Form 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington D.C.
(X) Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998 Commission File No. 0-26884
NETTER DIGITAL ENTERTAINMENT, INC.
(exact name of registrant as specified in charter)
Delaware 95-3392054
(State or other (I.R.S. Employer
jurisdiction of incorporation) Identification No.)
5125 Lankershim Blvd.
North Hollywood, California 91601
(Address of principal executive office)
Registrant's telephone number, including area code: 818/753-1990
Indicate by check mark 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 ___
As of May 14, 1998 the Registrant had 3,334,405 shares of its Common Stock,
$.01 par value, issued and outstanding.
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
FORM 10-Q
March 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements (Unaudited) NUMBER
------
Consolidated Balance Sheet as of March 31, 1998 3
Consolidated Statement of Operations for the three-month
and nine-month periods ended March 31, 1998 and
March 31, 1997. 4
Consolidated Statements of Cash Flows for the nine-month
periods ended March 31, 1998 and March 31, 1997. 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7-11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Page 2 of 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31,
1998
------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 1,025,207
Accounts receivable, net of allowances of $22,434 2,020,080
Due from officer 155,897
Inventory 1,488,883
Production costs, net 265,768
Other 156,679
--------------
TOTAL CURRENT ASSETS 5,112,514
EQUIPMENT, net 2,019,993
GOODWILL, net 1,964,512
DEPOSITS AND OTHER ASSETS 280,460
--------------
$ 9,377,479
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and production fee advances $ 2,470,314
Accrued expenses 287,635
Deferred revenue 255,234
Short term notes payable 395,103
Current portion of long-term debt 95,427
Current portion of capital lease obligations 268,397
--------------
TOTAL CURRENT LIABILITIES 3,772,110
CAPITAL LEASE OBLIGATIONS 434,557
MINORITY INTEREST 500
--------------
STOCKHOLDERS' EQUITY :
Preferred stock, $.001 par value, 2,000,000 shares
authorized; 51,859 shares issued and outstanding 304,366
Common stock, $.01 par value, 20,000,000 shares
authorized; 3,334,405 shares issued and outstanding 33,344
Additional paid-in capital 4,726,171
Retained Earnings 106,431
--------------
TOTAL STOCKHOLDERS EQUITY 5,170,312
--------------
$ 9,377,479
==============
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3 of 12
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Mar. 31, Nine Months Ended Mar. 31,
--------------------------- --------------------------
1998 1997 1998 1997
--------------------------- ---------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Production $ 6,710,319 $ 6,458,340 $ 20,226,700 $ 15,879,952
Sales 1,180,921 1,190,030 3,073,760 1,190,030
------------ ------------ ------------ -----------
TOTAL REVENUES 7,891,240 7,648,370 23,300,460 17,069,982
------------ ------------ ------------ -----------
EXPENSES:
Production 6,035,065 5,910,107 18,089,315 14,399,458
Cost of goods sold 590,514 362,780 1,519,365 362,780
General and administrative 1,115,451 1,243,428 3,359,437 2,275,051
Amortization of goodwill 26,077 17,251 78,233 17,251
------------ ------------ ------------ -----------
TOTAL EXPENSES 7,767,107 7,533,566 23,046,350 17,054,540
------------ ------------ ------------ -----------
OPERATING INCOME (LOSS) 124,133 114,804 254,110 15,442
------------ ------------ ------------ -----------
OTHER INCOME (EXPENSE):
Interest income 3,559 14,209 18,049 71,271
Interest (expense) (44,589) (38,641) (137,538) (38,641)
Other income/(expense) 3,728 4,133 12,481 4,301
------------ ------------ ------------ -----------
TOTAL OTHER INCOME (EXPENSE) (37,302) (20,299) (107,008) 36,931
------------ ------------ ------------ -----------
INCOME BEFORE PROVISION FOR
INCOME TAXES 86,831 94,505 147,102 52,373
PROVISION FOR INCOME TAXES 7,500 - 38,000 -
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ 79,331 $ 94,505 $ 109,102 $ 52,373
============ ============ ============ ============
Cumulative preferred stock dividend 10,745 7,072 31,964 7,072
Net Income to common shareholders $ 68,586 $ 87,433 $ 77,138 $ 45,301
============ ============ ============ ============
Net Income (Loss) per common share,
basic and assuming dilution $ 0.02 $ 0.03 $ 0.02 $ 0.02
============ ============ ============ ============
Weighted average common shares outstanding 3,337,110 2,969,074 3,334,601 2,969,074
============ ============ ============ ============
<FN>
<FN1>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 4 of 12
NETTER DIGITAL ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended March 31,
--------------------------------
1998 1997
--------------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 109,102 $ 52,373
-------------- --------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 354,382 155,540
Amortization 90,341 17,251
Changes in operating assets and liabilities:
(Increase) in accounts receivable (1,154,007) (192,997)
(Increase) in other current assets (38,566) (17,750)
(Increase) in inventory (498,828) (31,025)
Decrease/(increase) in production costs 28,951 (180,675)
Decrease/(increase) in deposits and other assets 14,388 (56,655)
Increase in accounts payable 58,677 386,031
(Decrease)/increase in accrued expenses (18,907) 29,908
(Decrease) in sales tax payable - (43,652)
(Decrease) in deferred revenue (275,617) -
--------------- ------------
(1,439,186) 65,976
--------------- ------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,330,084) 118,349
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (299,656) (626,286)
Advances to subsidiary prior to acquisition - (275,000)
Net cash used in acquisition (net of previously
deferred acquisition costs of $113,396 and
cash aquired) - (352,527)
--------------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (299,656) (1,253,813)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in long-term debt - (95)
Proceeds from sale of preferred stock - 250,939
Increase in additional paid-in capital - 903
Proceeds from line of credit 358,606 -
Notes payable principal payments (60,632) -
Principal payments of capital lease obligations (217,549) -
--------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 80,425 251,747
--------------- -------------
NET (DECREASE) IN CASH (1,549,315) (883,717)
Cash, beginning of period 2,574,522 2,181,223
--------------- -------------
Cash, end of period $ 1,025,207 $ 1,297,506
=============== =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Cash paid for interest $ 137,538 $ 36,664
Cash paid for income taxes $ 10,617 $ -
Noncash activity:
Stock issued for legal fee settlement $ 50,000 $ -
Stock dividend $ 31,964 $ 7,072
Purchase of equipment through capital lease obligations $ 647,807 $ -
<FN>
<FN1>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 5 of 12
NETTER DIGITAL ENTERTAINMENT, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PREPARATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial statements and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
disclosures required for annual financial statements. These financial
statements should be read in conjunction with the consolidated financial
statements and related footnotes for the year ended June 30, 1997 included in
the Form 10-KSB for the year then ended.
