Exhibit 10.4
DEED OF GROUND
LEASE
THIS DEED OF
GROUND LEASE (“LEASE”) is made the 17TH day of
September, 2007, by and between VCG Holding Company, a Colorado
corporation (“VCG” or “Tenant”), and Bryan
S. Foster (“Landlord”).
RECITALS
A.
Landlord is the owner of the Premises being commonly known as 12325
Calloway Cemetery Road, Fort Worth, Texas as described in the legal
description attached hereto and made a part hereof as Exhibit
“A” (“Premises” or “Leased
Premises”).
B.
Landlord desires to lease the Premises to Tenant, and Tenant
desires to take and lease the Premises from Landlord.
NOW, therefore,
for and in consideration of the rents reserved hereunder and the
terms and conditions hereof, Landlord hereby rents, demises, and
leases to Tenant, and Tenant takes and leases from Landlord the
Premises, all upon the following terms and. conditions:.
ARTICLE I
TERM OF LEASE AND USE OF
PREMISES
1.1
Term . The term of the Lease shall commence on the 17th day
of September, 2007, and shall end on the 30th day of September,
2012.
1.2
Extended Term . Landlord shall grant to Tenant four (4)
5-year options to renew this Lease. Tenant shall provide written
notice of election to decline such option, 90 days prior to the
expiration of the initial or subsequent terms described above or
this Lease shall automatically extend to the succeeding renewal
period. Each option period shall be at an increased rate of 10%
increase over the prior term’s rental obligation.
1.3 Initial
Rental Obligation. Tenant shall pay Twenty Thousand Dollars
($20,000) to Landlord on the l day of each month and continuing
thereafter on a monthly basis for the first term and each and every
month during the term (“Monthly Rent”). Tenant shall
pay Landlord Nine Thousand Dollars ($9,000.00) on September 17,
2007 as pro rated rent for September 17, 2007 though September 30,
2007.
1.4 Use of
Premises . The Leased Premises shall be used and occupied as an
adult entertainment facility or adult cabaret or for such other
lawful purpose as Tenant may elect so long as Tenant maintains a
Specialized Certificate of Occupancy or the equivalent to operate
as an adult cabaret.
1.5
Compliance with the Law. In its use and occupancy of the
Leased Premises, and the exercise of its rights hereunder, Tenant
shall at its sole cost and
expense, promptly
comply with all federal, state, county, or municipal laws,
ordinances, rules, regulations, directives, orders, and/or
requirements (collectively “Governmental Regulations”)
now in force or which may hereafter be in force with respect to the
Premises due specifically to Tenant’s use and occupancy of
the Premises and Tenant’s business conducted thereon. Tenant
shall not permit any use of the Leased Premises which would
directly or indirectly violate any such law, ordinance, regulation
or direction, or which may be dangerous to any of the personal
property located at the Premises.
1.6
Assignment and Subletting by Tenant . Tenant shall have the
right to sublease all or any part of the Leased Premises subject to
the terms hereof without the consent of the Landlord, so long as
Tenant remains primarily liable for all terms hereof, and the
Landlord shall not be required to engage in any manner with the
sub-tenant.
1.7
Assignment by. Landlord. Landlord shall have the right to
assign this Lease, collaterally or otherwise, without
Tenant’s consent, provided, however, that Landlord shall give
written notice to Tenant of any proposed assignment at least thirty
(30) days prior thereto. No assignment by Landlord shall alter the
rights of Tenant hereunder, and all of the recitals, terms,
covenants, and conditions of this Lease shall remain in full force
and effect upon the assignment. Upon any assignment by Landlord,
Tenant shall make rental payments to the assignee unless and until
the assignee actually delivers to Tenant a written notice directing
rental payments to thereafter be made to the assignor. In the event
of the transfer and assignment by Landlord of its interest in the
Lease and in the Premises to a person expressly assuming
Landlord’s obligations under this Lease, Landlord shall
remain liable hereunder unless released by the Tenant in which ease
Tenant agrees to look solely to such successor in interest of the
Landlord for performance of such obligations. Any security given
Tenant to Landlord to secure Tenant’s obligations hereunder
may be assigned and transferred by Landlord to such successor in
interest and Landlord will thereby be discharged of any further
obligations relating thereto.
