SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(X) Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Fiscal Year Ended June 30, 1997 Commission File No. 0-26884
NETTER DIGITAL ENTERTAINMENT, INC.
(Exact name of Small Business Issuer in its Charter)
Delaware 95-3392054
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
5125 Lankershim Boulevard
North Hollywood, California 91601
(Address of principal executive office)
Registrant's telephone number, including area code: 818-753-1990
Securities registered under Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange
- ------------------- Which Registered
----------------
Common Stock, $.01 Par Value NASDAQ
Common Stock Purchase Warrants NASDAQ
Securities registered under Section 12(g) of the Exchange Act:
None
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
YES X NO ____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K-SB or any
amendment to this Form 10-KSB. [X]
The Registrant's revenues for the most recent fiscal year were $25,711,878.
The aggregate market value of the voting stock held by non-affiliates of the
Company, based upon the closing price of the Common Stock on the NASDAQ
Automated Quotation System on September 25, 1997 was $4,211,000. Shares of
Common Stock held by each officer and director and by each person who owns 5% or
more of the outstanding Common Stock have been excluded in that such persons
may be deemed affiliates.
As of September 25, 1997, there were 3,338,950 shares of common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Pursuant to General Instruction E(3) to this form, the information required by
Items 9, 10, 11 and 12 of Part III hereof is incorporated by reference from the
registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
scheduled to be held on November 14, 1997.
Transitional Small Business Disclosure Format:
Yes___________ No____X______
PART I.
ITEM 1. BUSINESS
Introduction
Netter Digital Entertainment, Inc. (the "Company") is engaged in three primary
business activities:
1. ENTERTAINMENT PRODUCTION. The Company is engaged in the acquisition,
development and production of television series, made-for-television movies,
documentaries, theatrical motion pictures, theme park attractions and multimedia
products (collectively and individually referred to as the "Productions" or
"Projects"). The Company specializes in combining live action film production
with computer graphics and other digital imaging in the creation of dramatic
series, documentaries, and children's programming, utilizing state-of-the-art
entertainment production technology. The Company's general practice has been to
sell or license its Productions under a production contract with a major
entertainment studio or distributor who is responsible for the production costs
of the Production. Since its November 1995 initial public offering, the Company
has increased the number of Projects it has in development for sale to the major
studios and distributors. The Company's unique, vertically integrated digital
production process which closely links live-action film production with computer
graphics production and digital post-production, is well suited to attract
state-of-the-art creative projects that can be produced efficiently while being
digitally pre-purposed for various multimedia software platforms.
2. COMPUTER ANIMATION AND VISUAL EFFECTS PRODUCTION SERVICES. As an outgrowth
of its traditional core business of developing and producing media Productions,
the Company has recently entered the business of providing digital media
production services to outside clients. In support of its own Productions, the
Company has developed significant expertise in computer graphics production,
digital post-production and various other digital imaging techniques. The
quality and popularity of the Company's productions has created industry-wide
recognition of its creative and technical skills in these areas. The Company
believes that an active market exists for projects requiring creative,
high quality, cost effective digital graphics and effects. In order to more
fully exploit its strengths in these areas, the Company formed the Netter
Digital Technologies division in the fourth quarter of fiscal 1997 to market
computer graphics and digital post-production services to outside clients.
3. VIDESSENCE (tm) LIGHTING PRODUCTS. The Company's Videssence subsidiary
manufactures and distributes media lighting products which incorporate its
patented SRGB(tm) lighting technology. These products are used for the
illumination of studios, stages and other production environments in the sound
stage, motion picture, theater and theme park industries as well as in the video
conferencing, distant learning, and pre-press digital photography markets. The
Company's high-tech fluorescent lights consume significantly less electricity
than traditional incandescent production lighting products. Additionally, they
generate light without the higher level of heat that traditional incandescent
production lighting products generate. As a result, they are much more
comfortable for the talent working under them. The Company markets its lighting
products in the USA and internationally through a network of distributors,
dealers, and direct sales staff.
1
Background
The Company commenced operations as a television production company in 1979
doing business as Rattlesnake Productions, Inc. ("RPI"). In September 1995,
the Company was reincorporated under the laws of the State of Delaware and
changed its name to Netter Digital Entertainment, Inc. The Company's first
production was the network mini-series "Louis L'Amour's The Sacketts." The
Company has produced thirteen productions, most recently, the award winning
primetime television series "Babylon 5". Throughout this period, the Company
has employed leading edge digital production techniques, such as three
dimensional computer graphics, digitally created virtual sets, surround stereo
audio mixing, and digital editing of both picture and sound. The Company's
production methodology employs simple desktop computer platforms that are
relatively inexpensive and easily upgradable which creates substantial
efficiencies, allowing projects to be produced at lower costs.
The Company has demonstrated it can develop and deliver Projects at production
costs and quality levels consistent with market requirements. Historically, it
has contained operating overhead by supplementing its permanent staff with
free-lance production staff as required for each Production. Further, over the
past year, the Company has expanded its in-house capacities with broader based
in-house computer graphics, animation and post production capabilities. These
expanded in-house facilities, combined with the Company's internally developed
production methodology and techniques, has yielded particularly competitive
production costs in its recent Projects.
The Company completed its initial public offering of securities in November
1995. The Company's Common Stock and Stock Purchase Warrants are listed on the
National Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") and are traded in the NASDAQ Small Cap Market under the symbol "NETT"
and "NETTW," respectively.
In January 1997, the Company branched into manufacturing with its acquisition of
Videssence, Inc. ("Videssence"), a designer, manufacturer, and distributor of
lighting products which incorporate its patented SRGB(tm) light technology for
the illumination of studios, stages and other production environments in the
sound stage, motion picture, theater and theme park industries. Videssence was
founded in 1989 and initially marketed products to the television studio market.
These products proved to be a viable alternative to traditional incandescent
lights which generate an abundance of "heat" for the relatively low amount of
usable light which they produce. Today, Videssence's lighting fixtures are
installed in over 400 studios throughout the world, covering forty countries,
including CNN, CBS, NBC ABC, and the BBC.
The Videssence acquisition was accomplished through the merger of Videssence
into a wholly-owned subsidiary of the Company in exchange for the Company's
issuance of 522,221 shares of its Common Stock to the Videssence shareholders.
These former Videssence shareholders may also receive up to an additional
maximum of 788,000 shares upon Videssence's achieving certain performance-based
criteria over the next five years. As a result of this transaction, Videssence
became a wholly-owned subsidiary of the Company.
2
<TABLE>
<CAPTION>
RELEASED PROJECTS
Title Principal Cast Members Programming Air Date
- ----- ---------------------- ----------- --------
<S> <C> <C> <C>
Babylon 5 Bruce Boxleitner, Claudia Television Series * 1993-
Christian** Present
Hypernauts Glenn Herman, Heidi Lucas, Children's Television 1996
Marc Daniel Series
The Gathering Michael O'Hare, Mira Furlan TV Movie/Pilot for 1993
"Babylon 5" series
Siringo Brad Johnsen, Chad Lowe, Television Movie 1995
Crystal Bernard
The Wild West Jack Lemmon, James Coburn, Documentary Series 1993
Captain Power and Tim Dunigan, Peter MacNeill, Television Movie 1989
the Soldiers of the Jessica Steen
Future; The Legend
Begins
Captain Power and Tim Dunigan, Peter MacNeill, Children's Series 1987-1998
the Soldiers of Jessica Steen
the Future
Five Mile Creek Louise Caire Clark, Cable Television 1983-1986
Rod Mullinar Series
Louis L'Amour's Cindy Pickett, Mary Larkin, Network Pilot 1982
Cherokee Trail Timothy Scott
Wild Times Sam Elliot, Ben Johnson, Television 1980
Bruce Boxleitner Mini-Series
Roughnecks Ana Alicia, Vera Miles, Television 1980
Cathy Lee Crosby, Steve Min-Series
Forrest, Harry Morgan
The Buffalo Soldiers Stan Shaw, Richard Lawson, Network Pilot 1979
John Beck, Hilly Hicks
Louis L'Amour's San Elliot, Tom Selleck, Network Mini-Series 1979
The Sacketts Glenn Ford, Ben Johnson
<FN>
<F1>
* Four seasons of 22 one hour episodes were produced, one season per year, in
1993 through 1996. A fifth season of 22 one hour episodes is currently in
production for delivery in the 1997-1998 television season. In addition, the
Company is currently producing two made for television movies for Turner
NetworkTelevision which will air in 1998.
<F2>
** Claudia Christian will not return for the fifth season. She will be replaced
by Tracy Scoggins.
</FN>
</TABLE>
3
Business Strategy
The Company's strategy has been to develop and produce high quality leading edge
programming which is financed 100% by the major entertainment studios, networks
and television distributors, with the Company avoiding the financial risk of
funding its Projects. Because the Company receives the full cost of the
production, its profit potential is usually limited to production margins,
producer fees and a share of the distributors' net profits, if any. The key
elements of the Company's strategic growth plan are:
1. Entertainment Production. The Company's increased in-house post production
and graphics/animation capacity has helped to streamline its production times
and increase its ability to handle more projects. This division's strategic plan
is to achieve a capacity to concurrently produce three major television or
feature film projects. These would be either joint venture productions in
conjunction with a major studio or distributor, or will be the Company's own
Productions. Discussions along these lines are on-going and will come to
fruition if and when projects that meet the Company's criteria for profitability
and success are successfully developed and placed. The Company has also
established an objective to retain greater equity participation in the projects
it produces. The retention of ancillary exploitation rights such as
merchandising, and the licensing of individual multimedia markets or
entertainment platforms such as the Internet, are areas of particular interest
to the Company.
2. Computer Animation and Visual Effects Production Services. From experience
gained in producing its own projects, especially "Babylon 5," the Company has
developed significant expertise in computer graphics, digital post-production
and various other digital imaging techniques and has gained growing recognition
throughout the entertainment industry for producing highly creative visual
effects while maintaining tight budgetary control. The Company believes that an
active market exists for projects that require creative, high quality digital
graphics and effects produced in a cost effective manner and thus created
Netter Digital Technologies. Since this is a new business segment for the
Company, the initial projects taken in have been select in scope and include
different segments of the market. During this phase, the Company has provided
visual effects and post-production work in the feature film,
industrial/corporate video, and television commercial segments. Now, having
established a level of confidence and proven ability to deliver to outside
customers, the Company is currently bidding on numerous outside projects on a
larger scale, including feature films, mini-series and commercials. While the
Company believes that it will be able to attract larger scale projects, no
assurance can be made that the Company's bids will be accepted.
3. Videssence Lighting Products. Videssence's strategic growth plan is to use
its SRGB(tm) technology and its new association with the Company to create new
products for entry into new market segments that it feels will provide
significant growth potential. The Company's recent product development efforts
have been focused primarily on creating a new line of products for production
applications that utilize film rather than video cameras and on creating a line
of portable and kit oriented products to be marketed to the location and
portable studio markets for both film and video camera production applications.
In regards to general lighting, film and video media are formulated differently
and require specific lighting calibrations. The Company believes that a large
market exists in film lighting applications and that the same product advantages
that prompted a wide acceptance in video camera production applications will
also be successful in film production applications.
4
ENTERTAINMENT PRODUCTION
CURRENT PRODUCTION. Since 1993, the Company, through its 51%-owned subsidiary,
Babylonian Productions, Inc., has been producing the award winning television
series, "Babylon 5," in association with its creator, J. Michael Stracyznski,
for Warner Bros. Prime Time Entertainment Network ("PTEN"). The Company is
currently producing the fifth season of 22 one-hour episodes which are scheduled
for completion in May 1998. At that time, the "Babylon 5" series will consist
of 110 original one-hour episodes. While traditionally seen in syndication, the
fifth season of "Babylon 5" will premiere on Turner Network Television ("TNT")
in January 1998. In addition, work has commenced on two all new "Babylon 5"
made for television movies which will bookend the presentation of the first four
seasons of the show when TNT begins airing these re-runs in January 1998, making
TNT the exclusive "home" of the "Babylon 5" franchise.
The Company was recently honored with the 1997 Hugo Award for Best Dramatic
Presentation for an episode of its series. This marks the second consecutive
year that the series has won science fiction's highest honor, an accomplishment
that had not been achieved in 30 years.
DEVELOPMENT. The development of new material or properties for television, film
and new multimedia productions is essential to the Company's future growth.
Typically, the Company either acquires an option to purchase, or creates or
co-creates its own, concept, outline, treatment, script, or literary rights
(a "Property") on which it will base a television series or movie. When
acquiring existing Properties by option, the Company will usually pay a nominal
fee for a six-month or longer option against a more substantial price if the
Company exercises the option and purchases the Property. Such options enable
the Company to develop and secure a production commitment before actually
acquiring the property. Terms of the options vary significantly and are
dependent upon the credibility of and prior success of the writer/owner of the
Property, the revenues the Company estimates can be received from exploitation
of the Property and the estimated cost of further development and production.
Certain agreements may provide for additional payments to writers upon the sale,
production, or distribution of a Project and may also provide for participation
in revenues or profits from these Projects.
On a continuing basis, the Company has numerous projects in various stages of
development. The Company allocates a significant portion of the time and energy
of its staff to search for potentially viable material and for the development
of concepts, treatments and screenplays. As of June 30, 1997, approximately
$295,000 had been spent or committed by the Company in connection with the
development of Projects that are currently active. Although a number of
projects which the Company develops are subsequently abandoned, the Company
believes that these expenditures are necessary if the Company is to develop
suitable Projects which have a chance of achieving commercial success. It is
not the practice of the Company, however, to expend substantial sums on a per
project basis, unless it believes that there is a strong likelihood of a
financing, production and/or distribution commitment from third parties.
The following are some of the projects in development (however, no assurance can
be given that development will be completed, production will be funded or any
resulting products will be successfully marketed):
Babylon 5:The Crusade: The Company is in active discussions with major
studios and distributors to produce this original, spin-off to its current
"Babylon 5" series.
5
Flying Tigers: The Company is working with National Geographic to produce
a documentary on these legendary airman from World War II.
RailRunners: The Company has entered into a joint venture with Harmony
Gold U.S.A., Inc., to develop this action adventure series about a group of
renegade freedom fighters who live on a far off planet where steam is the
primary energy force.
Guardians: The Company is in active discussions with a major cable network
to produce this dramatic science fiction series about a young man who
reluctantly inherits the family business which has been a cover for a group
of well-intentioned aliens.
Earthlight: The Company is in active discussions with a major station
group to produce this dramatic science fiction series that takes place in
the not too distant future about a group of men and women who make up a
NATO air support outfit set on a geostationary platform 20 miles above the
Earth.
FINANCING. Traditionally, the Company's practice has been to fund production
costs for particular Projects through production contracts with studios,
networks and distributors who cover 100% of the production funding. The Company
has been able to secure such production financing to date, and intends to
continue this general practice for financing its projects in the foreseeable
future. However, for certain future Projects, the Company's strategic objective
is to retain equity participation including, for example, the retention of
ancillary exploitation rights such as merchandising. While this strategy may
require additional overhead and equity investment by the Company, it would
provide a greater upside with successful projects through equity participation.
These projects will be considered by management on a case by case basis.
COMPETITION. The Company's entertainment production activities are subject to
intense competition. The Company's competitors include major entertainment
studios, television and cable networks and numerous independent production
companies, many of which have significantly greater experience and financial
resources than the Company. All of these studios and production companies
compete for available literary properties, writers and other creative talent,
production financing, and distribution. In recent years, an increase in the
international market and the number of both production companies and television
and motion picture products has intensified this competition.
The entertainment business in general, and the television, multimedia and motion
picture business in particular, are undergoing significant changes, primarily
due to technological developments. These developments have resulted in the
availability of alternative forms of leisure time entertainment, expanded pay
television services, the Internet and more readily available multimedia home
entertainment equipment. The number of episodes of a television series and the
ability to retain ancillary rights remains a critical factor in generating
revenues in other media. Given the nature of technological development and
shifting consumer tastes, it is impossible to predict what effect technological
and other changes will have on the potential overall revenue from television and
motion pictures.
COMPUTER ANIMATION AND VISUAL EFFECTS PRODUCTION SERVICES
CURRENT OUTSIDE CLIENT PRODUCTIONS. The Company, under the name Netter Digital
Technologies, began to solicit work for its digital media production services
business in the fourth quarter of fiscal 1997. As the mechanism for
orchestrating the integration of outside service work with the Company's own
current in-house productions was new, the Company started with a small number of
jobs in different segments of the market. During this phase, the Company has
6
provided visual effects and post-production work in the feature film,
industrial/corporate video, and television commercial segments. The Company
is currently engaged in bidding on numerous outside projects including feature
films, mini-series, and commercials.
GROWTH STRATEGY. Through its work on "Babylon 5," the Company has pioneered
many aspects of visual effects creation utilizing desktop computers. The
Company's strategy is to combine its technical expertise with the cost
efficiencies resulting from its production methodology,to enter what the Company
believes is an active market for projects requiring creative, high quality
digital graphics and effects produced in a cost effective manner. Further, the
Company is one of the few companies which offer the ability to perform visual
effects and post-production work under the same roof.
In July 1997, the Company moved into a new state-of-the-art facility in North
Hollywood, a center of the entertainment and communications media industry.
Within this facility, the Company designed an infrastructure that would allow
the animation, compositing and post-production division to be on the cutting
edge of network and rendering technology. As the entertainment industry
continues to advance through technology, the Company hopes to be at the
forefront of the service providers.
The Company now offers a multitude of services such as: digital visual effects,
3D modeling and animation, compositing, matte painting, roto, online editing,
offline editing, art direction, and on-set supervision. These services run on
multiple hardware platforms and utilize many different software programs such
as: Alias, Discreet Logic, SoftImage, Lightwave 3D, Illusion, After Effects,
Electric Image, and Matador Paint. The Company employs these platforms on
numerous hardware platforms including SGI, Windows NT, and Macintosh computers.
All of these different platforms give the Company the luxury of flexibility that
most other facilities do not enjoy.
COMPETITION. The Production Services business faces significant competition
from numerous independent visual effects and post-production houses. The
entertainment industry, especially in Southern California, is filled with
companies, large and small, which offer these services. With the advancements
of technology, the costs of the computer systems used to create special effects,
along with the associated software, have fallen dramatically opening up the
market to many smaller shops. As the Company expands in this market, it will
face competition from larger entities with greater experience and financial
resources such as Industrial Light and Magic, Digital Domain and Digital Magic.
VIDESSENCE LIGHTING PRODUCTS
CURRENT PRODUCTS. Videssence has successfully manufactured and marketed a broad
line of lighting products utilizing its patented SRGB(tm) lighting technology
since 1989. This patented technology has stabilized the fluorescent light source
to render it effective for media production lighting. The company's high-tech
fluorescent lights consume far less energy and generate light with a lower level
of heat than incandescent lights. Historically the company's products have been
marketed to customers with production applications that utilize video cameras.
The company's Studio 2000 product line has generated the majority of the
company's sales to date and was designed primarily for television studio news
rooms. To date, the products have been installed in over 400 news studios around
the world including CNN, ABC World News Tonight With Peter Jennings, CBS and
affiliates, NBC and affiliates, the BBC, China Central Television (CCTV) and
numerous other prominent news broadcasters. The company's products have also
been introduced into the video conference/distant learning market and the
digital photography market.
7
PRODUCT DEVELOPMENT. The company's recent product development efforts have been
focused primarily on creating a new line of products for production applications
that utilize film rather than video cameras and on creating a line of portable
and kit oriented products to be marketed to the location and portable studio
markets for both film and video camera production applications. To that end, the
company has incorporated into its new products a new line of custom fluorescent
lamps and ballasts compatible to film cameras. The company believes that a large
market exists in film lighting applications and that the same product advantages
that prompted a wide acceptance in video camera production applications will
also be successful in film production applications. The company has recently
expanded its product line to include the first focusing fluorescent lighting
product. This technology is currently being incorporated into a new line of
television studio lighting fixtures and will also be made available as an add
on accessory to certain of the company's existing Studio 2000 products.
MANUFACTURING AND SUPPLIES. The principal materials used by Videssence in the
manufacture of its products are metal work, electronic components and
fluorescent lamps, most of which (other than as described below) are readily
available from alternative suppliers. Videssence purchases specific electronic
components and tri-chrome fluorescent lamps from the largest lighting companies,
including General Electric, Philips and Siemens. Videssence produces certain
electronic components for use in its products (including high speed ballasts)
and requires advanced integrated circuit components to produce such electronic
components. These items are available but sometimes require long lead times for
delivery. While in the past Videssence has been able to obtain an adequate
supply of such circuit components on a timely basis, there can be no assurance
that the company will not experience delays or problems in the future in
procuring needed materials.
MARKETING. Videssence markets its products in the USA and internationally
through a network of dealers, distributors and direct sales staff. The company
utilizes direct marketing with trade promotions, advertising, attendance at
recognized industry trade shows and a detailed internet web site to reach its
customer base and support its sales/distribution network.
COMPETITION. The media production lighting business is highly competitive.
Videssence competes with manufacturers of traditional incandescent lighting
products as well as other manufactures of fluorescent lighting products. To the
extent the end user selects high speed fluorescence as the lighting method, the
company has four primary competitors: Strand, Kinoflo, Balcar and LightTech.
Strand, Balcar and LightTech are manufacturing product (or will) using
technology licensed from Videssence, although these companies have not generated
significant revenues for Videssence. The company will meet new competitors as
it releases its new film and portable/kit products. Some of these competitors
are significantly larger than the company and have significantly greater capital
and management resources. As such, there can be no assurance that Videssence
will be successful in marketing its new products.
EMPLOYEES
At June 30, 1997, the Company employed 21 persons full-time in its principal
executive offices and post-production/animation facilities. Of such persons,
four are officers. The balance are production, clerical and administrative
personnel. The Company is currently staffed to handle its current workload and
a specific amount of incoming outside production services business. The Company
anticipates increasing its technology, computer graphics animation and post
production facilities as well as its staffing requirements in the upcoming
fiscal year as new projects are undertaken. The Company is continuing to review
its staffing requirements and additions or reductions in staff may be made if
appropriate in the opinion of management.
8
When the Company is in production, as many as 120 people may be engaged by the
Company at its production studio for periods of nine months or longer. The
Company has granted, and will grant, to actors, directors, screenwriters, and
other important creative and financial elements, rights to participate in the
net profits or gross revenues of particular projects. Similar participation is
required pursuant to the terms of certain collective bargaining agreements.
Some of the Company's or subsidiary's employees are represented by labor unions
and the Company believes that it has good relationships with its employees. The
Company or certain of its subsidiaries are signatories to various agreements
with unions and guilds that operate in the entertainment industry. Although the
Company considers its employee relations to be satisfactory at present, the
renewal of these union contracts does not depend on the Company's activities or
decisions alone. If, prior to the expiration of an existing union contract, the
representatives of the employers were unable to negotiate a new contract with
the union, any resulting work stoppage could adversely affect the Company.
At June 30, 1997, Videssence employed 21 persons full-time at its principal
executive offices, manufacturing/distribution facility, and satellite sales
offices in Pennsylvania and Illinois. Of such persons, two are officers, 5 are
engaged in sales and sales support, 6 were engaged in manufacturing and the
remainder were engaged in management, engineering or administration. Videssence
believes its relations with its employees are satisfactory.
ITEM 2. REAL PROPERTY
The Company leased its principal executive offices and post-production and
animation facilities on a month to month basis in both North Hollywood and
Glendale, California through June 1997. At that time, the Company entered into
a seven year lease for new offices covering approximately 22,000 square feet
located at 5125 Lankershim Blvd., North Hollywood, California 91601. The annual
minimum rent for this facility is $277,000 and the Company has an option to
extend the lease for two additional five year terms. The Company leases
approximately 80,000 square feet of studio facilities located at 8615 Tamarack
Avenue, Sun Valley, California 91352 on an annual basis under two leases which
expire in June 1998. The aggregate annual minimum rent for these facilities is
$385,000, and one of the two leases for the studio facilities, representing
approximately 20,000 square feet, has three options to renew for one year each.
The Company also leases space for Videssence's manufacturing facilities,
warehousing, and administrative offices which are located at 189 Airport Blvd.,
Burlingame, California 94010 under a noncancellable operating lease requiring
annual rent of $56,000 which expires in November 1997. Rent expense for the
year ended June 30, 1997 was approximately $509,000.
ITEM 3. LEGAL PROCEEDINGS
In the normal course of business, the Company is from time to time party to
various actions which in the aggregate are not believed by management to be
material to its financial condition
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
9
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the NASDAQ Small Cap Market under the
symbol "NETT" since November 20, 1995. In addition, warrants to purchase up to
494,500 of the Company's Common Stock are listed on the NASDAQ Small Cap Market
under the symbol "NETTW." The terms of the warrants provide the holder the right
to purchase any time prior to November 21, 1997 one share of Common Stock at a
price of $6.50. The Company's Common Stock is also traded on the Pacific
Exchange.
The following table sets forth the high and low bid price per share of the
Common Stock as reported by NASDAQ for each quarter within the last two fiscal
years.
Quarter Ended High bid Low bid
------------- -------- -------
December 31, 1995 $5.00 $4.38
March 31, 1996 $12.00 $4.25
June 30, 1996 $8.38 $4.50
September 30, 1996 $5.38 $3.50
December 31, 1996 $4.00 $1.75
March 31, 1997 $4.38 $2.50
June 30, 1997 $4.44 $3.50
On September 25, 1997, the closing prices of the Common Stock as reported by
NASDAQ were $2.75 bid and $3.00 ask. On such date there were 30 holders of
record of the Common Stock. The number of shareholders does not take into
account shareholders for whom shares are being held in the name of brokerage
firms or clearing agencies.
The Company has never paid any dividends on the Common Stock. The Company
intends to retain earnings and capital for use in its business, and no cash
dividends are expected to be paid on the Common Stock in the foreseeable future.
On February 28, 1997, the Company completed an offering of 47,145 shares of its
Series A Cumulative, Convertible Preferred Stock ("Series A Preferred Stock") at
a price of $9.00 per share in a limited public offering pursuant to Regulation
CE promulgated under the Securities Act of 1933, as amended. Gross proceeds
received by the Company in the offering totaled $424,305. W.J. Gallagher &
Company, Inc. acted as the placement agent in the offering and, as compensation
for its services, received a placement fee equal to $42,430. In addition,
Gallagher received a non-accountable allowance in the amount of $12,729 as well
as warrants to purchase 4,715 shares of Series A Preferred Stock at an exercise
price of $10.80 per share. Each share of Series A Preferred Stock is
convertible, at the option of the holder thereof, into three paid and
nonassessable shares of Common Stock. The Series A Preferred Stock is
redeemable, in whole or in part, at the option of the Company, for a cash
redemption price of $9.00 per share.
10
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Historically, the Company's primary operations have been to develop and produce
media entertainment Projects under agreements with studios, networks and
distributors who fund 100% of production costs of the Project. Employing this
strategy, the Company avoids the financial risk of funding such production
costs, but limits its ongoing revenue participation since the studio, network or
distributor retains a significant portion of the rights to the main and
ancillary markets for the Projects. Under these arrangements, revenues are
recognized when earned (typically upon receipt) and associated costs are
recognized when incurred.
These revenues are primarily dependent on the number of Projects being produced
by the Company and the agreement relating to such Projects. Accordingly, year
to year comparisons of production revenues from these sources are not
necessarily indicative of future revenues. For example, the Company's
children's series, "Hypernauts", which contributed $4.2 million to the Company's
revenues in fiscal 1996, was not renewed by ABC for the Fall 1996-1997 season,
resulting in a loss of these revenues in fiscal 1997. Also, during fiscal 1997
and fiscal 1996, the Company derived approximately 99% and 83%, respectively, of
its entertainment production revenues from Warner Bros. for the "Babylon 5"
television series which, in July 1997, was extended for a fifth season of
production through approximately May 1998. As discussed above in "PART I.
ITEM 1. BUSINESS," the Company's business strategy is to expand its
entertainment production business and to broaden its business base through
Videssence's manufacture and sale of lighting products and through the
Company's marketing of its computer animation and visual effects production
services to outside clients. Of course, there can be no assurance that this
strategy will be successful, and, if the "Babylon 5" series is not renewed after
a fifth season or replaced by a series generating comparable revenues, the
Company's financial condition and operations could be materially adversely
affected.
Results of Operations
Net Revenues. Net revenues increased to approximately $25.7 million for the
fiscal year ended June 30, 1997, an increase of 8%, as compared to approximately
$23.7 million for the fiscal year ended June 30, 1996. This increase resulted
from the January 1997 acquisition of Videssence, which contributed approximately
$2.4 million in revenues from sales of its lighting products. Revenues from
entertainment production activities remained flat at approximately $23.3
million, as increased revenues from the production of "Babylon 5" and revenues
from the beginning of production on the two "Babylon 5" television movies in
fiscal 1997 replaced revenues lost when the Company's "Hypernauts" live action
series was not renewed by ABC. However, the Company had $350,000 in licensing
revenues from "Hypernauts" in fiscal 1996, which revenues ended when this series
was not renewed.
Gross Margin. The Company's gross profit for fiscal 1997 was approximately $3.3
million, or 12.8% of net revenues, as compared to approximately $1.2 million, or
4.9% of net revenues, for fiscal 1996. This increase resulted from two factors:
(1) the gross profit from the Company's entertainment production business
increased to approximately $2 million (approximately 8.7% of revenues from
entertainment production activities) in fiscal 1997, up from approximately
$815,000 (approximately 3.5% of revenues from entertainment production) in
fiscal 1996, primarily because the Company brought in-house certain of its
post-production and graphics/animation work, significantly reducing its need for
outside production services and (2) sales of the Videssence lighting products
generated gross profit of approximately $1.25 million (approximately 52% of
11
revenues from sales of such products) from January 1, 1997 through June 30,
1997.
General and Administrative Expenses. General and administrative expenses
increased to approximately $3.1 million, or approximately 12% of the Company's
net revenues, as compared to approximately $1.5 million (approximately 6.4% of
revenues) in fiscal 1996. The increase was primarily attributable to the
expansion of staffing in the executive, development, and administration
departments, and to the addition of Videssence's operations which added
approximately $1.1 million to expenses. To a lesser degree, the increased legal,
regulatory, accounting and other expenses resulting from being a publicly traded
company during all of fiscal 1997, as opposed to only eight months of fiscal
1996, contributed to this increase.
Other Income and Expenses. Interest income decreased to approximately $83,000
for fiscal 1997, as compared to approximately $98,000 for fiscal 1996, as
proceeds from the Company's November 1995 initial public offering were drawn
from short term investments and used for expansion of its in-house post-
production and graphics/animation facilities. Interest expense increased to
approximately $59,000 in fiscal 1997, from approximately $11,000 in fiscal 1996,
due to the acquisition of Videssence which had more long term debt.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through cash flows from
operations, the initial public offering of Common Stock and Warrants completed
in November 1995, which generated net proceeds of approximately $3.2 million
and, with respect to production costs for particular entertainment Projects,
through production contracts with studios, networks and distributors who cover
100% of the production funding. Such production funds are received by the
Company during the production stage of a Project. To date, the Company has been
able to secure production financing from a major studio, network or distributor
for all its Projects. While the Company believes that similar financing
arrangements can be made for future productions, there can be no assurance that
the Company will be successful in obtaining such production financing. In that
event, the Company would have to secure alternative sources for financing
Projects. Moreover, as the Company continues to develop new forms of high
technology production activities and projects for new entertainment ancillary
markets, it may elect to make additional commitments for these new projects and
to cover the resulting increased overhead with these endeavors. These
potential, new financial commitments, if pursued, could create additional risk
for the Company as to whether it will recover the costs of its investment and
generate a profit.
During fiscal 1997 and fiscal 1996, the Company derived approximately 99% and
83%, respectively, of its entertainment production revenues from its agreements
with Warner Bros. relating to the production of the "Babylon 5" series. In July
1997, Warner Bros. exercised it option to extend this agreement for a fifth
season of production through approximately May 1998. If the "Babylon 5" series
is not renewed through an additional agreement extension after the fifth season
and the Company is unable to replace the series with one generating comparable
revenues, the Company's financial condition and operations could be materially
adversely affected.
Cash provided in operating activities was approximately $1.45 million for the
fiscal year ended June 30, 1997. The biggest providers of cash were a
disproportionate increase in accounts payable to cover accounts receivable from
Warner Bros. for the production of the television show and movies along with
pre-billings (deferred revenue) for services provided by Netter Digital
Entertainment for the movies. The remainder came from operations and non-cash
expenses such as depreciation and amortization.
12
Cash used for capital equipment investment was approximately $647,000 for fiscal
1997. The use of cash was primarily for additions of computer and post
production equipment to bring post-production and graphics/animation facilities
in-house. Although not a current cash item, the Company also entered into
leases for approximately $203,000 during fiscal 1997.
The Company incurred approximately $496,000 of transaction expenses in
completing its January 1997 acquisition of Videssence. As of December 31, 1996,
the Company had $625,000 of outstanding advances to and $23,400 of outstanding
interest receivable from Videssence, Inc. which were evidenced by written
promissory notes bearing interest at 9% per annum. The unpaid principal and
accrued interest receivable has been eliminated in consolidation. Since January
1, 1997, the Company has advanced approximately $970,000 of additional working
capital to its Videssence subsidiary.
In February 1997, the Company completed its offering of Class A Cumulative
Convertible Preferred Stock, which resulted in 47,145 shares of such Preferred
Stock being issued for gross proceeds of approximately $424,000.
Effective July 1997, the Company's subsidiary Videssence obtained a $750,000
line of credit with a bank, guaranteed by the Company, which required monthly
payments of interest on outstanding principal amounts at 2% above the bank's
reference rate. The loan documents also require the Company to comply with
certain restrictive covenants, including maintaining a minimum working capital
and specific financial ratios. As of September 25, 1997, the Company owes an
outstanding principal amount of $482,000 on such line, which was borrowed to
repay monies advanced by the Company's factor in conjunction with terminating
the Company's factoring agreement.
Management believes that its present cash position and overall liquidity will
enable the Company to meet its operating commitments for the next twelve months.
As of September 25, 1997, the Company's sources of liquidity included cash and
cash equivalents totaling approximately $1 million, of which approximately
$350,000 is contractually committed to fund specific Projects. The Company
assumed approximately $231,000 of Videssence debt in connection with its
acquisition of Videssence, approximately $152,000 of which debt was repaid in
July 1997.
13
ITEM 7. FINANCIAL STATEMENTS
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEET - June 30, 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS-
for the years ended June 30, 1997 and 1996 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -
for years ended June 30, 1997 and 1996 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS -
for years ended June 30, 1997 and 1996 F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7 to F-18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Netter Digital Entertainment, Inc.
and Subsidiaries
We have audited the accompanying consolidated balance sheets of Netter
Digital Entertainment, Inc. and Subsidiaries as of June 30, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended June 30, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Netter Digital Entertainment
Inc. and Subsidiaries as of June 30, 1997 and the results of its operations and
its cash flows for the years ended June 30, 1997 and 1996 in conformity with
generally accepted accounting principles.
/S/ Feldman Radin & Co., P.C.
------------------------------
Certified Public Accountants
New York, New York
August 15, 1997
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,574,522
Accounts receivable, net of allowance of $52,000 866,073
Inventories 990,055
Due from officer 155,897
Production costs 294,719
Other 118,113
----------
TOTAL CURRENT ASSETS 4,999,379
EQUIPMENT, net 1,446,268
GOODWILL, net 2,042,746
DEPOSITS AND OTHER ASSETS 294,848
----------
TOTAL ASSETS $8,783,241
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and production fee advances $2,411,637
Accrued expenses 365,425
Deferred revenue 530,851
Current portion of long-term debt 140,688
Current portion of capital lease obligations 79,455
----------
TOTAL CURRENT LIABILITIES 3,528,056
----------
LONG-TERM DEBT 90,740
CAPITAL LEASE OBLIGATIONS 148,847
MINORITY INTEREST 500
----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, 2,000,000 shares
authorized; 48,740 shares issued and outstanding 276,293
Common stock, $.01 par value, 6,000,000 shares
authorized; 3,327,221 shares issued and outstanding 33,272
Additional paid in capital 4,676,243
Retained earnings 29,290
----------
TOTAL STOCKHOLDERS' EQUITY 5,015,098
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,783,241
==========
The accompanying notes are an integral part of the financial statements.
F-3
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
--------------------------
1997 1996
------------ ------------
REVENUES:
Production $23,300,891 $23,305,054
Sales 2,410,987 -
Licensing - 350,000
------------ ------------
TOTAL REVENUES 25,711,878 23,655,054
EXPENSES:
Production 21,258,498 22,489,608
Cost of goods sold 1,155,937 -
General and administrative 3,097,249 1,524,864
Amortization of goodwill 43,463 -
------------ ------------
TOTAL EXPENSES 25,555,147 24,014,472
------------ ------------
OPERATING INCOME (LOSS) 156,731 (359,418)
OTHER INCOME (EXPENSE):
Interest income 83,414 98,262
Interest (expense) (59,054) (10,786)
Other income 33,285 15,098
------------ ------------
TOTAL OTHER INCOME 57,645 102,574
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES 214,376 (256,844)
PROVISION FOR INCOME TAXES 24,000 -
------------ ------------
NET INCOME (LOSS) $190,376 $(256,844)
CUMULATIVE PREFERRED STOCK DIVIDEND 14,354 -
------------ ------------
NET INCOME TO COMMON SHAREHOLDERS $176,022 $(256,844)
============ ============
NET INCOME (LOSS) PER COMMON SHARE $0.06 $(0.11)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 3,056,944 2,404,356
============ ============
The accompanying notes are an integral part of the financial statements.
F-4
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Preferred Stock Common Stock Additional Earnings Total
----------------------- -----------------------
Number of Number of Paid in (Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit) Equity
----------- ----------- ----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 0 $0 1,860,000 $18,600 $2,920 $110,112 $131,632
Sale of common stock
in public offering 0 0 860,000 8,600 3,231,161 0 3,239,761
Exercise of warrants 0 0 75,000 750 299,250 0 300,000
Net loss 0 0 0 0 0 (256,844) (256,844)
----------- ----------- ----------- ----------- ----------- ------------ ------------
Balance, June 30, 1996 0 0 2,795,000 27,950 3,533,331 (146,732) 3,414,549
Stock issued in connection with acquisition 0 0 522,221 5,222 1,107,109 0 1,112,331
Stock issued in connection with settlement 0 0 10,000 100 35,803 0 35,903
Sale of preferred stock 47,145 261,939 0 0 0 0 261,939
Stock dividend 1,595 14,354 0 0 0 (14,354) 0
Net income 0 0 0 0 0 190,376 190,376
----------- ----------- ----------- ----------- ----------- ------------ ------------
Balance, June 30, 1997 48,740 $276,293 3,327,221 $33,272 $4,676,243 $29,290 $5,015,098
=========== =========== =========== =========== =========== ============ ============
<FN>
<F1>
The accompanying notes are an integral part of the financial statements.
F-5
</FN>
</TABLE>
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $190,376 $(256,844)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 238,087 27,770
Amortization 43,463 -
Changes in operating assets and liabilities, net of
effects of acquisitions:
(Increase) decrease in accounts receivable (371,372) 332,915
(Increase) decrease in inventories (62,973) -
(Increase) decrease in production costs (229,510) (65,209)
(Increase) decrease in other current assets 13,945 (53,475)
(Increase) decrease in deposits and other assets (211,330) (20,229)
Increase (decrease) in accounts payable 1,426,240 (167,915)
Increase (decrease) in accrued expenses (117,201) 6,398
Increase (decrease) in deferred revenues 530,202 (393,923)
------------ ------------
978,001 (361,438)
------------ ------------
NET CASH PROVIDED BY (USED) IN OPERATING ACTIVITIES 1,449,927 (590,512)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (647,120) (593,244)
Advances to subsidiary prior to acquisition (275,000) (350,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (922,120) (943,244)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in deferred registration costs - 60,383
Acquisition costs net of cash acquired (342,989) (113,396)
Issuance of preferred stock 261,939 -
Decrease in due from officer 38,979 -
Proceeds from public offering - 3,239,761
Proceeds from exercise of options and warrants - 300,000
Notes payable principal payments (75,675) (110,000)
Principal payments of capital lease obligations (16,762) -
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (134,508) 3,376,748
------------ ------------
NET INCREASE IN CASH 393,299 1,842,992
CASH, beginning of year 2,181,223 338,231
------------ ------------
CASH, end of year $2,574,522 $2,181,223
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $78,918 $10,786
============ ============
Income taxes $1,630 $18,500
============ ============
Noncash activity:
Issuance of common stock in connection with
acquisition of Videssence $1,112,330 $-
============ ============
Stock issued for legal fee settlement $35,903 $-
============ ============
Stock dividend $14,354 $-
============ ============
Purchase of equipment through leases payable $202,589 $-
============ ============
<FN>
<F1>
The accompanying notes are an integral part of the financial statements.
F-6
</FN>
</TABLE>
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
1. ORGANIZATION:
Rattlesnake Productions, Inc. was incorporated in June 1979 under the laws of
the State of California. Babylonian Productions, Inc., a majority owned
subsidiary (51%), was incorporated in June 1993 under the laws of the State of
California. In September 1995, Rattlesnake Productions, Inc. merged into a
Delaware corporation, Netter Digital Entertainment, Inc. Netter Digital
Entertainment, Inc. and Babylonian Productions, Inc. are collectively referred
to as "NDEI".
NDEI is engaged in the development, acquisition and production of prime time
television series and movies, children's series and theatrical movies.
On January 10, 1997, NDEI purchased all the outstanding shares of Videssence,
Inc. ("Videssence") in exchange for 522,221 shares of NDEI's Common Stock.
This transaction was completed pursuant to an Agreement and Plan of Merger (the
"Plan") dated April 26, 1996 between Videssence and NEDI. Under the Plan the
Videssence shareholders can earn up to an additional maximum of 788,000 shares
of the Company's common stock upon Videssence achieving certain performance
based criteria over the next five years. Acquisition costs amounted to
$495,998. This merger was accounted for as a purchase. Videssence designs,
manufactures and distributes media lighting products which incorporate the
patented SRGB? light technology for the illumination of studios, stages and
other production environments in the sound stage, media picture, theater and
other theme park industries. Hereafter, NDEI and Videssence are collectively
referred to as the Company.
The following table summarizes the acquisition:
Purchase price, including acquisition costs $1,608,329
Net fair value of liabilities assumed 477,880
------------
Cost in excess of net book value of assets acquired $2,086,209
============
F-7
The following unaudited pro-forma information reflects the results of operations
of the Company as though the merger had been consummated at the beginning of the
respective periods:
Years ended June 30,
--------------------------
1997 1996
------------ ------------
Revenue $28,096,332 $27,801,743
============ ============
Net loss $(111,589) $(813,805)
============ ============
Net loss to common shareholders $(125,943) $(813,805)
============ ============
Net loss per share $(0.04) $(0.28)
============ ============
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Principles of consolidation - The consolidated financial statements
include the accounts of the Company and its subsidiaries. The accounts of
Videssence have been included for the six months ended June 30, 1997. All
material intercompany transactions have been eliminated.
B. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reporting amounts of revenues and expenses during the
reported period. Actual results could differ from those estimates.
C. Cash and cash equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or less
when purchased, to be cash equivalents.
D. Revenue recognition:
Production revenues - The Company derives revenues primarily from providing
contract production services to distributors including producers-profit
participation. Revenues are recognized as earned. Amounts advanced under
production contracts are deferred and not recognized as revenues until
obligations under such contracts are performed. Conversely, amounts expended
under production contracts not yet reimbursed are recorded as a receivable. To
date, the Company has not recognized any material revenues from producers-profit
participation.
Licensing revenues - Licensing revenues representing guaranteed royalties are
recognized as income when the Company meets all commitments and obligations
related to the royalty agreement.
F-8
E. Inventories - Inventories are recorded at the lower of cost or market.
Cost is determined using the average cost method.
F. Equipment - Equipment is recorded at cost. Depreciation is calculated
using the straight line method based on the estimated useful lives of the
related assets, which range from three to seven years. When assets are retired
or otherwise disposed of, the costs and related accumulated depreciation or
amortization are removed from the accounts and any gain or loss on disposal is
recognized currently.
Repairs and maintenance are expensed as incurred. Expenditures which
significantly increase values, change capacities, or extend useful lives are
capitalized.
G. Product warranty - The Company accrues for an estimate of expenses
relating to the one-year warranty covering all parts and labor relating to the
sale of its products.
H. Net income (loss) per common share - Net income (loss) per common share is
computed using the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding during the respective periods.
I. Income taxes - The Company recognizes deferred tax assets and liabilities
based on the difference between the financial statements carrying amount and the
tax basis of assets and liabilities, using the effective tax rates in the years
in which the differences are expected to reverse. A valuation allowance related
to deferred tax assets is also recorded when it is probable that some or all of
the deferred tax asset will not be realized.
J. Concentration of credit risk - Financial instruments that potentially
subject the Company to significant concentrations of credit risk consisting of
cash and trade receivables. At times the cash in any one bank may exceed the
FDIC $100,000 limit. The Company places its cash with high credit quality
financial institutions. In regards to trade receivables, the risk is relatively
limited due to the customers being national and foreign distributors.
K. Minority interest - Minority interest represents the minority
shareholders' proportionate share of the equity of the Company's subsidiary,
Babylonian Productions, Inc. which was 49% at June 30, 1997 and 1996. The
minority interest is adjusted for the minority's share of the earnings or loss
of Babylonian Productions, Inc.
L. Stock based compensation - The Company accounts for stock transactions in
accordance with APB Opinion No.25, "Accounting for Stock Issued to Employees."
In accordance with Statement of Financial Accounting Standards No.123,
"Accounting for Stock based Compensation," effective July 1, 1996 the Company
has adopted the pro forma disclosure requirements of Statement No.123.
M. Fair value of financial instruments - The carrying amounts reported in the
balance sheet for cash, receivables, accounts payable, and accrued expenses
approximate fair value based on the short-term maturity of these instruments.
F-9
N. Goodwill - Goodwill resulting from the acquisition of Videssence
represents the remaining unamortized value of the excess of the purchase price
over the fair value of the net assets of Videssence. Goodwill is amortized on
a straight line basis over a period of 20 years.
O. Impairment of long - lived assets - The Company has adopted Statement of
Finnancial Accounting Standards No. 121, "Accounting For The Impairment Of Long
Lived Assets And For Long-Lived Assets To Be Disposed Of" as of July 1, 1996.
Such adoption had no material effect on the financial statements of the Company.
3. BUSINESS SEGMENTS
In 1997 the Company, with the acquisition of Videssence, operates in two
business segments, entertainment and manufacturing.
Summarized financial information of the business segments in 1997 is as follows:
Entertainment Manufacturing Total
-------------- -------------- --------------
Revenue $23,300,891 $2,410,987 $25,711,878
============== ============== ==============
Operating profit $48,036 $108,695 $156,731
============== ============== ==============
Net income $145,115 $45,261 $190,376
============== ============== ==============
Identifiable assets $4,753,204 $4,030,037 $8,783,241
============== ============== ==============
Depreciation and amortization $198,487 $83,063 $281,550
============== ============== ==============
Capital expenditures $817,055 $32,654 $849,709
============== ============== ==============
4. INVENTORIES
Inventories consist of the following:
Raw Material $518,476
Work in Process 192,028
Finished Goods 279,551
-----------
$990,055
===========
5. DUE FROM OFFICER:
Represents a promissory note due from the Company's Chief Executive Officer,
bearing interest at 7.25% per annum. The unpaid principal balance and accrued
interest is due on May 20, 1998.
F-10
6. RELATED PARTY TRANSACTION:
During the years ended June 30, 1996, the Company had contracted with a computer
graphics company to produce certain visual effects for two of its productions
for approximately $1,834,000. Until February 1996, the computer graphics company
was 10% owned by the spouse of an officer of the Company.
During the years ended June 30, 1997 and 1996, the Company rented trailers, in
connection with one of its productions, for approximately $118,000 per annum,
from a company which is 50% owned by an officer of the Company and his spouse.
During fiscal years ended June 30, 1997 and 1996, the Company leased some of its
recording equipment for approximately $55,000. The supplier is a company owned
by an officer of the Company's son and administered by the officer's wife.
In March 1996, the Company entered into a consulting agreement which expired in
February 1997 with an individual (the "Consultant") for a monthly fee of
$5,000. Under the terms of the agreement, the Consultant is to locate suitable
acquisitions or joint ventures or assist the Company in consummating similar
transactions. In March 1997, the Company entered into a new six month
consulting agreement with the same individual for monthly fee of $3,000.
Through March 1997, such consultant was also a member of the Company's Board of
Directors.
In a separate consulting agreement entered into by the same board member with
the Company in June, 1996, the Company agreed to pay $10,000 per month for two
months to assist with completion of the Videssence merger.
7. PRODUCTION COSTS:
Production costs consist of the following:
Story rights and scenarios $294,719
==========
Production costs are deferred and will be amortized under the Individual Film
Forecast Method. Production costs will be amortized in relation to the revenue
recognized from each production, and amortization will be calculated based on
management's latest estimate of the production's gross profit margin over its
remaining life, which requires the Company to use estimates of the
future revenue generating potential of each production. Such estimates are
subject to a variety of cost factors. These estimates will be re-evaluated
periodically and, when necessary, production costs will be written down to net
realizable value.
F-11
8. EQUIPMENT:
Equipment consists of the following:
Machinery and equipment held under
capital lease obligation $258,664
Leasehold improvement 28,123
Furniture and office equipment 151,686
Computer equipment 44,617
Post-production and animation equipment 1,150,609
Rental lights and grips 83,753
------------
1,717,452
Less: accumulated depreciation 271,184
------------
$1,446,268
============
9. LONG-TERM DEBT
Long-term debt consists of the following:
Unsecured term note due in January 2000 with monthly
principal payments of $3,646 plus interest at prime
at prime plus 4.5% (8.50% at June 30, 1997) $113,018
Note payable to bank, payable in monthly principal
payments of $1,450, plus interest at the bank's
reference rate (8.50% at June 30, 1997) plus 3%.
The entire unpaid principal and interest balance is due
on October 1, 1999. 38,872
Note payable to vendor, guaranteed by a stockholder,
payable in monthly principal payments of $2,250, plus
interest at the bank's prime rate (8.50% at June 30, 1997)
plus 1%. The entire unpaid principal and interest balance
is due on June 15, 1998. 33,041
Payable on demand to related parties (stockholders) interest
at 10% commencing at various dates. Notes are subordinate to
the bank notes. 46,497
----------
231,428
Less: current portion 140,688
----------
$90,740
==========
F-12
In July 1997, the term note along with the bank note payable was repaid with the
proceeds of a new loan from a bank.
Long-term debt matures as follows:
Year ended June 30,
1998 $140,688
1999 61,150
2000 29,590
----------
$231,428
==========
In addition, effective July 1997, the Company obtained a line of credit with a
bank for $750,000. The Company borrowed $407,000 against such line to repay
monies advanced by the Company's factor in conjunction with terminating the
Company's factoring agreement. The line of credit requires monthly payments of
interest at 2% above the bank's reference rate. The note also requires the
Company to comply with certain loan covenants.
The estimated fair value of the Company's debt approximates its carrying amount.
10. CAPITAL LEASE OBLIGATIONS
Current Long-term
portion portion Total
------------ ------------ ------------
Total minimum lease payments $103,536 $166,700 $270,236
Less: amounts representing interest 24,081 17,853 41,934
------------ ------------ ------------
Amounts representing principal $79,455 $148,847 $228,302
============ ============ ============
11. COMMITMENT AND CONTINGENCIES:
The Company leased its principal executive television production offices on a
month to month basis through June 1997. In July 1997 the Company entered into a
new seven year lease agreement for its principal offices expiring in June 2004
at an annual rental of $277,000 with the option to extended the lease for two
additional five years terms. The leases for the two studio facilities with an
annual minimum rental of $307,000, and $78,000 both expire in June 1998. The
lease for the studios with an annual minimum rental of $78,000 has three one
year renewal options. The Company also leases space for its manufacturing
facilities under a noncancellable operating lease requiring annual rent of
$56,000 expiring November 1997. Rent expense under all operating leases for the
years ended June 30, 1997 and 1996 including its manufacturing facilities were
approximately $509,000 and $404,000, respectively.
F-13
The future minimum rental payments as of June 30, 1997 were as follows:
Year ended June 30,
1998 $685,000
1999 294,000
2000 303,000
2001 316,000
2002 326,000
12. STOCKHOLDERS' EQUITY:
In September 1995, the Company issued an aggregate of 125,000 three year
warrants in connection with a bridge financing. Each warrant is exercisable for
one share of common stock at a price of $4.00 per share. Through June 30, 1997,
75,000 of these warrants were exercised for proceeds of $300,000.
In November 1995, the Company completed a public offering of its securities,
selling 860,000 shares of common stock and 430,000 warrants for net proceeds of
approximately $3,200,000. The warrants are exercisable to purchase one share of
common stock at a price of $6.50 per share. The warrants are exercisable at any
time after issuance and expire in November 1997. The warrants are redeemable at
the Company's option commencing February 18, 1996 upon 30 days notice to the
warrant holders at $.01 per warrant if the closing bid price of the common stock
averages in excess of 110% of the then current exercise price of the warrants
for a period of 20 consecutive trading days ending within 15 days of the notice
of redemption. The underwriters of the public offering received a warrant to
purchase up to 129,000 shares or warrants, or any combination thereof. The
warrant is exercisable for a period of four years commencing November 20, 1996
at an exercise price of $6.00 per share and $.012 per warrant.
Preferred Stock
The Company is authorized to issue 2,000,000 shares of preferred stock, $.001
par value, the terms of which (including, without limitation, dividend rate,
conversion rates, voting rights, terms of redemption and liquidation
preferences) may be fixed by the Board of Directors at their sole discretion.
During the year ended June 30, 1997 the Company sold 47,145 shares of Series A
Cumulative, Convertible Preferred Stock ("Series A Preferred Stock") at a price
of $9.00 per share. Dividends will be paid in nonassessable shares of Series A
Preferred Stock in an amount per share equal to 10% per annum. Each share of
Series A Preferred Stock is convertible at any time at the option of the holder
into three shares of common stock. The Series A Preferred Stock is
redeemable, in whole or in part, at the option of the Company, for cash at a
redemption price of $9.00 per share.
F-14
Stock Options and Warrants
The Company adopted a Stock Option Plan ("Plan") in September 1995. The Plan is
administered by a committee of two ("Committee") appointed by the Board of
Directors and provides that the Committee has sole discretion to select options
and to establish terms and conditions of each option, subject to provisions of
the Plan. If options granted are "incentive stock options", the exercise price
of the options may not be less than 100% of the fair market value of the
Company's common stock on the date of grant (110% of the fair market value if
the grant is to an employee who owns more than 10% of the outstanding common
stock). Nonstatutory options may be granted under the Plan at an exercise price
of not less than 85% of fair market value of the common stock at the date of
grant. The maximum grant term is 10 years. The Plan is designed for officers,
directors, and other key employees and is authorized to grant up to 500,000
options. As of June 30, 1997, 432,000 options have been granted at price ranging
from $3.00 to $10.25 per share and no options have been exercised.