In the opinion of the Company's management, all adjustments (consisting of
normal recurring accruals) necessary to present fairly the Company's financial
position as of March 31, 1998, and the results of operations and cash flows for
the three-month and nine-month periods ended March 31, 1998, and 1997 have been
included.
The results of operations for the three-month and nine-month periods ended March
31, 1998, are not necessarily indicative of the results to be expected for the
full fiscal year. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-KSB as filed
with the Securities and Exchange Commission for the year ended June 30, 1997.
The Company has adopted Statement of Financial Accounting Standard Number 128
specifying the computation, presentation, and disclosure requirements of
earnings per share information. Basic earnings per share has been calculated
based upon the weighted average number of common shares outstanding. Stock
options and convertible preferred stock have been excluded as common stock
equivalents in the diluted earnings per share because they are either
antidilutive, or their effect is not material. Comparative earnings per share
information for prior periods have been restated to reflect the requirements of
this Standard.
DUE FROM OFFICER/RECEIVABLE FROM RELATED PARTY
On November 20, 1995, the Company's Chief Executive Officer entered into a
promissory note with the Company in the amount of $194,876, bearing interest at
7.25% per annum. The remaining unpaid principal balance of $155,897 and accrued
interest of $9,715 is due on May 20, 1998. The Company expects to extend the
term of this note to May 20, 1999 upon payment of the accrued interest by Mr.
Netter.
VIDESSENCE, INC.
On January 10, 1997, the Company completed its acquisition of Videssence, Inc.
("Videssence") through the merger of Videssence into NDEI. The following
schedule combines the pro-forma financial results of operations of the Company
and Videssence, Inc. for fiscal year 1997 as if the acquisition had occurred on
Page 6 of 12
July 1, 1996 and includes such adjustments which are directly attributable to
the acquisitions. Such results should not be considered indicative of the
results that would have been achieved had the acquisition not occurred or the
results that would have been obtained had the acquisition actually occurred on
July 1, 1996.
Nine months ended
March 31, 1997
-----------------
Revenue $19,454,434
Net loss ($275,610)
Net loss per share, basic and diluted ($0.08)
Shares used in computation 3,317,221
Item 2. 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 ("Productions" or "Projects") under agreements with
studios, networks and distributors such as Warner Bros., The Walt Disney
Company, ABC and NBC. While entertainment production remains the Company's
principal activity, (1) in January 1997 it entered the business of designing,
manufacturing and distributing lighting products in various entertainment
industries, through its acquisition of Videssence, and (2) in the fourth quarter
of fiscal 1997, it began marketing its computer animation and visual effects
services to outside clients. Its business activities now are:
Entertainment Production. It has been the Company's practice to arrange for the
studio, network or distributor to fund 100% of the production costs of its
Projects, while retaining a back-end producer's profit participation. 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 agreements relating to such
Projects. Accordingly, year to year comparisons of production revenues from
these sources are not necessarily indicative of future revenues.
To increase production margins, the Company has invested in in-house post
production and computer graphics/animation facilities. These leading-edge
production technologies are used intensively to create the visual effects for
"Babylon 5" and the Company's other production activities and have enabled the
Company to significantly reduce the need for contracting out to third party
vendors, thus allowing it to realize higher margins on its Projects.
Page 7 of 12
As discussed below, the Company recently secured an agreement to produce an
all-new original television series entitled "Crusade" as well as two new
made-for-television movies.
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. 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 which it can utilize to service outside clients. The
Company believes that an active market exists for projects requiring creative,
high quality, cost effective digital graphics and effects. These activities
have been generating an increasing revenue stream over the past nine-month
period as this division expands. The Company believes that this expansion
should continue into the foreseeable future.
Videssence 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 while generating
greatly reduced amounts of heat. Thus, these lights are more comfortable for
talent to work under and can generate significant electricity and
air-conditioning related savings. The Company markets its lighting products in
the USA and internationally through a network of distributors, dealers, and
direct sales staff. To date, Videssence sales have been primarily to television
studio and video production operations. The Company has recently introduced new
products which have been developed for the film production markets and has begun
actively marketing these products. Of course, there can be no assurance that
the Company will successfully enter these markets.