1.8
Security Deposit. Tenant agrees to deposit with Landlord,
the sum of Twenty Thousand Dollars ($20,000.00), which sum shall be
held by Landlord, without liability for interest, as security for
performance of Tenant’s obligations under this Lease, it
being expressly understood and agreed that this security deposit is
not an advance rental deposit, or a measure of Landlord’s
damages in ease of Tenant’s default. Upon each occurrence of
a Tenant Default (hereinafter defined), Landlord may use all or
part of the security deposit to pay past due rent or other payments
due Landlord under this Lease, and the cost of any other damage,
injury expense or liability caused by such Tenant Default without
prejudice to any other remedy provided herein or provided by law,
On demand, Tenant shall pay Landlord the amount that will restore
the security deposit to its original amount. The security deposit
shall be deemed the property of Tenant and any remaining balance of
such security deposit not used by the Landlord pursuant to this
Lease shall be returned by Landlord to Tenant within sixty (60)
days after Tenant’s
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obligations under the
Lease have been fulfilled. Notwithstanding any terms or provision
hereof to the contrary, the Security Deposit shall be returned to
Tenant in the event that Tenant terminates this Lease in accordance
with its terms.
1.9 Late
Charges . If Tenant fails to pay any installment of Monthly
Rent on or before the fifteenth (l5th) day of the calendar
month, then Tenant shall pay to Landlord, in addition to the
installment of Monthly Rent, five percent (5%) of such installment,
as a late payment fee. Notwithstanding the foregoing, Landlord
shall provide notice to Tenant if any installment of Monthly Rent
is not paid on or before the fifteenth (15”) day of the
calendar month.
ARTICLE II
ADDITIONAL RENT
2.1
Additional Rental Obligation . In addition to the rental sum
described above, Tenant shall pay the following:
a.
Utilities . Tenant shall promptly pay and discharge the cost
of all utilities in connection with Tenant’s use of the
Leased Premises and Building thereon. In the event that any such
utility charge is unpaid, Landlord may, at its option, pay and
discharge such charge, notifying Tenant of such payment and
forthwith being reimbursed on demand for such payment by
Tenant;
b. Taxes .
Tenant shall pay, before they become delinquent, any ad valorem
taxes, including but not limited to real estate and personal
property taxes, waste disposal assessments, or other assessments
for public or municipal improvements that are assessed or imposed
upon the Leased Premises and Building thereon during the time of
the Lease including all such taxes for the year 2007. Landlord
shall furnish to Tenant within five days after receipt any such
tax, or assessments which shall be levied on the property. Tenant
shall promptly pay the real estate and personal property taxes,
assessments or other costs imposed upon the land, prior to such
obligation becoming delinquent, evidencing an official receipt as
paid in full and providing same to Landlord. Tenant shall pay
before delinquency, any and all taxes on the real estate and
personal property which are levied or assessed, and/or which become
payable during the Lease Term for the year 2007 upon all or any
part of the Building, improvements, equipment, furniture, fixtures,
and other personal property, although same may be assessed and
taxed with the real property.
c.
Insurance . Tenant shall procure and maintain, and pay all
premiums, fees and charges for the purpose of procuring and
maintaining continuously throughout the Term: (i) insurance on the
Improvements (including building and fixtures on the Premises)
against loss or damage by fire or other casualty with endorsements
providing what is commonly known as all risk fire and extended
coverage (but not including flood or earthquake coverage),
vandalism and malicious mischief insurance, in an amount equal to
the full replacement cost thereof and (ii) general liability
insurance with a combined single limit of not less than One Million
Dollars ($1,000,000 00) for any
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bodily injury or
property damage, with a deductible that is consistent with
Tenant’s insurance practices. Landlord may procure and
maintain general liability insurance. All property, casualty and
other policies of insurance referred to in this Lease shall include
the other party, as their interest may appear, as additional
insureds, shall insure such party against liability arising out of
the other party’s negligence or, to the extent typically
covered by a standard policy of commercial general liability
insurance, the negligence of any other person, firm or corporation
and contain a contractual liability endorsement for liabilities
assumed by the other party under this Lease. All policies procured
hereunder shall be on standard policy forms issued by insurers of
recognized responsibility, rated APlus)UI or better by Best’s
Insurance Rating Service, qualified to do business in Texas. A
certificate of such insurance shall be delivered to the other party
prior to the Lease Commencement Date and thereafter not less than
fifteen (15) days after the expiration thereof and shall provide
that such policy may not be cancelled or modified except upon not
less than thirty (30) days written notice to the other. Any
insurance required or permitted to be carried pursuant to this
paragraph may be carried under a policy or policies covering other
liabilities and locations of Landlord or Tenant; provide, however,
that such policy or policies shall apply to the property required
to be insured as set forth above and, with respect to Tenant, in an
amount not less than the amount of insurance required to be carried
by Tenant.
d.