For disclosure purposes the fair value of each stock option grant is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for stock options granted during the
years ended June 30, 1997 and 1996, respectively: annual dividends of $0.00 for
both years, expected volatility of 50%, risk-free interest rate of 6.0% and
expected life from two to five years for all grants. The weight average fair
values of the stock options granted during the years ended June 30, 1997 and
1996 were $1.89 and $2.55.
If the Company recognized compensation cost for the employee stock option plan
in accordance with SFAS No. 123, the Company's pro forma net loss and loss per
share would have been $(382,000) and $(0.13) in 1997 and $(530,000) and $(0.22)
in 1996.
F-15
The following table summarizes the changes in options and warrants outstanding
and the related price ranges for shares of the Company's common stock:
<TABLE>
<CAPTION>
Option Warrant
----------------------------------- -----------------------------------
Number Price Number of Price Number of
of Shares Per Share Shares Number Per Share Shares
Range Exercisable of Shares Range Exercisable
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
July 1, 1995 - - - - - -
=========== ===========
Granted 704,000 $5.00-$10.25 758,500 $4.00-$6.50
Exercised - - (75,000) -
Canceled (302,000) - - -
----------- -----------
Outstanding at
June 30, 1996 402,000 $5.00-$10.25 120,400 683,500 $4.00-$6.50 50,000
=========== ===========
Granted 130,000 $3.00-$4.38 - -
Exercised - - (10,000) -
Canceled (100,000) - - -
----------- -----------
Outstanding at
June 30, 1997 432,000 $3.00-$10.25 206,800 673,500 $4.00-$6.50 673,500
=========== =========== =========== ===========
</TABLE>
13. EMPLOYMENT AGREEMENTS:
The Company has agreements for the services of certain of its officers. Such
agreements expire in September 2000 and provide for a base compensation of
approximately $390,000. These agreements also provide for additional
compensation based on certain revenue or other operating results and for
payments by the Company in the event of death, disability, or termination.
The aggregate amounts paid pursuant to such agreements was $523,000 and $549,000
for the years ended June 30, 1997 and June 30, 1996, respectively.
F-16
14. INCOME TAXES:
The provision for income taxes consists of the following:
June 30,
--------------------------
1997 1996
------------ ------------
Current federal and state income taxes $24,000 $-
Deferred federal and state income taxes - -
------------ ------------
Provision for income taxes $24,000 $-
============ ============
The provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income (loss) before provision for income
taxes is as follows:
June 30,
--------------------------
1997 1996
------------ ------------
Income tax provision (benefit) computed
at the statutory rate $73,000 $(90,000)
Income tax benefit not recognized - 90,000
Income tax benefit recognized (41,000) -
Surtax exemption (14,000) -
Provision for state income taxes 6,000 -
------------ ------------
Income tax provision $24,000 $-
============ ============
The Company has a net operating loss carryforward for tax purposes totaling
approximately $300,000 at June 30, 1997 expiring in the years 2010 to 2012.
Listed below are the tax effects of the items related to the net Company's tax
asset:
Tax benefit of net operating loss carryforward $115,000
Tax credits carryforward 16,000
Section 263A inventory capitalization 54,000
Expenses not currently deductible for income tax purposes 12,000
------------
Total 197,000
Valuation allowance (164,700)
------------
Net deferred tax asset recorded $32,300
============
F-17
15. SIGNIFICANT CONCENTRATIONS:
During the year ended June 30, 1997 and 1996, the Company derived approximately
99% and 83%, respectively, of its entertainment revenue from one distributor. In
July 1997, the distributor exercised their option to extend the contract for a
fifth season of production through approximately May 1998. If the option with
this distributor is not renewed after a fifth season, the Company's financial
condition and operations could be adversely affected. Included in cash
and cash equivalents is approximately $1,600,000 of advances from such
distributor. At June 30, 1997 approximately 21% of accounts receivable is from
one customer.
F-18
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held on November 14, 1997.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held on November 14, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held on November 14, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's definitive proxy statement for its Annual Meeting of Stockholders
scheduled to be held on November 14, 1997.
14
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (numbered in accordance with Item 601 of regulation S-B).
Exhibit
Number Description
- ------- -------------------------------------------------------------
2.1 Agreement and Plan of Merger and Reorganization, as amended.(5)
2.2 Amendment No. 2 to the Agreement of Merger and Reorganization.(6)
2.3 Amendment No. 3 to the Agreement of Merger and Reorganization.(7)
2.4 Amendment No. 4 to the Agreement of Merger and Reorganization. (7)
2.5 Amendment No. 5 to the Agreement of Merger and Reorganization. (7)
3.1 Certificate of Incorporation. (1)
3.2 Bylaws. (1)
4.1 Certificate of Designation. (8)
10.1 Mr. Netter's Employment Agreement. (1)
10.2 Mr. Copeland's Employment Agreement. (1)
10.3 "Babylon 5" Production Agreement. (1)
10.4 1995 Stock Option Plan. (1)
10.5 Talbot Consulting/Completion Fee Agreement. (6)
10.6 Warrant, dated September 4,1997, issued to W.J. Gallagher & Company.(9)
10.7 Letter Agreement, dated September 1, 1997, between the Company and H.D.
Brous & Co., Inc. (9)
10.8 Stock Option Agreement, dated September 1,1997, between the Company and
H.D. Brous & Co., Inc. (9)
10.9 Lease for premises at 5125 Lankershim Blvd., North Hollywood, CA. (9)
10.10 Equipment and furniture lease with Lyon Credit Corporation. (9)
10.11 Equipment lease with Terminal Marketing Company. (9)
10.12 Installment note and Loan and Security Agreement with Comerica Bank.(9)
10.13 Mr. Costa's Employment Agreement. (9)
10.14 Mr. Francis's Employment Agreement. (9)
10.15 Mr. Cercone's Employment Agreement. (9)
21 List of Subsidiaries. (9)
27 Financial Data Schedule. (9)
- ---------------------------
(1) Incorporated by reference to the Company's Registration Statement on Form
SB-2 (Registration Number is 33-97402-LA) declared effective November 20,
1995.
(2) Incorporated by reference to the Company's Registration Statement on Form
8-A dated November 20, 1995.
(3) Incorporated by reference to the Company's Form 10-QSB for the quarter ended
December 31, 1995.
(4) Incorporated by reference to the Company's Form 10-QSB for the quarter ended
March 31, 1996.
15
(5) Incorporated by reference to the Company's Proxy Statement , dated June 26,
1996 for the approval/disapproval of the proposed merger between the Company
and Videssence, Inc.
(6) Incorporated by reference to the Company's Form 10-KSB for the year ended
June 30, 1996.
(7) Incorporated by reference to the Company's Form 8-K dated January 10, 1997.
(8) Incorporated by reference to the Company's Form 10-QSB for the quarter ended
September 30, 1996.
(9) Filed herewith.
16
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
NETTER DIGITAL ENTERTAINMENT, INC.
Dated: September 25, 1997 By: /s/Thomas L. Jorgenson
-----------------------------
Thomas L. Jorgenson, Chief
Operating Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
- --------------------- ----------------------------- ------------------
/s/Douglas Netter Chairman of the Board of September 25, 1997
- ----------------- Directors, Chief Executive
Douglas Netter Officer, and President
/s/John Copeland Executive Vice President and September 25, 1997
- ---------------- Secretary/Director
John Copeland
/s/Thomas L. Jorgenson Chief Operating Officer September 25, 1997
- ----------------------
Thomas L. Jorgenson
/s/Chad Kalebic Controller (Chief Financial September 25, 1997
- --------------- and Accounting Officer)
Chad Kalebic
/s/Rowland Perkins Director September 25, 1997
- ------------------
Rowland Perkins
/s/Kate Netter Forte Director September 25, 1997
- --------------------
Kate Netter Forte
/s/Leonard Silverman Director September 25, 1997
- --------------------
Leonard Silverman
/s/Paul Costa Director September 25, 1997
- -------------
Paul Costa
17
THESE SECURITIES MAY NOT BE PUBLICLY OFFERED OR SOLD UNLESS AT THE TIME OF SUCH
OFFER OR SALE, THE PERSON MAKING SUCH OFFER OR SALE DELIVERS A PROSPECTUS
MEETING THE REQUIREMENTS OF SECTION 10 OF THE SECURITIES ACT OF 1933 FORMING A
PART OF A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO, WHICH IS
EFFECTIVE UNDER SAID ACT, UNLESS IN THE OPINION OF COUNSEL TO THE CORPORATION,
SUCH OFFER AND SALE IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF SAID ACT.
WARRANT
For the Purchase of Preferred Stock, $0.001 Par Value Per Share
NETTER DIGITAL ENTERTAINMENT, INC.
(Incorporated Under the Laws of the State of California)
Void After 11:59 P.M. October 14, 2001
No. 1
Warrant to Purchase Four Thousand Seven Hundred Fifteen (4,715) Shares.
THIS IS TO CERTIFY, that, for value received, W.J. GALLAGHER & COMPANY, INC., is
entitled, subject to the terms and conditions hereinafter set forth, on or after
October 15, 1997 and at any time prior to 11:59 p.m., P.S.T., on October 14,
2001 but not thereafter, to purchase such number of shares ("Shares") of
Preferred Stock, $0.001 par value per share ("Preferred Stock") , of NETTER
DIGITAL ENTERTAINMENT, INC., a Delaware corporation ("Company"), from the
Company as is set forth above and upon payment to the Company of $10.80 per
Share ("Purchase Price") if and to the extent this Warrant is exercised, in
whole or in part, during the period this Warrant remains in force, subject in
all cases to adjustment as provided in Article II hereof, and to receive a
certificate or certificates or other evidence of ownership representing the
Shares so purchased, upon presentation and surrender to the Company of this
Warrant, with the form of subscription attached hereto duly executed, and
accompanied by payment of the Purchase Price of each Share purchased. The Shares
shall hereinafter be referred to as the "Securities."
1. Terms of the Warrant
1.1 Time of Exercise. Subject to the provisions of Sections 1.5 and 3.1
hereof, this Warrant may be exercised at any time and from time to time after
12:00 a.m., P.S.T., on October 15, 1997 ("Exercise Commencement Date"), but no
later than 11:59 p.m., P.S.T.,October 14, 2001 ("Expiration Time") at which
point it shall become void, and all rights hereunder shall thereupon cease.
1.2 Manner of Exercise.
1.2.1 The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
subscription attached hereto duly executed, to the Company at its corporate
office in North Hollywood, California together with the full Purchase Price for
each Security to be purchased in lawful money of the United States, or by
certified check, bank draft or postal or express money order payable in United
States dollars to the order of the Company, and upon compliance with and subject
to the conditions set forth herein.
1.2.2 Upon receipt of this Warrant with the form of subscription
duly executed and accompanied by payment of the aggregate Purchase Price for the
Securities for which this Warrant is then being exercised, the Company shall
cause to be issued certificates or other evidence of ownership, for the total
number of whole Securities for which this Warrant is being exercised in such
denominations as are required for delivery to the Holder, and the Company shall
thereupon deliver such documents to the Holder or its nominee.
1.2.3 In case the Holder shall exercise this Warrant with respect to
less than all of the Securities that may be purchased under this Warrant, the
Company shall execute a new Warrant for the balance of the Securities that may
be purchased upon exercise of this Warrant and deliver such new Warrant to the
Holder.
1.2.4 The Company covenants and agrees that it will pay when due and
payable any and all taxes which may be payable in respect of the issue of this
Warrant, or the issue of any Securities upon the exercise of this Warrant. The
Company shall not, however, be required to pay any tax which may be payable in
respect of any transfer involved in the issuance or delivery of this Warrant or
of the Securities in a name other than that of the Holder at the time of
surrender, and until the payment of such tax the Company shall not be required
to issue such Securities.
1.3 Exchange of Warrant. This Warrant may be split-up, combined or
exchanged for another Warrant or Warrants of like tenor to purchase a like
aggregate number of Securities. If the Holder desires to split-up, combine or
exchange this Warrant, he shall make such request in writing delivered to the
Company at its corporate office and shall surrender this Warrant and any other
Warrants to be so split-up, combined or exchange, the Company shall execute and
deliver to the person entitled thereto a Warrant or Warrants, as the case may
be, as so requested. The Company shall not be required to effect any split-up,
combination or exchange which will result in the issuance of a Warrant entitling
the Holder to purchase upon exercise a fraction of a Security. The Company may
require the Holder to pay a sum sufficient to cover any tax or governmental
charge that may be imposed in connection with any split-up, combination or
exchange of Warrants.
1.4 Holder as Owner. Prior to due presentment for registration of
transfer of this Warrant, the Company may deem and treat the Holder as the
absolute owner of this Warrant (notwithstanding any notation of ownership or
other writing hereon) for the purpose of any exercise hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
1.5 Transfer and Assignment. Prior to 12:00 a.m., P.S.T., on October 15,
1997, this Warrant may not be sold, hypothecated, exercised, assigned or
transferred, in whole or in part, except that it may be assigned or transferred,
in whole or in part, to individuals who are officers of the Representative or
any successor to its business. After 12:00 a.m., P.S.T., on October 15, 1997
and until the expiration of the Warrant, the Warrant shall be assignable and
transferable in accordance with and subject to the provisions of the Securities
Act of 1933; provided, however, that if not exercised immediately upon such
transfer or assignment, the Warrant shall immediately lapse.
1.6 Method for Assignment. Any assignment permitted hereunder shall be
made by surrender of this Warrant to the Company at its principal office with
the form of assignment attached hereto duly executed and funds sufficient to
pay any transfer tax. In such event, the Company shall, without charge, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other Warrants which carry the same rights upon
presentation thereof at the corporate office of the Company together with a
written notice signed by the Holder, specifying the names and denominations in
which such new Warrants are to be issued.
1.7 Rights of Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder the right to vote or to consent or to
receive notice as a stockholder in respect of any meetings of stockholders for
the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and prior to its exercise, any of the following
shall occur:
1.7.1 the Company shall take a record of the holders of its shares
of Preferred Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
1.7.2 the Company shall offer to the holders of its Preferred Stock
any additional shares of capital stock of the Company or securities convertible
into or exchangeable for shares of capital stock of the Company, or any option,
right or warrant to subscribe therefor; or
1.7.3 there shall be proposed any capital reorganization or
reclassification of the Preferred Stock, or a sale of all or substantially all
of the assets of the Company, or a consolidation or merger of the Company with
another entity; or
1.7.4 there shall be proposed a voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in any one or more of said
cases, the Company shall cause to be mailed to the Holder, at the earliest
practicable time (and, in any event, not less than thirty (30) days before any
record date or other date set for definitive action), written notice of the date
on which the books of the Company shall close or a record shall be taken to
determine the stockholders entitled to such dividend, distribution, convertible
or exchangeable securities or subscription rights, or entitled to vote on such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be. Such notice shall also set forth
such facts as shall indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Purchase Price and the
kind and amount of the Preferred Stock and other securities and property
deliverable upon exercise of this Warrant. Such notice shall also specify the
date as of which the holders of the Preferred Stock of record shall participate
in said distribution or subscription rights or shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to exercise this Warrant shall terminate). Without limiting the
obligation of the Company to provide notice to the holder of actions hereunder,
it is agreed that failure of the Company to give notice shall not invalidate
such action of the Company.
1.8 Lost Certificates. If this Warrant is lost, stolen, mutilated or
destroyed, the Company shall, on such reasonable terms as to indemnity or
otherwise as it may impose (which shall, in the case of a mutilated Warrant,
include the surrender thereof, issue a new Warrant of like denomination and
tenor as, and in substitution for, this Warrant, which shall thereupon become
void. Any such new Warrant shall constitute an additional contractual obligation
of the Company, whether or not the Warrant so lost, stolen, destroyed or
mutilated shall be at any time enforceable by anyone.
1.9 Covenants of the Company. The Company covenants and agrees as
follows:
1.9.1 at all times it shall reserve and keep available for the
exercise of this Warrant such number of authorized Shares as are sufficient to
permit the exercise in full of this Warrant; and
1.9.2 all Shares here when issued upon the exercise of this Warrant
will be validly issued, fully paid, non-assessable and free of preemptive
rights.
2. Adjustment of Purchase Price and Number of Securities Purchasable Upon
Exercise
2.1 Recapitalization. In case the Company shall, while this Warrant
remains unexercised, in whole or in part, and in force effect a recapitalization
of such character that the Securities purchasable hereunder shall be changed
into or become exchangeable for a larger or smaller number of shares, then,
after the date of record for effecting such recapitalization, the number of
Securities of Preferred Stock which the Holder hereof shall be entitled to
purchase hereunder shall be increased or decreased, as the case may be, in
direct proportion to the increase or decrease in the number of shares of
Preferred Stock by reason such recapitalization, and of the Purchase Price, per
share, whether or not in effect immediately prior to the time of such
recapitalization, of such recapitalized Preferred Stock shall in the case of an
increase in the number of such Securities be proportionately reduced, and in the
case of a decrease in the number of such Securities shall be proportionately
increased. For the purposes of this Section 2.1, a stock dividend, stock
split-up or reverse split shall be considered as a recapitalization and as an
exchange for a larger or smaller number of shares, as the case may be.
2.2 Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company into, any other corporation, or in case of any
sale or conveyance of all or substantially all of the assets of the Company
other than in connection with a plan of complete liquidation of the Company,
then, as a condition of such consolidation, merger or sale or conveyance,
adequate provision shall be made whereby the Holder shall thereafter have the
right to purchase and receive, upon the basis and upon the terms and conditions
specified in this Warrant and in lieu of Securities immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby,
such shares of stock or securities as may be issued in connection with such
consolidation, merger or sale or conveyance, with respect to or in exchange for
the number of outstanding shares of Preferred Stock equal to the number of
shares of Preferred Stock immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, and in any such case
appropriate provision shall be made with respect to the rights and interests of
the Holder of this Warrant to the end that the provisions hereof shall be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise hereof.
2.3 Notice of Dissolution or Liquidation. Except as otherwise provided in
Section 2.2 above, in the case of any sale or conveyance of all or substantially
all of the assets of the Company in connection with a plan of complete
liquidation of the Company, in the case of the dissolution, liquidation or
winding-up of the Company, all rights under this Warrant shall terminate on a
date fixed by the Company, such date so fixed to be not earlier than the date of
the commencement of the proceedings for such dissolution, liquidation or
winding-up and not later than thirty (30) days after such commencement date.
Notice of such termination of purchase rights shall be given to the Holder at
least thirty (30) days prior to such termination date.
2.4 Statement of Adjustment. Any adjustment pursuant to the provisions of
this Section 2 shall be made on the basis of the number of Shares of Preferred
Stock which the Holder would have been entitled to acquire by exercise of this
Warrant immediately prior to the event giving rise to such adjustment and, as to
the Purchase Price per share in effect immediately prior to the rise to such
adjustment. Whenever any such adjustment is required to be made, the Company
shall forthwith determine the new number of Shares of Comrnon Stock which the
Holder hereof shall be entitled to purchase hereunder and/or such new Purchase
Price per share and shall prepare, retain on file and transmit to the Holder
within 10 days after such preparation a statement describing in reasonable
detail the method used in calculating such adjustment.
2.5 No Fractional Shares. Anything contained herein to the contrary
notwithstanding, the Company shall not be required to issue any fraction of a
Share in connection with the exercise of this Warrant, and in any case where the
Holder would, except for the provisions of this Section 2.6, be entitled under
the terms of this Warrant to receive a fraction of a Share upon such exercise,
the Company shall upon the exercise and receipt of the Purchase Price, issue the
largest number of whole Shares purchasable upon exercise of this Warrant. The
Company shall not be required to make any cash or other adjustment in respect of
such fraction of a Share to which the Holder would otherwise be entitled. The
Holder, by the acceptance of this Warrant, expressly waives his right to receive
a certificate for any fraction of a Share upon exercise hereof.
2.6 No Change in Form Required. The form of Warrant need not be changed
because of any change pursuant to this Section in the Purchase Price or in the
number of Shares of Preferred Stock purchasable upon the exercise of a Warrant,
and Preferred Stock Purchase Warrants issued after such change may state the
same Purchase Price and the same number of shares of Preferred Stock as are
stated in the Warrants initially issued pursuant to the Agreement.
3. Registration Under the Securities Act of 1933
3.1 Registration and Legends. Neither this Warrant, nor any shares of
Preferred Stock issued upon exercise of this Warrant, nor any shares of Common
Stock issuable upon conversion of such shares of Preferred Stock have been
registered under the Act. Accordingly, none of such securities may be
transferred, etc. unless such transaction is registered under the Act or other
state securities laws, or is exempt from such registration. Any certificate
representing shares of Preferred Stock issuable upon exercise of the Warrant or
any shares of Common Stock issuable upon conversion of such Preferred Stock,
shall bear the following legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or any applicable state
securities laws and, accordingly, may be transferred only in a transaction
which is registered under such Act and applicable state securities laws or
is, to the staisfaction of the issuer, exempt from such registration
requirements.
3.2 No-Action Letter. The Company agrees that it shall be satisfied that
no post-effective amendment or new registration is required for the public sale
of the Securities if it shall be presented with a letter from the Staff of the
Securities and Exchange Commission ("Commission") stating in effect that, based
upon stated facts which the Company shall have no reason to believe are not true
in any material respect, the Staff will not recommend any action to the
Commission if such Securities are offered and sold without delivery of a
prospectus, and that, therefore, no post-effective amendment to the Registration
Statement under which such shares are to be registered or new registration
statement is required to be filed.
3.3 Registration Rights. The Company has granted "piggyback" and demand
registration rights with respect to the Securities underlying the Warrants, the
terms of which are set forth in the form Registration Rights Agreement attached
hereto and incorporated herein by this reference.
3.4 Inclusion in Company Registration Statement. In the event that the
Representative does not exercise its right to demand that the Securities
underlying the Warrants be registered, the Company agrees to include any
Securities issuable upon exercise of the Warrants in any Registration Statement
filed by the Company at any time within five (5) years from the effective date
of the Company's first Registration Statement as filed in 1995.
3.5 Agreements. The agreements in this Section shall continue in effect
regardless of the exercise and surrender of this Warrant.
4. Other Matters
4.1 Payment of Taxes. The Company will from time to time promptly pay,
subject to the provisions of Section 1.2.4 hereof, all taxes and charges that
may be imposed upon the Company in respect of the issuance or delivery of this
Warrant or the Securities purchasable upon the exercise of this Warrant.
4.2 Binding Effect. All the covenants and provisions of this Warrant by
or for the benefit of the Company shall bind and inure to the benefit of its
successors and assigns hereunder.
4.3 Notices. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made if
sent by certified or registered mail, return receipt requested, postage prepaid
and addressed, until another address is designated in writing by the Company, as
follows:
Netter Digital Entertainment, Inc.
5125 Lankershim Blvd.
North Hollywood, CA 91601
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
4.4 Governing Law. The validity, interpretation and performance of this
Warrant shall be governed by the laws of the State of California.
4.5 Parties Bound and Benefitted. Nothing in this Warrant expressed and
nothing that may be implied from any of the provisions hereof is intended, or
shall be construed, to confer upon, or give to, any person or corporation other
than the Company and the Holder any right, remedy or claim under promise or
agreement hereof, and all covenants, conditions, stipulations, promises and
agreements contained in this Warrant shall be for the sole and exclusive benefit
of the Company and its successors and of the Holder. its successors and, if
permitted, its assignees.
4.6 Headings. The Article headings herein are for convenience only and
are not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the 4th day of September, 1997.
NETTER DIGITAL ENTERTAINMENT, INC.
By:/s/ Douglas Netter
____________________________________
Douglas Netter, President
[Corporate Seal]
Attest:
/s/ John Copeland
______________________________
John Copeland, Secretary
NETTER DIGITAL ENTERTAINMENT, INC.
Assignment
FOR VALUE RECEIVED, W.J. GALLAGHER & COMPANY, INC. hereby sells, assigns and
transfers unto _____________________________________________ the within Warrant
and the rights represented thereby, and does hereby irrevocably constitute and
appoint ______________________________________ Attorney, to transfer said
Warrant on the books of the Company, with full power of substitution.
Dated: ________________________________
Signed:
__________________________________
Signature guaranteed:
____________________________________
Subscription Form
NETTER DIGITAL ENTERTAINMENT, INC.
5125 Lankershim Boulevard
North Hollywood, CA 91601
The undersigned hereby irrevocably subscribes for the purchase of shares of
your Preferred Stock pursuant to and in accordance with the terms and conditions
of this Warrant, and herewith makes payment, covering such shares of Preferred
Stock which should be delivered to the undersigned at the address stated below,
and, if said number of shares shall not be all of the shares purchasable
hereunder, that a new Warrant of like tenor for the balance of the remaining
shares purchasable hereunder be delivered to the undersigned at the address
stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any such shares of Preferred Stock unless
either (a) a registration statement, or post-effective amendment thereto,
covering such shares of Preferred Stock has been filed with the Securities and
Exchange Commission pursuant to the Securities Act if 1933, as amended ("Act"),
and such sale, transfer or other disposition is accompanied by a prospectus
meeting the requirements of Section 10 of the Act forming a part of such
registration statement, or post-effective amendment thereto, which is in effect
under the Act covering the shares of Preferred Stock to be so sold, transferred
or otherwise disposed of, or (b) counsel to the undersigned satisfactory to the
NDEI has rendered an opinion in writing and addressed to NETTER DIGITAL
ENTERTAINMENT, INC. that such proposed offer, sale, transfer or other
disposition of the shares of Preferred Stock is exempt from the provisions of
Section 5 of the Act in view of the circumstances of such proposed offer, sale,
transfer or other disposition; (2) NETTER DIGITAL ENTERTAINMENT, INC. may notify
the transfer agent for its Preferred Stock that the certificates for the
Preferred Stock acquired by the undersigned are not to be transferred unless the
transfer agent receives advice from NETTER DIGITAL ENTERTAINMENT, INC. that one
or both of the conditions referred to in (l)(a) and (l)(b) above have been
satisfied; and (3) NETTER DIGITAL ENTERTAINMENT, INC. may affix the legend set
forth in Section 3.1 of this Warrant to the certificates for shares of Preferred
Stock hereby subscribed for, if such legend is applicable.
Dated: _________________________ Signed:___________________________________
Address:
Signature Guaranteed:
__________________________________
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is made and entered into
as of September 4, 1997 by and between Netter Digital Entertainment Inc., a
Delaware corporation ("Company"), and W.J. Gallagher & Company, Inc.
("Gallagher") with reference to the following facts:
A. The Company is a digital production studio combining high technology
with entertainment to create television series, movies, documentary and
multi-media productions. The Company specializes in creating science-fiction
programming which combines live action with computer graphics, as well as family
and children's entertainment.
B. The Company has granted Gallagher warrants (the "Warrants") to
purchase shares of Series A Convertible Preferred Stock (the "Securities")
pursuant to that certain warrant agreement dated September 4, 1997 (the "Warrant
Agreement").
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. Definitions. As used in this Agreement:
a. The terms "register," "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of the effectiveness of
such registration statement.
b. The term "Registrable Securities" means (i) the Common Stock
issued or issuable pursuant to the conversion of the Securities and (ii) any
Common Stock of the Company issued or issuable in respect of such Common Stock
or other securities issued or issuable pursuant to the conversion of the
Securities upon any stock split, stock dividend, recapitalization, or similar
event, or any Common Stock otherwise issued or issuable with respect to the
Securities. Notwithstanding anything set forth above, the above-described
securities shall not be treated as Registrable Securities if and so long as
they (A) have been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, or (B) have been sold
(or are available for sale in the opinion of counsel to the Company and market
conditions would permit the sale of such shares within a 90 day period) pursuant
to Rule 144(K) in a transaction exempt from the registration and prospectus
delivery requirements of the Act so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
c. The term "Holder" means any holder holding Registrable
Securities (and any person holding Registrable Securities to whom the
registration rights have been transferred pursuant to paragraph 10 hereof).
d. The term "SEC" or "Commission" means the Securities and
Exchange Commission or any successor agency thereto.
e. The term "Act" means the Securities Act of 1933, as amended.
f. The term "1934 Act" means the Securities Exchange Act of 1934,
as amended.
g. The term "Common Stock" means the common stock of the Company.
h. The term "Securities" means shares of Series A Convertible
Preferred Stock issuable to Gallagher upon exercise of the Warrants.
2. Company Registration.
a. If at any time after the First Closing (as defined in the
Warrant Agreement), the Company shall determine to register any of its
securities, either for its own account or for the account of a security holder
or holders, other than a registration relating solely to employee benefit plans,
or a registration on Form S-4 relating solely to an SEC Rule 145 transaction, or
a registration on any other form (other than Form S-1, S-3, SB-1 or SB-2) which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
i. promptly give to each Holder written notice thereof, and
ii. include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in any written request or
requests by any Holder or Holders received by the Company within twenty (20)
days after such written notice is given on the same terms and conditions as the
Common Stock, if any, otherwise being sold through the underwriter in such
registration.
b. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to paragraph
2(a). In such event the right of any Holder to registration pursuant to this
paragraph 2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting, if any, (together with the Company
and the other holders distributing their securities through such underwriting)
shall enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.
c. Notwithstanding any other provision of this paragraph 2, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may limit the Registrable
Securities or other securities to be included in the registration. Any
reduction by the underwriter of the number of Registrable Securities or other
securities to be included in such registration shall be made in the following
manner: the Company shall advise all Holders and other holders distributing
their securities through such underwriting of the reduction and the number of
shares of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated among the holders thereof
in proportion, as nearly as practicable, to the respective amounts of
Registrable Securities and other securities requesting registration for the
offering held by such Holders and other holders at the time of filing of the
Registration Statement. To facilitate the allocation of shares in accordance
with the above provisions, the Company may round the number of shares allocated
to any Holder or holder to the nearest 100 shares. The Company shall advise all
Holders of Registrable Securities which would otherwise be registered and
underwritten pursuant hereto of any such limitations, and the number of shares
of Registrable Securities that may be included in the registration. If any
Holder or holder disapproves of the terms of any such underwriting, such Holder
or holder may elect to withdraw therefrom by written notice to the Company and
the underwriter. Any securities excluded or withdrawn from such underwriting
shall not be transferred in a public distribution prior to ninety (90) days
after the effective date of the registration statement relating thereto, or such
shorter period of time as the underwriters may require.
d. The Company shall have the right to terminate or withdraw any
registration initiated by it under this paragraph 2 prior to the effectiveness
of such registration whether or not any Holder has elected to register
securities in such registration.
3. Demand Registration on Form S-3. After the expiration of one year
from the First Closing, if the Company has neither filed a registration
statement under paragraph 2 consistent with the terms of this Agreement nor
filed a registration statement under paragraph 2 in which limitations were
imposed by the underwriter as to the amount of Securities any Holder may sell,
then if any Holder or Holders request that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts and commissions,
would exceed $500,000, and the Company is a registrant entitled to use Form S-3
to register the Registrable Securities for such an offering, the Company shall
use its best efforts to cause such Registrable Securities to be registered for
the offering on such form and to cause such Registrable Securities to be
qualified in such jurisdictions as the Holder or Holders may reasonably request;
provided, however, that the Company shall not be required to effect more than
one registration pursuant to this paragraph 3 in any twelve (12) month period.
The substantive provisions of paragraph 2(b) shall be applicable to each
registration initiated under this paragraph 3. Notwithstanding the above, the
Company shall not be obligated to conduct a registration pursuant to this
paragraph 3 within 120 days of the commencement of any other registered offering
conducted by the Company pursuant to paragraph 2.
4. Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Agreement,
including, without limitation, all registration, filing and qualification fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, accounting fees and expenses, and expenses of any special audits
incidental to or required by such registration, shall be borne by the Company;
provided, however, that the Company shall not be required to pay stock transfer
taxes or underwriters' fees, discounts or brokerage commissions relating to
Registrable Securities, or fees of counsel and accountants for the selling
Stockholders.
5. Registration Procedures. If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Securities under the Act, the Company
will, as expeditiously as possible:
a. Prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for such period as may be necessary to
permit the successful marketing of such securities but not exceeding nine (9)
months or until the Holder or Holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs.
b. Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to comply with the provisions of the Act and to keep such
registration statement effective for that period of time specified in paragraph
5(a).
c. Furnish to each Holder participating in the registration such
number of prospectuses and preliminary prospectuses in conformity with the
requirements of the Act, and such other documents as such seller may reasonably
request in order to facilitate the public sale or other disposition of the
Registrable Securities being sold by such Holder;
d. Use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each such selling Holder of Registrable
Securities shall reasonably request and do any and all other acts and things
which may be necessary or desirable to enable such Holder to consummate the
public sale or other disposition in such jurisdictions provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or file a general consent to service of process in any
such jurisdictions.
e. Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
6. Obligations of Holders. Following the filing of a registration
statement pursuant to the terms of this Agreement and during any period that
such registration statement is effective, each Holder of Registrable Securities
included in the registration statement shall:
(a) not effect any stabilization transactions or engage in any
stabilization activity in connection with the Company's common shares in
contravention of Rule 10b-7 under the Exchange Act;
(b) furnish each broker through whom such Holder offers Registrable
Securities such number of copies of the Prospectus as the broker may require and
otherwise comply with prospectus delivery requirements under the Securities Act;
(c) report to the Company each month all sales, pledges and other
dispositions of Registrable Securities made by such Holder;
(d) not bid for or purchase (and not permit any Affiliated
Purchaser, as defined in Rule 10b-6 under the Exchange Act, to bid for or
purchase) any account in which such Holder has a beneficial interest, or attempt
to induce any other person to purchase any the Company common shares in
contravention of Rule 10b-6 under the Exchange Act;
(e) cooperate with the Company as the Company fulfills its
obligations under Section 5 hereof;
(f) furnish such information concerning such Holder as the Company
may from time to time reasonably request; and
(g) not sell under the registration statement during any period
after the Company has provided notice to such Holder pursuant to Section 5(e)
above and until the Company provides to such Holder notice that the registration
statement no longer fails to state a material fact required to be stated
therein, misstates a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements made not misleading.
7. Indemnification.
a. The Company agrees to indemnify and hold harmless each Holder
of Registrable Securities with respect to which a registration statement has
been filed under the Act pursuant to this Agreement, each of such Holder's
partners, officers and directors, each underwriter of any of the Registrable
Securities included in such registration statement, and each person, if any, who
controls any such Holder or underwriter within the meaning of the Act
(hereinafter collectively referred to as the "Holder-Underwriters"), as follows:
i. against any and all loss, liability, claim, damage and
expense whatsoever arising out of any untrue statement or alleged untrue
statement of a material fact contained in such registration statement (or any
amendment thereto), or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or arising out of any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus or
prospectus (or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, unless such untrue statement or omission or such alleged untrue
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company by any Holder-Underwriter expressly for use
in such registration statement (or any amendment thereto) or such preliminary
prospectus or prospectus (or any amendment or supplement thereto);
ii. against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in settlement of
any litigation, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of the Company
(which consent shall not be unreasonably withheld); and
iii. against any and all expense (including attorneys fees)
whatsoever reasonably incurred in investigating, preparing, settling (with the
consent of the Company, which consent shall not be unreasonably withheld) or
defending against any litigation, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is not paid
under (i) or (ii) above; provided, however, that the foregoing indemnity
agreement in paragraphs (i), (ii) and (iii) of this paragraph 7(a) is subject to
the condition that, insofar as it relates to any such untrue statement, alleged
untrue statement, omission or alleged omission made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement becomes effective, or in the amended prospectus
filed with the SEC pursuant to Rule 424(b) (the "Final Prospectus"), such
indemnity agreement shall not inure to the benefit of any underwriter, or any
Holder, if there is no underwriter, or if a copy of the Final Prospectus was not
furnished to the person or entity asserting the loss, liability, claim or damage
at or prior to the time such action is required by the Act.
In no case shall the Company be liable under this indemnity agreement with
respect to any loss, liability, claim, damage or expense with respect to any
claim made against any Holder-Underwriter unless the Company shall be notified
in writing of the nature of the claim within a reasonable time after the
assertion thereof, but the failure to so notify the Company shall not relieve
the Company from any liability which it may have otherwise than on account of
this indemnity agreement. In case of any such notice, the Company shall be
entitled to participate at its expense in the defense, or if it so elects within
a reasonable time after receipt of such notice, to assume the defense of any
suit brought to enforce any such claim, but if it so elects to assume the
defense, such defense shall be conducted by counsel chosen by it and approved by
the Holder-Underwriter(s) and other defendant or defendants, if any, in any suit
so brought, which approval shall not be unreasonably withheld. In the event
that the Company elects to assume the defense of any such suit and retain such
counsel, the Holder-Underwriter(s) and other defendant or defendants, if any, in
the suit, shall bear the fees and expenses of any additional counsel thereafter
retained by them; provided, however, that the Company shall bear the expense of
independent counsel for the Holder-Underwriter(s) if the Holder-Underwriter(s)
reasonably determines that representation of it and the Company by the same
counsel would be inappropriate due to actual or potential conflicts of interest.
b. Each Holder severally, and not jointly, agrees that it will
indemnify and hold harmless the Company, each officer and director of the
Company, each person, if any, who controls the Company within the meaning of the
Act, each underwriter of Registrable Securities included in any registration
statement which has been filed under the Act pursuant to this Agreement, each
person, if any, who controls such underwriter within the meaning of the Act,
each other Holder, each of such other Holder's partners, officers and directors,
and each person controlling such other holder within the meaning of the Act
against any and all loss, liability, claim, damage and expense described in
clauses (a)(i) through (a)(iii), inclusive, of this paragraph 7, but only with
respect to statements or omissions, or alleged statements or omissions made in
such registration statement (or any amendment thereto) or any preliminary
prospectus or prospectus (or any amendment or supplement thereto) in reliance
upon and in conformity with written information furnished to the Company by such
Holder expressly for use in such registration statement (or any amendment
thereto) or such preliminary prospectus or prospectus (or any amendment or
supplement thereto). In case any action shall be brought against the Company or
any person so indemnified pursuant to the provisions of this subparagraph (b)
and in respect of which indemnity may be sought against any Holder, the Holders
from whom indemnity is sought shall have the rights and duties given to the
Company, and the Company and the other persons so indemnified shall have the
rights and duties given to the persons entitled to indemnification by the
provisions of subparagraph (a) of this paragraph 7.
The obligations of the Company and Holders under this paragraph 7 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement, and otherwise.
8. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, and the distribution proposed by
such Holder or Holders, as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Agreement.
9. Sale Without Registration. If at the time of any transfer of any
Registrable Securities, such Registrable Securities shall not be registered
under the Act, the Company may require, as a condition of allowing such
transfer, that the Holder or transferee furnish to the Company (a) such
information as is necessary in order to establish that such transfer may be made
without registration under the Act, and (b) (if the transfer is not made in
compliance with Rule 144 other than a transfer not involving a change in
beneficial ownership or a pro rata distribution by a partnership to its
partners) at the expense of the Holder or transferee, an opinion of counsel
satisfactory to the Company in form and substance to the effect that such
transfer may be made without registration under the Act; provided that nothing
contained in this paragraph 9 shall relieve the Company from complying with any
request for registration, qualification, or compliance made pursuant to the
other provisions of this Agreement.
10. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
a. At all times, make and keep public information available, as
those terms are understood and defined in SEC Rule 144;
b. File with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act; and
c. Furnish the Holders forthwith upon request (i) a written
statement by the Company as to its compliance with the public information
requirements of said Rule 144, (ii) a copy of the most recent annual or
quarterly report of the Company, and (iii) such other reports and documents as
may be reasonably requested in availing the Holders of any rule or regulation of
the SEC permitting the sale of any such securities without registration.
11. Transfer of Registration Rights. The rights to cause the Company to
register securities granted by the Company under paragraphs 1, 2 and 3 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by a Holder provided that: (i) such
assignee or transferee acquires at least one hundred (100) shares of the
Registrable Securities (as appropriately adjusted from time to time for stock
splits and the like), (ii) such transfer may otherwise be effected in accordance
with applicable securities laws, (iii) the Company is given written notice by
such holder of Securities or Registrable Securities at the time of or within a
reasonable time after said transfer, stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned, (iv) immediately following such
transfer, the further disposition of such securities by such transferee or
assignee is restricted under the Act and (v) such assignee or transferee agrees
in writing to be bound by the provisions of this Agreement.
12. Market Stand-off Agreement. The Holders, if requested by the Company
and an underwriter of Common Stock (or other securities) of the Company, shall
agree not to sell or otherwise transfer or dispose of any Securities held by the
Holders during the ninety (90) day period following the effective date of a
registration statement of the Company filed under the Act provided that:
a. such agreement shall only apply to the first such registration
statement of the Company filed after the date of this Agreement including shares
of Common Stock (or other securities) to be sold on its behalf to the public in
an underwritten offering; and
b. all Holders holding more than one percent of the outstanding
Common Stock, all officers and directors of the Company and all other holders of
registration rights of the Company (whether or not pursuant to this agreement)
enter into similar agreements. Such agreement shall be in writing in the form
satisfactory to the Company and such underwriter. The Company may impose
stop-transfer instructions with respect to the Securities subject to the
foregoing restriction until the end of the foregoing period.
13. Amendment of Registration Rights. With the written consent of the
Holders of a majority of the then outstanding Registrable Securities (including
securities exercisable for or convertible into Registrable Securities), the
Company may amend this Agreement, or enter into an agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to include such securities as Registrable
Securities under this Agreement.
In witness whereof, the Company and W.J. Gallagher & Company Inc. have
executed this Agreement as of September 4, 1997.
W.J. GALLAGHER & COMPANY, INC.
By:/s/William J. Gallagher
___________________________
William J. Gallagher, President
NETTER DIGITAL ENTERTAINMENT INC.
By:/s/Douglas Netter
___________________________
Douglas Netter, President
H.D. Brous & Co., Inc.
80 Cuttermill Road
Great Neck, New York 11021
September 1, 1997
Douglas Netter
Chairman of the Board, President
and Chief Executive Officer
Netter Digital Entertainment, Inc.
5125 Lankershim Boulevard
North Hollywood, California 91601
Re: Financial Advisory Agreement
Dear Doug:
This will confirm the understanding and agreement (the "Agreement") between
H.D. Brous & Co., Inc. ("Brous") and Netter Digital Entertainment, Inc. (the
"Company") as follows:
1. Purpose. Company hereby engages Brous and Brous hereby accepts such
engagement, as the Company's exclusive financial advisor and consultant (and not
as an agent) during the term specified hereinafter upon the terms and conditions
as set forth herein.
2. Term. This Agreement shall be effective for a period of six (6)
months (the "Term"), commencing September 1, 1997.
3. Duties of Brous.
(a) During the Term, Brous will provide Company with such
consulting advice with respect to financial planning, capital structure issues,
advice with respect to the development or refinement of a business plan and the
evaluation of financing alternatives as is reasonably requested by Company. In
performance of these duties, Brous shall provide Company with the benefits of
his reasonable judgment and efforts. Brous's duties shall include, but will not
necessarily be limited to, the following:
(i) Advice regarding the formulation of business and financing
goals and plans;
(ii) Advice concerning strategic issues, alliance partnerships
and joint ventures and concerning market makers for the Company's securities;
(iii) Advice concerning short and long range financial planning;
(iv) Advice regarding business opportunities, acquisitions and
potential institutional and other investors;
(v) Advice regarding the existing and possible alternative
share and financial structure for the Company;
(vi) Advice regarding the implementation of the Company's goals
and plans;
(vii) Arranging for the Company to obtain at least one
additional market maker for its common stock and, with the Company's assistance,
arranging for a research report to be issued by Brous, or an investment bank or
broker of equivalent stature, with respect to the Company;
(viii) Utilizing reasonable diligence and care to comply with
all reasonable requests of the Company and to perform, in a reasonable and
cooperative manner, the duties of Brous hereunder.
(b) In connection with rendering his advice hereunder, Brous and
his employees and agents shall be given reasonable access to Company's officers,
premises, and records.
(c) Company acknowledges that Brous's advice pursuant hereto does
not and will not constitute any guarantee or other assurance as to the ability
of the Company to obtain financing, to complete an acquisition or to accomplish
any other goals or plans of Company. This Agreement contains the entire
compensation payable by Company to Brous for any and all services.
(d) Company acknowledges that Brous retains the right to provide
financial advisors and consulting advice to other parties. Nothing herein
contained shall be construed to limit or restrict Brous in conducting such
business with respect to others, or in rendering advice to others or conducting
any other business, except as otherwise herein provided. During the Term
however, Brous will not provide consulting advice in favor of any other parties
engaged in (or who may use the advice or pass on their advice in favor of any
other persons engaged in) the same business without Company's prior written
consent.
4. Compensation. The Company shall pay Brous the sum of $5,000 upon
execution of this Agreement and thereafter shall pay $5,000 to Brous on the same
day (or if such date is not a business day, the next business day thereafter) of
each of the next five successive months.
5. Expenses. Company shall advance or, upon billing, promptly reimburse
Brous for reasonable and actual out-of-pocket expenses for travel, lodging,
meals and incidentals reasonably related to travel, long-distance telephone
charges, express mail services, and such other items as the parties may from
time to time agree, incurred by Brous in connection with the services rendered
by Brous pursuant to this Agreement, provided, however, that any travel, lodging
or other significant expense which is to be reimbursed hereunder shall be
submitted to the Company for preapproval before being incurred.
6. Proprietary Information. Brous acknowledges and agrees that he is in
a fiduciary relationship with Company and agrees that he will not sell or use in
any manner not authorized in writing by Company, or disclose any information
provided to Brous by the Company or its employees, agents, or representatives,
including without limitation any of the Company's trade secrets, technical
information, agreements, or other proprietary information or information
concerning the Company's current and any future proposed operations, services,
or products, regardless of whether such information was obtained prior to,
during or after the engagement of Brous by the Company pursuant to this
Agreement, unless Brous is authorized to do so in writing by the Company and/or
Company releases such information to the public via public announcements or
announcements on recognized stock exchanges.
7. Representations and Warranties of the Company. The Company hereby
represents and warrants as follows:
(a) The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby (i) are within the
corporate power and authority of the Company, (ii) do not require the approval
or consent of any stockholders of the Company, and (iii) have been duly
authorized by all necessary corporate action on the part of the Company.
(b) The consummation of the transactions contemplated by this
Agreement will not result in (i) the breach of, or constitute a default under,
any agreement, indenture, mortgage, note agreement or other financing agreement
to which the Company is a party or to which it or its properties or rights are
subject and (ii) will not be in violation of the rights of any other party, nor
result in the creation of any lien, charge or encumbrance upon the assets or
properties of the Company as it relates to the business of Company or the
pending business of the Company (iii) violate any judgment, order, injunction,
decree or award of any court, arbitrator, administrative agency or governmental
body against, or binding upon, either party (or its affiliates) or upon the
property, assets or business of either party (or its affiliates) or (iv)
constitute a violation by either party of any law or regulation of any
jurisdiction, particularly as such law or regulation relates to the Company or
to the property, assets or business of Company.
(c) This Agreement is valid and enforceable against the Company in
accordance with its terms by the other, except as enforcement may be limited by
applicable bankruptcy, insolvency or other laws affecting the rights of
creditors generally. The execution, delivery and performance of this Agreement
by either Brous or the Company does not violate any law or rule or regulation or
give rise to a cause of action in favor of any person which will result in any
liability to either of the parties.
8. Arbitration. Any and all controversies or claims arising out of or
relating to this Agreement shall be settled by binding arbitration in Los
Angeles County, California, in accordance with the rules of the American
Arbitration Association, and judgment on the award rendered by the arbitrator(s)
may be entered by any court having jurisdiction thereof. The parties shall be
entitled to discovery in accordance with the provisions of the California Rules
of Civil Procedure.
9. Options. The Company hereby sells to Brous and Brous hereby
purchases from the Company for an aggregate condiseration of $100 the options to
purchase the securities set forth below:
(a) Options to purchase 50,000 shares of the Company's Common Stock
at an exercise price of $3.50 per share;
(b) Options to purchase 75,000 shares of the Company's Common Stock
at an exercise price of $5.50 per share; and
(c) Options to purchase 100,000 shares of the Company's Common
Stock at an exercise price of $7.50 per share.
The Options shall contain usual and customary antidilution provisions
relating to stock splits, stock or other dividends and distributions, mergers or
divisions of the Company into seperate entities and the like. All options (the
"Options") may be exercisable commencing immediately and shall have a term which
is the later of December 31, 1999 and one hundred eighty (180) days (the
"Options Period") after the shares of Common Stock underlying the Options (the
"Option Shares") have been registered under an appropriate registration
statement which has become effective after filing with the Securities and
Exchange Commission (the "SEC"). If the Company is eligible to register the
Option Shares under a registration statement on Form S-3, then the Company shall
file with and diligently cause such registration statement to be declared
effective by the SEC as soon as may be pracitcable after executing this letter.
The Company has advised Brous that the Company will not be eligible to utilize
Form S-3 until February 1998. If the Company has not caused the Option Shares
to be registered prior to December 31, 1998, then the Company shall as soon as
may be practicable but in any event within six (6) months thereafter file such
registration statement and distribution, and diligently endevor in good faith to
cause such registration statement on Form S-3 to be declared effective by the
SEC and to maintain such effectiveness through the Options Period. All costs
relating to such registration shall be borne and paid by the Company. If the
Option Shares have not been registered prior to the close of business on
December 31, 1999, then the exercise price per share, as set forth above, for
each of the respective Options shall automatically be lowered by 50%.
10. Other Contingent Compensation. Should the Company at any time
during the Term, and for a period of twelve (12) months thereafter, seek to
acquire any corporation, enterprise, or business which Brous has directly or
indirectly introduced to the Company, then, in the absence of any agreement
executed by the parties subsequent to the date of this letter, the Company
shall, upon consummation of such transaction, pay to Brous a fee in cash
determined according to the so-called "Lehman Formula" which is: 5% of the
first $1,000,000 of Consideration, as defined below, and 4% of the next
$1,000,000 of Consideration, and 3% of the next $1,000,000 of Consideration, and
2% of the next $1,000,000 of Consideration, and 1% of all Consideration which is
in excess of $4,000,000. For the purposes set forth herein, "Consideration"
shall mean the total value of all cash, securities, the repurchase or buy-out of
any options or warrants, any agreements or other property and any other
consideration, including, without limitation, any contingent, earned or other
consideration, paid or payable, directly or indirectly, in connection with the
foregoing acquisition.
11. Indemnification by the Company. Because Brous will be acting on
behalf of the Company in connection with his engagement hereunder, Company
hereby agrees to indemnify and save Brous and hold Brous harmless in respect of
all causes of actions, liabilities, costs, charges and expenses, loss and damage
(including consequential loss) suffered or incurred by Brous (including legal
fees) arising from any act or alleged act or omission or alleged omission of the
Company or its employees, servants, and agents.
12. Advertisements. Brous shall have the right to place advertisements
in financial and other newspapers and journals at his own expense describing his
services to the Company hereunder.
13. Bridge and Other Financings. In the event that the Company during
the Term seeks to obtain any bridge or other financing, equity or debt, in
connection with any aspect of its business plan, other than bank or other
similar debt incurred in the ordinary course of business, Brous and its
affiliates shall have the first right of negotiation to provide all or a portion
of such financing on terms mutually acceptable to the Company and Brous. If the
Company determines to raise funds during the Term by means of a public offering
or a private placement, Brous shall have the right of first negotiation to act
as lead underwriter or placement agent for such financing or financings. Any
decision by Brous or its affiliates to provide such financing or act in such
capacity would be contained in a separate letter or other agreement which would
include, among other things, customary fees, indemnifications, the terms of such
financing or financings, conditions precedent, including due diligence, current
conditions and approval by the requisite committees, as well as customary
representations and warranties.
14. Severability. Any portion of the indemnification and/or
confidentiality provisions herein which may be prohibited or unenforceable in
any applicable jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability, but shall not invalidate the
remaining portions of such provisions or the other provisions hereof or affect
any such provisions or portion thereof in any other jurisdiction.
15. Successor and Assigns. The benefits of this Agreement shall inure
to the respective successors and assigns of the parties hereto and of the
indemnified parties hereunder and their successors, assigns and representatives,
and the obligations and liabilities assumed in this Agreement by the parties
shall be binding upon their respective successors and assigns.
16. Assignment. This Agreement and the rights hereunder may not be
assigned by either party (except by operation of law) without prior written
consent of the other party, but, subject to the foregoing limitation, this
Agreement shall be binding upon and inure to the benefit of the respective
successors, assigns, and legal representatives of the parties.
17. Notice. Any notice or other communications between the parties
hereto shall be sufficiently given if sent by certified registered mail, postage
prepaid, or by telecopy, if to Company addressed to it at 5125 Lankershim
Boulevard, North Hollywood, California 91601 or if to Brous, addressed to it at
80 Cuttermill Road, Great Neck, New York 11021, or to such other address as
hereafter by designated in writing by one party to the other. Such notice or
other communications shall, if sent by telecopy, be deemed to be given upon
receipt of the confirmation of its proper transmission and if outside the hours
of 9:00 a.m. to 5:00 p.m. on any business day in the jurisdiction of the
addressee, shall be deemed to be given at 9:00 a.m. on the next business day.
Notices sent by certified or registered mail or prepaid postage shall be deemed
to be received three business days after the date of forwarding the same. For
the purposes of this Agreement, "business day" shall refer to a day in which
trading banks are open for business.
18. Captions. The headings of the sections of this Agreement are
intended solely for convenience of reference and are not intended and shall not
be deemed for any purpose whatsoever to modify or explain or place any
constriction upon any of the provisions of this Agreement.
19. Attorneys' Fees. In the event any party hereto shall institute an
action, including arbitration pursuant to Section 8 of this Agreement, to
enforce any rights hereunder, the prevailing party in such action shall be
entitled, in addition to any other relief granted, to reasonable attorneys' fees
and costs.
20. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof and
supersedes all prior and contemporaneous agreements and understandings of the
parties, and there are no representations, warranties, or other agreements
between the parties in connection with the subject matter hereof except as
specifically set forth herein. No supplement, modification, amendment, waiver
or termination of this Agreement shall be binding unless executed in writing by
the parties hereto. No waiver of any of the provisions of this Agreement shall
be deemed or shall constitute a waiver of any provisions hereof (whether or not
similar) nor shall waiver constitute a continuing waiver.
21. Governing Law. The parties hereto hereby agree that this Agreement
shall be governed by the laws of the State of New York.
Brous is delighted to accept this engagement and looks forward to working
with you on this assignment. Please confirm that the foregoing correctly sets
forth our agreement by signing the enclosed duplicate of this letter in the
space provided and returning it, whereupon this letter shall constitute a
binding agreement as of the date first above written.
Very truly yours,
H.D. Brous & Co., Inc.
By:/s/Michael Pocaterra
---------------------------------
Michael Pocaterra, an authorized agent
Agreed:
NETTER DIGITAL ENTERTAINMENT, INC.
By:/s/Douglas Netter
-----------------------------------
Douglas Netter
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT
WITH RESPECT TO THE SECURITIES UNDER THE SECURITIES ACT AND QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is made and entered into as
of the 1st day of September, 1997, by and between Netter Digital Entertainment,
Inc., a Delaware corporation ("Optionor"), and H.D. Brous & Co., Inc.