Results of Operations
Net Revenues. The Company's net revenues for the third quarter and nine-month
periods ended March 31, 1998 increased 3.2% and 36.5%, respectively, when
compared to the same periods in the prior year. The increase for the
nine-months ended March 31, 1998 resulted from the following factors: (1) The
Company realized approximately $1.5 million of additional revenues from its
"Babylon 5" television series due to increased production activity in the first
half of fiscal 1998. As budgets for the consecutive broadcast seasons are
similar, this increased activity will even out over the balance of the fiscal
year; (2) during the first half of fiscal 1998, the Company produced two new
made for television movies for Turner Network Television which contributed
approximately $2.3 million in revenues; (3) since Videssence was acquired in the
third quarter of fiscal 1997, the Company realized approximately $1.9 million of
additional Videssence revenues for the first three quarters of fiscal 1998; and
(4) the Company's "Babylon 5" Fan Club and new Computer Animation and Visual
Effects Production Service Division contributed approximately $600,000 more for
Page 8 of 12
the nine-month period ended March 31, 1998, as compared to the same period of
the prior year. For the quarter ended March 31, 1998, the 3.2% increase in
revenues over the same quarter of the prior year resulted primarily from
$240,000 of additional revenues from the Fan Club and Production Service
Division described in clause (4) above.
Gross Margin. The Company's gross margin decreased 2.0 percentage points to
16.0% for the three-month period ended March 31, 1998, as compared to the prior
year. For the nine-month period, gross margin increased 2.3 percentage points
to 15.8% over the same prior year period. The decrease in the quarter resulted
from differing classifications of items in the cost of goods sold and general
and administrative expense figures at Videssence which caused the gross margin
to be higher than usual during this quarter of last year. These classifications
were corrected in the fourth quarter of fiscal 1997. The increase in the
nine-month period resulted from two factors: First, the gross profit from the
Company's entertainment production business increased to approximately $2.1
million (approximately 10.6% of revenues from entertainment production
activities) for the nine-month period ended March 31, 1998, up from
approximately $1.5 million (approximately 9.3%) for the same period the previous
year. This increase was the result of the Company bringing in-house a
significant amount of post-production and graphics/animation work, greatly
reducing its need for outside production services. Second, sales of the
Videssence lighting products generated gross profits of approximately $1.6
million (with gross margin of approximately 50.6%) for the nine-month period
ended March 31, 1998.
General and Administrative Expenses. General and administrative expenses were
approximately 14.1% and 14.4%, respectively, as a percentage of net revenues for
the three-month and nine-month periods ended March 31, 1998 as compared to 16.3%
and 13.3% for the same prior year periods. As noted above, the differing in the
classification of expenses at Videssence caused its G&A expenses to be higher
than usual during the third quarter of fiscal 1997. The increase in the
nine-month period resulted from the acquisition of Videssence which added
approximately $1.7 million to such expenses.
Operating Income (Loss). The Company achieved operating incomes of
approximately $124,000 and $254,000 for the quarter and nine-months ended March
31, 1998. In the quarter ended March 31, 1998, the Company's Entertainment
Production activities and Videssence operations combined their operating incomes
of approximately $100,000 and $24,000, respectively. For the nine-month period
ended March 31, 1998, operating income of approximately $432,000 from its
Entertainment Production activities offset an operating loss of approximately
$178,000 from its Videssence activities. This improvement in the operating
income of Videssence over the previous quarters can be attributed to the
recently implemented cost-cutting measures and the sale of recently completed
new products.
Other Income and Expenses. Interest income decreased to $3,560 and $18,050 for
the quarter and nine-month periods ended March 31, 1998, respectively, compared
to $14,209 and $71,271 for the same prior year periods, 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 during fiscal 1997 and working capital for
Videssence. Interest expense increased to $44,589 and $137,538 for the
Page 9 of 12
three-months and nine-months ended March 31, 1998, respectively, from $38,641 in
the same periods of the previous year due to the acquisition of Videssence which
has long-term debt and other credit facilities and the Company's new utilization
of capital lease lines for continued expansion of its computer animation and
visual effects facilities.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through cash from
operations, its 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
of 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 funding commitments for these new projects and to
cover the resulting increased overhead with its cash flow or other financing
methods, as necessary. 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 the three-months and nine-months ended March 31, 1998, the Company
derived approximately 96% and 97% of its entertainment production revenues,
respectively, from its agreements with Warner Bros. relating to the production
of the "Babylon 5" series and the associated made for television movies. The
Company has secured an agreement to produce a new series based on "Babylon 5"
which will replace it after the end of the current season in May 1998. This new
series, entitled "Crusade," will be in production during fiscal year 1999. The
two new made-for-television movies will bridge the end of the original
"Babylon 5" series to the beginning of the "spin-off" series, "Crusade."
Cash used in operating activities was approximately $1.3 million for the
nine-months ended March 31, 1998. The biggest uses of cash were a build up of
inventory at Videssence due to the development of a new line of lighting
products for the film industry, and an increase in accounts receivable, also at
Videssence, due to the termination of the Company's factoring agreement in July.
Accounts receivable in the Company's entertainment production activities also
increased due to production timing. Further, this period saw a large decrease
in deferred revenue as pre-paid items for the Company's "Babylon 5" series and
its movies of the week were used for production.
Effective July 1997, the Company's Videssence subsidiary 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 agreement also requires the Company to comply with
Page 10 of 12
certain restrictive covenants, including maintaining a minimum working capital
and specific financial ratios. As of March 31, 1998, the Company owed an
outstanding principal amount of approximately $359,000 on such line.