Licenses . Tenant shall
be liable for, and shall pay throughout the Term, all license and
excise fees and. occupation taxes covering the adult cabaret
conducted on the Premises, including but not limited to any
specialized certificates of occupancy required.
2.2 Failure
of Tenant to Provide Insurance . Should Tenant occupy the
Leased Premises without providing the required insurance coverage,
Landlord, at its option, may obtain the required insurance coverage
and Tenant shall pay the premiums for same as additional rent
within five days of the receipt of notice of payment from
Landlord.
2.3 Failure
to Pay Taxes . Should Tenant fail or refuse to pay any real
estate or personal property taxes, waste disposal assessments, or
other assessments for public or municipal improvements, Landlord
shall elect to pay same, after giving written notice to Tenant of
its intent to do so, and Tenant shall reimburse Landlord for the
payment as additional rent within five days of the receipt of
notice of payment from Landlord.
ARTICLE III
REPAIRS AND
MAINTENANCE
3.1
Maintenance .
a.
Tenant shall, at its own expense, keep in good repair buildings and
fixtures as found on the Leased Premises, including without
limitation the heating and air conditioning systems, plumbing,
lighting and electrical systems, partitions, exterior and interior
doors, windows (including plate glass), fixtures and the interior
of walls, floors
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and ceilings and comply
with all governmental requirements as to the condition of the
Leased Premises.
b.
Exterior maintenance of the Leased Premises shall be provided by
Tenant.
3.2
Liens . Tenant will not create or permit to be created or
remain, and will promptly discharge, at its sole cost and expense,
any lien, encumbrance or charge upon the Leased Premises and
Building thereon or any part thereof or upon Tenant’s
leasehold interest therein, which arises out of the use or
occupancy of the Leased Premises and Building thereon by Tenant or
by reason of any labor and material furnished or claimed to have
been furnished to Tenant or reason of any construction, addition,
or alteration, or any part of the Leased Premises by Tenant.
Landlord, at its sole option, may cause to be discharged, any lien,
encumbrance or charge upon the Leased Premises, or any part hereof
or upon Tenant’s leasehold interest therein. Tenant shall
immediately pay to Landlord on demand an amount equal to the cost
of discharging such interest, plus all fees and expenses reasonably
incurred in connection therewith, including, but not limited to
reasonable attorney’s fees.
ARTICLE IV
OPTION
4.1 First
Right of Refusal . Landlord hereby grants
to Tenant (VCG) a first right of refusal to purchase the property
during the term, and any extensions of this Lease Agreement.
4.2 Option
to Purchase .
Landlord hereby grants the Tenant an option to purchase the Leased
Premises, at any time on or after the 15th year anniversary date of
this Lease Agreement, at fair market value but in no event less
than Three Million Dollars ($3,000,000.00) provided that Tenant is
not in default under the terms of the Lease and the Lease has not
otherwise been terminated. In determining fair market value, an
appraiser shall be obtained and shall value the property as an
adult cabaret. In no event shall the fair market value be less than
Three Million Dollars ($3,000,000.00) at the time of the
evaluation.
4.3 Right
of Reversion .
Should Tenant or its assigns, fail or refuse to exercise its option
to purchase as herein described, and the term of the Lease or any
extensions thereof end, then the title and ownership of the
Improvements (including the building), Fixtures and Personal
Property related to 12325 Calloway Cemetery Road, Fort Worth, Texas
and the Leased Premises shall revert back to the Landlord. At the
expiration of the Term, Tenant, if requested by Landlord; shall
execute any and all documents necessary to evidence that ownership
and title to the aforementioned Improvements (including the
building), Fixtures and Personal Property is in Landlord and to
extinguish and remove any cloud or potential cloud on the title to
the Premises and/or the Improvements.
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ARTICLE V
LOSS OR
DESTRUCTION
5.1
Loss or Destruction . Pursuant
to a Purchase of Membership Interest Agreement dated the September
17, 2007 (“Purchase Agreement”), VCG has purchased the
building currently erected on the Leased Premises. Should the
building be destroyed or damaged by fire or other disaster, Tenant
shall have the option as follows:
a.
rebuild the building in a quality and manner at least as good as
the quality and manner of the building as of the date of Closing of
the Purchase Agreement. The work o1 repair or restoration, which
shall be completed with due diligence, shall be commenced within a
reasonable time after the damage or loss occurs; or
b.
pay the insurance proceeds received for the destruction or loss of
the building to Landlord, unless Tenant shall exercise the options
contained in Article IV hereof.
