proceeds from such sale, less the Lessor's costs in connection
with the sale, shall be distributed to the Lessee.
15.6 Title to Real Property. At the Closing, Lessor shall convey to Lessee
marketable and insurable fee simple title to the Real Property, by execution and
delivery of a Statutory Warranty Deed to the Real Property in a form reasonably
acceptable to Lessee (the "Deed"). Evidence of delivery of marketable and
insurable fee simple title shall be the issuance by the Title Company of an ALTA
extended coverage Owner's Policy of Title Insurance (Form B, Rev. 10/17170) with
liability in the amount of the Purchase Price or any lesser sum as may be
approved by Lessee, in Lessee's sole discretion (the "Title Policy") insuring
fee simple title to the Real Property in Lessee, subject only to (i) easements,
reservations, restrictions and other matters referred to as special exceptions
in the Owner's Policy of Title Insurance approved by Lessee in writing; (ii)
other exceptions created or suffered by Lessor following the Effective Date that
have been approved by Lessee in writing; (iii) utility and other easements
granted by Lessor following the Effective Date required for the use of the
Property as a regional events center facility; and (iv) any liens, encumbrances
or defects created or incurred by Lessee after the Effective Date (all of which
are referred to in this Agreement as 'Permitted Exceptions"). The Title Policy
shall include the following endorsements: (a) survey endorsement (WLTA form
116.1); (b) access to public right of way (WLTA form 103.7); (c) contiguity
(CLTA form 116.4); (d) environmental liens (ALTA form 8.1); and (e) legal lot
endorsement as to Property constituting validly subdivided legal lots. The
indemnification of the title Company by Lessor, or the Contractor to induce the
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Title Company to insure over any otherwise unpermitted exceptions to title shall
not be allowed except with the prior written consent of Lessee in its sole
discretion after full disclosure to Lessee of the nature and substance of the
unpermitted exception and the nature of the indemnity. The Title Policy shall
provide full coverage against construction liens arising out of the construction
of the Public Facilities District Improvements on the Property.
15.7 Title to Personal Property and Intangible Property. At the Closing,
Lessor shall transfer title to the Personal Property free and clear of all liens
and encumbrances whatsoever except for the Permitted Exceptions and such liens
and encumbrances as Lessee may approve in writing by execution and delivery of a
warranty bill of sale in a form reasonably acceptable to Lessee. Lessor shall
execute and delivery to Lessee any documents that Lessee may reasonably request
in order to transfer to Lessee any intangible personal property included in the
Property.
ARTICLE XVI
CLOSING
16.1 Closing Procedures.
(a) The Closing shall be held at the offices of Escrow Agent. The Closing
Date shall be within (30) days following Final Completion of the Public
Facilities District Improvements. Such date may not be extended without the
written approval of Lessor and Lessee except as otherwise expressly provided in
this Agreement All documents shall be deemed delivered on the date the Deed is
recorded.
(b) In the event the Closing does not occur on or before the Closing Date,
Escrow Agent shall, unless it is notified by both parties to the contrary within
five (5) days after the Closing Date, return to the depositor thereof items
which may have been deposited hereunder. Any such return shall not, however,
relieve either party hereto of any liability it may have for its wrongful
failure to close.
16.2 Delivery by Lessor. On or prior to the Closing Date, Lessor shall
deposit with Escrow Agent, and shall deliver copies to Lessee to the extent not
previously delivered prior to the Closing, the following:
(a) Lessor shall execute and deliver to Lessee a good and sufficient
Statutory Warranty Deed (the "Deed") to the Real Property in recordable form
conveying good and marketable fee simple title free and clear of all liens and
encumbrances, except for the Permitted Encumbrances, and all easements and
rights appurtenant thereto;
(b) A certificate from the Department of Licensing of the State of
Washington indicating that, as of a date not more than five (5) business days
prior to the Closing Date there are no filings against Lessor in the office of
the Uniform Commercial Code division of the Department of Licensing which would
be a lien on any of the Property (other than such filings, if any, as are being
released at the time of closing;
32
(c) Lessor shall furnish to Lessee, at Lessee's sole cost and expense, the
Title Policy;
(d) Lessor shall deliver to Lessee the originals of all Permits, licenses,
and approvals necessary for the occupation, use and operation of the Property,
including, without limitation, the building permits and a certificate of
occupancy issued by the appropriate governmental authority for the Public
Facilities District Improvements. In the event the original is required to be
posted on the Property, delivery of a duplicate shall be permitted;
(e) Lessor shall deliver to Lessee the originals of all warranties and
guarantees of contractors, subcontractors, suppliers and material-men received
by Lessor in connection with the construction or installation of the Project and
the acquisition of any equipment and Personal Property. Lessor shall deliver to
Lessee a written assignment of such warranties and guarantees, in a form
reasonably acceptable to Lessor and its counsel (hereinafter the "Assignment of
Warranties");
(f) Lessor shall deliver to Lessee, at Lessor's expense, a complete set of
final engineering plans and specifications of the Public Facilities District
Improvements;
(g) [This provision intentionally left blank]
(h) Lessor shall provide a complete inventory of, and shall transfer to
Lessee its interest in, any and all personal property required pursuant to
Construction Documents, if any, to be located on the Real Property, by warranty
bill of sale in a form reasonably acceptable to Lessee and its counsel. The cost
of such personal property being transferred is included in the Purchase Price;
(i) Lessor shall transfer to Lessee its interest in those Service Contracts
approved by Lessee by execution and delivery of an assignment of Service
Contracts;
(j) Lessor shall execute and deliver to Lessee an affidavit which satisfies
the requirements of Section 1445 of the Unites States Internal Revenue Code
regarding foreign investors;
(k) Any re-conveyance documents required to eliminate of record the
Construction Loan and any other existing deeds of trust and other security
documents which are a lien on the Real Property and any affidavit required to
eliminate the Title Company exception for construction liens and the rights of
parties in possession;
(1) Confirmation of warranties made by Lessor in this Agreement;
(m) Copies of books and records of Lessor which Lessee would require to
operate and maintain the Property (including applicable maintenance records),
together with keys to all entrance doors to, equipment and utility rooms located
in the Property, which keys shall be properly tagged for identification;
33
(n) Such resolutions, authorizations, certificates or other limited
liability documents or agreements relating to Lessor or as shall be reasonably
required by Lessee or the Title Company in connection with this transaction;
(o) Lessor shall duly execute (and acknowledge if appropriate) such other
documents as reasonably necessary to effectuate this transaction;
(p) Lessor shall deliver to Lessee all other documents required to be
delivered at or prior to the Closing pursuant to the terms of this Agreement,
and
(q) An Affidavit of Prevailing Wages Paid verifying compliance with Section
5.9(d)
16.3 Delivery by Lessee. On or before the Closing Date, Lessee shall
deposit with Escrow Agent the Purchase Price (less any adjustments authorized
under this Agreement) and shall deposit the following:
(a) Assignment of Service Contracts duly accepted by Lessee;
(b) Confirmation of warranties made by Lessee;
(c) Such resolutions, authorizations, certificates or other ordinances or
agreements relating to Lessee or as shall be reasonably required by Lessor or
the Title Company in connection with this transaction;
(d) Lessee shall duly execute (and acknowledge if appropriate) such other
documents reasonably necessary to effectuate this transaction; and
(e) Lessee shall deliver to Lessor all other documents required to be
delivered by Lessee at or prior to the Closing pursuant to this Agreement.
16.4 Pro-rations. All revenue and all expenses of the Property (other, than
real and personal property taxes), including, but not limited to rents, water,
sewer and utility charges, amounts payable under Service Contracts which are to
be assumed by Lessee, annul permits and/or inspection fees (calculated on the
basis of the respective periods covered thereby) and other expenses normal to
the ownership, use, operation and maintenance of the Property shall be prorated
as of the Closing Date. Because Lessee is exempt from property tax, no
prorations of real and personal property taxes will be required, but Lessor
shall pay all real and personal property taxes for the Property for the period
up to and including the Closing Date.
16.5 Costs and Expenses. Lessee shall pay the premium for the Title Policy
and all real estate excise taxes. Lessee shall pay the cost to record the Deed
and any sales or use tax payable in connection with any personal property
included as part of the Property. The escrow fees shall be paid equally by
Lessor and Lessee.
34
16.6 Recordation. Provided that Escrow Agent has not received prior written
notice from either party than an agreement of either party made hereunder has
not been performed, or to the effect that any condition set forth herein has not
been fulfilled, and further provided that Title Company has issued or is
unconditionally prepared and committed to issue to Lessee the Title Policy, then
Escrow Agent is authorized and instructed at 8:00 A.M.(or as soon thereafter as
possible) on the Closing Date pursuant to joint escrow instructions to be
executed by Lessee and Lessor to:
(a) Record the Deed in the official records of Chelan County, Washington;
(b) Assemble and deliver at least one fully executed counterpart of the
assignment of Service Contracts to both Lessee and Lessor;
(c) Deliver all documents described in Section 16.2 to Lessee; and
(d) Record any re-conveyancing documents delivered by Lessor pursuant to
Section 16.2 hereof.
16.7 Effect of Damage or Destruction of Property. If a material part of the
Public Facilities District Improvements has been damaged and not fully restored,
or replaced ( or, in the case of an unsubstantial loss or damage, provision for
full restoration of replacement made) by the Closing Date, the Closing Date
shall (i) be extended for the period of time necessary for Lessor to repair and
restore the damaged portions of the Public Facilities District Improvements, or
(ii) Lessee may elect to complete the Closing and shall receive from Lessor all
insurance proceeds payable with respect to the damage. The determination of what
is a material part of the Public Facilities District Improvements shall be made
by Lessee in its sole discretion.
ARTICLE XVII
DESTRUCTION OF LEASED PREMISES
In the event the Leased Premises are damaged or destroyed by fire or other
casualty following the Substantial Completion Date, this Lease shall not
terminate nor shall there be any abatement of the Lease Payments or Additional
Rent otherwise payable by Lessee hereunder; provided, however, that the Lessee
may elect to defease or prepay the Lease Payments in accordance with Section
15.4 hereof.
ARTICLE XVIII
DEFAULT; REMEDIES
18.1 Corrective Work. In the event of a material default in or of this
Agreement or any of the representations, warranties, terms, covenants,
conditions or provisions hereof by Lessor, which are not cured to Lessee's
satisfaction on the Closing Date, Lessee may, at its election and without
waiving its rights under the Agreement, elect to close the purchase of the
Property and Lessee shall receive a credit against the Lease Payments in an
amount equal to one hundred fifty percent (150%) of the estimated cost of the
Corrective Work. All other Closing Procedures as set forth in this Agreement
35
shall remain in full force and effect. Upon completion of such Corrective Work,
Lessee shall promptly furnish Lessor with a reasonably detailed summary of the
actual cost of the Corrective Work. In the event that the actual cost of the
Corrective Work is more than the amount set forth in the amount credited to
Lessee at Closing, Lessor shall promptly pay to Lessee the difference between
the actual cost and the amount set forth in the estimate. In the event that the
actual cost of the Corrective Work is less than the amount credited to Lessee at
Closing, Lessee shall promptly pay to Lessor the difference between the amounts
credited toward the payment of the Lease Payments and the actual cost. In the
event Lessee or Lessor, as the case may be, does not pay to the other party the
total amount due and owing to -such party pursuant to the foregoing within ten
(10) days following written demand therefore from such other party, the unpaid
amount shall bear interest at the rate of twelve percent (12%) per annum from
the date of the written demand therefore until the date of actual receipt
thereof by the party to whom such amount is owed.
18.2 Specific Performance. In the event of a material breach or default in
or of this Agreement or any of the representations, warranties, terms,
covenants, conditions or provisions hereof by Lessor, Lessee shall have, in
addition to a claim for damages for such breach or default, and in addition and
without prejudice to any other right or remedy available under this Agreement or
at law or in equity, the right to demand and have specific performance of this
Agreement.
18.3 Waiver. No delay in exercising any right or remedy shall constitute a
waiver thereof, and no waiver by Lessor or Lessee of the breach of any covenant
of this Agreement shall be construed as a waiver of any preceding or succeeding
breach of the same or any other covenant or condition of this Agreement.
ARTICLE XIX
MISCELLANEOUS
19.1 Incorporation of Recitals; Definitions. Each recital set forth above
is incorporated into this Agreement as though fully set forth herein. All
capitalized terms not otherwise defined herein shall have the meanings set forth
in Article I of this Agreement.
19.2 Notices. All notices, demands, requests, consents and approvals which
may, or are required to, be given by any party to any other party hereunder
shall be in writing and shall be deemed given when (a) personally delivered, (b)
given by machine-confirmed facsimile, or (c) after placement in the U.S. mail as
certified or registered, return receipt requested, first-class postage prepaid,
the receipt indicates delivery or refusal or failure to accept delivery:
Lessor: Wenatchee Events Center, LLC
4909 East McDowell Road, Suite 104
Phoenix, AZ 85008
Attention: Rick Kozuback
Telephone: (480) 994-0772
Facsimile: (480) 949-8616
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Lessee: Greater Wenatchee Regional Events Center
Public Facilities District 129 South Chelan
Wenatchee, WA 98801
Attention: Allison Williams
Telephone: (509) 664-3304
Facsimile: (509) 664-3335
Obligor: City of Wenatchee
129 South Chelan
Wenatchee, WA 98801
Attention: Allison Williams
Telephone: (509) 664-3304
Facsimile: (509) 664-3335
or to such other addresses as either party may from time to time designate in
writing and deliver in a like manner. All notices shall be deemed to be complete
upon actual receipt or refusal to accept delivery. Facsimile transmission of any
signed original document and retransmission of any signed facsimile transmission
shall be the same as delivery of an original document. At the request of either
party, the parties will confirm facsimile transmitted signatures by signing an
original document All notices required to be provided to Lessee or Lessor shall
be provided to the City of Wenatchee.
19.3 Amendment. Waiver Assignment No modification, termination or amendment
of this Agreement may be made except by written agreement or as otherwise may be
provided in this Agreement. No failure by Lessor or Lessee to insist upon the
strict performance of any covenant, duty, agreement, or condition of this
Agreement or to exercise any right or remedy consequent upon a breach thereof
shall constitute a waiver of any such breach or of such or any other covenant,
agreement, term or condition. Any party hereto, by notice and only by notice as
provided in Section 18.2 hereof, may, but shall be under no obligation to, waive
any of its rights or any conditions to its obligations hereunder, or any duty,
obligation or covenant of any other party hereto. No waiver shall affect or
alter this Agreement, and each and every covenant, agreement, term and condition
of this Agreement shall continue in full force and effect with respect to any
other then existing or subsequent breach thereof. All the terms, provisions and
conditions of this Agreement shall continue in full force and effect with
respect to any other then existing or subsequent breach thereof. All the terms,
provisions and conditions of this Agreement shall inure to the benefit of and be
enforceable by Lessor's or Lessee's respective successors and. assigns, except
that Lessor's interest under this Agreement may not be assigned, encumbered or
otherwise transferred, whether voluntarily, involuntarily, by operation of law
or otherwise, without the prior written consent of Lessee, which consent shall
not be unreasonably withheld.
Notwithstanding the prior paragraph, Lessor may assign this Lease to a
bathes trust department or nonprofit financing entity for purposes of issuing
certificates of participation secured by the Lease Payments and Lessee expressly
agrees that Lessor may assign Lease Payments and Additional Rent payments to the
Construction Lender or any other lender financial institution in connection with
the construction loan to Lessor. Lessor shall give the City no less than 10 days
37
notice of its intent to assign this Lease. The City shall cooperate in the
issuance of the Sales Tax. Sales Tax means the sales and use tax imposed by the
District pursuant to Resolution No. 2006-02, adopted by the Board on 7/5106,
pursuant to RCW 82.14.390. Sales Tax Revenue means the money received by the PFD
from the Washington State Department of Revenue on account of the Sales Tax.
19.4 Lessee's Disclaimer. Notwithstanding any other provision of this
Agreement to the contrary, Lessee is under no obligation to construct or
supervise construction of the Project or the installation of any Personal
Property. It is understood and agreed that Lessee's rights under this Agreement
are for the sole purpose of protecting its interest as contract vendee. The
approval of any Construction Drawings, Detailed Specifications or Contract
Documents, construction agreements, or service contracts shall not be construed
by Lessor as a guaranty of sufficiency of the work and shall not excuse
performance of any Lessor's obligation during the Warranty Periods. Lessee's
right of inspection as provided in this Agreement shall not constitute any
representation or warranty, expressed or implied, or any obligation of Lessee to
insure that work or materials are in compliance with the Plans and
Specifications or any building requirements imposed by a governmental agency.
Lessee is not responsible to the Contractor or any other third parties for any
purpose whatsoever.
19.5 Survival. All provisions of this Agreement which involve obligations,
duties or rights which have not been determined or ascertained as of the Closing
Date or the recording of the Deed and all representations, warranties and
indemnifications made in or to be made pursuant to this Agreement shall be
deemed to survive the Closing Date and/or the recording of the Deed and shall be
enforceable in accordance with their terms.
19.6 Captions. The captions of this Agreement are for convenience and
reference only and in no way define, limit or describe the scope or intent of
this Agreement
19.7 Brokerage Fees. Each party represents to the other that no broker has
been involved in this transaction. In the event of a claim for broker's fee,
finder's fee, commission or other similar compensation in connection herewith,
Lessor, if such claim is based upon any agreement alleged to have been made by
Lessor, hereby agrees to indemnify Lessee against and hold Lessee harmless from
any and all damages, liabilities, costs, expenses and losses (including, without
limitation, reasonable attorneys' fees and costs) which Lessee may sustain or
incur by reason of such claim and Lessee, if such claim is based upon any
agreement alleged to have been made by Lessee, hereby agrees to indemnify Lessor
against and hold Lessor harmless from any and all damages, liabilities, costs
and expenses (including, without limitation, reasonable attorneys' fees and
costs) which Lessor may sustain or incur by reason of such claim. The provisions
of this Section 19.7 shall survive the termination of this Agreement or the
recording of the Deed to the Property.
19.8 Joint Venture. It is not intended by this Agreement to, and nothing
contained in this Agreement shall, create any partnership, joint venture or
other arrangement between Lessee o and Lessor. No term or provision of this
Agreement is intended to be, or shall be, for the benefit of any person, firm,
organization or corporation not a party hereto, and no such other person, firm,
organization or corporation shall have any right or cause of action hereunder.
38
19.9 Severability. If any provision contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect such
invalidity, illegality or unenforceability shall not affect any other provision
hereof, and this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
19.10 Further Assurances, Each party hereto agrees that it will execute or
furnish such documents and further assurances to the other or to proper
authorities as may be necessary for the full implementation and consummation of
this Agreement and the transactions contemplated hereby.
19.11 Merger of Prior Agreements. This Agreement and the exhibits hereto
constitute the entire agreements between the parties with respect to the
purchase and sale of the Property and supersedes all prior and contemporaneous
agreements and understandings between the parties hereto relating to the subject
matter hereof.
19.12 Fair Construction. The provisions of this Agreement shall be
construed as a whole according to their common meaning not strictly for or
against any party and consistent with the provisions contained herein in order
to achieve the objectives and purposes of this Agreement. Each party hereto and
its counsel has reviewed and revised this Agreement and agrees that the normal
rules of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement.
19.13 Authority. The persons signing below represent and warrant that they
have the requisite authority to bind the party on whose behalf they are signing.
19.14 Time is of the Essence. For the purposes of this Agreement and all
transactions contemplated hereunder, time is of the essence.
19.15 Arbitration. In the event a dispute arises between the parties
regarding this agreement, either party (First Party) may submit the issue to
arbitration by selecting an arbitrator and notifying the other party (Second
Party) of the selection. The Second Party shall either approve such arbitrator
and proceed to arbitration or select an alternate arbitrator. Second Party shall
notify the First Party of such acceptance or selection within seven days of the
first notification. Upon receiving notification of the selection of an alternate
arbitrator, the First Party shall then approve the arbitrator and proceed to
arbitration or reject the alternate arbitrator. First Party shall notify Second
Party of such approval or rejection within seven days of receipt of the notice
from Second party. In the case of Rejection, the first two selected arbitrators
shall select a third arbitrator. The third arbitrator shall arbitrate the
dispute. The arbitrators shall be familiar with the construction industry in
Washington State. The arbitrator shall not be related to either party by blood
or marriage to a principal or owner of either party and shall have no economic
interest direct or indirect with either party. The arbitration shall take place
within thirty days after selection of the arbitrator. The decision of the
arbitrator shall be made within 14 days after the arbitrator has been named and
shall be binding upon the parties. The parties shall share equally in the cost
of the arbitrator.
19.16 Non-Waiver of Governmental Rights. Nothing contained in this
Agreement shall require Lessee to take any discretionary action relating to
39
development of improvements to be constructed on the Property as part of the
Project, including, but not limited to; environmental review, zoning and land
use approvals, approval of applications to vacate public streets, permitting, or
any other governmental approvals.
19.17 Agreement for Exclusive Benefit of Lessor and Lessee. The provisions
of this Agreement are for the exclusive benefit of Lessor and Lessee and their
respective permitted successors and assigns and not for the benefit of any other
Person. This Agreement shall not be deemed to have conferred any rights upon any
other Person.
19.18 Interest on Past-Due Obligations. Any amount due to either party
hereunder which is not paid when due shall bear interest from the date due until
paid at a rate equal to twelve percent (12%) per annum.
19.19 Governing Law. This Agreement and the rights of the parties hereto
shall be governed by and construed in accordance with the laws of the State of
Washington. In the event any action is brought to enforce any of the provisions
of this Agreement, the parties agree to be subject to exclusive in personam
jurisdiction in the Chelan County Superior Court for the State of Washington and
agree that in any such action venue shall lie exclusively at Wenatchee,
Washington.
19.20 Memorandum of Agreement. Lessor shall execute, acknowledge and
deliver to Lessee, simultaneous with the execution hereof, a memorandum of this
Agreement, which shall, at Lessee's option, be recorded in the real property
records of Chelan County, Washington, at any time after the Effective Date.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"LESSEE"
GREATER WENATCHEE REGIONAL
EVENTS CENTER PUBLIC FACILITIES
DISTRICT, a Washington municipal
Corporation
By: /s/ Joe Jarvis
-------------------------------------
Joe Jarvis, Board President
"LESSOR"
WENATCHEE EVENTS CENTER, LLC
a Washington limited Liability Company
By: /s/ Rick Kozuback
-------------------------------------
Global Entertainment Corporation, as
executed by its President, Rick Kozuback,
The managing Member of Wenatchee
Events Center, LLC
"OBLIGOR"
CITY OF WENATCHEE, a Washington
municipal corporation
By: /s/ Dennis Johnson
-------------------------------------
Dennis Johnson, Mayor
40
Exhibit 10.10
[LOGO OF MILLER CAPITAL MARKETS, LLC]
December 14, 2007
STRICTLY CONFIDENTIAL
Global Entertainment Corporation
4909 East McDowell Road, Suite 104
Phoenix, Arizona 85008-4293
Attention: Rick Kozuback
President and Chief Executive Officer
Dear Rick:
We are pleased to confirm the arrangements under which Miller Capital Markets,
LLC ("MCM"), a registered broker/dealer and a member of the Financial Industry
Regulatory Authority, is engaged by Global Entertainment Corporation
(collectively with its subsidiaries and affiliates, the "Company") to act as its
exclusive investment banker in connection with any potential Acquisition
Transaction (as defined below) between the Company and any other person or
entity and as its exclusive investment banker and placement agent in connection
with any prospective Financing Transaction (as defined below) involving the
Company. For purposes of this letter agreement (this "Agreement"), the terms
Acquisition Transaction and Financing Transaction are sometimes collectively
referred to as a "Transaction."
Section 1. Investment Banking Services. During the term of this Agreement,
MCM will, as the Company's investment banker, undertake one or more of the
following activities as requested from time to time by the Company:
(a) Advise on strategic rationale, transaction structure and pricing
parameters for any Transaction;
(b) Familiarize itself with the financial condition and business of the
Company and, to the extent necessary, any prospective acquisition
target or purchaser;
(c) Conduct a due-diligence review and financial analysis of the Company
including (without limitation) the review or preparation of various
financial analysis reports and business operations reports to be used
in conjunction with a Company prepared private placement memorandum or
other memorandum distributed to third parties with respect to a
Transaction;
(d) Advise and assist the Company in identifying and contacting third
parties (including prospective acquisition targets, purchasers and/or
financing sources) to ascertain their interest in pursuing a
Transaction;
(e) Advise and manage the process relating to any Acquisition Transaction;
Global Entertainment Corporation
December 14, 2007
Page 2
(f) Advise and manage the process relating to any Financial Transaction
including contact and negotiations with any potential investors,
co-underwriters and participating broker/dealers; and
(g) Advise and manage the process related to any potential public
offering, including contact and negotiations with any underwriters,
placement agents and other relevant parties.
The Company acknowledges that all advice (written or oral) given by MCM to
the Company is intended solely for the benefit and use of the Company (including
its management, directors or attorneys). Other than as may be required by law or
regulation, no advice (written or oral) of MCM hereunder shall be used,
reproduced, disseminated, quoted or referred to at any time, in any manner, or
for any purpose, nor shall any public references to MCM be made by the Company
(or its management, directors or attorneys), without the prior written consent
by MCM, which consent shall not be unreasonably withheld.
MCM is engaged in providing investment banking services and certain of its
affiliates are engaged in providing financial advisory, consulting and other
services. Nothing in this Agreement shall be construed to prohibit or limit the
ability of MCM or its affiliates from pursuing, investigating, analyzing or
engaging in investment banking, financial advisory and other business
relationships with entities other than the Company, notwithstanding that such
entities may be engaged in lines of business which are similar to those of the
Company, and notwithstanding that such entities may have customers, or potential
customers, similar or identical to those of the Company, and notwithstanding
that such entities may have been identified by the Company as potential merger
or acquisition targets or potential candidates for some other business
combination, cooperation or relationship or that such entities and the Company
may have identified one or more common third-parties as potential merger or
acquisition targets or potential candidates for some other business combination,
cooperation or relationship.
Section 2. Certain Responsibilities, Representations and Warranties of the
Company. In connection with MCM's engagement, the Company will furnish MCM with
all information concerning the Company that MCM reasonably requests and will
provide MCM with access to the Company's officers, directors and controlling
shareholders. MCM will have access to the Company's legal and accounting
professionals and, with prior approval from the Company, may utilize its own
outside legal counsel and accounting professionals at the Company's expense. The
Company represents and warrants to MCM that: (a) all such information is and
will be true and accurate in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and (b) any projected financial
information or other forward-looking information which the Company provides to
MCM (including without limitation any information compiled by MCM therefrom)
will be made by the Company in good faith, based on management's best estimates
then available and based on facts and assumptions which the Company believes to
be reasonable. The Company recognizes the necessity of promptly notifying MCM of
all material developments concerning the Company, its business and prospects and
to supply MCM with all such information as may be necessary for MCM to comply
with its own internal procedures as well as any legal or regulatory
requirements. The Company acknowledges and agrees that MCM will be using and
relying upon all information supplied by the Company and its officers, agents
and others and any other publicly available information concerning the Company
without any independent investigation or verification thereof or independent
appraisal by MCM of the Company or its business or assets.
Section 3. Compensation. The fees payable to MCM for the services provided
hereunder shall consist of a fee (the "Success Fee") determined as follows:
Global Entertainment Corporation
December 14, 2007
Page 3
(a) With respect to any transaction or series of related transactions
involving (i) any merger, consolidation, joint venture or other
business combination pursuant to which the business of the Company is
combined with that of another entity, (ii) the acquisition by any
person or entity, directly or indirectly, of a majority of the capital
stock of the Company, by way of a negotiated purchase or any other
means, (iii) the acquisition by the Company, directly or indirectly,
of a majority of the capital stock of any other business or entity, by
way of a negotiated purchase or any other means, (iv) the acquisition
by any person or entity, directly or indirectly, of a majority of the
assets, properties and/or business of the Company, by way of a direct
or indirect purchase, lease, license, exchange, joint venture or other
means, (v) the acquisition by the Company, directly or indirectly, of
a majority of the assets, properties and/or business of any other
person or entity, by way of a direct or indirect purchase, lease,
license, exchange, joint venture or other means (collectively, an
"Acquisition Transaction"), the Success Fee shall be an amount equal
to:
5% of the Consideration from $1 and up to $3,000,000, plus
4% of the Consideration in excess of $3,000,000 and up to $6,000,000,
plus
3% of the Consideration in excess of $6,000,000 and up to $9,000,000,
plus
2% of the Consideration in excess of $9,000,000 and up to $12,000,000,
plus
1% of the Consideration in excess of $12,000,000.
With respect to any Acquisition Transaction, the term "Consideration"
shall mean the total amount of cash and the fair market value of other
property paid or payable (including amounts paid into escrow) by or to
the seller and/or its shareholders in connection with an Acquisition
Transaction, including amounts paid or payable in respect of
convertible securities, options or similar rights, whether or not
vested, plus, without duplication, the principal amount of all
indebtedness for borrowed money (including capitalized leases)
outstanding immediately prior to consummation of the Acquisition
Transaction or, the case of a purchase of assets, all indebtedness for
borrowed money assumed by the purchaser and, in any case, any
indebtedness for borrowed money and any capital leases and/or
preferred stock obligations retired or defeased by the purchaser or
issued to the seller and/or its shareholders in connection with such
Acquisition Transaction.
(b) With respect to any private placement of equity, equity-linked or
convertible debt securities the Success Fee shall be 10% of the
Consideration. With respect to any private placement of any secured or
unsecured senior or subordinated indebtedness or credit facilities or
similar private arrangement with a lender (excluding bank loans,
credit lines and arena financing in the normal course of business) the
Success Fee shall be an amount equal to 4% of the Consideration. With
respect to any pubic offering of securities the Success Fee shall be a
percentage based on the amount of Consideration, as follows:
If Consideration is then the Success Fee shall be
------------------- -----------------------------
$10,000,000 or less 2.75% of the Consideration
$10,000,001 to $20,000,000 2.25% of the Consideration
$20,000,001 to $30,000,000 1.75% of the Consideration
greater than $30,000,000 1.25% of the Consideration
Global Entertainment Corporation
December 14, 2007
Page 4
All such private placements (excluding bank loans, credit lines and
arena financing in the normal course of business) and public offering
transactions shall collectively be referred to herein as "Financing
Transactions" and the Success Fee shall be calculated with respect to
each separate Financing Transaction.
With respect to any Financing Transaction, the term "Consideration"
shall mean the gross proceeds received by or on behalf of the Company
or its shareholders from the sale of any equity or equity-linked
investment, debt or other instrument of indebtedness (including
refinancings of existing debt), securities, contractual rights and any
and all other things of value and other consideration, and hybrids and
combination thereof.
With respect to any Financing Transaction, MCM shall have the right to
be granted a warrant (the "Warrant") to purchase shares or units
equivalent to 10% of the shares or units issued as part of any equity
or equity-linked securities transaction by the Company wherein MCM
provided services under this Agreement. The Warrant price shall be
$0.01 per share or unit and the exercise price shall be equal to 110%
of the per share or unit value of the equity or equity-linked
securities issued. Such Warrant will include (without limitation)
priority piggyback registration rights for MCM on any future
registration statement filings by the Company, and will expire five
(5) years from the date of the effective date of such equity or
equity-linked offering.