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 March 31, 1998, the Company's sources of liquidity included cash and cash
equivalents totaling approximately $1.0 million, of which approximately $600,000
is contractually committed to fund specific Projects. The Company has
approximately $491,000 of outstanding debt and approximately $702,000 of
outstanding capital leases as of March 31, 1998. All of the outstanding capital
leases were added during the first six-months of fiscal 1998 for equipment
additions to its in-house post-production and graphics/animation facilities.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a.) Exhibits
Exhibit Description
------- -----------
10.1 Equipment lease with Comerica Leasing Corporation. (1)
10.2 Equipment lease with Digital Financial Services. (1)
27 Financial Data Schedule. (1)
----------------------
(1) Filed herewith.
(b.) Reports on Form 8-K
None.
Page 11 of 12
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
NETTER DIGITAL ENTERTAINMENT, INC.
Registrant
Dated: May 14, 1998 By: /s/Chad Kalebic
Chad Kalebic
Chief Financial Officer
Page 12 of 12
COMERICA LEASING, A DIVISION OF COMERICA BANK
LEASE FINANCING AGREEMENT
LEASE FINANCING AGREEMENT dated as of April 8,1998, by and between
COMERICA LEASING, A DIVISION OF COMERICA BANK, a Michigan Banking
corporation, with its principal office located at 29201 Telegraph
Road, Southfield, Michigan, 48034, and with local offices located at
55 Almaden Boulevard, lst Floor, San Jose, California 95113 (herein
"CLCB") and NETTER DIGITAL ENTERTAINMENT, INC. , a Delaware
corporation of 5125 Lankershim Blvd., North Hollywood, CA 91601
(herein called "Lessee").
Upon the terms and conditions contained herein, CLCB agrees to lease
to Lessee, and Lessee agrees to lease from CLCB, and grant to CLCB a
security interest in, the Equipment described in the Lease
Schedule(s) executed from time to time by the parties and thereby
made a part hereof. "Schedule" as used herein includes each of such
Lease Schedules, together with any amendments, attachments and
exhibits thereto, each of which shall be deemed to be a part of this
Capital Lease Financing Agreement and collectively referred to as
the "Agreement" and/or "Lease Agreement". "Equipment" as used
herein shall mean all the Equipment which shall be subject to the
term of this Agreement as identified on the Schedules and/or
Exhibits attached hereto or referenced herein or otherwise
incorporated by reference. Individual pieces of such Equipment
shall be referred to as "Item(s)" or "Item(s) of Equipment".
1. LEASE STATUS AND EFFECTIVE DATE. The terms and provisions of
this Agreement shall be effective as of the date Lessee certifies in
writing that the Equipment has been delivered to and accepted by
Lessee or as of the date CLCB confirms to the seller or supplier of
the Equipment the purchase of or the purchase order for the
Equipment, whichever occurs first, and shall continue for the period
specified in the Schedule pertaining to the Equipment unless sooner
terminated as provided hereunder (herein called the "Term"). The
rental payments shall be payable as set forth in each Schedule. The
parties agree that this Agreement represents a financing arrangement
referred to as a "Lease Financing Agreement" to which the relevant
provisions of Article 9 (Secured Transactions) of the Michigan
Uniform Commercial Code (MCLA Section 440.9101 ET SEO) are
applicable.
2. RENT, TAXES, ETC. The amount and terms of payment of the rental
for the Equipment shall be as provided for in the Schedule
pertaining thereto. Lessee shall also pay and discharge when due,
whether payable by or billed or assessed to CLCB or Lessee, all
license fees, assessments, and sales, use, property, excise and
other taxes now or hereafter imposed by any federal, state or local
government upon or with respect to this Agreement, any of the
Equipment or payments hereunder (excluding only taxes based solely
on CLCB's net income), together with any interest or penalties in
connection therewith. The parties agree that the Lessee shall
include the Items of Equipment in the ad valorem tax returns to be
filed by the Lessee in the applicable states or localities and that
CLCB shall not include the Items of Equipment in any ad valorem tax
returns filed by them in such states or localities. Lessee agrees
to comply with all state and local laws requiring the filing of any
tax returns or any reports relating to the Equipment and promptly
furnish to CLCB evidence of such filings and payment of the taxes.
3. WARRANTY. CLCB warrants that it has received whatever title was
conveyed to CLCB by CLCB's predecessor in title to such Equipment.
CLCB further warrants that during the term of the Lease, if no
default has occurred, Lessee's use of the Equipment shall not be
interrupted by CLCB or anyone claiming solely through or under CLCB
regarding matters not related to this Agreement or the transactions
contemplated thereby.
Lessee acknowledges and agrees that (i) the Equipment is of a size,
design, capacity and manufacture selected by Lessee, (ii) CLCB is
not a manufacturer thereof, nor a manufacturer's agent, nor a dealer
in property of such kind as the Equipment, and (iii) as between CLCB
and Lessee, LESSEE LEASES THE EQUIPMENT AS IS AND THAT CLCB HAS NOT
MADE, NOR DOES IT MAKE, ANY REPRESENTATION OR WARRANTY OR AGREEMENT
WITH RESPECT TO THE FITNESS, MERCHANTABILITY, CONDITION, QUALITY,
DURABILITY OR SUITABILITY OF THE EQUIPMENT IN ANY RESPECT INCLUDING
ITS FITNESS FOR THE PURPOSES AND USES OF LESSEE, OR AS TO CLCB'S
TITLE THERETO OR LESSEE'S RIGHT TO QUIET ENJOYMENT OF THE SAME
(EXCEPT AS SPECIFICALLY SET FORTH HEREIN), OR ANY OTHER
REPRESENTATION OR WARRANTY OR AGREEMENT OF ANY KIND OR CHARACTER,
EXPRESS OR IMPLIED, ORAL OR WRITTEN, WITH RESPECT THERETO, ALL OF
WHICH ARE HEREBY SPECIFICALLY DISCLAIMED. Lessee acknowledges that
Lessee has reviewed and approved the Purchase Order, Supply Contract
or Purchase Agreement covering the Equipment purchased from the
seller or supplier thereof for lease to Lessee.