Neither Monthly
Rent nor any other rental hereunder shall abate while the
Improvements are being repaired or restored; provided, however, in
the event the leased premises cannot be used for the operation of
the business due to the extent of the loss or destruction there
shall be a 120 day abatement in monthly rent due under the lease
and there shall be a corresponding extension of the lease term not
to exceed four (4) months.
ARTICLE VI
EARLY
TERMINATION
6.1 Right
to Terminate . Landlord hereby
grants Tenant the limited right to early termination of the Lease
Agreement herein, at the option of Tenant, should the Leased
Premises lose the right to operate as a adult cabaret due to a
change in local, state, or federal law which prevent its ordinary
use as an adult cabaret. The early termination rights herein are
solely provided and may only be exercised in the event Tenant has
lost the use of the Leased Premises and Building and Improvements
for the permitted use as an adult cabaret through a change in
local, state, or federal law which prevent its ordinary use as an
adult cabaret. Tenant has no other early termination right. It is
expressly understood by Landlord and Tenant that Tenant shall not
be allowed early termination for its loss of use of the Leased
Premises as an adult cabaret a result of Tenant’s actions and
inactions, during the operation of the Business, which result in
the loss of the ability to use the Leased Premises as an adult
cabaret.
ARTICLE VII
CONDEMNATION
7.1
Condemnation/Eminent Domain .
a.
Condemnation .
If the Leased Premises are taken by any authorized entity by
eminent domain or by private sale to a governmental authority
under
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the threat thereof, or
if part of the Leased Premises is taken so as to substantially
interfere with the use thereof, then Tenant shall have the option,
to be exercised within sixty (60) days after the taking, to
terminate this Lease by notice to Landlord, which termination shall
be deemed to be effective as of the date the condemning authority
takes title or possession, whichever first occurs, and all rentals
shall be paid up to that date. In such an event all ownership and
title to the Improvements (including building), Fixtures and
Personal Property revert back to Landlord.
b.
Rights in Awards . In the
event Tenant does not exercise his right to terminate the Lease,
Landlord and Tenant will be entitled to share any condemnation
award according to their respective interests.
c.
Apportionment of Partial Award .
If there occurs a Partial Taking and Tenant elects not to terminate
the Lease, Landlord and Tenant shall be entitled to receive and
retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation
proceedings, or as may be otherwise agreed, taking into
consideration the fact that Landlord’s interest in the
premises is limited to the Land, as encumbered by this Lease, a
reversionary interest in the Improvements (including building),
Fixtures and Personal Property upon the expiration of the Term or
termination of the Lease, and the right to receive rent hereunder.
If the Premises shall be restored as herein provided, Tenant shall
first be entitled to recover the costs and expenses incurred in
such restoration out of any such award. Thereafter, if the
condemning authority does not make separate awards and the parties
are unable to agree as to amounts that are to be allocated to the
respective interests of Landlord and Tenant, then each party shall
select an independent M.A. I. real estate appraiser (an
“Appraiser”). Each appraiser shall separately determine
the amount of the balance of the condemnation award that is to be
allocated to the interests of Landlord and Tenant. If the
percentage of the balance of the total award each Appraiser
allocates to Landlord (a) are within ten (10%) of each other, the
two (2) allocations shall be averaged and such average shall be the
final allocation of the award, or (b) are not within ten (10%) of
each other, the two Appraisers shall then select a third Appraiser
who shall independently allocate the award between Landlord and
Tenant, and the middle of such three (3) allocations shall be the
final allocation of the award.
ARTICLE VIII
ENVIRONMENTAL/HAZARDOUS
SUBSTANCES
8.1
Discharge .
“Discharge” shall mean the releasing, spilling,
leaking, leaching, disposing, pumping, pouring, emitting, emptying,
dumping, presence, use, handling, treatment, manufacture,
transportation, generation, storage or sale of Hazardous Substances
at, in, on, under or emanating to or from the Premises, the Common
Areas or the Development, directly or through migration, or the
threat thereof, regardless of whether the result of an intentional
or unintentional act or omission.
8.2
Environmental Documents .
“Environmental Documents” shall mean all environmental
documents in the possession or under the control of the producing
party
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concerning the
Premises, the Common Areas or the Development, and their environs,
including without limitation, all sampling plans, cleanup plans,
preliminary assessment plans and reports, site investigation plans
and reports, remedial investigation plans and reports, remedial
actions plans and reports