(c) With respect to any transaction, other than an Acquisition Transaction
or a Financing Transaction, that the Company completes with the
assistance of MCM, the Company and MCM will negotiate in good faith
appropriate compensation for MCM, which will take into account, among
other things, the results obtained and the custom and practice among
investment bankers acting in similar transactions.
(d) MCM will be entitled to receive the compensation provided for in 3
(a), (b) and (c) above if a Transaction is consummated or an agreement
is entered into during the term of this Agreement which subsequently
results in a consummated Transaction during the term of this Agreement
or at any time within twenty-four (24) months after expiration or
termination of this Agreement for any reason.
(e) If the Consideration of a Transaction is subject to increase by
contingent payments related to future events, the portion of the
Success Fee related thereto shall be payable as and when such payments
are made.
(f) For purposes of determining the fair market value of any non-cash
Consideration, such determination shall be made on the business day
preceding the closing of the Transaction, except that if any part of
the Consideration in an Acquisition Transaction consists of marketable
securities, for purposes of determining the amount of Consideration
the value of those securities shall be determined by using the average
of the last sale prices for those securities on the thirty (30)
trading days ending the last business day preceding the closing of
such Acquisition Transaction.
(g) The Company shall cause the definitive transaction documents to which
it is a party in any Transaction covered hereby to contain a condition
precedent to the closing of such Transaction that the fees and
expenses payable to MCM hereunder shall be paid at the closing of any
such Transaction in the manner specified in Section 5 herein.
Global Entertainment Corporation
December 14, 2007
Page 5
Section 4. Expenses. In addition to fees for professional services, the
Company agrees to reimburse MCM for, and MCM will separately bill, all
reasonable expenses as incurred, including travel costs, document production,
mailings and other similar expenses, and reasonable fees and expenses of counsel
and other professional advisors; provided, that all out-of-town travel, fees and
expenses of counsel, third-party consultant fees and other significant expenses
exceeding $1,000 will be subject to the prior approval of the Company, which
approval shall not be unreasonably withheld. Reimbursable travel expenses
hereunder shall include first-class air travel for the Chairman and CEO and
coach air travel for other MCM representatives. All amounts billed by MCM under
this Section 4 shall be paid within 15-days following the date invoiced by MCM.
Section 5. Payments. All amounts payable under this Agreement are
nonrefundable, shall be paid when due and shall be paid in immediately available
funds in U.S. dollars, without setoff and without deduction for any withholding,
value-added or other similar taxes, charges or fees.
Section 6. Term. This Agreement will be effective on February 14, 2008 (the
"Effective Date") and will expire on the date twenty four (24) months after the
Effective Date; and provided, that the expiration of this Agreement shall not
relieve the Company of any obligation to MCM for amounts earned or accrued
hereunder through the expiration date.
Section 7. Right of First Refusal. If at any time within twenty four (24)
months following the successful closing of a Financing Transaction, as
contemplated under this Agreement, the Company desires to commence any Financing
Transaction, MCM shall have the right of first refusal to act as the Company's
investment banker and, in such capacity, to arrange for placement agents or
underwriters, as the case may be, with respect to any such Financing
Transaction. If the Company decides to pursue any such Financing Transaction
within such timeframe, and MCM exercises its right of first refusal provided
hereunder, the Company and MCM will enter into an agreement appropriate to the
circumstances.
Section 8. Qualified Prospects. If at any time within twenty four (24)
months following the expiration of this Agreement the Company closes an
Acquisition Transaction, directly or indirectly, with any person or entity that
was contacted by MCM in connection with pursuing a Transaction under this
Agreement (such person or entity hereinafter referred to as a "Qualified
Prospect") then the Company shall be obligated to pay MCM a fee at the close of
such transaction equal in amount to the Success Fee formula that would have been
otherwise applied to the Consideration of an Acquisition Transaction closed
under this Agreement. Within fifteen (15) days following the expiration of this
Agreement, MCM shall provide the Company a complete list of all Qualified
Prospects.
Section 9. Assignment and Transfer of Obligations. In the event that the
Company transfers or otherwise conveys all or substantially all of its assets
(including without limitation the assets of its subsidiaries) or grants the
authority to operate all or any portion of its business or affiliated businesses
to any person or entity (a "Successor Party"), all of the Company's obligations
under this Agreement will be binding upon such Successor Party and the Company
will not enter into or create an agreement, undertaking or legal obligation with
a Successor Party without first requiring such Successor Party to accept and
satisfy in full all of the Company's obligations under this Agreement.
Notwithstanding anything to the contrary contained in this Section 9, this
Section 9 shall not be applicable and will be of no force or effect if
compliance with this Section 9 would result in the violation of any law or
statute, the breach of any pre-existing agreement to which the Company or its
affiliates is a party, or the inability of the Company to operate in accordance
with its usual and customary practices.
Global Entertainment Corporation
December 14, 2007
Page 6
Section 10. Indemnification. Because MCM will be acting for the benefit of
the Company in connection with this engagement, the Company agrees to indemnify
MCM and certain other persons, as set forth in the indemnification provisions
attached hereto as Exhibit A, the provisions of which are incorporated herein in
their entirety.
Section 11. Advertisements. Upon completion of a Transaction, MCM may in
its discretion place advertisements in such and other publications and media
describing its services to the Company hereunder. The Company further agrees
that any press release it may issue announcing a Transaction will contain a
reference to MCM's role as investment banker to the Company in connection with
such Transaction, and that MCM shall have the right to review and pre-approve
any reference to it or its role as investment banker under this Agreement in any
public statement made by the Company (such approval not to be unreasonably
withheld).
Section 12. Company Covenant re MCM Employees. The Company recognizes that
client service officers and other employees of MCM and affiliates of MCM are
necessary for the continued servicing by MCC of its several clients.
Accordingly, the Company will not, during the term of this Agreement, and for a
period of two years after its termination, employ any client service officer,
account executive or other employee of MCM and affiliates of MCM in any
capacity.
Section 13. Notices. All notices and other written communications required
to be given under this Agreement shall be in writing and shall be deemed to have
been duly given if delivered to the addressee in person or mailed by registered
or certified mail, return receipt requested, to the following addresses:
If to MCM Miller Capital Markets, LLC
4909 East McDowell Road
Phoenix, Arizona 85008-4293
Attention: J. Andrew Moorer
President
If to the Company: Global Entertainment Corporation
4909 East McDowell Road, Suite 104
Phoenix, Arizona 85008-4293
Attention: Rick Kozuback
President and Chief Executive Officer
Either party may change the address at which notice is to be given by notifying
the other party in writing. Notices shall be deemed delivered upon delivery, if
personally delivered, or, if mailed, three (3) days after deposit in the United
States mail.
Section 14. Applicable Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Arizona, without giving
effect to the State of Arizona's choice of law principles, and all actions
arising under this Agreement or arising out of the operative facts represented
by services performed pursuant to this Agreement shall be resolved in the courts
of the State of Arizona.
Section 15. Assignment. The benefits of this Agreement (including without
limitation the indemnification provisions hereof) shall inure to the respective
successors and permitted assigns of the parties hereto and of the indemnified
parties under such indemnification agreement and their respective successors,
permitted assigns and representatives, and the obligations and liabilities
Global Entertainment Corporation
December 14, 2007
Page 7
assumed in this Agreement by the parties hereto shall be binding upon their
respective successors and assigns. This Agreement and the related
indemnification agreement may not be assigned without the prior written consent
of the non-assigning party.
Section 16. Other Agreements. The Company further represents and warrants
to MCM that (i) the Company has taken no action that would give any brokers,
representatives, finders or other persons an interest in the compensation due to
MCM in connection with any transaction contemplated hereby, (ii) there are no
other investment bankers, financial advisors or similar persons other than MCM
and its affiliates entitled to receive compensation from the Company in
connection with any transaction contemplated hereby and (iii) this Agreement
does not violate or constitute a breach or default under any contract,
agreement, arrangement or understanding, whether written or oral, to which the
Company or any of its subsidiaries is a party or by which its or their assets
are bound.
Section 17. Entire Agreement. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof and that no understandings or agreements, verbal or otherwise,
exist between the parties except as set forth in this Agreement.
Section 18. Amendment. This Agreement may not be amended or modified except
in a writing duly executed by both MCM and the Company.
Section 19. Severability. In the event any term or provision of this
Agreement is declared to be invalid or illegal for any reason, this Agreement
shall remain in full force and effect and the same shall be interpreted as
though such invalid and illegal provision were not a part hereof. The remaining
provisions shall be construed to preserve the intent and purpose of this
Agreement and the parties shall negotiate in good faith to modify the provisions
held to be invalid or illegal to preserve each party's anticipated benefits
thereunder.
Section 20. Titles and Subtitles. The titles of sections, paragraphs and
clauses of this Agreement are for convenience of reference only and are not to
be considered in construing this Agreement.
Section 21. Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party shall impair any such right, power
or remedy of such party, nor shall it be construed to be a waiver of any breach
or default under this Agreement, or an acquiescence therein, or in any similar
breach or default thereafter occurring; nor shall any delay or omission to
exercise any right, power or remedy or any waiver of any single breach or
default be deemed a waiver of any other right, power or remedy or breach or
default theretofore or thereafter occurring.
Section 22. Purpose of Agreement. The purpose of this Agreement is to set
forth the services that MCM will provide to the Company, as an independent
contractor, either as specifically provided herein or as subsequently requested
by the Company and agreed to in writing by MCM. The parties hereto do not intend
to create any special, fiduciary or agency relationship between them. In
addition, the exclusivity of the relationship between MCM and the Company refers
to the fact that the services to be provided by MCM hereunder are to be provided
solely by MCM and that the fees to be paid by the Company hereunder are solely
for the benefit of MCM. There may be other services which are required to be
provided to the Company in connection with any transaction contemplated by this
Agreement and which will be provided by other parties (e.g., legal council,
independent auditors or appraisers), which other parties would be engaged and
compensated by the Company. Furthermore, the parties hereto understand that MCM
is not required to purchase any securities, and that MCM's engagement hereunder
does not ensure the successful negotiation or consummation of any Transaction.
This Agreement is solely for the benefit of MCM and the Company and is not
Global Entertainment Corporation
December 14, 2007
Page 8
intended to create rights or obligations of either party for the benefit of
third parties, including without limitation the creditors of the Company.
Section 23. Confidentiality. Information provided by the Company to MCM in
connection with this Agreement that is identified by the Company as confidential
will be kept confidential and will only be used by MCM for purposes of its
engagement hereunder, except for information that (i) was in MCM's possession
prior to its disclosure by the Company, (ii) is publicly disclosed other than by
MCM in violation of this Agreement, (iii) is obtained by MCM from a person other
than the Company who, to the knowledge of MCM, is not under a confidentiality
obligation to the Company, (iv) the Company agrees may be disclosed, or (v) is
required to be disclosed under compulsion of law (whether by interrogatory,
subpoena, civil investigative demand or otherwise), by order or act of any court
or governmental or regulatory authority or body or by MCM's independent auditors
or accountants. MCM may also disclose such information to those of its own and
its affiliates' respective officers, directors, employees, auditors and
professional advisors who need to know such information for purposes of
performing the services described in this Agreement.
If the terms of MCM's engagement as set forth in this agreement are
satisfactory, please sign the enclosed copy of this letter and return it to the
undersigned, whereupon this letter agreement shall constitute a binding
agreement as of the date first above written. We look forward to working with
the Company on this assignment.
SIGNATURE PAGE FOLLOWS
Global Entertainment Corporation
December 14, 2007
Page 8
Very truly yours,
MILLER CAPITAL MARKETS, LLC
By: /s/ J. Andrew Moorer
-----------------------------------------
Name: J. Andrew Moorer
Title: President
Accepted and Agreed as of the date first written above:
GLOBAL ENTERTAINMENT CORPORATION
By: /s/ Rick Kozuback
-----------------------------------------
Name: Rick Kozuback
Title: President and Chief Executive Officer
Global Entertainment Corporation
December 14, 2007
Page 10
EXHIBIT A
In connection with the engagement, the Company agrees to indemnify and hold
harmless MCM and its affiliates, their respective directors, officers,
controlling persons (within the meaning of Section 15 of the Securities Act of
1933 or Section 20(a) of the Securities Exchange Act of 1934), if any, agents
and employees of MCM or any of MCM's affiliates (collectively, "Indemnified
Persons" and individually, an "Indemnified Person") from and against any and all
actions, claims, suits, proceedings, liabilities, losses, damages and expenses
incurred, joint or several (collectively, "Claims"), by any Indemnified Person
which are related to or arise from MCM's engagement by the Company, including
Claims that relate to or arise from any actions taken or omitted to be taken
(including any untrue or alleged untrue statements made or any statements
omitted or alleged to be omitted) by the Company or which relate to or arise
from securities laws or any other law or legal theory, and will reimburse MCM
and any other Indemnified Person for all costs and expenses, as they are
incurred, in connection with investigating, preparing for, providing depositions
for, testifying in or defending any such action or claim, formal or informal,
investigation, inquiry or other proceeding, whether or not in connection with
pending or threatened litigation, whether or not MCM or any Indemnified Person
is named as a party thereto and whether or not any liability results therefrom
related to or arising from the foregoing (collectively, "Costs"). The Company
will not, however, be responsible for (a) any amount paid in settlement of
Claims without the Company's consent unless such consent is unreasonably
withheld, or (b) any Claims which are found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) to have resulted directly
and primarily from an Indemnified Person's gross negligence or willful
misconduct.
Promptly after MCM receives notice of the commencement of any action or
other proceeding in respect of which indemnification or reimbursement may be
sought hereunder, MCM will notify the Company thereof; but the omission so to
notify the Company shall not relieve the Company from any obligation hereunder
unless, and only to the extent that, such omission results in the Company's
forfeiture of substantive rights or defenses. If any such action or other
proceeding shall be brought against any Indemnified Person, the Company shall,
upon written notice given reasonably promptly following MCM's notice to the
Company of such action or proceeding, be entitled to assume the defense thereof
at the Company's expense with counsel chosen by the Company and reasonably
satisfactory to such Indemnified Person; provided, however, that any Indemnified
Person may at its own expense retain separate counsel to participate in such
defense. Notwithstanding the foregoing, such Indemnified Person shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel
retained by the Company, (i) there are or may be legal defenses available to
such Indemnified Person or to other Indemnified Persons that are different from
or additional to those available to the Company, or (ii) a difference of
position or potential difference of position exists between the Company and such
Indemnified Person; which in either case would make it ethically impermissible
for such counsel to represent all potential defendants; provided, however, that
in no event shall the Company be required to pay fees and expenses under this
indemnity for more than one firm of attorneys (in addition to local counsel) in
any jurisdiction in any one legal action or group of related legal actions,
regardless of the number of Indemnified Persons involved or potentially involved
in such action or group of related actions.
The Company agrees that neither MCM nor any other Indemnified Person shall
have any liability to the Company for or in connection with such engagement
except liability for Claims which are found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) to have resulted directly
and primarily from an Indemnified Person's gross negligence or willful
misconduct. The Company also agrees that the Company will not, without the prior
written consent of MCM, settle or compromise or consent to the entry of any
judgment in any pending or threatened Claim in respect of which indemnification
may be sought hereunder (whether or not MCM or any Indemnified Person is an
actual or potential party to such Claim). No such settlement, compromise or
consent shall impose any material obligation on MCM or any other Indemnified
Person or contain any admission of culpability on the part of MCM or any
Indemnified Person. Such settlement, compromise or consent shall include an
unconditional release of MCM and each other Indemnified Person from all
liability arising out of such Claim, and the Company shall furnish MCM with a
copy of such settlement reasonably in advance of entering into such settlement.
In order to provide for just and equitable contribution, if a demand for
indemnification or reimbursement for Claims or Costs is made pursuant to these
provisions but is not available for any reason, then the Company, on the one
hand, and MCM, on the other hand, shall contribute to such Claims or Costs for
Global Entertainment Corporation
December 14, 2007
Page 11
which such indemnification or reimbursement is held unavailable in such
proportion as is appropriate to reflect the relative benefits to the Company, on
the one hand, and MCM on the other hand, in connection with the transaction or
transactions from which the Claims or Costs in question arose. The relative
benefits received by the Company, on the one hand, and by MCM, on the other
hand, shall be deemed to be in the same proportion as the value (before
deducting expenses) of the consideration paid by or received by the Company or
its stockholders or comparable equity owners, as the case may be, in connection
with the transaction or transactions from which the Claims or Costs in question
arose bears to the total fees actually received by MCM in connection therewith.
If the allocation provided by the foregoing sentence is not permitted by
applicable law, then such allocation shall be based not only on such relative
benefits determined as aforesaid but also on the relative fault of the Company,
on the one hand, and MCM, on the other, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, the parties' relative intents, knowledge,
access to information and, if applicable, whether any untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by MCM, and any
other equitable considerations appropriate in the circumstances. Any such
contribution shall be subject to the limitation that in any event MCM's
aggregate contribution to all Claims or Costs for which contribution is
available hereunder shall not exceed the amount of fees actually received by MCM
pursuant to the particular engagement relating to the transaction or
transactions from which the Claims or Costs in question arose.
The foregoing rights to indemnity, reimbursement and contribution shall be
in addition to any rights that MCM and/or any other Indemnified Person may have
at common law or otherwise. The Company hereby consents to personal
jurisdiction, service of process and venue in any court in which any Claim which
is subject hereto is brought against MCM or any other Indemnified Person.
In connection with MCM's engagement of even date herewith, MCM may also be
engaged to act for the Company in one or more additional capacities. The terms
of any such engagement may be embodied in one or more separate written
agreements. These indemnification provisions shall apply to the engagement of
even date herewith, all such other engagements (whether written or oral) and any
modification thereof and shall remain in full force and effect following the
completion or termination of any such engagement
Exhibit 10.11
[LOGO OF THE MILLER GROUP]
CONSULTING AGREEMENT
This Agreement is effective on February 14, 2008 (the "Effective Date") between
Global Entertainment Corporation (collectively with its subsidiaries and
affiliates, the "Company") and Miller Capital Corporation ("MCC"), pursuant to
which MCC will furnish to the Company certain services as set forth herein.
1. MCC SERVICES.
MCC will perform the following services for the Company pursuant to this
Agreement:
A. Financial consultation with respect to the Company's funding
requirements and projected associated costs; and
B. Advice and consultation with respect to financial structure and
markets, including (without limitation) advising the Company
regarding, and assisting with the arrangement and structure of private
and public placements of equity and debt financings; and
C. Advice and consultation with respect to potential merger, acquisition,
joint venture, divestiture and other transactions; and
D. Investor relations services; and
E. Preparation of various reports including such reports as; due
diligence review, business operations and financial plan, business
strategy and analysis, financial markets review, business valuation
analysis, fairness opinion, board and executive compensation plan and
analysis and other reports undertaken during the term of this
Agreement that are mutually agreed to with respect to content and
scope (each such report referred to hereinafter as a "Report
Assignment").
It is expressly acknowledged and agreed by the parties hereto that MCC is not
registered with the Securities and Exchange Commission (SEC) as a broker/dealer
or a member of the Financial Industry Regulatory Authority (FINRA). Miller
Capital Markets, LLC, an affiliate of MCC, is a registered broker/dealer and it
is expressly contemplated that any and all services of the type required under
applicable laws and regulations to be provided by a registered broker/dealer
would be provided to the Company by Miller Capital Markets, LLC pursuant to a
separate engagement agreement negotiated and entered into by such parties.
It is expressly acknowledged and agreed by the parties hereto that MCC and
employees and affiliates of MCC are independent contractors and are not
employees or officers of the Company.
2. CERTAIN RESPONSIBILITIES, REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
In connection with MCC's engagement, the Company will furnish MCC with all
information concerning the Company that MCC reasonably requests and will provide
MCC with access to the Company's officers, directors and controlling
Mr. Richard Kozuback
Global Entertainment Corporation
December 14, 2007
Page 2
shareholders. MCC will have access to the Company's legal and accounting
professionals and, with prior approval from the Company, may utilize its own
outside legal counsel and accounting professionals at the Company's expense. The
Company represents and warrants to MCC that: (a) all such information is and
will be true and accurate in all material respects and does not and will not
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading; and (b) any projected financial
information or other forward-looking information which the Company provides to
MCC (including without limitation any information compiled by MCC therefrom)
will be made by the Company in good faith, based on management's best estimates
then available and based on facts and assumptions which the Company believes to
be reasonable. The Company recognizes the necessity of promptly notifying MCC of
all material developments concerning the Company, its business and prospects and
to supply MCC with all such information as may be necessary for MCC to comply
with its own internal procedures as well as any legal or regulatory
requirements. The Company acknowledges and agrees that MCC will be using and
relying upon all information supplied by the Company and its officers, agents
and others and any other publicly available information concerning the Company
without any independent investigation or verification thereof or independent
appraisal by MCC of the Company or its business or assets.
3. CONFIDENTIALITY.
Information provided by the Company to MCC in connection with this Agreement
that is identified by the Company as confidential will be kept confidential and
will only be used by MCC for purposes of its engagement hereunder, except for
information that (i) was in MCC's possession prior to its disclosure by the
Company, (ii) is publicly disclosed other than by MCC in violation of this
Agreement, (iii) is obtained by MCC from a person other than the Company who, to
the knowledge of MCC, is not under a confidentiality obligation to the Company,
(iv) the Company agrees may be disclosed, or (v) is required to be disclosed
under compulsion of law (whether by interrogatory, subpoena, civil investigative
demand or otherwise), by order or act of any court or governmental or regulatory
authority or body or by MCC's independent auditors or accountants. MCC may also
disclose such information to those of its own and its affiliates' respective
officers, directors, employees, auditors and professional advisors who need to
know such information for purposes of performing the services described in this
Agreement.
4. COMPENSATION AND FEES.
For services rendered under this Agreement, MCC shall receive the following
compensation and fees:
A. As compensation for the services set forth in section 1.A. through 1.D
above, the Company shall pay MCC a monthly service fee of $15,000 each
month throughout the term of this Agreement, the first monthly payment
of which is due on the 20th of March, 2008 and continuing on the same
day each month thereafter.
B. The Company will pay MCC a fee with respect to substantive updates of
any previously issued Report, as well as other Report Assignments
undertaken thereafter pursuant to Section 1.E. of this Agreement. The
Company and MCC will negotiate in good faith appropriate compensation
for MCC, which will take into account, among other things, the custom
and practice among consultants and advisors providing similar
services. Payment for each Report Assignment shall be due and payable
on the date such report is presented to the Company.
C. With respect to any other payments for services provided to the
Company by MCC not otherwise covered under A and B above, the Company
and MCC will negotiate in good faith appropriate compensation for MCC,
which will take into account, among other things, the custom and
practice among consultants and advisors providing similar services.
D. Out-of-pocket expenses incurred by MCC in connection with the services
performed hereunder will be payable by the Company upon submission by
MCC of monthly invoices delineating such expense, provided that any
Mr. Richard Kozuback
Global Entertainment Corporation
December 14, 2007
Page 3
expense over $1,000 must be approved by the Company in advance.
Reimbursable travel expenses hereunder shall include first-class air
travel for the Chairman, CEO and President of MCC and coach air travel
for all other MCC travel. All amounts billed shall be paid within
fifteen (15) days following the date invoiced by MCC.
E. All amounts payable under this Agreement are nonrefundable, shall be
paid when due and shall be paid in immediately available funds in U.S.
dollars, without setoff and without deduction for any withholding,
value-added or other similar taxes, charges or fees.
5. RESTRICTED STOCK.
Effective on February 14, 2008, MCC will receive a restricted stock grant
consisting of 6,000 shares of the Company's common stock, which will be fully
vest on the first anniversary of the date of grant and shall contain such other
terms and conditions (including, without limitation, registration rights and
accelerated vesting provisions) as shall generally be applicable to restricted
stock grants made to members of the Company's Board of Directors pursuant to the
Company's equity compensation plans.
6. COMPANY COVENANT RE MCC EMPLOYEES.
The Company recognizes that client service officers and other employees of MCC
are necessary for the continued servicing by MCC of its several clients.
Accordingly, the Company will not, during the term of this Agreement, and for a
period twenty-four (24) month period after its termination, employ any client
service officer, account executive or other employee of MCC in any capacity.
7. ASSIGNMENT.
The benefits of this Agreement shall inure to the respective successors and
permitted assigns of the parties hereto and of the indemnified parties under
such indemnification agreement and their respective successors, permitted
assigns and representatives, and the obligations and liabilities assumed in this
Agreement by the parties hereto shall be binding upon their respective
successors and assigns. This Agreement may not be assigned without the prior
written consent of the non-assigning party.
8. INTEGRATION.
This writing constitutes the full and complete agreement of the parties with
respect to the subject matter hereof and supersedes all prior agreements with
respect thereto. This Agreement may not be modified by any method other than
another writing signed by the parties.
9. HEADINGS.
The paragraph headings have been inserted for convenience and shall not be
construed in a manner contrary to the text of this Agreement.
10. ATTORNEY FEES.
In the event of any action or proceeding to enforce the provisions of this
Agreement, the prevailing party shall be entitled to its reasonable attorney
fees, such fees to be set by a judge and not by a jury and to be included in any
judgment entered in such action or proceeding.
Global Entertainment Corporation
December 14, 2007
Page 4
11. INDEMNIFICATION.
Because MCC will be acting for the benefit of the Company in connection with
this engagement, the Company agrees to indemnify MCC and certain other persons,
as set forth in the indemnification provisions attached hereto as Exhibit A, the
provisions of which are incorporated herein in its entirety. The provisions of
this section shall survive any termination of the engagement that is the subject
of this letter.
12. PUBLICITY.
The Company approves the use by MCC of the Company's name and/or logo in
publicity that includes tombstones and advertising related materials used
exclusively by MCC. MCC agrees to obtain prior approval, which approval will not
be unreasonably withheld, for the use of the Company's name or logo in any other
circumstance.
13. EFFECTIVE DATE AND TERM.
This Agreement shall be effective on the Effective Date and shall continue in
effect for a period of twenty-four (24) months thereafter; and provided, that
the expiration of this Agreement shall not relieve the Company of any obligation
to MCC for amounts earned or accrued hereunder through the expiration date.
14. EXCLUSIVITY.
MCC will be the Company's exclusive financial advisor, and the Company covenants
and agrees that it will not engage any other person or entity (other than
affiliates of MCC) to provide services similar to those to be provided by MCC
hereunder without the prior written consent of MCC. Without limiting the
preceding sentence, in no event shall any obligation directly or indirectly
incurred by or on behalf of the Company or any other person or entity for fees
or expenses payable to any other party (including, without limitation, any other
advisor or consultant) reduce, impair or otherwise affect the fees payable to
MCC hereunder.
15. NOTICE.
All notices and other written communications required to be given under this
Agreement shall be in writing and shall be deemed to have been duly given if
delivered to the addressee in person or mailed by registered or certified mail,
return receipt requested, to the following addresses:
If to MCM Rudy R. Miller
Chairman, President and CEO
Miller Capital Corporation
4909 East McDowell Road
Phoenix, Arizona 85008-4293
If to the Company: Rick Kozuback
President and CEO
Global Entertainment Corporation
4909 East McDowell Road
Suite 104
Phoenix, Arizona 85008-4293
Either party may change the address at which notice is to be given by notifying
the other party in writing. Notices shall be deemed delivered upon delivery, if
personally delivered, or, if mailed, three (3) days after deposit in the United
States mail.
Global Entertainment Corporation
December 14, 2007
Page 5
16. APPLICABLE LAW.
The validity and interpretation of this Agreement shall be governed by the laws
of the State of Arizona, without giving effect to the State of Arizona's choice
of law principles, and all actions arising under this Agreement or arising out
of the operative facts represented by services performed pursuant to this
Agreement shall be resolved in the courts of the State of Arizona.
AGREED AND ACCEPTED:
Please confirm that the foregoing correctly sets forth our mutual
understanding by signing and returning the copy of this Agreement provided for
that purpose.
Global Entertainment Corporation Miller Capital Corporation
Rick Kozuback Rudy R. Miller
By: /s/ Rick Kozuback By: /s/ Rudy R. Miller
---------------------------------- --------------------------------
Title: President and CEO Title: Chairman, President and CEO
------------------------------- ------------------------------
Date: December 14, 2007 Date: December 14, 2007
------------------------------- -------------------------------
EXHIBIT A
In connection with the engagement, the Company agrees to indemnify and hold
harmless MCC and its affiliates, their respective directors, officers,
controlling persons , if any, agents and employees of MCC or any of MCC's
affiliates (collectively, "Indemnified Persons" and individually, an
"Indemnified Person") from and against any and all actions, claims, suits,
proceedings, liabilities, losses, damages and expenses incurred, joint or
several (collectively, "Claims"), by any Indemnified Person which are related to
or arise from MCC's engagement by the Company, including Claims that relate to
or arise from any actions taken or omitted to be taken (including any untrue or
alleged untrue statements made or any statements omitted or alleged to be
omitted) by the Company or which relate to or arise from securities laws or any
other law or legal theory, and will reimburse MCC and any other Indemnified
Person for all costs and expenses, as they are incurred, in connection with
investigating, preparing for, providing depositions for, testifying in or
defending any such action or claim, formal or informal, investigation, inquiry
or other proceeding, whether or not in connection with pending or threatened
litigation, whether or not MCC or any Indemnified Person is named as a party
thereto and whether or not any liability results therefrom related to or arising
from the foregoing (collectively, "Costs"). The Company will not, however, be
responsible for (a) any amount paid in settlement of Claims without the
Company's consent unless such consent is unreasonably withheld, or (b) any
Claims which are found in a final judgment by a court of competent jurisdiction
(not subject to further appeal) to have resulted directly and primarily from an
Indemnified Person's gross negligence or willful misconduct.
Promptly after MCC receives notice of the commencement of any action or
other proceeding in respect of which indemnification or reimbursement may be
sought hereunder, MCC will notify the Company thereof; but the omission so to
notify the Company shall not relieve the Company from any obligation hereunder
unless, and only to the extent that, such omission results in the Company's
forfeiture of substantive rights or defenses. If any such action or other
proceeding shall be brought against any Indemnified Person, the Company shall,
upon written notice given reasonably promptly following MCC's notice to the
Company of such action or proceeding, be entitled to assume the defense thereof
at the Company's expense with counsel chosen by the Company and reasonably
satisfactory to such Indemnified Person; provided, however, that any Indemnified
Person may at its own expense retain separate counsel to participate in such
defense. Notwithstanding the foregoing, such Indemnified Person shall have the
right to employ separate counsel at the Company's expense and to control its own
defense of such action or proceeding if, in the reasonable opinion of counsel
retained by the Company, (i) there are or may be legal defenses available to
such Indemnified Person or to other Indemnified Persons that are different from
or additional to those available to the Company, or (ii) a difference of
position or potential difference of position exists between the Company and such
Indemnified Person; which in either case would make it ethically impermissible
for such counsel to represent all potential defendants; provided, however, that
in no event shall the Company be required to pay fees and expenses under this
indemnity for more than one firm of attorneys (in addition to local counsel) in
any jurisdiction in any one legal action or group of related legal actions,
regardless of the number of Indemnified Persons involved or potentially involved
in such action or group of related actions.