Lessee's Initials
CLCB agrees to assign, without warranty or representation as to
legality or validity, to Lessee, at Lessee's request and so long as
there has been no default hereunder, all rights which CLCB may have
against the seller of the Equipment by reason of and arising out of
the purchase of such Equipment, including any implied or express
warranties respecting the Equipment.
4. ACCEPTANCE; NET LEASE. Acceptance by Lessee of the Equipment
shall be conclusively presumed upon delivery of the Equipment to
Lessee. If CLCB so requests, Lessee will furnish CLCB with a
Certificate of Equipment Acceptance in CLCB's form. This Agreement
is a "net lease" and Lessee's obligation to pay rental and other
amounts payable hereunder shall be absolute and unconditional and
shall not be subject to any abatement, reduction, setoff, defense,
or counterclaim whatsoever (and lessee hereby waives all of the
foregoing to any extent permitted by law), including, but not
limited to, abatements or reductions due to any present or future
claims of Lessee against CLCB hereunder or otherwise. Nor, except
as otherwise expressly provided herein, shall this Agreement
terminate or the obligations of Lessee hereunder be affected, by
reason of any defect in, damage to, or loss or destruction of any of
the Equipment from any cause whatsoever, including any defect in the
condition, design, operation or fitness for use of the Equipment,
any liens, encumbrances, security interests or rights of others with
respect to any of the Equipment, the taking or requisitioning of the
Equipment by condemnation or otherwise, the
prohibition by government action of Lessee's use of the Equipment,
the interference with such use by any private person or corporation,
the invalidity or unenforceability or lack of due authorization or
other infirmity of this Agreement.
5. DELIVERY AND INSTALLATION. Unless otherwise agreed in writing,
all insurance, transportation, rigging, drayage, installation and
other charges in connection with the delivery and installation of
the Equipment, or with the removal to another location, are to be
paid by Lessee.
6. CARE AND USE OF EQUIPNWNT. Lessee (i) shall, at its expense,
maintain the Equipment in good operating condition, repair, and
appearance, and protect the same from deterioration, ordinary wear
and tear excepted; (ii) shall use the Equipment in the regular
course of its business only within its normal capacity, without
abuse, and in a manner contemplated by the manufacturer and required
by any insurers thereof, and (iii) shall cause the Equipment at all
times to be in compliance with all applicable governmental rules and
regulations and laws. Lessee shall not make modifications,
alterations, or additions to the Equipment without the prior written
consent of CLCB and no such modifications, alterations or additions
shall be made which adversely affect the value or utility of the
Equipment.
7. DAMAGE TO EQUIPMENT. Lessee hereby assumes all risks of loss,
theft, damage, or destruction, partial or complete, of the Equipment
from any and every cause whatsoever commencing with delivery of the
Equipment to Lessee, an agent of Lessee or to a carrier consigned
for shipment to Lessee or an agent of Lessee, whichever is earlier.
Lessee agrees to give prompt written notice to CLCB in the event of
any loss of, or damage to, any Equipment. The total or partial
destruction of any Equipment or the total or partial loss of use or
possession thereof to Lessee shall not release or relieve Lessee
from any obligation of Lessee hereunder which shall remain in full
force and effect. In the event of damages of any kind whatever to
any Equipment, Lessee at its expense (except to the extent of any
proceeds of insurance provided by Lessee which shall have been
received by CLCB as a result of such loss, theft, damage, or
destruction), and at the option of CLCB, shall either (a) place the
same in good repair, condition and working order, or (b) replace the
same with a like item of equipment acceptable to CLCB and in good
repair, condition and working order and of equivalent value which
shall become Equipment hereunder free and clear of all liens, and
Lessee shall execute a new Schedule and other documents deemed
appropriate by CLCB to evidence such replacement, or (c) pay CLCB
the amount shown as the "Principal Balance" in the Amortization
Schedule for the Equipment, attached to the Schedule pertaining to
such Equipment or thereafter furnished to the Lessee by Lessor which
schedule shall be based on the same assumptions used by Lessor in
initially pricing the transaction. Upon replacement or payment as
provided for in clauses (b) and (c) hereof this Agreement shall
terminate with respect to such Items of Equipment so paid for or
replaced and CLCB shall release its security interest therein.
8. INDENMITY. Lessee shall promptly defend, indemnify, and hold
CLCB harmless from and against (a) any and all loss of or damage to
the,Equipment, usual wear and tear excepted; (b) any claim, cause of
action, liability (including, but not limited to, negligence, tort
and strict liability), damages, cost or expenses (including
reasonable attorneys' fees) which may arise or be incurred in any
manner in favor of any person relating to the Equipment or any part
thereof, including, by way of example but not of limitation, claims
arising out of or incident to the construction, design, purchase,
delivery, installation, ownership, sale, leasing or return of the
Equipment or as a result of its use, maintenance, repair, operation
or condition thereof, whether or not any claimed defects in such
Equipment are latent or are discoverable; (c) any claim, cause of
action, cost or expense which may arise or be incurred by reason of
or as a result of any act or omission of Lessee for itself or as
agent for CLCB hereunder, and (d) any claim, cause of action, cost
or expense arising from alleged patent infringement. The
obligations of Lessee herein contained shall survive the expiration
of this Agreement as to any loss, damages, claims, causes of action,
liabilities, costs or expenses based on or arising out of events or
conditions occurring or existing during the Term
.