("Optionee") with reference to the following facts:
A. Optionor and Optionee have entered into a financial advisory
agreement pursuant to which Optionor has engaged Optionee to act as an exclusive
financial advisor and consultant for a period of six (6) months commencing
September 1, 1997.
B. Optionor has agreed to grant to Optionee an option to purchase up to
225,000 authorized and unissued shares of Optionor's Common Stock ("Common
Stock").
C. The Board of Directors of Optionor has approved the grant by Optionor
to Optionee of an option to purchase up to 225,000 shares of Common Stock, upon
the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties agree as follows:
1. GRANT OF OPTION; TERM AND CONSIDERATION.
1.1 Grant of Option. In consideration of One Hundred Dollars
($100), receipt of which is hereby acknowledged, Optionor hereby grants to
Optionee an irrevocable option (the "Option") to purchase up to an aggregate of
225,000 shares of Common Stock (the "Option Shares") at the various purchase
prices per Option Share set forth in the table below (collectively, the
"Exercise Prices"), all on the terms, covenants and conditions set forth in this
Agreement.
Number of Option Shares Purchase Price
----------------------- --------------
50,000 $3.50
75,000 $5.50
100,000 $7.50
1.2 Term. The term of the Option (the "Term") shall commence as
of the date hereof and shall expire at 5:00 p.m. Pacific Standard Time on the
later of (i) December 31, 1999 or (ii) one hundred eighty (180) days after the
Option Shares have been registered under an appropriate registration statement
which has become effective after filing with the Securities and Exchange
Commission ("SEC"), unless sooner terminated or sooner exercised, as provided
herein.
2. EXERCISE OF OPTION. Optionee may exercise the Option, if at all, at
any time during the Term by delivering written notice of exercise to Optionor
specifying the number of Option Shares to be purchased and accompanied by a
certified or bank cashier's check, payable to the order of Optionor in the
amount of the applicable Exercise Price times the number of Option Shares to be
purchased. As soon as practicable after any exercise of this Option in
accordance with the foregoing provisions, Optionor shall deliver to Optionee at
the main office of Optionor, or at such other place as shall be mutually
acceptable, a certificate or certificates representing the Option Shares as to
which the Option has been exercised.
3. RESTRICTION ON ISSUANCE OF OPTION SHARES AND DELIVERY. If
authorization of any regulatory commission or agency is required for the lawful
delivery of any certificate representing Option Shares, Optionor may withhold
delivery of such certificate until such authorization has been granted.
Optionor will make reasonable efforts to obtain such authorizations, but if
Optionor is unable to obtain such authorizations from such regulatory commission
or agency, which counsel for Optionor deems necessary for the lawful delivery of
such certificate, Optionor shall be relieved from any liability for failure to
deliver such certificate until such time that such authorization is obtained or
is obtainable.
4. RIGHTS AS SHAREHOLDER. Optionee shall have no rights as a
shareholder with respect to any Option Shares covered by the Option until the
date of issuance of a stock certificate to Optionee for such Option Shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
5. CHANGES IN CAPITAL STRUCTURE. The Exercise Prices and the number of
Option Shares issuable upon the exercise of the Option shall be subject to
adjustment from time to time upon the occurrence of certain events described in
this Section 5. Upon each adjustment of the Exercise Prices, Optionee shall
thereafter be entitled to purchase, at each Exercise Price resulting from such
adjustment, the number of shares of Common Stock obtained by multiplying the
applicable Exercise Price in effect immediately prior to such adjustment by the
number of Option Shares issuable pursuant hereto immediately prior to such
adjustment, and dividing the product thereof by the applicable Exercise Price
resulting from such adjustment.
5.1 Subdivision or Combination of Stock. In case Optionor shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Exercise Prices in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of Optionor shall be combined into a smaller number of shares,
the Exercise Prices in effect immediately prior to such combination shall be
proportionately increased.
5.2 Dividends In Common Stock, Other Stock Property,
Reclassification. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
exercise of the Option) shall have received or become entitled to receive,
without payment thereof,
(a) any shares of Common Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Common Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or other
distribution;
(b) any cash paid or payable otherwise than as a regular
periodic cash dividend at a rate which is substantially consistent with
Optionor's Certificate of Incorporation or past practice (or, in the case of an
initial dividend, at a rate which is substantially consistent with industry
practice); or
(c) any Common Stock or other securities or property (including
cash) by way of a spin-off, split-up, reclassification, combination of shares or
similar corporate rearrangement, (other than shares of Common Stock issued as a
stock split, adjustments in respect of which shall be covered by the terms of
Section 5.1 above),
then and in each such case, Optionee shall, upon the exercise of the Option, be
entitled to receive, in addition to the number of shares of Common Stock
receivable thereupon, and without payment of any additional consideration
thereof, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which Optionee would hold
on the date of such exercise had it been the holder of record of such Common
Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares and/or all other additional stock and other
securities and property.
5.3 Reorganization, Reclassification, Consolidation, Merger or
Sale. If any reorganization of the capital stock of Optionor, or any
consolidation or merger of Optionor with another corporation, or the sale of all
or substantially all of its assets to another corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization, reclassification, consolidation, merger or
sale, lawful and adequate provisions shall be made whereby the Optionee shall
thereafter have the right to purchase and receive (in lieu of the shares of
Common Stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby) such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby. In any such case, appropriate provision shall be
made with respect to the rights and interests of Optionee to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Exercise Prices and of the number of Option Shares issuable and receivable
upon the exercise of the Option) shall thereafter be applicable, as nearly as
may be practical, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise of the Option. Optionor will not
effect any such consolidation, merger or sale unless, prior to the consummation
thereof, the successor corporation (if other than Optionor) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument, executed and mailed or delivered to Optionee at the last address of
Optionee appearing on the books of Optionor, the obligation to deliver to
Optionee such shares of stock, securities or assets as, in accordance with the
foregoing provisions, Optionee may be entitled to purchase.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE. Optionee represents and
warrants to Optionor that this Agreement has been duly authorized and approved
by all necessary corporate action on the part of Optionee, has been duly
executed and delivery by Optionee and constitutes a valid and legally binding
obligation of Optionee enforceable in accordance with its terms.
7. REPRESENTATIONS AND WARRANTIES OF OPTIONOR. Optionor represents,
warrants and covenants to Optionee that:
(a) this Agreement has been duly authorized and approved by all
necessary corporate action on the part of Optionor, has been duly executed and
delivered by Optionor and constitutes a valid and legally binding obligation of
Optionor enforceable in accordance with its terms;
(b) Optionor is not subject to or obligated under any provision of
(i) its Certificate of Incorporation or Bylaws, (ii) any contract, (iii) any
license, franchise or permit, or (iv) any law, regulation, order, judgment or
decree that would be breached or violated by its execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby;
(c) no authorization, consent or approval of, or any filing with,
any public body or authority is necessary for consummation by it of the
transactions contemplated by this Agreement;
(d) Optionor is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to enter into and perform this Agreement; and
(e) Optionor has taken all necessary corporate action to authorize
and reserve for issuance upon exercise of the Option the Option Shares, and the
Option Shares, when issued and delivered by Optionor to Optionee upon exercise
of the Option, will be duly authorized, validly issued, fully paid and
nonassessable, and will be free and clear of any claims, liens, encumbrances,
security interest and charges of any nature whatsoever incurred by Optionor.
8. REGISTRATION REQUIREMENTS.
8.1 Definitions. For purposes of this Agreement, "Registrable Stock"
shall mean the Option Shares and any shares of Common Stock issued by way of a
stock split of the Option Shares. For purposes of this Agreement, any
Registrable Stock shall cease to be Registrable Stock when (i) a registration
statement covering such Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such effective registration
statement or (ii) such Registrable Stock is or may be sold or distributed
pursuant to Rule 144 (in the latter case, without being subject to the volume
limitations of Rule 144(e)) or any similar or successor provision (but not Rule
144A) under the Securities Act (as defined below).
8.2 Piggyback Registration Rights.
(a) If Optionor shall determine to register any of its
securities, for its own account or the account of any of its shareholders (other
than in connection with an exchange offer or dividend reinvestment plan or
pursuant to a Registration Statement on Form S-4 or Form S-8, or any successor
forms thereto), Optionor will: (i) promptly give to Optionee written notice
thereof; and (ii) use its best efforts to include in such registration (and any
related qualification under state securities or Blue Sky laws or other
compliance), and in any underwriting involved therein, all of the Registrable
Stock specified in a written request or requests, made within fifteen (15) days
of receipt of such written notice from Optionor, by Optionee.
(b) If the registration of which Optionor gives notice
pursuant to Section 8.2 is for a registered public offering involving an
underwriting, Optionor shall so advise Optionee as a part of the written notice.
In such event, the right of Optionee to registration pursuant to Section 8.2
shall be conditioned upon Optionee's participation in such underwriting and the
inclusion of Optionee's Registrable Stock in the underwriting to the extent
provided herein. Optionee shall (together with Optionor) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by Optionor. If Optionee disapproves of the
terms of any such underwriting, Optionee may elect to withdraw therefrom by
written notice to Optionor and the underwriter. Any Registrable Stock excluded
or withdrawn from such underwriting shall be withdrawn from such registration.
8.3 Mandatory Registration Rights.
(a) If Optionor has not filed a registration statement under
paragraph 8.2 including the Registrable Stock on or before December 31, 1998,
Optionor shall, upon the written request of Optionee, as soon as practicable
thereafter but in any event by June 30, 1999 (or, if Optionor is not eligible to
use Form S-3 at that time, within 20 business days from the time that Optionor
thereafter becomes eligible to use Form S-3 for the registration of the
Registrable Stock):
(i) file under the Securities Act a Registration
Statement on Form S-3 covering all of the Registrable Stock not so previously
registered (the "Registration Statement"); and
(ii) cause the Registration Statement to be declared
effective as soon as possible after filing. If the SEC has notified Optionor
that it will respond favorably to any request for acceleration of the
Registration Statement, then Optionor will provide notice of such fact to
Optionee, and as soon as practicable file a request with the SEC for
acceleration of the Registration Statement. Except as set forth below, Optionor
will use its best efforts to cause the Registration Statement to remain
effective under the Securities Act, and will prepare and file with the SEC any
amendments or post-effective amendments as may be necessary to keep the
Registration Statement effective under the Securities Act. Optionor will
promptly notify the Optionee in writing of the date on which the Registration
Statement is declared effective. Notwithstanding the foregoing, Optionor shall
not be required to keep the Registration Statement effective for purposes of the
sale of Registrable Stock thereunder at any time after the earlier of the date:
(i) on which all shares of Registrable Stock have been sold or are no longer
outstanding, or (ii) on which the Term expires (the "Effectiveness Period").
8.4 Contingent Obligations. If Optionor is required by Section 8.2
or 8.3 to effect the registration of Registrable Stock, then Optionor, in
addition, shall:
(a) furnish to Optionee a copy of the required Registration
Statement, the prospectus, if any, which is a part of the Registration
Statement (the "Prospectus") and any amendments and supplements thereto any
exhibits to, or documents incorporated by reference in, the Registration
Statement as Optionee shall reasonably request; and
(b) register or qualify or cooperate with Optionee in
connection with the notification, coordination, registration or qualification of
(or obtain exemption from the registration or qualification of) the Registrable
Stock under the securities or blue sky laws of such other jurisdiction in the
United States as Optionee reasonably shall request and do any and all other acts
and things which may be reasonably necessary to enable Optionee to consummate
the disposition of the Registrable Stock by it under the Registration Statement
in such jurisdiction; provided, however, that in no event shall Optionor be
required to qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified, to subject itself to taxation in any jurisdiction
where it has not theretofore done so or to take any action which would subject
it to general service of process in any such jurisdiction where it is not then
so subject.
8.5 Notification. During the Effectiveness Period, Optionor
shall notify Optionee promptly, and (if requested by Optionee) confirm such
notice in writing,
(a) of any request by the SEC for amendments or supplements
tothe Registration Statement of the Prospectus or for additional information
relating thereto,
(b) of the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose,
(c) of the receipt by Optionor of any notification with
respect to the suspension of the registration, qualification or exemption from
registration or qualification of any of the shares of Registrable Stock covered
by the Registration Statement for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and
(d) of the happening of any event which makes any statement
made in such Registration Statement or in the Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in such
Registration Statement or Prospectus so that such documents will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
8.6 Settlements and Post-Effective Amendments. During the
Effectiveness Period, upon the occurrence of any event contemplated by Sections
8.5(a) or 8.5(d) above, Optionor will promptly prepare and file a supplement or
post-effective amendment to the Registration Statement or a supplement to the
Prospectus or any document incorporated therein by reference or file any other
document (i) required by the SEC to entitle such supplement or amendment to be
declared effective and (ii) necessary so that, as thereafter delivered to the
purchasers of the Registrable Stock being sold thereunder, the Prospectus will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
8.7 Obligations of Optionee. Following the filing of the
Registration Statement and during any period that the Registration Statement is
effective, Optionee shall:
(a) not effect any stabilization transactions or engage in
any stabilization activity in connection with Optionor's common shares in
contravention of Rule 10b-7 under the Exchange Act;
(b) furnish each broker through whom Optionee offers
Registrable Stock such number of copies of the Prospectus as the broker may
require and otherwise comply with prospectus delivery requirements under the
Securities Act;
(c) report to Optionor each month all sales, pledges and other
dispositions of Registrable Stock made by Optionee;
(d) not bid for or purchase (and not permit any Affiliated
Purchaser, as defined in Rule 10b-6 under the Exchange Act, to bid for or
purchase) any account in which Optionee has a beneficial interest, or attempt to
induce any other person to purchase any Optionor common shares in contravention
of Rule 10b-6 under the Exchange Act;
(e) cooperate with Optionor as Optionor fulfills its
obligations under Section 8.4 hereof;
(f) furnish such information concerning Optionee as Optionor
may from time to time reasonably request; and
(g) not sell under the Registration Statement during any
period after Optionor has provided notice to Optionee pursuant to Section 8.5(d)
above and until Optionor provides to Optionee notice that the Registration
Statement no longer fails to state a material fact required to be stated
therein, misstates a material fact or omits to state a material fact required to
be stated therein or necessary to make the statements made not misleading.
8.8 Expenses. Optionor shall pay all costs, fees and expenses in
connection with all post-effective amendments or new registration statements
under Section 8 hereof, including, without limitation, Optionor's legal and
accounting fees, printing expenses, blue sky fees and expenses, except that
Optionor shall not pay for any of the following costs and expenses: (a)
underwriting discounts and commissions allocable to the Registrable Stock, (b)
state transfer taxes, (c) brokerage commissions, (d) fees and expenses of
counsel and accountants for Optionee.
8.9 Indemnification.
8.9.1 Indemnity by Optionor. Optionor shall
(a) indemnify and hold harmless Optionee and its
employees, agents, directors and officers, if any, each person
who participates in the offer of such Registrable Stock,
including underwriters (as defined in the Securities Act) and
each person, if any, who controls Optionee or participating
person (as defined in the Securities Act) (collectively, the
"Shareholder Indemnitees") against any losses, claims, damages
or liabilities ("Losses"), to which such Shareholder
Indemnitees may become subject, under the Securities Act or
otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in
any Registration Statement or Prospectus, as amended or
supplemented if Optionor has furnished any supplements or
amendments thereto, or any other document filed or delivered
in connection therewith under a state securities or blue sky
law (collectively, "Registration Documents") or insofar as any
Losses (or actions in respect thereof) arise out of or are
based upon (i) the omission or alleged omission to state in
any Registration Document, as amended or supplemented if
Optionor has furnished any supplements or amendments thereto,
a material fact required to be stated therein or necessary to
make the statements made therein (in the case of a prospectus,
in the light of the circumstances under which they were made),
not misleading, or (ii) any violation or alleged violation of
any securities law by Optionor, its officers or employees in
connection with the Registration Documents, and
(b) reimburse each Shareholder Indemnitee for all legal
or other expenses reasonably incurred by it in connection with
investigating or defending any Loss, including any amounts
paid in settlement of any litigation, commenced or threatened,
if such settlement is effected with the prior written consent
of Optionor, which shall not be unreasonably withheld or
delayed; provided, however, that Optionor shall not be liable
for any such indemnification or reimbursement to the extent
that any such Losses arise out of or are based upon any untrue
statement or omission made in any Registration Document in
reliance upon and in conformity with written information
furnished to Optionor by or on behalf of any Shareholder
Indemnitee for use in the preparation of the Registration
Document; and provided, further, that Optionor shall not be
liable to a particular Shareholder Indemnitee under the
indemnity agreement in this Section 8.9.1 with respect to the
Prospectus, as amended or supplemented, to the extent that the
Loss arises from the sale of any shares of Registrable Stock
by such Shareholder Indemnitee to the person asserting Loss
and to which there was not sent or given, within the time
required by the Securities Act, a copy of the Prospectus as
then amended or supplemented, if Optionor has previously and
timely furnished copies thereof to such indemnified party and
such Prospectus as then amended or supplemented has corrected
the misstatement or omission at issue.
8.9.2 Indemnity by Optionee. Optionee shall
(a) indemnify and hold harmless Optionor, any officer,
director, employee or agent of Optionor, and each other
person, if any, who controls Optionor within the meaning of
Section 15 of the Securities Act (collectively, the "Optionor
Indemnitees") against any Losses to which each such Optionor
Indemnitees may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions in respect
thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact
contained in any Registration Document, or arise out of or are
based upon the omission or alleged omission to state in any
Registration Document a material fact required to be stated
therein or necessary to make the statements made therein (in
the case of a prospectus, in the light of the circumstances
under which they were made) not misleading, or (ii) any
violation or alleged violation of any securities law by or on
behalf of any Optionee in connection with the sale or transfer
of any shares included in the Registration Statement, and
(b) reimburse each Optionor Indemnitee for all legal or
other expenses reasonably incurred by it in connection with
investigating or defending any such Losses or action,
including any amounts paid in settlement of any litigation,
commenced or threatened, if such settlement is effected with
the prior written consent of Optionee;
provided, however, that such indemnification or reimbursement shall be payable
only if, and to the extent that, any Losses arise out of or are based upon an
untrue statement or omission made in any Registration Document in reliance upon
and in conformity with written information furnished to Optionor by Optionee for
use in the preparation thereof and provided, further, that the obligation of
Optionee under this Section 8.9.2 shall be limited to an amount equal to the
proceeds to the Optionee (including, for such purpose, proceeds to any
transferee of Optionee) from the Registrable Securities sold in such registered
offering.
8.9.3 Procedure for Indemnification. Promptly after receipt
by an indemnified party, under Section 8.9.1 or 8.9.2, of notice of the
commencement of any action, the indemnified party shall notify the indemnifying
party in writing of the commencement thereof, if a claim in respect thereof is
to be made against an indemnifying party under any of these Sections; but the
omission of such notice shall not relieve the indemnifying party from liability
which it may have to the indemnified party under this Section 8.9, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice, and shall not relieve the indemnifying party from any liability
which it may have to any indemnified party otherwise than under this Section
8.9. In case any action is brought against the indemnified party, it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and to the extent that it chooses, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party, and after notice from the indemnifying party shall not be
liable for any legal or other expenses subsequently incurred by the indemnified
party in connection with the defense thereof; provided, however, that if the
indemnifying party fails to take reasonable steps necessary to defend diligently
the claim within twenty (20) days after receiving notice from the indemnified
party that the indemnified party believes the indemnifying party has failed to
take such reasonable steps, or
(a) if the indemnified party who is a defendant in
any action or proceeding which is also brought against the
indemnifying party reasonably shall have concluded that there
are legal defenses available to the indemnified party which
are not available to the indemnifying party, or
(b) if representation of both parties by the same
counsel is otherwise inappropriate under applicable standards
of professional conduct, then the indemnified party shall have
the right to assume or continue its own defense as set forth
above. In no event shall the indemnifying party be
responsible for more than one firm or counsel for all
indemnified parties unless it is inappropriate under
applicable standards of professional conduct for one firm or
counsel to represent all indemnified parties.
8.9.4 Non-Exclusive Indemnity. Any indemnity agreements
contained herein shall be in addition to any other rights to indemnification or
contribution which any indemnified party may have pursuant to law or contract
and shall remain operative and in full force and effect regardless of any
investigation made or omitted by or on behalf of any indemnified party.
8.9.5 Contribution. If for any reason the foregoing
indemnity is unavailable, or is insufficient to hold harmless an indemnified
party, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses,
(a) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and the
indemnified party on the other (determined by reference to, among
other things, whether the 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 indemnifying
party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission), or
(b) if the allocation provided by Section (a) above is not
permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such
proportion as is appropriate to reflect not only the relative fault
of the indemnifying party and the indemnified party, but also the
relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other, as well as any other
relevant equitable considerations. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
9. RESTRICTIONS ON TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT.
9.1 Restrictions on Transferability. The Option and the Option
Shares shall not be transferable except upon the conditions specified in the
legend set forth at the beginning of this Agreement, which conditions are
intended to insure compliance with the provisions of the Securities Act.
Optionee will cause any proposed transferee of the Option or Option Shares to
agree to take and hold such securities subject to the provisions and upon the
conditions specified in such legend.
9.2 Restrictive Legend. Each certificate representing (a) the
Option, (b) the Option Shares, and (c) any other securities issued in respect of
the Option Shares shall be stamped or otherwise imprinted with the legend
materially similar to the legend set forth at the beginning of this Agreement.
10. OPTION TRANSFERABLE. Subject to the terms of the legend described
in Section 9, the Option and all rights under the Option are transferable, in
whole or in part, without charge to Optionee (except for transfer taxes), upon
surrender of the Option properly endorsed. Each taker and holder of the Option,
by taking or holding the same, consents and agrees that the Option, when an
appropriate instrument of transfer is endorsed in blank, shall be deemed
negotiable, and that the holder thereof, when the Option shall have been so
endorsed, may be treated by Optionor and a other persons dealing with the Option
as the absolute owner of the Option for any purpose and as transferee of the
Option on the books of Optionor any notice to the contrary notwithstanding, but,
until such transfer on such books, Optionor may treat the registered owner of
the Option as the owner for all purposes.
11. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF OPTION. The rights and
obligations of Optionor and of Optionee contained in Sections 8 and 9 shall
survive the exercise of the Option.
12. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of the Option. Optionor shall, in lieu of issuing any fractional
share, pay Optionee a sum in cash equal to such fraction multiplied by the then
effective applicable Exercise Price.
13. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or sent by facsimile
(and promptly confirmed by mail) to the parties as follows (or at such other
address as either party may have furnished to the other in writing in accordance
herewith, except that notices of changes of address shall only be effective upon
receipt):
If to Optionor to:
Netter Digital Entertainment, Inc.
5125 Lankershim Boulevard
North Hollywood, California 91601
Fax: (818) 753-7655
with a copy to:
Ervin, Cohen & Jessup LLP
9401 Wilshire Boulevard
Suite 900
Beverly Hills, California 90212
Attn: Kenneth A. Luer, Esq.
Fax: (310) 859-2325
If to Optionee to:
H.D. Brous & Co., Inc.
80 Cuttermill Road
Great Neck, New York 11021
Fax: (516) 773-1829
with a copy to:
Resch Polster Alpert & Berger LLP
10390 Santa Monica Boulevard, Fourth Floor
Los Angeles, California 90025-5053
Attn: Aaron Grunfeld, Esq.
Fax: (310) 552-3209
14. NUMBER AND GENDER. Terms used herein in any number or gender
include other numbers or genders, as the context may require.
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. GOVERNING LAW. This Agreement and performance under it, shall be
construed in accordance with and under the laws of the State of California.
Should a court or other body of competent jurisdiction determine that any term
or provision of this Agreement is excessive in scope, such term or provision
shall be adjusted rather than voided and interpreted so as to be enforceable to
the fullest extent possible, and all other terms and provisions of this
Agreement shall be deemed valid and enforceable to the fullest extent possible.
17. BINDING EFFECT; PARTIES IN INTEREST. This Agreement shall be
binding upon, inure to the benefit of, and be enforceable by the successor and
assigns of the parties hereto. Nothing expressed or referred to in this
Agreement is intended or shall be construed to give any person other than the
parties to this Agreement, or their respective successors or assigns, any legal
or equitable right, remedy or claim under or in respect of this Agreement or any
provision contained herein.
18. ENTIRE AGREEMENT; MODIFICATIONS, AMENDMENTS AND WAIVERS. This
Agreement constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof. No amendment, change or modification of
this Agreement shall be valid unless it is in writing, is signed by all of the
parties hereto, and expressly states that an amendment, change or modification
of this Agreement is being made. No claim of waiver, consent or acquiescence
with respect to any provision of this Agreement shall be made against any party
hereto except on the basis of a written instrument executed by or on behalf of
such party. The party hereto for whose benefit a condition is herein inserted
shall have the unilateral right to waive such condition.
19. TAXES. All taxes resulting from the issuance or exercise of the
Option are the responsibility of the Optionee. Optionor assumes no
responsibility for any taxes resulting from such issuance or exercise.
20. FURTHER ASSURANCES. Each of the parties hereto shall execute and
deliver any and all additional papers and documents, and shall do any and all
further acts and thing, as may be reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of this
Agreement.
21. ATTORNEYS FEES. In the event that any party hereto brings an action
or proceeding for a declaration of the rights of the parties under this
Agreement, for injunctive relief, for an alleged breach or default, or any other
action arising out of this Agreement or the transactions contemplated hereby, or
in the event that any party is in default of its obligations pursuant hereto,
whether or not suit is filed or prosecuted to final judgement, the prevailing
party shall be entitled to reasonable attorneys' fees, in addition to any other
court costs incurred and any other damages or relief awarded.
IN WITNESS WHEREOF, Optionor and Optionee have executed this Agreement as
of the date first above written.
"OPTIONOR"
NETTER DIGITAL ENTERTAINMENT, INC.
a Delaware corporation
By:/s/Douglas Netter
-----------------------------------
Name: Douglas Netter
Its: Chairman
"OPTIONEE"
H.D. BROUS & CO., INC.
By:/s/Michael Pocaterra
-----------------------------------
Name: Michael Pocaterra
Its: Authorized Representative
STANDARD INDUSTRIAL COMMERCIAL SINGLE-TENANT LEASE-
GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only,
November 19, 1996, is made by and between - SOLO CUP COMPANY ("Lessor") and
NETTER DIGITAL ENTERTAINMENT ("Lessee"), (collectively the "Parties," or
individually a "Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 5125 J-ankershim and -5130 Klump. located in the
County of Los Angeles, State of California and generally described as (describe
briefly the nature of the property) Approximately 21,755 sq. ft. office building
on approximately 49,250 sq. .ft. of land. ("Premises"). (See Paragraph 2 for
further provisions.)
1.3 Term: 7 years and 0 months ("Original Term") commencing -March 1,
1997, SEE ADDENDUM ("Commencement Date) and ending February. 28,
2004 ("Expiration Date"). (See Paragraph 3 for further provisions.)
1.4 EarlyPossession: ("Early Possession Date")
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $ 22,842.75, per month ("Base Rent"), payable on the 1st
day of each month commencing Upon occupauc-y (See Paragraph 4 for further
provisions.)
XX Check this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $ . 22, 842. 75 as Base Rent for the
period March 31, 1997
1.7 SecurityDeposit: $ 52,212.00* ("Security Deposit"). (See Paragraph
5 further provisions.) * - Security Deposit and-last months rent
1.8 Permifted Use: General Office, Production, and Post Production of
Media related Productions and, Services. (See Paragraph 6 for further
provisions.)
1.9 lnsuring Party: Lessor is the "Insuring Party." $ 1,997 Insurance
costs is the "Base Premium." (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
CHARLES DUNN.COMPANY, INC. represents
XX Lessor exclusively ("Lessor's Broker"); ___ both Lessor and Lessee, and
LEE & ASSOCIATES, represents
XX Lessee exclusively ("Lessee's Broker"); ___ both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 66 and Exhibits A all of which constitute a part of this
Lease.
2. PREMISES.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within sixty (60)
days after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that after completion of tenant improvements the
improvements on the Premisis comply with all applicable covenants or
restrictions of record and applicable building codes, regulations and
ordinances in effect on the Commencement Date. Said warranty does not apply to
the use to which Lessee will put the Premises or to any Alterations or Utility
Installations (as defined in Paragraph 7.3 (a)) made or to be made by Lessee.
If the Premises do not comply with said warranty, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such non-
compliance, rectify the same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, lb) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Leasse. ** - There are currently no
CC&R's per United Title and
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
SEE ADDENDUM
** (cont) Lessor shall not record any new CC&R's that materially and adversely
affect Lessee's use, occupancy, and enjoyment of the premises.
3.3 Delay in Possession. If for any reason Lessor cannot deliver possession
of the Premises to Lessee as agreed herein by the Early Possession Date, if one
is specified in Paragraph 1.4, or, if no Early Possession Date is specified, by
the Commencement Date, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee- If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days
thereafter, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder; provided, however, that if such written notice
by Lessee is not received by Lessor within said ten (10) day period, Lessee's
right to cancel this Lease shall terminate and be of no further force or effect.
Except as may be otherwise provided, and regardless of when the term actually
commences, if possession is not tendered to Lessee when required by this Lease
and Lessee does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee. As
modified by the Addendum.
4. RENT.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. It Lessee fails
to pay Base Rent or other rent or charges due hereunder. or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, it any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises,
is either: (i) potentially injurious to the public health, safety or welfare,
the environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving I-essor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encaseinents) SEE ADDENDUM
(b) Duty to Inform Lessor. It Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include,
but not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations Linder this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.2 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manlifacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, (whether or not such portion of the Premises requiring repair, or the
mpana' of repairing the same, are reasonably or readily accessible to Lessee,
and whether or not the need for such repairs occurs as a result of Lessee's use,
any prior use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing. all equipment or
facilities serving the Premises, such as plumbing, heating,, air conditioning,
ventilating, electrical. lightinig facilities, boilers, fired or unfired
pressure vessels, fire sprinkler and/or standpipe and hose or other automatic
fire extinguishing system, including fire alarm and/or smoke detection systems
and equipment, fire hydrants, fixtures, walls (interior and exterior), ceilings,
floors, windows, doors, plate glass. skylights, landscaping, driveways, parking
lots, fences, retaining walls, signs, sidewalks and parkways located in, on,
about, or adjacent to the Premises, but excluding foundations, the exterior roof
and the structural aspects of the Premises. Lessee shall not cause or permit
any Hazardous Substance to be spilled or released in, on, under or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed lo by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage lank brought
onto file Premises by or for Lessee or under its control. Lessee, in keeping
the Premises in good order. condition and repair, shall exercise and perform
good maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the lollowing equipment and improvements, it any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems. including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Upon receipt of written notice of the need for such
repairs and subject to Paragraph 13.5. Lessor shall, at Lessor's expense, keep
the foundations, exterior roof and structural aspects of the Premises in good
order, condition and repair. Lessor shall not, however, be obligated to paint
the exterior surface of the exterior walls or to maintain the windows, doors or
plate glass or the interior surface of exterior walls. Lessor shall not, in any
event, have any obligation to make any repairs until Lessor receives written
notice of the need for such repairs. It is the intention of the Parties that
the terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations" is
used in this Lease to refer to all carpeting, window coverings, air lines. power
panel, electrical distribution, security, fire protection systems, communication
systems, lighting fixtures. heating, ventilating. and air conditioning
equipment, plumbing, and fencing in, on or about the Premises. The term "Trade
Fixtures" shill mean Lessee's machinery and equipment that can be removed
without doing material damage to the Premises. The term "Alterations" shall
mean any modification of the improvements on the Premises from that which are
provided by Lessor tinder the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and /or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.,4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities. (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
;and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built
plans and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Allerition or Utility Installation lhit
costs $25,000 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of such
Iteration or Utility Installation.
(c) Indemnification. Lessee shift pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or (or
use on the Premises, which claims are or may he secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the Commencement of any
work in, on or about the Premises. and Lessor shall have the right to post
notices of non-responsibilily in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand. then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
aqainst the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half (1 1/2) times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations*. Unless otherwise instructed per subparagraph 7.4(b) hereof,
all Lessee Owned Alteritions and Utility Installations shall, at the expiration
or earlier termination of this Lease, become the property of Lessornd remain
upon and be surrendered by Lessee with the Premesis.
* - Excluding cabinets, racks, cabling, wiring, and any special lighting paid
for the Lessee.
(b) Removal. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may hive been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well is the removal of any storage tank installed by or for
Lessee, and the removal, replacement, and remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 Payment of Premium Increases.
(a) Lessee shall pay to Lessor any insurance cost increase (but not in
excess of 5% per year unless such increase is a result of Tenant's occupancy.)
("Insurance Cost Increase") occurring during the term of this Lease. "Insurance
Cost Increase" is defined as any increase in the actual cost of the insurance
required tinder Pirigraphs 8.2(h), 8.3(.,t) and 8.3(b). ("Required Insurance"),
over and,ibove the Base Premium, as hereinafter defined, calculated on an
annual bisis. "Insurance Cost Increase" shall Include, but not be limited to.
increases resulting from the nature of Lessee's occupancy, any act or omission
of Lessee, requirements of the holder of a mortgage or deed of trust covering
the Premises, increased valuation el the Promises, and/or a premium rate
increase. In no event, however, shall Lessee be responsible for any portion of
the minimum cost attributable to liability insurance coverage . The "Base
Premium" shall be the annual premium applicable to the 1997 Calendar Year. (See
Addendum) In no event, however, shall Lessee be responsible for any portion
of the premium cost attributable to liability insurance coverage in excess of
$1,000,000 procured under Paragraph 8.2(b) (Liability Insurance Carried By
Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. It the insurance policies
maintained hereunder cover other property besides the Premises. Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing. In reasonable detail the manner in
which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond, the term of this Lease shall be prorated to
coincide with the corresponding Commencement or Expiration of the Lease
term.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of Insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
ocurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease. The limits of said insurance required by this Lease as carried by Lessee
shall not, however, limit the liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance to be carried by Lessee shall be primary to
and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above, in
addition to. and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 Property Insurance Building Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and keep
in force during tl)e term of this Lease a policy or policies in file name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Pemises. The amount of such insurance shall be equal to The lull
replacement cost of the Premises. as the same shall exist from time lo time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such letter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure .against all
risks of direct physical loss or damage, including Earthquake Insurance (except
the perils of flood unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement ol any undamaged sections of the Premises required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered cause of loss, but
not including plate glass insurance. Said policy or policies shall also contain
an agreed valuation provision in lieu of any coinsurance. clause, waiver of
subrogation, and inflation gaurd protection causing an increase in the annual
property insurance coverage amount by a factor of no less thia the adjusted U.S.
Department of Labor Consumer Price Index lor All Urban Consumers for the city
nearest to where the Promises are located .
(b) Rental Value. Lessor shall, in addition, obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by Lessee to Lessor under this Lease for one (1) year
(including ill real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shill provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
properly taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) Adjacent Premises. If the Premises are part of a larger building, or if
the Premises are part of a groulp of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. Since Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the properly of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utilility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall he in companies
duty licensed to transact business in the state where the Promises are
maintaining during the policy term a "General Policyholders Rating" of at least
B+, V, or such other rating as may be required by a Lender having a lien on the
Premises, as set forth in the most current issue of "Best's Insurance Guide."
Lessee shall not do or permit to be done anything which shall invalidate the
insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraphs 8.2(a) and 8.4. No such policy shall be cancellable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required or by any
dectibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence, willfull misconduct, and/or
breach of any provisions of the Lease, Lessee shall indemnify, protect, defend
and hold harmless the Premises, Lessor ind its agents, Lessor's master or ground
lessor, partners and Lenders, from and tgainst any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, permits, attorney's an(]
consullint's fees, expenses and/or liabilities arising out of, involving, or in
dealing with, the occupancy of the Promises by Lessee, the conduct of Lessee's
business, any act, omission or neglect of Lessee, its agent, contractors,
employees or invitees, and out of any Default or Breach by Lessee in the
performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved herein,
and whether or not (in the case of claims made against Lessor) litigated and/or
reduced to judgement, and whether well founded or not. In case any action or
proceeding be brought against Lessor by reason of any of the foregoing matters,
Lessee upon notice from Lessor shall defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee
in such defense. Lessor need not have first paid any such claim in order to be
so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause. whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places. and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Promises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
nepiicoment Cost of the Premises immediately prior lo such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto. including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, nnd without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial.Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned* Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds as
and when required to complete said repairs.
* - or installed
9.3 Partial Damage-Uninsured Loss. If a Promises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willfull act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights, under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shift continue in full force and effect, or (ii) give written notice
lo Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such fiolice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. It at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, it Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (I) exercising such option and if
Lessee duly exercises such option during said Exercise Period Lessor shall. at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
Insured). whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage, its repair
or the restoration continues, shall be abated in proportion to the degree to
which Lessee's use of the Premises is impaired. Except for abatement of Base
Rent, Real Property Taxes, insurance premiums, and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under the
provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders, and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "Commence" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Premises, whichever first occurs. Lessee
shall have the right to terminate this Lease by giving written notice if Lessor
cannot repair or restore the building within 270 days (or 120 days if the damage
or destruction occurs during the last year of the term of this Lease).
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs. unless Lessee is legally responsible therefor (in which case Lessee
shall make the Investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, ,is soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirly (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease ,is of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in lull force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the limes specified above, this Lease shall terminate as of the date
specified in Lessor's notice el termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a).
9.8 Termination-Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
represent or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, but no
more than 5% per year unless such increase is attributable to Tenant's
occupancy, as defined in Paragraph 10.2, applicable to the Premises; provided,
however that 1997 base year, Lessee shall pay, in addition to rent, the amount,
if any, by which Real Property Taxes applicable to the Premises increase over
the fiscal tax year ("Tax Increase"). Subject to Paragraph 10.1(b), payment of
any such Tax Increase shall be made by Lessee within thirty (30) days after
receipt of Lessor's written statement setting forth the amount due and the
computation thereof but no earlier than 10 days prior to delinquency date of any
such taxes. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the fiscal year this Lease is in effect, and Lessor shall
reimburse Lessee for any overpayment after such proration.
(b) Advancement of Payment. In order to insure payment when due and
before delinquency of any or all Real Property Taxes, Lessor reserves the right,
at Lessor's option, to estimate the current Real Poy Taxes applicable to the
Premises, and to require such current year's Tax increase to be paid in advance
to Lessor by Lessee, in a lump sum amount equal to the amount due, no earlier
than twenty (20) days prior to the applicable delinquency date.
(c) Additional Improvements. Notwithstanding Paragraph 10.1(a) thereof
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
Real Property Taxes assessed by reason of Alterations or Utility Installations
placed upon the Premises by Lessee or at Lessee's request.
10.2 Definition of "Real Property Taxes. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises after commencement
date by any authority having the direct or indirect power to tax, including any
city, state or federal government, or any school, agricultural, sanitary, fire,
street, drainage or other improvement district thereof, levied against any legal
or equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor 'right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "real Property Taxes" shall
also include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises r in the imporvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or e1sewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately Irom the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
10) days after receipt of a written statement setting forth the taxes applicable
to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assignment") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring written notice to Lessor.
(c) The involvement of Lessee or its assets in any transaction, or series
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs. which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than fifty percent (50%) of such Net Worth of Lessee
as it was represented to Lessor at the time of the execution by Lessor of this
Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said Nei Worth of Lessee was or
is greater, shall be considered an assignment of this Lease by Lessee to which
Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes
of this Lease shall be the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Pragraph 13.1(c), or a noncurable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a noncurable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)days
written notice ("Lessor's Notice"), increase the monthly Base Rent to fair
market rental value or one hundred ten percent (110%) of the Base Rent then in
effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardiess of Lessor's consent, any assignment or subletting shall not:
(i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or lor the
performance of any other obligations to be performed by Lessee under this
Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee
or anyone else liable on the Lease or sublease and without obtaining their
consent, and such action shall not relieve such persons from liability under
this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness.of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with reimbursement of
reasonable costs up to $500.00, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additinoal information and/or
documentation as may be reasonably requested by Lessor.
(f) Any Assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in
all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right ol reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 Default; Breach. Lessor and Lessee agree that If an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs In the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" Is defined as
a failure by the Lessee to observe. comply with or perform any of the terms,
covenants. conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period. and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premesis without the intention to reoccupy same,
or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment
required tb be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
'threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (if) the inspection, maintenance and service contracts required
under Paragraph 7.1 (b), (iii) the recession of an unauthorized assignment or
subletting per Paragraph 12.1 (b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease it
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably reqtiire of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
Lessee's becoming a "debtor" as defined in 1 1 U.S.C. SEC. 101 or any successor
statute thereto (unless, in the case of a petition filed against Lessee, the
same is dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph (a) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation
of Lessee under this Lease, within ten (10) days after written notice to Lessee
(or in case of an emergency, without notice), Lessor may at its option (but
without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon ' which it is drawn, Lessor, at its
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check, In the event of a Breach of this Lease by
Lessee, as defined in Paragraph 13.1, with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Pemises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrentler possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of relefting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1 (b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1 (b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California fair under California Civil Code Section 1951.4) after Lessee's
Breach and abandonment and recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor
for other charges applicable to the Premises, or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions:' shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
unamortized portion of the Inducement Provision shall automatically be deemed
deleted from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid by
Lessor under such an Inducement Provision shall be immediately due and payable
by Lessee to Lessor, and recoverable by Lessor as additional rent due under this
Lease, notwithstanding any subsequent cure of said Breach by Lessee. The
acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this Paragraph shall not be deemed a waiver by Lessor of the
provisions of this Paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed
upon Lessor by the terms of any ground lease, mortgage or trust deed covering
the Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee in ten (10) days
after such amount shall be due, then, without any requirement for notice to
Lessee. Lessee shall pay to Lessor a late charge equal to six percent (6%) of
such overdue amount. The parties hereby agree that such late charge represents
a fair and reasonable estimate of the costs Lessor will incur by reason of late
payment by Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such overdue
amount nor prevent Lessor from exercising any of the other rights and remedies
granted hereunder. In the event that a late charge is payable hereunder, not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
it performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. It more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authorization have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this.Lease in, accordance with
the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced in
the same proportion as the rentable floor area of the Premises taken bears to
the total rentable floor area of the building located on the Premises. No
reduction of Base Rent shall occur if the only portion of the Premises taken is
land on which there is no building. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the prop" of Lessor, whether such
award shall be made as compensation for diminution in value of the leasehold or
for the taking of the fee, or as severance damages; provided, however, that
Lessee shall be entitled to any compensation, separately awarded to Lessee for
Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shall to the extent of its net severance damages received, over and above the
legal and other expenses incurred by Lessor in the condemnation matter, repair
any damage to the Premises caused by such condemnation, except to the extent
that Lessee has been reimbursed therefor by the condemning authority. Lessee
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing, a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ (per separate agreement) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or lb) if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) it Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Brokers a fee in accordance with the schedule of said Brokers in effect at
the time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the
other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationship, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as " Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the
Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any part
thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSORS LIABILITY. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due
Lessor hereunder, other than late charges, not received by Lessor within thirty
(30) days following the date on which it was due, shall bear interest from the
thirty-first (31si) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Pariiijraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This
Lease contains all agreements between the Parties with respect to any matter
mentioned herein, and no other prior or contemporaneous agreement or
understanding shall be effective. Lessor and Lessee each represents and
warrants to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility
of the other Party to this Lease and as to the nature, quality and character of
the Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing and
may be delivered in person (by hand or by messenger or courier service) or may
be sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. It sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor,
notwithstanding any qualifying statements or conditions made by Lessee in
connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. NONE
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of
the Premises or any part thereof beyond the expiration or earlier termination of
this Lease. (See Addendum).
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
26. COVENANTS AND CONDITIONS. All provisions of this Lease to be
observed or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon
the parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be initiated
in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attomment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to afforn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ' ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance
agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) or Broker in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorney's fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "Prevailing Party" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fee award shall not be
computed in accordance with any court fee schedule, but shall be such as to
fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING; PREMISES; REPAIRS. Lessor and
Lessor's agents shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times with reasonable notice
for the purpose of showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, repairs, improvements or additions to the
Premises or to the building of which they are a part, as Lessor may reasonably
deem necessary. Lessor may at any time place on or about the Premises or
building any ordinary "For Sale" signs and Lessor may at any time during the
last one hundred twenty (120) days of the term hereof place on or about the
Premises any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the room
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business. (See Addendum)
35. TERMINATION; MERGER. Unless specifically stated otherwise in
writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate in
the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, Such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses limited to $500.00
(including but not limited to architects, attorneys, engineers' or other
consultants' fees) incurred in the consideration of, or response to, a request
by Lessee for any Lessor consent pertaining to this Lease or the Premises,
including but not limited to consents to an assignment, a subletting or the
presence or use of a Viazardous Substance, practice or storage lank, shall be
paid by Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. Subject to Paragraph 12.2(e) (applicable to assignment or
subletting), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. NONE.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the
Premises and the observance and performance of all of the covenants, conditions
and provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee (also any wholly owned subsidiary
or successor) named in Paragraph 1.1 hereof, and cannot be voluntarily or
involuntarily assigned or exercised by any person or entity other than said
original Lessee while the original Lessee is in full and actual possession of
the Premises and without the intention of thereafter assigning or subletting.
The Options, if any, herein granted to Lessee are not assignable, either as a
part of an assignment of this Lease or separately or apart therefrom, and no
Option may be separated from this Lease in any manner, by reservation or
otherwise.
39.3 Muftiple Options. In the event that Lessee has any multiple Options to
extend or rendw this Leasb, a later option cannot be exercised until prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39,4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, If, after such exercise and during the term of this
Lease, (i) Lessee falls to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for
the management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental
payable to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third
parties.
42. RESERVATIONS. Lessor reserves to :Itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise
as to any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such t)ayment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by
the parties in interest at the time of the modification. The parties shall
amend this Lease from time to time to reflect any adjustments that are made to
the Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, it
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
ATTACHMENTS
Addendum Paragraphs 45-66
Exhibit A Floorplans.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED
THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN,
AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY
AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS
OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE
WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, l@ HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER,
EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION
OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS,
STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE
REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO
THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES
OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER
THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE
PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Executed at
on on
by LESSOR: by LESSEE:
Solo Cup Company Ketter Digital Entertainment,Inc.
By By:/s/Thomas L. Jorgenson
Name Printed: Name Printed: Thomas L. Jorgenson
Title: Title: Chief Operating Officer
By By
Name Printed: Name Printed:
Title: Title:
Address: Address:5200 Lankershim Blvd, Suite 280
North Hollywood, California 91601
Tel. No. --Fax No. Tel. No. (818) 753-1990 Fax No. (818) 753-7655
NOTICE: These forms are often modified to meet changing requirements of
law and industry needs. Always write or call to make sure you are utilizing the
most current form: American Industrial Real Estate Association,
345 S. Figueroa Street, Suite M-1, Los Angeles, Ca 90071. 213-687-6777. Fax
No. (213) 687-8616
ADDENDUM TO THE STANDARD
INDUSTRIAL/COMMERCIAL
SINGLE TENANT LEASE - GROSS
BY AND BETWEEN
SOLO CUP COMPANY (LESSOR) AND
NETTER DIGITAL ENTERTAINMENT, INC.
(LESSEE)
DATED NOVEMBER 1996
49. COMMENCEMENT DATE: Notwithstanding the provisions of paragraph
1.3 and 3.2 of the Lease, the Commencement Date will occur at such time that
the space is substantially completed or a Certificate of Occupancy has been
issued, whichever date is later. If, through no fault of or delay by the
Tenant, and provided no delay has occurred from changes ordered by Tenant or by
labor disputes, fire, unusual delay in deliveries, unavoidable casualties or
other causes beyond Landlord's control, the space is not substantially completed
and Landlord cannot deliver possession on or before one hundred and twenty (1
20) days after the date a permit is issued for the construction of the Tenant's
improvements, the Tenant may, at its option, cancel the Lease by giving notice
to Landlord as provided in paragraph 3.2 of the Lease. If possession is not
delivered by such date and Tenant fails to give notice as provided in Paragraph
3.2, Tenant shall be deemed to have waived its right to cancel.
50. EARLY OCCUPANCY: Landlord shall allow Tenant access to the
Premises fourteen (14) days prior to the Commencement Date, with no
obligation to pay rent, for the purpose of installing equipment and furniture,
so long as such access does not interfere with the completion of tenant
improvements, and so long as Tenant has insurance in accordance with
paragraph 8.2 of the Lease, and agrees to be bound by all of the terms of the
Lease as provided in paragraph 3.2 of the Lease.
51. RENTAL RATE: Months 1-12 $1.05/Per square foot
Months 13-24 $1.10/Per square foot
Months 25-36 $1.15/Per square foot
Months 37-48 $1.20/Per square foot
Months 49-60 $1.25/Per square foot
Months 61-72 $1.30/Per square foot
Months 73-84 $1.35/Per square foot
Modified Gross (In addition to the amounts above, Tenant to pay for all
utilities services, janitorial, CAM, trash removal and interior maintenance.)
52. OPERATING EXPENSES: Tenant shall share in any increase in the actual
operating costs of the Premises, predicated upon a 1997 base year. All
operating expenses shall be based upon the Premises being 100% occupied and
fully assessed for real estate taxes. Said increase shall not exceed five
percent (5%) per annum, excluding increases in real estate taxes and insurance
due to Tenant's occupancy. Operating expenses shall include real estate taxes,
insurance, maintenance, and Landlord's reasonable costs of management.
Proposition 8 tax assessment process is ongoing or is being contemplated.
53. EVENT OF SALE INCREASE IN TAXES: In the event of the Premises are
sold, refinanced, or otherwise transferred by Landlord, or there is any other
real estate reassessment "triggering" event during the lease term or any
extension thereof that is not attributable to Tenant's occupancy, Landlord shall
be 1 00% responsible for any increase in the real estate taxes over the then-
current base year which is attributable to such sale, refinance or other
transfer.
54. ENVIRONMENTAL: Landlord is not aware of any potential or existing
hazardous substance located on the Premises, other than the stage tile floor and
the existing mastic on the 20 ton HVAC unit. Section 6.2(c) of the Lease is
hereby modified to add the following at the end thereof. Lessor shall
indemnify, protect, defend and hold Lessee, its agents, shareholders, directors,
officers, and employees harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and attorneys' and consultants'fees arising out of or involving any
Hazardous Substance brought onto the building by or for Lessor or anyone under
Lessor's control. Such indemnity shall be on the same terms and conditions as
Lessee's obligation to indemnify Lessor under this Section 6.2 (c).
55. BUILDING SYSTEMS: On the Commencement Date, Landlord shall
deliver all building mechanical systems including HVAC, plumbing and
electrical, in good working order (except one 20 ton air conditioning unit).
During the original seven (7) year lease term and any extensions thereof, the
Tenant shall be responsible for all expenses (including ongoing maintenance)
relating to the building mechanical systems as provided in paragraph 7 of the
Lease which are not capital expenditures (i.e. HVAC units replacement), and
Landlord shall be one hundred percent (1 00%) responsible for the foundations,
roof, structural aspects of the building, existing electrical systems and
existing rough plumbing unless caused by the act or neglect of the Tenant. In
the event that an HVAC unit requires replacement during the last 4 years of the
lease term, the Tenant shall be responsible for its proportionate share of the
cost of replacement of the HVAC unit as a percentage of the remaining lease term
and assuming the HVAC unit has a useful life of 12.5 years (Tenant shall
additionally reimburse the Landlord for Tenant's proportionate share of the cost
of replacement of an HVAC unit for five (5) additional years if Tenant exercises
its first option and for the balance of five (5) more years if Tenant exercises
the second option). Tenant's proportionate share shall be due and payable at
the time that they exercise their option.
56. TENANT IMPROVEMENTS: Landlord, at Landlord's sole cost and
expense (not to exceed $29.00 per square foot) shall build/modify the Premises
to suit Tenant according to the attached floor plan which is subject to
modification. Referring specifically to the initial buildout, any costs
associated with modifications required by or under the ADA of 1990, or for
plans, clean-up, permits, and environmental/seismic upgrades shall be included
in the Tenant Improvement Allowance (excluding any existing underground tanks,
and/or existing soil conditions). In addition, during construction of Tenant's
improvements, Tenant shall approve of each draw request submitted by
Landlord's contractor and such approval shall be deemed to be Tenant's approval
of the construction of the improvements in accordance with the space plan to the
date and extent of such draw request.
57. INSURANCE: The following should be added to the end of Section 8.1(a):
Notwithstanding the foregoing, Lessee shall not be responsible for the cost of
any insurance, including any earthquake insurance, that was not maintained by
Lessor during calendar year 1997 and/or was not included in the Base Premium.
58. SUBLEASE: Notwithstanding the provisions of paragraph 12.3 (a) of the
Lease, if Landlord consents to a sublease of all or a portion of the Premises,
Tenant shall additionally pay to Landlord monthly, one-half (1/2) of the amount
of rent received by Tenant in excess of the then rental rate. For purposes of
this paragraph, the amount of rent received by Tenant shall be determined by
deducting from the gross amount of rent payable during the term of any such
sublease, all normal and customary real estate commissions actually paid by
Tenant and then dividing this number by the number of months in the sublease
term.
Notwithstanding anything contained to the contrary in paragraph 12.1 (a), and
provided Lessee has given prior written notice to Lessor, Lessee may allow
other parties or entities involved in a joint venture or similar agreement with
Lessee, i.e. for production, post production or related services to use and
occupy some portions of the Premises, not to exceed 25% of the total Premises in
the aggregate, without Lessor's consent and provided further that Lessee
maintains at least a 25% ownership interest in such joint venture or other
entity. The parties agree that any such joint venture or other arrangement
shall not be considered a sublease for purposes under Section 12.1 of the lease
any such joint venturer or other party shall have no rights or interest in the
Premises (including but not limited to building, land, and improvements), shall
not place any locks within the Premises, shall not be given keys to the
Premises, and shall not be on the premises without Lessee's supervision.
Further, such joint venturer or other party shall at all times comply with the
terms of the lease and Lessee shall hold harmless, defend and indemnify Lessor
from any loss, damage, claim or cause of any kind or nature caused by such joint
venture or other party.
59. SIGNAGE: Tenant shall have the right to install signage which shall be
mutually agreed to by Tenant and Landlord and installed and maintained at
Tenant's expense. Tenant shall remove all signage at the end of the lease term
and restore the building to its original condition. All signage is to be
installed and maintained according to applicable building code regulations.
60. PARKING: Tenant shall have the right during the lease term and any
subsequent renewal term to use all parking (sixty-nine spaces) located at the
Premises for parking of vehicles by Tenant's employees, agents and normal
business invitees, and subject to such reasonable rules and regulations as may
be adopted by Landlord from time to time.
61. OPTIONS TO EXTEND: Tenant shall have the option to extend the lease
for two (2) additional five (5) year terms. The rental rate for the term of the
first option shall be at $1.40 per square foot, modified gross, and shall
increase by $.05 per year. Landlord shall have the right to increase the
security deposit to a rate equivalent to the rental rate. The rental rate for
the second option shall be at 95% of the then prevailing fair market rate,
including the then prevailing market rate for yearly increases for comparable
buildings in North Hollywood, but in no case less than the ending rate of the
first option, modified gross.