The Company agrees that neither MCC nor any other Indemnified Person shall
have any liability to the Company for or in connection with such engagement
except liability for Claims which are found in a final judgment by a court of
competent jurisdiction (not subject to further appeal) to have resulted directly
and primarily from an Indemnified Person's gross negligence or willful
misconduct. The Company also agrees that the Company will not, without the prior
written consent of MCC, settle or compromise or consent to the entry of any
judgment in any pending or threatened Claim in respect of which indemnification
may be sought hereunder (whether or not MCC or any Indemnified Person is an
actual or potential party to such Claim). No such settlement, compromise or
consent shall impose any material obligation on MCC or any other Indemnified
Person or contain any admission of culpability on the part of MCC or any
Indemnified Person. Such settlement, compromise or consent shall include an
unconditional release of MCC and each other Indemnified Person from all
liability arising out of such Claim, and the Company shall furnish MCC with a
copy of such settlement reasonably in advance of entering into such settlement.
In order to provide for just and equitable contribution, if a demand for
indemnification or reimbursement for Claims or Costs is made pursuant to these
provisions but is not available for any reason, then the Company, on the one
hand, and MCC, on the other hand, shall contribute to such Claims or Costs for
which such indemnification or reimbursement is held unavailable in such
proportion as is appropriate to reflect the relative benefits to the Company, on
the one hand, and MCC on the other hand, in connection with the transaction or
transactions from which the Claims or Costs in question arose. The relative
benefits received by the Company, on the one hand, and by MCC, on the other
hand, shall be deemed to be in the same proportion as the value (before
deducting expenses) of the consideration paid by or received by the Company or
its stockholders or comparable equity owners, as the case may be, in connection
with the transaction or transactions from which the Claims or Costs in question
arose bears to the total fees actually received by MCC in connection therewith.
If the allocation provided by the foregoing sentence is not permitted by
applicable law, then such allocation shall be based not only on such relative
benefits determined as aforesaid but also on the relative fault of the Company,
on the one hand, and MCC, on the other, as well as any other relevant equitable
considerations. The relative fault of the parties shall be determined by
reference to, among other things, the parties' relative intents, knowledge,
access to information and, if applicable, whether any untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or by MCC, and any
other equitable considerations appropriate in the circumstances. Any such
contribution shall be subject to the limitation that in any event MCC's
aggregate contribution to all Claims or Costs for which contribution is
available hereunder shall not exceed the amount of fees actually received by MCC
pursuant to the particular engagement relating to the transaction or
transactions from which the Claims or Costs in question arose.
The foregoing rights to indemnity, reimbursement and contribution shall be
in addition to any rights that MCC and/or any other Indemnified Person may have
at common law or otherwise. The Company hereby consents to personal
jurisdiction, service of process and venue in any court in which any Claim which
is subject hereto is brought against MCC or any other Indemnified Person.
In connection with MCC's engagement of even date herewith, MCC may also be
engaged to act for the Company in one or more additional capacities. The terms
of any such engagement may be embodied in one or more separate written
agreements. These indemnification provisions shall apply to the engagement of
even date herewith, all such other engagements (whether written or oral) and any
modification thereof and shall remain in full force and effect following the
completion or termination of any such engagement.
Exhibit 10.12
WESTERN PROFESSIONAL HOCKEY LEAGUE, INC.
LICENSE AGREEMENT
-------------------------------
(Owner)
-------------------------------
(Home City)
WPHLI LICENSE AGREEMENT
TABLE OF CONTENTS
1. DEFINITIONS.............................................................. 1
1.1. System............................................................ 1
1.2. Governing Documents............................................... 1
1.3. Marks............................................................. 1
2. GRANT, PROTECTED TERRITORY, TERM......................................... 1
2.1. Grant............................................................. 1
2.2. Protected Territory............................................... 1
2.3. Term.............................................................. 2
3. WPHLI's OBLIGATIONS...................................................... 2
3.1. Pre-Operational Obligations....................................... 2
3.1.1. System License............................................. 2
3.1.2. Governing Documents........................................ 2
3.1.3. Arena Contract Assistance.................................. 2
3.1.4. System Products............................................ 3
3.1.5. Training Manual............................................ 3
3.1.6. Recruitment................................................ 3
3.1.7. Initial Training........................................... 3
3.1.8. Uniforms................................................... 4
3.1.9. On-Site Pre-Opening Assistance............................. 4
3.2. Post-Operational Obligations...................................... 4
3.2.1. System Benefits........................................... 4
3.2.2. Scheduling League Games................................... 4
3.2.3. Officiate Games........................................... 4
i
3.2.4. On-Site Opening Assistance................................ 4
3.2.5. On-Going Consultation..................................... 5
3.2.6. Additional Training and Updates........................... 5
3.2.7. Standards................................................. 5
3.2.8. Board of Governors........................................ 5
3.2.9. Additional Assistance..................................... 5
3.2.10. Marketing Assistance...................................... 6
3.2.11. Advertising Associations.................................. 6
3.2.12. Rule Enforcement.......................................... 6
3.2.13. Salary Cap................................................ 6
4. HOME ARENA............................................................... 7
4.1. Home Arena Contract............................................... 7
4.1.1. [ ] OPTION 1: Pre-Agreed Lease............................. 7
4.1.2. [ ] OPTION 2: Obtain Own Lease............................. 7
4.2. Home Arena Operation.............................................. 8
4.3. Change of Home Arena.............................................. 8
5. OWNER'S OBLIGATIONS...................................................... 9
5.1. Team Operation.................................................... 9
5.2. Personnel......................................................... 9
5.2.1. Personnel Generally........................................ 9
5.2.2. Management Personnel....................................... 9
5.2.3. Players.................................................... 10
5.3. Training.......................................................... 10
5.4. Minimum Ticket Sales.............................................. 11
5.5. Best Efforts...................................................... 11
ii
6. LEAGUE MANAGEMENT........................................................ 12
6.1. Board of Governors................................................ 12
6.2. Membership........................................................ 12
6.3. Powers of the Board of Governors.................................. 12
6.3.1. Schedule................................................... 12
6.3.2. League Rules............................................... 12
6.3.3. Playoffs................................................... 12
6.3.4. Player's Contract.......................................... 12
6.3.5. Advertising Fund........................................... 12
6.3.6. Marketing.................................................. 13
6.3.7. Administration............................................. 13
6.4. Attendance................................................... 13
7. OWNER'S PAYMENTS......................................................... 13
7.1. Initial Fee....................................................... 13
7.2. Assessment Fee.................................................... 13
7.3. Letter of Credit.................................................. 14
7.4. Training and Assistance........................................... 14
7.5. Advertising....................................................... 15
7.5.1. Local Advertising.......................................... 15
7.5.2. Advertising Associations................................... 15
7.5.3. Advertising Fund........................................... 15
7.6. Transfer Fee...................................................... 16
7.7. Revenue........................................................... 16
7.8. Payment Terms..................................................... 17
iii
8. RESTRICTIONS............................................................. 17
8.1. Business.......................................................... 17
8.2. Standards......................................................... 18
8.3. Supplies.......................................................... 19
8.4. Finances and Records.............................................. 19
8.4.1. Finances................................................... 19
8.4.2. Reporting.................................................. 20
8.4.3. Records.................................................... 20
8.4.4. Computer................................................... 21
8.5. Ethical Conduct................................................... 21
8.6. Use of Goodwill................................................... 22
8.6.1. Advertising................................................ 22
8.6.2. Media Rights............................................... 22
8.6.3. Merchandizing.............................................. 23
8.6.4. Marketing.................................................. 23
8.6.5. Enforcement................................................ 24
9. RELATIONSHIP............................................................. 24
9.1. Independent Business.............................................. 24
9.2. Proprietary Information........................................... 25
9.3. Business Restrictions............................................. 26
9.4. Intellectual Property............................................. 27
10. RENEWAL, TRANSFER AND TERMINATION....................................... 27
10.1. Pre-Opening Cancellation......................................... 27
10.2. Renewal.......................................................... 27
10.3. Owner's Company.................................................. 28
iv
10.3.1. Incorporation............................................. 28
10.3.2. Transfer.................................................. 28
10.3.3. Conditions of Transfer.................................... 29
10.3.4. Death or Incapacity....................................... 30
10.3.5. Offerings By Owner........................................ 30
10.3.6. Encumbrances.............................................. 30
10.4. Breach........................................................... 31
10.4.1. Thirty-Day Cure........................................... 31
10.4.2. Ten-Day Cure of Breaches.................................. 31
10.4.3. Exceptional Breaches...................................... 31
10.5. Post-Agreement Duties............................................ 31
10.5.1. Generally................................................. 32
10.5.2. Team Assets............................................... 32
10.5.3. Telephone and Internet.................................... 33
10.5.4. Trademark Discontinuance.................................. 34
10.6. Business Continuation............................................ 34
10.7. Insolvency....................................................... 36
11. OTHER TERMS............................................................. 36
11.1. Insurance........................................................ 36
11.2. Warranties....................................................... 37
11.3. Location Responsibility.......................................... 37
11.4. Claims........................................................... 38
11.4.1. Third Party Claims........................................ 38
11.4.2. Officiating Claims........................................ 39
11.4.3. Owner's Claims............................................ 39
v
11.4.4. Dispute Resolution........................................ 40
11.5. Purchase Orders.................................................. 41
11.6. Inflation Adjustment............................................. 42
11.7. Accord and Satisfaction.......................................... 42
11.8. Representations.................................................. 42
11.9. Substitute Performance........................................... 43
11.10. Authority and Guaranty.......................................... 43
11.11. Changes and Variances........................................... 44
11.12. Consent to Joint Operating Agreement............................ 44
12. INTERPRETATION.......................................................... 45
12.1. Entire Agreement................................................. 45
12.2. Waivers.......................................................... 45
12.3. Materiality...................................................... 46
12.4. Survivability.................................................... 46
12.5. Governing Law.................................................... 46
12.6. Consumer Rights Waiver........................................... 47
12.7. Construction..................................................... 47
12.8. Savings Clause................................................... 48
12.9. Third Parties.................................................... 48
12.10. Other Agreements................................................ 49
12.11. Notices......................................................... 50
12.12. Submission of Agreement......................................... 50
13. ACKNOWLEDGEMENTS........................................................ 50
13.1. Documents Received............................................... 50
13.2. Final Representations............................................ 50
vi
EXHIBITS
OWNER'S SPECIFIC TERMS...................................................... A
STATEMENT OF OWNERSHIP...................................................... B
vii
This Agreement between Western Professional Hockey League, Inc., D/B/A
Central Hockey League, a Texas corporation, ("WPHLI") and the Owner identified
herein is effective when accepted by WPHLI as stated herein.
The parties agree as follows:
1. DEFINITIONS
Capitalized terms in this Agreement have the meaning given in this
Agreement and no other meaning. Some are defined below. Others are defined
elsewhere where they appear within quotation marks.
1.1. SYSTEM. WPHLI's standard concepts, methods, and limitations which are
licensed to WPHLI League owners generally concerning establishment, operation
and expansion of WPHLI's professional ice hockey league (the "League"). The
System includes but is not limited to WPHLI's standard procedures for
organization and management of licensed teams, supervision, training and
management of players, advertising and marketing to promote interest in the
League and ice hockey and use of such of WPHLI's Marks, Products, Proprietary
Information, Governing Documents, and WPHLI's standard methods, sources, and
materials for scheduling, advertising, supplying, operating, marketing, and
selling that WPHLI provides to League owners generally together and such other
benefits and assistance that WPHLI agrees in writing from time to time to
provide Owner; all subject to the terms of this Agreement and the Governing
Documents.
1.2. GOVERNING DOCUMENTS. The System's Constitution, Bylaws, LEX SCRIPTA.
Governing Documents, and other uniform documents developed and revised by WPHLI
from time to time in its sole discretion, delivered singly or as a collection,
setting requirements, standards, rules and procedures for establishing,
equipping, staffing, operating, marketing, supplying, training, advertising,
scheduling, and other matters relating to the System and its affiliated teams.
1.3. MARKS. The System's trademarks, service marks, trade names, domain
names, symbols, trade dress, logos, slogans, indicia, interior and exterior
signs and furnishings, layouts, colors, personalities, publicly displayed
copyrighted works, and any items symbolizing the System's public good will. The
Marks are defined further herein.
2. GRANT, PROTECTED TERRITORY, TERM.
2.1. GRANT. WPHLI grants Owner a limited non-exclusive license to use the
System to establish and operate one WPHLI team (Owner's "Team") named "Team
Name" based at or near Owner's "Home City," having its principal operating
location at the "Home Arena" ice arena in Owner's "Protected Territory," to
represent Owner's Team to the public as an authorized WPHLI team, and to have
Owner's Team play in League games with other League teams as scheduled by WPHLI,
the first game to be upon "Season Opening Day," all as defined in Exhibit A, and
on the terms stated in this Agreement. Owner accepts this Agreement. Owner shall
establish and operate Owner's Team and Home Arena on the terms stated herein.
2.2. PROTECTED TERRITORY. WPHLI will not locate or authorize any other
party to locate a WPHLI System home ice hockey arena within Owner's Protected
Territory as long as Owner is in full compliance with this Agreement. Owner's
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Owner WPHLI
"Protected Territory" is the geographic area designated in Exhibit A. Owner's
Team shall not engage in hockey games within another owner's protected territory
except for scheduled games or with WPHLI's written consent. The Protected
Territory is not an exclusive marketing area. Owner may market and solicit sales
from Owner's Home Arena to anywhere within the USA subject to the terms of this
Agreement. WPHLI, other System owners, arenas, or businesses may market or
solicit sales in the Protected Territory for teams based at arenas located
outside of the Protected Territory; and, customers in the Protected Territory
may choose to purchase from such others. As non-limiting examples, if Owner's
Protected Territory is defined to be a twenty-five mile radius from the Owner's
Home Arena's main entrance, then another League team's arena may be lawfully
located anywhere as long as the other League team's arena's main entrance is not
within a twenty-file mile radius of Owner's Home Arena's main entrance, and
other League teams may lawfully sell or market tickets, goods or services, or
the like, in Owner's Protected Territory as long as the other League teams'
arenas are not located within Owner's Protected Territory.
2.3. TERM. The duration of this Agreement's "Initial Term" is ten years.
This Agreement is effective and its Initial Term commences upon this Agreement
being accepted in writing as required herein by WPHLI. Unless sooner terminated
as herein provided, the Initial Term continues through the first day of June
immediately following the tenth season of League play after this Agreement
becomes effective. Subject to the renewal conditions and terms stated herein,
this Agreement's Renewal Term commences the first day of June immediately
following the tenth season of League play and, unless sooner terminated as
herein provided, continues through the first day of June immediately following
the Renewal Term's tenth season of League play. A season of League play passes
regardless of whether or not Owner's Team participates in League play unless
WPHLI, in WPHLI's discretion, provides a written waiver to Owner specifically
extending the applicable term.
3. WPHLI'S OBLIGATIONS
3.1. PRE-OPERATIONAL OBLIGATIONS. WPHLI will provide the following
assistance to Owner on or before Season Opening Day.
3.1.1. SYSTEM LICENSE. WPHLI grants Owner a limited license to use the
System to establish and operate Owner's Team at Owner's Home Arena and to
represent Owner's Team to the public as an authorized WPHLI team on the terms
stated in this Agreement.
3.1.2. GOVERNING DOCUMENTS. WPHLI will loan Owner the System's
Governing Documents for establishing a standard System team and managing,
marketing and operating a standard System team at a standard System arena and
competing with other League teams. WPHLI will update same as WPHLI deems useful.
Any documents or items to be provided by WPHLI which can be provided
electronically to Owner, at WPHLI's election, may be provided electronically by
WPHLI to Owner. As a non-limiting example, WPHLI's providing Owner with access
to a password-protected League internet site for League owners comprises
delivery to Owner of such documents that are available there.
3.1.3. ARENA CONTRACT ASSISTANCE. Unless Owner has already obtained an
Arena Contract or WPHLI or a WPHLI Affiliated Entity (see 12.9) is involved in
offering same to Owner, WPHLI will make advisory assistance available to Owner
2
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Owner WPHLI
concerning Owner's lease negotiations for Owner's Arena Contract. WPHLI's
advisory assistance in this regard consists of general guidance concerning the
System's standards for arenas and arena lease terms generally and may not be
relied on by Owner for Owner's specific decisions. Owner's negotiation of
Owner's Arena Contract, subject to the parameters and terms stated herein,
including without limitation, Part 4.1, is solely Owner's responsibility.
3.1.4. SYSTEM PRODUCTS. WPHLI will loan Owner a sample list of vendors
and Products approved for use with the System and identify at least one source
capable of providing such Products to Owner. The System's "Products" are the
System's equipment, supplies, goods, uniforms, signs, forms, documents, computer
hardware, software, communications and related items specified in the Governing
Documents, together with such modifications and items WPHLI adds to the System
by amending the Governing Documents. WPHLI will loan Owner a sample list
specifying Products available to System owners generally from WPHLI, if any.
WPHLI will offer Owner such Products as WPHLI offers to other System owners
generally subject to availability, scheduling, agreement on payment, and
provided Owner is not in any default with WPHLI. WPHLI may pool purchases of
certain goods or services by WPHLI owners from one or more designated suppliers
("Supplier Pool")
3.1.5. TRAINING MANUAL. WPHLI will loan Owner one copy of the System's
Training Manual for use during initial training and in ongoing training and
operation of Owner's Team. The Training Manual may be an integral part of the
Governing Documents.
3.1.6. RECRUITMENT. WPHLI will make available advisory assistance to
Owner in recruitment of Players (a professional hockey player employed by a team
participating in League games) and non-player personnel for Owner's Team.
WPHLI's advisory assistance is general guidance concerning the System's
standards for Player and non-player recruitment and may not be relied upon by
Owner for Owner's specific personnel decisions. WPHLI does not hire Owner's
employees for Owner. Owner will acquire Players for Owner's Team in accordance
with WPHLI's Player Recruitment policies as set out in the Governing Documents.
3.1.7. INITIAL TRAINING. WPHLI shall furnish initial training to
Owner's initial Management Personnel employed by Owner for operation of Owner's
Team (up to six persons), namely, a single training session comprised of a two
day initial basic training program in English concerning establishing a standard
System team at a standard System arena in accordance with the Governing
Documents and managing, marketing, and operating a standard System team at a
standard arena in accordance with the Governing Documents. The cost of the
instructional and training materials used in the initial training is included in
the Initial Fee. WPHLI will not provide wages or employee benefits to anyone
during any training period. All expenses incurred by trainees in connection with
and during any training, including without limitation, transportation, living
expenses, meals, lodging, wages, employment benefits, etc. (collectively,
"Personal Expenses"), shall be at Owner's sole expense. Each of Owner's initial
trainees must complete training to the satisfaction of WPHLI prior to Season
Opening Day, unless waived in writing by WPHLI in its sole discretion in any
particular case. The initial training program for Owner's initial Management
Personnel will be at WPHLI's headquarters or locations selected by WPHLI.
Training in use of the System includes loaning Owner a System Training Manual
and the Governing Documents and providing the System's standard guidance
concerning the System's standards for recruiting Players, scheduling games,
customer relations, sales, advertising, equipment, quality control, and
franchise operations. Training requires full-time attendance of Owner's
Management Personnel for approximately eight hours per day as described in more
3
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Owner WPHLI
detail in the Governing Documents. Upon Owner's written request, WPHLI will make
additional initial training available to Owner as WPHLI deems appropriate
subject to scheduling and terms set forth elsewhere herein.
3.1.8. UNIFORMS. WPHLI will loan Owner a set of WPHLI's specifications
for uniforms for Owner's players and identify at least one source capable of
providing such uniforms to Owner. Owner shall design Owner's Team's uniforms
within WPHLI's specifications and subject to WPHLI's approval.
3.1.9. ON-SITE PRE-OPENING ASSISTANCE. WPHLI will provide pre-opening
assistance to Owner by providing a WPHLI advisor at Owner's Home Arena, prior to
or during Owner's Season Opening Day to offer general advice concerning opening,
managing, marketing and operating a standard System team at a standard arena in
accordance with the System's standards. The advisor's responsibility and
authority is limited to giving general guidance to Owner concerning the System's
standards. Owner has sole and exclusive authority and responsibility to instruct
Owner's employees and sole responsibility for Owner's Team and operations. The
cumulative number of days that a WPHLI's advisor must be at Owner's Home Arena
to provide on-site opening assistance and start-up consultation pursuant to this
Agreement is two days, sequential or not, prior to Season Opening Day, the dates
of attendance being selected by WPHLI. At Owner's request, WPHLI and Owner may
offer additional initial on-site consultation as WPHLI deems appropriate subject
to scheduling and terms set forth elsewhere herein.
3.2. POST-OPERATIONAL OBLIGATIONS. WPHLI will provide the following
assistance to Owner on or after Season Opening Day.
3.2.1. SYSTEM BENEFITS. WPHLI will make available to Owner the
System's methods of standardizing operations of League teams generally pursuant
to the System, loan Owner the System's Governing Documents, deliver amendments
to same to Owner, and identify to Owner qualified sources of equipment and
supplies to operate a standard System team at a standard arena, all as WPHLI
makes same available to League owners generally.
3.2.2. SCHEDULING LEAGUE GAMES. WPHLI will coordinate scheduling of
games between Owner's Team and other League teams, pursuant to the procedures
for scheduling stated in the Governing Documents.
3.2.3. OFFICIATE GAMES. WPHLI shall provide League officials to
officiate at scheduled regular season League games of Owner's Team as specified
in the Governing Documents at WPHLI's cost. WPHLI shall provide League officials
to officiate at scheduled preseason, post-season and all other scheduled League
games which are not regular season games, at Owner's cost. Any increase in
WPHLI's cost of providing officials from the effective date of this Agreement
forward shall be reimbursed to WPHLI by League owners on a pro rata basis as
determined by the Governing Documents.
3.2.4. ON-SITE OPENING ASSISTANCE. WPHLI will provide on-site
assistance to Owner by providing a WPHLI advisor at Owner's Home Arena during or
shortly after Owner's Team's first regular season game at Owners' Home Arena to
offer general guidance concerning the System's standards with respect to player
recruitment, scheduling, opening, managing, marketing and operating a standard
team at a standard arena in accordance with the System's standards. The
4
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Owner WPHLI
cumulative number of days that a WPHLI's advisor will be at Owner's Home Arena
to provide on-site assistance, and consultation pursuant to this Agreement is
two days, sequential or not, during Owner's Team's first season, the dates of
attendance being selected by WPHLI.
3.2.5. ON-GOING CONSULTATION. The first three months after Owner's
initial season's Season Opening Day, WPHLI will be available to speak with
Owner's Management Personnel by telephone once each week at reasonably agreed
times to discuss Owner's operational opportunities and challenges. Thereafter,
representatives at WPHLI's headquarters will be reasonably available to Owner's
Management Personnel during WPHLI's normal business hours for telephonic
consultation and guidance with respect to operation and management of Owner's
Team by Owner's Management Personnel in accordance with System standards.
WPHLI's advisory assistance is general guidance concerning the System's
standards and may not be relied upon by Owner for Owner's specific decisions. At
Owner's request, WPHLI and Owner may schedule additional on-site assistance and
consultation as WPHLI deems appropriate subject to scheduling and terms set
forth elsewhere herein.
3.2.6. ADDITIONAL TRAINING AND UPDATES. WPHLI's current practice is to
have a summer conference each year for the purpose of getting League team owners
and management together with WPHLI's management to develop plans for the next
season. WPHLI may, in its discretion, hold conferences to discuss sales
techniques, personnel training, bookkeeping, inventory control, performance
standards, advertising and merchandising procedures, and other matters relevant
to the System. WPHLI will make such seminars and additional instruction and
training available to Owner and Owner's Management Personnel that WPHLI makes
available to System owners generally and provide Owner with updates to the
Governing Documents as WPHLI makes such updates available to System owners
generally. Such seminars and additional training may either be via conference
call, at WPHLI's Headquarters city, another System arena, or other location as
may be scheduled and designated by WPHLI. WPHLI does not currently charge
conference attendance fees, but reserves the right to do so in the future. Owner
is solely responsible for the Personal Expenses of Owner and Owner's staff and
all other costs in connection with same.
3.2.7. STANDARDS. WPHLI will make reasonable efforts to maintain the
System's standards by conducting inspections of Owner's Team as WPHLI deems
useful, revising the System as WPHLI deems advisable and notifying Owner of
updates and changes in the Governing Documents and the System as WPHLI makes
same available to System owners generally. WPHLI will receive and review Owner's
suggestions for improvement of the System.
3.2.8. BOARD OF GOVERNORS. WPHLI shall schedule and coordinate the
League's Board of Governor's meetings and the League's owner's meetings as
stated in the Governing Documents. Owner is solely responsible for the Personal
Expenses of Owner and Owner's staff, and such charges and fees as are uniformly
set for attending teams in the Governing Documents.
3.2.9. ADDITIONAL ASSISTANCE. WPHLI will be reasonably available to
provide Owner additional guidance concerning the System's standards as set forth
in the Governing Documents on a reasonable request basis or when deemed
necessary by WPHLI. Assistance may be in person, telephonic, or by publication
as WPHLI deems appropriate. If requested by Owner, and if WPHLI personnel are
available, WPHLI, at its option, may provide a WPHLI representative at Owner's
5
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Owner WPHLI
business to provide additional training or guidance concerning the System's
standards upon WPHLI's then current standard fees and expenses and terms.
3.2.10. MARKETING ASSISTANCE. WPHLI shall furnish Owner with advisory
promotional guidance concerning promoting Owner's Team's initial Season Opening
Day in accordance with the System's standards. WPHLI will be available
thereafter on a reasonable basis to provide ongoing advisory promotional
guidance to the Owner in accordance with the System's standards. WPHLI will
permit Owner to use WPHLI's League logos and marketing procedures as stated in
the Governing Documents. If WPHLI elects to make System stock advertising
materials available to System owners generally, then WPHLI shall provide same to
Owner, WPHLI will review proposed advertising copy sent by Owner to WPHLI and
inform Owner of the marketing concepts WPHLI makes available to System owners
generally. WPHLI may create an advertising fund (the "Advertising Fund") to
promote the interests of the League and to assist with marketing the League.
Materials provided by the Advertising Fund to System owners may include
marketing materials, advertisements, videotapes, etc., any specific such efforts
being in WPHLI's discretion If an Advertising Fund is created and it funds such
efforts, Owner will receive one sample of each System-wide distributed marketing
piece or advertising material at no charge beyond Owner's Advertising
Contributions to the Advertising Fund. WPHLI does not represent or promise that
an Advertising Fund will be created or be useful to Owner. Owner may develop and
place advertising materials for Owner's own use, at Owner's own cost as long as
same are within the System's standards.
3.2.11. ADVERTISING ASSOCIATIONS. WPHLI may implement advertising
associations as WPHLI deems useful to combine the advertising efforts of System
owners, such as common marketing and advertisements, use of common advertising
agencies, coordination of ad placement, etc., any specific such efforts being in
WPHLI's discretion. Establishment of any advertising association depends on the
existence and cooperation of other appropriate teams. WPHLI does not represent
or promise that any cooperative advertising associations or efforts will occur
or be useful to Owner, in part because same are dependent on the cooperation of
others.
3.2.12. RULE ENFORCEMENT. Owner delegates to WPHLI the power to
enforce the League's Rules, decide disputes between League owners and to be the
final decision-maker with regard to such disputes. WPHLI has the authority to
reprimand and/or fine any owner, owner's employee or Player for violation of the
League's Rules or Governing Documents.
3.2.13. SALARY CAP. WPHLI currently has an annual salary cap
applicable to all League teams. Because the laws of affected jurisdictions
concerning salary caps are complex and changing, WPHLI does not promise or
represent that a salary cap will be maintained or what its terms will be, only
that WPHLI currently intends to maintain and pursue same. WPHLI will review the
salary cap annually and establish rules and procedures within the Governing
Documents regarding free agency trading, sales and trades of Players between
teams, rules and exceptions to same, in WPHLI's discretion are deemed by WPHLI
likely to maintain competitive balance among League Teams. WPHLI expressly
disclaims any representation that any or all teams will be competitive.
6
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Owner WPHLI
4. HOME ARENA.
4.1. HOME ARENA CONTRACT. Owner is entitled and obligated to obtain use of
the one Home Arena at the address stated in Exhibit A and at no other place,
subject to relocation as provided herein. Owner hereby elects one of the
following options:
4.1.1. [ ] OPTION 1: PRE-AGREED LEASE. Owner has obtained an Arena
Contract and WPHLI hereby approves same or WPHLI is itself involved with
offering same to Owner.
4.1.2. [ ] OPTION 2: OBTAIN OWN LEASE. Owner is responsible for
entering an approved Arena Contract within the time period stated herein.
4.1.2.1. Owner will enter into a lease, sub-lease, license, or
purchase agreement for the Home Arena (the "Arena Contract") providing for
Owner's occupancy of the Home Arena sufficiently prior to Season Opening Day for
Owner to fulfill all of Owner's obligations under this Agreement. The Arena
Contract must be acceptable to WPHLI and may only be entered into by Owner with
WPHLI's prior written approval. OWNER IS CAUTIONED AGAINST ENTERING INTO ARENA
CONTRACTS WHICH ARE NOT EXPRESSLY CONTINGENT ON WPHLI'S APPROVAL. A condition of
Arena Contract approval is Owner's delivery to WPHLI of the System's
then-current Lease Rider fully executed by the lessor and Owner. The Arena
Contract shall have an initial term and renewal terms which are collectively not
less than this Agreement's initial term and renewal term unless otherwise
approved in writing by WPHLI in WPHLI's sole discretion. If an independent legal
review is deemed necessary by WPHLI, Owner shall pay all legal fees and expenses
incurred by WPHLI and Owner in connection with review, negotiation, and
execution of the Arena Contract and issues relevant to the same. Owner shall
never assign or sublet any interest in the Arena Contract, other than to WPHLI,
without obtaining the prior written consent of WPHLI, such consent not to be
unreasonably withheld.
4.1.2.2. If Owner does not enter an approved Arena Contract meeting
WPHLI's standard criteria six months prior to the upcoming season's opening
game, WPHLI may elect to terminate this Agreement by notifying Owner of the same
in writing. Upon Owner accepting such termination upon WPHLI's form for same,
WPHLI will refund one-half of the Initial Fee to Owner, less WPHLI's
out-of-pocket expenses and standard fees (including, without limitation, Arena
location and lease negotiation efforts, training, etc. incurred due to this
relationship). WPHLI is not required to refund any money until Owner executes
WPHLI's acceptance of termination form. If Owner's Home Arena is to be newly
constructed, or if an existing arena is to be substantially remodeled to
accommodate Owner's Team, a substantial investment and effort will be required.