9. ISURANCE. Lessee will carry insurance with such insurers and in
such amounts as shall be satisfactory to CLCB, which shall include
but not be limited to all insurance required by law, on the
Equipment covering all risks of loss in an amount not less than the
full replacement cost thereof and comprehensive public liability and
property damage insurance in respect of the operation and use of the
Equipment IN AN AMOUNT ADEQUATE TO PROTECT CLCB. Each such
insurance policy shall provide as follows: (a) with respect to the
risk of loss, insurance on the Equipment, that (i) coverage is in
effect at the premises where the Equipment is located and while in
transit to and from such location, (ii) CLCB, as a secured party,
shall be insured as its interest may appear, (iii) all losses will
be adjusted directly with CLCB, (iv) all amounts payable thereunder
will be payable to CLCB, (v) the interest of CLCB will at all times
be insured regardless of any breach of violation by Lessee of any
warranties, declarations or conditions contained in such policy,
(vi) the policy may be canceled only after 30 days written notice to
CLCB; (b) as to the insurance for public liability and property
damage incurred by others, that (i) CLCB, as a secured party, is an
additional insured thereunder, (ii) all provisions of such policy,
except the limits of liability, will operate in the same manner as
if there were a separate policy covering each insured, and (iii) the
policy may be canceled only after 30 days written notice to CLCB.
The proceeds of the physical damage insurance on the Equipment shall
be applied pursuant to Section 7 hereof. Lessee shall pay the
premiums for all insurance and deliver evidence of such payment,
together with the policies, or duplicates thereof, to CLCB. In case
of failure of Lessee to procure or maintain insurance as herein
specified, CLCB may, at its option, obtain such insurance, in which
event the cost thereof shall be payable to CLCB forthwith as
additional rent hereunder.
10. GRANT OF SECURITY INTEREST. Lessee hereby assigns, pledges and
grants to CLCB a continuing security interest in the Equipment, the
Agreement and all interests and matters of any nature whatsoever
arising therefrom to secure all payment due under this Agreement and
any indebtedness of Lessee to CLCB from time to time outstanding as
evidenced by the Agreement and under such other leases or notes or
other evidence of indebtedness made by Lessee and delivered to CLCB
from time to time, and any and all other advances, commitments to
loan or lease, accruals, extensions and renewals of credit owing by
Lessee to CLCB whether present or future as the case may be and to
secure Lessee's prompt, full and faithful performance and observance
of all the provisions to be kept, observed or performed by Lessee
under the Agreement and under any other leases, notes, agreements
executed by Lessee and delivered to CLCB. The security interest
granted hereby shall also cover the cash and non-cash proceeds of
the Equipment, including the proceeds of any hazard or casualty
insurance relating thereto. The creation of an interest in proceeds
is not construed to give Lessee any right to dispose of any of the
Equipment.
11. PERFECTION OF SECURITY INTEREST. In order to perfect and
maintain CLCB's security interest in the Equipment, the Agreement
and all interests of any nature whatsoever arising therefrom and as
further assurance to CLCB, Lessee shall execute and deliver to CLCB,
concurrently with Lessee's execution of the Agreement, and promptly
at any time or times thereafter at the request of CLCB, all
financing statements, continuation financing statements, assignments
of lease, certificates of title, applications of vehicle or other
titles, affidavits, reports, financial statements and all other
documents and information which CLCB may request, in a form
satisfactory to CLCB; and Lessee shall promptly pay all costs
associated therewith, including, but not limited to, filing and
recording fees.
12. TITLE. The Lessee, as between CLCB and the Lessee, shall and
hereby does retain full legal title to the Equipment. Lessee
acknowledges that the Equipment is and will be at all times remain
personal property regardless of how installed or attached to the
premises.
13. COVENANTS AND REPRESENTATIONS. Lessee shall keep the Equipment
free and clear of all levies, liens, charges and encumbrances except
for the security interest of CLCB as provided for herein. During
the Term, Lessee shall not, without CLCB's prior written consent,
remove the Equipment from the location set forth in the Schedule
pertaining thereto, part with possession or control of the
Equipment, or sublease, sell, assign, pledge, mortgage or otherwise
encumber the Equipment or any part thereof. CLCB shall be entitled
to inspect the Equipment and all records of Lessee pertaining
thereto upon request and during normal business hours. Lessee shall
not consolidate with or merge into any other business entity or
convey, transfer or lease substantially all of its assets as an
entirety to any third party without the prior written consent of
CLCB being first obtained. Lessee shall not without the prior
written consent of Lessor: (i) consolidate with or merge into any
other business entity; (ii) convey, transfer or lease substantially
all of its assets as an entirety to any third party; or (iii) become
a party to a leveraged buy-out. In the event that Lessee is a party
to a leveraged buy-out, merger, consolidation, sale or lease of
substantially all of its assets, or any other significant corporate
changes, unless Lessor's prior written consent is given, such event
shall constitute a Casualty Loss; and in such event, Lessee shall
pay Lessor the amount shown in the "Principal Balance" in the
Amortization Schedule plus any other amounts owing by Lessee in
accordance with the terms of the Lease for the Equipment if attached
to the Schedule pertaining to such Equipment or thereafter furnished
by Lessor to Lessee based on the same assumptions used in initially
pricing the transaction. Upon the receipt of such amount by Lessor,
this Agreement shall terminate and Lessee shall take title to the
Equipment AS IS,
WHERE IS, WITHOUT WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY
MATTER WHATSOEVER. Any consent ofLessor shall be in its sole
discretion.