In order to exercise its options as granted herein, Tenant must give written
notice to Landlord on or before the date which is six (6) months prior to the
expiration of the then applicable rental term, and must increase the security
deposit to an amount equal to a minimum of (1) months rent at the new rental
rate.
62. HOLDOVER: Notwithstanding the provisions of paragraph 26 of the Lease,
Tenant shall be allowed the right to holdover for five (5) months after
expiration of the original seven (7) year lease term at a rate equal to one
hundred and twenty-five percent (1 25%) of the then rental rate. After such
time, if Tenant continues to holdover, the holdover rent shall be 175% of the
then applicable rental rate. Tenant shall have no right to holdover at the end
of any additional term.
63. CANCELLATION PROVISION: Tenant shall have the right to cancel this
lease, with written notice to Landlord given on or before the 54th month of the
original seven (7) year lease term, effective the 60th month of said term. As a
condition to exercising this right, Tenant shall pay to Landlord a cancellation
premium equivalent to the then unamortized Tenant Improvements, and the then
unamortized real estate commissions monies plus one (1) month's rent expended
by Landlord in connection with this Lease. For purposes hereof, the tenant
improvements and the real estate commissions payable in connection herewith
shall be deemed to be amortized over a seven (7) year period. The unamortized
portion shall be determined by multiplying the amount of the commissions and
tenant improvements by a fraction, the numerator of which is the number of
months remaining in the initial Lease term upon such termination, and the
denominator of which is the total number of months during the initial Lease
term. Said cancellation premium shall be due upon the date of Tenant's actual
vacation of the Premises or upon giving notice to Landlord on the 54th month of
the Lease term, effective the 60th month of said term. Prior to the
Commencement Date Lessor shall provide a statement of the costs of the Tenant
Improvements and real estate commissions incurred.
64. BUILDING ANTENNA/SATELLITE DISH(ES): Tenant shall have the
right, at its sole cost and expense, without rental or other charge, to use a
portion of the roof to install, operate and maintain telecommunications
antennas, microwave dishes and other communications equipment normal and
incident to its business operations per any applicable building or other codes.
Tenant shall remove any such equipment at end of term and restore the roof
and/or building to its original condition. Tenant shall also be responsible for
any maintenance required or damage resulting to the roof as a result of the
installation, operation and/or maintenance of such equipment.
65. MOVE OUT: Tenant shall thoroughly clean the Premises prior to move out.
66. CONFLICT BETWEEN LEASE AND ADDENDUM: If the terms
contained herein conflict with the terms of the Lease, the terms of this
Addendum shall control.
Lessor: Lessee:
SOLO CUP NETTER ENTERTAINMENT, INC. BV.
By:
Its: Its: Chief Operating Officer
Date: Date: November 22, 1996
MASTER LEASE AGREEMENT
Master Lease Agreement No.:30-00049
THIS MASTER LEASE AGREEMENT (the "Lease"), by and between LYON CREDIT
CORPORATION,. a corporation organized and existing under the laws of the State
of Delaware, with an office address at 1266 East Main Street, S@ord, Connecticut
06902-3546 (together with its assigns, if any, "Lessor") and Netter Digital
Entertainment, Inc. a corporation organized and existing under the laws of the
State of Delaware with its residence, mailing address and chief place of
business at 5125 Lankershim Blvd., North Hollywood, CA 91601 ("Lessee");
WITNESSETH
1. LEASING: Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee and Lessee agrees to lease from Lessor such unit or units of
equipment ("Equipment" and a unit thereof, an "Item" or "Item of Equipment")
described in any Schedule, now or hereafter from time to time executed by the
parties hereto (a "Schedule") and accepted in any Delivery and Acceptance
Certificate now or hereafter from time to time executed by Lessee (a
"Certificate"), each in the form set forth in Exhibit A hereto, any and all such
Schedules and Certificates being deemed a part hereof.
2. TERM AND RENT:
(a) The lease of, and rent for, Equipment shall commence on the day
specified in the Schedule pertaining thereto and shall continue for the period
specified as the "term" in said Schedule. ff any term be extended or renewed,
the word "term" as used herein shall be deemed to refer to all extended or
renewal terms, and all provisions of this Lease shall apply during any extended
or renewal terms, except as may be otherwise specifically provided in this Lease
or in any subsequent written agreement of the parties.
(b) Rent shall be paid to Lessor at its office address stated above, except
as otherwise directed by Lessor, and shall not be prorated for any cause or
reason except as herein specifically provided. Advance rental shall be due in
the specified amount upon acceptance by Lessor of each Schedule providing for
such rental. In no event shall any advance rental or any other rent payments be
refunded to Lessee. Lessor shall apply advance rentals received upon acceptance
of Schedules to the first rental payment for the Equipment to which such
Schedule applies, and the balance of the advance rental shall be applied to the
final rental payment or payments for said Equipment. Subsequent rent payments
shall be due periodically as specified in the applicable Schedule but if not
specified then periodically in advance on the same day and in the same months as
the subsequent rent payments are due under the Schedule with the earliest
commencement date, except that in the event any month in which a subsequent rent
payment is due does not contain a numbered day equal to said same day, rent
shall be paid on the last day of such month. ff any rent is not paid within ten
(10) days after due date, Lessee agrees to pay a late charge of five cents (5c)
per dollar on, and in addition to, the amount of such rent, but not exceeding
the lawful maximum, if any.
3. NET LEASE: The lease created pursuant to this Lease shall be a net lease, and
Lessee acknowledges and agrees that Lessee's obligation to lease Equipment for
the term and at the rent set forth herein shall be absolute and unconditional
and shall not be subject to any abatement, reduction, set-off, defense,
counterclaim or recoupment ("Abatements") for any reason whatsoever, including,
without limitation, Abatements due to any present or future claims of Lessee
against Lessor under this Lease or otherwise, against the manufacturer or seller
of any Item of Equipment, or against any other person or entity for whatever
reason. Except as otherwise expressly provided herein, this Lease shall not
terminate, nor shall the obligations of Lessee be affected, by reason of any
defect in or damage to, any defect in title to, or any loss or destruction of,
the Equipment or any Item thereof from whatsoever cause, or the interference
with the use thereof by Lessor or any person or entity, or the invalidity or
unenforceabihty or lack of due authorization of this Lease or lack of right,
power or authority of the Lessor to enter into this Lease, or any failure of
Lessor to perform any obligation of Lessor or Lessee or any other person or
entity under this Lease or any instrument or document executed in connection
herewith, or for any other cause, whether similar or dissimilar to the foregoing
any present or future law or regulation to the contrary notwithstanding, it
being the express intention of Lessor and Lessee that all rent payable by Lessee
shall be, and continue to be, payable in all events unless the obligation
to pay the same shall be terminated pursuant to the express provisions of this
Lease. Lessee hereby acknowledges:
(A) Lessee has selected all of the Equipment without Lessor's
assistance,
(B) Lessor is not, and shall in no event be deemed to be, a
manufacturer or supplier of Equipment,
(C) Lessor is acquiring or financing Equipment in connection with
this Lease; and
(D) to the extent available, Lessee has received a copy of the
purchase contract(s) relating to Equipment.
4. REPRESENTATIONS AND WARRANTIES: Lessee represents and warrants as of the date
of Lease that:
(i) Lessee is a corporation duly organized and validly existing in good
standing under the laws of its state of organization and has the
corporate power and authority to hold property under lease and to
enter into and perform its obligations under this Lease,
(ii) this Lease has been duly authorized, executed and delivered by Lessee
and, assuming due authorization, execution and delivery by Lessor, is
a legal, valid and binding obligation of Lessee, enforceable in
accordance with its terms except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally, and general
principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law,
(iii) the execution and delivery by Lessee of this Lease is not, and the
performance by it of its obligations hereunder will not be,
inconsistent with Lessee's certificate of incorporation or by-laws, do
not and will not contravene any law, goverrunental rule or regulation,
judgment or other applicable to Lessee, and do not and will not
contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which Lessee is a
party or by which it is bound,
(iv) no consent or approval of, giving of notice to, registration with, or
taking of any other action in respect to or by, any Federal, state or
local goverrunental authority or agency or other entity is required
with respect to the execution, delivery and performance by Lessee of
this Lease, or if any such approval, notice, registration or action is
required, it has been duly given or obtained,
(v) there are no suits or proceedings pending or threatened in court or
before any commission, board or other administrative agency against
or affecting Lessee, which will have a material adverse effect on the
ability of Lessee to fulfill its obligations under this Lease,
(vi) each financial statement and other related information furnished by
Lessee has been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent financial
statement, there has been no material adverse change, and
(vii) this Lease shall be effective against all creditors of Lessee under
applicable law, including fraudulent conveyance and bulk transfer
laws, and
(viii) Equipment will at all times be used solely in the conduct of the
business of Lessee and be and remain in the possession and control of
Lessee.
5. LIENS: Lessee shall keep items leased hereunder free and clear from all hens,
charges, encumbrances and security interests ("Liens") of any kind and except
for
(a) the respective rights of Lessor and Lessee as provided in this Lease,
(b) Liens which result from claims against Lessor arising solely out of any
event or condition unrelated to the transactions contemplated hereby
("Lessor's Liens"),
(c) Liens for Taxes (defined in paragraph 12 hereo@ either not yet due or
being contested by Lessee in good faith with due diligence and by
appropriate proceedings, so long as such proceedings do not, in the
opinion of Lessor, involve any material danger of sale, forfeiture or
loss of the Equipment or any part thereof or title thereto or interest
therein and
(d) inchoate materialmen's, mechanics', workmen's, repairmen's, employees',
carriers', warehousemen's or other like liens arising in the ordinary
course of business of Lessee and not delinquent and Lessee shall be
maintaining adequate reserves therefor. Lessor shall, at its own cost
and expense, promptly take such action as may be necessary to discharge
duly all Lessor's Liens.
6. USE AND OPERATION:
(a) Lessee shall not assign, sublet, mortgage, hypothecate or alter any of
the Equipment leased hereunder or any interest in this Lease, nor shall
Lessee remove any of the Equipment from the specified place of Equipment
location, without the prior written consent of Lessor, and any attempt to
so assign, sublet, mortgage, hypothecate, alter or remove shall
constitute an act of default hereunder and such assigrunent, sublease,
mortgage or hypothecation shall be void and without effect.
(b) Lessee will not, without the prior written consent of Lessor, affix or
install any accessory, equipment, or device on any Equipment leased
hereunder if such addition will impair the originally intended function
or use of any such Equipment. An additions, repairs, parts, supplies,
accessories, equipment and devices furnished, attached or affixed to any
Equipment shall thereupon become the property of Lessor (except such as
may be removed without in any way affecting or impairing the originally
intended function, condition or use of such unit). Lessee agrees that
each Item of Equipment shall prior to its installation be personal
property under applicable law. Lessee agrees to take such action as
shall be required from time to time by Lessor to protect the interests of
Lessor in each such Item and the right of Lessor to remove the same.
Lessee will not, without the prior written consent of Lessor and subject
to such conditions as Lessor may impose for its protection, affix or
install any Equipment leased hereunder to or in any other personal
property. Lessor and Lessee agree that each Item of Equipment and every
part thereof is severed from any real property and, even if physically
attached to any real property, it is the intention of Lessor and Lessee
that such Item
(i) shall retain the character of personal property,
(ii) shall be removable,
(iii) shall be treated as personal property with respect to the rights of
all persons and entities,
(iv) shall not become part of any real property and,
(v) by virtue of its nature as personal property, shall not be affected
in any way by any instrument dealing with any real property.
Lessee represents that it has not entered into, and agrees that it will not
enter into, any agreement or other arrangement which prohibits or restricts in
any manner the right of Lessor or Lessee to sever Items of Equipment from the
real property on which they are located, to sever Items of Equipment from any
other equipment or personal property to which such Items are attached or to
remove Items of Equipment from the place where they are then located.
7. MAINTENANCE AND SERVICE:
(a) Items of Equipment shall be used only in the manner for which they were
designed and intended and Lessee will at its sole expense at all times
maintain Equipment in good operating order, repair, condition and
appearance and keep Equipment protected from the elements, ordinary wear
and tear excepted. Lessee shall, if at any time requested to do so by
Lessor, affix in a prominent position on each Item of Equipment plates,
tags or other identifying labels showing the interest of Lessor in the
Equipment. Lessee will, at all times, operate and maintain each Item of
Equipment in accordance with
(i) the standards applied by Lessee with respect to similar equipment
owned or leased by it and
(ii) prudent operating and maintenance standards and manufacturer's
requirements. Lessee will not use or operate any Item of Equipment
in violation of applicable laws and regulations (including all
applicable envirorumental and occupational safety laws).
(b) Any alterations or modifications with respect to Equipment that may at
any time during the term of this Lease or any Schedule hereunder be
required to comply with any applicable law or any goverrunental rule or
regulation shall be made by Lessee as required and at the sole expense of
Lessee.
8. REPORTS:
(a) Lessee agrees that Lessor shall not be responsible for any loss or damage
to Lessee, its customers or any other third parties, caused by Equipment,
failure or defect of Equipment, or otherwise. Nevertheless, Lessee will
immediately notify Lessor of each accident arising out of the alleged or
apparent improper manufacturing, functioning or operation of any
Equipment, the time, place and nature of the accident and damage,
the names and addresses of parties involved, persons injured, witnesses
and owners of property damaged, and such other information as may be
known, and promptly advise Lessor of all correspondence, papers, notices
and documents whatsoever received by Lessee in connection with any claim
or demand involving or relating to improper manufacturing, operation or
functioning of any Equipment or charging Lessor with liability.
(b) Lessee will notify Lessor in writing within ten (10) days after any day
in which any Lien shall attach to any Equipment of the full particulars
thereof and of the then location of such Equipment on such day.
(c) Lessee will notify Lessor forthwith in writing of the location of any
Equipment moved by Lessee from the place where delivered to Lessee or
from the location specified in this Lease or any Schedule or any
subsequent agreement executed by the parties.
(d) Lessee will within 90 days of the close of each of its fiscal years
deliver to Lessor Lessee's balance sheet and profit and loss statement
prepared in accordance with generally accepted accounting principles and,
to the extent available, certified to by a recognized firm of certified
public accountants. Lessee will deliver to Lessor within 60 days of the
close of each of its fiscal quarters Lessee's quarterly financial report
(which shall be in reasonable detail) prepared in accordance with
generally accepted accounting principles and certified to by the chief
financial officer of Lessee.
(e) Lessee will permit Lessor to inspect and examine Equipment at such times
and from time to time during normal business hours as Lessor may wish
(and at such other times as may be mutually agreeable) and without any
requirement for advance notice, provided that such inspection and
examination shall not unreasonably interfere with Lessee's normal
business operations.
9. RISK OF LOSS:
(a) Lessee assumes and shall be solely responsible for the entire risk of use
and operation, and for each and every cause or hazard, and all loss and
damage to any and all Equipment, whether arising through operation or
otherwise. In the event of damage to any Item of Equipment, Lessee, at
its cost and expense, shall promptly repair the Item, restoring it to its
previous condition and the condition in which it was required to be
assuming Lessee had met all its obligations for maintenance of the
Equipment. Upon the occurrence of an Event of Loss (defined below) with
respect to any Item, Lessee shall pay to Lessor with respect thereto the
sum of
(a) all rent and amounts theretofore accruing and unpaid
thereon, plus
(b) the present value of the total rental and other amounts
payable thereon for and with respect to the unexpired
portion of the term of the Lease, plus
(c) the reversionary value thereof, which value shall be an
amount equal to ten (10%) per cent of the total cost
originally paid by Lessor for the Equipment or Item
involved.
In the event a Stipulated Loss Value appendix shall be applicable to the
Equipment or Item which has suffered a total loss, destruction, theft or
damage beyond repair, then Lessee shall, instead of the amount required
by part (b) of this sentence, pay to Lessor the value of the Equipment or
Item involved calculated in accordance with such appendix on the Loss
Payment Date specified therein next following such Event of Loss. Upon
payment by the Lessee in accordance with the provisions of this paragraph
and payment of the amounts, if any, necessary to satisfy Lessee's
obligations pursuant to paragraph 12 hereof with respect to the Equipment
or Item involved, this Lease with respect thereto shall terminate. For
the purposes hereof, the "present value" of the total rental and other
amounts payable for the unexpired portion of the Lease term shall be
computed for the period commencing the date of such payment and ending on
the scheduled expiration date of the Lease with respect to the Equipment
or Item involved at one-half (1/2) of the prime lending rate in effect on
the date of payment by Lessee to Lessor for short-term commercial
borrowing at [The Chase Manhattan Bank] in New York City for its most
credit-worthy customers. Provided Lessee is not in breach or default of
this Lease, any proceeds of insurance received by Lessor with respect to
any such loss shall be paid to Lessee to the extent necessary to
reimburse Lessee costs incurred and paid by Lessee in repairing damaged
Equipment or as a credit against total amount payable by Lessee with
respect to the Equipment involved, as the case may be, all as in this
Lease provided.
(b) For the purposes hereof "Event of Loss" shall mean, with respect to any
Item of Equipment, if such Item is
(a) destroyed, condemned, irreparably damaged or damaged
beyond economic repair,
(b) requisitioned for use by a governmental entity for an
indefinite period or stated period extending beyond a
period in excess of 90 days or the end of the Lease term
without any applicable renewal term, whichever is
earlier,
(c) the subject of an insurance settlement with respect to
such Item of Equipment on the basis of a constructive
total loss,
(d) stolen or lost and not recovered within thirty (30) days,
(e) the subject of a condensation or requisition of title by
a governmental entity or
(f) prohibited by applicable law from being used by Lessee
for a period of six consecutive months.
10. INSURANCE: Lessee, at its own cost and expense shall obtain, maintain and
shall keep the Equipment insured against all risks of loss or damage from every
cause whatsoever in an amount not less than the greater of actual cash value or
the aggregate amount of all unpaid rentals as at any time for the then entire
unexpired portion of the term of this Lease, without deductible and without
co-insurance. Lessee shall also obtain and maintain for the term of this Lease
public liability insurance covering liability for bodily injury, including
death, and property damage resulting from the purchase, ownership, leasing,
maintenance, use, operation or return of the Equipment in an amount of at least
$1,000,000 [with respect to each separate Schedule hereto], or in such greater
amounts as Lessor may from time to time require. Lessor shall be the sole named
loss-payee with respect to damage or loss to the Equipment and shall be a named
additional insured on the public liability insurance. All insurance shall be
with insurers and in form satisfactory to Lessor; shall provide for at least
(30) days' advance written notice to Lessor before any cancellation or material
modification thereof; shall waive any claim for premium against Lessor; and
shall not be invalidated or the insurer's liability to or for or on behalf of
Lessor be diminished or affected by any breach of warranty or representation or
other act or ontission of the Lessee. Lessee shall deliver to Lessor the
original policy or policies of insurance, certificates of insurance or other
evidence satisfactory to Lessor evidencing the insurance required hereby along
with proof satisfactory to Lessor of the payment of the premium therefor.
Lessor may, at its option, apply proceeds of insurance, in whole or in part, to
(i) repair or replace Equipment or any portion thereof, or
(ii) satisfy any obligation of Lessee to Lessor hereunder.
11. ACCEPTANCE AND RETURN OF EQUIPMENT: Lessee warrants and agrees that, upon
execution and delivery by Lessee of any Certificate evidencing acceptance of
Items of Equipment, such Items shall be subject to the terms and conditions of
this Lease. Upon termination of this Lease by expiration of the term thereof or
upon termination for any other cause, Lessee will, at its own cost and expense,
promptly return Equipment to Lessor at an address specified by Lessor, in the
same condition as received, reasonable wear and tear expected. Lessee will pay
for any repairs required to place Equipment in such condition. Lessee shall
without unreasonable delay cause Equipment to be assembled, crated and delivered
to Lessor at such location as Lessor shall direct, all at Lessee's expense. In
the event Lessee shall not surrender up and redeliver the Equipment to Lessor as
herein required, the term of the Lease with respect to such Equipment shall
continue on a month-to-month basis terminable by Lessor upon thirty (30) days'
advance written notice at a rent per month equal to the highest monthly rent for
the Equipment payable during the Lease term.
12. INDEMNIFICATIONS:
(a) Lessee shall have no liability whatsoever for taxes imposed by the
United States of America or any state or political subdivision thereof
which are on or measured by the net income of Lessor. Lessee shall
report and pay promptly any and all other taxes, fees and assessments
due, assessed or levied against Equipment or the purchase, ownership,
delivery, leasing, possession, use or operation thereof or upon the
rentals or receipts with respect to this Lease and/or any Schedule
hereto, including without limitation, all license and registration fees
and all sales, use, personal property, excise, gross receipts,
franchise, stamp or other taxes, imposts, duties and charges, together
with any penalties, fines or interest thereon, imposed against this
Lease, any Schedules hereto, Lessor, Lessee or any Equipment by any
foreign, Federal, state, or local government or taxing authority during
or relating to the Lease term (collectively, "Taxes"), and in addition,
Lessee shall reimburse Lessor or its assigns upon receipt of written
request for reimbursement for any Taxes charged to or assessed against
Lessor or its assigns, and Lessee win, on request of Lessor, submit to
Lessor written evidence of Lessee's payment thereof. Unless and until
Lessor shall elect itself to file or make any report or return with
respect to any Tax, Lessee, to the extent possible, will make such
report or return in such manner as will show the interest of Lessor in
the Equipment, and send a copy thereof to Lessor.
(b) Lessee hereby agrees to indemnify, save and keep harmless Lessor, its
agents, employees, successors and assigns, from and against any and all
losses, damages (including indirect, special or consequential), penalties,
injuries, claims, actions and suits including legal expenses, of whatsoever
kind and nature (including costs and expenses incurred by Lessor in
defending claims or suits brought against it by Lessee in violation of or
contrary to the provisions of this Lease), in contract or tort, whether caused
by the active or passive negligence of Lessor, or otherwise, and including, but
in no way limited to, Lessor's strict liability in tort, and Lessee shall at
its own expense defend any and all such actions, arising out of the selection,
modification, purchase, acceptance or rejection of any Item of Equipment, the
ownership of any Item of Equipment during the term of the Lease, and the
delivery, lease, possession, maintenance, use, condition (including, without
limitation, latent and other defects, whether or not discoverable by Lessor or
Lessee, and any claim for patent, trademark or copyright infringement), return
of, or operation of any Item of Equipment by whomsoever used or operated or
arising out of or resulting from the condition of any Item of Equipment sold or
disposed of after use by Lessee, any sublessee or employees of Lessee. The
indemnities and assumptions of liability herein provided for shall continue in
full force and effect notwithstanding the termination of this Lease whether by
expiration of time, operation or law or otherwise. LESSEE AGREES THAT LESSOR
SHALL NOT BE LIABLE TO LESSEE FOR ANY CLAIM CAUSED DIRECTLY OR INDIRECTLY BY THE
INADEQUACY OF ANY ITEM OF EQUIPMENT FOR ANY PURPOSE OR ANY DEFICIENCY OR DEFECT
THEREIN OR THE USE OR MAINTENANCE THEREOF OR ANY REPAIRS, SERVICING OR
ADJUSTMENTS THERETO OR ANY DELAY IN PROVIDING OR FAILURE TO PROVIDE ANY THEREOF
OR ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF OR ANY LOSS OF BUSINESS,
ALL OF WHICH SHALL BE THE RISK AND RESPONSIBILITY OF LESSEE.
13. DEFAULT; REMEDIES: If
(a) Lessee shall default in the payment of any rent or in making any other
payment hereunder when due, or
(b) Lessee shall default in the payment when due of any obligations of
Lessee, whether or not to Lessor, arising independently of this Lease,
or
(c) Lessee shall default in the performance of any other covenant contained
herein (including any Schedule hereto or Certificate in respect hereof
and any document entered into in connection with @ Lease) and such
default shall continue for five (5) days after written notice thereof to
Lessee by Lessor, or
(d) Lessee shall breach any of its insurance obligations under paragraph 10
hereof, or
(e) any representation or warranty made by Lessee in this Lease or any other
documents entered into in connection with this Lease shall prove to be
incorrect in any material respect when any such representation or
warranty was made or given, or
(f) Lessee shall become insolvent or make an assignment for the benefit of
creditors, or
(g) Lessee shall apply for or consent to the appointment of a receiver,
trustee or liquidator for a substantial part of its property or such
receiver, trustee or liquidator is appointed without the application or
consent of Lessee, or
(h) a petition shall be filed by or against Lessee under the Federal
bankruptcy laws (including, without limitation, a petition for
reorganization, arrangement or extension) or under any other insolvency
law or law providing for the relief of debtors, or
(i) Lessor shall deem the Equipment or rentals insecure, or
(j) there is, without the prior consent of Lessor, a change in control
(defined to be a change in the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of Lessee, whether through the ownership of voting securities,
by contract or otherwise); or
(k) there is a material adverse change (defined to be a decrease of at least
one-third (1/3) of net worth, as determined in accordance with generally
accepted accounting principles) in any guarantor's financial condition;
then, to the extent permitted by applicable law, Lessor shall have the
right to exercise any one or more of the following remedies one or more
times:
(A) declare this Lease in default, such declaration being applicable
to an Schedules hereunder except as specifically excepted by
Lessor;
(B) declare the entire amount of unpaid total rent for the balance
of the term of each Schedule hereunder due and payable, in
addition to any unpaid rent due on or before Lessor declares
this Lease in default;
(C) declare due and payable in addition to any unpaid rent due on or
before Lessor declaring this Lease in default, as liquidated
damages for loss of a bargain and not as a penalty, an amount
calculated in accordance with the provisions of paragraph 9 as
though the Equipment had suffered an Event of Loss, as of the
date of Lessor declaring this Lease in default;
(D) declare due and payable the amount of any indenu-dfication
hereunder if then determinable, with interest as provided
herein;
(E) without demand or legal process enter into premises where the
Equipment may be found and take possession of and remove the
same, whereupon all rights of Lessee in the Equipment shall
terminate absolutely, and
(i) retain all prior payments of rent and sell the
Equipment at public or private sale, with or without
notice to Lessee, with or without having the
Equipment at the sale, at which sale Lessor may
purchase all or any of the Equipment, the proceeds
of such sale, less expenses of retaking, storage,
repairing and reselling, and reasonable attorneys'
fees incurred by Lessor, to be applied to the
payment of the unpaid total rent for the balance of
the term of this Lease, Lessee remaining liable for
the balance of said unpaid total rent, and any
surplus thereafter remaining to be for the account
of Lessee or
(ii) retain the Equipment and all prior payments of rent,
crediting Lessee with the reasonable value of the
Equipment, Lessee remaining liable for the balance
of the unpaid total rent for the balance of the term
of this Lease, together with all of the
abovementioned expenses, including reasonable
attorneys'fees incurred by Lessor, it being agreed
that the amounts to be retained by Lessor and the
balance to be paid by Lessee under this sub-section
(E) shall not be as a penalty but as liquidated
damages for the breach hereof and as reasonable
return for the use of the Equipment and for the
depreciation thereof;
(F) pursue any other remedy available to Lessor at law or in equity.
Lessee hereby covenants and agrees to notify Lessor immediately
of the occurrence of any default specified in this paragraph.
14. REMEDIES CUMULATIVE: Time of performance of Lessee's obligations hereunder
is of the essence. AU remedies of Lessor hereunder are cumulative, and may, to
the extent permitted by law, be exercised concurrently or separately, and the
exercise of any one remedy shall not be deemed to be an election of such remedy
to the exclusion of any other remedy or to preclude the exercise of any other
remedy at any other time. Failure on the part of the Lessor to exercise, or
delay in exercising, any right or remedy hereunder or Ussor's failure at any
time to restrict performance by Lessee of any of the provisions hereof shall not
operate as a waiver thereof; nor shall any single or partial exercise by Lessor
of any right or remedy hereunder preclude any other further exercise thereof or
the exercise of any other right or remedy.
15. ASSIGNMENT: Lessee acknowledges and understands that Lessor may assign this
Lease or any Schedule or Certificate or part thereof to a bank or any other
lending institution or any other person, organization or agency, and Lessee
shall
(a) recognize any such assignment,
(b) accept the lawful demands of such assignee,
(c) surrender assigned Equipment only to such assignee,
(d) pay all rent payable hereunder and do any and all things required of
Lessee hereunder, notwithstanding any default of the Lessor or the
existence of any claim, defense or offset between Lessee and Lessor, and
(e) not require any assignee of the Lease to perform any duty, covenant or
condition required to be performed by Lessor under the terms of this
Lease provided that Lessor shall remain liable for such performance.
16. DISCLAIMER: LESSEE AGREES TO LEASE EACH ITEM OF EQUIPMENT "AS IS". LESSOR
SHALL NOT BE DEEMED TO HAVE MADE, AND LESSOR HEREBY DISCLAIMS ANY REPRESENTATION
OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, WITH RESPECT TO EQUIPMENT. LESSEE
UNDERSTANDS AND AGREES THAT NO WARRANTY IS TO BE IMPLIED WITH RESPECT TO THE
CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY, THE FITNESS OF THE EQUIPMENT
FOR A PARTICULAR PURPOSE, OR WITH RESPECT TO INFRINGEMENT OR THE LIKE, THE
QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT OR CONFORMITY OF THE
EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE ORDER OR ORDERS
RELATING THERETO NOR SHALL LESSOR BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING STRICT OR ABSOLUTE LIABILITY IN TORT), but Lessor authorizes
Lessee, at Lessee's expense, to assert for Lessor's account, during the term of
this Lease, so long as no default shall have occurred and be continuing pursuant
to paragraph 13 hereof, all of Lessor's rights under any applicable
manufacturer's or seller's warranty and Lessor agrees to cooperate with Lessee
in asserting such rights, provided, however, that Lessee shall indemnify Lessor
and hold Lessor harmless from and against any and all claims, and all costs,
expenses, damages, losses and liabilities incurred or suffered by Lessor in
connection with, as a result of, or incidental to, any action by Lessee pursuant
to the above authorization. Any amount received by Lessee as payment under any
such warranty shall be applied to restore the Equipment to the condition
required by paragraph 7 hereof. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
LESSEE WAIVES ANY AND ALL RIGHTS AND REMEDIES CONFERRED UPON A LESSEE BY ARTICLE
2A OF THE UNIFORM COMMERCIAL CODE AND ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE THAT MAY LIMIT OR MODIFY LESSOR'S RIGHTS AS DESCRIBED IN
THIS PARAGRAPH OR OTHER PARAGRAPHS OF THIS LEASE.
17. FILINGS: Lessee hereby grants to Lessor a first security interest in the
Equipment, together with all additions, attachments, accessories and accessions
thereto whether or not furnished by the supplier of the Equipment and any and
all substitutions, replacements or exchanges thereto, and any and all insurance
and/or other proceeds of the property in and against which a security interest
is granted hereunder. Lessee agrees to execute any instrument or instruments
necessary or expedient for filing, recording, perfecting, or no@g of the
interest of Lessor upon request of, and as determined by, Lessor. Lessee hereby
specifically authorizes Lessor to file financing statements not signed by Lessee
or to execute same for and on behalf of Lessee as Lessee's attomey-in-fact,
irrevocably and coupled with an interest, for such purposes. A carbon,
photographic or other reproduction of a Lease, security agreement or a financing
statement shall be sufficient as a financing statement for filing purposes.
18. MISCELLANEOUS:
(a) In case of failure of Lessee to comply with any provision of this Lease,
Lessor shall have the right, but shall not be obligated, to effect such
compliance in whole or in part, and all moneys spent and expenses and
obligations incurred or assumed by Lessor in effecting such compliance
(including but not limited to, attorneys' fee and costs incurred in
attempting to effect compliance against Lessee and/or others) shall
constitute additional rent due to Lessor five (5) days after the date
Lessor sends notice to Lessee requesting payment. Lessor's effecting
such compliance shall not be waiver of Lessee's default. Interest on
any payments made by Lessor hereunder or amounts due after Lessor
declares default under paragraph 13 and interest on any overdue
payment under paragraph 12 shall be at the rate of 15% per annum but not
to exceed the maximum lawful rate. Any provisions in this Lease and any
Schedule hereto or Certificate in respect hereof which are in conflict
with any statute, law or rule applicable shall be deemed omitted,
modified or altered to conform thereto.
(b) If any provision of this Lease shall contravene or be invalid under
applicable law or regulation (including Federal law and regulation),
such contravention or invalidity shall not affect the entire Lease, the
provisions held to be invalid to be deemed deleted or modified and the
Lease interpreted and construed as though such invalid provision or
provisions were not part hereof or conformed thereto.
(c) Lessor may give notice to Lessee or make a request of Lessee by
depositing such notice or request in the U.S. mail, first class postage
prepaid, addressed to the Lessee at its address above, an address
furnished by Lessee to Lessor, a mailing address of Lessee or a place of
business of Lessee. All notices required to be given by Lessee
hereunder shall be deemed adequately given if sent by registered or
certified mail to Lessor at the address of Lessor stated herein, or at
such other place as Lessor may designate to Lessee in writing.
(d) This Lease, any addendum hereto attached and signed by the parties, any
supplement now or hereafter signed by the parties, any Schedule hereto
and any Certificate in respect hereof constitute the entire agreement of
the parties with respect to the subject matter hereof. No agent or
employee of any supplier or manufacturer is authorized to bind Lessor to
this Lease, or any Schedule, or any Certificate, or to waive, alter or
add to the terms and conditions printed herein and in any Schedule or
any Certificate. THIS LEASE, ANY VARIATION OR MODIFICATION OF THIS
LEASE, ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS AND ALL
SCHEDULES SHALL NOT BE VALID UNLESS IN WRITING AND SIGNED BY AN
AUTHORIZED OFFICER OR MANAGER OF LESSOR.
(e) LESSEE WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING
HEREFROM OR IN RELATION HERETO.
(f) THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF CONNECTICUT.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the 7th
day of August, 1997.
Netter Digital Entertainment, Inc.
as Lessee
By,/s/Thomas Jorgenson
Affix Corporate Seal here ------------------------------
Name: Thomas Jorgenson
Title: Chief Operating Officer
Attest/Witness
By:/s/Chad Kalebic
------------------------------
Name: Chad Kalebic
Title: Corporate Controller/Asst. Secretary
LYON CREDIT CORPORATION,
as Lessor
By:
---------------------------
Name:
-------------------------
Title:
------------------------
SCHEDULE TO MASTER LEASE AGREEMENT
Exhibit A to
Master Lease Agreement No.: 30-00049
Master Lease Agreement Date: August 7, 1997
Schedule No.:0210-001
Schedule Date: August 7, 1997
Name and Address of Lessee:
Netter Digital Entertainment, Inc.
5125 Lankershim Blvd.
North Hollywood, CA 91601
Description of Items of Equipment: See Schedule 'A" attached hereto and made
a part hereof.
Lessor's Cost of Items of Equipment: $48,760.32
Equipment to be located at:
5125 Lankershim Blvd
North Hollywood, CA 91601
Commencement date of Lease: _______________, 1997
Term of Lease Schedule: Thirty Six (36) months
Rent payments will be due in advance commencing __________ 1997 and subsequently
on the same date of each month.
A. Total Rent (excluding taxes)........ $56,470.32
B. Rent per (month, quarter, etc.)..... $ 1,568.62
C. Advance rental...................... $ 1,568.62
D. Security deposit, (if applicable) N/A
All of the terms and provisions of the Lease are hereby incorporated by
reference in this Schedule to the same extent as if fully set forth herein.
Lessee and Lessor hereby agree to be bound by the terms and provisions of,
and hereby make, as if made as of the date hereof, the representations and
warranties contained in the Lease as each relates to the Lease created hereby.
Lessee hereby irrevocably authorizes Lessor to insert (as provided above) in
this Schedule the commencement date of the Lease and the due date of the first
rental payment. Lessee and Lessor hereby agree that upon delivery of the Items
of Equipment described herein, Lessee will cause an authorized representative of
Lessee to inspect the Items and, if the Items are found to be in proper
operating order and appearance conforming to the specifications and requirements
of Lessee, such Items will be subjected to the terms of the Lease by Lessee's
acceptance of such Items by execution and delivery of a Delivery and Acceptance
Certificate in the form annexed hereto as Appendix 1.
Additional Provisions:
Security Deposit applicable? NO
Include if applicable:
Security deposit shall be due in the amount specified above upon the
execution and delivery of this Schedule. Security deposit shall be security for
the full payment and performance of all terms, conditions, and obligations of
the hereunder and under Master Lease Agreement No. 30-00049. Such deposit shall
not excuse the performance at the time and in the manner prescribed of any
obligation of Lessee or prevent default thereof. Lessor may, but shall not be
required to, apply such security deposit towards discharge of any overdue
obligation of Lessee. The balance, if any, of that portion of the security
deposit received by Lessor, provided that Lessee has fully complied with and
performed all its obligations under Master Lease Agreement No. 30-00049, this
Schedule and any Delivery and Acceptance Certificate applicable hereto and
Lessee is not and has not been in default thereunder or hereunder, shall be
refunded to Lessee upon expiration of the Lease term, including any applicable
renewal term.
Purchase option applicable? YES
Include if applicable:
Provided that the Lease has not been terminated and that no default has
occurred and is continuing under the Lease, Lessee shall have the option to
purchase, at the expiration of the term of the Lease provided above, upon not
less than 180 days prior irrevocable notice to Lessor, all, but not less than
all, of Lessor's right, title and interest in the Equipment then subject to the
Lease for a purchase price equal to $1.00.
Purchase Agreement Applicable? NO
Provided that the Lease has not been terminated, and that no default has
occured and is continuing under the Lease, Lessee must purchase, at the
expiration of the term of the Lease provided above, all, but not less than all,
of the Equipment then subject to the Lease for a purchase price equal to $
Renewal term applicable? NO
Include if applicable:
If Lessee shall not elect to purchase the Equipment pursuant to any
applicable purchase option set forth above, the Lease has not been terminated
and no default has occurred and is continuing under the Lease, Lessee may, upon
not less than 90 days irrevocable notice prior to, renew the Lease for a renewal
term from MONTH through MONTHLY and at the renewal rent of 0 due Jul in advance,
commencing MONTH, 19 and subsequently on the same date of each 28. Further, at
the expiration of the renewal term of the Lease provided for in the immediately
preceding sentence upon not less than 180 days prior irrevocable notice to
Lessor and provided that the Lease has not been terminated and that no default
has occurred and is continuing under the Lease, Lessee shall have the option to
purchase all, but not less than all, of Lessor's right, title and interest in
the Equipment then subject to the Lease for a purchase price equal to 0
Stipulated Loss Value Appendix applicable? YES
Include if applicable:
This Schedule has, as a part thereof, the Stipulated Loss Value Appendix 2
annexed hereto or otherwise identified as a part hereof or applicable hereto.
Amendment to Lease applicable? NO
Include if applicable:
Lessee and Lessor hereby amend the terms of the Lease as follows:
SCHEDULE TO MASTER LEASE AGREEMENT
Exhibit A to
Master Lease Agrpement No.: 30-00049
Master Lease Agreement Date: August 7, 1997
Schedule No.:0210-002
Schedule Date: August 7, 1997
Name and Address of Lessee:
Netter Digital Entertainment, Inc.
5125 Lankershim Blvd
North Hollywood, CA 91601
Description of Items of Equipment- See Schedule "A" attached hereto and made a
part hereof.
Lessor's Cost of Items of Equipment:....... $34,762.59
Equipment to be located at:
5125 Lankershim Blvd.
North Hollywood, CA 91601
Commencement date of Lease:......____________, 1997
Term of Lease Schedule: Forty Eight (48) months
Rent payments will be due in advance commencing___________, 1997 and
subsequently on the same date of each month.
A. Total rent (excluding taxes)......... $ 42,399.36
B. Rent per (month, quarter, etc.)...... $883.32
C. Advance rental....................... $883.32
D. Security deposit, (if applicable).... N/A
All of the terms and provisions of the Lease are hereby incorporated by
reference in this Schedule to the same extent as if fully set forth herein.
Lessee and Lessor hereby agree to be bound by the terms and provisions of, and
hereby make, as if made as of the date hereof, the representations and
warranties contained in the Lease as each relates to the Lease created hereby.
Lessee hereby irrevocably authorizes Lessor to insert (as provided above) in
this Schedule the commencement date of the Lease and the due date of the first
rental payment. Lessee and Lessor hereby agree that upon delivery of the Items
of Equipment described herein, Lessee will cause an authorized representative of
Lessee to inspect the Items and, if the Items are found to be in proper
operating order and appearance conforming to the specifications and requirements
of Lessee, such Items will be subjected to the terms of the Lease by Lessee's
acceptance of such Items by execution and delivery of a Delivery and Acceptance
Certificate in the form annexed hereto as Appendix 1.
Additional Provisions:
Security Deposit applicable? NO
Include if applicable:
Security deposit shall be due in the amount specified above upon the
execution and delivery of this Schedule. Security deposit shall be security for
the full payment and performance of all terms, conditions, and obligations of
the Lessee hereunder and under Master Lease Agreement No. 30-00049. Such
deposit shall not excuse the performance at the time and in the manner
prescribed of any obligation of Lessee or prevent default thereof. Lessor may,
but shall not be required to, apply such security deposit towards discharge of
any overdue obligation of Lessee. The balance, if any, of that portion of the
security deposit received by Lessor, provided that Lessee has fully complied
with and performed all its obligations under Master Lease Agreement No.
30-00049, this Schedule and any Delivery and Acceptance Certificate applicable
hereto and Lessee is not and has not been in default thereunder or hereunder,
shall be refunded to Lessee upon expiration of the Lease term, including any
applicable renewal term.
Purchase option applicable? YES
Include ff applicable:
Provided that the Lease has not been terminated and that no default has
occurred and is continuing under the Lease, Lessee shall have the option to
purchase, at the expiration of the term of the Lease provided above, upon not
less than 180 days prior irrevocable notice to Lessor, all, but not less than
all, of Lessor's right, title and interest in the Equipment then subject to the
Lease for a purchase price equal to $1.00.
Purchase Agreement Applicable? NO
Provided that the Lease has not been terminated, and that no default has
occured and is continuing under the Lease, Lessee must purchase, at the
expiration of the term of the Lease provided above, all, but not less than all,
of the Equipment then subject to the Lease for a purchase price equal to $
Renewal term applicable? NO
Include if applicable:
If Lessee shall not elect to purchase the Equipment pursuant to any
applicable purchase option set forth above, the Lease has not been terminated
and no default has occurred and is continuing under the Lease, Lessee may, upon
not less than 90 days irrevocable notice prior to, renew the Lease for a renewal
term from MONTH through MONTHLY and at the renewal rent of 0 due Jul in advance,
commencing MONTH, 19 and subsequently on the same date of each 28. Further, at
the expiration of the renewal term of the Lease provided for in the immediately
preceding sentence upon not less than 180 days prior irrevocable notice to
Lessor and provided that the Lease has not been terminated and that no default
has occurred and is continuing under the Lease, Lessee shall have the option
to purchase all, but not less than all, of Lessor's right, title and interest in
the Equipment then subject to the Lease for a purchase price equal to 0
Stipulated Loss Value Appendix applicable? YES
Include if applicable:
This Schedule has, as a part thereof, the Stipulated Loss Value Appendix 2
annexed hereto or otherwise identified as a part hereof or applicable hereto.
Amendment to Lease applicable? NO
Include if applicable:
Lessee and Lessor hereby amend the terms of the Lease as follows:
SCHEDULE TO MASTER LEASE AGREEMENT
Exhibit A to
Master Lease Agreement No.:30-00049
Master Lease Agreement Date: August 7,1997
Schedule No.:0210-003
Schedule Date: September 18, 1997
Name and Address of Lessee:
Netter Digital Entertainment, Inc.
5125 Lankershiin Blvd.
North Hollywood, CA 91601
Description of Items of Equipment See Schedule "A" attached hereto and made a
part hereof.
Lessor's Cost of Items of Equipment......... $106,885.04
Equipment to be located at
5125 Lankershiin Blvd
North Hollywood, CA 91601
Commencement date of Lease:....... August 7,1997
Term of Lease Schedule: Thirty Six (36) months
Rent payments will be due in advance commencing 1997 and subsequently on the
same date of each month.
A. Total Rent (excluding taxes).......... $123,939.72
B. Rent per (month, quarter, etc.)....... $ 3,442.77
C. Advance rental........................ $ 3,442.77
D. Security deposit, (if applicable)..... N/A
All of the terms and provisions of the Lease are hereby incorporated by
reference in this Schedule to the same extent as if fully set forth herein.
Lessee and Lessor hereby agree to be bound by the terms and provisions of, and
hereby make, as if made as of the date hereof, the representations and
warranties contained in the Lease as each relates to the Lease created hereby.
Lessee hereby irrevocably authorizes Lessor to insert (as provided above) in
this Schedule the commencement date of the Lease and the due date of the first
rental payment. Lessee and Lessor hereby agree that upon delivery of the Items
of Equipment described herein, Lessee will cause an authorized representative of
Lessee to inspect the Items and, if the Items are found to be in proper
operating order and appearance conforming to the specifications and requirements
of Lessee, such Items will be subjected to the terms of the Lease by Lessee's
acceptance of such Items by execution and delivery of a Delivery and Acceptance
Certificate in the form annexed hereto as Appendix 1.
Additional Provisions:
Security Deposit applicable? NO
Include if applicable:
Security deposit shall be due in the amount specified above upon the
execution and delivery of this Schedule. Security deposit shall be security for
the full payment and performance of all terms, conditions, and obligations of
the Lessee hereunder and under Master Lease Agreement No. 30-00049. Such
deposit shall not excuse the performance at the time and in the manner
prescribed of any obligation of Lessee or prevent default thereof. Lessor may,
but shall not be required to, apply such security deposit towards discharge of
any overdue obligation of Lessee. The balance, if any, of that portion of the
security deposit received by Lessor, provided that Lessee has fully complied
with and performed all its obligations under Master Lease Agreement No.
30-00049, this Schedule and any Delivery and Acceptance Certificate applicable
hereto and Lessee is not and has not been in default thereunder or hereunder,
shall be refunded to Lessee upon expiration of the Lease term, including any
applicable renewal term.
Purchase option applicable? YES
Include if applicable:
Provided that the Lease has not been terminated and that no default has
occurred and is continuing under the Lease, Lessee shall have the option to
purchase, at the expiration of the term of the Lease provided above, upon not
less than 180 days prior irrevocable notice to Lessor, all but not less than
all, of Lessor's right, title and interest in the Equipment then subject to the
Lease for a purchase price equal to $1.00.
Purchase Agreement Applicable? NO
Provided that the Lease has not been terniinabed, and that no default has
occured and is continuing under the Lease, must purchase, at the expiration of
the term of the Lease provided above, all, but not less than all, of the
Equipment then subject to the Lease for a purchase price equal to $
Renewal term applicable? NO
Include if applicable:
If Lessee shall not elect to purchase the Equipment pursuant to any
applicable purchase option set forth above, the Lease has not been terminated
and no default has occurred and is continuing under the Lease, Lessee may, upon
not less than 90 days irrevocable notice prior to, renew the Lease for a renewal
term from MONTH through MONTHLY and at the renewal rent of 0 due Jul in advance,
commencing MONTH, 19 and subsequently on the same date of each 28. Further, at
the expiration of the renewal term of the Lease provided for in the immediately
preceding sentence upon not less than 180 days prior irrevocable notice to
Lessor and provided that the Lease has not been terminated and that no default
has occurred and is continuing under the Lease, Lessee shall have the option to
purchase all, but not less than all, of Lessor's right, title and interest in
the Equipment then subject to the Lease for a purchase price equal to 0
Stipulated Loss Value Appendix applicable? YES
Include if applicable:
This Schedule has, as a part thereof, the Stipulated Loss Value Appendix 2
annexed hereto or otherwise identified as a part hereof or applicable hereto.
Amendment to Lease applicable? NO
Include if applicable:
Lessee and Lessor hereby amend the terms of the Lease as follows:
SCHEDULE TO MASTER LEASE AGREEMENT
Exhibit A to
Master Lease Agreement No.: 30-00049
Master Lease Agreement Date: August 7,1997
Schedule No.:0210-004
Schedule Date: September 18, 1997
Name and Address of Lessee:
Netter Digital Entertainment, Inc.
5125 Lankershim Blvd.
North Hollywood, CA 91601
Description of Items of Equipment- See Schedule "A" attached hereto and made a
part hereof.
Lessor's Cost of Items of Equipment:....... $119,121.26
Equipment to be located at:
5125 Lankershim Blvd.
North Hollywood, CA 91601
Commencement date of Lease:........ August 7,1997
Term of Lease Schedule: Forty Eight (48) months
Rent payments will be due in advance commencing __________ 1997 and subsequently
on the same date of each month.
A. Total rent (excluding taxes)....... $145,632.96
B. Rent per (month, quarter, etc.).... $3,034.02
C. Advance rental..................... $3,034.02
D. Security deposit, (if applicable).. N/A
All of the terms and provisions of the Lease are hereby incorporated by
reference in this Schedule to the same extent as if fully set forth herein.
Lessee and Lessor hereby agree to be bound by the terms and provisions of, and
hereby make, as if made as of the date hereof, the representations and
warranties contained in the Lease as each relates to the Lease created hereby.
Lessee hereby irrevocably authorizes Lessor to insert (as provided above) in
this Schedule the commencement date of the Lease and the due date of the first
rental payment. Lessee and Lessor hereby agree that upon delivery of the Items
of Equipment described herein, Lessee will cause an authorized representative of
Lessee to inspect the Items and, if the Items are found to be in proper
operating order and appearance conforming to the specifications and requirements
of Lessee, such Items will be subjected to the terms of the Lease by Lessee's
acceptance of such Items by execution and delivery of a Delivery and Acceptance
Certificate in the form annexed hereto as Appendix 1.
Additional Provisions:
Security Deposit applicable? NO
Include if applicable:
Security deposit shall be due in the amount specified above upon the
execution and delivery of this Schedule. Security deposit shall be security for
the full payment and performance of all terms, conditions, and obligations of
the Lessee hereunder and under Master Lease Agreement No. 30-00049. Such
deposit shall not excuse the performance at the time and in the manner
prescribed of any obligation of Lessee or prevent default thereof. Lessor
may, but shall not be required to, apply such security deposit towards discharge
of any overdue obligation of Lessee. The balance, if any, of that portion of
the security deposit received by Lessor, provided that Lessee has fully complied
with and performed all its obligations under Master Lease Agreement No.
30-00049, this Schedule and any Delivery and Acceptance Certificate applicable
hereto and Lessee is not and has not been in default thereunder or hereunder,
shall be refunded to Lessee upon expiration of the Lease term, including any
applicable renewal term.
Purchase option applicable? YES
Include if applicable:
Provided that the Lease has not been terminated and that no default has
occurred and is continuing under the Lease, Lessee shall have the option to
purchase, at the expiration of the term of the Lease provided above, upon not
less than 180 days prior irrevocable notice to Lessor, all, but not less than
all, of Lessor's right, title and interest in the Equipment then subject to the
Lease for a purchase price equal to $1.00.
Purchase Agreement Applicable? NO
Provided that the Lease has not been terminated, and that no default has
occured and is continuing under the Lease, Lessee must purchase, at the
expiration of the term of the Lease provided above, all, but not less than all,
of the Equipment then subject to the Lease for a purchase price equal to $
Renewal term applicable? NO
Include if applicable:
If Lessee shall not elect to purchase the Equipment pursuant to any
applicable purchase option set forth above, the Lease has not been terminated
and no default has occurred and is continuing under the Lease, Lessee may, upon
not less than 90 days irrevocable notice prior to, renew the Lease for a renewal
term from MONTH through MONTHLY and at the renewal rent of 0 due Jul in advance,
commencing MONTH, 19 and subsequently on the same date of each 28. Further, at
the expiration of the renewal term of the Lease provided for in the immediately
preceding sentence upon not less than 180 days prior irrevocable notice to
Lessor and provided that the Lease has not been terminated and that no default
has occurred and is continuing under the Lease, Lessee shall have the option to
purchase all, but not less than all, of Lessor's right, title and interest in
the Equipment then subject to the L4ease for a purchase price equal to 0
Stipulated Loss Value Appendix applicable? YES
Include if applicable:
This Schedule has, as a part thereof, the Stipulated Loss Value Appendix 2
annexed hereto or otherwise identified as a part hereof or applicable hereto.
Amendment to Lease applicable? NO
Include if applicable:
Lessee and Lessor hereby amend the terms of the Lease as follows:
LESSOR: The Terminal Marketing Company, Inc., 151 North Main Street, Suite 300,
New City, NY, 10956
LESSEE & LOCATION OF EQUIPMENT
Name: Netter Digital Entertainment, Inc.
Address: 611 N. Brand Blvd. 3rd Floor
City: Glendale State: CA Zip Code: 91203
EQUIPMENT DESCRIPTION
SEE EQUIPMENT LIST ATTACHED
EQUIPMENT LOCATION, IF OTHER THAN AS ABOVE:
No. of RENTAL PAYMENT AMOUNT FIRST RENTAL PAYMENT
Months Check For This Amount Must
36 36 Monthly Payments of $5,564.00 Accompany Lease Application
Plus Sales Tax of $0.00 $11,128.00
Total $5,564.00 for the first month and
last 1 Months
Commencement Date:
I.Lease of Equipment. Lessee agrees to lease from lessor and, upon acceptance
hereof by Lessor, Lessor agrees to lease to Lessee, the Equipment, for the
period commencing with delivery of the Equipment to Lessee and ending upon the
expiration of the Tenn. Advance rentals paid by Lessee shall not be refundable
to Lessee in the event the Term does not commence.
2. Disclaimer. LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT PARTICIPATED IN THE
SELECTION OF THE EQUIPMENT AND THAT THE EQUIPMENT IS OF THE TYPE, DESIGN, SIZE,
CAPACITY AND MANUFACTURE SELECTED BY LESSEE. LESSEE ACKNOWLEDGES THAT LESSOR
WILL NOT, AND HAS NO OBLIGATION TO, INSPECT THE EQUIPMENT AND THAT LESSOR HAS
NOT MADE AND WILL NOT MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR
IMPLIED ON WHICH LESSEE MAY RELY, WITH RESPECT TO THE MERCHANTABILITY, FITNESS,
SAFETY, CONDITION, QUALITY, DURABILTY OR SUITABILITY FOR LESSEE'S PURPOSES OF
THE EQUIPMENT IN ANY RESPECT, THE EQUIPMENT'S COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION OR CONTRACT PERTAINING THERETO, OR PATENT INFRINGEMENT, LATENT
DEFECTS, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED.
LESSEE FURTHER ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER OF, OR MERCHANT OR
DEALER IN, EQUIPMENT OF THE SAME TYPE AS THE EQUIPMENT AND THAT LESSOR HAS NO
DUTY TO ENFORCE ANY WARRANTIES ON BEHALF OF LESSEE. LESSOR SHALL NOT BE LIABLE
TO LESSEE FOR ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR BY ANY INADEQUACY THEREOF OR
DEFICIENCY OR DEFECT THEREIN, WHETHER DIRECT, INDIRECT, EXEMPLARY OR PUNITIVE.,
WHETHER OR NOT LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
3. Lessee's Representations and Waivers. Lessor shall have no liability
for delay in delivery of the Equipment or for Supplier's failure to deliver the
Equipment or for performance of any other covenant, warranty or representation.