Owner shall employ a qualified architect to adapt the System's plans and
specifications to the Home Arena and all applicable laws, regulations,
ordinances, lease requirements and market conditions, being especially mindful
of all zoning, signage, parking, access, health, environmental and storage
requirements. The architect must be submitted to WPHLI for approval and be
approved by WPHLI before the architect is engaged. WPHLI's approval of an
architect does not comprise any representation concerning the architect by
WPHLI. Owner is solely responsible for Owner's choice of Owner's architect.
WPHLI may elect to require use of a WPHLI-selected architect, and, if so, Owner
shall employ the WPHLI-selected architect. Owner will submit Owner's plan for
adapting the System to the Home Arena to WPHLI for prior written approval, not
change the same without WPHLI's written approval, and certify to WPHLI that
Owner has obtained all permits and permissions required for remodeling or
7
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Owner WPHLI
construction and operation. Owner will submit to WPHLI the information required
by WPHLI concerning Owner's general contractor. The general contractor must be
approved before the general contractor is engaged. WHPLI's approval of the
general contractor does not comprise any representation concerning the general
contractor by WPHLI. Owner will certify to WPHLI that Owner has obtained all
permits and permissions required for lawful construction and operation. Owner is
solely responsible for selecting, supervising and paying for architects,
contractors, detailed plans, equipment, supplies, financing, fixtures, signs,
working capital, and all other aspects of creating and opening the Home Arena.
Owner will return to WPHLI any WPHLI standard plans and specifications on or
before using the Home Arena for Owner's business operations.
4.2. HOME ARENA OPERATION. Owner will equip, staff, train, open, and
operate at Owner's sole expense one WPHLI League team at and from Owner's Home
Arena and in Owner's Protected Territory and at and from no other place and in
no other territory except pursuant to League games scheduled by WPHLI, or as
otherwise approved by WPHLI in advance. Owner will fully comply with Owner's
obligations under the Arena Contract, and not do or omit doing anything which
gives anyone the right to terminate or not renew the Arena Contract prior to the
end of this Agreement's then-current term. Owner will provide the Home Arena for
scheduled League games as set forth herein and the Governing Documents. This
will include, without limitation, private team, official, media and WPHLI areas
before, during, and after games and appropriate reserved seating for the
visiting team, Media and WPHLI. Owner shall maintain possession of and make the
Home Arena fully available for all scheduled League games (exhibition,
pre-season, regular, or playoff) as required herein. Failure to do so is a
material breach unless the failure is due to the Home Arena being materially
damaged or destroyed by an act of God, in which event Owner has the longer of
sixty days or the beginning of the next season to relocate or reconstruct. Owner
will use Owner's Team's facilities solely for operation of Owner's Team.
4.3. CHANGE OF HOME ARENA. If Owner's right to use Owner's Home Arena for
all purposes required by this Agreement is terminated or impaired prior to
termination of this Agreement for a reason other than a default of this
Agreement or the Arena Contract by Owner or an entity under the direction or
control of Owner, then Owner shall have the right to relocate Owner's Team to
another ice arena within Owner's Protected Territory. Owner's relocation right
is subject to Owner satisfying this Agreement's and the Governing Documents'
requirements concerning a substitute ice arena and Arena Contract, including
obtaining the prior written consent of WPHLI, which shall not be unreasonably
withheld. Upon Owner obtaining WPHLI's consent to the substitute ice arena and
its Arena Contract, Owner shall, at Owner's sole expense, establish and operate
Owner's Team at the substitute ice arena, which shall thereafter be deemed to be
Owner's Home Arena. Owner will submit each requested substitute site to WPHLI
with a completed proposed Arena Contract, completed standard then current System
Lease Rider, and arena evaluation form. Relocation of the Home Arena does not
change the Protected Territory's boundaries unless WPHLI and Owner expressly
agree to same. WPHLI is not liable to Owner for any expense or loss of revenue
directly or indirectly incurred by Owner as a result of termination of the
original Arena Contract and is subject to payment of WPHLI's then current
standard relocation fee as provided in the Governing Documents. No refunds are
due from WPHLI if a new arena does not timely materialize.
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Owner WPHLI
5. OWNER'S OBLIGATIONS
5.1. TEAM OPERATION. Owner will equip, staff, train, open, and operate at
Owner's sole expense one WPHLI team in compliance with this Agreement and the
Governing Documents at and from Owner's Home Arena and in Owner's Protected
Territory and at and from no other place and in no other territory. Prior to the
Season Opening Day, Owner will obtain and thereafter maintain all licenses,
permits and inspection approvals required by applicable laws and the Governing
Documents to conduct business in the Home Arena's jurisdiction and operate
Owner's Team at the Home Arena, and to host League games at the Home Arena and
to compete in away games in accordance with League game schedules developed by
WPHLI, including, without limitation, a business license, labor, health, fire
and safety inspections and approvals, and a liquor license, all as acceptable to
WPHLI. Owner's Team will commence League play on the Season Opening Day
specified in Exhibit A, unless same is rescheduled by WPHLI and thereafter
appear at, play, and complete all scheduled League games (exhibition,
pre-season, regular, or playoff) in the manner required by the Governing
Documents as scheduled by WPHLI, or as otherwise approved by WPHLI in advance.
5.2. PERSONNEL
5.2.1. PERSONNEL GENERALLY. Owner shall employ a sufficient number of
fully trained and competent personnel of good character, including, without
limitation administrative personnel, managers, and clerical staff to properly
perform Owner's obligations. The Governing Documents may require Owner's Team to
have a certain number of personnel actively engaged in certain positions and set
skill and qualification standards for each position. Owner is solely responsible
for the selection and evaluation of Owner's personnel and may not rely on
WPHLI's suggestion or approval of such persons. WPHLI is in no way responsible
for the selection of or the performance, honesty or any other quality of Owner's
personnel. WPHLI may require any of Owner's personnel to attend additional
training and refresher courses from time to time at locations chosen by WPHLI at
Owner's expense. Owner will cause each of Owner's employees to become familiar
with those portions of the Governing Documents designated for the applicable
employee category and to comply fully with them. Owner is responsible for
Owner's employees' compliance with the Governing Documents. Without limiting
WPHLI's other remedies, if any of Owner's employees fail to comply with WPHLI's
Governing Documents' requirements, upon written request of the WPHLI, Owner will
take corrective action ranging from the subject personnel taking additional
training to removing the non-complying employee from League-related duties.
WPHLI may require any person associated with the League to attend training or
additional training as a condition of beginning to act or continuing to act in
any League related activity, if the same is, in WPHLI's discretion, in the best
interest of the System. If WPHLI determines that any person's act or acts are
inappropriate for a person associated with the League, WPHLI may either
immediately condition approval for the person acting in any League-related
activity on completing or retaking such parts of the System's training or taking
such corrective action that WPHLI deems appropriate, or WPHLI may, after
consultation with WPHLI's Board of Governors, ban the person from acting in any
League-related capacity, including as an equity owner, manager, employee, agent,
or capacity related to the League or Owner, all upon such conditions, terms and
duration that WPHLI deems appropriate.
5.2.2. MANAGEMENT PERSONNEL. Owner shall maintain a full staff of
"Owner's Management Personnel" as stated in the Governing Documents. Owner has
sole authority to control Owner's Management Personnel's actions and may remove
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Owner WPHLI
any of Owner's Management Personnel at any time. WPHLI does not have any power
or authority to control Owner's Management Personnel's acts or decisions. That
power and authority is held solely by Owner. WPHLI reserves the right to charge
Owner WPHLI's then current standard training fee for training any Owner's
Management Personnel or prospect for same after Owner's initial Season Opening
Day. Owner's Team will be directly supervised "on-premises" by a General Manager
who shall be the full-time hands-on chief executive officer of Owner's Team with
full managerial control, authority and responsibility for operating Owner's
Team. The General Manager will personally participate in actual operation of the
Team by spending a minimum of an average of thirty hours a week personally with
the Team directly and actively managing the Team year round to supervise sales,
recruiting, training, season play, etc. Owner shall hire Owner's Management
Personnel sufficiently in advance for them to be qualified and approved or
disapproved by WPHLI and fully trained before becoming responsible for any
System related activities. Owner's Management Personnel shall participate on a
full-time basis in the direct management and operation of Owner's Team and sign
the System's then-current standard agreements, including, without limitation,
agreements to maintain confidentiality, not have an interest in or business
relationship with any other ice hockey team, not compete, etc., that WPHLI
requires of new System team management personnel generally. In the event of the
termination, resignation, death, or incapacity of any of Owner's Management
Personnel, Owner shall replace same within sixty days with a person approved in
writing by WPHLI, approval not to be unreasonably withheld.
5.2.3. PLAYERS. Owner shall employ the League's then-current minimum
of Players for Owner's Team as stated in the Governing Documents. Positions,
qualifications, duties and the like may be stated in the Governing Documents.
Owner's Players must continue to be eligible and available to participate in
League play during each season of League play and any applicable playoff games,
subject to injuries and excused absences. Owner shall have a written contract
with each Player which contract is on a standard form approved by WPHLI. Each
Player contract shall conspicuously state that it is not binding until approved
in writing by WPHLI. After Owner and a Player execute a Player contract, Owner
shall immediately deliver same to WPHLI for approval. Upon Owner's receipt of
WPHLI's written approval or disapproval of the Player contract, Owner shall
immediately deliver a copy of WPHLI's approval or disapproval to the Player.
WPHLI may impose a salary cap for each League Team within the League limiting
the total sum of Player salaries for Owner's Team which salary cap shall be the
same for all League teams. Owner's Team shall also employ a Head Coach who shall
not be a Player. The Head Coach's responsibilities may be stated in the
Governing Documents. Owner recognizes the importance to WPHLI and other team
owners of ensuring a consistency of League team operating costs. Owner agrees
that, to the extent permissible under applicable law, all contracts between
Owner and each of Owner's Team Players will be in such form as may be prescribed
by WPHLI from time to time (the "Players' Contract") and be in compliance with
all rules set forth for such agreements in the Governing Documents. WPHLI does
not promise or represent that current methods of obtaining and retaining Players
will be continued for any length of time.
5.3. TRAINING. WPHLI will provide the instructional and training materials
used in the initial training program to Owner's Management Personnel without
charge to Owner. Owner and WPHLI shall schedule Owner's Management Personnel to
attend training at Owner's expense at a location designated by WPHLI and Owner's
Management Personnel shall attend and successfully complete WPHLI's initial
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Owner WPHLI
training program to WPHLI's satisfaction prior to the Owner's Team beginning
operations. Thereafter, whoever Owner designates as a Governor or Owner's
Management Personnel must successfully complete WPHLI's initial training program
prior to serving as Owner's Management Personnel. Owner's Management Personnel
designated by WPHLI shall attend and complete to WPHLI's satisfaction such
additional training, assistance, seminars, meetings, conferences, etc. as WPHLI,
may from time to time require, at such locations that WPHLI designates. If
requested by WPHLI, Owner shall have Owner's Team's primary computer physically
at WPHLI's training location during initial training so Owner's Management
Personnel can be trained on the actual software loaded on Owner's hardware that
they will use in Owner's Team's operations. WPHLI's training duty solely
comprises offering training experiences and no more. All costs will be born by
Owner. Owner is solely responsible for the performance of Owner's Management
Personnel. Owner will cause the attendance of designated employees at such
training as WPHLI may conduct from time to time.
5.4. MINIMUM TICKET SALES. Any League owner's failure subjects WPHLI, the
League, and other League owners to substantial expenses. For this reason, League
owners must post a Letter of Credit in favor of WPHLI. WPHLI's experience is
that focusing new League owners on selling season tickets is critical to the
success of new League owners. Consequently, WPHLI requires of Owner a letter of
credit in favor of WPHLI in an amount which varies with Owner's season ticket
sales, i.e. the more season tickets Owner sells, the less Owner's letter of
credit requirement. Owner's duty to create, fund, and maintain a letter of
credit in favor of WPHLI is set forth in Exhibit A and the Governing Documents
and its amount shall be increased or decreased in accordance with the terms
stated in Exhibit A and the Governing Documents. The Owner's duty to sell
certain numbers and types of tickets may vary and Owner's letter of credit
requirements will be adjusted after Owner's first season.
5.5. BEST EFFORTS. Owner will continuously use its best efforts to market,
develop and maximize recognition and use of the System throughout Owner's
Protected Territory including, without limitation; aggressively advertising and
promoting Owner's Team and the League, obtaining and maintaining all facilities,
equipment, Products, Players, staff, etc. as described in the Governing
Documents. Owner shall continuously operate the System at its full capacity for
the full term of this Agreement; strictly comply with all terms in this
Agreement and with all other agreements which relate to Owner's business or use
of the System, including, without limitation, the Arena Contract and all
agreements with WPHLI, WPHLI Affiliate Entities, Players, vendors, suppliers,
other System owners and System Associations, if any; maintain full continuous
operations; and do all things necessary for Owner's Team to compete in home and
away games in accordance with League game schedules developed by WPHLI, all in
strict compliance with the Governing Documents as they may be revised from time
to time. Owner's failure to strictly comply with, observe and perform any term,
condition, covenant, provision or obligation of this Agreement is a breach of
this Agreement. Owner will send any suggestions Owner has for improving the
System to WPHLI in writing. Owner will fully cooperate with WPHLI's efforts to
sell additional System teams including, without limitation, displaying
information concerning the availability of new teams, making Owner and any of
Owner's personnel available to truthfully answer the questions of prospective
owners if requested by WPHLI and assisting in training new owners and their
personnel at Owner's Home Arena.
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Owner WPHLI
6. LEAGUE MANAGEMENT.
6.1. BOARD OF GOVERNORS. For the League and its several individual teams to
succeed in the League's collective enterprise, the League's several individual
teams must cooperate in the integrated operation of the League as single
collective enterprise. Not every owner's team's interests will be maximized in
every interaction. The success or failure of each League team affects all League
teams. WPHLI manages the League and sets the League's game schedule. One of
WPHLI's methods of League governance is to consult with and obtain advice from
the owners and management personnel of WPHLI's several teams. Such consultation
occurs in part, although not exclusively, pursuant to the WPHLI's and the
several League owners' participation in the League's Board of Governors.
6.2. MEMBERSHIP. Each League team that is in good standing has one vote
which is voted by the team's Governor. The League's "Board of Governors" will be
comprised, meet and operate as stated in the Governing Documents. Owner is
entitled and required to appoint up to two Governors (a principal Governor and
one alternate Governor) to the Board of Governors to represent Owner's Team who
shall attend and participate in all Board of Governors meetings. Owner shall
notify WPHLI of Owner's nominee for Owner's Team's Governor sufficiently in
advance for WPHLI to approve or disapprove of the nominee, in WPHLI's
discretion. WPHLI thereafter has the right to revoke WPHLI's approval of Owner's
Team's Governor, in WPHLI's discretion, but only after consultation with Owner.
The Board of Governors is chaired by a President appointed by WPHLI. In the case
of a tie vote of the members of the Board of Governors, The President has an
additional deciding vote.
6.3. POWERS OF THE BOARD OF GOVERNORS. The Board of Governors represents
the owners of League teams, and is responsible for making recommendations to
WPHLI concerning the following League affairs:
6.3.1. SCHEDULE. Development of a schedule format for exhibition,
regular season and playoff games;
6.3.2. LEAGUE RULES. Development of League Rules for the conduct and
administration of League games. Enforcement of the League Rules through
investigation disciplinary offenses and setting and enforcing penalties is
solely within WPHLI's power, but in appropriate cases WPHLI may consult with the
Board of Governors concerning same. "League Rules" means rules and regulations
enacted by WPHLI to govern League play. The League Rules may be supplemented,
deleted or amended from time to time by WPHLI in accordance with the Governing
Documents and after consultation with the Board of Governors.
6.3.3. PLAYOFFS. Development of playoff competitions and funding by
all owners of playoff prize pools;
6.3.4. PLAYER'S CONTRACT. Suggestions concerning revisions to or
replacement of a standard player's contract, playoff payments, Player salary
cap, and other player-related matters;
6.3.5. ADVERTISING FUND. Administration of the Advertising Fund; and
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Owner WPHLI
6.3.6. MARKETING. Marketing and operation of the League and the WPHLI
System.
6.3.7. ADMINISTRATION. Suggesting changes concerning the
administration of WPHLI.
The Board of Governors shall act only in compliance with the Governing
Documents and all other applicable agreements, including, without limitation,
this Agreement to which League team owners are bound. Board of Governors' acts
do not modify any agreement between WPHLI and System owners. The Board of
Governors' acts are always advisory without independent force or effect. The
League's owners never "agree" with each other to act or not act through the
Board of Governors, only to develop consensus recommendations to WPHLI. WPHLI
never "agrees" with any Board of Governors' act or recommendation. WPHLI shall
consider the acts, resolutions, and advice of the Board of Governors, and then
WPHLI shall reach its own independent decisions concerning such matters.
6.4. ATTENDANCE. Owner will ensure that Owner is represented by Owner's
authorized representatives at each and every meeting of WPHLI governors or
owners, which may be called at the discretion of WPHLI from time to time. There
are currently four Board of Governors' meetings annually at which governors of
all teams are expected to attend. Continuation of this schedule is not
guaranteed. It may be changed. Additional meetings may be called. If Owner is an
individual, Owner specifically agrees to personally physically attend in person
at least one League owners' meeting annually called by WPHLI with reasonable
notice. If Owner is an incorporated entity, Owner will attend via an agreed
representative, expected to be the individual with the most equity ownership in
Owner. Attendance means being physically in attendance in person at such
meetings. There is currently one Summer Conference annually at which Owner is
required to be physically in attendance unless otherwise agreed. Continuation of
this schedule is not guaranteed. It may be changed. If Owner or Owner's Governor
is unable to attend any such meetings, Owner will send a substitute person,
approved in advance by WPHLI, in the missing person's place to represent Owner's
Team. Isolated absences with prior notice and due to good cause are acceptable.
Participation in League meetings is at Owner's sole cost.
7. OWNER'S PAYMENTS
7.1. INITIAL FEE. Owner will pay WPHLI an "Initial Fee" of $1,250,000. The
Initial Fee is fully earned and non-refundable upon WPHLI's acceptance of this
Agreement as set forth herein and is in partial payment for WPHLI's
administrative costs, opportunities lost or deferred, past efforts in developing
the System, and a license to use the System, together with the other assistance
and advantages made available to Owner as stated herein. The Initial Fee is due
from Owner to WPHLI upon the schedule stated in Exhibit A. WPHLI will return to
Owner the portion of the Initial Payment received from Owner with Owner's
executed copy of this Agreement if WPHLI does not accept this Agreement as set
forth herein within thirty days of receiving Owner's executed Agreement and the
required portion of the Initial Payment.
7.2. ASSESSMENT FEE. In consideration for the licenses granted herein,
WPHLI's administrative and lost opportunity costs, WPHLI's costs and risks in
developing the System, and the assistance specified herein, Owner will pay WPHLI
an "Assessment Fee" of $100,000 each calendar year. The Assessment Fee is
payable as follows: At the earlier of WPHLI's Annual Summer Conference or the
fifteenth day of June of each year, Owner shall deliver to WPHLI four checks in
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Owner WPHLI
the amount of $25,000 each, dated June 15, July 15, and September 15, of that
year, and February 15 of the succeeding year. These amounts are subject to the
CPI inflation adjustment of Section 11.6. The checks shall contain no
restrictive endorsements other than being post-dated. WPHLI shall not present
same for payment until their stated dates. Owner shall insure that these checks
will be paid upon their being presented for payment upon their face dates. Upon
three months advance written notice to Owner, WPHLI may elect to replace Owner's
duty to pay WPHLI an annual Assessment Fee of $100,000 with an Owner's duty to
pay WPHLI a License Fee of five percent of Owner's Revenues upon schedules and
terms to be stated in the then-current Governing Documents. Further, WPHLI may
impose other reasonable special assessments based on a recommendation from the
Board of Governors.
7.3. LETTER OF CREDIT. WPHLI and other League owners depend upon Owner's
performance of Owner's promises hereunder. A League owner's failure to comply
with the owner's promises to WPHLI and other League owners subjects WPHLI and
other league owners to substantial expenses. As continuing security for
satisfaction of Owner's obligations, Owner will establish and continually
maintain an irrevocable non-expiring (automatically renewing) letter of credit
upon terms stated in the Governing Documents to secure Owner's full performance
of Owner's duties under this Agreement at a federally chartered bank ("Bank")
acceptable to WPHLI upon terms acceptable to WPHLI in the amount of $100,000
(the "Letter of Credit") pursuant to the System's then-current standard such
agreement contained in the Governing Documents as it may be changed from time to
time. These terms may include, without limitation, that the Letter of Credit
shall automatically perpetually renew until after Bank has given at least ninety
days prior written notice to WPHLI that the Letter of Credit is to not be
renewed. WPHLI has discretion to make withdrawals from the Letter of Credit from
time to time (with the deemed consent of Owner) if and when WPHLI informs Bank
that Owner or Owner's Team is indebted to WPHLI or that WPHLI intends to pay any
debt from Owner to a third party which Owner has failed to pay. If WPHLI deems
itself insecure, WPHLI may, in WPHLI's discretion, require Owner to increase the
Letter of Credit up to $250,000. If Owner's Arena Contract or other agreements
related to operation of Owner's business require one or more letters of credit
in favor of the landlord or other entities, Owner will always comply with same.
7.4. TRAINING AND ASSISTANCE. WPHLI will provide the instructional and
training materials used in the initial training program to Owner without charge.
However, Owner is always responsible for all of Owner's and Owner's personnel's
own costs, including all Personal Expenses, for any training, assistance,
seminars, meetings, conferences, etc. WPHLI's additional training and additional
assistance (after initial opening assistance), is at Owner's expense, namely, at
WPHLI's then current published rates, minimum charges, expenses, and both
Owner's and WPHLI's Personal Expenses. These rates, charges and expenses are
subject to change via amendments to the Governing Documents. The Training and
other events will occur at WPHLI's headquarters or where designated by WPHLI.
7.5. OFFICIATING GAMES. OFFICIATE GAMES. WPHLI shall provide League
officials to officiate at scheduled regular season League games of Owner's Team
as specified in the Governing Documents at WPHLI's cost. WPHLI shall provide
League officials to officiate at scheduled preseason, post-season and all other
scheduled League games which are not regular season games, at Owner's cost. Any
increase in WPHLI's cost of providing officials from the effective date of this
Agreement forward shall be reimbursed to WPHLI by League owners on a pro rata
basis as determined by the Governing Documents.
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Owner WPHLI
7.6. ADVERTISING.
7.6.1. LOCAL ADVERTISING. Owner may spend as much money advertising
Owner's Home Team and the League as Owner desires, except that Owner must spend
at least three percent of Owner's Revenue per Owner's prior fiscal year on such
advertising in Owner's Protected Territory as set forth in this Agreement and
the Governing Documents. Promotional discounts, coupon reductions and the like
are not counted as an advertising expenditure. Owner's advertising is subject to
the Governing Documents restrictions which may include, without limitation,
requirements that Owner clearly identify that Owner's promotions, prices, etc.,
are only for Owner's Team if this is true; having Owner's advertising created
and placed through a WPHLI owned or approved media agency (in such event, WPHLI
may seek and retain any commission); to advertise and charge prices within the
League's pricing policies (which may only be effected by a formal written
statement issued by WPHLI's President), being restricted to Media primarily
directed to Owner's Protected Territory and exclusively using the location on
the League's System internet web site allocated by WPHLI; and obtaining WPHLI
approval of sponsors to Owner and no other web site or internet advertising
except as approved by WPHLI in writing.
7.6.2. ADVERTISING ASSOCIATIONS. WPHLI may create one or more
advertising cooperatives, corporations or groups (each an "Association") to pool
the advertising monies and efforts of WPHLI and/or owners. Owner's payments to
an authorized Association shall be credited against Owner's local advertising
requirement, but do not reduce Owner's Advertising Cost duties. WPHLI shall, in
its sole discretion, designate the area covered by any Association (for example,
Texas, to share in TEXAS MONTHLY advertising if Texas co-op members so choose).
Each System team is entitled to one vote in each Association of which it is a
member, provided it complies with that Association's rules. WPHLI may structure
Associations to grant WPHLI a veto over expenditures, permit WPHLI to grant any
Owner an exemption for any length of time from the requirements of membership in
and/or the obligation to contribute fully to any Association, and require their
governing documents to include such restrictions as WPHLI deems desirable. Owner
shall join such Associations, if and when established by WPHLI, enter into all
governing Association documents and fully perform all Association duties,
including paying Owner's pro rata share of all costs, expenses, and outlays
limited to a maximum two percent of Owner's Revenue per Owner's fiscal year.
WPHLI may require Owner or any Association to create and place its local or
Association advertising through a WPHLI owned or approved media agency and, in
such event, WPHLI may seek and retain the commission paid by the agency or
advertising's seller.
7.6.3. ADVERTISING FUND. WPHLI may, by ninety days prior written
notice, create an Advertising Fund, in which event; Owner will pay WPHLI an
"Advertising Contribution" for Advertising Costs of up to three percent of
Owner's Revenue per Owner's fiscal year to WPHLI. "Advertising Costs" include
the cost of: precursor activities such as surveys, design, layout, legal and
administration expenses; service mark, trademark and trade dress development,
clearance, registration, maintenance and protection; creating, developing,
preparing and testing advertising and promotional materials, marketing and
public relations personnel or agencies; distribution and Media placement; taxes;
and related expenses. A portion of these amounts may be reimbursements to WPHLI
due to its internal and external expenses of providing same. WPHLI reserves the
right to use Advertising Contributions to fund advertising co-ops or advertising
in national Media. WPHLI may charge fees and expenses against the Advertising
Fund if it uses an inside or related agency to create and place advertising.
Selection of advertisements, Media and locale for Media placement is at WPHLI's
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Owner WPHLI
sole direction. No advertising program can equally benefit all Owners. Nothing
herein requires allocation of advertising costs or benefits on a pro-rata basis,
proportional basis, or otherwise. Owner is not entitled to any specific benefit
from its Advertising Contributions. Owner's failure to derive any specific
benefit from the Advertising Contributions is not cause for Owner reducing or
ceasing the same. Monies remaining in any Advertising Costs accounts will be
carried forward unless WPHLI elects to end any such account in which event WPHLI
may elect to either refund unused money to then current owners who are in
compliance with all agreements with WPHLI or spend it on future advertising
costs. Advertising Contributions are not Owner investments or assets; the
Advertising Fund is not a trust fund; WPHLI owes no fiduciary or any other
duties concerning same except as expressly stated in this subsection. No
interest accumulates on unused portions thereof in favor of Owner.
7.7. TRANSFER FEE. As a condition of WPHLI granting its consent to any
Transfer, Owner shall reimburse WPHLI for WPHLI's costs and expenses, including,
without limitation, legal and accounting fees, associated with the proposed
Transfer. Transfers of more than a cumulative ten percent or more of Owner's
outstanding equity within any twelve month period or which, alone or
cumulatively, effect a change in control of Owner relative to Owner's original
principal controlling entity are conditioned upon payment to WPHLI of a
"Transfer Fee" equal to twenty-five percent of WPHLI's then current Initial Fee
charged to new System owners.
7.8. REVENUE. "Revenue" is all monies and benefits received or receivable
due to any business by or for Owner (which term for the purposes of this
paragraph includes any subsidiary or affiliate of Owner or any other entity in
which Owner has a legal and beneficial interest) or Owner's Associated Persons
in connection with or due to any part of the System, or Owner's Team. Revenue is
determined on a cash basis. Money or benefits received by Owner in exchange for
prepayments, coupons or the like issued by Owner are Revenue. Revenue includes,
without limitation, revenue from all ticket sales for games (including
exhibition, regular season and playoff games, whether against other WPHLI teams
or otherwise), television, radio and other broadcast revenue, revenue from all
forms of advertising, sponsors, revenue from sales of foods, beverages, other
goods and services related to Owner's Team or during games by Owner's Team
(including Owner's revenues from any sales of liquor, beer, wine, tobacco and
the like if applicable), whether in the form of cash, charge or otherwise, all
transactions for goods, services or intangibles sold, leased, used, delivered or
rendered at, through or related to the System or Owner's Team via cash, credit,
barter or otherwise, on or off premises or using in any way any part of the
System's Marks, Products, Proprietary Information or other part or item of the
System, inside or outside of Protected Territory, business interruption
insurance payments and any other related benefits. In the case of any non-cash
consideration received by Owner, Revenue means the fair market value of such
consideration. Revenue does not include sales taxes and any other taxes which
Owner separately states, collects from customers, pays to any federal, state,
county, municipal or other local taxing authority and is not entitled to
recover, and discounts which WPHLI may in its sole discretion permit from time
to time. Cash refunds made within the time periods and in compliance with the
Governing Documents' procedures shall be deducted from Revenue. Refunds paid not
in compliance with the Governing Documents' procedures shall not be deducted.
Any money or benefit received by Owner or its Associated Persons as a
consequence of or attributable to any activity which is in breach of this
Agreement is deemed Revenue, without limiting WPHLI's remedies therefore.
Revenue begins to accumulate immediately and is not delayed until the Team's
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Owner WPHLI
opening game. Credit transactions (transactions where not all of the agreed
payment is received at the time of delivery) are deemed complete when the
transaction giving rise to the extension of credit occurs.
7.9. PAYMENT TERMS. The payment due dates for any monies due WPHLI for
Assessment Fees, Transfer Fees, Advertising Contributions, WPHLI's goods,
services or otherwise are as set forth in this Agreement and the Governing
Documents. If no other date is agreed in writing, payment for goods, services
and intangibles is due twenty days after the invoice date. Payments must be
accompanied by such fully and accurately completed standard forms, and
physically received at WPHLI's Headquarters no later than five o'clock p.m. on
the date due or be received there in U.S. dollars by mail within three days
thereafter, postmarked on or before the date due and be accompanied by such full
and accurately completed standard forms, receipts, and other documents as
prescribed in the Governing Documents for a transaction of that type. Failure to
properly and timely deliver any payment due WPHLI, whether due under this
Agreement or any other agreement or obligation, is a material breach of this
Agreement. Owner is absolutely required to make full payment to WPHLI exactly
when due in all instances without setoffs due to amounts due from WPHLI and
without withholding any amount due to any alleged breach by WPHLI. All past due
amounts bear interest at eighteen percent per annum, or the highest rate
permitted by law, whichever is less, from the day due until paid. Entitlement to
interest is in addition to WPHLI's other rights and remedies. If Owner delivers
a check which is returned due to insufficient funds or is otherwise not paid,
WPHLI may additionally assess a service charge at the highest amount permitted
by law. Upon Owner's failure to punctually pay any obligation due to WPHLI,
WPHLI may accelerate that and any other obligations of Owner to WPHLI, whether
under this Agreement or any other agreement, making any such full underlying
obligations immediately due and payable without notice of intent to accelerate
or notice of acceleration. The terms of any transactions between WPHLI and Owner
shall be governed by this Agreement and the Governing Documents as it may be
changed from time to time, except to the extent that the parties may later agree
otherwise in writing. The terms of all sales from WPHLI are fully prepaid F.O.B.
point of shipment unless otherwise agreed in writing. WPHLI may require payment
in advance C.O.D. WPHLI may implement a program for direct, automatic or
otherwise, electronic payment from Owner's primary operating accounts of amounts
invoiced by WPHLI to Owner. In such event, WPHLI shall only invoice amounts owed
by Owner and Owner will always fully cooperate with the program including
executing the System's then-current uniform applicable agreements and financial
institution agreements, complying with same, and maintaining sufficient funds in
the accounts to pay such invoices as they come due. Owner will reimburse WPHLI
for all taxes and levies due on transactions with Owner except for taxes based
on WPHLI's net income.