Lessee warrants and represents that (i) there currently are no
pending or threatened actions or proceedings before any court,
administrative agency or other tribunal or body or judgments which
may materially adversely affect Lessee's financial condition or
business operations ("Adverse Actions") and that during the Term,
Lessee shall promptly advise CLCB, in writing, of the commencement
or threatened commencement of any such Adverse Actions; (ii) Lessee
has the full power and authority to enter into this Agreement, and
has taken all requisite actions to authorize this transaction, the
acceptance of delivery of the Equipment and the performance of the
obligations of Lessee hereunder; and (iii) the signatories hereto
are duly authorized to sign on behalf of Lessee, and upon execution,
the Agreement shall be the valid, legal and binding obligation of
Lessee enforceable pursuant to its terms and will not constitute a
breach of any other agreement to which Lessee is a party.
14. LABELS. Lessee shall affix any labels furnished by CLCB
denoting CLCB's interest and keep the same upon a prominent place
and clearly readable on each item of Equipment. Lessee may place a
number on any Equipment for its identification purposes, but shall
not otherwise mark the Equipment.
15. ACTS OF GOD, ETC. CLCB shall not be liable or in default for
any delay or failure of performance hereunder resulting, directly or
indirectly, from acts of God, civil or military authority, acts of
public enemy, war, accidents, fires, explosions, earthquakes,
floods, the elements, strikes, labor disputes, shortages of parts,
materials, labor on transportation or any cause beyond CLCB's
control.
16. SECURITY DEPOSIT. CLCB may at its option require a deposit of
advance rentals ("Security Deposit") and Lessee hereby agrees to pay
any Security Deposit provided for in any Schedule upon request of
CLCB. Any Security Deposit may be applied at the option of CLCB,
toward the payment of any obligation of Lessee to CLCB under this
Agreement or toward the payment of any other debt, obligation or
liability of Lessee to CLCB and any unapplied balance thereof may be
applied by CLCB to the rental installments hereunder or inverse
order of maturity. The Security Deposit may be commingled with
CLCB's general funds and Lessee shall not be entitled to any
interest thereon.
17. DEFAULT. Each of the following events shall constitute an
"Event of Default" hereunder: (a) Lessee fails to make payment of
any rent or other sum due to CLCB as and when required hereunder and
such failure shall continue for a period of ten (10) days; (b)
Lessee fails to procure or maintain insurance on the Equipment as
required herein; (c) Lessee fails in the performance or observance
of any of the other covenants, conditions or agreements to be
performed or observed by it under this Agreement and such failure
shall continue uncured for seven (7) days after written notice
thereof to Lessee by CLCB; (d) Lessee defaults in any obligation to
Comerica Bank or any of its subsidiaries; (e) Lessee defaults in the
payment of any obligation of Lessee for money borrowed from a third
party; (f) Lessee ceases doing business, becomes insolvent, conimits
an act of bankruptcy or becomes the subject of any proceeding under
the Federal Bankruptcy Code; (g) any representation or warranty made
by Lessee under this Agreement or any supplement, amendment, or
addition thereto, or in any document or certificate furnished CLCB
in connection herewith or pursuant hereto shall prove to be
incorrect at any time in any material respect; (h) judgments
aggregating more than One Thousand and 00/100 ($1,000.00) Dollars
shall be entered against Lessee; (i) CLCB in good faith considers
that the prospect of payment or performance of the Lessee's
obligations under this Agreement has been impaired; and (j) Lessee
creates, incurs, assumes, or suffers to exist any mortgage, lien,
pledge, or other encumbrance or attachment of any kind whatsoever
upon, affecting or with respect to the Equipment or this Agreement
or any of CLCB's interests thereunder.
18. REMEDIES. Upon the happening of an Event of Default, CLCB may
at its option undertake one or more of the following actions: (1)
proceed by appropriate court action or actions to enforce
performance by Lessee of the applicable covenants and provisions of
this Agreement or to recover damages for the breach thereof; (2)
terminate this Agreement as to any or all Items of Equipment,
without prejudice to CLCB's rights in respect to obligations then
accrued and remaining unsatisfied as well as the remedies and claims
referred to herein; (3) declare all unpaid rent immediately due and
payable; (4) directly, or by its agents, enter upon the premises of
Lessee or other premises where the Equipment may be located and
without liability for suit, action or other proceeding by Lessee,
take possession of all such Equipment and thereupon Lessee's right
to possession thereof shall absolutely cease and terminate and this
Agreement shall terminate as to all such Equipment. LESSEE HEREBY
EXPRESSLY WAIVES TO THE EXTENT PERMITTED BY LAW (a) NOTICE AND THE
RIGHT TO AHEARING PRIOR TO SUCH RETAKING OF POSSESSION, AND (b) ANY
DIRECT OR CONSEQUENTIAL DAMAGESOCCASIONED BY SUCH TAKING OF
POSSESSION; (5) elect to sell or release any or all Items of
Equipment and recover from the Lessee as liquidated damages for the
Lessee's default hereunder the "Principal Balance" in the
Amortization Schedule, on the date the sale or re-lease is
consummated. The amount received by CLCB upon sale of such Items of
Equipment shall be deducted from said liquidated damage amount, and
upon re-lease of such Items of Equipment, the aggregate rentals to
be received by CLCB over the term(s) of such re-lease, discounted by
5% per annum, shall be deducted from said liquidated damage amount;
(6) upon demand made to the Lessee, receive prompt payment from
Lessee of an amount equal to the "Principal Balance" in the
Amortization Schedule for the Equipment rental payment date next
preceding the date such demand is made, plus all rent and any other
amounts owing by Lessee hereunder to and including the date such
notice is given; provided upon receipt of payment in full of such
amount, CLCB shall tender to the Lessee a bill of sale for the Items
of Equipment then subject to this Agreement without any warranties
or representations regarding or relating to the Items for which the
bill of sale is tendered; (7) avail itself of any other remedy or
remedies provided for by any statute or otherwise available at law,
in equity or in bankruptcy or insolvency proceedings. In addition
to any and all remedies and damages set forth herein, Lessee shall
also pay to CLCB all costs and expenses incurred by CLCB as a result
of Lessee's default, including without limitation, all reasonable
attorneys' fees and all costs and expenses incurred in searching
for, taking, removing, keeping, storing, repairing, restoring,
selling or re-leasing any Items of Equipment, and impositions
relating thereto, as well as any reasonable attorneys' fees and
costs incurred subsequent to an Event of Default relating to this
Agreement, including, but not limited to, all collection efforts,
negotiations, documentation preparation and examination of CLCB's
rights and remedies. CA-03/95
In the event of any termination of this Agreement under this Section
18, it is understood that CLCB shall be entitled to retain all sums
duly received by it and shall be entitled to recover all rentals
accrued and unpaid for the period up to and including the date of
such termination, as well as all other additional sums which
pursuant to the Agreement are payable by Lessee or for which Lessee
is liable or in respect of which Lessee agreed to indemnify CLCB,
which may then be owing and unpaid.