Lessee shall make any claim for breach of warranty or representation solely
against Supplier and shall, nevertheless, pay Lessor all Rent and Lessee hereby
waives any such claims as against Lessor. Lessor hereby assigns to Lessee,
solely for the purpose of making and prosecuting any such claim, all of the
rights which Lessor has against Supplier for breach of warranty or other
representation. Lessee understands and agrees that no salesman or other agent
of Supplier is an agent of Lessor and, therefore, no salesman or agent of
Supplier is authorized to waive or alter any term or condition of this Lease,
and no representation as to the Equipment or any other matter by any salesman or
agent of Supplier shall in any way affect Lessee's duty to pay Rent and perform
its other obligations as set forth in this Lease. Lessee hereby acknowledges
receipt of a copy of this Lease. Lessor agrees to order the Equipment from
Supplier upon the terms and conditions of the purchase order provided by
Supplier to Lessee and attached hereto.
THIS LEASE IS SUBJECT TO THE TERMS AND CONDITIONS PRINTED ON PAGE TWO WHICH
ARE MADE A PART HEREOF AND WHICH LESSEE ACKNOWLEDGES THAT HE HAS READ.
LEASE NO. 2244 THIS IS A NON-CANCELABLE
LEASE FOR THE TERM INDICATED ABOVE
ACCEPTED: LESSEE Netter Digital Entertainment, Inc.
June 6, 1997 DATE June 6, 1997
THE UNDERSIGNED AFFIRMS THAT HE IS A DULY
AUTHORIZED CORPORATE OFFICER, PARTNER OR
PROPRIETOR OF THE ABOVE NAMED LESSEE.
LESSOR
By_____________________ By___________________ Title: COO
Authorized Signature
Lessee hereby authorizes Lessor to insert in this Lease the serial numbers and
other identification date of the Equipment. Lessee warrants that the Equipment
leased is for business use only and not for personal or consumer use and is for
the sole use of Lessee and Lessee's employees. Lessee hereby waives a trial by
jury and the right to interpose any counterclaim, offset, defense or setoff of
any nature or description whatsoever in any litigation between Lessee and Lessor
with respect to this Lease.
4. Term; Extensions. This Lease shall continue in effect with respect to each
item of Equipment until the expiration of the Tenn with respect to such item of
Equipment. Thereafter, this Lease shall continue in effect unless either Party
terminates this Lease upon written notice given not less than three (3) months
prior to the date of termination. This Lease shall not terminate by operation
of law or otherwise during the Term and thereafter shall terminate only as
expressly provided herein.
5. Rent; Net Lease. Rent will be due and payable in advance with respect to
each item of Equipment on the first day of each month, commencing on the
Commencement Date, and shall continue until the return of such item of Equipment
by Lessee to Lessor in accordance with the terms of this Lease. Charges, if
any, from the date of acceptance by Lessee to the Commencement Date shall be
at the daily rate of 1/30th of the monthly Rent and shall be payable in arrears
on the Commencement Date. Lessee acknowledges and agrees that (i) this is a net
lease and that all costs, expenses and liabilities in connection with the
Equipment shall be home by Lessee, (ii) that Lessee's obligation to pay Lessor
all amounts due hereunder is absolute and unconditional, and (iii) Lessee shall
not be entitled to any abatement, reduction, set-off, counterclaim, defense or
deduction with respect to any Rent or other sum payable hereunder.
6. Maintenance, Lessee shall maintain the Equipment in first class condition in
accordance with manufacturer's specifications. Except as expressly provided
herein, Lessee shall make no repair, alteration, addition or attachment with
respect to the Equipment without the express prior written consent of Lessor,
All repairs, alterations, additions, and attachments shall become part of the
Equipment and shall be the property oflessor.
7. Location. Lessee shall not change the location of any item of Equipment
without the express prior written consent of Lessor, Lessee's use of the
Equipment shall at all times be in conformity with all applicable laws, all
warranties pertaining to the Equipment and conditions of any insurance policy
covering the Equipment. Lessor shall have the right, upon reasonable prior
notice to Lessee and during Lessee's regular business hours, to inspect the
Equipment at the premises of Lessee or wherever the Equipment may be located.
8. Title. All Equipment is and shall remain the property of Lessor at all times
hereunder. At the request of Lessor, Lessee shall execute such further
instruments and documents as shall be requested by Lessor to protect Lessor's
title to the Equipment. Lessee shall affix and shall not remove such plates or
other markings to the Equipment as Lessor shall request to indicate Lessor's
ownership of the Equipment. The Equipment shall at all times remain personal
property and Lessee shall take all such action as shall be necessary to prevent
the Equipment from becoming part of the real property on which it is placed,
including the installation and maintenance of each item of Equipment so that it
may be removed without damage to such real property.
9. Transportation and Installation; Redelivety. Lessee shall pay all
transportation, insurance, packing, installation, site preparation and other
charges in connection with the delivery and installation of the Equipment. At
the expiration of the Term or any extension thereof, Lessee will, at its
expense, deliver the Equipment to any place designated by Lessor within the
Continental United States, freight and insurance prepaid by Lessee, in the same
condition as when delivered by Lessee, reasonable wear and tear excepted.
10. Risk of Loss; Insurance. Lessee hereby assumes all risk of the
occurrence of a Casualty Event while the Equipment is in transit, in Lessee's
possession or under Lessee's control. The occurrence of any Casualty Event
shall not impair any obligation of Lessee under this Lease. Lessee shall
promptly notify Lessor of the occurrence of any Casualty Event. Lessee agrees
to keep the Equipment insured to protect all interests of Lessor, at Lessee's
expense, against all Casualty Events for not less than the unpaid balance of the
lease rentals due hereunder or 80% of the then current value of Equipment,
whichever is higher and in addition shall obtain and maintain insurance in an
amount reasonable under the circumstances for public liability and property
damage. All such insurance policies and the proceeds therefrom shall be the
sole property of Lessor and Lessor shall be named as an additional insured and
additional loss payee in all said policies and as sole loss payee in policies
insuring the Equipment. The proceeds of such insurance, whether resulting from
loss or damage or return premium or otherwise shall be applied toward the
replacement or repair of the Equipment or the payment of obligations of Lessee
hereunder, at the option of Lessor. Lessee hereby appoints Lessor as Lessee's
attomey-in-fact to make claim for, receive payment of an execute or endorse all
documents, checks or drafts for loss or damage or return premium under insurance
policies issued on the Equipment. All such policies shall provide that they may
be canceled only after giving 30 days' prior written notification to Lessor.
Lessee shall indemnify and hold Lessor harmless from any loss, claim or damage
to persons or property arising out of Lessee's use, possession or storage of the
Equipment.
11. Past Due Payments. If payment of any sum due hereunder is not made within
10 days of the due date, Lessee shall pay to Lessor, as liquidated damages
occasioned by such delay, an amount calculated at the rate of 5 percent per
month of such past due balance. All advances made by Lessor to preserve the
Equipment or to pay insurance premiums or to discharge and pay any taxes,
assessments, fees, penalties, liens or encumbrances thereon shall be added to
the unpaid balance of rentals due hereunder and shall be repayable by Lessee to
Lessor immediately.
12. Taxes. Lessee shall keep the Equipment free and clear of all levies, liens,
charges and encumbrances and shall pay all assessments, license fees, taxes
(including sales, use, excise, personal property, ad valoren, stwnp, documentary
and other taxes) and all other governmental charges, fees, fines or penalties
whatsoever, whenever levied and whether payable by Lessor or on relating to (i )
the Equipment or the use, registration, rental, shipment, transportation,
delivery, ownership or operation thereof, or (ii) this Lease or the Rent or
other sums payable hereunder and Lessee shall file all returns required
therefore and fumish copies thereof to Lessor. On written request from Lessor,
Lessee agrees to reimburse Lessor for the costs incurred in collecting any
taxes, assessments or fees for which Lessee is liable hereunder and remitting
the same to the appropriate authorities, such reimbursement not to exceed 1% of
the amount of such tax, assessment fee or penalty, or $1 .00, whichever is
greater. Lessor may pay such taxes and other amounts and may file such returns
on behalf of Lessee if Lessee fails to do so as provided herein.
13. Default; Remedies Upon Default. Lessee shall be in default hereunder: (a)
if Lessee fails to pay any sum due hereunder within 10 days after the due date
thereof; (b) if Lessee fails to perform any non-monetaty covenant and such
failure continues for 15 days after written notice; (c) if proceedings are
instituted by or against Lessee under any provision of the Federal Bankruptcy
Code, insolvency laws or laws relating to the relief of debtors, readjustments,
compositions or extensions or any other or similar law, or if Lessee makes an
assignment for the benefit of creditors, of if a receiver, trustee or custodian
or similar official of Lessee or all or any substantial part of its assets shall
be appointed; (d) if the Equipment or any sum due hereunder becomes subject to
any lien other than those imposed by or with the express prior written consent
of Lessor; (e) if Lessee attempts to assign, sublet, hypothecate, mortgage or
otherwise transfer or grant any security interest in Lessee's rights or interest
under this Lease without the express prior written consent of Lessor; (f) if
Lessee shall be default under loan or credit agreement; or (g) if Lessee's
financial condition shall change such that, in Lessor's opinion, Lessor's
security shall be impaired or Lessor's credit risk shall be increased. In any
such event, Lessor may take, concurrently, any action allowed by law and any one
or more of the following actions; (1) proceed by court action to enforce
performance by Lessee of all provisions hereof and to recover damages for the
breach thereof, (2) accelerate payment of all Rent due hereunder during the
balance of the Term or any extension thereof; (3) enter upon the premises of
Lessee or other premises where the Equipment may be located and take possession
of the Equipment without notice or legal process and without liability for
trespass or responsibility for loss of or damage to the Equipment or any
property attached thereto; and (4) retain all Rent and other sums paid by lessee
hereunder, as well as all insurance proceeds and other sums, if any, then in its
possession which would otherwise be payable to Lessee. Lessee shall pay all
costs and expenses incurred by Lessor in exercising any of its rights or
remedies under this Lease, including expenses of retaking, holding, preparing
for lease or sale, or leasing and selling of the Equipment, and reasonable
attorneys' fees and legal expenses. Any payment received from Lessee may be
applied by Lessor at any time against any obligation due and owing by Lessee
under this Lease or any Schedule hereto, in Lessor's sole discretion,
notwithstanding any statement appearing on or referred to in any remittance from
Lessee or any prior application ofsuch payment. In the event any bankruptcy
proceedings are instituted by or against Lessee under the Federal Bankruptcy
Code within 90 days after receipt by Lessor or any such payment, such payment
shall be deemed applicable to unpaid obligations then due hereunder in the
inverse order of maturity.
14. Assignment by Lessor. This Lease may be assigned by Lessor without notice
to Lessee, in which event the assignee shall be entitled to exercise all rights
and powers, but shall not be chargeable with any obligations or liabilities, of
Lessor hereunder and all reference hereunder and all references herein to Lessor
shall refer, instead, to such assignee. Lessor, or Lessor's assignee, may also
grant a security interest in the Equipment and this Lease. THE ASSIGNEE'S
RIGHTS OR THE RIGHTS OF THE HOLDER OF A SECURITY INTEREST IN THIS LEASE SHALL BE
FREE FROM ALL DEFENSES, SETOFFS OR COUNTERCLAIMS WHICH LESSEE MAY BE ENTITLED TO
ASSERT.
15. Further Assurances. Lessee agrees to deliver to Lessor, its successors and
assigns, upon request of Lessor, such certificates, acknowledgments, consents,
financing statements, opinions of counsel and any other instruments, all in form
and substance satisfactory to Lessor, which Lessor may, in its sole discretion,
determine to be necessary or proper to confirm any or all of the representations
and agreements made by Lessee hereunder or to facilitate the assignment by
Lessor of its right, title and interest in an to the Equipment, this Lease or
the Rent. Where allowed by law, Lessor may execute and file any financing
statements on behalf oflessee.
16. Notices. All notices and consents shall be in writing and shall be deemed
given when mailed, postage prepaid, to the address of the Party to whom intended
set forth on the face of this Lease or to such other address as such Party shall
have designated by notice in writing to the other Party.
17. Choice of Law. This Lease shall be deemed to have been made in Rockland
County, New York and shall be governed by the laws of the State of New York.
Lessee hereby agrees that all actions or proceedings arising directly or
indirectly from this Lease shall be maintained only in courts within the State
of New York, and Lessee hereby consents that all services of process may be made
by certified or registered mail, return receipt requested, directed to Lessee at
the address as set forth on the face of this Lease. Service so made shall be
complete two (2) days after the same shall have been posted.
18. Miscellaneous. This Lease constitutes the entire agreement wnong the
Parties and may not be changed or canceled orally, but only in writing, signed
by the Party to be charged. This Lease shall be binding on the successors and
assigns of the Parties. The invalidity or unenforceability of any provision of
this Lease shall not affect the validity or enforceability or any other
provision hereof. The failure to Lessor to enforce performance by Lessee of any
obligation hereunder shall not constitute a waiver of Lessor's right to
thereafter enforce such performance.
19. Definitions.
"Casualty Event" - damage, destruction, loss theft, seizure, taking by
eminent domain or similar event with respect to the Equipment.
"Commencement Date" - with respect to each item ofequipment, the date
specified on page one ofthis Lease as the "Commencement Date".
"Equipment" - those items of equipment described on page one of this
Lease and in any Schedules.
"Lessee" - the corporation, partnership or individual so designated on
page one of this Lease.
"Lessor" - the corporation so designated on page one of this lease.
"Party" - Lessor or Lessee.
"Rent" - the monthly charge set forth on page one of this Lease, or any
Schedule, payable by Lessee to Lessor for the use of the Equipment
during the Term and all extensions thereof.
"Schedules" - those pages annexed to this Lease and designated
"Schedules".
"Term" - with respect to each item of Equipment, the period commencing
on the Commencement Date and ending on the last day of the month which
is the number of months specified on page one of this lease.
Lessee Initials______________
LESSOR: The Terminal Marketing Company Inc., 151 North Main Street, Suite 300,
New City, NY, 10956
LESSEE & LOCATION OF EQUIPMENT
Name: Netter Digital Entertainment, Inc.
Address: 611 N. Brand Blvd. 3rd Floor
City: Glendale State: CA Zip Code: 91203
EQUIPMENT DESCRIPTION
SEE EQUIPMEENT LIST ATTACHED
EQUIPMENT LOCATION, IF OTHER THAN AS ABOVE:
No. of RENTAL PAYMENT AMOUNT FIRST RENTAL PAYMENT
Months Check For This Amount Must
36 36 Monthly Payments of $5,763.00 Accompany Lease Application
Plus Sales Tax of $0.00 Total $5,763.00 $ 11,526.00
for the first month and
Last 1 Months
Commencement Date:
I.Lease of Equipment. Lessee agrees to lease from lessor and, upon acceptance
hereof by Lessor, Lessor agrees to lease to Lessee, the Equipment, for the
period commencing with delivery of the Equipment to Lessee and ending upon the
expiration of the Term. Advance rentals paid by Lessee shall not be refundable
to Lessee in the event the Term does not commence.
2. Disclaimer. LESSEE ACKNOWLEDGES THAT LESSOR HAS NOT PARTICIPATED IN THE
SELECTION OF THE EQUIPMENT AND THAT THE EQUIPMENT IS OF THE TYPE, DESIGN, SIZE,
CAPACITY AND MANUFACTURE SELECTED BY LESSEE. LESSEE ACKNOWLEDGES THAT LESSOR
WILL NOT, AND HAS NO OBLIGATION TO, INSPECT THE EQUIPMENT AND THAT LESSOR HAS
NOT MADE AND WILL NOT MAKE ANY REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR
IMPLIED ON WHICH LESSEE MAY RELY, WITH RESPECT TO THE MERCHANTABILITY, FITNESS,
SAFETY, CONDITION, QUALITY, DURABILTY OR SUITABILITY FOR LESSEEIS PURPOSES OF
THE EQUIPMENT IN ANY RESPECT, THE EQUIPMENT'S COMPLIANCE WITH ANY LAW, RULE,
SPECIFICATION OR CONTRACT PERTAINING THERETO, OR PATENT INFRINGEMENT, LATENT
DEFECTS, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT, EXPRESS OR IMPLIED.
LESSEE FURTHER ACKNOWLEDGES THAT LESSOR IS NOT A MANUFACTURER OF, OR MERCHANT OR
DEALER IN, EQUIPMENT OF THE SAME TYPE AS THE EQUIPMENT AND THAT LESSOR HAS NO
DUTY TO ENFORCE ANY WARRANTIES ON BEHALF OF LESSEE. LESSOR SHALL NOT BE LIABLE
TO LESSEE FOR ANY LIABILITY, LOSS OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR BY ANY INADEQUACY THEREOF OR
DEFICIENCY OR DEFECT THEREIN, WHETHER DIRECT, INDIRECT, EXEMPLARY OR PUNITIVE.,
WHETHER OR NOT LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
3. Lessee's Representations and Waivers. Lessor shall have no liability for
delay in delivery of the Equipment or for Supplier's failure to deliver the
Equipment or for performance of any other covenant, warranty or representation.
Lessee shall make any claim for breach of warranty or representation solely
against Supplier and shall, nevertheless, pay Lessor all Rent and Lessee hereby
waives any such claims as against Lessor. Lessor hereby assigns to Lessee,
solely for the purpose of making and prosecuting any such claim, all of the
rights which Lessor has against Supplier for breach of warranty or other
representation. Lessee understands and agrees that no salesman or other agent
of Supplier is an agent of Lessor and, therefore, no salesman or agent of
Supplier is authorized to waive or alter any term or condition of this Lease,
and no representation as to the Equipment or any other matter by any salesman or
agent of Supplier shall in any way affect Lessee's duty to pay Rent and perform
its other obligations as set forth in this Lease. Lessee hereby acknowledges
receipt of a copy of this Lease. Lessor agrees to order the Equipment from
Supplier upon the terms and conditions of the purchase order provided by
Supplier to Lessee and attached hereto.
THIS LEASE IS SUBJECT TO THE TERMS AND CONDITIONS PRINTED ON PAGE TWO WHICH
ARE MADE A PART HEREOF AND WHICH LESSEE ACKNOWLEDGES THAT HE HAS READ.
LEASE NO. 2256 THIS IS A NON-CANCELABLE
LEASE FOR THE TERM INDICATED ABOVE
ACCEPTED: LESSEE: Netter Digital Entertainment, Inc.
June 13, 1997 Date: June 13, 1997
THE UNDERSIGNED AFFIRMS THAT HE IS A DULY
AUTHORIZED CORPORATE OFFICER, PARTNER OR
PROPRIETOR OF THE ABOVE NAMED LESSEE.
LESSOR
By________________________ By:______________________Title: COO
Authorized Signature
Refer to above for conditions
VARIABLE RATE-INSTALLMENT NOTE
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION
$160,000.00 JUNE 30, 1997 JUNE 30, 1999 94 -3 112 028
For Value Received, the undersigned promise(s) to pay to the order of COMERICA
BANK-CALIFORNIA ("Bank'), at any office of the Bank in the State of California
ONE HUNDRED SIXTY THOUSAND AND NO/100 Dollars (U.S.) In installments of
$6,666.67 each [ ] INCLUSIVE OF [x] PLUS interest on the unpaid balance from
the date of this Note at a per annum rate equal to-the Bank's base rate from
time to time in effect PLUS 2.500 % per annum until maturity, whether by
acceleration or otherwise, or until Default, as later defined, and after that at
a default rate equal to the rate of Interest otherwise prevailing under this
Note plus 3% per annum (but in no event in excess of the maximum rate permitted
by law). Interest shall be calculated for the actual number of days the
principal is outstanding on the basis of a 360 day year if this Note evidences a
business or commercial loan or a 365 day year if a consumer loan. The Bank's
"base rate" is that annual rate of interest so designated by the Bank and which
is changed by the Bank from time to time. Interest rate changes will be
effective for Interest computation purposes as and when the Bank's base rate
changes.
Installments of principal and accrued interest due under this Note shall be
payable on the 30TH day of each MONTH commencing JULY 30, 1997, and the entire
remaining unpaid balance of principal and accrued interest shall be payable-on
the Maturity as set forth above. It the frequency of principal and interest
installments is not otherwise specified, Installments of principal and interest
due under this Note shall be payable monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
Interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on (if left blank,
the amortization terms ends on the Maturity Date). In the event this Note
evidences a business or commercial loan and the Bank's base rate changes, the
Bank, at its sole option, may from time to time recalculate the periodic
Installment amount so that the remaining periodic Installments will fully
amortize the remaining loan balance within the remaining amortization term in
equal Installments at the interest rate then being charged under this Note. THE
UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS THEY MAY BE
RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO TIME AND
ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE OR THE
OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment under
this Note shall become payable on a day other than a day on which the Bank Is
open for business, this payment may be extended to the next succeeding business
day and Interest shall be payable at the rate specified in this Note during this
extension. Any payments of principal in excess of the installment payments
required under this Note need not be accepted by the Bank (except as required
under applicable law), but If accepted shall apply to the installments last
falling due. A late Installment charge equal to 5% of each late installment may
be charged on any Installment payment not received by the Bank within 10
calendar days after the installment due date, but acceptance of payment of this
charge shall not waive any default under this Note.
This Note and any other Indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"Indebtedness') are secured by and the Bank Is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral').
Notwithstanding the above, (i) to the extent that any portion of the
Indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest In any of the undersigned's
principal dwelling or in of the undersigned's real property which is not a
purchase money security interest as to that. portion, unless expressly provided
or (ii) if the undersigned (or any of them) has (have) given or give(s) Bank a
deed of trust or trust or mortgage shall not secure this Note or any other
indebtedness of the undersigned (or any of them), unless expressly provided to
the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the Indebtedness ("guarantor') (a) fail(s) to pay this Note or any of
the Indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any Indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding In bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) Incompetent, (if a partnership) dissolves) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) Is
the subject of a dissolution, merger or consolidation: or (d) If any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the Indebtedness shall be discovered to be untrue or
incomplete; or (e) If there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the Indebtedness; or (f) If there is any failure
by any of the undersigned or any guarantor to pay when due any of Its
indebtedness (other than to the Bank) or In the observance or performance of any
term, covenant or condition In any document evidencing, securing or relating to
such Indebtedness; or (g) If the Bank deems Itself Insecure, believing that the
prospect of payment of this Note or any of the Indebtedness is Impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
Is filed or Issued a levy or writ of attachment or garnishment or other like
judicial progress upon the undersigned (or any of them) or any guarantor or any
of the Collateral, Including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default'), may at Its option and without prior
notice to the undersigned (or any of them), declare any or all of the
Indebtedness to be immediately due and payable (notwithstanding any provisions
contained In the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the Indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant Indebtedness and exercise
any one or more of the rights and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to It under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other Indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other Indebtedness or obligations or shall
convey, assign or transfer the mortgaged promises by deed, Installment sale
contact or other Instrument, or (b) If the title to the mortgaged premises shall
become vested In any other person or party in any manner whatsoever, or (c) If
there Is any disposition (through one or more transactions) of legal or
beneficial title to a controlling Interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or Intent to
accelerate, and all other notices and agree(s) that no extension or Indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
f any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell,
assign, or grant participations, or any interest, In any or all of the
Indebtedness, and that, In connection with this right, but without limiting Its
ability to make other disclosures to the full extent allowable, the Bank may
disclose all documents and information which the Bank now or later has relating
to the undersigned or the Indebtedness. The undersigned agree(s) that the Bank
may provide Information relating to this Note or to the undersigned to the
Bank's parent, affiliates, subsidiaries and service providers.
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether Inside or outside counsel Is used, whether
or not suit Is Instituted and, If suit Is instituted, whether at the trial court
level, appellate level, In a bankruptcy, probate or administrative proceeding or
otherwise) Incurred in collecting or attempting to collect this Note or incurred
In any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except In a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used In this Note, the word "undersigned" means, Individually and
collectively, each maker, accommodation party, endorser and other party signing
this Note In a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANYWAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
For Corporations, Partnerships, Trust, or Estates
VIDESSENCE, INC. By: /s Its: President
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
189 AIRPORT BLVD, By: /s Its:
STREET ADDRESS SIGNATURE OF TITLE
BURLINGAME By: /s Its:
CITY SIGNATURE OF TITLE
CA 94010 By: Its:
STATE ZIP CODE SIGNATURE OF TITLE
For Individuals or Sole Proprietorships
Name(s) of Obligor(s)(Type or Print): Signature(s) of
Obligor(s):
STREET ADDRESS
CITY
STATE ZIP CODE
For Bank Use Only CCAR
Loan Officer Initials Loan Group Name Obligor(s) Name
WILLIAM A. STEVENS METRO PENINSULA VIDESSENCE, INC.
Loan Officer I.D. No. Loan Group No. Obligor # Amount
1 48200 95745 160,000.00
CA00181 (12-94)
LOAN & SECURITY AGREEMENT (ACCOUNTS AND INVENTORY)
OBLIGOR # NOTE AGREEMENT DATE
JUNE 30, 1997
CREDIT LIMIT INTEREST RATE OFFICER NO./INITIALS
$750,000.00 B+2.00% 10.50% 48200 WILLIAM STEVENS
THIS AGREEMENT is entered into on JUNE 30, 1997 between COMERICA BANK-CALIFORNIA
("Bank") as secured party, whose Headquarter Office is 333 WEST SANTA CLARA
STREET, SAN JOSE, CA and VIDESSENCE, INC. ("Borrower"), a CALIFORNIA CORPORATION
whose sole place of business (if it has only one), chief executive office (if it
has more than one place of business) or residence (if an individual) is located
at 189 AIRPORT BLVD., BURLI NGAME, CA. The parties agree as follows:
1. DEFINITIONS
1.1 "Agreement" as used in this Agreement means and includes this Loan &
Security Agreement (Accounts and Inventory), any concurrent or subsequent
rider to this Loan & Security Agreement (Accounts and Inventory) and any
extensions, supplements, amendments or modifications to this Loan &
Security Agreement (Accounts and Inventory) and to any such rider.
1.2 "Bank Expenses" as used in this Agreement means and includes: all
costs or expenses required to be paid by Borrower under this Agreement
which are paid or advanced by Bank; taxes and insurance premiums of every
nature and kind of Borrower paid by Bank; filing, recording, publication
and search fees, appraiser fees, auditor fees and costs, and title
insurance premiums paid or incurred by Bank in connection with Bank's
transactions with Borrower; costs and expenses incurred by Bank in
collecting the Receivables (with or without suit) to correct any default or
enforce any provision of this Agreement, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, disposing
of, preparing for sale and/or advertising to sell the Collateral, whether
or not a sale is consummated; costs and expenses of suit incurred by Bank
in enforcing or defending this Agreement or any portion hereof, including,
but not limited to, expenses incurred by Bank in attempting to obtain
relief from any stay, restraining order, injunction or similar process
which prohibits Bank from exercising any of its rights or remedies; and
attorneys' fees and expenses incurred by Bank in advising, structuring,
drafting, reviewing, amending, terminating, enforcing, defending or
concerning this Agreement, or any portion hereof or any agreement related
hereto, whether or not suit is brought. Bank Expenses shall include Bank's
in-house legal charges at reasonable rates.
1.3 "Base Rate" as used in this Agreement means that variable rate of\
interest so announced by Bank at its headquarters office in San Jose,
California as its "Base Rate" from time to time and which serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto.
1.4 "Borrower's Books" as used in this Agreement means and includes all
of the Borrower's books and records including but not limited to: minute
books; ledgers; records indicating, summarizing or evidencing Borrower's
assets, liabilities, Receivables, business operations or financial
condition, and all information relating thereto, computer programs;
computer disk or tape files; computer printouts; computer runs; and other
computer prepared information and equipment of any kind.
1.5 "Borrowing Base" as used in this Agreement means the sum of:
(1) EI GHTY percent (80.00%) of the net amount of Eligible Accounts
after deducting therefrom all payments, adjustments and credits applicable
thereto ("Accounts Receivable Borrowing Base"); and (2) the amount, if any,
of the advances against Inventory agreed to be made pursuant to any
Inventory Rider ("Inventory Borrowing Base"), or other rider, amendment or
modification to this Agreement, that may now or hereafter be entered into
by Bank and Borrower.
1.6 "Cash Flow" as used in this Agreement means for any applicable period
of determination, the Net Income (after deduction for income taxes and
other taxes of such person determined by reference to income or profits of
such person) for such period, plus, to the extent deducted in computation
of such Net Income, the amount of depreciation and amortization expense and
the amount of deferred tax liability during such period, all as determined
in accordance with GAAP. The applicable period of determination will be
N/A beginning with the period from to .
1.7 "Collateral" as used in this Agreement means and includes each and
all of the following: the Receivables; the Intangibles; the negotiable
collateral, the Inventory; all money, deposit accounts and all other assets
of Borrower in which Bank receives a security interest or which hereafter
come into the possession, custody or control of Bank; and the proceeds of
any of the foregoing, including, but not limited to, proceeds of insurance
covering the collateral and any and all Receivables, Intangibles,
negotiable collateral, Inventory, equipment, money, deposit accounts or
other tangible and intangible property of borrower resulting from the sale
or other disposition of the collateral, and the proceeds thereof.
Notwithstanding anything to the contrary contained herein, collateral shall
not include any waste or other materials which have been or may be
designated as toxic or hazardous by Bank.
1.8 "Credit" as used in this Agreement means all Obligations, except
those obligations arising pursuant to any other separate contract,
instrument, note, or other separate agreement which, by its terms, provides
for a specified interest rate and term.
1.9 "Current Assets" as used in this Agreement means, as of any
applicable date of determination, all cash, nonaffiliated customer
receivables, United States government securities, claims against the United
States government, and inventories.
1.10 "Current Liabilities" as used in this Agreement means, as of any
applicable date of determination, (i) all liabilities of a person that
should be classified as current in accordance with GAAP, including without
limitation any portion of the principal of the Indebtedness classified as
current, plus (ii) to the extent not otherwise included, all liabilities of
the Borrower to any of its affiliates whether or not classified as current
in accordance with GAAP.
1.11 "Daily Balance" as used in this Agreement means the amount
determined by taking the amount of the Credit owed at the beginning of a
given day, adding any new Credit advanced or incurred on such date, and
subtracting any payments or collections which are deemed to be paid and are
applied by Bank in reduction of the Credit on that date under the
provisions of this Agreement.
1.12 "Eligible Accounts" as used in this Agreement means and includes
those accounts of Borrower which are due and payable within THIRTY (30)
days, or less, from the date of invoice, have been validly assigned to
Bank and strictly comply with all' of Borrower's warranties and
representations to Bank; but Eligible Accounts :hall not include the
following: (a) accounts with respect to which the account debtor is an
officer, employee, partner, joint venturer or agent of Borrower; (b)
accounts with respect to which goods are placed on consignment, guaranteed
sale or other terms by reason of which the payment by the account debtor
may be conditional; (c) accounts with respect to which the account debtor
is not a resident of the United States; (d) accounts with respect to which
the account debtor is the United States or any department, agency or
instrumentality of the United States; (e) accounts with respect to which
the account debtor is any State of the United States or any city, county,
town, municipality or division thereof; (f) accounts with respect to which
the account debtor is a subsidiary of, related to, affiliated or has
common shareholders, officers or directors with Borrower; (g) accounts
with respect to which Borrower is or may become liable to the account
debtor for goods sold or services rendered by the account debtor to
Borrower; (h) accounts not paid by an account debtor within ninety (90)
days from the date of the invoice; (i) accounts with respect to which
account debtors dispute liability or make any claim, or haveany
defense, crossclaim, counterclaim, or offset; (j) accounts with respect to
which any Insolvency Proceeding is filed by or against the account debtor,
or if an account debtor becomes insolvent, fails or goes out of business;
and (k) accounts owed by any single account debtor which exceed twenty
percent (20%) of all of the Eligible Accounts; and (1) accounts with a
particular account debtor on which over twenty-five percent (25%) of the
aggregate amount owing is greater than ninety (90) days from the date of
the invoice.
1.13 "Event of Default" as used in this Agreement means those events
described in Section 7 contained herein below.
1.14 "Fixed Charges" as used in this Agreement means and includes for any
applicable period of determination, the sum, without duplication, of (a)
all interest paid or payable during such period by a person on debt of such
person, plus (b) all payments of principal or other sums paid or payable
during such period by such person with respect to debt of such person
having a final maturity more than one year from the date of creation of
such debt, plus (c) all debt discount and expense amortized or required to
be amortized during such period by such person, plus (d) the maximum amount
of all rents and other payments paid or required to be paid by such person
during such period under any lease or other contract or arrangement
providing for use of real or personal property in respect of which such
person is obligated as a lessee, use or obligor, plus (e) all dividends and
other distributions paid or payable by such person or otherwise
accumulating during such period on any capital stock of such person, plus
(f) all loans or other advances made by such person during such period to
any Affiliate of such person. The applicable period of determination will
be N/A , beginning with the period from
to .
1.15 "GAAP" as used in this Agreement means as of any applicable period,
generally accepted accounting principles in effect during such period.
1.16 "Insolvency Proceeding" as used in this Agreement means and includes
any proceeding or case commenced by or against the Borrower, or any
guarantor of Borrower's Obligations, or any of Borrower's account debtors,
under any provisions of the Bankruptcy Code, as amended, or any other
bankruptcy or insolvency law, including but not limited to assignments for
the benefit of creditors, formal or informal moratoriums, composition or
extensions with some or all Creditors, any proceeding seeking a
reorganization, arrangement or any other relief under the Bankruptcy code,
as amended, or any other bankruptcy or insolvency law.
1.17 "Intangibles" as used in this Agreement means and includes all of
Borrower's present and future general Intangibles and other personal
property (including, without limitation, any and all rights in any legal
proceedings, goodwill, patents, trade names, copyrights, trademarks,
blueprints, drawings, purchase orders, computer programs, computer disks,
computer tapes, literature, reports, catalogs and deposit accounts) other
than goods and Receivables, as well as Borrower's Books relating to any of
the foregoing.
1.18 "Inventory" as used in this Agreement means and includes all present
and future inventory in which Borrower has any interest, including, but not
limited to, goods held by Borrower for sale or lease or to be furnished
under a contract of service and all of Borrower's present and future raw
materials, work in process, finished goods, advertising materials, and
packing and shipping materials, wherever located and any documents of title
representing any of the above, and any equipment, fixtures or other
property used in the storing, moving, preserving, identifying, accounting
for and shipping or preparing for the shipping of inventory, and any and
all other items hereafter acquired by Borrower by way of substitution,
replacement, return, repossession or otherwise, and all additions and
accessions thereto, and the resulting product or mass, and any documents of
title respecting any of the above.
1.19 "Net Income" as used in this agreement means the net income (or
loss) of a person for any period determined in accordance with GAAP but
excluding in any event:
(a) any gains or losses on the sale or other disposition, not in the
ordinary course of business, of investments or fixed or capital
assets, and any taxes on the excluded gains and any tax deductions or
credits on account on any excluded losses; and
(b) in the case of the Borrower, net earnings of any Person in which
Borrower has an ownership interest, unless such net earnings shall
have actually been received by Borrower in the form of cash
distributions.
1.20 "Judicial Officer or Assignee" as used in this Agreement means and
includes any trustee, receiver, controller, custodian, assignee for the
benefit of creditors or any other person or entity having powers or duties
like or similar to the powers and duties of trustee, receiver, controller,
custodian or assignee for the benefit of creditors.
1.21 "Obligations" as used in this Agreement means and includes any and
all loans, advances, overdrafts, debts, liabilities (including, without
limitation, any and all amounts charged to Borrower's account pursuant to
any agreement authorizing Bank to charge Borrower's account), obligations,
lease payments, guaranties, covenants and duties owing by Borrower to Bank
of any kind and description whether advanced pursuant to or evidenced by
this Agreement; by any note or other instrument; or by any other agreement
between Bank and Borrower and whether or not for the payment of money,
whether direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, and including, without limitation, any
debt, liability or obligation owing from Borrower to others which Bank may
have obtained by assignment, participation, purchase or otherwise, and
further including, without limitation, all interest not paid when due and
all Bank Expenses which Borrower is required to pay or reimburse by this
Agreement, by law, or otherwise.
1.22 "Person" or "person" as used in this Agreement means and includes
any individual, corporation, partnership, joint venture, association,
trust, unincorporated association, joint stock company, government,
municipality, political subdivision or agency or other entity.
1.23 "Receivables" as used in this Agreement means and includes all
presently existing and hereafter arising accounts, instruments, documents,
chaftel paper, general intangibles, all other forms of obligations owing to
Borrower, all of Borrower's rights in, to and under all purchase orders
heretofore or hereafter received, all moneys due to Borrower under all
contracts or agreements (whether or not yet earned or due), all merchandise
returned to or reclaimed by Borrower and the Borrower's books (except
minute books) relating to any of the foregoing.
1.24 "Subordinated Debt" as used in this Agreement means indebtedness of
the Borrower to third parties which has been subordinated to the
Obligations pursuant to a subordination agreement in form and content
satisfactory to the Bank.
1.25 "Subordination Agreement" as used in this Agreement a subordination
agreement in form satisfactory to Bank making all present and future
indebtedness of the Borrower to NETTER DIGITAL ENTERTAINMENT, INC.
subordinate to the Obligations.
1.26 "Tangible Effective Net Worth" as used in this Agreement means net
worth' as determined in accordance with GAAP consistently applied,
increased by Subordinated Debt if any, and decreased by the following:
patents, licenses, goodwill, subscription lists, organization expenses,
trade receivables converted to notes, and money due from affiliates
(including officers, directors, subsidiaries and commonly held companies.
1.27 "Tangible Net Worth" as used in this Agreement means, as of any
applicable date of determination, the excess of:
a. the net book value of all assets of a person (other than patents,
patent rights, trademarks, trade names, franchises, copyrights,
licenses, goodwill, and similar intangible assets) after all
appropriate deductions in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence,
depreciation and amortization), over
b. all total liabilities of such person.
1.28 "Total Liabilities" as used in this Agreement means the total of all
items of indebtedness, obligation or liability which, in accordance with
GAAP consistently applied, would be included in determining the total
liabilities of the Borrower as of the date Total Liabilities is to be
determined, including without limitation (a) all obligations secured by any
mortgage, pledge, security interest or other lien on property owned or
acquired, whether or not the obligations or not reflected on the balance
sheets of the Borrower, including any obligation to furnish funds, directly
or indirectly through the purchase of goods, supplies, services, or by way
of stock purchase, capital contribution, advance or loan or any obligation
to enter into a contract for any of the foregoing.
1.29 "Working Capital" as used in this Agreement means, as of any
applicable date of determination, Current Assets less Current Liabilities.
1.30 Any and all terms used in this Agreement shall be construed and
defined in accordance with the meaning and definition of such terms under
and pursuant to the California Uniform Commercial Code (hereinafter
referred to as the "Code") as amended.
2. LOAN AND TERMS OF PAYMENT
For value received, Borrower promises to pay to the order of Bank such amount,
as provided for below, together with interest, as provided for below.
2.1 Upon the request of Borrower, made at any time and from time to time
during the term hereof, and so long as no Event of Default has occurred,
Bank shall lend to Borrower an amount equal to the Borrowing Base;
provided, however, that in no event shall Bank be obligated to make
advances to Borrower under this Section 2.1 whenever the Daily Balance
exceeds, at any time, either the Borrowing Base or the sum of SEVEN HUNDRED
FIFTY THOUSAND AND NO/100 ($750,000.00 ),such amount being referred to
herein as "Overadvance".
2.2 Except as hereinbelow provided, the Credit shall bear interest, on
the Daily Balance owing, at a rate of TWO AND NO/1000 (2.000%)
percentage points per annum above the Base Rate (the "Rate"). The Credit
shall bear interest, from and after the occurrence of an Event of Default
and without constituting a waiver of any such Event of Default, on the
Daily Balance owing, at a rate three (3) percentage points per annum above
the Rate. All interest chargeable under this Agreement that is based upon
a per annum calculation shall be computed on the basis of a three hundred
sixty (360) day year for actual days elapsed.
The Base Rate as of the date of this Agreement is EIGHT AND 500/1000
(8.500 %) per annum. In the event that the Base Rate announced is, from time to
time hereafter, changed, adjustment in the Rate shall be made and based on the
Base Rate in effect on the date of such change. The Rate, as adjusted, shall
apply to the Credit until the Base Rate is adjusted again. The minimum interest
payable by the Borrower under this Agreement shall in no event be less than N/A
per month. All interest payable by Borrower under the Credit shall be due and
payable on the first day of each calendar month during the term of this
Agreement and Bank may, at its option, elect to treat such interest and any and
all Bank Expenses as advances under the Credit, which amounts shall thereupon
constitute Obligations and shall thereafter accrue interest at the rate
applicable to the Credit under the terms of the Agreement.
2.3 Without affecting Borrower's obligation to repay immediately any
Overadvance in accordance with Section 2.1 hereof, all Overadvances shall
bear additional interest on the amount thereof at a rate equal to N/A
(N/A%) percentage points per month in excess of the interest rate set forth
in Section 2.2,from the date incurred and for each month thereafter, until
repaid in full.
3. TERM.
3.1 This Agreement shall remain in full force and effect until terminated
by notice, by either party. Notice of such termination shall be
effectuated by mailing of a registered or certified letter not less than
thirty (30) days prior to the effective date of such termination, addressed
to the other party at the address set forth herein and the termination
shall be effective as of the date so fixed in such notice. Notwithstanding
the foregoing, should Borrower be in default of one or more of the
provisions of this Agreement, Bank may terminate this Agreement at any time
without notice. Notwithstanding the foregoing, should either Bank or
Borrower become insolvent or unable to meet its debts as they mature, or
fail, suspend, or go out of business, the other party shall have the right
to terminate this Agreement at any time without notice. On the date of
termination all Obligations shall become immediately due and payable
without notice or demand; no notice of termination by Borrower shall be
effective until Borrower shall have paid all Obligations to Bank in full.
Notwithstanding termination, until all Obligations have been fully
satisfied, Bank shall retain its security interest in all existing
Collateral and Collateral arising thereafter, and Borrower shall continue
to perform all of its Obligations.
3.2 After termination and when Bank has received payment in full of
Borrower's Obligations to Bank, Bank shall reassign to Borrower all
Collateral held by Bank, and shall execute a termination of all security
agreements and security interests given by Borrower to Bank, upon the
execution and delivery of mutual general releases.
4. CREATION OF SECURITY INTEREST
4.1 Borrower hereby grants to Bank a continuing security interest in all
presently existing and hereafter arising Collateral in order to secure
prompt repayment of any and all Obligations owed by Borrower to Bank and in
order to secure prompt performance by Borrower of each and all of its
covenants and Obligations under this Agreement and otherwise created.
Bank's security interest in the Collateral shall attach to all Collateral
without further act on the part of Bank or Borrower. In the event that any
Collateral, including proceeds, is evidenced by or consists of a letter of
credit, advice of credit, instrument, money, negotiable documents, chaftel
paper or similar property (collectively, "Negotiable Collateral"), Borrower
shall, immediately upon receipt thereof, endorse and assign such Negotiable
Collateral over to Bank and deliver actual physical possession of the
Negotiable Collateral to Bank.
4.2 Bank's security interest in Receivables shall attach to all
Receivables without further act on the part of Bank or Borrower. Upon
request from Bank, Borrower shall provide Bank with schedules describing
all Receivables created or acquired by Borrower (including without
limitation agings listing the names and addresses of, and amounts owing by
date by account debtors), and shall execute and deliver written assignments
of all Receivables to Bank all in a form acceptable to Bank, provided,
however, Borrower's failure to execute and deliver such schedules and/or
assignments shall not affect or limit Bank's security interest and other
rights in and to the Receivables. Together with each sched6le, Borrower
shall furnish Bank with copies of Borrower's customers' invoices or the
equivalent, and original shipping or delivery receipts for all merchandise
sold, and Borrower warrants the genuineness thereof. Bank or Bank's
designee may notify customers or account debtors of collection costs and
expenses to Borrower's account but, unless and until Bank does so or gives
Borrower other written instructions, Borrower shall collect all Receivables
for Bank, receive in trust all payments thereon as Bank's trustee, and, if
so requested to do so from Bank, Borrower shall immediately deliver said
payments to Bank in their original form as received from the account debtor
and all letters of credit, advices of credit, instruments, documents,
chaftel paper or any similar property evidencing or constituting
Collateral. Notwithstanding anything to the contrary contained herein, if
sales of Inventory are made for cash, Borrower shall immediately deliver to
Bank, in identical form, all such cash, checks, or other forms of payment
which Borrower receives. The receipt of any check or other item of payment
by Bank shall not be considered a payment on account until such check or
other item of payment is honored when presented for payment, in which
event, said check or other item of payment shall be deemed to have been
paid to Bank TWO (2) calendar days after the date Bank actually receives
such check or other item of payment.
4.3 Bank's security interest in Inventory shall attach to all Inventory
without further act on the part of Bank or Borrower. Upon Bank's request
Borrower will from time to time at Borrower's expense pledge, assemble and
deliver such Inventory to Bank or to a third party as Bank's bailee; or
hold the same in trust for Bank's account or store the same in a warehouse
in Bank's name; or deliver to Bank documents of title representing said
Inventory; or evidence of Bank's security interest in some other manner
acceptable to Bank. Until a default by Borrower under this Agreement or
any other Agreement between Borrower and Bank, Borrower may, subject to the
provisions hereof and consistent herewith, sell the Inventory, but only in
the ordinary course of Borrower's business. A sale of Inventory in
Borrower's ordinary course of business does not include an exchange or a
transfer in partial or total satisfaction of a debt owing by Borrower.
4.4 Borrower shall execute and deliver to Bank concurrently with
Borrower's execution of this Agreement, and at any time or times hereafter
at the request of Bank, all financing statements, continuation financing
statements, security agreements, mortgages, assignments, certificates of
title, affidavits, reports, notices, schedules of accounts, letters of
authority and all other. documents that Bank may request, in form
satisfactory to Bank, to perfect and maintain perfected Bank's security
interest in the Collateral and in order to fully consummate all of the
transactions contemplated under this Agreement. Borrower hereby
irrevocably makes, constitutes and appoints Bank (and any of Bank's
officers, employees or agents designated by Bank) as Borrower's true and
lawful attorney-in-fact with power to sign the name of Borrower on any
financing statements, continuation financing statements, security
agreement, mortgage, assignment, certificate of title, affidavit, letter of
authority, notice of other similar documents which must be executed and/or
filed in order to perfect or continue perfected Bank's security interest in
the Collateral. Borrower shall make appropriate entries in Borrower's Books
disclosing Bank's security interest in the Receivables. Bank (through any
of its officers, employees or agents) shall have the right at any time or
times hereafter during Borrower's usual business hours, or during the usual
business hours of any third party having control over the records of
Borrower, to inspect and verify Borrower's Books in order to verify the
amount or condition of, or any other matter, relating to, said Collateral
and Borrower's financial condition.
4.5 Borrower appoints Bank or any other person whom Bank may designate as
Borrower's attorney-in-fact, with power: to endorse Borrower's name on any
checks, notes, acceptances, money order, drafts or other forms of payment
or security that may come into Bank's possession; to sign Borrower's name
on any invoice or bill of lading relating to any Receivables, on drafts
against account debtors, on schedules and assignments of Receivables, on
verifications of Receivables and on notices to account debtors; to
establish a lock box arrangement and/or to notify the post office
authorities to change the address for delivery of Borrower's mail addressed
to Borrower to an address designated by Bank, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the Collateral
and forward all other mail to Borrower; to send, whether in writing or by
telephone, requests for verification of Receivables; and to do all things
necessary to carry out this Agreement. Borrower ratifies and approves all
acts of the attorney-in-fact. Neither Bank nor its attorney-in-fact will
be liable for any acts or omissions or for any error of judgement or
mistake of fact or law. This power being coupled with an interest, is
irrevocable so long as any Receivables in which Bank has a security
interest remain unpaid and until the Obligations have been fully satisfied.
4.6 In order to protect or perfect any security interest which Bank is
granted hereunder, Bank may, in its sole discretion, discharge any lien or
encumbrance or bond the same, pay any insurance, maintain guards,
warehousemen, or any personnel to protect the Collateral, pay any service
bureau, or, obtain any records, and all costs for the same shall be added
to the Obligations and shall be payable on demand.
4.7 Borrower agrees that Bank may provide information relating to this
Agreement or relating to Borrower to Bank's parent, affiliates,
subsidiaries and service providers.
5. CONDITIONS PRECEDENT
5.1 Conditions precedent to the making of the loans and the extension of
the financial accommodations hereunder, Borrower shall execute, or cause to
be executed, and deliver to Bank, in form and substance satisfactory to
Bank and its counsel, the following:
a. This Agreement and other documents required by Bank;
b. Financing statements (Form UCC-1 ) in form satisfactory to Bank
for filing and recording with the appropriate governmental authorities;
c. If Borrower is a corporation, then certified extracts from the
minutes of the meeting of its board of directors, authorizing the
borrowings and the granting of the security interest provided for
herein and authorizing specific officers to execute and deliver the
agreements provided for herein;
d. If Borrower is a corporation, then a certificate of good
standing showing that Borrower is in good standing under the laws of
the state of its incorporation and certificates indicating that
Borrower is qualified to transact business and is in good standing in
any other state in which it conducts business;
e. If Borrower is a partnership, then a copy of Borrower's
partnership agreement certified by each general partner of Borrower;
f. UCC searches, tax lien and litigation searches, fictitious
business statement filings, insurance certificates, notices or other
similar documents which Bank may require and in such form as Bank may
require, in order to reflect, perfect or protect Bank's first
priority security interest in the Collateral and in order to fully
consummate all of the transactions contemplated under this Agreement;
g. Evidence that Borrower has obtained insurance and acceptable
endorsements;
h. Waivers executed by landlords and mortgagees of any real
property on which any Collateral is located; and
i. Warranties and representations of officers.
6. WARRANTIES. REPRESENTATIONS AND COVENANTS.
6.1 If so requested by Bank, Borrower shall, at such intervals designated
by Bank, during the term hereof execute and deliver a Report of Accounts
Receivable or similar report, inform customarily used by Bank. Borrower's
Borrowing Base at all times pertinent hereto shall not be less than the
advances made hereunder. Bank shall have the right to recompute Borrower's
Borrowing Base in conformity with this Agreement.
6.2 If any warranty is breached as to any account, or any account is not
paid in full by an account debtor within NINETY (90 ) days from the date of
invoice, or an account debtor disputes liability or makes any claim with
respect thereto, or a petition in bankruptcy or other application for
relief under the Bankruptcy Code or any other insolvency law is filed by or
against an account debtor, or an account debtor makes an assignment for the
benefit of creditors, becomes insolvent, fails or goes out of business,
then Bank may deem ineligible any and all accounts owing by that account
debtor, and reduce Borrower's Borrowing Base by the amount thereof. Bank
shall retain its security interest in all Receivables and accounts, whether
eligible or ineligible, until all Obligations have been fully paid and
satisfied. Returns and allowances, if any, as between Borrower and its
customers, will be on the same basis and in accordance with the usual
customary practices of the Borrower, as they exist at this time. Any
merchandise which is returned by an account debtor or otherwise recovered
shall be set aside, marked with Bank's name, and Bank shall retain a
security interest therein. Borrower shall promptly notify Bank of all
disputes and claims and settle or adjust them on terms approved by Bank.
After default by Borrower hereunder, no discount, credit or allowance shall
be granted to any account debtor by Borrower and no return of merchandise
shall be accepted by Borrower without Bank's consent. Bank may, after
default by Borrower, settle or adjust disputes and claims directly with
account debtors for amounts and upon terms which Bank considers advisable,
and in such cases Bank will credit Borrower's account with only the net
amounts received by Bank in payment of the accounts, after deducting all
Bank Expenses in connection therewith.
6.3 Borrower warrants, represents, covenants and agrees that:
a. Borrower has good and marketable title to the Collateral. Bank
has and shall continue to have a first priority perfected security
interest in and to the Collateral. The Collateral shall at all times
remain free and clear of all liens, encumbrances and security
interests (except those in favor of Bank).
b. All accounts are and will, at all times pertinent hereto, be bona
fide existing Obligations created by the sale and delivery of
merchandise or the rendition of services to account debtors in the
ordinary course of business, free of liens, claims, encumbrances and
security interests (except as held by Bank and except as may be
consented to, in writing, by Bank) and are unconditionally owed to
Borrower without defenses, disputes, offsets, counterclaims, rights of
return or cancellation, and Borrower shall have received no notice of
actual or imminent bankruptcy or Insolvency of any account debtor at
the time an account due from such account debtor is assigned to Bank.
c. At the time each account is assigned to Bank, all property giving
rise to such account shall have been delivered to the account debtor
or to the agent for the account debtor for immediate shipment to, and
unconditional acceptance by, the account debtor. Borrower shall
deliver to Bank, as Bank may from time to time require, delivery
receipts, customer's purchase orders, shipping instructions, bills of
lading and any other evidence of shipping arrangements. Absent such a
request by Bank, copies of all such documentation shall be held by
Borrower as custodian for Bank.
6.4 At the time each eligible account is assigned to Bank, all such
eligible accounts will be due and payable on terms set forth in Section
1.7, or on such other terms approved in writing by Bank in advance of the
creation of such accounts and which are expressly set forth on the face of
all invoices, copies of which shall be held by Borrower as custodian for
Bank. and no such eligible account will then be past due.
6.5 Borrower shall keep the Inventory only at the following locations:
189 Airport Blvd., Burlingame, CA 94010 and the owner or mortgagees of the
respective locations are: Luther and Grace Izmarian as trustees of
the Luther C. and Grace M. Izmarian trust, dated January 26, 1984.
American Reality and Constructions Inc.
a. Borrower, immediately upon demand by Bank therefor, shall now and
from time to time hereafter, at such intervals as are requested by
Bank, deliver to Bank, designations of Inventory specifying Borrower's
cost of Inventory, the wholesale market value thereof and such other
matters and information relating to the Inventory as Bank may request;
b. Borrower's Inventory, valued at the lower of Borrower's cost or
the wholesale market value thereof, at all times pertinent hereto
shall not be less than N/A Dollars ($N/A) which no less than N/
Dollars ($N/A) shall be in raw materials and finished goods;
c. All of the Inventory is and shall remain free from all purchase
money or other security interests, liens or encumbrances, except
as held by Bank;
d. Borrower does now keep and hereafter at all times shall keep
correct and accurate records itemizing and describing the kind, type,
quality and quantity of the Inventory, its cost therefor and selling
price thereof, and the daily withdrawals therefrom and additions
thereto, all of which records shall be available upon demand to any of
Banks officers, agents and employees for inspection and copying;
e. All Inventory, now and hereafter at all times, shall be new
Inventory of good and merchantable quality free from defects;
f. Inventory is not now and shall not at any time or times hereafter
be located or stored with a bailee, warehouseman or other third party
without Bank's prior written consent, and, in such event, Borrower
will concurrently therewith cause any such bailee, warehouseman or
other third party to issue and deliver to Bank, in a form acceptable
to Bank, warehouse receipts in Bank's name evidencing the storage of
Inventory or other evidence of Bank's prior rights in the Inventory.