8. RESTRICTIONS
8.1. BUSINESS. The parties intend by this Agreement to establish the
relationship of licensor and licensee, each as an independent contractor. It is
not the intention of either party to establish a fiduciary relationship, to
undertake a joint venture, to make Owner in any sense an agent, employee,
affiliate, associate or partner of WPHLI or to confer on Owner any authority to
act in the name of or on behalf of WPHLI. Day-to-day conduct of Owner's Team and
performance of Owner's employees is controlled solely by Owner and not by WPHLI.
Owner's Team must be on the ice and ready to play according to the Schedule set
in the Governing Documents each year, and the Home Arena must be fully available
for games according to the Schedule set in the Governing Documents each year,
and be fully staffed by players, management and staff who conform to WPHLI's
performance, cleanliness and attire standards, all as prescribed in the
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Owner WPHLI
Governing Documents. Owner will operate Owner's Team solely for the purposes
permitted herein and not enter into agreements that conflict with Owner's
obligations to WPHLI. Owner will offer the System's full line of activities,
goods and services as prescribed in the Governing Documents. No other
activities, goods or services, whether for profit or not, shall be offered or
sold by Owner's Team, or, at the Home Arena during League games, or in
connection with any part of the System without WPHLI's prior written approval.
Owner shall limit its use of the System to operating Owner's Team. Non-league
play, and off-premises, internet, electronic and catalog-type sales are
prohibited unless authorized in writing by WPHLI. Owner's reputation for credit
worthiness is a material part of the System. Owner will promptly pay all
obligations when due, including, without limitation, those to WPHLI, other
System owners, System Associations, employees, agents, landlords, vendors,
suppliers, taxing authorities, applicable public or private authority, and any
third parties who have extended credit to Owner.
8.2. STANDARDS. Owner shall manage Owner's Team in accordance with Owner's
own business judgment subject to the restrictions herein and the standards
prescribed by WPHLI. Owner recognizes the importance to WPHLI, to other System
owners and to the public, of maintaining the standards, qualities and attributes
of products and services identified by the System. Owner acknowledges Owner's
responsibility to the public and other System owners to maintain the System's
standards, that Owner benefits from the standards and that the standards herein
and in the Governing Documents are reasonable and necessary. Owner agrees to
maintain and adhere to the standards, procedures and policies set by WPHLI. The
standards may now or in the future include, without limitation, requirements,
and restrictions for: Owner's Team, Home Arena; the public image designated by
WPHLI; Products and their use; use and protection of Proprietary Information and
the Marks; services, goods, signs, intangibles, supplies; computer hardware,
software and communications; marketing, operations, uniforms, improvements,
governmental compliance, suppliers, agreements between teams, ordering, paying,
selling, maintenance, repairs, alterations, replacement, hiring, training, skill
standards, bookkeeping, and all other matters related to Owner's business.
Owner's operations shall never create a threat to public or employee health or
safety. Owner shall immediately cure such problems upon receipt of written
notice from WPHLI and shall comply with or timely and appropriately contest any
health or safety order or requirement issued by a competent governmental
authority concerning same at Owner's sole expense. The Governing Documents shall
be uniform for all owners in each class of owners, it being understood that
WPHLI may establish and change classes of owners, though not more often that
once a year. The Governing Documents are ineffective with respect to the parties
to the extent the Governing Documents contradict this Agreement. Subject to
these limitations, the Governing Documents explain and supplement this Agreement
and are binding on Owner as if included and incorporated herein. All written
additions and revisions to the Governing Documents by WPHLI become a part of the
Governing Documents, effective on receipt by Owner or electronic posting by
WPHLI on a League website designated for the purpose. WPHLI may change any part
or parts of the System and the Governing Documents, in WPHLI's absolute
discretion, including, without limitation, its System, Marks, Products,
Proprietary Information, fees, expenses, rates, charges and costs, by amending
the Governing Documents, except that amendments to the Governing Documents which
are not uniform for Owner's class of WPHLI owners or which are contrary to this
Agreement are ineffective as between Owner and WPHLI. Owner shall adopt the same
at Owner's sole expense. Owner agrees to use and abide by the Governing
Documents, and to not copy or permit them to be copied at any time, without the
prior written approval of WPHLI.
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Owner WPHLI
8.3. SUPPLIES. Owner shall only acquire, use, offer to sell, and sell
Products, equipment, goods, and services that have been approved in writing by
WPHLI as meeting WPHLI's standards, maintain each in the appropriate manner and
in sufficient supply in, and only deal with suppliers of same who demonstrate to
WPHLI's continuing satisfaction an ability to meet WPHLI's standards and have
been approved in writing by WPHLI and not thereafter disapproved, all as stated
by the Governing Documents. Approval criteria may include, without limitation,
quality controls, capacity to supply System needs, warranties, design,
appearance, reputation, finances, experience and the System's need for each
approved supplier to be reasonably assured of doing sufficient business with the
System. Owner shall submit a written request to WPHLI if Owner desires to
purchase unapproved goods or services or deal with unapproved suppliers. WPHLI
may condition approval on its representatives being permitted to inspect the
supplier's goods, services and facilities, and that free samples being delivered
for inspection and testing. WPHLI may from time to time require re-inspection of
the goods, services and facilities of any supplier and revoke approval upon
failure to meet any then current criteria. Nothing in the foregoing requires
WPHLI to approve any particular supplier, goods or services or to disclose any
standards, specifications, or other information deemed by WPHLI to be
confidential. WPHLI may refuse to approve an alternate supplier if, in WPHLI's
opinion, approval could adversely affect pricing or availability to other owners
or WPHLI. WPHLI may require Owner to perform substantial changes to come into
compliance with the System's then current standards. The System uses or may in
the future use, certain Products, equipment, fixtures, goods, services, and
methods which WPHLI deems to be of value to the System. Because of the
importance of maintaining a competitive advantage, and maintaining uniformity
and reliability concerning certain methods, information, goods, services, etc.,
an exception to all other terms herein is that WPHLI may designate any of the
same as being restricted, keep its specifications secret, and require Owner to
use and sell only such designated items and acquire the same only from specific
sources designated in the Governing Documents. WPHLI may pool purchases of
certain goods or services by WPHLI owners from one or more designated suppliers
("Supplier Pool"). Owner shall not purchase goods or services subject to a
Supplier Pool from a supplier who is not in the Supplier Pool until and unless
the supplier has been approved in writing by WPHLI. WPHLI may designate itself
as the sole source of any good or service. WPHLI (either alone or in conjunction
with other WPHLI affiliates) may charge fees to suppliers for the right to
participate in the Supplier Pool, and may receive for WPHLI's own account
refunds, rebates and similar incentives from suppliers and may distribute
portions of such monies to WPHLI owners.
8.4. FINANCES AND RECORDS.
8.4.1. FINANCES. Owner shall maintain and employ in connection with
its business and operations under this Agreement sufficient net working capital
and net worth to fully perform Owner's obligations under this Agreement. Uniform
such standards may be stated in the Governing Documents. Owner will deliver to
WPHLI's Headquarters Owner's draft financial and business plan for Owner's Team
and its operations for the following year (the "Plan"). The Plan shall project
all estimated revenues and expenses for the next year and explain from what
sources Owner expects to meet its expenses. WPHLI may either approve the Plan as
submitted by Owner or work with Owner concerning such revisions as may be agreed
upon by WPHLI and Owner, each acting reasonably. In the absence of agreement
concerning Owner's Plan, the disagreement will be resolved by this Agreement's
dispute resolution process, the goal being a Plan which fairly balances the
interests of Owner, WPHLI, and the League's other owners, Players and fans and
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Owner WPHLI
recognizes that the League's several teams cooperate in the integrated operation
of the League as a single collective enterprise. Balancing these interests may
produce a Plan which does not maximize Owner's finances to the detriment of the
other stakeholders. Owner shall operate Owner's Team pursuant to the approved
Plan. WPHLI's approval of the Plan does not comprise any representation,
guarantee or promise by WPHLI concerning anything except that a required act by
Owner has been performed. Owner will not permit any third party to rely upon
WPHLI's approval of the Plan.
8.4.2. REPORTING. Subject to such uniform changes as may be made in
the Governing Documents, Owner shall deliver complete and accurate records to
WPHLI as follows: (a) The regular reporting period shall be one calendar month
or such other period as stated in the Governing Documents (in any case, the
"Period"). Within fifteen days of the end of each Period, Owner shall submit to
WPHLI a correct and complete statement of all Revenue for such Period on the
reporting forms required in the Governing Documents (the "Period Report"). The
Period Report shall contain all information required thereby and be certified as
correct by Owner. (b) Within twenty-five days of the end of each Period, Owner
will submit to WPHLI a copy of Owner's operating statements for such Period; and
(c) Within ninety days after each fiscal year end, Owner shall submit to WPHLI
the following information as finally adjusted and reconciled after the close and
review of Owner's books and records for the year, certified as correct by Owner
and, on a review engagement basis, by an independent certified public accountant
retained by Owner: balance sheet, income statement and statement of source and
application of funds, prepared in accordance with generally accepted accounting
principles applied on a basis consistent with prior fiscal years; and such other
reports, tax returns, and information, including for Owner's Associated Persons
or guarantors, as WPHLI may from time to time require. If Owner understates
Owner's Revenues or monies due to WPHLI for any Period by more than three
percent then Owner shall immediately pay the amount due and WPHLI's cost of
discovering the error, including legal and accounting fees, and for a full audit
of Owner's business by WPHLI's representatives for the prior, immediate and next
fiscal annual periods. This is in addition to any other remedies WPHLI may have.
8.4.3. RECORDS. Owner will completely and accurately record all
business and create, use, keep and submit all records, and reports according to
the requirements prescribed in the Governing Documents. This may include,
without limitation, upon WPHLI's request, Owner using the System's uniform
accounting system and making reports based thereon so WPHLI, in WPHLI's
discretion, can better create and disseminate summary information, evaluate
relative operating performances, and develop criteria to enable WPHLI to
formulate League plans and policies. WPHLI's accounting system shall be given
priority in use by Owner, but is not exclusive of any other accounting system
Owner may desire to use. WPHLI may require Owner to purchase and use certain
procedures, computer software and hardware, data transmission, forms, record
keeping devices, cash registers equipped with recorders and a locked-in grand
total unit, and to obtain same from single designated sources, for control and
uniformity. WPHLI may disclose portions of any Owner's financial information in
support of WPHLI's efforts to add additional Owners to the System. Owner shall
permit WPHLI or WPHLI's representatives to enter any premises of Owner and
inspect, sample, copy, photograph, take and test any of Owner's premises,
Products, goods, services, items, books, files, drawers, storage areas, records,
computer generated records, electronic memory, bank statements, books of
account, tax returns, files, receipts, and all other things and places related
to Owner's Team, Home Arena, System business or any business conducted pursuant
to the System or relating in any way to this Agreement; observe Owner's
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Owner WPHLI
operations and confer privately with Owner's personnel and customers; all
without prior notice and at any time. Owner will immediately fully cooperate
with the same, assist as requested, and instruct all persons to immediately
fully and truthfully answer all questions and immediately provide all requested
documents and samples without charge. Owner and its Associated Persons will
themselves and will instruct their suppliers and independent accountants to
promptly make all documents and information relating to Owner or its Associated
Persons, including, without limitation, original documents and data, working
documents, accountant's work product, tax returns, filings, etc., available for
inspection, copying and audit if requested by WPHLI. Owner shall timely deliver
to WPHLI the records on the schedules prescribed in the Governing Documents. If
Owner fails to timely submit any required information, WPHLI may obtain the same
by audit and investigation at Owner's expense. Owner's maintaining or submitting
false records is a breach. Owner's intentional material falsification of records
submitted to WPHLI is an Exceptional Breach. If Owner at any time causes an
audit of Owner's Team to be made, then Owner shall furnish WPHLI with a complete
copy of the resulting audited financial statements, without any cost to WPHLI.
8.4.4. COMPUTER. The Governing Documents may specify uniform computer
hardware, software, and communications requirements for all aspects of Owner's
business and may be modified on ninety days written notice. Owner's computers
shall comply with the Governing Documents' location, operational, record
keeping, audit, and other requirements. Owner shall: supply WPHLI with all
codes, passwords, and information necessary to access Owner's computer and not
change them without first notifying WPHLI. This includes, without limitation,
specific hardware and software to enable WPHLI to access all of Owner's
computers and Team-related records electronically at Owner's expense. A
non-limiting example is dial-in computer polling at night. WPHLI may require use
of WPHLI's proprietary software and use of certain software and access any
information in Owner's computers. Owner shall pay for any initial or ongoing
licensing fee for third party software, reimburse WPHLI for WPHLI's expenses
related to internally or vendor created software or technology, and Owner's own
costs associated with either the security or hosting of any systems WPHLI may
require. If WPHLI bundles WPHLI's third party software and provides it to Owner
for use with Owner's business, Owner shall enter the System's then current
licensee agreements for same, upon terms consistent with the then current
uniform software license terms stated in the Governing Documents, which
agreements may require, among other detriments, that Owner pay for same. If
WPHLI believes it is advisable at any time to modify or discontinue use of any
or all System software or hardware, and/or use additional or substitute software
or hardware, then Owner is required to do so without any obligation on WPHLI's
part.
8.5. ETHICAL CONDUCT. Owner will not allow or engage in unsafe, unlawful,
deceptive, misleading, or unethical practice, operation, or advertising; deal
fairly and honestly with each customer, player, supplier, vendor and WPHLI;
comply with all applicable laws, ordinances, bonds, orders, regulations, and by
laws of applicable public and private authorities; maintain all necessary
permits and licenses; and rely solely on its own attorney's and advisor's advice
in all matters. Neither Owner nor persons employed by Owner's Team shall make
any statements or engage in any activity which is detrimental to the good will
or reputation of WPHLI, results, or may reasonably be anticipated to result in
litigation against or public criticism of WPHLI or any employee or agent of
WPHLI; any other System team or other team's owner, Player, employee, or agent;
or the System or any employee or agent of the System. The Governing Documents
may implement rules for Owner's resolving, channeling, and reporting adverse
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Owner WPHLI
incidents and complaints about Owner's Team, the League, Products, or any aspect
of the System. If Owner, any Equity Holder, or any of Owner's Players,
Management personnel, employees, or agents, disrupt or attempt to disrupt the
standard operation of the System, Owner shall immediately inform WPHLI of same,
provide WPHLI with all information WPHLI requests, and thereafter comply with
WPHLI's instructions concerning same, which instructions may include requiring
that the subject person's participation with Owner and the League immediately
end. Owner will never threaten to breach this Agreement, repudiate this
Agreement, or indicate to any entity that the Owner is not bound by it or any
part of the System or challenge WPHLI's sole ownership and enforceability of
WPHLI's claimed intellectual property rights. Owner specifically represents and
agrees that Owner has fully, completely, and honestly completed the System's
application and has provided WPHLI with full, complete and accurate information
concerning its background, financing, assets, debts, business experience and
aptitudes. WPHLI's duties are discharged and ended if Owner has not been
entirely truthful in these regards regardless of performance, reliance or any
other legal doctrines. Owner shall make such disclosures and sign such
additional verification documents as WPHLI from time to time deems reasonably
necessary to assure WPHLI of Owner's continuing performance. Following
expiration or earlier termination of this Agreement, WPHLI may execute in
Owner's name and on Owner's behalf all documents necessary or advisable in
WPHLI's judgment to terminate Owner's use of the Marks and WPHLI is hereby
irrevocably appointed as Owner's attorney to do so. Every power of attorney
granted in this Agreement to WPHLI is coupled with an interest, shall continue
unrevoked and may be exercised during any subsequent legal or other incapacity
on Owner's part. Owner will ratify and confirm in writing that any actions taken
by or on behalf of WPHLI in pursuance thereof are valid and effectual. Owner's
duties set forth in this paragraph are its "Ethical Conduct Duties."
8.6. USE OF GOODWILL.
8.6.1. ADVERTISING. Owner's advertising, marketing and promotions
including, without limitation, type, quantity, placement, timing, choice of
agency, placement of and choice of League logos and marks upon jerseys, helmets,
etc., must be within the guidelines stated in the Governing Documents. WPHLI may
require all uniforms, decals, patches, name emblems or the like intended for use
with or in association with Owner's Team, and all signage related to Owner's
Team which Owner proposes to use be submitted by Owner to WPHLI prior to use for
WPHLI's written approval, which approval shall not be withheld unreasonably.
WPHLI may require advertising placed by Owner to employ only materials and
programs provided or approved in writing by WPHLI. WPHLI is not required to pay
for any of Owner's advertising. WPHLI may require all or part of Owner's
advertising to be placed through WPHLI or a WPHLI approved agency.
8.6.2. MEDIA RIGHTS. WPHLI has the exclusive right to enter regional
and national Media contracts for League games. "Media" means all means by which
information is published or communicated including, without limitation, radio,
television, internet, billboard, electronic transmission, newspapers, and
magazines. Owner agrees that for purposes of marketing, advertising, and public
relations of WPHLI and WPHLI Products, WPHLI may make, publish, reproduce, and
distribute photographs, video, and other Media images of Owner, Owner's Team,
the Home Arena, the Players, and the Owner's employees and grants WPHLI sole
full rights to make, use, reproduce, distribute, sell, publish, and fully
exploit in good taste photographs, videos and other Media, whether or not
currently known or contemplated, utilizing the Team Name, Team Indicia, Home
Arena, Owner, employees, players and customers of Owner, on an individual or
22
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Owner WPHLI
collective basis at no cost to WPHLI. Owner will do whatever is reasonably
needed or useful for WPHLI to fully use or commercialize same. Owner will
reserve and make available to WPHLI a current or future inventory of arena
advertising locations and Media as described in the Governing Documents. WPHLI
negotiated national and regional Media agreements may require display and use of
particular signs, Media, events, etc., during League games, and Owner shall
comply with same. WPHLI may require Owner or any Association to create and place
its local or Association advertising through a WPHLI owned or approved Media
agency and, in such event, WPHLI may seek and retain the commission paid by the
advertising seller. Owner shall fully participate in and comply with, at Owner's
sole expense, all credit card, coupon, or similar programs, and marketing
programs WPHLI deems mandatory. These programs may be implemented in the
Governing Documents.
8.6.3. MERCHANDIZING. WPHLI may determine that merchandising or
licensing using the Marks and the names, logos, personalities, photos, and the
like, of WPHLI's teams generally will be done through one or more collective
agreements which delegate some or all merchandising or licensing through one or
more entities, or the like, which shall be standard agreements for all League
teams generally. Owner shall enter and comply with such agreements. If WPHLI's
merchandising agreements produce net profits, they shall be allocated between
WPHLI and participating teams according to formulae and procedures stated in the
Governing Documents. WPHLI does not represent or promise that this program will
be continued or that its terms will remain constant.
8.6.4. MARKETING. Owner will always announce that it is "independently
owned and operated" or some similar statement approved in writing by WPHLI and
prominently display a sign to this effect near any Owner's Team facility,
including at the Home Arena's main entrance, and on all contracts, vehicles, and
documents. Examples: Owner name "Joe Smith" or "Smith, Inc."; Team Name
"Grasshoppers," trade name at Home Arena "Grasshoppers Stadium"; letterhead,
sign at Home Arena main entrance and agreements "Grasshoppers, independently
owned and operated by Smith, Inc." or "Smith, Inc. d/b/a Grasshoppers." Owner
will use only Owner's Team Indicia in connection with Owner's Team and not use
same except as permitted in the Governing Documents. Except for Owner's Team
Name and such Marks as Owner develops for Owner's Team, Owner will not use any
part of the Marks as part of Owner's corporate name or trade name or in any
other manner nor make any representations about any part of the System except as
shown in the System's stock advertising or with WPHLI's express written consent.
The Governing Documents may implement advertising and marketing restrictions and
approval processes. The Governing Documents may implement advertising and
marketing restrictions and approval processes. If a League exclusive agreement
is entered with an advertiser for a line of goods or services, for example,
without limitation, an official league beer, tax preparation service, etc.,
Owner and Owner's Team will honor the agreement's exclusive scope by not
advertising competitors' goods and services for the duration of the agreement.
Owner's own name or Team Name must be on all licenses, permits, tax returns,
stationary, business cards, invoices, agreements, etc. Owner will seek and
obtain WPHLI's written approval for any Team Indicia, including, without
limitation, marks, mascots, uniforms, logos, designs, domain name, symbols, or
other indicia prior to commercial production or public distribution. Owner's own
name or Team Name must be on all licenses, permits, tax returns, stationary,
business cards, invoices, agreements, etc. Owner will seek and obtain WPHLI's
written approval for any Team Indicia, including, without limitation, marks,
mascots, uniforms, logos, designs, domain name, symbols, or other indicia prior
23
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Owner WPHLI
to commercial production or public distribution. WPHLI may use the System to
sell other products or services and may establish or license different systems
without providing Owner any rights thereto. Owner shall promptly comply with
WPHLI's directives concerning telephone service, listings and advertising
including, without limitation, assigning to WPHLI, upon WPHLI's written request,
any telephone number owned by Owner, and, any telephone number of its Associated
Persons if same is identified by any of the System's Marks or used for purposes
relevant to System or Team business. WPHLI may change the System, including,
without limitation, its Marks, Products, and Proprietary Information, by
amending the Governing Documents except that amendments to the Governing
Documents which are contrary to this Agreement are ineffective. Owner shall
adopt same at Owner's sole expense. Owner's Team Indicia and any intellectual
property, including, without limitation, copyrights, marks, ideas, goodwill,
proprietary information, etc., are assigned to and solely owned by WPHLI and
non-exclusively licensed to WPHLI to Owner for use with Owner's Team for the
duration of this Agreement. Owner shall obtain and maintain such trademark
registrations and assumed name registrations for all Marks associated with
Owner's Team as the Governing Documents require or, at WPHLI's election,
reimburse WPHLI for WPHLI's cost of same. There shall not appear in any
advertising or directory listings for Owner's Team any telephone numbers other
than telephone numbers identified by Owner's name or Owner's Team Name.
8.6.5. ENFORCEMENT. Owner will immediately actively assist WPHLI
assert, prosecute or defend WPHLI's claimed rights in the System, permit WPHLI
to control any litigation or proceeding thereon, not take any action in
derogation thereof, immediately report to WPHLI any infringements thereof and
cooperate fully and execute any papers useful to accomplish these purposes, all
at Owner's sole expense. Owner has no right to make any demands of any third
parties due to the third party's use of any of the System or Marks or to
prosecute any such claims. Any use of the Owner's Team Indicia or Marks by Owner
outside the scope of this Agreement infringes WPHLI's rights. Owner agrees that
during and after the term of this Agreement, the System's intellectual property
as same is described herein is exclusively owned by WPHLI, is valid and
enforceable, and Owner will never use or infringe same anywhere without WPHLI's
written consent, and never contest or assist anyone else contest sch exclusive
ownership, validity or enforceability in any forum. The appearance, design,
layout, and decoration of Owner's Team's uniforms, team color combinations,
symbols, arena design and indicia belong exclusively to WPHLI, even if changed
from that prescribed by WPHLI. Owner has investigated Owner's full trade area
and verified that none of the Marks are being used there by third parties in
ways which conflict with Owner's proposed use.
9. RELATIONSHIP.
9.1. INDEPENDENT BUSINESS. Owner is an independent business solely
responsible for its own management, operations, procurement, maintenance,
facilities, equipment, supplies and waste. Owner is solely responsible for the
selection, retention, performance, nonperformance, hiring, firing, supervision,
and evaluation of its personnel and may not rely on WPHLI's suggestion,
evaluation or approval of such persons. WPHLI is in no way responsible for the
selection of or the performance, nonperformance, honesty or any other quality of
Owner's personnel. WPHLI's duty concerning persons approved, trained, or
certified by it, if any, solely comprises having offered them certain identified
training materials and experiences, and no more. Owner will rely on its own
independent judgment concerning personnel, day to day operations and compliance
with all laws, safety standards and practices and not on WPHLI. This Agreement's
standards and restrictions relate solely to the parties' rights with respect to
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Owner WPHLI
each other and do not control Owner's actions with respect to Owner's customers,
employees or other third parties. The responsibility and authority of WPHLI's
personnel and advisors with respect to Owner is always limited to giving general
advice to Owner concerning the System's standards. WPHLI never has any authority
or power to instruct Owner's employees to do or not do anything. Owner has
exclusive authority to instruct his employees and sole responsibility for
Owner's Team and its operations. An exception to every Owner's duty to WPHLI is
Owner's superior obligation to do all things necessary for public and employee
safety and to comply with all applicable laws. However, for Owner to rely on
this exemption, Owner must specifically point out any such problem to WPHLI in
writing, expressly citing this clause, as soon as the problem is apparent and
before taking any action thereon, unless time constraints preclude such prior
written notice, in which case Owner shall inform WPHLI in writing of the problem
and Owner's action in response thereto as soon thereafter as possible. If WPHLI
disagrees with Owner's assessment of the problem or believes the problem should
be dealt with in some other fashion, WPHLI may submit the dispute to this
Agreement's dispute resolution process. Nothing contained herein shall be
construed to give WPHLI or any combination of entities the right to control
Owner's prices, except that the Governing Documents may set guidelines for
ticket prices for League games, with which Owner will comply, subject to Owner
requesting and obtaining WPHLI's written waiver or any applicable law to the
contrary. Owner agrees to otherwise always independently set Owner's own prices.
This Agreement does not create an agency, partnership, joint venture or
fiduciary relationship between WPHLI and Owner. Owner will not represent itself
as a partner, or employee of WPHLI and will make no promises or representations
concerning WPHLI. WPHLI is not liable under any circumstance for any act,
omission, contract, debt or any other obligation of Owner.
9.2. PROPRIETARY INFORMATION. "Proprietary Information" comprises all
information WPHLI discloses to Owner or Owner creates or obtains due to Owner's
participation in use of the System or Owner's relationship with WPHLI or other
System participants, including, without limitation, the System's Governing
Documents, training manual, existing or potential Players, staff, products,
suppliers, customers, owners, technology, methods, operations, know-how, and
updates and changes to any of same except to the limited extent Owner shows same
have entered the public domain. Owner expressly agrees Owner will receive
specialized training and Proprietary Information pursuant to this Agreement. Any
use, disclosure, copying or appropriation of Proprietary Information or any part
of the System for any purpose not expressly permitted herein breaches this
Agreement and causes immediate, great and irreparable injury to the System,
WPHLI and other owners. Owner, its successors and assigns, all persons signing
with or for Owner, its Governors, officers, directors, shareholders, partners,
limited partners, holders of a five percent or greater legal or beneficial
interest in Owner, and those of its employees and agents who have access to any
Proprietary Information (collectively "Associated Persons") have a confidential
relationship with WPHLI and fiduciary duty to WPHLI concerning WPHLI's
Proprietary Information. Proprietary Information and all documents containing
the same always belong solely to WPHLI and will not be used, disclosed, copied
or appropriated during or after the duration of this Agreement without WPHLI's
prior written consent. Owner will maintain the Proprietary Information in the
strictest confidence, not permit any part of it to be reproduced, comply with
any confidentiality program implemented in the Governing Documents and, at
WPHLI's request, require all Associated Persons and all employees and agents, to
sign confidentiality and non-competition agreements on WPHLI's then-current
standard forms and forward duplicate executed originals thereof to WPHLI. Any
document received from WPHLI bearing any of the Marks is and always remains
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Owner WPHLI
WPHLI's sole property and will not be used, disclosed, copied or appropriated
without WPHLI's prior written consent. On termination, Owner will immediately
deliver to WPHLI all originals, copies and derivative works of the Governing
Documents and other materials containing any Proprietary Information or bearing
any of the Marks and not retain any such items with the exception of Owner's
copy of this Agreement and documents Owner needs to comply with applicable law.
Proprietary Information comprised of a collection of information is only deemed
to be in the public domain if the complete collection of information is found as
a whole in the public domain. If the information is available to the public, but
only in different fragments, then the collection of information is not in the
public domain. WPHLI has no adequate remedy at law in the event of any breach or
threatened breach by Owner or its Associated Persons of this Agreement or any
confidentiality or non-competition agreement or any confidential relationship
concerning Proprietary Information, and is entitled, without showing actual
damages or placing any bond, and in addition to other remedies, to an immediate
injunction prohibiting any conduct in violation thereof. Owner guarantees that
its Associated Persons, employees, and agents shall comply with their agreements
with WPHLI.
9.3. BUSINESS RESTRICTIONS. Because of the personal confidence of WPHLI in
Owner and its Associated Persons, the training, investments and disclosures of
WPHLI, and the need for Owner and its Associated Persons to devote their full
attention to the System, certain restrictions are necessary to induce WPHLI to
enter this Agreement. Owner and its Associated Persons will promptly and fully
disclose to WPHLI all business and marketing information and contacts with
existing or potential team owners, suppliers, distributors or competitors that
are relevant to the System and will, for the duration of this Agreement and
three years after its termination: not have a direct or indirect interest in any
capacity (i.e., as an officer, director, partner, investor, shareholder,
employee, agent, lender guarantor, creditor, supplier, landlord, lessor or
otherwise) in any nearly identical, competitive, or similar business located or
operating in whole or part within the Protected Territory, a one hundred mile
radius from Owner's Home Arena, the state where Owner's Home Arena is or was
located, within any other System Owner's protected territory, or within any
state a System team or arena is operating or Owner has reason to believe will
begin operating within one year from termination of this Agreement; which
business is likely to compete, directly or indirectly, with any System team or
arena or which looks like or imitates any part of the System; not employ or seek
to employ any person who is or has been employed by WPHLI, any of WPHLI's
affiliates, or a System team or arena during the preceding six months, or
otherwise, directly or indirectly, induce any such persons to leave their
employment therewith; not have a direct or indirect interest in any entity with
whom they know or have reason to know WPHLI was, is, or will be negotiating to
sell or license any System right; and not divert or attempt to divert any sales
or customers from WPHLI or any System team or arena, or do any act injurious to
the System's goodwill. These promises expressly survive expiration, ending,
assignment, Transfer and any change in this Agreement. The duration of any time
limited restraint on Owner's post termination activities will be extended for a
period of time equal to Owner's breach of the restraint. Owner acknowledges that
because of the unique nature and valuable nature of the System and its
reputation, including related proprietary rights and Owner's knowledge of and
association and experience with the System, the provisions of this part are
reasonable and commensurate for protection of the legitimate business interests
of WPHLI, its affiliates and licensees. This part is independent from the rest
of this Agreement. Owner waives any claim or cause of action relating to any
other part of this Agreement as comprising any defense to enforcement of this
part. If any time period, geographic area or other provision of this part is
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Owner WPHLI
held invalid or unenforceable as to Owner, it shall be deemed reformed to the
limited extent necessary to make such provision enforceable.