In any event, Borrower shall instruct any third party to hold all such
Inventory for Bank's account subject to Bank's security interests and
its instructions; and
g. Bank shall have the right upon demand now and/or at all times
hereafter, during Borrower's usual business hours, to inspect and
examine the Inventory and to check and test the same as to quality,
quantity, value and condition and Borrower agrees to reimburse Bank
for Bank's reasonable costs and expenses in so doing.
6.6 Borrower represents, warrants and covenants with Bank that Borrower
will not, without Bank's prior written consent:
a. Grant a security interest in or permit a lien, claim or
encumbrance upon any of the Collateral to any person, association,
firm, corporation, entity or governmental agency or instrumentality;
b. Permit any levy, attachment or restraint to be made affecting any
of Borrower's assets;
c. Permit any judicial officer or assignee to be appointed or to
take possession of any or all of Borrower's assets;
d. Other than sales of Inventory in the ordinary course of
Borrower's business, to sell, lease, or otherwise dispose of, move, or
transfer, whether by sale or otherwise, any of Borrower's assets;
e. Change its name, business structure, corporate identity or
structure; add any new fictitious names, liquidate, merge or
consolidate with or into any other business organization;
f. Move or relocate any Collateral;
g. Acquire any other business organization;
h. Enter into any transaction not in the usual course of Borrower's
business;
i. Make any investment in securities of any person, association,
firm, entity, or corporation other than the securities of the United
States of America;
j. Make any change in Borrower's financial structure or in any of its
business objectives, purposes or operations which would adversely
affect the ability of Borrower to repay Borrower's Obligations;
k. Incur any debts outside the ordinary course of Borrower's
business except renewals or extensions of existing debts and interest
thereon;
l. Make any advance or loan except in the ordinary course of
Borrower's business as currently conducted;
m. Make loans, advances or extensions of credit to any Person,
except for sales on open account and otherwise in the ordinary course of
business;
n. Guarantee or otherwise, directly or indirectly, in any way be or
become responsible for obligations of any other person, whether by
agreement to purchase the indebtedness of any other Person, agreement
for the furnishing of funds to any other Person through the furnishing
of goods, supplies or services, by way of stock purchase, capital
contribution, advance or loan, for the purpose of paying or
discharging (or causing the payment or discharge of) the indebtedness
of any other person, or otherwise, except for the endorsement of
negotiable instruments by the Borrower in the ordinary course of
business for deposit or collection;
o. (a) Sell, lease, transfer or otherwise dispose of properties and
assets having an aggregate book value of more than N/A Dollars
($N/A) (whether in one transaction or in a series of transactions)
except as to the sale of Inventory in the ordinary course of business;
(b) change its name, consolidate with or merge into any other
corporation, permit another corporation to merge into it, acquire all
or substantially all the properties or assets of any other Person,
enter into any reorganization or recapitalization or reclassify' its
capital stock, or (c) enter into any sale-leaseback transaction;
p. Purchase or hold beneficially any stock or other securities of,
or make any investment or acquire any interest whatsoever in, any
other Person, except for the common stock of the Subsidiaries owned by
the Borrower on the date of this Agreement and except for certificates
of deposit with maturities of one year or less of United States
commercial banks with capital, surplus and undivided profits in excess
of One Hundred Million Dollars ($100,000,000) and direct obligations
of the United States Government maturing within one year from the date
of acquisition thereof;
q. Allow any fact, condition or event to occur or exist with respect
to any employee pension or profit sharing plans established or
maintained by it which might constitute grounds for termination of any
such plan or for the court appointment of a trustee to administer any
such plan.
6.7 Borrower is not a merchant whose sales for resale of goods for
personal, family or household purposes exceeded seventy-five percent (75%)
in dollar volume of its total sales of all goods during the twelve (12)
months preceding the filing by Bank of a financing statement describing
the Collateral. At no time hereafter shall Borrower's sales for resale
goods for personal, family or household purposes exceed seventy-five
percent (75 %) in dollar volume of its total sales.
6.8 Borrower' s sole place of business or chief executive office or
Residence is located at the address indicated above and Borrower covenants
and agrees that it will not, during the term of this Agreement, without
prior written notification to Bank, relocate said sole place of business to
chief executive office or residence.
6.9 If Borrower is a corporation, Borrower represents, warrants and
Covenants as follows:
a. Borrower will not make any distribution or declare or pay any
dividend (in stock or in cash) to any shareholder or on any of its
capital stock, of any class, whether now or hereafter outstanding, or
purchase, acquire, repurchase, or redeem or retire any such capital
stock;
b. Borrower is and shall at all times hereafter be a corporation
Duly organized and existing in good standing under the laws of the
state of its incorporation and qualified and licensed to do business in
California or any other state in which it conducts its business;
c. Borrower has the right and power and is duly authorized to enter
into this Agreement; and
d. The execution by Borrower of this Agreement shall not constitute a
breach of any provision contained in Borrower's articles of
incorporation or by-laws.
6.10 The execution of and performance by Borrower of all of the terms and
provisions contained in this Agreement shall not result in a breach of or
constitute an event of default under any Agreement to which Borrower is now
or hereafter becomes a party. 11
6.11 Borrower shall promptly notify Bank in writing of its acquisition by
purchase, lease or otherwise of any after acquired property of the type
included in the Collateral, with the exception of purchases of Inventory in
the ordinary course of business.
6.12 All assessments and taxes, whether real, personal or otherwise, due or
payable by, or imposed, levied or assessed against, Borrower or any of its
property have been paid, and shall hereafter be paid in full, before
delinquency. Borrower shall make due and timely payment or deposit of all
federal, state and local taxes, assessments or contributions required of it by
law, and will execute and deliver to Bank, on demand, appropriate certificates
attesting to the payment or deposit thereof. Borrower will make timely payment
or deposit of all F.I.C.A. payments and withholding taxes required of it by
applicable laws, and will upon request furnish Bank with proof satisfactory to
it that Borrower has made such payments or deposit. If Borrower fails to pay
any such assessment, tax, contribution, or make such deposit, or furnish the
required proof, Bank may, in its sole and absolute discretion and without notice
to Borrower, (i) make payment of the same or any part thereof, or (ii) set up
such reserves in Borrower's account as Bank deems necessary to satisfy the
liability therefor, or both. Bank may conclusively rely on the usual statements
of the amount owing or other official statements issued by the appropriate
governmental agency. Each amount so paid or deposited by Bank shall constitute
a Bank Expense and an additional advance to Borrower.
6.13 There are no actions or proceedings pending by or against Borrower or
any guarantor of Borrower before any court or administrative agency and Borrower
has no knowledge of any pending, threatened or imminent litigation, governmental
investigations or claims, complaints, actions or prosecutions involving Borrower
or any guarantor of Borrower, except as heretofore specifically disclosed in
writing to Bank. If any of the foregoing arise during the term of the
Agreement, Borrower shall immediately notify Bank in writing.
6.14 a. Borrower, at its expense, shall keep and maintain its assets insured
against loss or damage by fire, theft, explosion, sprinklers and all other
hazards and risks ordinarily insured against by other owners who use such
properties in similar businesses for the full insurable value thereof. Borrower
shall also keep and maintain business interruption insurance and public
liability and property damage insurance relating to Borrower's ownership and use
of the Collateral and its other assets. All such policies of insurance shall be
in such form, with such companies, and in such amounts as may be satisfactory to
Bank. Borrower shall deliver to Bank certified copies of such policies of
insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain an endorsement in a form satisfactory to Bank showing Bank as a
loss payee thereof, with a waiver of warranties (Form 438-BFU), and all proceeds
payable thereunder shall be payable to Bank and, upon receipt by Bank, shall be
applied on account of the Obligations owing to Bank. To secure the payment of
the Obligations, Borrower grants Bank a security interest in and to all such
policies of insurance (except those of public liability and property damage) and
the proceeds thereof, and Borrower shall direct all insurers under such policies
of insurance to pay all proceeds thereof directly to Bank.
b. Borrower hereby irrevocably appoints Bank (and any of Bank's officers,
employees or agents designated by Bank) as Borrower's attorney for the purpose
of making, selling and adjusting claims under such policies of insurance,
endorsing the name of Borrower on any check, draft, instrument or other item of
payment for the proceeds of such policies of insurance and for making all
determinations and decisions with respect to such policies of insurance.
Borrower will not cancel any of such policies without Bank's prior written
consent. Each such insurer shall agree by endorsement upon the policy or
policies of insurance issued by it to Borrower as required above, or by
independent instruments furnished to Bank, that it will give Bank at least ten
(10) days written notice before any such policy or policies of insurance shall
be altered or cancelled, and that no act or default of Borrower, or any other
person, shall affect the right of Bank to recover under such policy or policies
of insurance required above or to pay any premium in whole or in part relating
thereto. Bank, without waiving or releasing any Obligations or any Event of
Default, may, but shall have no obligation to do so, obtain and maintain such
policies of insurance and pay such premiums and take any other action with
respect to such policies which Bank deems advisable. All sums so disbursed by
Bank, as well as reasonable attorneys' fees, court costs, expenses and other
charges relating thereto, shall constitute Bank Expenses and are payable on
demand.
6.15 All financial statements and information relating to Borrower which
have been or may hereafter be delivered by Borrower to Bank are true and correct
and have been prepared in accordance with GAAP consistently applied and there
has been no material adverse change in the financial condition of Borrower since
the submission of such financial information to Bank.
6.16 a. Borrower at all times hereafter shall maintain a standard and modern
system of accounting in accordance with GAAP consistently applied with ledger
and account cards and/or computer tapes and computer disks, computer printouts
and computer records pertaining to the Collateral which contain information as
may from time to time be requested by Bank, not modify or change its method of
accounting or enter into, modify or terminate any agreement presently existing,
or at any time hereafter entered into with any third party accounting firm
and/or service bureau for the preparation and/or storage of Borrower's
accounting records without the written consent of Bank first obtained and
without said accounting firm and/or service bureau agreeing to provide
information regarding the Receivables and Inventory and Borrower's financial
condition to Bank; permit Bank and any of its employees, officers or agents,
upon demand, during Borrower's usual business hours, or the usual business hour
of third persons having control thereof, to have access to and examine all of
the Borrower's Books relating to the Collateral, Borrower's Obligations to
Bank, Borrower's financial condition and the results of Borrower's operations
and in connection therewith, permit Bank or any of its agents, employees or
officers to copy and make extracts therefrom.
b. Borrower shall deliver to Bank within thirty (30) days after the end of
each MONTH a COMPANY PREPARED balance sheet and profit and loss
statement* covering Borrower's operations and deliver to Bank within ninety (90)
days after the end of each of Borrower's fiscal years a(n) CPA Audited FYE
statement of the financial condition of the Borrower for each such fiscal year,
including but not limited to, balance sheet and profit and loss statement and
any other report requested by Bank relating to the Collateral e the financial
condition of Borrower, and a certificate signed by an authorized employee of
Borrower to the effect that all reports, statements, computer disk or tape
files, computer printouts, computer runs, or other co prepared information of
any kind or nature relating to the foregoing or documents delivered or caused
delivered to Bank under this subparagraph are complete, correct and thoroughly
present the financial co of Borrower and that there exists on the date of
delivery to Bank no condition or event which constitutes a breach or Event of
Default under this Agreement.
*WITH COMPLIANCE CERTIFICATE
c. In addition to the financial statements requested above, the Borrower
agrees to provide Bank with the following schedules:
x Accounts Receivable Agings on a MONTHLY basis
x Accounts Payable Agings on a MONTHLY basis
Job Progress Reports on a basis; and
BORROWING BASE CERTIFICATE on a MONTHLY basis
6.17 Borrower shall maintain the following financial ratios and covenants on a
consolidated and non-consolidated basis:
a. Working Capital in an amount not less than n/a
b. Tangible Effective Net Worth in an amount not less than $500,000.00
MEASURED ON A MONTHLY BASIS
c. a ratio of Current Assets to Current Liabilities of not less than
1.10:1.00 MEASURED ON A MONTHLY BASIS
d. a quick ratio of cash plus securities plus Receivables to Current
Liabilities of not less than N/A
e. a ratio of Total Liabilities (less debt subordinated to Bank) to
Tangible Effective Net Worth of less than 3.00:100 MEASURED ON A MONTHLY BASIS
f. a ratio of Cash Flow to Fixed Charges of not less than N/A
g. Net Income after taxes of GREATER THAN $0.00 ON AN ANNUAL BASIS
h. Borrower shall not without Bank's prior written consent acquire or expend
for or commit itself to acquire or expend for fixed assets by lease, purchase or
otherwise in an aggregate amount that exceeds N/A Dollars ($n/a) in any fiscal
year; and
i.
All financial covenants shall be computed in accordance with GAAP
consistently applied except as otherwise specifically set forth in this
Agreement. All monies due from affiliates (including officers, directors and
shareholders) shall be excluded from Borrower's assets for all purposes
hereunder.
6.18 Borrower shall promptly supply Bank (and cause any guarantor to supply
Bank) with such other information (including tax returns) concerning its affair
(or that of any guarantor) as Bank may request from time to time hereafter, and
shall promptly notify Bank of any material adverse change in Borrower's
financial condition and of any condition or event which constitutes a breach of
or an event which constitutes an Event of Default under this Agreement.
6.19 Borrower is now and shall be at all times hereafter solvent and able to
pay its debts (including trade debts) as they mature.
6.20 Borrower shall immediately and without demand reimburse Bank for all sums
expended by Bank in connection with any action brought by Bank to correct any
default or enforce any provision of this Agreement, including all Bank Expenses;
Borrower authorizes and approves all advances and payments by Bank for items
described in this Agreement as Bank Expenses.
6.21 Each warranty, representation and agreement contained in this Agreement
shall be automatically deemed repeated with each advance and shall be
conclusively presumed to have been relied on by Bank regardless of any
investigation made or information possessed by Bank. The warranties,
representations and agreements set forth herein shall be cumulative and in
addition to any and all other warranties, representations and agreements which
Borrower shall give, or cause to be given, to Bank, either now or hereafter.
6.22 Borrower shall keep all of its principal bank accounts with Bank and
shall notify the Bank immediately in writing of the existence of any other bank
account, deposit account, or any other account into which money can be
deposited.
6.23 Borrower shall furnish to the Bank: (a) as soon as possible, but in no
event later than thirty (30) days after Borrower knows or has reason to know
that any reportable event with respect to any deferred compensation plan has
occurred, a statement of the chief financial officer of Borrower setting forth
the details concerning such reportable event and the action which Borrower
proposes to take with respect thereto, together with a copy of the notice of
such reportable event given to the Pension Benefit Guaranty Corporation, if a
copy of such notice is available to Borrower; (b) promptly after the filing
thereof with the United States Secretary of Labor or the Pension Benefit
Guaranty Corporation, copies of each annual report with respect to each deferred
compensation plan; (c) promptly after receipt thereof, a copy of any notice
Borrower may receive from the Pension Benefit Guaranty Corporation or the
Internal Revenue Service with respect to any deferred compensation plan;
provided, however, this subparagraph shall not apply to notice of general
application issued by the Pension Benefit Guaranty Corporation or the Internal
Revenue Service; and (d) when the same is made available to participants in the
deferred compensation plan, all notices and other forms of information from
time to time disseminated to the participants by the administrator of the
deferred compensation plan.
6.24 Borrower is now and shall at all times hereafter remain in compliance
with all federal, state and municipal laws, regulations and ordinances relating
to the handling, treatment and disposal of toxic substances. wastes and
hazardous material and shall maintain all necessary authorizations and permits.
6.25 Borrower shall maintain insurance on the life of N/A in an amount
not to be less than No/100 Dollars under one or more policies issued by
insurance companies satisfactory to Bank, which policies shall be assigned to
Bank as security for the indebtedness and on which Bank shall be named as sole
beneficiary.
6.25 Borrower shall limit direct and indirect compensation paid to the
following employees: N/A , N/A, N/A to an aggregate of N/A Dollars
($N/A) per N/A.
7. EVENTS OF DEFAULT. Any one or more of the following events shall
constitute a default by Borrower under this Agreement:
a. If Borrower fails or neglects to perform, keep or observe any term,
provision, condition, covenant, agreement, warranty or representation contained
in this Agreement, or any other present or future agreement between Borrower
and Bank;
b. If any representation, statement, report or certificate made or delivered
by Borrower, or any of its officers, employees or agents to Bank is not true
and correct;
c. If Borrower fails to pay when due and payable or declared due and
payable, all or any portion of the Borrower's Obligations (whether of
principal, interest, taxes, reimbursement of Bank Expenses, or otherwise);
d. If there is a material impairment of the prospect of repayment of all or
any portion of Borrower's Obligations or a material impairment of the value or
priority of Bank's security interest in the Collateral;
e. If all or any of Borrower's assets are attached, seized, subject to a
writ or distress warrant, or are levied upon, or come into the possession of
any Judicial Officer or Assignee and the same are not released, discharged or
bonded against within ten (10) days thereafter;
f. If any Insolvency Proceeding is filed or commenced by or against
Borrower without being dismissed within ten (10) days thereafter;
g. If any proceeding is filed or commenced by or against Borrower for its
dissolution or liquidation;
h. If Borrower is enjoined, restrained or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs;
i. If a notice of lien, levy or assessment is filed of record with respect
to any or all of Borrower's assets by the United States Government, or any
department, agency or instrumentality thereof, or by any state, county,
municipal or other government agency, or if any taxes or debts owing at any
time hereafter to any one or more of such entities becomes a lien, whether
choate or otherwise, upon any or all of the Borrower's assets and the same is
not paid on the payment date thereof;
j. If a judgment or other claim becomes a lien or encumbrance upon any or
all of Borrower's assets and the same is not satisfied, dismissed or bonded
against within ten (10) days thereafter;
k. If Borrower's records are prepared and kept by an outside computer
service bureau at the time this Agreement is entered into or during the term of
this Agreement such an agreement with an outside service bureau is entered into,
and at any time thereafter, without first obtaining the written consent of
Bank, Borrower terminates, modifies, amends or changes its contractual
relationship with said computer service bureau or said computer service bureau
fails to provide Bank with any requested information or financial data
pertaining to Bank's Collateral, Borrower's financial condition or the results
of Borrower's operations;
j. If Borrower permits a default in any material agreement to which Borrower
is a party with third parties so as to result in an acceleration of the maturity
of Borrower's indebtedness to others, whether under any indenture, agreement or
otherwise;
l. If Borrower makes any payment on account of indebtedness which has been
subordinated to Borrower's Obligations to Bank;
m. If any misrepresentation exists now or thereafter in any warranty or
representation made to Bank by any officer or director of Borrower, or if any
such warranty or representation is withdrawn by any officer or director;
n. If any party subordinating its claims to that of Bank's or any guarantor
of Borrower's Obligations dies or terminates its subordination or guaranty,
becomes insolvent or an Insolvency Proceeding is commenced by or against any
such subordinating party or guarantor;
p. If Borrower is an individual and Borrower dies;
q. If there is a change of ownership or control of any percent ( %) or
more of the issued and outstanding stock of Borrower; or
r. If any reportable event, which the Bank determines constitutes grounds
for the termination of any deferred compensation plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer any such plan, shall have occurred
and be continuing thirty (30) days after written notice of such determination
shall have been given to Borrower by Bank, or any such Plan shall be terminated
within the meaning of Title IV of the Employment Retirement Income Security Act
("ERISA"), or a trustee shall be appointed by the appropriate United States
District Court to administer any such plan, or the Pension Benefit Guaranty
Corporation shall institute proceedings to terminate any plan and in case of
any event described in this Section 7.0, the aggregate amount of the Borrower's
liability to the Pension Benefit Guaranty Corporation under Sections 4062, 4063
or 4064 of ERISA shall exceed five percent (5%) of Borrower's Tangible
Effective Net Worth.
Notwithstanding anything contained in Section 7 to the contrary, Bank shall
refrain from exercising its rights and remedies and Event of Default shall
thereafter not be deemed to have occurred by reason of the occurrence of any of
the events set forth in Sections 7.e, 7.f or 7.j of this Agreement if, within
ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, if the event is the
institution of Insolvency Proceedings against Borrower, Bank shall not be
obligated to make advances to Borrower during such cure period.
8.0 BANK'S RIGHTS AND REMEDIES
8.1 Upon the occurrence of an Event of Default by Borrower under this
Agreement, Bank may, at its election, without notice of its election and without
demand, do any one or more of the following, all of which are authorized by
Borrower:
a. Declare Borrower's Obligations, whether evidenced by this Agreement,
installment notes, demand notes or otherwise, immediately due and payable to the
Bank;
b. Cease advancing money or extending credit to or for the benefit of Borrower
under this Agreement, or any other agreement between Borrower and Bank;
c. Terminate this Agreement as to any future liability or obligation of Bank,
but without affecting Bank's rights and security interests in the Collateral,
and the Obligations of Borrower to Bank;
d. Without notice to or demand upon Borrower or any guarantor, make such
payments and do such acts as Bank considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires and to make the Collateral available to Bank as
Bank may designate. Borrower authorizes Bank to enter the premises where the
Collateral is located, take and maintain possession of the Collateral and the
premises (at no charge to Bank), or any part thereof, and to pay, purchase,
contest or compromise any encumbrance, charge or lien which in the opinion of
Bank appears to be prior or superior to its security interest and to pay all
expenses incurred in connection therewith;
e. Without limiting Bank's rights under any security interest, Bank is hereby
granted a license or other right to use, without charge, Borrower's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar nature as it
pertains to the Collateral, in completing production of, advertising for sale
and selling any Collateral and Borrower's rights under all licenses and all
franchise agreement shall inure to Bank's benefit, and Bank shall have the right
and power to enter into sublicense agreements with respect to all such rights
with third parties on terms acceptable to Bank;
f. Ship, reclaim, recover, store, finish, maintain, repair, prepare for sale,
advertise for sales and sell (in the manner provided for herein) the Inventory;
g. Sell or dispose the Collateral at either a public or private sale, or both,
by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including Borrower's premises) as is commercially
reasonable in the opinion of Bank. It is not necessary that the Collateral be
present at any such sale;
h. Bank shall give notice of the disposition of the Collateral as follows:
(1) Bank shall give the Borrower and each holder of a security interest in the
Collateral who has filed with Bank a written request for notice, a notice in
writing of the time and place of public sale, or, if the sale is a private sale
or some disposition other than a public sale is to be made of the Collateral,
the time on or after which the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or mailed, postage prepaid to
Borrower's address appearing in this Agreement, at least five (5) calendar days
before the date fixed for the sale, or at least five (5) calendar days before
the date on or after which the private sale or other disposition is to be made,
unless the Collateral is perishable or threatens to decline speedily in value.
Notice to persons other than Borrower claiming an interest in the Collateral
shall be sent to such addresses as have been furnished to Bank;
(3) If the sale is to be a public sale, Bank shall also give notice of the
time and place by publishing a notice one time at least five (5) calendar days
before the date of the sale in a newspaper of general circulation in the county
in which the sale is to be held; and
(4) Bank may credit bid and purchase at any public sale.
h. Borrower shall pay all Bank Expenses incurred in connection with Bank's
enforcement and exercise of any of its rights and remedies as herein provided,
whether or not suit is commenced by Bank;
i. Any deficiency which exists after disposition of the Collateral as provided
above will be paid immediately by Borrower. Any excess will be returned,
without interest and subject to the rights of third parties, to Borrower by
Bank, or, in Bank's discretion, to any party who Bank believes, in good faith,
is entitled to the excess; and
j. Without constituting a retention of Collateral in satisfaction of an
obligation within the meaning of 9505 of the Uniform Commercial Code or an
action under California Code of Civil Procedure 726, apply any and all amounts
maintained by Borrower as deposit accounts (as that term is defined under -9105
of the Uniform Commercial Code) or other accounts that Borrower maintains with
Bank against the Obligations.
8.2 Bank's rights and remedies under this Agreement and all other agreements
shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided by law or in equity. No exercise by Bank of
one right or remedy shall be deemed, an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election or acquiescence by Bank..
9. TAXES AND EXPENSES REGARDING BORROWER'S PROPERTY
If Borrower fails to pay promptly when due to another person or entity, monies
which Borrower is required to pay by reason of any provision in this Agreement,
Bank may, but need not, pay the same and charge Borrower's account therefor, and
Borrower shall promptly reimburse Bank. All such sums shall become additional
indebtedness owing to Bank, shall bear interest at the rate hereinabove
provided, and shall be secured by all Collateral. Any payments made by Bank
shall not constitute (i) an agreement by it to make similar payments in the
future, or (ii) a waiver by Bank of any default under this Agreement. Bank need
not inquire as to, or contest the validity of, any such expense, tax, security
interest, encumbrance or lien and the receipt of the usual official notice of
the payment thereof shall be conclusive evidence that the same was validly due
and owing. Such payments shall constitute Bank Expenses and additional advances
to Borrower.
10. WAIVERS
10.1 Borrower agrees that checks and other instruments received by Bank in
payment or on account of Borrower's Obligations constitute only conditional
payment until such items are actually paid to Bank and Borrower waives the right
to direct the application of any and all payments at any time or times hereafter
received by Bank on account of Borrower's Obligations and Borrower agrees that
Bank shall have the continuing exclusive right to apply and reapply such
payments in any manner as Bank may deem advisable, notwithstanding any entry by
Bank upon its books.
10.2 Borrower waives demand, protest, notice of protest, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension or renewal of any or all
commercial paper, accounts, documents, instruments chaftel paper, and guarantees
at any time held by Bank :n which Borrower may in any way be liable.
10.3 Bank shall not in any way or manner be liable or responsible for (a) the
safekeeping of the Inventory; (b) any loss or damage thereto occurring or
arising in any manner or fashion from any cause; (c) any diminution in the value
thereof; or (d) any act or default of any carrier, warehouseman, bailee,
forwarding agency or other person whomsoever. All risk of loss, damage or
destruction of Inventory shall be borne by Borrower.
10.4 Borrower waives the right and the right to assert a confidential
relationship, if any, it may have with any accountant, accounting firm and/or
service bureau or consultant in connection with any information requested by
Bank pursuant to or in accordance with this Agreement, and agrees that a Bank
may contact directly any such accountants, accounting firm and/or service bureau
or consultant in order to obtain such information.
10.5 BORROWER AND BANK EACH WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY TRANSACTION HEREUNDER, OR
CONTEMPLATED HEREUNDER, OR ANY OTHER CLAIM (INCLUDING TORT OR BREACH OF DUTY
CLAIMS) OR DISPUTE HOWSOEVER ARISING BETWEEN BANK AND BORROWER.
10.6 In the event that Bank elects to waive any rights or remedies hereunder,
or compliance with any of the terms hereof, or delays or fails to pursue or
enforce any term, such waiver, delay or failure to pursue or enforce shall only
be effective with respect to that single act and shall not be construed to
affect any subsequent transactions or Bank's right to later pursue such rights
and remedies.
11. ONE CONTINUING LOAN TRANSACTION ' All loans and advances heretofore, now
or at any time or times hereafter made by Bank to Borrower under this Agreement
or any other agreement between Bank and Borrower, shall constitute one loan
secured by Bank's security interests in the Collateral and by all other security
interests, liens, encumbrances heretofore, now or from time to time hereafter
granted by Borrower to Bank.
Notwithstanding the above, (i) to the extent that any portion of the Obligations
are consumer loan, that portion shall not be secured by any deed of trust or
mortgage on or other security interest in the Borrower's principal dwelling
which is not a purchase money security interest as to that portion, unless
expressly provided to the contrary in another place, or (ii) if the Borrower (or
any of them) has (have) given or give(s) Bank a deed of trust or mortgage
covering real property, that deed of trust or mortgage shall not secure the loan
and any other Obligation of the Borrower (or any of them), unless expressly
provided to the contrary in another place.
12. NOTICES Unless otherwise provided in this Agreement, all notices or
demands by either party on the other relating to this Agreement shall be in
writing and sent by regular United States mail, postage prepaid, properly
addressed to Borrower or to Bank at the addresses stated in this Agreement, or
to such other addresses as Borrower or Bank may from time to time specify to the
other in writing. Requests to Borrower by Bank hereunder may be made orally.
13. AUTHORIZATION TO DISBURSE Bank is hereby authorized to make loans and
advances hereunder upon telephonic or other instructions received from anyone
purporting to be an officer, employee, or representative of Borrower, or at the
discretion of Bank if said loans and advances are necessary to meet any
Obligations of Borrower to Bank. Bank shall have no duty to make inquiry or
verify the authority of any such party, and Borrower shall hold Bank harmless
from any damage, claims or liability by reason of Bank's honor of, or failure to
honor, any such instructions.
14. DESTRUCTION OF BORROWER'S DOCUMENTS Any documents, schedules, invoices or
other papers delivered to Bank, may be destroyed or otherwise disposed of by
Bank six (6) months after they are delivered to or received by Bank, unless
Borrower requests, in writing, the return of the said documents, schedules,
invoices or other papers and makes arrangements, at Borrower's expense, for
their return.
15. CHOICE OF LAW The validity of this Agreement, its construction,
interpretation and enforcement, and the rights of the parties hereunder and
concerning the Collateral, shall be determined according to the laws of the
State of California. The parties agree that all actions or proceedings arising
in connection with this Agreement shall be tried and litigated only in the state
and federal courts in the Northern District of California or the County of Santa
Clara.
16. GENERAL PROVISIONS
16.1 This Agreement shall be binding and deemed effective when executed by the
Borrower and accepted and executed by Bank at its headquarter office .
16.2 This Agreement shall bind and inure to the benefit of the respective
successors and assigns of each of the parties, provided, however, that
Borrower may not assign this Agreement or any rights hereunder without Bank's
prior written consent and any prohibited assignment shall be absolutely void.
No consent to an assignment by Bank shall release Borrower or any guarantor from
their Obligations to Bank. Bank may assign this Agreement and its rights and
duties hereunder. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in Bank's rights
and benefits hereunder. In connection therewith, Bank may disclose all
documents and information which Bank now or hereafter may have relating to
Borrower or Borrower's business.
16.3 Paragraph headings and paragraph numbers have been set forth herein for
convenience only; unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Agreement.
16.4 Neither this Agreement nor any uncertainty or ambiguity herein shall be
construed or resolved against Bank or Borrower, whether under any rule of
construction or otherwise; on the contrary, this Agreement has been reviewed by
all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto. When permitted by the context, the singular includes the
plural and vice versa.
16.5 Each provision of this Agreement shall be severable from every other
provision of this Agreement for the purpose of determining the legal
enforceability of any specific provision.
16.6 This Agreement cannot be changed or terminated orally. Except as to
currently existing Obligations owing by Borrower to Bank, all prior agreements,
understandings, representations, warranties, and negotiations, if any, with
respect to the subject matter hereof, are merged into this Agreement.
16.7 The parties intend and agree that their respective rights, duties, powers,
liabilities, obligations and discretions shall be performed, carried out,
discharged and exercised reasonably and in good faith.
16.8 In addition, if this Agreement is secured by a deed of trust or mortgage
covering real property, then the trustor or mortgagor shall not mortgage or
pledge the mortgaged premises as security for any other indebtedness or
obligations. This Agreement, together with all other indebtedness secured by
said deed of trust or mortgage, shall become due and payable immediately,
without notice, at the option of Bank, (a) if said trustor or mortgagor shall
mortgage or pledge the mortgaged premises for any other indebtedness or
obligations or shall convey, assign or transfer the mortgaged premises by deed,
installment sale contract or other instrument; (b) if the title to the mortgaged
premises shall become vested in any other person or party in any manner
whatsoever, or (c) if there is any disposition (through one or more
transactions) of legal or beneficial title to a controlling interest of said
trustor or mortgagor.
IN WITNESS WHEREOF, the parties hereto have caused this Loan & Security
Agreement (Accounts and Inventory) to be executed as of the date first
hereinabove written.
SEE EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF.
ATTEST:
Title:
Accepted and effective as of June 30, 1997
at Bank's Headquarter Office
BORROWER: VIDESSENCE, INC.
By: /s/Paul Costa
Signature of: Paul Costa, President
Title:
/s/William Stevens
Signature of WILLIAM STEVENS
Title: FIRST VICE PRESIDENT
By:
Signature of
Title:
By:
Signature of
Title:
Exhibit "A" attached to that certain Loan & Security Agreement dated June 30,
1997 by and between Videssence, Inc. and Commercial Bank California and made a
part thereof
As part of its Guaranty for the obligations of Borrower, Netter Digital
Entertainment. Inc. has agreed to the following:
1. Should Guarantor pledge, assign, encumber or otherwise give a security
Interest in any portion of its assets, whether now owned or hereafter acquired,
Guarantor will provide Bank with notification.
2. Within forty-five (45) days after the end of each calendar quarter, the
Guarantor will deliver to Bank its internally prepared consolidating and
consolidated statements with a compliance certificate and copies of current 10-Q
reports.
3. Within ninety days (90) after the end of each fiscal year the Guarantor will
deliver to Bank a CPA audited consolidating and consolidated fiscal year end
statement with a current 10-K report.
4. At the end of each calendar quarter the Guarantor will maintain minimum
working capital of at least $400,000.00.
5. At the end of each calendar quarter the Guarantor's ratio of total
liabilities to Extend Tangible Net Worth shall be no greater than 1.25: 1.00.
It is hereby agreed that it will be an Event of Default under this Loan &
Security Agreement if the Guarantor should fail to comply with any of those
covenants.
Guaranty
The undersigned, for value received, unconditionally and absolutely guarantee(s)
to COMERICA BANK-CALIFORNIA _ ("Bank") a, California banking corporation, and to
the Bank's successors and assigns, payment when due, whether by stated maturity,
demand, acceleration or otherwise, of all existing and future indebtedness to
the Bank of VIDESSENCE, INC. ("Borrower") of any successor in interest,
including without limit any debtor-in-possession or trustee In bankruptcy which
succeeds to the interest of this party or person jointly and severally the
"Borrower"), however this indebtedness has been or may be incurred or evidenced,
whether absolute or contingent direct or indirect, voluntary or involuntary,
liquidated or unliquidated, joint or several, and whether or not known to the
undersigned at the time of this Guaranty or at the time any future indebtedness
Is Incurred (the "Indebtedness').
The Indebtedness guaranteed Includes without limit: (a) any and all direct
indebtedness of the Borrower to the Bank, Including Indebtedness evidenced by
any and all promissory notes; (b) any and all obligations or liabilities of the
Borrower to the Bank arising under any guaranty where the Borrower has
guaranteed the payment of Indebtedness owing to the Bank from a third party; (c)
any and all obligations or liabilities of the Borrower to the Bank arising from
applications or agreements for the issuance of letters of credit; (d) any and
all obligations or liabilities of the Borrower to the Bank arising out of any
other agreement by the Borrower Including without limit any agreement to
indemnify the Bank for environmental liability or to clean up hazardous waste;
(e) any and all indebtedness, obligations or liabilities for which the Borrower
would otherwise be liable to the Bank were it not for the invalidity,
irregularity or unenforceability of them by reason of any bankruptcy, insolvency
or other law or order of any kind, or for any other reason, including without
limit liability for interest and attorneys' fees on, or In connection with, any
of the Indebtedness from and after the filing by or against the Borrower of a
bankruptcy petition whether an Involuntary or voluntary bankruptcy case,
including, without limitation, all attorneys' fees and costs incurred In
connection with motions for relief from stay, cash collateral motions,
nondischargeability motions, preference liability motions, fraudulent conveyance
liability motions, fraudulent transfer liability motions and all other motions
brought by Borrower, Guarantor, Bank or third parties in any way relating to
Bank's rights with respect to such Borrower, Guarantor, or third party and/or
affecting any collateral securing any obligation owed to Bank by Borrower,
Guarantor, or any third party, probate proceedings, on appeal or otherwise; (Q
any and all amendments, modifications, renewals and/or extensions of any of the
above, including without limit amendments, modifications, renewals and/or
extensions which are evidenced by new or additional Instruments, documents or
agreements; and (g) all costs of collecting Indebtedness, Including without
limit reasonable attorneys' fees and costs.
The undersigned waive(s) notice of acceptance of this Guaranty and presentment,
demand, protest, notice of protest, dishonor, notice of dishonor, notice of
default, notice of intent to accelerate or demand payment of any Indebtedness,
and diligence in collecting any Indebtedness, and agree(s) that the Bank may
modify the terms of any Indebtedness, compromise, extend, increase, accelerate,
renew or forbear to enforce payment of any or all Indebtedness, or permit the
Borrower to incur additional Indebtedness, all without notice to the undersigned
and without affecting in any manner the unconditional obligation of the
undersigned under this Guaranty. The undersigned, further waive(s) any and all
other notices to which the undersigned might otherwise be entitled. The
undersigned acknowledges and agree(s) that the liabilities created by this
Guaranty are direct and are not conditioned upon pursuit by the Bank of al may
have against the Borrower or any other person or any security. No invalidity,
irregularity or unenforceability, Indebtedness or any documents evidencing the
same, by reason of any bankruptcy, insolvency for any other reason, and no
defense or setoff available at any time to the Borrower, shall impair, the
obligations of the undersigned under this Guaranty.
The undersigned deliver(s) this Guaranty based solely on the undersigned's
independent investigation of the financial condition of the Borrower and Is
(are) not relying on any information furnished by the Bank. The undersigned
assume(s) full responsibility for obtaining any further information concerning
the Borrower's financial condition, the status of the Indebtedness or any other
matter which the undersigned may deem necessary or appropriate from time to
time. The undersigned waive(s) any duty on the part of the Bank, and agree(s)
that it is not relying upon nor expecting the Bank to disclose to the
undersigned any fact now or later known by the Bank, whether relating to the
operations or condition of the Borrower, the existence, liabilities or financial
condition of any co-guarantor of the Indebtedness, the occurrence of any default
with respect to the Indebtedness, or otherwise, notwithstanding any effect these
facts may have upon the undersigned's risk under this Guaranty or the
undersigned's rights against the Borrower. The undersigned knowingly accept(s)
the full range of risk encompassed in this Guaranty, which risk includes without
limit the possibility that the Borrower may incur Indebtedness to the Bank after
the financial condition of the Borrower, or its ability to pay its debts as they
mature, has deteriorated.
The undersigned represent(s) and warrant(s) that: (a) the Bank has made no
representation to the undersigned as to the creditworthiness of the Borrower;
and (b) the undersigned has (have) established adequate means of obtaining from
the Borrower on a continuing basis financial and other information pertaining to
the Borrower's financial condition. The undersigned agree(s) to keep adequately
informed of any facts, events or circumstances which might in any way affect the
risks of the undersigned under this Guaranty.
The undersigned grant(s) to the Bank a security interest in and the right of
setoff as to any and all property of the undersigned now or later in the
possession of the Bank. The undersigned subordinate(s) any claim of any nature
that the undersigned now or later has (have) against the Borrower to and In
favor of all Indebtedness and agree(s) not to accept payment or satisfaction of
any claim that the undersigned now or later may have against the Borrower
without the prior written consent of the Bank. Should any payment,
distribution, security, or proceeds, be received by the undersigned upon or with
respect to any claim that the undersigned now or may later have against the
Borrower, the undersigned shall immediately deliver the same to the Bank in the
form received (except for endorsement or assignment by the undersigned where
required by the Bank) for application on the Indebtedness, whether matured or
unmatured, and until delivered the same shall be held in trust by the
undersigned as the property of the Bank. The undersigned further assign(s) to
the Bank as collateral for the obligations of the undersigned under this
Guaranty all claims of any nature that the undersigned now or later has (have)
against the Borrower (other than any claim under a deed of trust or mortgage
covering real property) with full right on the part of the Bank, In its own name
or In the name of the undersigned, to collect and enforce these claims.
The undersigned agree(s) that no security now or later held by the Bank for the
payment of any Indebtedness, whether from the Borrower, any guarantor, or
otherwise, and whether in the nature of a security interest, pledge, lien,
assignment, setoff, suretyship, guaranty, indemnity, insurance or otherwise,
shall affect in any manner the unconditional obligation of the undersigned under
this Guaranty, and the Bank, in its sole discretion, without notice to the
undersigned, may release, exchange, enforce and otherwise deal with any security
without affecting in any manner the unconditional obligation of the undersigned
under this Guaranty. The undersigned acknowledges(s) and agree(s) that the Bank
has no obligation to acquire or perfect any lien on or security interest in any
asset(s), whether realty or personally, to secure payment of the Indebtedness,
and the undersigned is (are) not relying upon any asset(s) in which the Bank has
or may have a lien or security interest for payment of the Indebtedness.
The undersigned acknowledge(s) that the effectiveness of this Guaranty is not
conditioned on any or all of the Indebtedness being guaranteed by anyone else.
Until the Indebtedness Is Irrevocably paid In full, the undersigned waive(s) any
and all rights to be subrogated to the position of the Bank or to have the
benefit of any lien, security interest or other guaranty now or later held by
the Bank for the Indebtedness or to enforce any remedy which the Bank now or
later has against the Borrower or any other person. Until the indebtedness is
irrevocably paid in full, the undersigned shall have no right of reimbursement,
Indemnity, contribution or other right of recourse to or with respect to the
Borrower or any other person. The undersigned agree(s) to indemnify and hold
harmless the Bank from and against any and all claims, actions, damages, costs
and expenses, including without limit reasonable attorneys' fees, incurred by
the Bank in connection with the undersigned's exercise of any right of
subrogation, contribution, indemnification or recourse with respect to this
Guaranty. The Bank has no duty to enforce or protect any rights which the
undersigned may have against the Borrower or any other person and the
undersigned assume(s) full responsibility for enforcing and protecting these
rights.
Notwithstanding any provision of the preceding paragraph or anything else in
this Guaranty to the contrary, if any of the undersigned is or becomes an
"Insider" or "affiliate" (as defined in Section 101 of the Federal Bankruptcy
Code, as it may be amended) with respect to the Borrower, then that undersigned
irrevocably and absolutely waives any and all rights of subrogation,
contribution, Indemnification, recourse, reimbursement and any similar rights
against the Borrower (or any other guarantor) with respect to this Guaranty,
whether such rights arise under an express or Implied contract or by operation
of law. It is the Intention of the parties that the undersigned shall not be
(or be deemed to be) a "creditor" (as defined in Section 101 of the Federal
Bankruptcy Code, as it may be amended) of the Borrower (or any other guarantor)
by reason of the existence of this Guaranty in the event that the Borrower
becomes a debtor in any proceeding under the Federal Bankruptcy Code. This
waiver is given to induce the Bank to enter Into certain written contracts with
the Borrower Included In the Indebtedness. The undersigned warrant(s) and
agree(s) that none of Bank's rights, remedies or Interests shall be directly or
indirectly impaired because of any of the undersigned's status as an "insider"
or "affiliate" of the Borrower, and undersigned shall take any action, and shall
execute any document, which the Bank may request in order to effectuate this
warranty to the Bank.
If any Indebtedness is guaranteed by two or more guarantors, the obligation of
the undersigned shall be several and also joint, each with all and also each
with any one or more of the others, and may be enforced at the option of the
Bank against each severally, any two or more jointly, or some severally and some
jointly The Bank, in its sole discretion, may release any one or more of the
guarantors for any consideration which it deems adequate, and may fail or elect
not to prove a claim against the estate of any bankrupt, insolvent, incompetent
or deceased guarantor; and after that, without notice to any other guarantor,
the Bank may extend or renew any or all Indebtedness and may permit the Borrower
to incur additional Indebtedness, without affecting in any manner the
unconditional obligation of the remaining guarantor(s). This action by the Bank
shall not, however, be deemed to affect any right to contribution which may
exist among the guarantors.
Any of the undersigned may terminate their obligation under this Guaranty as to
future Indebtedness (except as provided below) by (and only by) delivering
written notice of termination to an officer of the Bank and receiving from, an
officer of the Bank written acknowledgement of delivery; provided, the
termination shall not be effective until the opening of business on the fifth
(5th) day following written acknowledgement of delivery. Any termination shall
not affect in any way the unconditional obligations of the remaining
guarantor(s), whether or not the termination is known to the remaining
guarantor(s). Any termination shall not affect In any way the unconditional
obligations of the terminating guarantor(s) as to any Indebtedness existing at
the effective date of termination or any Indebtedness created after that
pursuant to any commitment or agreement of the Bank or any Borrower loan with
the Bank existing at the effective date of termination (whether advances or
readvances by the Bank are optional or obligatory), or any modifications,
extensions or renewals of any of this Indebtedness, whether in whole or in part,
and as to all of this Indebtedness and modifications, extensions or renewals of
It, this Guaranty shall continue effective until the same shall have been fully
paid. The Bank has no duty to give notice of termination by any guarantor(s) to
any remaining guarantor(s). The undersigned shall indemnify the Bank against
all claims, damages, costs and expenses, including without limit reasonable
attorneys' fees and costs, incurred by the Bank In connection with any suit,
claim or action against the Bank arising out of any modification or termination
of a Borrower loan or any refusal by the Bank to extend additional credit in
connection with the termination of this Guaranty.
Notwithstanding any prior revocation, termination, surrender or discharge of
this Guaranty (or of any lien, pledge or security interest securing this
Guaranty) in whole or part, the effectiveness of this Guaranty, and of all
liens, pledges and security Interests securing this Guaranty, shall
automatically continue or be reinstated, as the case may be, In the event that
any payment received or credit given by the Bank In respect of the
Indebtedness Is returned, disgorged or rescinded as a preference,
impermissible setoff, fraudulent conveyance, diversion of trust funds, or
otherwise under any applicable state or federal law, including, without
limitation, laws pertaining to bankruptcy or insolvency, in which case this
Guaranty, and all liens, pledges and security interests securing this Guaranty,
shall be enforceable against the undersigned as If the returned, disgorged or
rescinded payment or credit had not been received or given by the Bank, and
whether or not the Bank relied upon this payment or credit or changed its
position as a consequence of It; or (b) any liability Is imposed, or sought to
be Imposed, against the Bank relating to the environmental condition of, or the
presence of hazardous or toxic substances on, in or about, any property given as
collateral to the Bank by the Borrower, whether this condition Is known or
unknown, now exists or subsequently arises (excluding only conditions which
arise after any acquisition by the Bank of any such property, by foreclosure, in
lieu of foreclosure or otherwise, to the extent due to the wrongful act or
omission of the Bank), In which case this Guaranty, and all liens, pledges and
security interests securing this Guaranty, shall be enforceable against the
undersigned to the extent of all liability, costs and expenses (including
without limit reasonable attorneys' fees and costs) incurred by the Bank as the
direct or indirect result of any environmental condition or hazardous or toxic
substances. In the event of continuation or reinstatement of this Guaranty and
the liens, pledges and security interests securing it, the undersigned agree(s)
upon demand by the Bank to execute and deliver to the Bank those documents which
the Bank determines are appropriate to further evidence (in the public records
or otherwise) this continuation or reinstatement, although the failure of the
undersigned to do so shall not affect in any way the reinstatement or
continuation. If the undersigned doles) not execute and deliver to the Bank
upon demand such documents, the Bank and each Bank officer Is irrevocably
appointed (which appointment is coupled with an interest) the true and lawful
attorney of the undersigned (with full power of substitution) to execute and
deliver such documents in the name and on behalf of the undersigned. For
purposes of this Guaranty, "environmental condition" includes, without
limitation, conditions existing with respect to the surface or ground water,
drinking water supply, land surface or subsurface and the air; and "hazardous or
toxic substances" shall include any and all substances now or subsequently
determined by any federal, state or local authority to be hazardous or toxic, or
otherwise regulated by any of these authorities.
Although the intent of the undersigned and the Bank is that California law shall
apply to this Guaranty, regardless of whether California law applies, the
undersigned further agree(s) as follows: With respect to the limitation, if any,
stated in the Additional Provisions below on the amount of principal guaranteed
under this Guaranty, the undersigned agree(s) that (a) this limitation shall not
be a limitation on the amount of Borrower's Indebtedness to the Bank; (b) any
payments by the undersigned shall not reduce the maximum liability of the
undersigned under this Guaranty unless written notice to that effect Is actually
received by the Bank at or prior to the time of the payment; and (c) the
liability of the undersigned to the Bank shall at all times be deemed to be the
aggregate liability of the undersigned under this Guaranty and any other
guaranties previously or subsequently given to the Bank by the undersigned and
not expressly revoked, modified or Invalidated in writing.
The undersigned waive(s) any right to require the Bank to: (a) proceed against
any person, Including without limit the Borrower; (b) proceed against or exhaust
any security held from the Borrower or any other person; (c) give notice of the
terms, time and place of any public or private sale of personal property
security held from the Borrower or any other person, or otherwise comply with
the provisions of Section 9-504 of the California or other applicable Uniform
Commercial Code; (d) pursue any other remedy in the Bank's power; or (e) make
any presentments or demands for performance, or give any notices of
nonperformance, protests, notices of protest, or notices of dishonor In
connection with any obligations or evidences of Indebtedness held by the Bank as
security, in connection with any other obligations or evidences of Indebtedness
which constitute in whole or In part Indebtedness, or in connection with the
creation of new or additional Indebtedness.
The undersigned authorize(s) the Bank, either before or after termination of
this Guaranty, without notice to or demand on the undersigned and without
affecting the undersigned's liability under this Guaranty, from time to time to:
apply any security and direct the order or manner of sale of it, Including
without limit, a nonjudicial sale permitted by the terms of the controlling
security agreement, mortgage or deed of trust, as the Bank In Its discretion
may determine; (b) release or substitute any one or more of the endorsers or
any other guarantors of the Indebtedness; and (c) apply payments received by the
Bank from the Borrower to any Indebtedness of the Borrower to the Bank, In such
order as the Bank shall determine In Its sole discretion, whether or not this
Indebtedness Is covered by this Guaranty, and the undersigned waive(s) any
provision of law regarding application of payments which specifies otherwise.
The Bank may without notice assign this Guaranty in whole or in part. Upon the
Bank's request, the undersigned agree(s) to provide to the Bank copies of the
undersigned's financial statements.
The undersigned waive(s) any defense based upon or arising by reason of (a) any
disability or other defense of the Borrower or any other person; (b) the
cessation or limitation from any cause whatsoever, other than final and
irrevocable payment in full, of the Indebtedness; (c) any lack of authority of
any officer, director, partner, agent or any other person acting or purporting
to act on behalf of the Borrower which Is a corporation, partnership or other
type of entity, or any defect In the formation of the Borrower; (d) the
application by the Borrower of the proceeds of any Indebtedness for purposes
other than the purposes represented by the Borrower to the Bank or Intended or
understood by the Bank or the undersigned; (a) any act or omission by the Bank
which directly or indirectly results In or aids the discharge of the Borrower or
any Indebtedness by operation of law or otherwise; or (Q any modification of the
Indebtedness, In any form whatsoever including without limit any modification
made after effective termination, and including without limit, the renewal,
extension, acceleration or other change in time for payment of the Indebtedness,
or other change in the terms of any Indebtedness, Including without limit
increase or decrease of the interest rate. The undersigned understands that,
absent this waiver, Bank's election of remedies, Including but not limited to
its decision to proceed to nonjudicial foreclosure on any real property securing
the Indebtedness, could preclude Bank from obtaining a deficiency judgment
against Borrower and the undersigned pursuant to California Code of Civil
Procedure sections 580a, 580b, 580d or 726 and could also destroy any
subrogation rights which the undersigned has against Borrower. The undersigned
further understands that, absent this waiver, California law, including without
limitation, California Code of Civil Procedure sections 580a, 580b, 580d or 726,
could afford the undersigned one or more affirmative defenses to any action
maintained by Bank against the undersigned on this Guaranty.
The undersigned waives any and all rights and provisions of California Code of
Civil Procedure sections 580a, 580b, 580d an@26, including, but not limited to
any provision thereof that: (1) may limit the time period for Bank to commence a
lawsuit against Borrower or the undersigned to collect any Indebtedness owing by
Borrower or the undersigned to Bank; (II) may entitle Borrower or the
undersigned to a judicial or nonjudicial determination of any deficiency owed by
Borrower or the undersigned to Bank, or to otherwise limit Bank's right to
collect a deficiency based on the fair market value of such real property
security; (ill) may limit Bank's right to collect a deficiency judgment after a
sale of any real property securing the Indebtedness; (iv) may require Bank to
take only one action to collect the Indebtedness or that may otherwise limit the
remedies available to Bank to collect the Indebtedness.
The undersigned waives all rights and defenses arising out of an election of
remedies by Bank even though that election of remedies, such as a nonjudicial
foreclosure with respect to security for a guaranteed obligation, has destroyed
the undersigned's rights of subrogation and reimbursement against Borrower by
the operation of Section 580d of the Code of Civil Procedure or otherwise.
The undersigned acknowledges and agrees that this is a knowing and informed
waiver of the undersigned's rights as discussed above and that Bank Is relying
on this waives in extending credit to Borrower.
The undersigned acknowledge(s) that the Bank has the right to sell, assign,
transfer, negotiate, or grant participations in all or any part of the
Indebtedness and any related obligations, Including without limit this Guaranty.
In connection with that right, the Bank may disclose any documents and
information which the Bank now or later acquires relating to the undersigned and
this Guarantor furnished by the Borrower, the undersigned or
otherwise. The undersigned further agree(s) that the Bank may disclose
Information to the Borrower. The undersigned agree(s) that the Bank may provide
information relating to this Guaranty to the undersigned to the Bank's parent,
affiliates, subsidiaries and service providers.
The total obligation under this Guaranty shall be UNLIMITED unless specifically
limited In the Additional Provisions of this Guaranty, and this obligation
(whether unlimited or limited to the extent indicated in the Additional
Provisions) shall include, IN ADDITION TO any limited amount of principal
guaranteed, any and all interest on all Indebtedness and any and all costs and
expenses of any kind, including without limit reasonable attorneys' fees and
costs, incurred by the Bank at any time(s) for any reason in enforcing any of
the duties and obligations of the undersigned under this Guaranty or otherwise
incurred by the Bank in any way connected with this Guaranty, the Indebtedness
or any other guaranty of the Indebtedness (including without limit reasonable
attorneys' fees and other expenses incurred In any suit involving the conduct of
the Bank, the Borrower or the undersigned). All of these costs and expenses
shall be payable Immediately by the undersigned when incurred by the Bank,
without demand, and until paid shall bear interest at the highest per annum rate
applicable to any of the Indebtedness, but not in excess of the maximum rate
permitted by law. Any reference in this Guaranty to attorneys' fees shall be
deemed a reference to fees, charges, costs and expenses of both in-house and
outside counsel and paralegals, whether or not a suit or action is instituted,
and to court costs if a suit or action is instituted, and whether attorneys'
fees or court costs are incurred at the trial court level, on appeal, In a
bankruptcy, administrative or probate proceeding or otherwise. Any reference in
the Additional Provisions or elsewhere (a) to this Guaranty being secured by
certain collateral shall NOT be deemed to limit the total obligation of the
undersigned under this Guaranty or (b) to this Guaranty being limited in any
respect shall NOT be deemed to limit the total obligation of the undersigned
under any prior or subsequent guaranty given by the undersigned to the Bank.
The undersigned unconditionally and irrevocably waive(s) each and every defense
and setoff of any nature which, under principles of guaranty or otherwise, would
operate to impair or diminish in any way the obligation of the undersigned under
this Guaranty, and acknowledge(s) that each such waiver is by this reference
incorporated into each security agreement, collateral assignment, pledge and/or
other document from the undersigned now or later securing this Guaranty and/or
the Indebtedness, and acknowledge(s) that as of the date of this Guaranty no
such defense or setoff exists. The undersigned acknowledge(s) that the
effectiveness of this Guaranty Is subject to no conditions of any kind.