9.4. INTELLECTUAL PROPERTY. Owner will promptly make full written
disclosure to WPHLI of all changes, developments and improvements reasonably
related to the System, and hereby assigns them to WPHLI if made during the life
of this Agreement or within one year of this Agreement ending. All intangible
rights and goodwill created for or by use with the System or Owner's Team
including, without limitation, Owner's own marks, trade names, trade dress,
personalities, copyrightable works, etc. are always fully assigned by Owner to
WPHLI and belong solely to WPHLI. Owner will additionally execute any documents
WPHLI deems useful to confirm any of the above and place WPHLI's copyright and
other proprietary notices on all such works and copies of the same. At WPHLI's
request, Owner will require Owner's Management personnel to sign covenants
similar to Owners' covenants in this Agreement in a form satisfactory to WPHLI.
Owner agrees that all System, team, arena, player, customer and supplier
information, records and agreements which are related to use of the System are
part of the System, owned by WPHLI and shall not be used by Owner after
termination. If this Agreement is terminated, Owner may continue to personally
use intangible improvements made by Owner provided Owner does not represent
thereby that Owner is associated with the System or violate Owner's other
obligations to WPHLI. If Owner's intangible improvements are valuable enough to
cause additional distinct fees to be paid to WPHLI by third parties for a
license thereto, WPHLI may apportion one half of such additional fees to Owner.
WPHLI may implement rules concerning and restricting non-local marketing and
sales methods such as internet sales in its Governing Documents.
10. RENEWAL, TRANSFER AND TERMINATION
10.1. PRE-OPENING CANCELLATION. Until the later of Owner becoming
enforceably bound to an approved Arena Contract and thirty days after Owner's
Management Personnel successfully completing initial training, WPHLI may, in its
sole discretion, determine that the relationship it desires with Owner is
unlikely to develop and lawfully cancel this Agreement and all other agreements
with Owner and be relieved of all duties to Owner by returning to Owner the
Initial Fee paid by Owner to WPHLI pursuant to this Agreement, less WPHLI's
out-of-pocket expenses incurred due to this Agreement. Owner shall be entitled
to no remedies under any causes of action other than refund of monies paid to
WPHLI less WPHLI's expenses as described herein. In the event of pre-opening
cancellation, Owner shall return to WPHLI all materials received from WPHLI and
all copies thereof, and not use or disclose any of WPHLI's Proprietary
Information, all upon the terms set forth herein.
10.2. RENEWAL. If Owner is in full compliance with this Agreement and has
not committed any Exceptional Breaches at any time (other than defaults which
have been waived in writing by WPHLI), then Owner shall have the right to enter
into a new license agreement with WPHLI for a further term of ten years
("Renewal Term"), commencing immediately after expiration of this Agreement's
Initial Term, upon the following terms and conditions: Owner must deliver
written notice to WPHLI of Owner's exercise of Owner's right of renewal not more
than eighteen months nor less than twelve months prior to expiry of the Initial
Term; Owner shall, no later than the first day of April of the last year of the
initial term, execute WPHLI's then current form of license agreement; Owner
shall concurrently pay to WPHLI twenty-five percent of WPHLI's then current
initial fee charged to new owners; Owner provides evidence satisfactory to WPHLI
that Owner is able to remain in possession of the Home Arena under the Arena
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Owner WPHLI
Contract (or renewal or replacement of the Arena Contract) for the duration of
the Renewal Term on terms satisfactory to WPHLI. If such Arena Contract terms
cannot be obtained, then WPHLI and Owner will each use reasonable best efforts
to relocate the Home Arena within the Protected Territory, at Owner's expense.
Renewal is subject to Owner, at Owner's sole expense, completing to WPHLI's
satisfaction the remodeling, re-equipping, refurbishing, training, acquisition
of new or different Products, signs, equipment, or services, and other changes
required by WPHLI to bring Owner's business into compliance with the System's
then current standards within six months of WPHLI's notice thereof and Owner's
continued strict compliance with this Agreement and Governing Documents
throughout the prior term. Failure to give proper notice of intent to renew is a
knowing waiver of any right to renew. The terms of the renewal agreement may be
materially different than those herein in all respects, including, without
limitation, additional and greater payments, royalties, and fees. Owner and all
of its shareholders and partners thereof must sign the new agreement and a
general release of all claims against WPHLI and WPHLI's personnel to obtain
renewal. Uncontested operation without a written renewal is under the terms
hereof and is terminable at will by either party upon ninety days written
notice.
10.3. OWNER'S COMPANY.
10.3.1. INCORPORATION. Owner may incorporate, create a limited
partnership or other limited liability organization (collectively "Company") if:
the Company's articles or other highest governing documents state that Company's
activities are confined exclusively to operating one or more licensed businesses
in accordance with this Agreement. The Company shall not have more than fifteen
shareholders, members or partners, enter agreements affecting control of the
Company or Owner or permit the number of outstanding shares to be increased,
transferred, impaired or used as collateral without WPHLI's prior written
consent. Owner shall deliver to WPHLI updated copies as changes occur in the
Company's articles, by-laws, minutes, amendments, and the like, and documents
which identify the Company's shareholders or partners, shares owned, officers
and directors. WPHLI may condition its consent to incorporation on, or at any
time require, letters of credit, personal guarantees and releases in a form
satisfactory to WPHLI of all owners, partners, and shareholders for Company's
and Owner's performance hereof. In the event of a disagreement between or among
the principals, officers, or stockholders of Owner which, in the opinion of
WPHLI, may affect adversely the ownership, operation, management, business, or
interest of Owner's Team or WPHLI; WPHLI may give Owner a demand that Owner
resolve the disagreement to WPHLI's satisfaction within ninety days or suffer
same to be deemed a material breach by Owner.
10.3.2. TRANSFER. A material part of the consideration hereof is
WPHLI's personal confidence in Owner, the individuals and entities signing with
or for Owner, and the owners of interests in Owner. Neither Owner, nor any owner
of any interest in Owner, shall directly or indirectly enter into any sale,
conveyance, assignment, sublicense, division, delegation, pledge, succession,
gift, encumbrance, option agreement, management, change in voting control or
beneficial ownership, or operating agreement, security agreement, lien, or any
other act, by operation of law or otherwise, which has or could have the effect
of changing any of the ownership, management or control of Owner, any interest
in Owner, any part of the franchised business or any right or duty hereunder or
any substantial part of Owner's assets (collectively, "Transfer") without
WPHLI's prior written consent. WPHLI has the right to disapprove any person or
entity that would acquire any part of legal or effective control of Owner or any
interest in Owner. Any interest in this Agreement is always subject to these
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Owner WPHLI
provisions. An attempted or effective unauthorized Transfer is voidable by WPHLI
and comprises a general release of all claims against WPHLI, its affiliates,
officers, directors, employees and agents and a breach of this Agreement.
WPHLI's consent to any Transfer shall not constitute a waiver or release of any
claim, demand, guaranteed action, or cause of action which WPHLI may have
through the date of Transfer.
10.3.3. CONDITIONS OF TRANSFER. The following conditions must be met
before Owner or any owner of any interest in Owner enters any Transfer: (1)
Owner gives sixty days prior written notice thereof to WPHLI. The notice must
identify what is to be transferred, the proposed transferee and all terms and
conditions thereof. WPHLI has an irrevocable right of first refusal for sixty
days to itself enter the proposed agreement on like terms or their reasonable
equivalent in cash. Any material change in the terms of any offer comprises a
new offer subject to WPHLI's right of first refusal. WPHLI may require deposit
by the proposed transferee of ten percent of the total proposed consideration in
WPHLI's escrow account during the sixty day period to insure bona fideness. (2)
Owner obtains WPHLI's written approval of the proposed transferees or successors
(approval contingent on the transferee personally meeting with WPHLI at its
Headquarters, satisfying high financial, business reputation, credit rating,
ability and ethical standards, receipt of all normally required transferee data,
meeting WPHLI's then current criteria for new owners and WPHLI determining, in
WPHLI's subjective opinion, which may be unreasonably and arbitrarily exercised,
that the proposed transferee is suitable, and providing WPHLI adequate assurance
that the transferee will likely successfully operate the franchised business and
agreeing to, paying for, and scheduling training for the transferee to operate
the franchised business); (3) All of Owner's obligations under this Agreement
and any other agreements then in effect between WPHLI and Owner are in good
standing. Owner pays all amounts then due to WPHLI and fully prepay all notes or
other agreements to pay monies over time to WPHLI, entities associated with
WPHLI, entities to which WPHLI has guaranteed payment by Owner, all System
Associations and all advertising obligations related to the franchised business;
(4) Owner and transferee execute WPHLI's then current form of assignment of this
Agreement. Additionally, all legal and beneficial shareholders, partners,
members, directors and officers of the transferee shall execute and deliver to
WPHLI WPHLI's then current form of guarantee of all obligations which the
transferee will have to WPHLI. A general release of all claims by Owner against
WPHLI, its affiliates, officers, directors, employees and agents in a form
satisfactory to WPHLI and guarantee transferee's performance for a period equal
to the remaining term of this Agreement; and (5) The transferee executes WPHLI's
then current franchise agreement for the remainder of this Agreement's term and
renewals, which agreement may be materially different than this Agreement,
including, without limitation, additional and greater payments, royalties, fees
and contributions, and WPHLI's other then current standard ancillary agreements,
assumption by the transferee of all of Owner's liabilities related to this
Agreement on forms satisfactory to WPHLI and agreement by transferee to upgrade
the franchised business to WPHLI's then current standards and to have transferee
and transferee's proposed management personnel complete any training WPHLI may
require to WPHLI's satisfaction and at transferee's sole expense. (6) Owner
provides evidence sufficient to WPHLI that the assignee or transferee has taken
an assignment of the Arena Contract or that the Arena Contract has been
terminated and the proposed assignee or transferee has entered into a new Arena
Contract for the Home Arena, for a term at least equal to the remainder of the
Term (with an option to renew for a renewal term equal to the Renewal Term) or
exercised Renewal Term, as the case may be, and further, the assignee or
transferee, and the Home Arena landlord executes the Governing Document's
then-current form Lease Rider for the Arena Contract. If the Transfer effects a
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Owner WPHLI
change in control of Owner relative to Owner's original controlling entity or
most recent approved controlling entity, then WPHLI's approval of the Transfer
may be conditioned upon Owner entering into WPHLI's then-current License
Agreement with a new ten-year Initial Term, the new Initial Term beginning upon
the new License Agreement becoming effective.
10.3.4. DEATH OR INCAPACITY. In the event of the death or incapacity
of Owner or any person with an interest in Owner (a "Triggering Event"), Owner's
Team shall immediately notify WPHLI of same and provide evidence to WPHLI's
satisfaction that Owner's Team is continuing to be managed as required by this
Agreement. Failure to continually provide such notice and management is a
material breach justifying termination for cause. Within one year of the
Triggering Event, the executor, administrator or personal representative of such
person shall transfer the subject interest in Owner's Team to a third party
approved by WPHLI. Any such Transfer is subject to the same conditions as any
inter vivos Transfer except that if the transferee is a member of such person's
immediate family, then no Transfer restrictions apply except that the transferee
must execute WPHLI's then current agreement for this Agreement's remaining term,
attend and complete System training to WPHLI's satisfaction, and ensure that
qualified Owner's Management Personnel actively manage Owner's Team in
compliance with this Agreement. WPHLI may terminate this Agreement if the
interest is not timely disposed. 10.3.5. OFFERINGS BY OWNER. Owner shall submit
all proposed advertisements for the sale of Owner's Team to WPHLI for prior
written approval. Owner may make public or private offerings of securities or
partnership interests only with WPHLI's prior written approval, which may be
denied at WPHLI's discretion. The offering shall not imply, by using WPHLI's
marks or otherwise, that WPHLI is participating in any way with the offering and
shall make clear that WPHLI's review is limited solely to the relationship
between WPHLI and Owner. Owner shall submit to WPHLI all materials required for
the offering, whether the same are submitted to governmental authorities or not,
at least sixty days prior to use or filing, and pay WPHLI a non-refundable fee
to reimburse WPHLI for its costs and expenses, including, without limitation,
legal and accounting fees, associated with the proposed offering.
10.3.6. ENCUMBRANCES. Notwithstanding any other provision of this
Agreement, Owner shall not pledge, encumber, hypothecate, or otherwise give any
third party a security interest in this Agreement in any manner whatsoever,
shall not grant, issue or allow any lien, execution or security interest
whatsoever over any of Owner's tangible or intangible assets, including, without
limitation, machinery, equipment, fixtures, furnishings, leasehold improvements,
supplies, Team Indicia, intellectual property, Arena Contract, etc. without
WPHLI's prior written consent, which consent may be arbitrarily withheld by
WPHLI. WPHLI shall not, however, unreasonably withhold its consent to Owner
granting such a security interest to a financial institution as security for
moneys to be advanced to Owner for use exclusively in connection with the
operation of Owner's Team. Owner will not grant any ownership right in or allow
any lien, security interest or other encumbrance to be placed against any part
or parts of the Symbols without the prior written consent of WPHLI, which
consent may be withheld arbitrarily. Upon written request of and at the option
of WPHLI, Owner will exclusively license, at no cost to the WPHLI, all or any
part or parts of Owner's right, title and interest in and to the Symbols and any
other intellectual property relating to Owner's Team to WPHLI or to a licensing
company ("Licensing Company") which WPHLI may incorporate for the principal
purpose of holding and managing intellectual property of League teams and WPHLI
System licensees. Owner agrees to enter into a written licensing agreement with
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Owner WPHLI
WPHLI or Licensing Company, as the case may be, which will provide for
distribution of profits (or losses) resulting from any merchandising programs
that WPHLI or Licensing Company, as the case may be, may develop.
10.4. BREACH.
10.4.1. THIRTY-DAY CURE. Maintaining the System's standards, goodwill,
Marks, and Proprietary Information is essential for continued growth and
profitability of the System, protection of other System Owners, and meeting the
public's expectations of the System. The terms of this Agreement are reasonable
and essential to preserve the interests of all concerned. Upon Owner's breach of
this Agreement, WPHLI may pursue any remedy for same, including, without
limitation or election of remedies, termination of this Agreement by delivering
notice of termination to Owner, subject to Owner's opportunity to cure as set
forth herein, if any. Such termination is deemed to be for good cause and
effective upon the date stated in the notice and according to its terms, unless
Owner timely cures the breach within the stated cure period or becomes entitled
to an extended cure period and timely cures within the extended cure period.
Upon Owner's breach, WPHLI may deliver a notice of intent to terminate
specifying the breach and a date at least thirty days hence by which Owner may
avoid termination by curing the breach to WPHLI's satisfaction which notice of
intent to terminate shall become effective without further notice to Owner
according to its terms if Owner does not timely fully comply with the cure
conditions. If the nature of the breach is such that it cannot be cured within
the cure period, and Owner promptly takes diligent steps to cure the breach
immediately upon receiving such notice, promptly informs WPHLI in writing of the
steps Owner is taking to cure the breach, and diligently continues to do so,
then, subject to WPHLI's consent, Owner shall have such additional period of
time as is reasonably necessary to cure the breach, not to exceed ninety days.
Curing a breach includes at least fully remedying the breach, taking all steps
needed to prevent the breach from occurring again, providing unconditional
written assurance to WPHLI that the breach will not be repeated, and paying
WPHLI and all other non-defaulting entities adversely affected by Owner's breach
all of their damages and attorney's fees caused by the breach, if any. None of
the foregoing prevents a party from recovering damages or other relief or
exercising any other remedy available to it, in law or equity, as determined by
this Agreement's dispute resolution process.
10.4.2. TEN-DAY CURE. An express exception to all other procedures
stated herein is that the non-extendable cure period for the following breaches
is ten days from notice: (i) failure to timely pay Owner's obligations to
Owner's Players, landlords, suppliers, taxing authorities, insurers, and WPHLI;
and (ii) breach of any other agreement between Owner and WPHLI or any Affiliated
Entity.
10.4.3. EXCEPTIONAL BREACHES. Exceptional Breaches are express
exceptions to all other procedures stated herein. WPHLI may immediately
terminate this Agreement due to Exceptional Breaches by delivering written
notice of termination to Owner without notice or opportunity to cure specifying
the defaults, unless WPHLI elects to state a cure period in the notice. The
following are "Exceptional Breaches:" Owner becomes Insolvent; Owner serially
breaches this Agreement three or more times in any twelve month period; Owner
receives written notice of breach from WPHLI concerning two breaches, and Owner
again commits at least one of the same breaches within the twelve month period.
10.5. POST-AGREEMENT DUTIES.
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Owner WPHLI
10.5.1. GENERALLY. Upon this Agreement's expiration without renewal or
termination by either party, or it otherwise ending, Owner will assist WPHLI in
either amicably winding up Owner's business conducted pursuant to this Agreement
or transferring same to another at WPHLI's election, including signing all
documents presented to Owner by WPHLI which are reasonably necessary or
convenient for such purposes. Additionally, If Owner has any leases, subleases,
or other ongoing agreements with WPHLI, WPHLI may lawfully terminate them
without any obligation to Owner, any parties hereto, or any third parties. Owner
will immediately pay WPHLI all monies then due to WPHLI, including without
limitation, Franchise Fees and Advertising Contributions, and fully prepay any
notes or other agreements to pay monies over time to WPHLI, entities which have
a controlling interest in WPHLI or in which WPHLI has a controlling interest, or
to which WPHLI has guaranteed payment by Owner, irrespective of other terms
concerning time of payment stated anywhere in any document. If after expiration
without renewal, termination or other ending of this Agreement, Owner fails or
refuses to comply with any of the requirements of this Agreement, including
without limitation, Owner's continuing obligations, Owner shall reimburse WPHLI
for all costs and expenses, including attorneys' fees, incurred by WPHLI due to
Owner's noncompliance, including any legal action taken to enforce compliance.
If Owner continues to operate the business after termination, Owner shall pay
all monies to WPHLI which would have been due if this Agreement were still in
effect, WPHLI's acceptance of such payments not comprising any waiver,
ratification, release or the like. If this Agreement is wrongfully terminated by
Owner or lawfully terminated by WPHLI due to Owner's breach, then Owner shall
pay WPHLI as agreed liquidated damages, one-half of the Franchise Fees,
Advertising Contributions and other monies Owner would have likely paid to WPHLI
if Owner had fully complied with this Agreement through the end of its term
(Owner's full payment obligations to WPHLI during the last full calendar year of
Owner's operations prior to termination being applied to each of the years
remaining in this Agreement's term for calculation purposes) together with all
other damages, costs and expenses, including attorney's fees, incurred by WPHLI.
Termination of any material agreement between WPHLI and Owner due to Owner's
breach, including, without limitation, other franchise agreements for other
teams, is, at WPHLI's option, good cause for WPHLI lawfully terminating this
Agreement and any or all of any other agreements WPHLI may have with Owner
without any liability by WPHLI to Owner, any parties hereto, or any third
parties.
10.5.2. TEAM ASSETS. Three months prior to this Agreement ending due
to its expiration, unless the Agreement has been renewed, or immediately upon
receipt of any notice of termination or intent to terminate Owner will supply
WPHLI with copies and lists of all tangible and intangible rights and assets
related in any way to operation of Owner's Team and Owner's Team's use of the
Home Arena, specifically including, without limitation, all supplier, vendor,
lease, insurance, marketing, internet, customer, employee and other agreements,
address lists, season ticket holder and customer lists, site leases, equipment,
inventory, equipment, fixtures, supplies, furnishings, books, past and current
tax returns, real and personal property, indoor and outdoor signs, telephone
listings, and any and all other tangible and intangible rights and assets (all
collectively "Property"). WPHLI may, at its sole option, immediately acquire
any, some, or all of the Property until ninety days after Owner supplies WPHLI
with a complete set of such copies and lists, together with sufficient
information for WPHLI to calculate the value and acquisition price of all such
items. Effective upon WPHLI giving Owner notice of such acquisitions as WPHLI
chooses to make, same, all, or none made severally or as a group, Owner
immediately ceases to have any rights in the acquired Properties other than for
compensation as stated herein. Such acquisitions immediately vest all legal,
equitable, and beneficial title and rights to the acquired Properties solely in
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Owner WPHLI
WPHLI, free and clear of any lien, charge, encumbrance, security interest or the
like not previously approved by WPHLI. Owner will immediately sign any
assignments or other documents presented by WPHLI which WPHLI deems convenient
to giving full useful effect and benefit to these transfers and will immediately
assist and permit the acquired Properties to be immediately occupied or removed
as directed by WPHLI. If no price is agreed on for an acquired Property then its
price shall be the lower of (a) if its value is listed in Owner's federal income
tax returns, the lesser of the depreciated value shown on Owner's last federal
income tax return, or cost less straight line depreciation over its useful life
for a period of no more than five years without any allowances as determined by
an independent appraiser selected by WPHLI or, (b) if it is rented or leased,
assumption of payment obligations for possession subsequent to the acquisition,
(c) if an agreement for future performance, possession or use, assumption of
payment obligations for future receipt of performance, possession, or use
subsequent to the acquisition; or (d) if inventory or supplies used in
connection with Owner's Team a price equal to fifty percent of Owner's
originally invoiced cost thereof if acquired by WPHLI within one year of
delivery of same to Owner, twenty-five percent of the originally-invoiced price
if acquired by WPHLI within the two years of delivery to Owner, and ten percent
if acquired by WPHLI thereafter. If none of the above price setting mechanisms
are applicable, then the price shall be based on orderly liquidation value and
set by an independent appraiser selected according to this Agreement's dispute
resolution process. No value shall be attributed to goodwill, WPHLI's Marks,
agreements with WPHLI, value as a going business, equity, or any intangible
addresses or other communications, numbers, or addresses used in connection with
Owner's Team, value. As between WPHLI and Owner, WPHLI shall never be liable for
any of Owner's liabilities except future use-based obligations for lease
agreements which WPHLI acquires, even if WPHLI acquires the entire business.
WPHLI shall begin to pay the acquisition prices ninety days after each such
acquisition right or item is fully delivered by Owner to WPHLI for WPHLI's sole
full use, possession, and benefit. Payment of the purchase price shall be made
by WPHLI to Owner in twenty-four equal consecutive monthly installments, the
beginning payment date being thirty days after Owner and WPHLI agree upon a
price as set forth herein or thirty days after the price is determined by this
Agreement's dispute resolution process. WPHLI may set off against such prices
any amounts due from Owner to WPHLI or to any Owner creditor to which creditor
WPHLI applies such funds or has paid any obligation of Owner. All accounts
payable and all accounts currently receivable of Owner's business upon
termination belong solely to Owner. If Owner is a corporation, company, or
limited partnership Owner and all shareholders, members, and partners thereof
are deemed to have granted WPHLI an irrevocable option to purchase any or all
shares of Owner's issued or unissued equity interest at par value, or the like,
for one year from the date of termination.
10.5.3. TELEPHONE AND INTERNET. Rights to any domain name, telephone
numbers, addresses, or other communications, numbers, or addresses used in
connection with Owner's Team, or the like, which are used by Owner's Team from
time to time or are associated with Owner's Team are always held by Owner in
trust for WPHLI. WPHLI may at any time require Owner to immediately assign all
such telephone numbers, etc., to WPHLI, in which event if Owner is in full
compliance with this Agreement, WPHLI shall make use of same available to Owner
and Owner shall pay WPHLI all costs associated with the same. Upon Owner's
Material Default, or any notice of termination or any termination or ending of
this Agreement, Owner hereby irrevocably authorizes WPHLI to do whatever WPHLI
deems is reasonably necessary (including executing documents in the name of
Owner) to transfer all rights to some, any, all, or none of same to WPHLI or an
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assignee of WPHLI at WPHLI's election. If this Agreement ends for any reason,
any or all telephone numbers and internet addresses, and other communication
addresses associated with Owner's Team shall be deemed assigned to WPHLI or its
designee, the assignment to be effective if and when WPHLI elects to accept the
assignments. WPHLI's assumption of future payment obligations will be the sole
payment therefore. The telephone company, domain registrar, and any court shall
accept this Agreement as conclusive proof of WPHLI's exclusive right to the
telephone numbers without any interference whatsoever. Further, Owner will
itself execute additional similar documents if the telephone company so
requests. No interrupts or operator messages will be required on telephone
numbers assigned to WPHLI. WPHLI may elect to not acquire any, some, or all
telephone numbers, and in such event, Owner shall either discontinue such
numbers or solely pay for an operator interruption service for one year to
inform callers of Owner's disassociation with WPHLI and of how to contact WPHLI
or other System teams for further information. The telephone company is an
intended beneficiary of these provisions. Owner expressly agrees that upon
termination, WPHLI may immediately take sole possession of Owner's offices and
facilities, change any locks and exclude Owner from same, subject to WPHLI
thereafter timely electing in writing to acquire or not acquire any or all of
Owner's personal or real property.
10.5.4. TRADEMARK DISCONTINUANCE. On termination or expiration of this
Agreement, all rights granted to Owner hereunder immediately terminate. Owner
will immediately and permanently: cease to represent itself as being associated
with WPHLI; discontinue all use of the System, the Marks and any similar marks,
logos, or indicia, WPHLI's copyrighted materials and Proprietary Information.
This specifically includes, without limitation, immediately and permanently
ending and removing or modifying signs, exteriors, interiors, fixtures,
furniture, equipment and operations and techniques to completely distinguish
image, operations, services and goods from the System; causing Owner's governing
documents and all licenses, permits and contracts to be amended to delete all
parts of the Marks; abiding by all confidentiality, non-competition and
noninterference covenants with WPHLI, end use of and returning to WPHLI all
materials provided by WPHLI such as advertising materials and training
materials, trade secrets, and methods of operation. WPHLI and its agents have
the right to immediately enter any premises where the licensed business was
conducted, without being guilty of trespass or any other tort, ensure Owner's
obligations on termination are met and effect the above at Owner's expense.
Further, following expiration or earlier termination of this Agreement, if WPHLI
suffers damages because Owner fails to discontinue forthwith its use of all
Marks and all copyrights, trade secrets, systems, methods of operation, format
and goodwill which are features of the WPHLI System, then in addition to any
other remedy provided in this Agreement or available to WPHLI at law or in
equity, WPHLI shall have the right to recover damages from Owner which arise
directly or indirectly from such failure to discontinue. Following expiration or
earlier termination of this Agreement, WPHLI may execute in Owner's name and on
Owner's behalf all documents necessary or advisable in WPHLI's judgment to
terminate Owner's use of the Marks and WPHLI is hereby irrevocably appointed as
Owner's attorney to do so. Every power of attorney granted in this Agreement is
coupled with an interest, shall continue unprovoked and may be exercised during
any subsequent legal or other incapacity on Owner's part. Owner will ratify and
confirm in writing that any actions taken by or on behalf of WPHLI in pursuance
of thereof are valid and effectual.
10.6. BUSINESS CONTINUATION. Owner acknowledges and agrees that in a
collective enterprise such as a professional athletic league that WPHLI, other
owners, numerous players, suppliers, vendors, and fans are in an extremely
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Owner WPHLI
co-dependent relationship, the other entities and persons in the collective
enterprise being dependent upon Owner doing its agreed part. Because of this
extreme reliance, the remedies needed upon any Owner's default in its promises
must be immediate and effective. In the event of WPHLI giving notice to Owner of
a breach of this Agreement, and in addition to any other remedies specified
herein, including but not limited to termination, WPHLI may, without waiving any
claim for default and without prior notice to Owner: (a) Bring such action for
injunctive or other similar relief to compel Owner to comply with Owner's
obligations; (b) take whatever steps WPHLI deems necessary to cure Owner's
defaults for the account of and on behalf of Owner, enter any business premises
of Owner without being liable to anyone in any way for such entry, for the
purposes of securing the return of WPHLI property, performing or compelling
performance of Owner's obligations and protecting WPHLI's rights upon expiration
or termination of this Agreement; (d) take immediate possession and control of
Owner's Team, offices, facilities, and related tangible and intangible assets.
Payment, ownership, allocation and resolution of disputes of the same will be
determined later, in accordance with this Agreement, and WPHLI shall not be
responsible for any misconduct or negligence pending resolution of payment,
ownership, allocation, and resolution of disputes; (e) sell or lease or concur
in selling or leasing the undertakings, property and assets of Owner or any part
thereof; (f) make any arrangement or compromise on Owner's behalf which WPHLI
believes is expedient; (g) to the full extent permitted by law carry on or
concur in carrying on the operations of Owner's Team and employ such agents,
attorneys, accountants, contractors, employees and other persons WPHLI thinks
proper to repair or renew such of the assets of Owner as may be worn out or lost
or otherwise unserviceable, and raise money on the assets of Owner and charge
the same at such rate or rates of interest and on such terms as WPHLI thinks
fit. To enable WPHLI to exercise the powers granted by this section, at WPHIL's
election, Owner hereby is deemed to have irrevocably appointed WPHLI to be the
Owner's attorney-in-fact for the purpose of exercising any or all of the powers
set forth in this section and executing any deed, conveyance, transfer, bill of
sale or any other instrument necessary to effect a sale, arrangement or
compromise. The rights and powers conferred by this section supplement and are
not in substitution for any other rights WPHLI may from time to time have under
this Agreement or otherwise. Owner will pay WPHLI full compensation for WPHLI's
costs, efforts, and services pursuant to this section. In addition to WPHLI's
other rights, Owner grants WPHLI the right to take possession of and a
possessory lien for payment against Owner's assets until WPHLI is fully paid and
all of Owner's duties to WPHLI are fully discharged. Moneys received by WPHLI
pursuant to this section shall be paid to Owner. After discharge of all rents,
taxes, rates, insurance premiums and business affecting Owner's Team and any
related additional assets of Owner compensation and reimbursement of WPHLI; in
keeping liens and charges on Owner's assets in good standing to pay any sums due
under this Agreement, in payment of any other amounts Owner is required to pay
in this Agreement, including to Owner's creditors in exercising its rights under
this section, WPHLI shall not be deemed to waive any breach by Owner or incur
any liability to Owner or any other person. In any receivership or bankruptcy
proceeding brought by WPHLI, Owner is deemed to have consented to the receiver
of WPHLI's choice. Owner agrees these terms are necessary and reasonable to
protect WPHLI, the System and other owners and expressly agrees monetary damages
would be inadequate to compensate WPHLI for any breach of this Agreement. Owner
agrees and acknowledges that any such violation or threatened violation will
cause irreparable injury to WPHLI and that, in addition to any other remedies
that may be available in law, in equity or otherwise, WPHLI is entitled to
injunctive relief, without bond or other security, against the breach,
threatened breach, or the continuation of breach, without the necessity of
proving actual damages.