This Guaranty shall remain effective with respect to successive transactions
which shall either continue the Indebtedness, increase or decrease It, or from
time to time create new Indebtedness after all or any prior Indebtedness has
been satisfied, until this Guaranty is terminated in the manner and to the
extent provided above.
The undersigned warrant(s) and agree(s) that each of the waivers set forth above
are made with the undersigned's full knowledge of their significance and
consequences, and that under the circumstances, the waivers are reasonable and
not contrary to public policy or law If any of these waivers are determined to
be contrary to any applicable law or public policy, these waivers shall be
effective only to the extent permitted by law.
This Guaranty constitutes the entire agreement of the undersigned and the Bank
with respect to the subject matter of this Guaranty. No waiver, consent,
modification or change of the terms of this Guaranty shall bind any of the
undersigned or the Bank unless in writing and signed by the waiving party or an
authorized officer of the waiving party, and then this waiver, consent,
modification or change shall be effective only in the specific Instance and for
the specific purpose given. This Guaranty shall inure to the benefit of the
Bank and its successors and assigns. This Guaranty shall be binding on the
undersigned and the undersigned's heirs, legal representatives, successors and
assigns Including, without limit, any debtor In possession or trustee in
bankruptcy for any of the undersigned. The undersigned has (have) knowingly and
voluntarily entered into this Guaranty in good faith for the purpose of inducing
the Bank to extend credit or make other financial accommodations to the
Borrower, and the undersigned acknowledge(s) that the terms of this Guaranty are
reasonable. If any provision of this Guaranty is unenforceable in whole or in
part for any reason, the remaining provisions shall continue to be effective.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF CALIFORNIA.
Additional Provisions (if any):
SEE EXHIBIT "A"ATTACHED HERETO AND MADE A PART HEREOF FOR ADDITIONAL PROVISION.
THE UNDERSIGNED AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED, EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS GUARANTY OR THE INDEBTEDNESS.
IN WITNESS WHEREOF, the undersigned has (have) signed this Guaranty on
JUNE 30, 1997
GUARANTOR(S) NETTER DIGITAL ENTERTAINMENT, INC.
By: /s
Signature of
Its: COO
(if Applicable)
By:
Signature of
Its:
(If Applicable)
GUARANTOR'SADDRESS
5125 Lankershim Blvd.
Street Address
North Hollywood, CA 91601
City State Zip Code
BORROWER(S):
VIDESSENCE, INC.
Exhibit "A" attached to that certain Guaranty dated June 30, 1997 by and between
Netter Digital Entertainment, Inc. and Commercial Bank, California and made a
part thereof
So long as this Guaranty remains in effect, the undersigned Guarantor agrees as
follows:
1. Should Guarantor pledge, assign, encumber or otherwise give a security
Interest in any portion of s assets, whether now owned or hereafter acquired.,
Guarantor will provide Bank notification.
2. Within 45 days after the end of each calendar quarter, the Guarantor will
deliver to Bank its internally prepared consolidating and consolidated
statements with a compliance certificate and copies of current 10-Q reports.
3. Within ninety days after the end of each fiscal year, the Guarantor will
deliver to Bank a CPA audited consolidating and consolidated fiscal year end
statement, with a current 10-K report.
4. At the end of each calendar quarter the Guarantor will maintain minimum
working capital of at least $400,000.00.
5. At the end of each calendar quarter the Guarantor's ratio of total
liabilities to Extended Net Worth shall be no greater than 1.25:1.00.
The undersigned Guarantor acknowledges that it will be an Event of Default under
the Loan and Security Agreement of even date if it should breach any, of the
foregoing covenants, that all Indebtedness of Borrower to Bank- may be called
due and payable in the event of such default, and that in such event Bank will
have the right to call due all of Guarantor's obligation under this Agreement.
EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between PAUL D.
COSTA hereinafter referred to as "Employee," and VIDESSENCE,
INC., a California corporation, hereinafter referred to as "Employer," as
of the 31st day of December 1996.
WHEREAS, NETTER DIGITAL ENTERTAINMENT, INC. ("NDEI")
is the sole shareholder of Employer.
WHEREAS, Employee and Employer desire to set out the terms of
Employee's employment, all as more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual promises of the
parties and the mutual benefits they will gain by their performances
thereof, all in accordance with the provisions hereinafter set forth:
I. Term of Employment.
a. Basic Term. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 until the earlier of (i) the date five
(5) years from the date of this Agreement ("Initial Term Date"), as
extended pursuant to Section I (b); or (ii) the date this Agreement is
terminated in accordance with Section 4 (the period from the date hereof
until such date being the "Period of Employment"). Employer shall pay
Employee the compensation to which he is entitled under Section 3
through the end of the Period of Employment. Employee hereby accepts
and agrees to such hiring, engagement and employment.
b. Renewal. Subject to Section 4, Employee's employment will be
automatically renewed for an additional one (1) year period (without any
action by either party) on the Term Date and on each anniversary date
thereof, unless Employer gives written notice of termination to Employee
at least one (1) month prior to the expiration of the then-current term of
the Agreement. Employees right to terminate the Period of Employment
under this Section I (b), instead of renewing the Agreement, shall be with
or without cause.
2. Position, Duties, Responsibilities.
a. Position. Employee hereby accepts employment with Employer as
President. Employee shall devote his best efforts and his full time and
attention to the performance of the services customarily incident to such
office and to such other services as may be reasonably requested by
Employer. Employer shall use its best efforts to have Employee
appointed as a director of the Employer. Employee agrees to serve
Employer in such capacities and positions during the Period of
Employment. Employee shall be accountable to the Chief Operating
Officer of NDEI, subject to the authority of the Chairman of the
Board/Chief Executive Officer of NDEI and the Board of NDEI, and
shall have supervision and control over, and responsibility for such
management and operation of the Employer as may be delegated by the
Board of Directors of the Employer.
b. Other Activities. Except upon the prior written consent of the
Board of Directors of the Employer, Employee, during the Period of
Employment, will not (i) accept any other employment or (ii) engage,
directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of Employer.
3 . Compensation- Benefits, Expenses.
a. Compensation. In consideration of the services to be rendered
hereunder, Employee shall be paid a base annual salary at the rate of One
Hundred Fifty Thousand Dollars ($150,000) per year as increased under
Section 3(b), payable in equal semimonthly payments on Employer's
normal payroll dates.
b. Salary Increases. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
the Compensation Committee of the NDEI Board of Directors.
C. Option Grant. NDEI, through Employer, its wholly-owned
subsidiary, grants to Employee options to purchase 90,000 shares of
common stock of Employer, exercisable at $3.00 per share, according to
the terms and conditions set forth in the Option Agreement, attached
hereto as Exhibit "A."
d. Other Options and Warrants. At the sole discretion of the
Compensation Committee of NDEI, the Employee shall be entitled to
participate in the granting of all options or warrants for stock and any
qualified or non-qualified stock option or bonus plans, phantom stock
plans, employee stock ownership plans or other similar plans or
arrangements established from time to time by NDEI or Employer for the
benefit of senior executive employees of Employer in the same manner
as may be established for Board members or other senior executive
employees of NDEI or Employer, as the case may be.
e. Benefits.
(1) Insurance. Employer shall provide Employee with insurance
benefits in accordance with the insurance benefits provided by Employer
to senior executive employees and shall include, but not be limited to, the
following:
(a) Health and Dental Insurance. Employer shall provide Employee
with all health, medical and dental insurance available or offered to senior
officers of NDEI and of Employer. The premium for Employee, his
spouse and his dependents who live full-time in the same house as
Employee shall be paid for by Employer. In the event Employer does not
provide group medical and dental insurance coverage, Employer shall
reimburse Employee for the reasonable premium cost Employee incurs in
obtaining such insurance coverage on an individual basis.
(b) Life Insurance. Employer shall provide Employee, at Employer
expense, with term life insurance with a minimum One Million Dollars
($1,000,000) coverage during the Period of Employment, with the
beneficiary of such insurance to be Employee's spouse or such other
beneficiary as may be lawfully designated by Employee. Employer shall
have the right at its own expense to apply for and to secure such life
insurance for the benefit of Employee or his family. Employee agrees to
submit to usual and customary medical examinations and otherwise to
cooperate with Employer in connection with the procurement of any such
insurance, or in the procurement of any additional "key man" insurance
for the benefit of Employer.
(c) Disability Insurance. Employer shall provide Employee with such
prepaid disability insurance coverage as it provides senior officers of
NDEI and of Employer. In the event Employer does not provide such
disability insurance coverage, Employer shall reimburse Employee for the
reasonable premium cost Employee incurs in obtaining such insurance
coverage on an individual basis on terms that are usual and customary in
the industry for an employee in Employee's position.
(2) Retirement Plan/Profit Sharing or Similar Plans. Employee shall be
eligible to participate in any profit sharing, pension, retirement, savings,
stock option or similar plan adopted by the Board of Directors of
Employer.
(3) Sick Leave/Disability. Employee shall be entitled to six paid sick
days per year. Unused sick days shall carry over to the next year, but
Employee shall cease accruing further sick days at any time he has
accrued six days. Employee is not entitled to cash in lieu of sick leave.
Additionally, Employee shall be eligible for any short term or long term
disability benefits that Employer may establish, on the same terms as
applicable to other senior officers of NDEI.
(4) Vacation. Employee shall earn paid vacation time at the rate of
three (3) calendar weeks per year. Unused vacation shall carry over to
the next year, but Employee shall cease accruing further vacation time at
any time he has accrued three (3) weeks of unused accrued vacation,
and shall not accrue further vacation time until using some or all of the
accrued time. Any unused vacation time shall be paid in a cash lump sum
payment promptly after Employee's termination of employment,
regardless of the reason for such termination, or at such earlier time as
required to avoid forfeiture of accrued but unused vacation time as
described above.
(5) Expenses. Employer shall reimburse Employee on a monthly basis
for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employees normal expense reimbursement
policy.
4. Termination of Employment. Employee's employment may only be
terminated prior to the Period of Employment upon the first to occur of
the following events:
a. Mutual Agreement. The mutual written agreement of Employer
and Employee.
b. By Death. Employee's employment will terminate automatically
on the death of Employee. Employer will pay to Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled
pursuant to Section 3 above through the end of the day of such
termination, and thereafter Employees obligation to Employee and/or to
his beneficiaries or estate will terminate. Employee will cooperate with
Employees efforts to obtain fife insurance to reimburse Employer for its
costs of payments to Employee or his estate, if Employer chooses to
obtain insurance for such purpose.
c. By Disability. If Employee will be prevented from fully performing
his duties under this Agreement because of any illness or physical or
mental disability for a period or periods of more than ninety (90) days in
the aggregate during any calendar year or thirty (30) consecutive days in
any twelve (12) month period, then Employee's employment will
terminate on the last day of the period in which the day evidencing
incapacity occurs (i.e., the final day of the 90-day aggregate period or of
the 30-day consecutive period). Upon such termination, Employer will
continue Employee's then-current base salary for a period of six (6)
months, in semi-monthly installments of salary as would otherwise
become due. All of Employees other obligations win terminate on the
date of termination. Employee will cooperate with Employees efforts to
obtain disability insurance to reimburse Employer for its costs of such
payment, if Employer chooses to obtain disability insurance for such
purpose.
A determination of whether Employee is disabled will be made by
Employer in good faith; provided, however, that if Employee disagrees
with Employees determination in that regard and the parties are unable to
resolve the dispute between themselves, the dispute will be submitted to
arbitration in Los Angeles, California in accordance with the employment
arbitration rules of the American Arbitration Association, and the decision
of the arbitrator(s) will be final and binding.
d. By Employer with Cause. Employer may terminate this Agreement
for Cause, by majority vote of the Board. For purposes of this
Agreement "Cause" shall mean:
(i) the conviction of Employee of a felony;
(ii) the habitual neglect by Employee of his duties, following written
notice from the Board and a reasonable opportunity to demonstrate the
lack of habitual neglect;
(iii) Employee refuses or fails to act in accordance with any material
lawful direction or order by the Board of Directors of Employer;
(iv) the participation by Employee in dishonesty, criminal acts, or
frauds affecting Employer, Employer's good reputation in the community
or Employee's job performance; or
(vi) Employee materially breaches any term of this Agreement, the
Non Competition Agreement, or the Confidentiality and Nondisclosure
Agreement.
To the extent the occurrence of any of the foregoing (a "Default") is not
susceptible to cure, Employer may terminate Employee's employment
immediately. To the extent the occurrence is curable, Employee shall
have thirty (30) days after written notice from Employer to cure the
Default in the event of a termination under subsections 4(d) (ii) or (vii),
and ten (10) days in the event of a termination under subsections 4(d) (iv)
or (v). No cure period win be provided under subsection 4(d) (ii). If the
Default cannot be reasonably cured within the applicable 3 0 or 10 day
period, Employee will be afforded a reasonable extension of time
provided Employee shall have diligently and expeditiously attempted to
cure the Default within the original time period and continues to do so
during the period of the extension. Any notice of termination provided by
Employer to Employee under this Section 4(d) shall identify the events or
conduct constituting the grounds for termination with sufficient specificity
so as to enable Employee to take steps to cure the same (if susceptible to
cure).
e. By Employer Without Cause. After the Earn-Out Period (as
defined in the Merger Agreement) has ended, Employer may terminate
Employee without Cause upon five (5) days prior written notice. In the
event Employer terminates Employee's employment without cause, the
liability of Employer to Employee as a result of or in connection with such
termination, and Employee's exclusive remedy for such termination, will
be limited to payment of severance compensation consisting of payments
to be made semi-monthly to Employer's normal payroll -practices for a
period of six (6) months from date of termination. Upon such termination,
Employee will be entitled to profit sharing, or any other benefits which
Employee would accrue or vest up until date of termination. Nothing
herein will be construed to limit or modify the duty of Employee to
mitigate his damages in the event Employer terminates his employment
without cause. In no event shall Employer terminate Employee's
employment without cause prior to the end of the Earn-Out Period (as
defined in the Merger Agreement).
f. By Employee for Good Reason. The Employee may terminate his
employment during the Period of Employment for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean:
(i) The reduction in the Employee's base salary as specified in Section
3(a) of this Agreement (as increased pursuant to Section 3(b)) or any
other benefit or payment described in Section 3 of this Agreement;
(ii) the change without his consent of the Employee's title, authority,
duties or responsibilities as specified in Section 2(a) of this Agreement; or
(iii) the Employer requiring the Employee without his consent to be
based at any office or location other than the location where the
Employee is currently employed; or
(iv) any breach by the Employer of any other material provision
of this Agreement.
5. Employer Representation. Employer represents and warrants that:
(i) this Agreement has been approved by NDEI's and Employees Board
of Directors and is binding; (ii) this Agreement will not violate the
corporate charter or by-laws of Employer; and (iii) Employer will not
hereafter enter into any covenants or undertake any other acts which
conflict with this Agreement.
6. Confidentiality and Nondisclosure agreement. Concurrently
herewith, Employee will execute and deliver to Employer a Confidentiality
and Nondisclosure Agreement, substantially in the form attached hereto
as Exhibit "B" the terms of which are incorporated herein by this
reference.
7. Headings. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or
construe any provisions of this Agreement.
8. Notices. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to Employer/NDEI at:
Netter Digital Entertainment, Inc.
5200 Lankershim Blvd. Suite 280
N. Hollywood, CA 91601
or to Employee at:
Paul D. Costa
189 Airport Blvd.
Burlingame, CA 94010
Notice of change of address shall be effective only when done in
accordance with this Section.
9. Entire Agreement.
a. This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of
the covenants and agreements between the parties with respect to such
employment, except as provided herein. The terms of this Agreement
are intended by the parties to be the final expression of their agreement
and may not be contradicted by evidence of any prior, contemporaneous
or subsequent agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced in a judicial,
administrative or other legal proceeding involving this Agreement. The
terms of this Agreement may only be modified if done so in writing and
signed by the parties.
b. In the event Employer has or will promulgate a general employee
manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such
policies are contrary to this Agreement.
10. Attorneys' Fees. In the event of any arbitration or court action
concerning the execution, performance, termination or other aspect of this
Agreement, or of the employment relationship between Employee and
Employer, the prevailing party in any such dispute shall be entitled to an
award of reasonable attorneys' fees and costs including, without
limitation, expert witness fees and disbursements.
11. Amendments and Waivers. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an
instrument in writing, signed by Employee and by a duly authorized
representative of Employer other than Employee. Through an instrument
in writing similarly executed, either Employee or Employer, as the case
may be, may waive compliance by the other party with any provision of
this Agreement that such other party was or is obligated to comply with
or period provided, however, that such waiver shall not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.
The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be
construed as a waiver of its or his future performance. The obligations of
either party with respect to such term, covenant or condition shall
continue in full force and effect.
12. Law Governing Agreement. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by
and construed in accordance with the laws of the State of California.
13. Severability and Enforcement. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person,
party, place or circumstance, shall be held by an arbitrator or court of
competent jurisdiction to be invalid, unenforceable or void, the remainder
of this Agreement or the application of such terms, covenants or
conditions as applied to other persons, parties, places and circumstances
shall remain in full force and effect.
14. Employee Acknowledgment. Employee acknowledges (i) that he
has consulted with or has had the opportunity to consult with independent
counsel of his own choice, concerning this Agreement and has been
advised to do so by Employer, and (ii) that he has read and understands
the Agreement, is fully aware of its legal effect and has entered into it
freely based on his own judgment.
15. Joint Preparation. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation
for arms length agreements taking into account the specific intention of
the parties wherever such intention is discernible.
16. Binding Arbitration Agreement. In the event of any dispute
between Employee and Employer or any of its agents, employees,
affiliated entities, successors or assigns, arising out of or relating to the
interpretation, application, breach, arbitrability, or enforceability of this
Agreement, or any other dispute arising out of or relating to Employee's
employment or relationship with Employer, any such dispute must be
resolved in accordance with the Arbitration Agreement, attached hereto
as Exhibit "C."
The parties have duly executed this Agreement as of the day and year
set forth above.
EMPLOYER: VIDESSENCE, INC.
By: /s/Douglas Netter Dated:
Douglas Netter,
Chairman of the Board of Directors
Dated:
Paul D. Costa
EXHIBIT A
OPTION AGREEMENT
NETTER DIGITAL ENTERTAINMENT, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is effective
as of
December 31, 1996 by and between Netter Digital Entertainment, Inc., a
Delaware corporation (the "Company"), and Paul Costa ("Optionee"),
with reference to the following facts:
A. Pursuant to an Employment Agreement entered into as of
December 31, 1996, the Company retained the services of Optionee.
B. As part of Optionee's compensation and to align Optionee's
interests with those of the Company, the Company agreed to grant
Optionee an option to purchase shares of the Company's common stock.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, it is agreed as follows:
I Grant of Option. The Company hereby grants to Optionee a stock
option ("Option") to purchase shares of the Company's common stock
upon the following terms:
a. Option Grant Date: December 31, 1996
b. Number of Shares: 90,000 shares of common stock
c. Exercise Price: $3.00
d. Vesting Schedule: 18,000 shares shall vest on 12/31/96
18,000 shares shall vest on 12/31/97
18,000 shares shall vest on 12/31/98
18,000 shares shall vest on 12/31/99
18,000 shares shall vest on 12/31/2000
e. Type of Option: nonstatutory stock option
2. Term of Option. The Option shall expire on the earliest of (i) ninety
(90) days from the date on which Optionee. ceases to be an employee of
the Company for any reason other than death; (ii) one year from the date
of death of Optionee; or (iii) December 31, 2001.
Other than as described in Section 3 of this Agreement or as provided in
the Employment Agreement mentioned above, if Optionee ceases for any
reason to be an employee of the Company, that portion of the Option
which has not yet become vested shall be terminated, unless the
Company's Board of Directors in its discretion accelerates the vesting
schedule in which case it may impose whatever conditions it considers
appropriate on the accelerated portion.
3 . Acceleration upon Change in Control. Notwithstanding any
vesting provisions of the Option or anything else herein to the contrary, all
shares evidenced by the Option shall vest and become exercisable
immediately prior to any Change in Control, if Optionee is an employee of
the Company at that time. For purposes hereof, "Change in Control" shall
have the meaning set forth in Exhibit A attached hereto.
4. Exercise of Option. Optionee shall exercise the Option to the extent
exercisable, in whole or in part, by sending written notice to the Company
of his intent to exercise. Said notice shall specify the number of shares
which Optionee desires to purchase pursuant to this Agreement and the
date (which date shall be within five (5) days after receipt by the
Company of said notice) on which he desires to complete his purchase.
a. On or before the date specified in such notice for the completion of
the purchase of the shares, Optionee shall pay the Company, by cash, or
by check, the exercise price of the shares purchased.
b. Subject to the Company's compliance with all applicable laws, rules,
and regulations relating to the issuance of such shares and Optionee's
compliance with all the terms and conditions of this Option, the Company
shall promptly deliver the, shares to Optionee upon receipt of the exercise
price therefore.
5. Minimum, Share Purchase. Not less than One Hundred (100)
shares may be purchased at any one time. No fractional share shall be
purchased hereunder.
6. Option Not Transferable. The Option granted hereunder shall not
be transferable in any manner other than upon the death of Optionee. In
the event of Optionee's death, the executor or administrator of his estate
or the person to whom the Option shall have been transferred pursuant to
will or the laws of descent and distribution may exercise the Option to the
extent it was exercisable on the date of his death subject to Section 2
hereof, provided, however, that such transferee shall be entitled to no
greater rights than Optionee hereunder. More particularly (but without
limiting the foregoing), the Option may not be assigned, transferred
(except as expressly provided herein), pledged, or hypothecated in any
way, shall not be assignable by operation of law and shall not be subject
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary
to the provisions hereof, or the levy of any execution, attachment, or
similar process upon the Option, shall be null and void and without effect.
7. Adjustments to Option Shares. The Company shall adjust the
number of shares granted under this Agreement, and which Optionee has
not purchased, as follows:
a. The grant of this Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to
merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of
its business or assets.
b. Except as expressly provided herein, Optionee shall have no other
rights by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of
any dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation. Any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to the Option.
c. In the event there are splits, subdivisions, combinations or
reclassifications of the Company's stock subsequent to the Option Grant Date,
the number of shares reserved for issuance pursuant to this Option shall be
increased or decreased proportionately, as the case may be, to appropriately
reflect such event.
9. No Right to Continued Employment. This Agreement does not
confer upon Optionee any right to continue in the employ of the
Company, nor does it limit in any way the right of the Company to
terminate employment at any time, with or without cause.
10. Acknowledgments of Optionee. Optionee acknowledges and
agrees that:
a. Optionee is aware that this Option is NOT an Incentive Stock
Option as contemplated under the Internal Revenue Code;
b. Optionee and his transferees have no rights as a stockholder with
respect to any shares covered by this Agreement until the date of the
issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other right for which the
record date is prior to the date such stock certificate is issued, except as
provided herein.
11. Withholding Taxes. Whenever under this Agreement, shares are
to be issued, the Company shall have the right to require Optionee to
remit to the Company an amount sufficient to satisfy federal, state, and
local withholding tax requirements prior to issuance and/or delivery of any
certificate or certificates for such shares.
12. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties' heirs, legal representatives, successors, and
assigns. Nothing in this Section 12 shall be construed to limit the
provisions of Section 6 herein or any agreements executed or required to
be executed pursuant thereto.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter contained
herein and shall supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement shall be binding unless
executed in writing by all of the parties. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
14. Governing Low. This Agreement shall be construed according to
the laws of the State of California.
15. Validity. Should any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable
from this Agreement and shall not affect the remainder hereof
16. Litigation and Attorneys' Fees. If any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute or default in connection with any of its provisions,
the successful or p party shall be entitled to recover reasonable attorneys'
fees and other costs incurred in such action or proceeding, in addition to
any relief to which such party may be deemed entitled.
IN WITNESS WHEREOF, this Agreement is made effective as of the
day and year above first written.
NETTER DIGITAL ENTERTAINMENT INC., OPTIONEE
a Delaware corporation
By:
Douglas Netter, Chief Executive Officer Paul D. Costa
Name:
Last Name of Employee
EXHIBIT B
NETTER DIGITAL ENTERTAINMENT INC.
OWNERSHIP OF EMPLOYEE DEVELOPMENTS,
NON-DISCLOSURE AND CONFIDENTIALITY
AGREEMENT
THIS AGREEMENT, is effective as of the date shown below, by and
between Netter Digital Entertainment, Inc.(Employer) and Paul Costa, as
an employee ("Costa" or "Employee") and is in consideration of the
services to be provided by Costa for Employer and the compensation for
those services to be provided to Costa by Employer, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged. Costa and Employer agree as follows:
1. OWNERSHIP OF EMPLOYEE DEVELOPMENTS
1.1 Existing Proprietary Rights. To the best knowledge of Costa, the
only intangible interests and properties (e.g., patents, patent applications,
copyrights, trade secrets, and trademarks) that Costa owns or has an
interest in at the time of execution of this Agreement are those, if any,
listed in Exhibit A attached hereto.
1.2 Ownership of Work Product.
a. For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international
copyrights, patentable inventions, discoveries and improvements, and
other intellectual property rights, in any programming, documentation,
technology, or other Work Product that relates to the business and
interests of Employer and that Costa conceives, develops, or delivers to
Employer at any time during the term of Costa's employment, except that
"Work Product' shall not include any invention (i) that Costa developed
entirely on Costa's own time, without using Employer's equipment,
supplies, facilities or trade secret information and (ii) which neither (A)
related at the time of conception or reduction to practice to Employers
business or actual or demonstrably anticipated research or development
nor (B) resulted from any work performed by Costa for Employer. Work
Product shall also include all intellectual property rights in any
programming, documentation, technology, or other work product that is
now contained in any of the products or systems, including development
and support systems, of Employer to the extent Costa conceived,
developed, or delivered such Work Product to Employer while Costa was
engaged as an independent contractor or an employee of Employer.
Costa hereby irrevocably relinquishes for the benefit of Employer and its
assigns any moral rights in the Work Product recognized by applicable
law.
b. Employer shall own all Work Product. All Work Product shall be
considered work made for hire by Costa and owned by Employer.
c. If any of the Work Product may not, by operation of law, be
considered work made for hire by Costa for Employer, or if ownership of
all right, title, and interest of the intellectual property rights therein
shall not otherwise vest exclusively in Employer, Costa agrees to assign,
and upon creation there of automatically assign, without consideration, the
ownership of all Work Product, to Employer, its successors, and assigns.
d. Employer and its successors, and assigns shall have the right to
obtain and hold m its or their own name copyrights, registrations, and any
other protection available in the foregoing Work Product.
e. Costa agrees to perform, upon the reasonable request of Employer,
during or after Costa's employment, such acts as may be necessary to
transfer, perfect, and defend Employer's ownership of the Work Product,
including, but not limited to,
actions to:
1. Execute, acknowledge, and deliver any requested affidavits and
documents of assignment and conveyance;
2. Obtain and aid in the enforcement of copyrights and, if applicable,
patents with respect to the Work Product in any countries;
3. Provide testimony in connection with any proceeding affecting the
right, title, or interest of Employer in any Work Product; and Employer
shall reimburse all reasonable out-of -pocket expenses incurred by Costa
at Employer's request in connection with the foregoing, including (unless
Costa is otherwise being compensated at the time) a reasonable per diem
or hourly fee for services rendered following termination of Costa's
employment.
1.3 Clearance procedure for Proprietary Rights not Claimed by
Employer.
a. If Costa ever wishes to create or develop during the term of his
employment with Employer, on Costa's own time and with Costa's own
resources, anything that would be considered Work Product but to which
Costa believes Costa should be entitled to the personal benefit of, Costa is
required to follow the clearance procedure set forth in this section in
order to ensure that Employer has no claim to the proprietary rights that
may arise.
b. Before Costa begins any development work on such Work Product
on Costa's own time, Costa must give Employer advance notice of
Costa's plans and supply a description of the development under
consideration. Employer will determine, in good faith within thirty (30)
days after Costa has fully disclosed Costa's plans to Employer, whether
the development is claimed by Employer. If Employer determines that it
does not claim such development, Costa will be notified in writing and
may retain ownership of the development to the extent of what has been
disclosed to Employer. Costa should submit for further clearance any
significant improvement, modification , or adaptation relates to the
business or interests of Employer
2. CONFIDENTIALITY
2.1 Confidential Information Defined. For purposes of this Agreement,
"Confidential Information" means all information and material winch is
proprietary to Employer, whether or not marked as "confidential" or
"proprietary" and which is disclosed to or obtained by Employee, which
relates to Employer's past, present, or future research, development, or
business activities. Confidential Information is all information or materials
prepared by or for Employer and includes, without limitation, all of the
following: designs, drawings, specifications, techniques, models, data,
source codes, object codes, documentation, diagrams, flow charts,
research, development, processes, procedures "know-how," new product
or new technology information, product prototypes, product copies,
manufacturing, development or marketing techniques and material,
development or marketing timetables, strategies, and development plans,
including trade names, trademarks, customer, supplier, or personal names,
and other information related to customers, suppliers, or personnel, pricing
policies and financial information, and other information of a similar
nature, whether or not reduced to writing or other tangible form, and
other trade secrets or nonpublic business information. Confidential
Information does not included any information which (a) was in the lawful
and unrestricted possession of Employee prior to its disclosure to
Employee by Employer, (b) is or becomes generally available to the public
by acts other than those of the Employee after receiving it, or (c) has
been received lawfully and in good faith by Employee from a third party
who did not derive it from Employer.
2.2. Restrictions on Use and Disclosure of Confidential Information.
Costa agrees not to use, copy, disclose or allow access to any
Confidential Information of Employer during Costa's employment and for
so long afterwards as the pertinent information or data remain
Confidential Information, regardless of whether the Confidential
Information is in written or tangible form, except as required to perform
any duties for Employer.
2.3 Screening of Public Releases of Information. In addition, and
without and intention of limiting Costa's other obligation under this
Agreement in any way, during Costa's employment, reveal any nonpublic
information concerning the technology pertaining to the proprietary
products and manufacturing processes of Employer (particularly
technology under current development or improvement), unless Costa has
obtained approval from Employer in advance. In that connection , Costa
must first submit to Employer for review any proposed scientific and
technical articles and the text of any public speeches relating to work
done for Employer before they are released or delivered. Employer has
the right to disapprove or prohibit, or delete any parts of, such articles or
speeches that might disclose Employer's Confidential Information or
otherwise be contrary to Employer's business interests.
3. Return of Materials. Upon the request of Employer and, in any
event, upon the termination of Costa's employment, Costa must return to
Employer and leave at its disposal all memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes,
computer tapes, and other documents or media pertaining to the business
of Employer or Costa's specific duties for Employer, including all copies
of such materials. Costa must also return to Employer and leave at its
disposal all materials involving any Confidential Information of Employer.
This Section 2 is intended to apply to all materials or compiled by Costa,
as well as materials furnished to Costa by anyone else in connection with
Costa's employment.
4. MISCELLANEOUS
4.1 Survival of Obligation. The covenants on Sections 1.2, 2.2, and 3
of this Agreement shall survive termination of Costa's employment,
regardless of who causes the termination and under what circumstances.
4.2 Construction. The heading used herein are for convenience or
reference only and shall not affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement. In the
interpretation and construction of this Agreement, the acknowledge that
the terms hereof reflect extensive negotiations between the parties and
that this Agreement shall not be deemed, for the purpose of construction
and/or interpretation, that either party drafted this Agreement.
4.3 Governing Law, Jurisdiction and Venue. This Agreement will be
governed by and construed in accordance with the laws of the State of
California without reference to its choice of law rules and as if wholly
performed within the State of California. Any litigation regarding the
interpretation, breach or enforcement of this Agreement will be filed and
in heard by the state or federal courts with jurisdiction to hear such
disputes in Los Angeles County, California, and the parties hereby
expressly submit to the jurisdiction of such courts.
4.4 Entire Agreement. This Agreement sets forth the entire
understanding and agreement between the parties with respect to the
subject matter hereof and supersedes all other or written representations
and understandings. This Agreement may only be modified by a writing
signed by Employee and Employer.
4.5 No Implied License. No rights or obligations other than those
expressly recited herein are to be implied from this Agreement. No
license is hereby granted, directly or indirectly, to any of any Confidential
Information disclosed.
4.6 Severability. The parties agree that this Agreement is severable
and that in the event any provision of this Agreement is held to be illegal,
invalid or unenforceable, the legality, validity and enforceability of the
remaining provision will not be affected or impaired. Additionally, the
parties expressly grant to any court or other entity interpreting this
Agreement the power and authority to modify the terms of this
Agreement to extent necessary to allow enforcement of this Agreement
to the fullest extent allowed by law.
4.7 Successors and Assigns. This Agreement shall be binding upon
the successors, assigns and legal representatives of Employee, and inures
to the benefit of any successors or assigns of Employer.
4.8 Waivers. No waiver of any of the provision of this Agreement
shall be deemed to be or shall constitute a waiver of any other provision
of this Agreement, whether or not similar, nor shall any waiver constitute
waiver. No waiver of any provision of this Agreement shall be binding on
the parties hereto unless it is executed in writing by the party making the
waiver.
IN WITNESS WHEREOF, the parties have entered into this agreement
as of the date set forth below.
EXHIBIT A
Employee Owned Intangible Interests or Properties
1. None
EXHIBIT C
EMPLOYEE ARBITRATION AGREEMENT
THIS ARBITRATION AGREEMENT ("Agreement") is made and
effective as of December 31, 1996, by and between Videssence, Inc.
("Employer"), and Paul D. Costa ("Employee").
The purpose of this Agreement is to establish final and binding
arbitration for all disputes arising out of Employee's employment or the
termination of Employee's employment. Employee and Employer desire
to arbitrate their disputes on the terms and conditions set forth below, in
order to gain the benefits of a speedy, impartial dispute-resolution
procedure. Employee and Employer agree to the following:
1. Claims Covered By The Agreement. Employee and Employer
mutually consent to the resolution by final arbitration of all claims or
controversies ("claims") that Employer may have against Employee or
that Employee may have against Employer or against its officers,
directors, partners, employees, agents, pension or benefit plans,
administrators, or fiduciaries, or any subsidiary or affiliated company or
corporation (collectively referred to as "Employer"), relating to, resulting
from or in any way arising out of Employee's employment relationship
with Employer and/or the termination of Employee's employment
relationship with Employer. The claims covered by this Agreement
include, but are not limited to, claims for wages or other compensation
due; claims for breach of any contract or covenant (express or implied);
tort claims; claims for discrimination (including, but not limited to, race,
sex, religion, national origin, age, marital status or medical condition,
disability, or sexual orientation); claims for benefits (except where an
employee benefit or pension plan specifies that its claims procedure shall
culminate in an arbitration procedure different from this one); and claims
for violation of any federal, state or other governmental law, statute,
regulation or ordinance, except claims excluded in the following section.
2. Claims Not Covered By The Agreement. Claims Employee may
have for Workers' Compensation or unemployment compensation
benefits are not covered by this Agreement. Also not covered are claims
by Employer for injunctive and/or other equitable relief for unfair
competition and/or the use and/or unauthorized disclosure of trade secrets
or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent
jurisdiction.
3. Required Notice Of Claims And Statute Of Limitations. Arbitration
may be initiated by Employee by serving or mailing a written notice to the
Chairman of the Board of Directors of Employer. In the case of a
termination of employment, the notice must be served or mailed within
one (1) year of the termination of employment. In an arbitration not
arising out of termination of Employee's employment, the written notice
must be served or mailed within one (1) year of the event which gave rise
to the claim for arbitration. Employer may initiate an arbitration by
serving or mailing a written notice to Employee at the last address
recorded in Employee's personnel file, within one (1) year of the event
which gave rise to the arbitration. The notice shall identify and describe
the nature of all claims asserted and the facts upon which such claims are
based. Failure to comply with all the requirements of this paragraph will
constitute a waiver of all rights that the party seeking arbitration may
have against the other party, and any such claims shall be void.
4. Arbitration Procedures.
(a) After demand for arbitration has been made by serving written
notice under the terms of Section 3 of this Agreement, the party
demanding arbitration shall file a demand for arbitration with the
American Arbitration Association ("AAA") in Los Angeles County.
(b) Except as otherwise provided in this Agreement, the arbitration will
be conducted according to the then current version of the AAA
Employment Dispute Resolution Rules. The AAA shall give each party a
list of seven arbitrators from its panel of labor and employment
arbitrators. Each party shall alternatively strike one of the arbitrators
from the fist until only one arbitrator remains. A coin flip will determine
which party chooses whether it desires to strike first or second.
(c) The arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the state of California, or federal law, or both,
as applicable to the claim(s) asserted. The arbitrator shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to
any claim that all or any part of this Agreement is void or voidable.
5. Arbitration Decision. The arbitrator's decision will be final and
binding. A party's right to appeal the decision is limited to grounds
provided under applicable federal or state law.
6. Place Of Arbitration. The arbitration will be at a mutually
convenient location which must be within 50 miles of Employee's last
employment location with Employer. If the parties cannot agree upon a
location, then the arbitration will be held at the AAA's office nearest to
Employee's last employment location with Employer.
7. Construction. Should any portion of this Agreement be found to be
unenforceable, such portion will be severed from this Agreement, and the
remaining portions shall continue to be enforceable.
8. Consideration. Employer's offer of employment to Employee and
the promises by Employer and Employee to arbitrate differences, rather
than litigate them before courts or other bodies, provide consideration for
each other.
9. Arbitration Fees and Costs. The losing party shall be responsible for
the arbitrator's fees and costs. Each party may be represented by an
attorney or other representative selected by the party. Each party shall
be responsible for its own attorneys' or representative's fees. However,
if any party prevails on a statutory claim which affords the prevailing
party's attorneys' fees, or if there is a written agreement providing for
fees, the arbitrator may award reasonable fees to the prevailing party.
10. Waiver of Jury Trial/Exclusive Remedy. EMPLOYEE AND
EMPLOYER WAIVE ANY CONSTITUTIONAL RIGHT TO HAVE
ANY DISPUTE BETWEEN THEM COVERED BY THE TERMS OF
THIS AGREEMENT DECIDED BY A COURT OF LAW AND/OR
BY A JURY IN A COURT PROCEEDING AND/OR BY ANY
ADMINISTRATIVE AGENCY.
11. Sole And Entire Agreement. This Agreement expresses the entire
Agreement of the parties and there are no other agreements, oral or
written, concerning arbitration, except as provided herein. This
Agreement is not, and shall not be construed to create, any contract of
employment, express or implied.
12. Requirements for Modification or Revocation. This Agreement to
arbitrate shall survive the termination of Employee's employment. It can
only be revoked or modified by a writing signed by the Chairman of the
Board of Directors of Employer and Employee which specifically states
an intent to revoke or modify this Agreement.
13. Voluntary Agreement. EMPLOYEE ACKNOWLEDGES THAT
EMPLOYEE HAS CAREFULLY READ THIS AGREEMENT,
UNDERSTANDS ITS TERMS, AND AGREES THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN
EMPLOYER AND. EMPLOYEE RELATING TO THE SUBJECTS
COVERED IN THE AGREEMENT ARE CONTAINED IN IT.
EMPLOYEE HAS VOLUNTARILY ENTERED INTO THE
AGREEMENT WITHOUT RELIANCE ON ANY PROVISIONS OR
REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE
CONTAINED IN THIS AGREEMENT.
EMPLOYEE FURTHER ACKNOWLEDGES THAT EMPLOYEE
HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS
AGREEMENT WITH EMPLOYEE'S PRIVATE LEGAL COUNSEL
AND EMPLOYEE HAS UTILIZED THAT OPPORTUNITY TO
THE EXTENT DESIRED.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
EMPLOYER:
VIDESSENCE, INC., a California corporation
Douglas Netter, Chairman of the
Board of Directors
EMPLOYEE:
Paul D. Costa
EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between Delwin Francis
hereinafter referred to as "Employee," and VIDESSENCE,
INC., a California corporation, hereinafter referred to as "Employer," as
of the 31st day of December 1996.
WHEREAS, NETTER DIGITAL ENTERTAINMENT, INC. ("NDEI")
is the sole shareholder of Employer.
WHEREAS, Employee and Employer desire to set out the terms of
Employee's employment, all as more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual promises of the
parties and the mutual benefits they will gain by their performances
thereof, all in accordance with the provisions hereinafter set forth:
I. Term of Employment.
a. Basic Term. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 until the earlier of (i) the date one
(1) year from the date of this Agreement ("Initial Term Date"), or (ii) the
date this Agreement is terminated in accordance with Section 4 (the period
from the date hereof until such date being the "Period of Employment").
Employer shall pay Employee the compensation to which he is entitled under
Section 3 through the end of the Period of Employment. Employee hereby accepts
and agrees to such hiring, engagement and employment.
2. Position, Duties, Responsibilities.
a. Position. Employee hereby accepts employment with Employer as Chief
Financial Officer. Employee shall devote his best efforts and his full time and
attention to the performance of the services customarily incident to such office
and to such other services as may be reasonably requested by Employer.Employee
agrees to serve Employer in such capacity and position during the Period of
Employment. Employee shall be accountable to the President of Employer, subject
to the authority of the Chairman of the Board of Employer and the Board of
Employer, and shall be responsible for accountancy, financial reporting, fiscal
management, and management of administration of Employer.
b. Other Activities. Except upon the prior written consent of the
Board of Directors of the Employer, Employee, during the Period of
Employment, will not (i) accept any other employment or (ii) engage,
directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of Employer.
3 . Compensation- Benefits, Expenses.
a. Compensation. In consideration of the services to be rendered
hereunder, Employee shall be paid a base annual salary at the rate of Ninety
Thousand Dollars ($90,000) per year as increased under
Section 3(b), payable in equal semimonthly payments on Employer's
normal payroll dates.
b. Salary Increases. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
the Compensation Committee of the NDEI Board of Directors.
C. Option Grant. NDEI, through its Employer, its wholly-owned
subsidiary of NDEI, grants to Employee options to purchase 20,000 shares of
common stock of NDEI, exercisable at $3.00 per share, according to
the terms and conditions set forth in the Option Agreement, attached
hereto as Exhibit "A."
d. Other Options and Warrants. At the sole discretion of the Compensation
Committee of NDEI, the Employee may be granted options or warrants for stock
and any qualified or non-qualified stock option or bonus plans, phantom stock
plans, employee stock ownership plans or other similar plans or arrangements
established from time to time by Employer.
e. Benefits.
(1) Insurance. Employer shall provide Employee with insurance benefits in
accordance with the insurance benefits provided by Employer to its employees and
shall include, but not be limited to, the following: standard health, medical
and dental insurance. The premium for Employee, his spouse and his dependents
who live full-time in the same house as Employee shall be paid for by Employer.
(2) Retirement Plan/Profit Sharing or Similar Plans. Employee shall be
eligible to participate in any profit sharing, pension, retirement, savings,
stock option or similar plan adopted by the Board of Directors of
Employer.
(3) Sick Leave/Disability. Employee shall be entitled to six paid sick
days per year. Unused sick days shall carry over to the next year, but
Employee shall cease accruing further sick days at any time he has
accrued six days. Employee is not entitled to cash in lieu of sick leave.
Additionally, Employee shall be eligible for any short term or long term
disability benefits that Employer may establish, on the same terms as
applicable to other senior officers of NDEI.
(4) Vacation. Employee shall earn paid vacation time at the rate of
three (3) calendar weeks per year. Unused vacation shall carry over to
the next year, but Employee shall cease accruing further vacation time at
any time he has accrued three (3) weeks of unused accrued vacation,
and shall not accrue further vacation time until using some or all of the
accrued time. Any unused vacation time shall be paid in a cash lump sum
payment promptly after Employee's termination of employment,
regardless of the reason for such termination, or at such earlier time as
required to avoid forfeiture of accrued but unused vacation time as
described above.
(5) Expenses. Employer shall reimburse Employee on a monthly basis
for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employees normal expense reimbursement
policy.
4. Termination of Employment. Employee's employment may only be
terminated prior to the Period of Employment upon the first to occur of
the following events:
a. Mutual Agreement. The mutual written agreement of Employer
and Employee.
b. By Death. Employee's employment will terminate automatically
on the death of Employee. Employer will pay to Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled
pursuant to Section 3 above through the end of the day of such
termination, and thereafter Employees obligation to Employee and/or to
his beneficiaries or estate will terminate. Employee will cooperate with
Employees efforts to obtain fife insurance to reimburse Employer for its
costs of payments to Employee or his estate, if Employer chooses to
obtain insurance for such purpose.
c. By Disability. If Employee will be prevented from fully performing
his duties under this Agreement because of any illness or physical or
mental disability for a period or periods of more than ninety (90) days in
the aggregate during any calendar year or thirty (30) consecutive days in
any twelve (12) month period, then Employee's employment will
terminate on the last day of the period in which the day evidencing
incapacity occurs (i.e., the final day of the 90-day aggregate period or of
the 30-day consecutive period). Upon such termination, Employer will
continue Employee's then-current base salary for a period of six (6)
months, in semi-monthly installments of salary as would otherwise
become due. All of Employees other obligations win terminate on the
date of termination. Employee will cooperate with Employees efforts to
obtain disability insurance to reimburse Employer for its costs of such
payment, if Employer chooses to obtain disability insurance for such
purpose.
A determination of whether Employee is disabled will be made by
Employer in good faith; provided, however, that if Employee disagrees
with Employees determination in that regard and the parties are unable to
resolve the dispute between themselves, the dispute will be submitted to
arbitration in Los Angeles, California in accordance with the employment
arbitration rules of the American Arbitration Association, and the decision
of the arbitrator(s) will be final and binding.
d. By Employer with Cause. Employer may terminate this Agreement
for Cause, by majority vote of the Board. For purposes of this
Agreement "Cause" shall mean:
(i) the conviction of Employee of a felony;
(ii) the habitual neglect by Employee of his duties, following written
notice from the Board and a reasonable opportunity to demonstrate the
lack of habitual neglect;
(iii) Employee refuses or fails to act in accordance with any material
lawful direction or order by the Board of Directors of Employer;
(iv) the participation by Employee in dishonesty, criminal acts, or
frauds affecting Employer, Employer's good reputation in the community
or Employee's job performance; or
(v) Employee materially breaches any term of this Agreement, the
Non Competition Agreement, or the Confidentiality and Nondisclosure
Agreement.
To the extent the occurrence of any of the foregoing (a "Default") is not
susceptible to cure, Employer may terminate Employee's employment
immediately. To the extent the occurrence is curable, Employee shall
have thirty (30) days after written notice from Employer to cure the
Default in the event of a termination under subsections 4(d) (ii) or (vii),
and ten (10) days in the event of a termination under subsections 4(d) (iv)
or (v). No cure period win be provided under subsection 4(d) (ii). If the
Default cannot be reasonably cured within the applicable 30 or 10 day
period, Employee will be afforded a reasonable extension of time
provided Employee shall have diligently and expeditiously attempted to
cure the Default within the original time period and continues to do so
during the period of the extension. Any notice of termination provided by
Employer to Employee under this Section 4(d) shall identify the events or
conduct constituting the grounds for termination with sufficient specificity
so as to enable Employee to take steps to cure the same (if susceptible to
cure).
e. By Employer Without Cause. Employer may terminate Employee without cause
upon five (5) days prior written notice. In the event Employer terminates
Employee's employment without Cause, the liability of Employer to Employee as a
result of or in connection with such termination, and Employee's exclusive
remedy for such termination, will be limited to payment of severance
compensation consisting of payments to be made semi-monthly to Employers's
normal payroll-practices for a period of six (6) months from date of
termination. Upon such termination, Employee will be entitled to profit
sharing, or any other benefits which Employee would accrue or vest up until
date of termination. Nothing herein will be construed to limit or modify the
duty of Employee to mitigate his damages in the event Employer terminates his
employment without cause.
5. Employer Representation. Employer represents and warrants that: (i) this
Agreement has been approved by Employer's Board of Directors annd is binding;
(ii) this Agreement will not violate the corporate charter or by-laws of
Employer; and (iii) Employer will not hereafter enter into any covenants or
undertake any other acts which conflict with this Agreement.
6. Confidentiality and Nondisclosure Agreement. Concurrently
herewith, Employee will execute and deliver to Employer a Confidentiality
and Nondisclosure Agreement, substantially in the form attached hereto
as Exhibit "B" the terms of which are incorporated herein by this
reference.
7. Headings. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or
construe any provisions of this Agreement.
8. Notices. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to Employer/NDEI at:
Netter Digital Entertainment, Inc.
5200 Lankershim Blvd. Suite 280
N. Hollywood, CA 91601
or to Employee at:
Delwin Francis
189 Airport Blvd.
Burlingame, CA 94010
Notice of change of address shall be effective only when done in
accordance with this Section.
9. Entire Agreement.
a. This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of
the covenants and agreements between the parties with respect to such
employment, except as provided herein. The terms of this Agreement
are intended by the parties to be the final expression of their agreement
and may not be contradicted by evidence of any prior, contemporaneous
or subsequent agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced in a judicial,
administrative or other legal proceeding involving this Agreement. The
terms of this Agreement may only be modified if done so in writing and
signed by the parties.
b. In the event Employer has or will promulgate a general employee
manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such
policies are contrary to this Agreement.
10. Attorneys' Fees. In the event of any arbitration or court action
concerning the execution, performance, termination or other aspect of this
Agreement, or of the employment relationship between Employee and
Employer, the prevailing party in any such dispute shall be entitled to an
award of reasonable attorneys' fees and costs including, without
limitation, expert witness fees and disbursements.
11. Amendments and Waivers. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an
instrument in writing, signed by Employee and by a duly authorized
representative of Employer other than Employee. Through an instrument
in writing similarly executed, either Employee or Employer, as the case
may be, may waive compliance by the other party with any provision of
this Agreement that such other party was or is obligated to comply with
or period provided, however, that such waiver shall not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.
The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be
construed as a waiver of its or his future performance. The obligations of
either party with respect to such term, covenant or condition shall
continue in full force and effect.
12. Law Governing Agreement. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by
and construed in accordance with the laws of the State of California.
13. Severability and Enforcement. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person,
party, place or circumstance, shall be held by an arbitrator or court of
competent jurisdiction to be invalid, unenforceable or void, the remainder
of this Agreement or the application of such terms, covenants or
conditions as applied to other persons, parties, places and circumstances
shall remain in full force and effect.
14. Employee Acknowledgment. Employee acknowledges (i) that he
has consulted with or has had the opportunity to consult with independent
counsel of his own choice, concerning this Agreement and has been
advised to do so by Employer, and (ii) that he has read and understands
the Agreement, is fully aware of its legal effect and has entered into it
freely based on his own judgment.
15. Joint Preparation. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation
for arms length agreements taking into account the specific intention of
the parties wherever such intention is discernible.
16. Binding Arbitration Agreement. In the event of any dispute
between Employee and Employer or any of its agents, employees,
affiliated entities, successors or assigns, arising out of or relating to the
interpretation, application, breach, arbitrability, or enforceability of this
Agreement, or any other dispute arising out of or relating to Employee's
employment or relationship with Employer, any such dispute must be
resolved in accordance with the Arbitration Agreement, attached hereto
as Exhibit "C."
The parties have duly executed this Agreement as of the day and year
set forth above.
EMPLOYER: VIDESSENCE, INC.
By: Dated:
Douglas Netter,
Chairman of the Board of Directors
Dated:
Delwin Francis
EXHIBIT A
OPTION AGREEMENT
NETTER DIGITAL ENTERTAINMENT, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is effective
as of December 31, 1996 by and between Netter Digital Entertainment, Inc., a
Delaware corporation (the "Company"), and Delwin Francis ("Optionee"),
with reference to the following facts:
A. Pursuant to an Employment Agreement entered into as of
December 31, 1996, the Company retained the services of Optionee.
B. As part of Optionee's compensation and to align Optionee's
interests with those of the Company, the Company agreed to grant
Optionee an option to purchase shares of the Company's common stock.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, it is agreed as follows:
I Grant of Option. The Company hereby grants to Optionee a stock
option ("Option") to purchase shares of the Company's common stock
upon the following terms:
a. Option Grant Date: December 31, 1996
b. Number of Shares: 20,000 shares of common stock
c. Exercise Price: $3.00
d. Vesting Schedule: 4,000 shares shall vest on 12/31/96
4,000 shares shall vest on 12/31/97
4,000 shares shall vest on 12/31/98
4,000 shares shall vest on 12/31/99
4,000 shares shall vest on 12/31/2000
e. Type of Option: nonstatutory stock option
2. Term of Option. The Option shall expire on the earliest of (i) ninety
(90) days from the date on which Optionee. ceases to be an employee of
the Company for any reason other than death; (ii) one year from the date
of death of Optionee; or (iii) December 31, 2001.
Other than as described in Section 3 of this Agreement or as provided in
the Employment Agreement mentioned above, if Optionee ceases for any
reason to be an employee of the Company, that portion of the Option
which has not yet become vested shall be terminated, unless the
Company's Board of Directors in its discretion accelerates the vesting
schedule in which case it may impose whatever conditions it considers
appropriate on the accelerated portion.
3 . Acceleration upon Change in Control. Notwithstanding any
vesting provisions of the Option or anything else herein to the contrary, all
shares evidenced by the Option shall vest and become exercisable
immediately prior to any Change in Control, if Optionee is an employee of
the Company at that time. For purposes hereof, "Change in Control" shall
have the meaning set forth in Exhibit A attached hereto.
4. Exercise of Option. Optionee shall exercise the Option to the extent
exercisable, in whole or in part, by sending written notice to the Company
of his intent to exercise. Said notice shall specify the number of shares
which Optionee desires to purchase pursuant to this Agreement and the
date (which date shall be within five (5) days after receipt by the
Company of said notice) on which he desires to complete his purchase.
a. On or before the date specified in such notice for the completion of
the purchase of the shares, Optionee shall pay the Company, by cash, or
by check, the exercise price of the shares purchased.
b. Subject to the Company's compliance with all applicable laws, rules,
and regulations relating to the issuance of such shares and Optionee's
compliance with all the terms and conditions of this Option, the Company
shall promptly deliver the, shares to Optionee upon receipt of the exercise
price therefore.
5. Minimum, Share Purchase. Not less than One Hundred (100)
shares may be purchased at any one time. No fractional share shall be
purchased hereunder.
6. Option Not Transferable. The Option granted hereunder shall not
be transferable in any manner other than upon the death of Optionee. In
the event of Optionee's death, the executor or administrator of his estate
or the person to whom the Option shall have been transferred pursuant to
will or the laws of descent and distribution may exercise the Option to the
extent it was exercisable on the date of his death subject to Section 2
hereof, provided, however, that such transferee shall be entitled to no
greater rights than Optionee hereunder. More particularly (but without
limiting the foregoing), the Option may not be assigned, transferred
(except as expressly provided herein), pledged, or hypothecated in any
way, shall not be assignable by operation of law and shall not be subject
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary
to the provisions hereof, or the levy of any execution, attachment, or
similar process upon the Option, shall be null and void and without effect.