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Owner WPHLI
10.7. INSOLVENCY. Owner is in default and all rights granted herein to
Owner automatically terminate without notice to Owner if Owner becomes
"Insolvent", defined as any of: voluntarily suspending normal business
operations, or becoming unable to pay debts as they mature; failing to pay all
debts as they come due; Owner is adjudicated bankrupt or insolvent; a receiver,
trustee in bankruptcy, or other custodian (permanent or temporary) is appointed
to take charge of any part of Owner's affairs, assets or property, or any part
thereof is appointed by any court; proceedings for a composition of creditors is
instituted by or against Owner and is not dismissed within ten days; Owner makes
a general assignment for the benefit of creditors; a petition of bankruptcy is
filed by Owner; a petition in bankruptcy is filed against Owner and is not
dismissed within ten days; a final judgment against Owner remains unsatisfied
for thirty days (unless a supersedeas bond is filed); Owner is dissolved;
execution is levied against any Owner's property or business; any suit to
foreclose any lien or mortgage against the premises or equipment is not
dismissed within thirty days; or if dissolution proceedings are commenced by or
against Owner and are not dismissed within ten days, Owner ceases its corporate
existence (whether voluntarily or involuntarily), Owner goes into liquidation,
Owner acknowledges insolvency under order of a Court; Owner sells or purports to
sell or transfer or otherwise loses possession or ownership or control of all or
a substantial part of the assets used in connection with the operation of
Owner's Team; Owner allows the personal property used by Owner's Team to become
attached, executed against, distrained, levied upon or become subject to
sequestration or retainer, without obtaining full release of within five days;
Owner allows any builder's lien or other lien, charge or encumbrance to attach
to Owner's Team, or any real or personal property used by Owner's Team which is
for of more than ten days; Owner allows any judgment to be entered against WPHLI
or any of WPHLI's affiliates arising out of or relating to operation of Owner's
Team without satisfying such judgment or securing it by payment into Court
within ten days; or Owner or Owner's Team is enjoined from operating in the Home
Arena and such injunction is not dismissed, stayed or set aside within the
earlier of ten days or the next scheduled game at the Home Arena.
11. OTHER TERMS
11.1. INSURANCE. WPHLI currently requires all League teams to enter WPHLI's
standard insurance policy regarding team injuries, except to the extent same is
precluded by applicable law. Prior to hiring any employees, Owner shall execute
same and thereafter shall timely pay, and fully comply with same. If WPHLI's
standard team injury insurance is not entered into because same is precluded by
applicable law, Owner shall obtain equivalent coverage with terms as stated in
the Governing Documents. Prior to doing any business or entering any other
agreements concerning the licensed business, Owner will obtain and thereafter
maintain at Owner's expense, insurance coverage at least equal to the minimum
insurance requirements, coverages, and amounts set forth in the Governing
Documents, except as prohibited by law. These requirements include, without
limitation, naming WPHLI as an additional insured and waiving subrogation
against WPHLI together with such insurance as may be required by any law, lease,
special risk or as WPHLI may reasonably require for its or Owner's own
protection. The insurance policies will include a statement that they cannot be
canceled or altered without at least thirty days written notice to WPHLI and
must be obtained only from insurance companies which meet WPHLI's standards.
Owner will deliver to WPHLI such evidence of insurance and its maintenance as
required by the Governing Documents. Owner will not make any claim against WPHLI
or any entity performing any duty for WPHLI to recover any loss covered or which
should have been covered by such insurance. Owner's obligations are not reduced
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Owner WPHLI
because of any insurance WPHLI or Owner may carry, nor will any insurance
relieve Owner of liability under the indemnity provisions herein. All insurance
policies shall require the insurers to defend Owner and WPHLI, jointly and
severally and without any right of subrogation against anyone, in all claims and
actions to which the insurance is applicable. WPHLI, at its option, may obtain
such insurance and/or make payments necessary to keep such insurance in force if
Owner fails to do so and Owner will immediately reimburse WPHLI for such
payments. WPHLI may elect, at any time, upon the recommendation of its
independent insurance advisor, to require Owner, either individually or as part
of a group of licensees, to place the insurance coverages (or any them) through
WPHLI, in which case Owner will pay its proportionate share (with other WPHLI
System licensees) of all costs thereof, upon receiving invoices therefore. Owner
will pay its proportionate share of internal costs (as invoiced by WPHLI) which
are incurred by WPHLI from time to time in connection with administration of any
insurance. Owner agrees WPHLI is not an insurance broker. Nothing done by WPHLI
pursuant to this section or otherwise comprises a representation, promise, or
constitutes an assurance that Owner has adequate insurance for Owner's assets,
business and potential liabilities and Owner is free to obtain additional
insurance as Owner sees fit, with or without the advice of Owner's own insurance
broker.
11.2. WARRANTIES. WPHLI believes it has all rights to the System and
Products necessary for WPHLI's performance of WPHLI's promises to Owner set
forth in this Agreement. WPHLI warrants to Owner to repair or replace any
Product manufactured by WPHLI which is purchased directly from WPHLI and proves
to be defective in workmanship or material, all in accordance with its then
current published warranty policy. THE FOREGOING IS IN LIEU OF ALL EXPRESS
WARRANTIES AND REPRESENTATIONS AND ALL IMPLIED WARRANTIES INCLUDING, WITHOUT
LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. WPHLI MAKES NO OTHER AFFIRMATIONS OF FACT, PROMISES WHICH
ARE A BASIS OF THE BARGAIN OR EXPRESS WARRANTIES EXCEPT AS SPECIFICALLY SET
FORTH HEREIN. WPHLI makes no warranties concerning the goods or services of
approved suppliers whether they be listed as an approved supplier or be
otherwise recommended by WPHLI or concerning goods purchased from WPHLI, but
which were not manufactured by WPHLI. Such sales are "AS IS" with respect to
WPHLI. WPHLI will assign to Owner any warranties it has received from
manufacturers to the extent contractually permitted. WPHLI is not liable for
consequential, special, indirect, or incidental damages, transportation, labor,
or any other charges due to any goods or services. All sales, leases, or
transfers of goods or services from WPHLI to Owner are governed by this
Agreement unless otherwise agreed in writing. Owner has inspected all available
goods, services and specimens of WPHLI and has found them to be in complete
conformity with this Agreement and Owner's expectations.
11.3. LOCATION RESPONSIBILITY. The Home Arena's location and selection,
lease negotiations and plans, layout, build out, contractor selection, terms,
prices, timetables, and all other matters related to the real estate and
building at which Owner's Home Arena will be located (collectively "Location
Matters") are important to Owner's success or failure. Owner is encouraged to
consult with real estate brokers and experts familiar with Owner's geographic
area. Owner has the most specific information about Owner's Location Matters and
has sole responsibility for obtaining full information, obtaining and consulting
with Owner's own qualified advisors, and making Owner's own decisions pertaining
to all Location Matters. WPHLI makes no representations or promises concerning
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Owner WPHLI
Location Matters, including, without limitation, whether or not the location is
suitable, likely to be successful, etc. If WPHLI provides any Location Matters
information, minimum requirements, etc., same are only relevant to System Home
Arenas generally being sufficiently within the System's guidelines to present a
standard System image. Owner may not rely upon these or any other WPHLI
materials, statement, or information about Owner's location or Location Matters
being beneficial to Owner. WPHLI does not represent that same are useful for
Owner's location. WPHLI expressly disclaims any representations concerning the
suitability, appropriateness, usefulness, likely success or failure of Owner's
location, or any Location Matters. Owner agrees Owner has carefully inspected
the Home Arena and its surrounding area, consulted with Owner's own advisors and
experts and believes a WPHLI team arena has a reasonable potential for success
there. Owner is aware that proper selection is critical to business success.
Owner agrees WPHLI's approval of the Home Arena does not comprise WPHLI's
guarantee or recommendation of the Home Arena, and that Owner is solely
responsible for selection and all other aspects of the Home Arena and matters
relating to it. WPHLI's suggestion or approval of a location is not a
representation or guarantee that it will be suitable or successful for Owner or
any other aspect of it. No person employed by or associated with WPHLI has
authority to make any such representations.
11.4. CLAIMS.
11.4.1. THIRD PARTY CLAIMS. Owner will immediately notify WPHLI in
writing of any suits, threats claims or complaints concerning, arising from or
relating to the System, Owner's Team, Owner, WPHLI, or any part of or aspect of
the System, its Marks, employees, agents, Products or services, together with a
full explanation of the situation. Methods of channeling customer complaints,
governmental investigations or publicity about same directly to WPHLI may be
implemented in the Governing Documents. Owner will actively assist WPHLI to
prosecute or defend WPHLI's claimed rights in the System, the assistance being
at Owner's expense, not take any action in derogation of same, immediately
report to WPHLI any infringements thereof and cooperate fully and execute any
papers useful to accomplish these purposes at Owner's expense. Owner is solely
responsible for and will defend, indemnify, and hold WPHLI, its affiliated
companies, officers, employees and agents and other System owners harmless from
all damages and expenses (including, without limitation, attorney's fees and
expenses, and any payments made by WPHLI in satisfaction of non-frivolous
complaints), fines, claims, actions, or demands of every kind and character, for
injury to or death of any person or damage done to any property arising directly
or indirectly or allegedly arising from Owner's or its contractor's,
subcontractor's or their respective employee's or agent's work, offer, sale,
lease or transfer of any good or service, regardless of whether or not the claim
arose from acts outside of such business' or person's scope of work or
employment, or Owner's operation of any part of Owner's Team or the System
including, without limitation, where such injuries, death or damages are caused
by the sole, joint, or concurrent gross or simple negligence of WPHLI, its
officers or employees. In the event of unresolved customer complaints,
litigation, or any governmental litigation or investigatory request or demand
based in whole or in part upon Owner's alleged acts or failure to act, WPHLI may
elect, upon giving prior written notice to Owner, to take whatever action WPHLI
deems appropriate in Owner's name to resolve such matters, including, without
limitation, controlling and/or settling claims and litigation, making payments
in satisfaction of complaints and agreeing to undertake corrective measures, all
in Owner's name and at Owner's expense. WPHLI will use reasonable judgment
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Owner WPHLI
concerning such matters as WPHLI elects to resolve in Owner's name and owes
Owner no other duties. Owner is always solely responsible for its costs,
attorney's fees, damages, and settlements. WPHLI may defend against patent,
trademark, copyright, unfair competition claims or the like or instruct Owner to
adopt substitutes chosen by WPHLI at Owner's expense.
11.4.2. OFFICIATING CLAIMS. While officiation matters generally are
open for discussion at Board of Governors meetings and Owner may complain to
WPHLI concerning any officiation matter, Owner agrees WPHIL's decisions in this
regard are binding and final. Owner acknowledges and accepts the fact that
League officials will inherently, from time to time, make mistakes, bad calls,
and the like, but that ultimately officiation requires finality. WPHLI AND
LEAGUE OFFICIALS, ARE EXPRESSLY RELEASED FROM ANY LIABILITY DUE TO ANY ACT OR
FAILURE TO ACT BY ANY LEAGUE OFFICIAL ACTING IN THEIR CAPACITY AS LEAGUE
OFFICIALS, REGARDLESS OF WHETHER SAME IS A MISTAKE, NEGLIGENT, GROSSLY
NEGLIGENT, WILLFULLY AND INTENTIONALLY NEGLIGENT, OR THE LIKE. An exception is
that Owner's claims against League officials are hereby always assigned to WPHLI
for WPHLI to assert or not assert, in WPHLI's absolute discretion, any ultimate
recovery upon Owner's claim to be assigned by WPHLI back to Owner.
11.4.3. OWNER'S CLAIMS. This Agreement's limitations are reasonable
and intended to promote the early disclosure of problems to permit them to be
resolved in a timely manner rather than becoming the basis of expensive, time
consuming litigation at a later date. OWNER MUST DELIVER A WRITTEN NOTICE TO
WPHLI WITHIN NINETY DAYS OF BEGINNING OPERATIONS UNDER THIS AGREEMENT OF ANY
PRE-OPERATIONAL BREACHES OR MISREPRESENTATIONS OF WPHLI OR IS DEEMED TO HAVE
WAIVED THE SAME. OWNER WILL CAREFULLY MONITOR THE ACTIVITIES OF WPHLI AND
DELIVER A WRITTEN NOTICE TO WPHLI OF ANY OBJECTIONABLE ACT, FAILURE TO ACT,
STANDARD OR PRACTICE OF WPHLI WITHIN NINETY DAYS OF THE FIRST OCCURRENCE THEREOF
OR IS DEEMED TO HAVE WAIVED ANY OBJECTION AND CAUSE OF ACTION WITH RESPECT
THERETO AND TO ALL FUTURE SIMILAR OCCURRENCES. OWNER SHALL FILE A DEMAND FOR
DISPUTE RESOLUTION AGAINST WPHLI WITHIN TWO YEARS OF THE FIRST OCCURRENCE OF ANY
BREACH OF CONTRACT OR TORTIOUS ACT OF WPHLI INCLUDING, BUT NOT LIMITED TO,
FRAUD, MISREPRESENTATION, STATUTORY TORTS, NEGLIGENCE, PROMISSORY ESTOPPEL AND
ALL ACTIONS HOWEVER DENOMINATED OR IS DEEMED TO HAVE WAIVED THE SAME AND ANY
OBJECTION TO ALL FUTURE SIMILAR OCCURRENCES. IF OWNER PURCHASES ANY GOODS OR
SERVICES FROM WPHLI, OWNER SHALL DELIVER WRITTEN NOTICE OF ALL DEFAULTS TO WPHLI
WITHIN NINETY DAYS OF DELIVERY. FAILURE TO TIMELY DELIVER SUCH NOTICE COMPRISES
AN IRREVOCABLE ACCEPTANCE AND BINDING ADMISSION THAT THE GOODS AND SERVICES
FULLY COMPLY WITH THE ORDER AND ARE FIT FOR THEIR INTENDED PURPOSE. To the
extent permitted by applicable law, neither party shall be liable to the other
for punitive or exemplary damages. If WPHLI is held liable to Owner for material
breaches of this Agreement or for any material acts or failures to act related
hereto, Owner's sole remedy is liquidated damages consisting of a credit to
Owner of one-third of all Assessment Fees paid by Owner to WPHLI due to the
affected team (in the two years preceding WPHLI's breach), exclusive of payments
for goods or services delivered, during each calendar year of the breaches
against future monies to be paid by Owner to WPHLI or, if Owner ceases to be a
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Owner WPHLI
League owner, return to Owner of such amount. Exceptions are that Owner's sole
remedy, Owner expressly waiving all claims to monetary or other relief, in the
event (a) any WPHLI entry, possession, or injunction is held wrongful or
dissolved, shall be return of possession and dissolution of the injunctive
relief, or (b) WPHLI officials' fail to appear to officiate any game or they
otherwise cause cancellation or disruption of any game, shall be WPHLI providing
officials to the rescheduled game, if any, without expense to Owner. In the
event of actionable immaterial breaches or wrongs by WPHLI, Owner's actual
damages shall be determined and be credited against future monies to be paid by
Owner to WPHLI. These are Owner's sole and exclusive remedies, are in lieu of
all other relief of any kind, are reasonable remedies considering the range of
possible problems, and are adopted to lessen the expense and uncertainty of
litigation and to promote its early settlement or resolution.
11.4.4. DISPUTE RESOLUTION. ALL DISPUTES BETWEEN THE PARTIES AND
BETWEEN OWNER AND ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR
ASSOCIATED PERSONS AND ANY OF WPHLI'S OFFICERS, DIRECTORS, EMPLOYEES, OR AGENTS
SHALL BE RESOLVED BY INDIVIDUAL BINDING ARBITRATION IN THE COUNTY OF WPHLI'S
THEN-CURRENT HEADQUARTERS, in accordance with the American Arbitration
Association's ("AAA") then current Commercial Rules of Arbitration, and be
governed by the Federal Arbitration Act subject to the following exceptions: In
the event of a dispute, either party shall deliver a written statement of the
dispute together with a demand for mediation to the other party. The parties
shall attempt to agree upon a mediator and mediation rules. If the parties do
not agree upon a mediator and mediation rules within ten days, the mediation
shall be pursuant to the AAA's rules in the county of WPHLI's then-current
headquarters, the mediator to be immediately appointed by the AAA and paid for
equally by the parties. If the dispute is not resolved at the mediation, the
parties will attempt to agree on an arbitrator or arbitrators and rules of
arbitration. If the parties do not agree upon arbitrators and rules of
arbitration within ten days after the end of the mediation, the dispute will be
resolved according to the AAA's then-current Commercial Rules of Arbitration in
the county of WPHLI's then-current Headquarters. The parties may take discovery
in preparation for the arbitration hearing as authorized by the Federal Rules of
Civil Procedure. If the amount in controversy is two hundred-thousand dollars or
less, a single arbitrator shall be used. If the amount in controversy is greater
than two hundred-thousand dollars, the panel shall have three arbitrators who
shall appoint one of their members to be a chairperson to decide all
pre-evidentiary hearing matters except for motions for summary judgment and to
solely control the conduct of the evidentiary hearing. The arbitrator(s) shall
be attorneys with at least ten years substantial business law and litigation
experience and paid their standard office practice rates for all time spent due
to the arbitration. The parties will submit a joint pretrial order which
complies with the Local Rules of the local federal district court. Evidence
shall be received solely in accordance with the Federal Rules of Evidence and
testimony transcribed at the request of any party at that party's expense. All
information and copies of information developed due to the arbitration shall be
held in confidence under such protective orders as the panel deems useful to
insure confidentiality and ultimately delivered to the panel for destruction at
the conclusion of the controversy, subject to WPHLI's legal disclosure
requirements. In addition to the AAA's standard deposits, each party shall
deposit, pay and replenish such amounts as the panel deems appropriate to secure
the panel's fees and related costs with the AAA. Failure to timely make or
replenish any required deposit is a full default by the defaulting party,
entitling the non-defaulting party to an immediate administrative award by the
AAA of all relief requested by the non defaulting party without any need for
appointment of or any act of the arbitration panel. If a Fed.R.Civ.P.-type Rule
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Owner WPHLI
68 offer is declined, the offered relief shall not be counted in determining the
prevailing party if the offered relief is ultimately awarded. The panel shall
otherwise determine the prevailing party. The non-prevailing party shall
reimburse the prevailing party for all AAA and panel fees and related costs (not
including the parties' attorney's fees). The award shall be strictly in
accordance with applicable law, and state, "This award is limited to the exact
facts and parties before this panel and is in the nature of an enforceable
settlement. It is not applicable to any other facts or parties." The arbitration
shall be rapidly completed. Either party may appeal the award within thirty days
of its entry to the local federal district court (or state district court if
federal jurisdiction is lacking), for review solely on the arbitration record
and to confirm, modify, correct, reject, or reverse the award as the judge may
deem proper and necessary in the particular case. Concerning the dispute's
merits, the court will limit its evidentiary review to the evidence in the
arbitration record. In the event of an appeal, each party shall submit proposed
findings of fact and conclusions of law to the panel within forty-five days of
the appeal (or of the record being transcribed, if applicable), and the panel
shall prepare findings of fact and conclusions of law for the reviewing court.
The district court's judgment is appealable. An exception to exclusive mediation
and arbitration is that temporary judicial injunctive relief or expedited
judicial remedies may be obtained by either party pending judicial confirmation
of the arbitration award to enforce the terms of this Agreement; to prevent
Proprietary Information or Marks from being disclosed, misused or not used; to
prevent the injury, loss, wasting or removal of any tangible or intangible asset
used in connection with the System's business or to protect public health and
safety pending judicial confirmation of the arbitration award, or concerning
unlawful detainer or eviction, foreclosure of a security interest or bankruptcy
court claims or the like. Pursuit of such temporary injunctive relief does not
comprise an election of remedies or waive or impair the parties' agreement to
ultimately resolve the dispute by arbitration as set forth herein. Failure to
comply with this Agreement's dispute resolution process or its award or judgment
is a material breach of this Agreement.
11.5. PURCHASE ORDERS. All purchase orders received by WPHLI are subject to
acceptance by WPHLI as set forth herein. WPHLI has the right to not accept new
orders and to withhold shipment of accepted orders if Owner is in any way in
default hereunder, specifically including, without limitation, failure to pay
any sum due WPHLI. WPHLI may change prices without advance notice. WPHLI's
quotes, price lists, etc. are invitations to submit orders and no more. Any
provision included by Owner in any purchase order which is inconsistent with
this Agreement or WPHLI's standard terms of sale is ineffective. WPHLI is under
no obligation to examine Owner's orders except to determine items and quantity.
WPHLI reserves the right to reject any order. Absent a separate written notice
of acceptance only shipment by WPHLI comprises acceptance of Owner's order and
then only to the extent of goods shipped and no more. All WPHLI's sales and
quotations are subject to this Agreement unless this clause is specifically
referred to and negated in a subsequent signed agreement. Additional specific
terms and conditions of ordering, shipment, delivery and payment may be
implemented in the Governing Documents as it may be changed from time to time.
Owner's exclusive remedy for all causes relating to delivery, quantity and
quality of goods is for refund of such monies paid for the goods and is
conditioned on timely giving notice of rejection, holding the goods for WPHLI's
inspection and a finding that the goods were defective when delivered. While
WPHLI will use reasonable efforts to fill Owner's orders, it can not guarantee
that they will be timely or completely filled or filled in a single shipment as
WPHLI does not now, nor does it plan in the future, to warehouse sufficient
goods to immediately supply all System Owners. WPHLI reserves the right to
allocate scarce goods in its unreserved discretion. Owner agrees it must order
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Owner WPHLI
sufficiently in advance of its needs and have adequate stocks on hand to avoid
shortages. The duty to avoid these potential problems is solely Owner's.
11.6. INFLATION ADJUSTMENT. All amounts of money due from Owner to WPHLI or
which Owner is required to pay, post, escrow, place with a surety, or in a
letter of credit, or to act as a surety for, etc., including, without
limitation, the Initial Fee, Assessment Fee, Letter of Credit, shall be adjusted
for inflation by increasing the amounts by the applicable CPI Adjustment
Percentage. For the purpose of this Agreement, "CPI" means the "Consumer Price
Index for All Urban Consumers" published by the Bureau of Labor Statistics of
the United States Department of Labor, U.S. City Average, All Items (1982-84 =
100) or, if necessary, any other successor or substitute index (appropriately
adjusted) published by such Bureau or its successor, and "CPI Adjustment
Percentage" equals the percentage increase in the CPI from the first day of June
immediately after this Agreement is effective until the first day of June of the
then-current upcoming season. , the adjustment being applicable to payments due
upon the first day of June or thereafter. As a non-limiting example, if this
Agreement requires Owner to pay $100 to WPHLI and the applicable inflation
adjustment is 2.5%, then Owner shall pay $102.50 to WPHLI. Any delay or failure
of WPHLI in computing, billing, or issuing a statement for this adjustment shall
not constitute a waiver of or in any way impair the continuing obligation of
Owner to pay such adjusted amounts. If publication of the CPI is discontinued or
published less frequently, then the parties shall agree on a substitute index
published by a governmental body or nationally recognized financial institution
that reasonably reflects and monitors consumer prices. If the parties are unable
to agree on a substitute index, then one will be established by this Agreement's
dispute resolution procedure.
11.7. ACCORD AND SATISFACTION. Payments by Owner to WPHLI of any amount
less than due are deemed payments on account regardless of any endorsement to
the contrary. Endorsing any check or accepting any amount from Owner will not
bind WPHLI to such endorsement or any claim that acceptance was an accord and
satisfaction for less than the full amount due or to any other condition.
Payments from Owner will be applied first to any interest owing to WPHLI and
then to the earliest amounts due WPHLI. If WPHLI's performance of this Agreement
is hindered or prevented by act of God, enactment of legislation or governmental
order or regulation, lack of supplies, labor unrest or unavailability,
shortages, transportation delays, or unexpected demand, the requirement of
performance will be extended, to the extent so prevented, except with respect to
the duty to timely pay monies when due. Owner will not, by way of set-off or
otherwise, whether on the grounds of the alleged non-performance by WPHLI of any
of WPHLI's obligations hereunder, or otherwise, withhold payment of any amount
due to WPHLI or any Affiliated Entity, whether on account of goods or services
purchased by Owner, Assessment Fees, Advertising Fees or otherwise. WPHLI may
set off any amounts Owner owes WPHLI or any Affiliated Entity against any
amounts WPHLI may owe Owner.
11.8. REPRESENTATIONS. Owner has carefully studied WPHLI's System, the
disclosures made in WPHLI's Offering Circular, and the terms and conditions
herein. Owner specifically agrees that WPHLI has not represented, promised or
implied that WPHLI will buy back or is likely to buy back any products, supplies
or equipment or any product made, produced or fabricated by Owner using in whole
or in part any products, supplies, equipment, or services sold or leased or
offered for sale or lease to Owner by the WPHLI. Owner has been specifically
advised that Owner must have enough money on hand to pay all opening expenses
and for the period it will take for Owner's business to become profitable, if
ever. Owner represents and promises that Owner is not entering this Agreement
for investment purposes and has no present intention to sell or transfer this
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Owner WPHLI
Agreement in whole or in part, that Owner is sufficiently capitalized and has
sufficient capabilities to fund and staff the business, including during its
start-up period, and that entry into this Agreement and performance thereunder
will not breach the terms of any other agreement. WPHLI does not represent or
promise that any specific element of consideration promised or represented by
WPHLI to Owner, expressly including, without limitation, any advice,
consultation, guidance or the like will be useful or valuable to Owner. Items
and communications provided by WPHLI to Owner may be provided to benefit the
League generally rather than Owner specifically. Owner represents and promises
that Owner is and will remain financially able to make all payments needed to
open and maintain the franchised business as required herein. Owner has
carefully examined the System's business, the System's operations and products,
samples of its products, all material aspects of the System, and Owner's
proposed Protected Territory and agrees that same comply with this Agreement,
all representations and promises, and Owner's expectations. Owner and all
persons signing with or for it hereby release WPHLI, its officers, directors,
employees and agents from any known or unknown acts, breaches, or causes of
action occurring prior to this Agreement in exchange for WPHLI's grant of rights
herein. Owner acknowledges and agrees that its sales and earnings, if any, will
be primarily determined by demand in Owner's Protected Territory, the efficiency
with which Owner operates its business, competition, its efforts and its
business skills; that markups, costs and sales volumes are different at every
business and are subject to fluctuations and; that Owner's actual sales margins,
profits, losses, etc. may differ substantially from any figures it may have seen
from any source. Owner and all persons signing with, for or in support of Owner
acknowledge that they have conducted an independent investigation of the System,
this business venture, and Owner's trade area. Based upon same, they have
themselves decided that the business venture has a fair prospect of success,
acknowledge that it has a risk of failing and accept that risk. WPHLI has
encouraged Owner to, Owner has had ample time to, and Owner has in fact
consulted with lawyers and business advisors of Owner's own choosing about the
potential benefits, detriments and risks of this Agreement.
11.9. SUBSTITUTE PERFORMANCE. WPHLI has the right, but not the obligation,
to elect to perform any parts of this Agreement on Owner's behalf, including the
right to enter and remove, modify, alter, repair or replace any item or aspect
of the franchised business which does not meet the System's then current
standards. Owner shall immediately pay WPHLI its costs and expenses therefore.
Performance by WPHLI does not waive any claim WPHLI may have against Owner. If
WPHLI asserts Owner has materially breached this Agreement WPHLI may elect to
immediately exclude Owner from any or all of the Home Arena, Team offices, and
other Team facilities and take full control of any or all of same, either in
WPHLI's own name to protect WPHLI's interests or, at WPHLI's election, as
Owner's trustee as long as reasonably needed to obtain a final binding
resolution of the issue, whether by judicial action, arbitration or otherwise,
take any action WPHLI deems useful to cure the breaches and charge a reasonable
fee for WPHLI's time and expenses. WPHLI has no liability for such acts or
management unless Owner shows the same was maliciously done by WPHLI.
11.10. AUTHORITY AND GUARANTY. At WPHLI's request Owner will provide proof
that the individuals signing on its behalf have authority to do so. Each person
signing for Owner warrants that he or she has full authority to sign as
indicated. Owner hereby grants WPHLI a security interest in Owner's Team,
franchise rights, business, all real, personal and intangible property,
fixtures, inventory, receivables, equipment, signs or documents bearing any part
of the Marks, after acquired property and all proceeds of any collateral to
secure Owner's obligations hereunder. Owner will execute all other security
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Owner WPHLI
agreements and documents useful to further or perfect this security interest
including, without limitation, UCC-1 forms. Owner shall not remove any of the
secured property from the premises without WPHLI's written consent, which shall
not be unreasonably denied. Each individual who now or in the future has a
direct or indirect five percent or greater equity interest in Owner is an
"Equity Holder." Owner promises Owner will have each of Owner's Equity Holders
sign this Agreement as guarantors where indicated. Each Equity Holder or
individual signing as a guarantor of Owner's performance hereunder individually
accepts all restrictions herein on Owner as binding himself or herself
personally; unconditionally guarantees Owner's full performance hereof and full
timely payment of any obligations Owner may otherwise later incur to WPHLI;
waives notice of acceptance of this guarantee, any right to require WPHLI to
proceed against Owner, pursue any remedy, sue any party, give any notice of
intent to accelerate, acceleration or otherwise and any requirement that WPHLI
not alter, extend, release, rearrange, or substitute in whole or in part any
debt, terms or security and always subordinates any rights with Equity Holder or
individual may have to Owner's assets to WPHLI's claims. At WPHLI's request,
Owner shall have all relevant documents which have been executed by any Equity
Holder or other individual who signed as a guarantor of Owner's performance also
executed by the Equity Holder or individual's spouse, including, without
limitation, Owner's then-current License Agreement and then-current guarantees
of Owner's performance hereunder, and Owner shall deliver such spouse-executed
documents to WPHLI. If Owner is comprised of two or more persons, firms or
corporations, then their liability under this Agreement shall be joint and
several. If other or additional guarantee or subordination agreements are
entered into by Owner's Equity Holders or other individuals, such agreements
shall supplement and not release anyone from any of the terms of this Agreement
and, to the extent such other agreements are inconsistent with this Agreement,
the terms most beneficial to WPHLI shall apply.
11.11. CHANGES AND VARIANCES. Owner's Team co-exists with other System
teams and may have favorable or unfavorable interactions with the other System
teams. Advertising Associations are discussed above. The spectrum and specifics
of such interactions are currently unknowable and inappropriate for detailed
treatment in this Agreement. WPHLI is specifically empowered to prescribe
uniform rules for such interactions in the Governing Documents and Owner shall
comply with the same. WPHLI may designate some programs, goods or services as
optional for certain qualified owners. To be a qualified owner, Owner must be in
full compliance with all agreements with WPHLI and comply with such additional
requirements, such as training, marketing, insurance, inventory, and equipment
as WPHLI designates. Not more than once every five years WPHLI may require Owner
to perform substantial changes, remodeling, replacement, and refurbishment of
the Team's facilities, its equipment, fixtures, decor, furnishings, etc. to
bring same into compliance with the System's then current standards, all subject
to the Arena Contract. WPHLI may at any time elect to eliminate, relax or not
enforce any standard restriction or requirement. Any such change must be made by
WPHLI in writing for Owner to rely on same, all such changes being revocable.
Other teams may enter or leave the League under different circumstances,
conditions and terms. Other owners may operate under different agreements which
may have materially different terms, exceptions, or variances than Owner's
Agreement and that such other owners and teams may benefit from same. These do
not affect Owner.
11.12. CONSENT TO JOINT OPERATING AGREEMENT. Owner acknowledges Owner's
awareness of the Joint Operating Agreement ("JOA") between WPHLI and the Central
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Owner WPHLI
Hockey League, Inc. and the JOA's terms, consents to it as if set forth herein,
and agrees its continued existence upon its current terms or revised terms is
not promised or represented and is not a condition of this Agreement. If the JOA
materially changes or ends, the parties remain bound under this Agreement.