7. Adjustments to Option Shares. The Company shall adjust the
number of shares granted under this Agreement, and which Optionee has
not purchased, as follows:
a. The grant of this Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to
merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of
its business or assets.
b. Except as expressly provided herein, Optionee shall have no other
rights by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of
any dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation. Any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to the Option.
c. In the event there are splits, subdivisions, combinations or
reclassifications of the Company's stock subsequent to the Option Grant Date,
the number of shares reserved for issuance pursuant to this Option shall be
increased or decreased proportionately, as the case may be, to appropriately
reflect such event.
9. No Right to Continued Employment. This Agreement does not
confer upon Optionee any right to continue in the employ of the
Company, nor does it limit in any way the right of the Company to
terminate employment at any time, with or without cause.
10. Acknowledgments of Optionee. Optionee acknowledges and
agrees that:
a. Optionee is aware that this Option is NOT an Incentive Stock
Option as contemplated under the Internal Revenue Code;
b. Optionee and his transferees have no rights as a stockholder with
respect to any shares covered by this Agreement until the date of the
issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other right for which the
record date is prior to the date such stock certificate is issued, except as
provided herein.
11. Withholding Taxes. Whenever under this Agreement, shares are
to be issued, the Company shall have the right to require Optionee to
remit to the Company an amount sufficient to satisfy federal, state, and
local withholding tax requirements prior to issuance and/or delivery of any
certificate or certificates for such shares.
12. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties' heirs, legal representatives, successors, and
assigns. Nothing in this Section 12 shall be construed to limit the
provisions of Section 6 herein or any agreements executed or required to
be executed pursuant thereto.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter contained
herein and shall supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement shall be binding unless
executed in writing by all of the parties. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
14. Governing Low. This Agreement shall be construed according to
the laws of the State of California.
15. Validity. Should any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable
from this Agreement and shall not affect the remainder hereof.
16. Litigation and Attorneys' Fees. If any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute or default in connection with any of its provisions,
the successful or p party shall be entitled to recover reasonable attorneys'
fees and other costs incurred in such action or proceeding, in addition to
any relief to which such party may be deemed entitled.
IN WITNESS WHEREOF, this Agreement is made effective as of the
day and year above first written.
NETTER DIGITAL ENTERTAINMENT INC., OPTIONEE
a Delaware corporation
By:
Douglas Netter, Chief Executive Officer Delwin Francis
Name:
Last Name of Employee
EXHIBIT B
NETTER DIGITAL ENTERTAINMENT INC.
OWNERSHIP OF EMPLOYEE DEVELOPMENTS,
NON-DISCLOSURE AND CONFIDENTIALITY
AGREEMENT
THIS AGREEMENT, is effective as of the date shown below, by and
between Netter Digital Entertainment, Inc.(Employer) and Delwin Francis, as
an employee ("Francis" or "Employee") and is in consideration of the
services to be provided by Francis for Employer and the compensation for
those services to be provided to Francis by Employer, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged. Francis and Employer agree as follows:
1. OWNERSHIP OF EMPLOYEE DEVELOPMENTS
1.1 Existing Proprietary Rights. To the best knowledge of Francis, the
only intangible interests and properties (e.g., patents, patent applications,
copyrights, trade secrets, and trademarks) that Francis owns or has an
interest in at the time of execution of this Agreement are those, if any,
listed in Exhibit A attached hereto.
1.2 Ownership of Work Product.
a. For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international
copyrights, patentable inventions, discoveries and improvements, and
other intellectual property rights, in any programming, documentation,
technology, or other Work Product that relates to the business and
interests of Employer and that Francis conceives, develops, or delivers to
Employer at any time during the term of Francis's employment, except that
"Work Product' shall not include any invention (i) that Francis developed
entirely on Francis's own time, without using Employer's equipment,
supplies, facilities or trade secret information and (ii) which neither (A)
related at the time of conception or reduction to practice to Employers
business or actual or demonstrably anticipated research or development
nor (B) resulted from any work performed by Francis for Employer. Work
Product shall also include all intellectual property rights in any
programming, documentation, technology, or other work product that is
now contained in any of the products or systems, including development
and support systems, of Employer to the extent Francis conceived,
developed, or delivered such Work Product to Employer while Francis was
engaged as an independent contractor or an employee of Employer.
Francis hereby irrevocably relinquishes for the benefit of Employer and its
assigns any moral rights in the Work Product recognized by applicable
law.
b. Employer shall own all Work Product. All Work Product shall be
considered work made for hire by Francis and owned by Employer.
c. If any of the Work Product may not, by operation of law, be
considered work made for hire by Francis for Employer, or if ownership of
all right, title, and interest of the intellectual property rights therein
shall not otherwise vest exclusively in Employer, Francis agrees to assign,
and upon creation there of automatically assign, without consideration, the
ownership of all Work Product, to Employer, its successors, and assigns.
d. Employer and its successors, and assigns shall have the right to
obtain and hold m its or their own name copyrights, registrations, and any
other protection available in the foregoing Work Product.
e. Francis agrees to perform, upon the reasonable request of Employer,
during or after Francis's employment, such acts as may be necessary to
transfer, perfect, and defend Employer's ownership of the Work Product,
including, but not limited to,
actions to:
1. Execute, acknowledge, and deliver any requested affidavits and
documents of assignment and conveyance;
2. Obtain and aid in the enforcement of copyrights and, if applicable,
patents with respect to the Work Product in any countries;
3. Provide testimony in connection with any proceeding affecting the
right, title, or interest of Employer in any Work Product; and Employer
shall reimburse all reasonable out-of -pocket expenses incurred by Francis
at Employer's request in connection with the foregoing, including (unless
Francis is otherwise being compensated at the time) a reasonable per diem
or hourly fee for services rendered following termination of Francis's
employment.
1.3 Clearance procedure for Proprietary Rights not Claimed by
Employer.
a. If Francis ever wishes to create or develop during the term of his
employment with Employer, on Francis's own time and with Francis's own
resources, anything that would be considered Work Product but to which Francis
believes Francis should be entitled to the personal benefit of, Francis is
required to follow the clearance procedure set forth in this section in
order to ensure that Employer has no claim to the proprietary rights that
may arise.
b. Before Francis begins any development work on such Work Product
on Francis's own time, Francis must give Employer advance notice of
Francis's plans and supply a description of the development under
consideration. Employer will determine, in good faith within thirty (30)
days after Francis has fully disclosed Francis's plans to Employer, whether
the development is claimed by Employer. If Employer determines that it
does not claim such development,Francis will be notified in writing and
may retain ownership of the development to the extent of what has been
disclosed to Employer. Francis should submit for further clearance any
significant improvement, modification , or adaptation relates to the
business or interests of Employer.
2. CONFIDENTIALITY
2.1 Confidential Information Defined. For purposes of this Agreement,
"Confidential Information" means all information and material winch is
proprietary to Employer, whether or not marked as "confidential" or
"proprietary" and which is disclosed to or obtained by Employee, which
relates to Employer's past, present, or future research, development, or
business activities. Confidential Information is all information or materials
prepared by or for Employer and includes, without limitation, all of the
following: designs, drawings, specifications, techniques, models, data,
source codes, object codes, documentation, diagrams, flow charts,
research, development, processes, procedures "know-how," new product
or new technology information, product prototypes, product copies,
manufacturing, development or marketing techniques and material,
development or marketing timetables, strategies, and development plans,
including trade names, trademarks, customer, supplier, or personal names,
and other information related to customers, suppliers, or personnel, pricing
policies and financial information, and other information of a similar
nature, whether or not reduced to writing or other tangible form, and
other trade secrets or nonpublic business information. Confidential
Information does not included any information which (a) was in the lawful
and unrestricted possession of Employee prior to its disclosure to
Employee by Employer, (b) is or becomes generally available to the public
by acts other than those of the Employee after receiving it, or (c) has
been received lawfully and in good faith by Employee from a third party
who did not derive it from Employer.
2.2. Restrictions on Use and Disclosure of Confidential Information.
Francis agrees not to use, copy, disclose or allow access to any
Confidential Information of Employer during Francis's employment and for
so long afterwards as the pertinent information or data remain
Confidential Information, regardless of whether the Confidential
Information is in written or tangible form, except as required to perform
any duties for Employer.
2.3 Screening of Public Releases of Information. In addition, and
without and intention of limiting Francis's other obligation under this
Agreement in any way, during Francis's employment, reveal any nonpublic
information concerning the technology pertaining to the proprietary
products and manufacturing processes of Employer (particularly
technology under current development or improvement), unless Francis has
obtained approval from Employer in advance. In that connection , Francis
must first submit to Employer for review any proposed scientific and
technical articles and the text of any public speeches relating to work
done for Employer before they are released or delivered. Employer has
the right to disapprove or prohibit, or delete any parts of, such articles or
speeches that might disclose Employer's Confidential Information or
otherwise be contrary to Employer's business interests.
3. Return of Materials. Upon the request of Employer and, in any
event, upon the termination of Francis's employment, Francis must return to
Employer and leave at its disposal all memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes,
computer tapes, and other documents or media pertaining to the business
of Employer or Francis's specific duties for Employer, including all copies
of such materials. Francis must also return to Employer and leave at its
disposal all materials involving any Confidential Information of Employer.
This Section 2 is intended to apply to all materials or compiled by Francis,
as well as materials furnished to Francis by anyone else in connection with
Francis's employment.
4. MISCELLANEOUS
4.1 Survival of Obligation. The covenants on Sections 1.2, 2.2, and 3
of this Agreement shall survive termination of Francis's employment,
regardless of who causes the termination and under what circumstances.
4.2 Construction. The heading used herein are for convenience or
reference only and shall not affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement. In the
interpretation and construction of this Agreement, the acknowledge that
the terms hereof reflect extensive negotiations between the parties and
that this Agreement shall not be deemed, for the purpose of construction
and/or interpretation, that either party drafted this Agreement.
4.3 Governing Law, Jurisdiction and Venue. This Agreement will be
governed by and construed in accordance with the laws of the State of
California without reference to its choice of law rules and as if wholly
performed within the State of California. Any litigation regarding the
interpretation, breach or enforcement of this Agreement will be filed and
in heard by the state or federal courts with jurisdiction to hear such
disputes in Los Angeles County, California, and the parties hereby
expressly submit to the jurisdiction of such courts.
4.4 Entire Agreement. This Agreement sets forth the entire
understanding and agreement between the parties with respect to the
subject matter hereof and supersedes all other or written representations
and understandings. This Agreement may only be modified by a writing
signed by Employee and Employer.
4.5 No Implied License. No rights or obligations other than those
expressly recited herein are to be implied from this Agreement. No
license is hereby granted, directly or indirectly, to any of any Confidential
Information disclosed.
4.6 Severability. The parties agree that this Agreement is severable
and that in the event any provision of this Agreement is held to be illegal,
invalid or unenforceable, the legality, validity and enforceability of the
remaining provision will not be affected or impaired. Additionally, the
parties expressly grant to any court or other entity interpreting this
Agreement the power and authority to modify the terms of this
Agreement to extent necessary to allow enforcement of this Agreement
to the fullest extent allowed by law.
4.7 Successors and Assigns. This Agreement shall be binding upon
the successors, assigns and legal representatives of Employee, and inures
to the benefit of any successors or assigns of Employer.
4.8 Waivers. No waiver of any of the provision of this Agreement
shall be deemed to be or shall constitute a waiver of any other provision
of this Agreement, whether or not similar, nor shall any waiver constitute
waiver. No waiver of any provision of this Agreement shall be binding on
the parties hereto unless it is executed in writing by the party making the
waiver.
IN WITNESS WHEREOF, the parties have entered into this agreement
as of the date set forth below.
EXHIBIT A
Employee Owned Intangible Interests or Properties
1. None
EXHIBIT C
EMPLOYEE ARBITRATION AGREEMENT
THIS ARBITRATION AGREEMENT ("Agreement") is made and
effective as of December 31, 1996, by and between Videssence, Inc.
("Employer"), and Delwin Francis ("Employee").
The purpose of this Agreement is to establish final and binding
arbitration for all disputes arising out of Employee's employment or the
termination of Employee's employment. Employee and Employer desire
to arbitrate their disputes on the terms and conditions set forth below, in
order to gain the benefits of a speedy, impartial dispute-resolution
procedure. Employee and Employer agree to the following:
1. Claims Covered By The Agreement. Employee and Employer
mutually consent to the resolution by final arbitration of all claims or
controversies ("claims") that Employer may have against Employee or
that Employee may have against Employer or against its officers,
directors, partners, employees, agents, pension or benefit plans,
administrators, or fiduciaries, or any subsidiary or affiliated company or
corporation (collectively referred to as "Employer"), relating to, resulting
from or in any way arising out of Employee's employment relationship
with Employer and/or the termination of Employee's employment
relationship with Employer. The claims covered by this Agreement
include, but are not limited to, claims for wages or other compensation
due; claims for breach of any contract or covenant (express or implied);
tort claims; claims for discrimination (including, but not limited to, race,
sex, religion, national origin, age, marital status or medical condition,
disability, or sexual orientation); claims for benefits (except where an
employee benefit or pension plan specifies that its claims procedure shall
culminate in an arbitration procedure different from this one); and claims
for violation of any federal, state or other governmental law, statute,
regulation or ordinance, except claims excluded in the following section.
2. Claims Not Covered By The Agreement. Claims Employee may
have for Workers' Compensation or unemployment compensation
benefits are not covered by this Agreement. Also not covered are claims
by Employer for injunctive and/or other equitable relief for unfair
competition and/or the use and/or unauthorized disclosure of trade secrets
or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent
jurisdiction.
3. Required Notice Of Claims And Statute Of Limitations. Arbitration
may be initiated by Employee by serving or mailing a written notice to the
Chairman of the Board of Directors of Employer. In the case of a
termination of employment, the notice must be served or mailed within
one (1) year of the termination of employment. In an arbitration not
arising out of termination of Employee's employment, the written notice
must be served or mailed within one (1) year of the event which gave rise
to the claim for arbitration. Employer may initiate an arbitration by
serving or mailing a written notice to Employee at the last address
recorded in Employee's personnel file, within one (1) year of the event
which gave rise to the arbitration. The notice shall identify and describe
the nature of all claims asserted and the facts upon which such claims are
based. Failure to comply with all the requirements of this paragraph will
constitute a waiver of all rights that the party seeking arbitration may
have against the other party, and any such claims shall be void.
4. Arbitration Procedures.
(a) After demand for arbitration has been made by serving written
notice under the terms of Section 3 of this Agreement, the party
demanding arbitration shall file a demand for arbitration with the
American Arbitration Association ("AAA") in Los Angeles County.
(b) Except as otherwise provided in this Agreement, the arbitration will
be conducted according to the then current version of the AAA
Employment Dispute Resolution Rules. The AAA shall give each party a
list of seven arbitrators from its panel of labor and employment
arbitrators. Each party shall alternatively strike one of the arbitrators
from the fist until only one arbitrator remains. A coin flip will determine
which party chooses whether it desires to strike first or second.
(c) The arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the state of California, or federal law, or both,
as applicable to the claim(s) asserted. The arbitrator shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to
any claim that all or any part of this Agreement is void or voidable.
5. Arbitration Decision. The arbitrator's decision will be final and
binding. A party's right to appeal the decision is limited to grounds
provided under applicable federal or state law.
6. Place Of Arbitration. The arbitration will be at a mutually
convenient location which must be within 50 miles of Employee's last
employment location with Employer. If the parties cannot agree upon a
location, then the arbitration will be held at the AAA's office nearest to
Employee's last employment location with Employer.
7. Construction. Should any portion of this Agreement be found to be
unenforceable, such portion will be severed from this Agreement, and the
remaining portions shall continue to be enforceable.
8. Consideration. Employer's offer of employment to Employee and
the promises by Employer and Employee to arbitrate differences, rather
than litigate them before courts or other bodies, provide consideration for
each other.
9. Arbitration Fees and Costs. The losing party shall be responsible for
the arbitrator's fees and costs. Each party may be represented by an
attorney or other representative selected by the party. Each party shall
be responsible for its own attorneys' or representative's fees. However,
if any party prevails on a statutory claim which affords the prevailing
party's attorneys' fees, or if there is a written agreement providing for
fees, the arbitrator may award reasonable fees to the prevailing party.
10. Waiver of Jury Trial/Exclusive Remedy. EMPLOYEE AND
EMPLOYER WAIVE ANY CONSTITUTIONAL RIGHT TO HAVE
ANY DISPUTE BETWEEN THEM COVERED BY THE TERMS OF
THIS AGREEMENT DECIDED BY A COURT OF LAW AND/OR
BY A JURY IN A COURT PROCEEDING AND/OR BY ANY
ADMINISTRATIVE AGENCY.
11. Sole And Entire Agreement. This Agreement expresses the entire
Agreement of the parties and there are no other agreements, oral or
written, concerning arbitration, except as provided herein. This
Agreement is not, and shall not be construed to create, any contract of
employment, express or implied.
12. Requirements for Modification or Revocation. This Agreement to
arbitrate shall survive the termination of Employee's employment. It can
only be revoked or modified by a writing signed by the Chairman of the
Board of Directors of Employer and Employee which specifically states
an intent to revoke or modify this Agreement.
13. Voluntary Agreement. EMPLOYEE ACKNOWLEDGES THAT
EMPLOYEE HAS CAREFULLY READ THIS AGREEMENT,
UNDERSTANDS ITS TERMS, AND AGREES THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN
EMPLOYER AND. EMPLOYEE RELATING TO THE SUBJECTS
COVERED IN THE AGREEMENT ARE CONTAINED IN IT.
EMPLOYEE HAS VOLUNTARILY ENTERED INTO THE
AGREEMENT WITHOUT RELIANCE ON ANY PROVISIONS OR
REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE
CONTAINED IN THIS AGREEMENT.
EMPLOYEE FURTHER ACKNOWLEDGES THAT EMPLOYEE
HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS
AGREEMENT WITH EMPLOYEE'S PRIVATE LEGAL COUNSEL
AND EMPLOYEE HAS UTILIZED THAT OPPORTUNITY TO
THE EXTENT DESIRED.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
EMPLOYER:
VIDESSENCE, INC., a California corporation
Douglas Netter, Chairman of the
Board of Directors
EMPLOYEE:
Delwin Francis
EMPLOYMENT AGREEMENT
This Agreement is made and entered into by and between Samuel P. Cercone
hereinafter referred to as "Employee," and VIDESSENCE,
INC., a California corporation, hereinafter referred to as "Employer," as
of the 31st day of December 1996.
WHEREAS, NETTER DIGITAL ENTERTAINMENT, INC. ("NDEI")
is the sole shareholder of Employer.
WHEREAS, Employee and Employer desire to set out the terms of
Employee's employment, all as more particularly set forth below.
NOW, THEREFORE, in consideration of the mutual promises of the
parties and the mutual benefits they will gain by their performances
thereof, all in accordance with the provisions hereinafter set forth:
I. Term of Employment.
a. Basic Term. Employer hereby agrees to employ Employee to
render services to Employer in the position and with the duties and
responsibilities described in Section 2 until the earlier of (i) the date one
(1) year from the date of this Agreement ("Initial Term Date"),
; or (ii) the date this Agreement is terminated in accordance with Section 4
(the period from the date hereof until such date being the "Period of
Employment"). Employer shall pay Employee the compensation to which he is
entitled under Section 3 through the end of the Period of Employment.
Employee hereby accepts and agrees to such hiring, engagement and employment.
2. Position, Duties, Responsibilities.
a. Position. Employee hereby accepts employment with Employer as Vice
President-Sales. Employee shall devote his best efforts and his full time and
attention to the performance of the services customarily incident to such office
and to such other services as may be reasonably requested by Employer. Employee
agrees to serve Employer in such capacity annd position during the Period of
Employment. Employee shall be accountable to the President of Employer and
the Board of Employer, shall be responsible for and supervise the sales
operations of Employer.
b. Other Activities. Except upon the prior written consent of the
Board of Directors of the Employer, Employee, during the Period of
Employment, will not (i) accept any other employment or (ii) engage,
directly or indirectly, in any other business activity (whether or not
pursued for pecuniary advantage) that is or may be competitive with, or
that might place him in a competing position to that of Employer.
2.5 Place of Employment. During his employment, employee will perform his
services hereunder in Beaver Country, Pennsylvania or at such other place as
Employer and Employee may mutually agree; provided, however, that Employee will
be required to travel frequently to other locations on Employer's business,
including to prospect and customer sites and to Employer's principal place of
business in Burlingame, California.
3 . Compensation, Benefits, Expenses.
a. Compensation. In consideration of the services to be rendered
hereunder, Employee shall be paid a base annual salary at the rate of One
Hundred Thirty-Five Thousand Dollars (135,000) per year as increased per year as
increased under Section 3(b), payable in equal semimonthly payments on
Employer's normal payroll dates.
b. Salary Increases. Employee is entitled to reasonable annual
increases in Employee's base salary to be established at the discretion of
the Compensation Committee of the Employer's Board of Directors.
C. Option Grant. NDEI, through Employer, its wholly-owned
subsidiary of NDEI, grants to Employee options to purchase 40,000 shares of
common stock of NDEI, exercisable at $3.00 per share, according to
the terms and conditions set forth in the Option Agreement, attached
hereto as Exhibit "A."
d. Other Options and Warrants. At the sole discretion of the Compensation
Committee of NDEI, the Employee may be granted options or warrants for stock
and any qualified or non-qualified stock option or bonus plans, phantom stock
plans, employee stock ownership plans or other similar plans or arrangements
established from time to time by Employer.
e. Benefits.
(1) Insurance. Employer shall provide Employee with insurance benefits in
accordance with the insurance benefits provided by Employer to its employees and
shall include, but not be limited to, the following: standard health, medical
and dental insurance. The premium for Employee, his spouse and his dependents
who live full-time in the same house as Employee shall be paid for by Employer.
(2) Retirement Plan/Profit Sharing or Similar Plans. Employee shall be
eligible to participate in any profit sharing, pension, retirement, savings,
employee stock option or similar plan subject to the discretion of the Board
of Directors of Employer if and when such a plan is established by Employer.
(3) Sick Leave/Disability. Employee shall be entitled to six paid sick
days per year. Unused sick days shall carry over to the next year, but
Employee shall cease accruing further sick days at any time he has
accrued six days. Employee is not entitled to cash in lieu of sick leave.
(4) Vacation. Employee shall earn paid vacation time at the rate of
three (3) calendar weeks per year. Unused vacation shall carry over to
the next year, but Employee shall cease accruing further vacation time at
any time he has accrued three (3) weeks of unused accrued vacation,
and shall not accrue further vacation time until using some or all of the
accrued time. Any unused vacation time shall be paid in a cash lump sum
payment promptly after Employee's termination of employment,
regardless of the reason for such termination, or at such earlier time as
required to avoid forfeiture of accrued but unused vacation time as
described above.
(5) Expenses. Employer shall reimburse Employee on a monthly basis
for receipts he submits for all reasonable and necessary travel and other
business expenses incurred by Employee in the performance of his duties
hereunder, consistent with Employees normal expense reimbursement
policy.
(6) Car Allowance. Employer will provide Employee with the use of a company
car and an expense allowance for operations and maintenance of such car, as
authorized by the Board of Employer.
4. Termination of Employment. Employee's employment may only be
terminated prior to the Period of Employment upon the first to occur of
the following events:
a. Mutual Agreement. The mutual written agreement of Employer
and Employee.
b. By Death. Employee's employment will terminate automatically
on the death of Employee. Employer will pay to Employee's beneficiaries
or estate, as appropriate, the compensation to which he is entitled
pursuant to Section 3 above through the end of the day of such
termination, and thereafter Employees obligation to Employee and/or to
his beneficiaries or estate will terminate. Employee will cooperate with
Employees efforts to obtain fife insurance to reimburse Employer for its
costs of payments to Employee or his estate, if Employer chooses to
obtain insurance for such purpose.
c. By Disability. If Employee will be prevented from fully performing
his duties under this Agreement because of any illness or physical or
mental disability for a period or periods of more than ninety (90) days in
the aggregate during any calendar year or thirty (30) consecutive days in
any twelve (12) month period, then Employee's employment will
terminate on the last day of the period in which the day evidencing
incapacity occurs (i.e., the final day of the 90-day aggregate period or of
the 30-day consecutive period). Upon such termination, Employer will
continue Employee's then-current base salary for a period of six (6)
months, in semi-monthly installments of salary as would otherwise
become due. All of Employees other obligations win terminate on the
date of termination. Employee will cooperate with Employees efforts to
obtain disability insurance to reimburse Employer for its costs of such
payment, if Employer chooses to obtain disability insurance for such
purpose.
A determination of whether Employee is disabled will be made by
Employer in good faith; provided, however, that if Employee disagrees
with Employees determination in that regard and the parties are unable to
resolve the dispute between themselves, the dispute will be submitted to
arbitration in Los Angeles, California in accordance with the employment
arbitration rules of the American Arbitration Association, and the decision
of the arbitrator(s) will be final and binding.
d. By Employer with Cause. Employer may terminate this Agreement
for Cause, by majority vote of the Board, in the following circumstances
and in those circumstances only;
(i) the conviction of Employee of a felony;
(ii) the habitual neglect by Employee of his duties, following written
notice from the Board and a reasonable opportunity to demonstrate the
lack of habitual neglect;
(iii) Employee refuses or fails to act in accordance with any material
lawful direction or order by the Board of Directors of Employer;
(iv) the participation by Employee in dishonesty, criminal acts, or
frauds affecting Employer, Employer's good reputation in the community
or Employee's job performance; or
(v) Employee materially breaches any term of this Agreement.
To the extent the occurrence of any of the foregoing (a "Default") is not
susceptible to cure, Employer may terminate Employee's employment immediately.
To the extent the occurance is curable, Employee shall have thirty (30) days
after written notice from Employer to cure the Default in the event of a
termination under subsections 4(d) (ii) or (vii), and ten (10) days in the event
of a termination under subsections 4(d) (iv) or (v). No cure period will be
provided under subsection 4(d) (ii). If the Default cannot be reasonably cured
within the applicable 30 or 10 day period, Employee will be afforded a
reasonable extension of time provided Employee shall have diligently and
expeditiously attempted to cure the Default within the original time period and
continues to do so during the period of the extension. Any notice of termination
provided by Employer to Employee under this Section 4(d) shall identify the
events or conduct constituting the grounds for termination with sufficient
specificity so as to enable Employee to take steps to cure the same (if
susceptible to cure).
e. By Employer Without Cause. In the event Employer terminates Employee's
employment without cause, the liability of Employer to Employee as a result of
or in connection with such termination, and Employee's exculsive remedy for
such termination, will be limited to payment of severance compensation
consisting of payments to be made semi-monthly to Employer's normal payroll-
practices for a period of nine (9) months from date of termination. Upon such
termination, Employee will be entitled to profit sharing, or any other benefits
which Employee would accrue or vest up until date of termination. Nothing herein
will be construed to limit or modify the duty of Employee to mitigate his
damages in the event Employer terminates his employment without cause.
5. Employer Representation. Employer represents and warrants that: (i) this
Agreement has been aproved by Employer's Board of Directors annd is binding;
(ii) this Agreement will not violate the corporate charter or by-laws of
Employer; and (iii) Employer will not hereafter enter into any covenants or
undertake any other acts which conflict with this Agreement.
6. Headings. The headings and captions of this Agreement are
inserted for convenience only and shall not be used to interpret or
construe any provisions of this Agreement.
7. Notices. All notices or other communications required hereunder
shall be made in writing and shall be deemed to have been duly given if
delivered by hand or mailed, postage prepaid, by certified or registered
mail, return receipt requested, and addressed to Employer/NDEI at:
Netter Digital Entertainment, Inc.
5200 Lankershim Blvd. Suite 280
N. Hollywood, CA 91601
or to Employee at:
Sam Cercone
1008 Carlesa Drive
Aliquippa, PA 15001
Notice of change of address shall be effective only when done in
accordance with this Section.
8. Entire Agreement.
a. This Agreement supersedes any and all other agreements, either
oral or in writing, between the parties hereto with respect to the
employment of Employee by Employer. This Agreement contains all of
the covenants and agreements between the parties with respect to such
employment, except as provided herein. The terms of this Agreement
are intended by the parties to be the final expression of their agreement
and may not be contradicted by evidence of any prior, contemporaneous
or subsequent agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced in a judicial,
administrative or other legal proceeding involving this Agreement. The
terms of this Agreement may only be modified if done so in writing and
signed by the parties.
b. In the event Employer has or will promulgate a general employee
manual or other written employment policies for its employees,
appropriate policies shall apply to Employee except to the extent such
policies are contrary to this Agreement.
9. Attorneys' Fees. In the event of any arbitration or court action
concerning the execution, performance, termination or other aspect of this
Agreement, or of the employment relationship between Employee and
Employer, the prevailing party in any such dispute shall be entitled to an
award of reasonable attorneys' fees and costs including, without
limitation, expert witness fees and disbursements.
10. Amendments and Waivers. This Agreement may not be modified,
amended or terminated except as provided in the Agreement or by an
instrument in writing, signed by Employee and by a duly authorized
representative of Employer other than Employee. Through an instrument
in writing similarly executed, either Employee or Employer, as the case
may be, may waive compliance by the other party with any provision of
this Agreement that such other party was or is obligated to comply with
or period provided, however, that such waiver shall not operate as a
waiver of, or estoppel with respect to, any other or subsequent failure.
The failure of any party to insist in any one or more instances upon
performance with any term or condition of this Agreement shall not be
construed as a waiver of its or his future performance. The obligations of
either party with respect to such term, covenant or condition shall
continue in full force and effect.
11. Law Governing Agreement. The validity, interpretation,
enforceability and performance of this Agreement shall be governed by
and construed in accordance with the laws of the State of California.
12. Severability and Enforcement. If any terms, covenants or
conditions in this Agreement, or the applications thereof to any person,
party, place or circumstance, shall be held by an arbitrator or court of
competent jurisdiction to be invalid, unenforceable or void, the remainder
of this Agreement or the application of such terms, covenants or
conditions as applied to other persons, parties, places and circumstances
shall remain in full force and effect.
13. Employee Acknowledgment. Employee acknowledges (i) that he
has consulted with or has had the opportunity to consult with independent
counsel of his own choice, concerning this Agreement and has been
advised to do so by Employer, and (ii) that he has read and understands
the Agreement, is fully aware of its legal effect and has entered into it
freely based on his own judgment.
14. Joint Preparation. This Agreement is deemed to have been
prepared jointly by the parties hereto and to any uncertainty or ambiguity
existing herein, if any, shall not be interpreted against any party, but shall
be interpreted according to the application of the rules of interpretation
for arms length agreements taking into account the specific intention of
the parties wherever such intention is discernible.
The parties have duly executed this Agreement as of the day and year
set forth above.
EMPLOYER: VIDESSENCE, INC.
By: Dated:
Douglas Netter,
Chairman of the Board of Directors
Dated:
Samuel P. Cercone
EXHIBIT A
OPTION AGREEMENT
NETTER DIGITAL ENTERTAINMENT, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") is effective
as of
December 31, 1996 by and between Netter Digital Entertainment, Inc., a
Delaware corporation (the "Company"), and Samuel P. Cercone ("Optionee"),
with reference to the following facts:
A. Pursuant to an Employment Agreement entered into as of
December 31, 1996, the Company retained the services of Optionee.
B. As part of Optionee's compensation and to align Optionee's
interests with those of the Company, the Company agreed to grant
Optionee an option to purchase shares of the Company's common stock.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, it is agreed as follows:
I Grant of Option. The Company hereby grants to Optionee a stock
option ("Option") to purchase shares of the Company's common stock
upon the following terms:
a. Option Grant Date: December 31, 1996
b. Number of Shares: 40,000 shares of common stock
c. Exercise Price: $3.00
d. Vesting Schedule: 8,000 shares shall vest on 12/31/96
8,000 shares shall vest on 12/31/97
8,000 shares shall vest on 12/31/98
8,000 shares shall vest on 12/31/99
8,000 shares shall vest on 12/31/2000
e. Type of Option: nonstatutory stock option
2. Term of Option. The Option shall expire on the earliest of (i) ninety
(90) days from the date on which Optionee. ceases to be an employee of
the Company for any reason other than death; (ii) one year from the date
of death of Optionee; or (iii) December 31, 2001.
Other than as described in Section 3 of this Agreement or as provided in
the Employment Agreement mentioned above, if Optionee ceases for any
reason to be an employee of the Company, that portion of the Option
which has not yet become vested shall be terminated, unless the
Company's Board of Directors in its discretion accelerates the vesting
schedule in which case it may impose whatever conditions it considers
appropriate on the accelerated portion.
3 . Acceleration upon Change in Control. Notwithstanding any
vesting provisions of the Option or anything else herein to the contrary, all
shares evidenced by the Option shall vest and become exercisable
immediately prior to any Change in Control, if Optionee is an employee of
the Company at that time. For purposes hereof, "Change in Control" shall
have the meaning set forth in Exhibit A attached hereto.
4. Exercise of Option. Optionee shall exercise the Option to the extent
exercisable, in whole or in part, by sending written notice to the Company
of his intent to exercise. Said notice shall specify the number of shares
which Optionee desires to purchase pursuant to this Agreement and the
date (which date shall be within five (5) days after receipt by the
Company of said notice) on which he desires to complete his purchase.
a. On or before the date specified in such notice for the completion of
the purchase of the shares, Optionee shall pay the Company, by cash, or
by check, the exercise price of the shares purchased.
b. Subject to the Company's compliance with all applicable laws, rules,
and regulations relating to the issuance of such shares and Optionee's
compliance with all the terms and conditions of this Option, the Company
shall promptly deliver the, shares to Optionee upon receipt of the exercise
price therefore.
5. Minimum, Share Purchase. Not less than One Hundred (100)
shares may be purchased at any one time. No fractional share shall be
purchased hereunder.
6. Option Not Transferable. The Option granted hereunder shall not
be transferable in any manner other than upon the death of Optionee. In
the event of Optionee's death, the executor or administrator of his estate
or the person to whom the Option shall have been transferred pursuant to
will or the laws of descent and distribution may exercise the Option to the
extent it was exercisable on the date of his death subject to Section 2
hereof, provided, however, that such transferee shall be entitled to no
greater rights than Optionee hereunder. More particularly (but without
limiting the foregoing), the Option may not be assigned, transferred
(except as expressly provided herein), pledged, or hypothecated in any
way, shall not be assignable by operation of law and shall not be subject
to execution, attachment, or similar process. Any attempted assignment,
transfer, pledge, hypothecation, or other disposition of the Option contrary
to the provisions hereof, or the levy of any execution, attachment, or
similar process upon the Option, shall be null and void and without effect.
7. Adjustments to Option Shares. The Company shall adjust the
number of shares granted under this Agreement, and which Optionee has
not purchased, as follows:
a. The grant of this Option shall not affect in any way the right or
power of the Company to make adjustments, reclassifications,
reorganizations, or changes of its capital or business structure, or to
merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of
its business or assets.
b. Except as expressly provided herein, Optionee shall have no other
rights by reason of any subdivision or consolidation of shares of stock of
any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of
any dissolution, liquidation, merger or consolidation or spin-off of assets or
stock of another corporation. Any issue by the Company of shares of
stock of any class or securities convertible into shares of stock of any
class shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares subject to the Option.
c. In the event there are splits, subdivisions, combinations or
reclassifications of the Company's stock subsequent to the Option Grant Date,
the number of shares reserved for issuance pursuant to this Option shall be
increased or decreased proportionately, as the case may be, to appropriately
reflect such event.
9. No Right to Continued Employment. This Agreement does not
confer upon Optionee any right to continue in the employ of the
Company, nor does it limit in any way the right of the Company to
terminate employment at any time, with or without cause.
10. Acknowledgments of Optionee. Optionee acknowledges and
agrees that:
a. Optionee is aware that this Option is NOT an Incentive Stock
Option as contemplated under the Internal Revenue Code;
b. Optionee and his transferees have no rights as a stockholder with
respect to any shares covered by this Agreement until the date of the
issuance of a stock certificate to him for such shares. No adjustment
shall be made for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other right for which the
record date is prior to the date such stock certificate is issued, except as
provided herein.
11. Withholding Taxes. Whenever under this Agreement, shares are
to be issued, the Company shall have the right to require Optionee to
remit to the Company an amount sufficient to satisfy federal, state, and
local withholding tax requirements prior to issuance and/or delivery of any
certificate or certificates for such shares.
12. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the parties' heirs, legal representatives, successors, and
assigns. Nothing in this Section 12 shall be construed to limit the
provisions of Section 6 herein or any agreements executed or required to
be executed pursuant thereto.
13. Entire Agreement. This Agreement constitutes the entire
agreement between the parties pertaining to the subject matter contained
herein and shall supersede all prior and contemporaneous agreements,
representations, and understandings of the parties. No supplement,
modification, or amendment of this Agreement shall be binding unless
executed in writing by all of the parties. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions, whether or not similar, nor shall any waiver
constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
14. Governing Low. This Agreement shall be construed according to
the laws of the State of California.
15. Validity. Should any portion of this Agreement be declared invalid
and unenforceable, then such portion shall be deemed to be severable
from this Agreement and shall not affect the remainder hereof.
16. Litigation and Attorneys' Fees. If any arbitration or other
proceeding is brought for the enforcement of this Agreement, or because
of an alleged dispute or default in connection with any of its provisions,
the successful or p party shall be entitled to recover reasonable attorneys'
fees and other costs incurred in such action or proceeding, in addition to
any relief to which such party may be deemed entitled.
IN WITNESS WHEREOF, this Agreement is made effective as of the
day and year above first written.
NETTER DIGITAL ENTERTAINMENT INC., OPTIONEE
a Delaware corporation
By:
Douglas Netter, Chief Executive Officer Samuel P. Cercone
Name:
Last Name of Employee
EXHIBIT B
NETTER DIGITAL ENTERTAINMENT INC.
OWNERSHIP OF EMPLOYEE DEVELOPMENTS,
NON-DISCLOSURE AND CONFIDENTIALITY
AGREEMENT
THIS AGREEMENT, is effective as of the date shown below, by and
between Netter Digital Entertainment, Inc.(Employer) and Samuel P. Cercone, as
an employee ("Cercone" or "Employee") and is in consideration of the
services to be provided by Cercone for Employer and the compensation for
those services to be provided to Cercone by Employer, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged. Cercone and Employer agree as follows:
1. OWNERSHIP OF EMPLOYEE DEVELOPMENTS
1.1 Existing Proprietary Rights. To the best knowledge of Cercone, the
only intangible interests and properties (e.g., patents, patent applications,
copyrights, trade secrets, and trademarks) that Cercone owns or has an
interest in at the time of execution of this Agreement are those, if any,
listed in Exhibit A attached hereto.
1.2 Ownership of Work Product.
a. For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international
copyrights, patentable inventions, discoveries and improvements, and
other intellectual property rights, in any programming, documentation,
technology, or other Work Product that relates to the business and
interests of Employer and that Cercone conceives, develops, or delivers to
Employer at any time during the term of Cercone's employment, except that
"Work Product' shall not include any invention (i) that Cercone developed
entirely on Cercone's own time, without using Employer's equipment,
supplies, facilities or trade secret information and (ii) which neither (A)
related at the time of conception or reduction to practice to Employers
business or actual or demonstrably anticipated research or development
nor (B) resulted from any work performed by Cercone for Employer. Work
Product shall also include all intellectual property rights in any
programming, documentation, technology, or other work product that is
now contained in any of the products or systems, including development
and support systems, of Employer to the extent Cercone conceived,
developed, or delivered such Work Product to Employer while Cercone was
engaged as an independent contractor or an employee of Employer.
Cercone hereby irrevocably relinquishes for the benefit of Employer and its
assigns any moral rights in the Work Product recognized by applicable
law.
b. Employer shall own all Work Product. All Work Product shall be
considered work made for hire by Cercone and owned by Employer.
c. If any of the Work Product may not, by operation of law, be
considered work made for hire by Cercone for Employer, or if ownership of
all right, title, and interest of the intellectual property rights therein
shall not otherwise vest exclusively in Employer, Cercone agrees to assign,
and upon creation there of automatically assign, without consideration, the
ownership of all Work Product, to Employer, its successors, and assigns.
d. Employer and its successors, and assigns shall have the right to
obtain and hold m its or their own name copyrights, registrations, and any
other protection available in the foregoing Work Product.
e. Cercone agrees to perform, upon the reasonable request of Employer,
during or after Cercone's employment, such acts as may be necessary to
transfer, perfect, and defend Employer's ownership of the Work Product,
including, but not limited to,
actions to:
1. Execute, acknowledge, and deliver any requested affidavits and
documents of assignment and conveyance;
2. Obtain and aid in the enforcement of copyrights and, if applicable,
patents with respect to the Work Product in any countries;
3. Provide testimony in connection with any proceeding affecting the
right, title, or interest of Employer in any Work Product; and Employer
shall reimburse all reasonable out-of -pocket expenses incurred by Cercone
at Employer's request in connection with the foregoing, including (unless
Cercone is otherwise being compensated at the time) a reasonable per diem
or hourly fee for services rendered following termination of Cercone's
employment.
1.3 Clearance procedure for Proprietary Rights not Claimed by
Employer.
a. If Cercone ever wishes to create or develop during the term of his
employment with Employer, on Cercone's own time and with Cercone's own
resources, anything that would be considered Work Product but to which Cercone
believes Cercone should be entitled to the personal benefit of, Cercone is
required to follow the clearance procedure set forth in this section in
order to ensure that Employer has no claim to the proprietary rights that
may arise.
b. Before Cercone begins any development work on such Work Product
on Cercone's own time, Cercone must give Employer advance notice of
Cercone's plans and supply a description of the development under
consideration. Employer will determine, in good faith within thirty (30)
days after Cerone has fully disclosed Cercone's plans to Employer, whether
the development is claimed by Employer. If Employer determines that it
does not claim such development, Cercone will be notified in writing and
may retain ownership of the development to the extent of what has been
disclosed to Employer. Cercone should submit for further clearance any
significant improvement, modification , or adaptation relates to the
business or interests of Employer.
2. CONFIDENTIALITY
2.1 Confidential Information Defined. For purposes of this Agreement,
"Confidential Information" means all information and material winch is
proprietary to Employer, whether or not marked as "confidential" or
"proprietary" and which is disclosed to or obtained by Employee, which
relates to Employer's past, present, or future research, development, or
business activities. Confidential Information is all information or materials
prepared by or for Employer and includes, without limitation, all of the
following: designs, drawings, specifications, techniques, models, data,
source codes, object codes, documentation, diagrams, flow charts,
research, development, processes, procedures "know-how," new product
or new technology information, product prototypes, product copies,
manufacturing, development or marketing techniques and material,
development or marketing timetables, strategies, and development plans,
including trade names, trademarks, customer, supplier, or personal names,
and other information related to customers, suppliers, or personnel, pricing
policies and financial information, and other information of a similar
nature, whether or not reduced to writing or other tangible form, and
other trade secrets or nonpublic business information. Confidential
Information does not included any information which (a) was in the lawful
and unrestricted possession of Employee prior to its disclosure to
Employee by Employer, (b) is or becomes generally available to the public
by acts other than those of the Employee after receiving it, or (c) has
been received lawfully and in good faith by Employee from a third party
who did not derive it from Employer.
2.2. Restrictions on Use and Disclosure of Confidential Information.
Cecone agrees not to use, copy, disclose or allow access to any
Confidential Information of Employer during Cercone's employment and for
so long afterwards as the pertinent information or data remain
Confidential Information, regardless of whether the Confidential
Information is in written or tangible form, except as required to perform
any duties for Employer.
2.3 Screening of Public Releases of Information. In addition, and
without and intention of limiting Cercones's other obligation under this
Agreement in any way, during Cercone's employment, reveal any nonpublic
information concerning the technology pertaining to the proprietary
products and manufacturing processes of Employer (particularly
technology under current development or improvement), unless Cercone has
obtained approval from Employer in advance. In that connection , Cercone
must first submit to Employer for review any proposed scientific and
technical articles and the text of any public speeches relating to work
done for Employer before they are released or delivered. Employer has
the right to disapprove or prohibit, or delete any parts of, such articles or
speeches that might disclose Employer's Confidential Information or
otherwise be contrary to Employer's business interests.
3. Return of Materials. Upon the request of Employer and, in any
event, upon the termination of Cercone's employment, Cercone must return to
Employer and leave at its disposal all memoranda, notes, records,
drawings, manuals, computer programs, documentation, diskettes,
computer tapes, and other documents or media pertaining to the business
of Employer or Cercone's specific duties for Employer, including all copies
of such materials. Cercone must also return to Employer and leave at its
disposal all materials involving any Confidential Information of Employer.
This Section 2 is intended to apply to all materials or compiled by Cercone,
as well as materials furnished to Francis by anyone else in connection with
Cercone's employment.
4. MISCELLANEOUS
4.1 Survival of Obligation. The covenants on Sections 1.2, 2.2, and 3
of this Agreement shall survive termination of Cercone's employment,
regardless of who causes the termination and under what circumstances.
4.2 Construction. The heading used herein are for convenience or
reference only and shall not affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement. In the
interpretation and construction of this Agreement, the acknowledge that
the terms hereof reflect extensive negotiations between the parties and
that this Agreement shall not be deemed, for the purpose of construction
and/or interpretation, that either party drafted this Agreement.
4.3 Governing Law, Jurisdiction and Venue. This Agreement will be
governed by and construed in accordance with the laws of the State of
California without reference to its choice of law rules and as if wholly
performed within the State of California. Any litigation regarding the
interpretation, breach or enforcement of this Agreement will be filed and
in heard by the state or federal courts with jurisdiction to hear such
disputes in Los Angeles County, California, and the parties hereby
expressly submit to the jurisdiction of such courts.
4.4 Entire Agreement. This Agreement sets forth the entire
understanding and agreement between the parties with respect to the
subject matter hereof and supersedes all other or written representations
and understandings. This Agreement may only be modified by a writing
signed by Employee and Employer.
4.5 No Implied License. No rights or obligations other than those
expressly recited herein are to be implied from this Agreement. No
license is hereby granted, directly or indirectly, to any of any Confidential
Information disclosed.
4.6 Severability. The parties agree that this Agreement is severable
and that in the event any provision of this Agreement is held to be illegal,
invalid or unenforceable, the legality, validity and enforceability of the
remaining provision will not be affected or impaired. Additionally, the
parties expressly grant to any court or other entity interpreting this
Agreement the power and authority to modify the terms of this
Agreement to extent necessary to allow enforcement of this Agreement
to the fullest extent allowed by law.
4.7 Successors and Assigns. This Agreement shall be binding upon
the successors, assigns and legal representatives of Employee, and inures
to the benefit of any successors or assigns of Employer.
4.8 Waivers. No waiver of any of the provision of this Agreement
shall be deemed to be or shall constitute a waiver of any other provision
of this Agreement, whether or not similar, nor shall any waiver constitute
waiver. No waiver of any provision of this Agreement shall be binding on
the parties hereto unless it is executed in writing by the party making the
waiver.
IN WITNESS WHEREOF, the parties have entered into this agreement
as of the date set forth below.
EXHIBIT A
Employee Owned Intangible Interests or Properties
1. None
EXHIBIT C
EMPLOYEE ARBITRATION AGREEMENT
THIS ARBITRATION AGREEMENT ("Agreement") is made and
effective as of December 31, 1996, by and between Videssence, Inc.
("Employer"), and Samuel P. Cercone "Employee").
The purpose of this Agreement is to establish final and binding
arbitration for all disputes arising out of Employee's employment or the
termination of Employee's employment. Employee and Employer desire
to arbitrate their disputes on the terms and conditions set forth below, in
order to gain the benefits of a speedy, impartial dispute-resolution
procedure. Employee and Employer agree to the following:
1. Claims Covered By The Agreement. Employee and Employer
mutually consent to the resolution by final arbitration of all claims or
controversies ("claims") that Employer may have against Employee or
that Employee may have against Employer or against its officers,
directors, partners, employees, agents, pension or benefit plans,
administrators, or fiduciaries, or any subsidiary or affiliated company or
corporation (collectively referred to as "Employer"), relating to, resulting
from or in any way arising out of Employee's employment relationship
with Employer and/or the termination of Employee's employment
relationship with Employer. The claims covered by this Agreement
include, but are not limited to, claims for wages or other compensation
due; claims for breach of any contract or covenant (express or implied);
tort claims; claims for discrimination (including, but not limited to, race,
sex, religion, national origin, age, marital status or medical condition,
disability, or sexual orientation); claims for benefits (except where an
employee benefit or pension plan specifies that its claims procedure shall
culminate in an arbitration procedure different from this one); and claims
for violation of any federal, state or other governmental law, statute,
regulation or ordinance, except claims excluded in the following section.
2. Claims Not Covered By The Agreement. Claims Employee may
have for Workers' Compensation or unemployment compensation
benefits are not covered by this Agreement. Also not covered are claims
by Employer for injunctive and/or other equitable relief for unfair
competition and/or the use and/or unauthorized disclosure of trade secrets
or confidential information, as to which Employee understands and agrees
that Employer may seek and obtain relief from a court of competent
jurisdiction.
3. Required Notice Of Claims And Statute Of Limitations. Arbitration
may be initiated by Employee by serving or mailing a written notice to the
Chairman of the Board of Directors of Employer. In the case of a
termination of employment, the notice must be served or mailed within
one (1) year of the termination of employment. In an arbitration not
arising out of termination of Employee's employment, the written notice
must be served or mailed within one (1) year of the event which gave rise
to the claim for arbitration. Employer may initiate an arbitration by
serving or mailing a written notice to Employee at the last address
recorded in Employee's personnel file, within one (1) year of the event
which gave rise to the arbitration. The notice shall identify and describe
the nature of all claims asserted and the facts upon which such claims are
based. Failure to comply with all the requirements of this paragraph will
constitute a waiver of all rights that the party seeking arbitration may
have against the other party, and any such claims shall be void.
4. Arbitration Procedures.
(a) After demand for arbitration has been made by serving written
notice under the terms of Section 3 of this Agreement, the party
demanding arbitration shall file a demand for arbitration with the
American Arbitration Association ("AAA") in Los Angeles County.
(b) Except as otherwise provided in this Agreement, the arbitration will
be conducted according to the then current version of the AAA
Employment Dispute Resolution Rules. The AAA shall give each party a
list of seven arbitrators from its panel of labor and employment
arbitrators. Each party shall alternatively strike one of the arbitrators
from the fist until only one arbitrator remains. A coin flip will determine
which party chooses whether it desires to strike first or second.
(c) The arbitrator shall apply the substantive law (and the law of
remedies, if applicable) of the state of California, or federal law, or both,
as applicable to the claim(s) asserted. The arbitrator shall have exclusive
authority to resolve any dispute relating to the interpretation, applicability,
enforceability or formation of this Agreement, including but not limited to
any claim that all or any part of this Agreement is void or voidable.
5. Arbitration Decision. The arbitrator's decision will be final and
binding. A party's right to appeal the decision is limited to grounds
provided under applicable federal or state law.
6. Place Of Arbitration. The arbitration will be at a mutually
convenient location which must be within 50 miles of Employee's last
employment location with Employer. If the parties cannot agree upon a
location, then the arbitration will be held at the AAA's office nearest to
Employee's last employment location with Employer.
7. Construction. Should any portion of this Agreement be found to be
unenforceable, such portion will be severed from this Agreement, and the
remaining portions shall continue to be enforceable.
8. Consideration. Employer's offer of employment to Employee and
the promises by Employer and Employee to arbitrate differences, rather
than litigate them before courts or other bodies, provide consideration for
each other.
9. Arbitration Fees and Costs. The losing party shall be responsible for
the arbitrator's fees and costs. Each party may be represented by an
attorney or other representative selected by the party. Each party shall
be responsible for its own attorneys' or representative's fees. However,
if any party prevails on a statutory claim which affords the prevailing
party's attorneys' fees, or if there is a written agreement providing for
fees, the arbitrator may award reasonable fees to the prevailing party.
10. Waiver of Jury Trial/Exclusive Remedy. EMPLOYEE AND
EMPLOYER WAIVE ANY CONSTITUTIONAL RIGHT TO HAVE
ANY DISPUTE BETWEEN THEM COVERED BY THE TERMS OF
THIS AGREEMENT DECIDED BY A COURT OF LAW AND/OR
BY A JURY IN A COURT PROCEEDING AND/OR BY ANY
ADMINISTRATIVE AGENCY.
11. Sole And Entire Agreement. This Agreement expresses the entire
Agreement of the parties and there are no other agreements, oral or
written, concerning arbitration, except as provided herein. This
Agreement is not, and shall not be construed to create, any contract of
employment, express or implied.
12. Requirements for Modification or Revocation. This Agreement to
arbitrate shall survive the termination of Employee's employment. It can
only be revoked or modified by a writing signed by the Chairman of the
Board of Directors of Employer and Employee which specifically states
an intent to revoke or modify this Agreement.
13. Voluntary Agreement. EMPLOYEE ACKNOWLEDGES THAT
EMPLOYEE HAS CAREFULLY READ THIS AGREEMENT,
UNDERSTANDS ITS TERMS, AND AGREES THAT ALL
UNDERSTANDINGS AND AGREEMENTS BETWEEN
EMPLOYER AND. EMPLOYEE RELATING TO THE SUBJECTS
COVERED IN THE AGREEMENT ARE CONTAINED IN IT.
EMPLOYEE HAS VOLUNTARILY ENTERED INTO THE
AGREEMENT WITHOUT RELIANCE ON ANY PROVISIONS OR
REPRESENTATIONS BY EMPLOYER, OTHER THAN THOSE
CONTAINED IN THIS AGREEMENT.
EMPLOYEE FURTHER ACKNOWLEDGES THAT EMPLOYEE
HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS THIS
AGREEMENT WITH EMPLOYEE'S PRIVATE LEGAL COUNSEL
AND EMPLOYEE HAS UTILIZED THAT OPPORTUNITY TO
THE EXTENT DESIRED.
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date first written above.
EMPLOYER:
VIDESSENCE, INC., a California corporation
Douglas Netter, Chairman of the
Board of Directors
EMPLOYEE:
Samuel P. Cercone
List of Subsidiaries
1. Babylonian Productions
8615 Tamarack Ave.
Sun Valley, CA 91352
State of Incorporation: California
2. Videssence, Inc.
189 Airport Blvd.
Burlingame, CA 94010
State of Incorporation: California
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,574,522
<SECURITIES> 0
<RECEIVABLES> 1,073,970
<ALLOWANCES> (52,000)
<INVENTORY> 990,055
<CURRENT-ASSETS> 4,999,379
<PP&E> 1,717,452
<DEPRECIATION> (271,184)
<TOTAL-ASSETS> 8,783,241
<CURRENT-LIABILITIES> 3,528,056
<BONDS> 0
0
276,293
<COMMON> 33,272
<OTHER-SE> 4,705,533
<TOTAL-LIABILITY-AND-EQUITY> 8,783,241
<SALES> 2,410,987
<TOTAL-REVENUES> 23,300,891
<CGS> 1,155,937
<TOTAL-COSTS> 22,414,435
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,054
<INCOME-PRETAX> 214,376
<INCOME-TAX> 24,000
<INCOME-CONTINUING> 190,376
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190,376
<EPS-PRIMARY> 0.06
<EPS-DILUTED> 0
</TABLE>