12. INTERPRETATION
12.1. ENTIRE AGREEMENT. This Agreement, its exhibits and the Governing
Documents, as the Governing Documents may be revised from time to time as
permitted herein, comprise the entire agreement of the parties and supersede all
prior representations and agreements with respect to its subject matter. No
promises or representations have been made to induce execution hereof which are
not included. This Agreement may not be amended or waived and no representations
may be made by WPHLI, except as set forth herein or in writing signed by WPHLI.
All rights and licenses granted by WPHLI are expressly limited, nonexclusive
grants solely within the parameters expressly stated herein and without any
expansion by implication, waiver, course of performance, or the like. No
representations; grants; obligations; warranties; rights to use, sell, copy or
display any part of the System, its Marks, documents, know-how, patent rights,
Proprietary Information or any other tangible or intangible thing or service;
duties or limitations shall be implied against WPHLI unless expressly stated
herein. WPHLI's grants, promises, representations, and warranties are
non-exclusive, limited to the grants, promises, representations, and warranties
which are expressly stated herein and do not include any implied grants,
promises, representations, or warranties. No approval, permission, or waiver
given by WPHLI is ever effective, and same never shall be relied upon by Owner,
unless it is in a writing signed by an individual at WPHLI who has express
written authority to commit WPHLI to same. Owner agrees to obtain WPHLI's
written confirmation of any non-written approval, permission, or waiver before
Owner relies on same and to never assert reliance upon any unwritten approval,
permission or waiver. Any approval, permission or waiver requested of WPHLI is
deemed denied if not timely expressly granted. The parties will each execute and
deliver such further documents or assurances and perform such further acts as
may be necessary or advisable from time to time to give full effect to this
Agreement including, but not limited to, all documents required by the Governing
Documents.
12.2. WAIVERS. Owner shall make a timely written request to WPHLI whenever
this Agreement requires WPHLI's approval. WPHLI's approval must be in writing to
be effective and relied upon by Owner. WPHLI assumes no liability or obligation
and makes no representation or warranty by denying, granting, or providing any
waiver, approval, advice, consent or suggestions to Owner or for any neglect,
delay or denial of any requests therefore. Failure of WPHLI to exercise any
right, power or option or to insist on strict compliance with the terms hereof
will not comprise a waiver with respect to any other or subsequent breach of the
same or different nature nor a waiver of WPHLI's right to at any time require
exact and strict compliance with all terms hereof and declare any breach or
default. No custom or practice waives WPHLI's right to demand exact compliance
with this Agreement. WPHLI's rights and remedies herein are cumulative with any
other rights or remedies which may be granted by law or equity. It is expressly
agreed that the description of any breach or default in any notice by WPHLI,
including, without limitation, a notice of termination, will not preclude the
later assertion of other additional defaults or breaches, whether known or
unknown at the time of the notice. Subsequent acceptance by WPHLI of any
payments or performance is not a waiver of any preceding breach by Owner. WPHLI
reserves the right, from time to time, to waive observance or performance of the
whole or any part of an obligation imposed on Owner by this Agreement. No waiver
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Owner WPHLI
of any default of any term, proviso, covenant or condition of this Agreement by
WPHLI constitutes a waiver by WPHLI of any prior, concurrent or subsequent
default of the same or any other term, proviso, covenant or condition hereof.
12.3. MATERIALITY. Owner expressly agrees that each detail of the System is
important and each term herein is reasonable and necessary for the protection of
WPHLI, other Owners and consumers who rely on the uniformity, standards, and
enforcement of the System to maintain demand for the System's Products and
services and protect its goodwill. WPHLI's duties are expressly contingent on
Owner's strict compliance with all terms of this Agreement. Any breach by Owner
of this Agreement is deemed a material and substantial breach. Time is of the
essence. Because of WPHLI's and other League owners' reliance upon owner's
strict compliance with the details of scheduled games and Owner's other
promises, force majeure, impossibility, unexpected difficulty, and the like, do
not excuse any failure or delay in Owner's timely performance of Owner's duties.
If Owner anticipates any such failure or delay in Owner's timely performance,
Owner shall immediately inform WPHLI of same. WPHLI may, in WPHLI's discretion,
elect to waive, excuse, or delay any League owner's performance without same
extending any rights to any other League owner. Calendar time periods herein
will be from the initial day to a like day in the named period (i.e., one month
and one year, respectively, from March 3, 2008, are April 3, 2008, and March 3,
2009).
12.4. SURVIVABILITY. All terms herein concerning payment, confidentiality,
Marks, nondisclosure, acquisition of assets, Proprietary Information,
non-competition, arbitration, and all other terms, post-termination assignments,
promises of cooperation, and the like, which express or imply that they are
intended to survive this Agreement's Transfer, end, expiration or termination,
shall survive same unless this clause is particularly and expressly identified
in a separate signed document. Owner expressly agrees that neither termination
nor the existence of claims by Owner against WPHLI is any defense to WPHLI's
immediate enforcement of Owner's promises herein and that Owner's promises
herein are covenants independent of any other portions of this Agreement.
12.5. GOVERNING LAW. This Agreement is deemed made and performable in the
county of WPHLI's then-current Headquarters. Owner is deliberately causing WPHLI
to undertake activities and incur expenses at WPHLI's then-current Headquarters,
is aware that substantial supervision and other activities will occur and
continue to occur there due to this Agreement, will direct Owner's payments and
communications there, and has and will develop a substantial and continuing
relationship with WPHLI there. TO OBTAIN THE CERTAINTY OF A SINGLE FORUM, ANY
JUDICIAL ACTION BROUGHT BY OWNER OR ANY OF OWNER'S ASSOCIATED PERSONS CONCERNING
ANY DISPUTE BETWEEN THE PARTIES OR AGAINST ANY PERSON OR ENTITY AFFILIATED WITH
WPHLI WILL ONLY BE INSTITUTED IN A STATE OR FEDERAL COURT SITTING IN THE
JUDICIAL DISTRICT ENCOMPASSING WPHLI'S HEADQUARTERS AT THE TIME WRITTEN NOTICE
OF THE DISPUTE IS RECEIVED AND SHALL NOT BE TRANSFERRED TO ANY COURT OUTSIDE OF
THAT JUDICIAL DISTRICT. These courts have personal jurisdiction over all the
signatories and guarantors of this Agreement hereto, venue is proper there and
all parties waive all objections to venue and personal jurisdiction there. Owner
and those signing with and for it hereby appoint the Secretary of State of the
State of WPHLI's headquarters as an agent for service of process to receive any
summons or service of process. The judgments and orders of these courts will be
enforced by any court as if the same had originally issued there. WPHLI may
elect to seek judicial relief in any forum anywhere. THIS AGREEMENT AND
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Owner WPHLI
RELATIONSHIP WILL BE CONSTRUED AND GOVERNED SOLELY BY THE INTERNAL LAW OF THE
STATE OF WPHLI'S HEADQUARTERS AT THE TIME THIS AGREEMENT IS ENTERED INTO, EXCEPT
TO THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, OR OTHER APPLICABLE
FEDERAL LAW AND EXCEPT AS EXPRESSLY SET FORTH OTHERWISE HEREIN, without regard
to any conflict of law rules, except that if a particular statute of another
state is nevertheless held to apply, then such particular statute shall apply to
its subject matter exclusively (and not the WPHLI home state corresponding
statute), and that if any provision herein which is not enforceable under the
law of WPHLI's state shall be construed and governed under the laws of the state
in which Owner's Home Arena is located if it would be enforceable under the laws
of that state. Owner will indemnify and hold WPHLI harmless for all costs,
expenses, or losses incurred by WPHLI in enforcing this Agreement or upholding
the propriety of any action or determination by WPHLI relative to Owner or
arising from Owner's breach or failure to perform any obligation hereunder,
including without limitation, reasonable attorney's fees and expenses, including
compensation for the time of WPHLI's in-house attorneys in connection with any
pre-litigation, arbitration or litigation work thereon, unless Owner shall be
finally determined to have fully complied with this Agreement.
12.6. CONSUMER RIGHTS WAIVER. AFTER CONSULTATION WITH AN ATTORNEY OF ITS
OWN SELECTION, OWNER VOLUNTARILY WAIVES ITS RIGHTS UNDER LAW THAT GIVES
PURCHASERS OR CONSUMERS SPECIAL RIGHTS OR PROTECTIONS, INCLUDING, WITHOUT
LIMITATION, THE DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41
ET SEQ., TEXAS BUSINESS & COMMERCE CODE.
12.7. CONSTRUCTION. Capitalized terms are defined in this Agreement where
they appear in quotation marks and have no other meaning, and shall not for any
purpose be deemed a part of this Agreement. Terms such as "League", "affiliate",
"nominee" "Owner," etc. are applicable to one or more persons, firms,
corporations or other entities and the singular number shall include the plural,
and the masculine gender shall include the feminine and neuter, and vice versa
as is appropriate in context. "Affiliate" means a company that is affiliated
with another company because one of them is the subsidiary of the other, or both
are subsidiaries of the same company, or each of them is controlled by the same
person, firm or company, all whether the relationship is direct or the
relationship is indirect through intermediary entities. "Person," whether or not
capitalized herein, means both individual people and also entities of any kind.
All monetary amounts are expressed in United States of America currency.
References to this "Agreement" include its future then-current Governing
Documents to the extent same do not contradict this Agreement and is uniform for
Owner's designated class of licensees. Recitals herein are contractual
obligations. Wherever WPHLI is given discretion by the use of "discretion,"
"consent," "may" or other permissive wording, WPHLI has absolute, unfettered,
and unreasonable discretion, unless expressly provided to the contrary. Whenever
the word "including" is used, the term is used without limitation unless
expressly stated otherwise, i.e., "including" means "including, without
limitation." Whenever in this Agreement WPHLI is to provide advice or guidance
to Owner concerning the System's standards or use of the System's standards, or
the like, no benefit or advantage is thereby promised or represented to Owner
except that WPHLI's advice or guidance will provide such information to Owner.
Owner's compliance with the System's standards may or may not be beneficial or
advantageous to Owner. The language of this Agreement will otherwise be
construed according to its fair meaning and not for or against either party. All
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Owner WPHLI
words refer to whatever number or gender the context requires. Headings are for
reference purposes only and do not affect or control interpretation in any way.
This Agreement and all transactions hereunder shall be construed, interpreted
and implemented in English. The rights and remedies contained in this Agreement
and any other agreements between the parties are cumulative and no exercise or
enforcement of any right or remedy by WPHLI shall preclude WPHLI's exercise or
enforcement of any other right or remedy to which WPHLI is otherwise entitled by
law or equity.
12.8. SAVINGS CLAUSE. This Agreement shall be construed, interpreted and
reformed to avoid violating any applicable law, and to preserve its intent to
the fullest possible extent. If any statute, law, by-law, ordinance or
regulation promulgated by any competent authority with jurisdiction over any
part of this Agreement or Owner's Team or any court order pertaining to this
Agreement requires a longer or different notice period than that specified
herein, the notice period herein shall automatically be deemed to be amended so
as to conform with the minimum requirements of such statute, law, by-law,
ordinance, regulation or court order. The unenforceability of any part, segment,
or clause hereof will not affect the validity of the remaining portions hereof
as the parties would have executed the remaining portions of this Agreement
without such portions as may be invalid except that if any portions relating to
restrictions on Owner or Owner's payments to WPHLI are finally determined to be
unenforceable, WPHLI may elect to terminate this Agreement. Owner expressly
agrees to be bound to the maximum extent permitted by law, as if separately set
forth herein, with respect to any remaining reformed part of this Agreement if
it is held to be unenforceable as written. In the event of legislation,
government regulation, or changes in circumstances beyond the control of WPHLI
that materially affects the relationship between WPHLI and the Owner, WPHLI
shall have the right to reform and modify this Agreement to the limited extent
reasonably needed to both adapt the Agreement to the changed circumstances and
preserve the parties' original intent as expressed herein to the greatest extent
possible. The parties do not intend to charge usurious rates of interest. If
applicable law determines any obligation, charge or payment to be an unlawful
charge or overcharge of interest, such obligation, charge or payment is
automatically reduced to the maximum lawful rate, the excess to be refunded if
already paid, the repayment comprising a complete remedy.
12.9. THIRD PARTIES. The parties do not intend this Agreement to confer any
benefit on any entity other than Owner and WPHLI except as is otherwise
expressly stated herein. WPHLI's "Affiliated Entities" include WPHLI'S current
and future Affiliates, including, but not limited to Global Entertainment
Corporation ("GEC"); Encore Facility Management; International Coliseums
Company; Global Entertainment Ticketing d/b/a GetTix; Global Entertainment
Marketing Systems, Inc. ("G.E.M.S."); Cragar Industries, Inc.. Affiliated
Entities are not responsible for WPHLI's obligations. Owner is aware that
WPHLI's Affiliated Entities offer goods and services in this line of commerce
and to other WPHLI owners and may have business dealings with Owner. If Owner
does business with any such entities, Owner expects such entities to have
discretion to act in accordance with each entity's own best interests or not. As
non-limiting examples, if Owner elects to lease an arena, engage arena
management services, obtain ticketing services, or pursue marketing through one
or more Affiliated Entities, then such entities may each make its own best deal
with Owner and act in accordance with its own best interests, or not, at each
such entity's discretion regardless of Owner's relationship with WPHLI or any
Affiliated Entities. Owner does not expect and is not entitled to have WPHLI use
WPHLI's association with Affiliated Entities to cause WPHLI or any Affiliated
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Owner WPHLI
Entities to act against their own best interests. If Owner does business with
Affiliated Entities, and has a dispute concerning same, Owner expressly agrees
to look solely to the single such entity whose relationship with Owner is the
relationship most material to the subject matter of the dispute for all relief
and compensation. Owner has no right of defense, set off, or the like, against
WPHLI due to any dispute or relationship Owner has with any Affiliated Entity,
or vice versa. As non-limiting examples: If Owner leases Owner's Home Arena from
an Affiliated Entity and Owner develops complaints relating to the Home Arena,
then all of Owner's complaints about the Home Arena lie solely against the Home
Arena leasing Affiliated Entity and do not lie against WPHLI or any other
Affiliated Entity; and, if Owner develops complaints about any WPHLI acts or
failures to act, then all of Owner's complaints concerning same lie solely
against WPHLI and do not lie against any Affiliated Entity. This waiver
includes, without limitation, any complaints of joint action by WPHLI and
Affiliated Entities or between Affiliated Entities, however same may be
denominated. All claims against WPHLI and Affiliated Entities expressly not
permitted herein are expressly excluded. These limitations are a material part
of this Agreement, as WPHLI would otherwise need to charge Owner a higher fee to
provide site-specific services and responsibilities, to undertake the additional
risks involved in same, and incur the additional risks arising from Owner doing
business with Affiliated Entities. An express exception is that WPHLI and
Affiliated Entities may transfer and assert any monetary obligations owed from
WPHLI or Affiliated Entities to Owner, or vice versa, upon written notice to
Owner of same. Owner is not entitled to the benefit of any agreement between
WPHLI and any other entity unless the agreement specifically grants rights to
Owner by name and expressly states that Owner is an intended third party
beneficiary of same. If WPHLI acquires, is acquired by, merges with, or in any
other manner joins or expands WPHLI's operations with another entity
(collectively, "Expansion"), and the Expansion arguably causes a breach or
impairment of rights granted by this Agreement to Owner, then the parties shall
use this Agreement's dispute resolution process to determine if the breach or
impairment is material or immaterial. If immaterial, i.e., an adverse annual
effect on Owner's net profits of less than one hundred thousand dollars, the
matter shall be deemed excused. If material, then WPHLI shall have the option of
(a) paying to Owner the adverse effect on Owner's net profits for three years
from the event as Owner's full and sole remedy, or (b) releasing Owner from this
Agreement as Owner's full and sole remedy. This Agreement inures to the
successors and assigns of WPHLI. WPHLI has the right to transfer or assign this
Agreement in whole or in part. If WPHLI's assignee assumes all obligations of
WPHLI hereunder, the assignment releases WPHLI from all obligations and
liabilities to Owner, is without any Owner recourse to WPHLI, and Owner shall
promptly execute a general release of WPHLI and WPHLI's affiliates from all
claims under this Agreement.
12.10. OTHER AGREEMENTS. This Agreement requires Owner to execute certain
other agreements found in the Governing Documents. Without limiting Owner's
duties in this regard as set forth herein, Owner's rights and continued rights
herein are subject to Owner timely delivering to WPHLI fully executed copies of
the following agreements together with this Agreement: (1) Exhibits A and B of
this Agreement; (2) Guarantee Subordination Agreement, (3) Team Symbols
Licensing Agreement, (4) Franchise Disclosure Questionnaire. Within ten days of
this Agreement becoming effective, Owner will deliver to WPHLI a complete set of
Owner's governing documents, partnership agreements, corporate documents, and
the like, same being subject to WPHLI's approval as stated herein. Prior to
Owner hiring any employees, Owner will deliver to WPHLI WPHLI's Team Injury
Insurance Agreement together with proof of the initial payment. Within thirty
days of this Agreement becoming effective, Owner will deliver to WPHLI an
approved and fully executed Letter of Credit/Performance Account documents and
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Pre-Authorized Bank Form. Owner will deliver to WPHLI a final draft of Owner's
Arena Contract for approval prior to entering same, and, after obtaining WPHLI's
approval of same, deliver same to WPHLI executed by Owner and the Home Arena
lessor together with WPHLI's Lease Rider executed by Owner and the Home Arena
lessor.
12.11. NOTICES. Notices required or permitted hereunder shall be in writing
and either personally delivered, sent by registered mail, or any other means
that provides reliable evidence of the date received by the respective party at
its listed address unless and until the party designates a different address by
written notice to the other party. WPHLI's sole address for notice is its
Headquarters. WPHLI may change its Headquarters upon written notice to Owner,
and this shall be effective to change the same with respect to each reference to
"WPHLI's Headquarters" contained in this Agreement. Owner's address for notice
is designated herein below. Owner may change its notice address upon written
notice to WPHLI, subject to WPHLI's approval, approval not to be unreasonably
denied. Written notices shall be deemed delivered at the time of delivery if
delivered by hand; one business day after delivery if sent by facsimile or
comparable electronic system and receipt is confirmed or, if sent by certified
mail or other means which gives evidence of delivery, on the date of receipt. If
WPHLI is reasonably unable to locate Owner within three days, or if delivery is
refused or impeded by Owner, each and every employee and agent of Owner is
deemed Owner's agent to receive notices and notice may be delivered by
attachment to the front door of Owner's Team's facilities.
12.12. SUBMISSION OF AGREEMENT. Submission of this Agreement to Owner does
not constitute an offer by WPHLI. This Agreement only becomes effective upon one
or more copies of same, which are complete in all material respects and are
executed by Owner, is delivered to WPHLI and thereafter executed by WPHLI in
WPHLI's headquarters city.
13. ACKNOWLEDGEMENTS
13.1. DOCUMENTS RECEIVED. Owner agrees and represents that Owner received
WPHLI's / /20 , Uniform Franchise Offering Circular at least as early as / /20
Owner's initials - _____________) and that Owner received a completed copy
(other than signatures) of this Agreement at least as early as / /20 (Owner's
initials - ___________).
13.2. INVESTMENT/NET WORTH. Check if applicable
[ ] The franchise sale is for more than $1 million--excluding the
cost of unimproved land and any financing received from the
franchisor or an affiliate--and thus is exempted from the Federal
Trade Commission's Franchise Rule disclosure requirements,
pursuant to 16 CFR 436.8(a)(5)(i). (This concerns your investment
needed to begin operations)
[ ] Owner (or its parent or any affiliates) is an entity that has
been in business for at least five years and has a net worth of
at least $5 million.
13.3. FINAL REPRESENTATIONS. OWNER AND ALL PERSONS SIGNING WITH, FOR, OR IN
SUPPORT OF OWNER ACKNOWLEDGE THAT THEY HAVE CONDUCTED AN INDEPENDENT
50
_______ _______
Owner WPHLI
INVESTIGATION OF THE SYSTEM AND THIS BUSINESS VENTURE; THEY UNDERSTAND THIS
AGREEMENT INVOLVES A HIGH DEGREE OF BUSINESS AND FINANCIAL RISK; AND SUCCESS
WILL BE LARGELY DEPENDENT ON THEIR INDEPENDENT CHOICES, ABILITY, AND FINANCIAL
STRENGTH AND LOCAL MARKET CONDITIONS. WPHLI EXPRESSLY DISCLAIMS THE MAKING OF,
AND OWNER ACKNOWLEDGES THAT OWNER HAS NOT RECEIVED ANY PROMISES OR
REPRESENTATIONS, ORALLY, IN WRITING OR OTHERWISE, OF ASSISTANCE, EXPENSES,
BENEFITS, SALES VOLUMES, PROFITS, SUCCESS, SUITABILITY OF OWNER'S LOCATION OR
TRADE AREA, OR ANY OTHER MATTER EXCEPT AS EXPRESSLY STATED HEREIN OR WPHLI'S
OFFERING CIRCULAR. IF ANY SUCH PROMISES OR REPRESENTATIONS HAVE BEEN MADE, OWNER
MUST LIST THEM BELOW. WPHLI IS RELYING ON OWNER TO SEE THAT ALL SUCH MATTERS ARE
INCLUDED IN WRITING HEREIN. IF THEY ARE NOT, OWNER AGREES OWNER WILL NOT BE ABLE
TO RELY IN ANY WAY ON SUCH PROMISES OR REPRESENTATIONS AND WPHLI WILL NOT BE
BOUND BY THEM. OWNER HAS CAREFULLY READ THIS AGREEMENT WITH THE ASSISTANCE OF
LEGAL COUNSEL AND UNDERSTOOD ALL PROVISIONS IN IT.
------------------------------
("Owner")
------------------------------
("Address for Notice")
By: By:
--------------------------------- ---------------------------------
(Signature) (Signature)
Name: Name:
------------------------------- -------------------------------
(Printed Name) (Printed Name)
Title: Title:
------------------------------ ------------------------------
The ___ day of ________________, 20___ The ___ day of _______________, 20___
To induce WPHLI to grant this Agreement to Owner, the undersigned equity
owners of Owner and the other individuals listed below guarantee, on the terms
set forth herein, Owner's performance of this Agreement.
--------------------------------- ---------------------------------
(Individually) (Individually)
--------------------------------- ---------------------------------
(Print Name) (Print Name)
51
_______ _______
Owner WPHLI
--------------------------------- ---------------------------------
(Individually) (Individually)
--------------------------------- ---------------------------------
(Print Name) (Print Name)
--------------------------------- ---------------------------------
(Individually) (Individually)
--------------------------------- ---------------------------------
(Print Name) (Print Name)
52
_______ _______
Owner WPHLI
ACCEPTANCE
This License Agreement is hereby accepted by WPHLI at WPHLI's
"Headquarters" at 1600 North Desert Drive, Suite 300, Tempe, Arizona 85281
(Address for Notice"), and is effective this the _____ day of
___________________, 200__.
WESTERN PROFESSIONAL HOCKEY LEAGUE, INC.
By:
------------------------------
(Signature)
------------------------------
(Printed Name)
Title: President
------------------------------
53
_______ _______
Owner WPHLI
WESTERN PROFESSIONAL HOCKEY LEAGUE, INC.
LICENSE AGREEMENT
EXHIBIT A
OWNER SPECIFIC TERMS
This is Exhibit A to the License Agreement entered into between WPHLI and
the Owner identified herein.
1. TEAM NAME
(Subsection 2.1):.__________________________
(Team Name)
2. HOME CITY
(Subsection 2.1):.__________________________
(City)
__________________________
(State)
3. SEASON OPENING DAY (Subsection 2.3):
The Season Opening Day for Owner's Team is currently expected to be the
___ day of ________________, 20___. This date is subject to rescheduling
by WPHLI if reasonably necessary and upon reasonable advance notice to
Owner.
4. HOME ARENA (Subsection 3.1):
Owner has selected the following arena as Owner's "Home Arena" and
obtained WPHLI's approval of it subject to WPHLI's approval of Owner's
Arena Contract for the Home Arena.
------------------------------
(Street Address)
------------------------------
(Suite)
------------------------------
(City, State, and Zip)
5. PROTECTED TERRITORY: (Subsection 2.2)
Owner's Protected Territory is defined as:
54
_______ _______
Owner WPHLI
[ ] The area within the circle defined by a radius of 25 miles from
the main entrance of Owner's Home Arena. As a non-limiting example, if
the main entrance of another League team's arena is more than 25 miles
from the main entrance of Owner's Home Arena, then the other team's
arena is outside of Owner's Protected Territory.
[ ] The area of:
or [ ] see attached map signed and dated by both parties.
6. MINIMUM TICKET SALES (Subsection 5.6):
Owner shall sell at least _____ season tickets by the ___ day of
__________________ 200___. Sales of luxury suites, club ticket sales, and
the like, count toward this requirement, according to the following
formula: ____________________________
7. INITIAL FEE (Subsection 7.1)
Owner will pay WPHLI an Initial Fee of $1,250,000 as follows: (1) Initial
Payment of $ .00 together with Owner's delivery to WPHLI of this
Agreement, executed by Owner, (2) If WPHLI delivers to Owner this
Agreement, countersigned by WPHLI prior to the ____ day of ________,
20___, then Owner will pay WPHLI a payment of $___________, (3) payment of
$_________ prior to the ___ day of _________, 20___, (4) payment of
$_________ prior to the ___ day of _________, 20___, and (5) payment of
$_________ prior to the ___ day of _________, 20___.
This Exhibit A supplements and completes the Parties' License Agreement for
Owner's Team:
--------------------------------- ---------------------------------
(Owner) (WPHLI)
By: By:
--------------------------------- ---------------------------------
(Signature) (Signature)
--------------------------------- ---------------------------------
(Printed Name) (Printed Name)
President President
--------------------------------- ---------------------------------
(Title) (Title)
The ___ day of ___________, 20___ The ___ day of ___________, 20___
55
_______ _______
Owner WPHLI
WESTERN PROFESSIONAL HOCKEY LEAGUE, INC.
LICENSE AGREEMENT
EXHIBIT B
STATEMENT OF OWNERSHIP
This is Exhibit B to the License Agreement entered into between WPHLI and
the Owner identified herein.
Owner:
-------------------------------
Team Name:
---------------------------
Home City:
---------------------------
Form of Ownership
(Check One)
__ Individual __ Partnership __ Corporation __ Limited Liability Company
Provide Owner's state of incorporation or certification and date of same.
If a Partnership, provide name and address of each partner showing percent
owned, whether active in management, and indicate the state in which the
partnership was formed. If a Limited Liability Company, provide name and address
of each member and each manager showing percentage owned and indicate the state
and date of organization. If a Corporation, provide the state and date of
incorporation, the names and addresses of each officer and director, and list
the names and addresses of every shareholder showing what percentage of stock is
owned by each.
Use additional sheets if necessary. Any and all changes to the above
information must be immediately reported to WPHLI in writing.
56
_______ _______
Owner WPHLI
The undersigned represent and promise that this Statement of Ownership is
complete, accurate, and truthful.
---------------------------------------------
(Owner)
By:
------------------------------------------
(Signature)
---------------------------------------------
(Print Name)
---------------------------------------------
(Title)
The ____ day of ________________, 20______
INDIVIDUAL SIGNATURES
------------------------------------ ------------------------------------
(Print Name, Individually) (Print Name, Individually)
------------------------------------ ------------------------------------
(Signature) (Signature)
The ___ day of ____________, 20___ The ___ day of ____________, 20___
------------------------------------ ------------------------------------
(Print Name, Individually) (Print Name, Individually)
------------------------------------ ------------------------------------
(Signature) (Signature)
The ___ day of ____________, 20___ The ___ day of ____________, 20___
57
_______ _______
Owner WPHLI
Exhibit 21
GLOBAL ENTERTAINMENT CORPORATION
SUBSIDIARIES OF THE REGISTRANT
(as of August 29, 2008)
State or Country
of Incorporation
Name of Subsidiary or Organization
------------------ ---------------
Cragar Industries, Inc. (1) Delaware
Encore Facility Management (1) Nevada
Global Entertainment Marketing Systems, Inc. (1) Nevada
Global Entertainment Ticketing (1) Nevada
Global Personnel, LLC (3) Arizona
Global Properties I (1) Nevada
Global of Prescott Valley, LLC (3) Arizona
Global of Rio Rancho, LLC (3) New Mexico
Global of Wenatchee, LLC (3) Washington
Global of Youngstown, LLC (3) Arizona
Hidalgo Events Center, LLC (3) Texas
International Coliseums Company, Inc. (1) Nevada
Prescott Valley Events Center, LLC (2) Arizona
Wenatchee Events Center, LLC (3) Washington
Western Professional Hockey League, Inc. (1) Texas
----------
(1) wholly owned subsidiary of Global Entertainment Corporation
(2) 50% owned subsidiary of Global Entertainment Corporation
(3) single member LLC, where Global Entertainment Corporation is the sole
member
Exhibit 31.1
GLOBAL ENTERTAINMENT CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard Kozuback, certify that:
1. I have reviewed this Annual Report on Form 10-K (the Annual Report) of
Global Entertainment 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 presents in all material
respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company's other certifying officer 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
company, including its consolidated subsidiaries is made known to us
by others within those entities, particularly during the period in
which this report was 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 on financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the company'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 company's internal control
over financial reporting that occurred during the company's most
recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the company's internal control over
financial reporting.
5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the company'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 company's internal
control over financial reporting.
Dated August 29, 2008 By: /s/ Richard Kozuback
-------------------------------------
Richard Kozuback
President and Chief Executive Officer
Exhibit 31.2
GLOBAL ENTERTAINMENT CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James Yeager, certify that:
1. I have reviewed this Annual Report on Form 10-K of Global Entertainment
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 presents in all material
respects the financial condition, results of operations and cash flows of
the company as of, and for, the periods presented in this report;
4. The company's other certifying officer 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 company 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
company, including its consolidated subsidiaries is made known to us
by others within those entities, particularly during the period in
which this report was 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 on financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
c. Evaluated the effectiveness of the company'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 company's internal control
over financial reporting that occurred during the company's most
recent fiscal quarter that has materially affected, or is reasonably
likely to materially affect, the company's internal control over
financial reporting.
5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
company's auditors and the audit committee of the company's board of
directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are
reasonably likely to adversely affect the company'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 company's internal
control over financial reporting.
Dated August 29, 2008 By: /s/ James Yeager
------------------------------------
James Yeager
Chief Financial Officer
Exhibit 32
GLOBAL ENTERTAINMENT CORPORATION
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Global Entertainment
Corporation for the fiscal year ending May 31, 2008, as filed with the
Securities and Exchange Commission on the date hereof (the Annual Report), the
undersigned Chief Executive Officer and Chief Financial Officer of the company
each hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 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.
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906 has been provided to the company and will be retained by
the company and furnished to the Securities and Exchange Commission or its staff
upon request.
Dated August 29, 2008
/s/ Richard Kozuback
---------------------------------
Richard Kozuback
Chief Executive Officer
/s/ James Yeager
---------------------------------
James Yeager
Chief Financial Officer