19. LESSEE'S WAIVERS. To the extent permitted by applicable law,
Lessee hereby waives any and all rights including but not limited to
Lessee's rights to: (i) cancel this Agreement; (ii) repudiate this
Agreement; (iii) reject the Equipment; (iv) revoke acceptance of the
Equipment; (v) recover damages from CLCB for any breaches of
warranty or for any other reason; (vi) a security interest in the
Equipment in Lessee's possession or control for any reason; (vii)
deduct all or any part of any claimed damages resulting from CLCB's
default, if any, under this Agreement; (viii) accept partial
delivery of the Equipment; (ix) "cover" by making any purchase or
lease or of contract to purchase or lease Equipment in substitution
for those due from CLCB; (x) recover any general, special,
incidental or consequential damages, for any reason whatsoever; (xi)
specific performance, replevin, detinue, sequestration, claim and
delivery or the like for any Equipment identified to this Agreement.
To the extent permitted by applicable law, Lessee also hereby waives
any rights now or hereafter conferred by statute or otherwise which
may require CLCB to sell, lease or otherwise use any Equipment in
mitigation of CLCB's damages as set forth in Paragraph 18 of this
Agreement or which may otherwise limit or modify any of CLCB's
rights or remedies under Paragraph 18.
20. WAIVER OF JURY TRIAL. Lessee hereby knowingly, voluntarily and
intelligently waives its constitutional right to a trial by jury
with respect to any claim, dispute, conflict, or contention, if any,
as may arise under this Lease Agreement or under any documents
executed in connection herewith and agrees that any litigation
between the parties concerning this Lease Agreement and the related
documents shall be heard by a court of competent jurisdiction
sitting without a jury. Lessee hereby confirms to Lessor that it
has reviewed the effect of this waiver of jury trial with competent
legal counsel of its choice, or has been afforded the opportunity to
do so, prior to signing this Lease Agreement and the related
documents and acknowledges and agrees that Lessor is relying upon
its waiver in entering into this Lease Agreement.
21. ASSIGNMENT. LESSEE SHALL HAVE NO RIGHT TO ASSIGN THIS AGREEMENT
OR ANY INTEREST HEREIN WITHOUT THE PRIOR WRITTEN CONSENT OF CLCB
HAVING FIRST BEEN OBTAINED. CLCB may at any time assign for
security or otherwise to any person or entity all or part of its
right, title and interest in, under and to this Agreement, all or
part of the rents and other sums at any time due or to become due or
at any time owing or payable by Lessee hereunder, and in and to the
Equipment covered hereby and the Security Deposit or any part
thereof. After written notice of such assignment given by CLCB or
such assignee to Lessee, all sums payable by Lessee shall be paid by
Lessee to such assignee. No such assignee shall be obligated to
perform any duty, covenant or condition required to be observed or
performed by CLCB. Lessee agrees to acknowledge such assignment in
writing within fifteen (15) days after receiving written notice
thereof from the assignee or CLCB. In the event of any such
assignment, Lessee agrees that Lessee will not assert against any
such assignee any claims by way of abatement, defense, setoff,
counterclaim, recoupment or otherwise which Lessee may have by
reason of any default of CLCB hereunder or under any other
agreement, and no covenant, warranty or representation of CLCB as to
the Equipment or any other matter shall in any way affect Lessee's
duty to pay the rent and perform its other obligations exactly as
set forth in this lease.
22. FURTHER ASSURANCES. Lessee hereby makes, constitutes and
appoints CLCB its true and lawful attorney-in-fact with full power
of substitution to take any action in furtherance of this Agreement,
including, without limitation, the signing of financing statements,
endorsing of instruments, and the execution and delivery of all
documents and agreements necessary to obtain or accomplish any
protection for or collection or disposition of any part of the
Equipment. Such appointment shall be deemed irrevocable and coupled
with an interest. Lessee also agrees to furnish CLCB: (1) an audit
report containing a balance sheet, income statement, and statement
of sources and uses of funds prepared by independent certified
public accountants, or other accountants acceptable by CLCB within
one hundred twenty (120) days after the close of each fiscal year of
Lessee occurring after the date of Lease; (2) balance sheets as of
the end of each quarterly period of Lessee's fiscal years, income
statement and statement of sources and uses of funds certified as
accurate by an officer of Lessee within forty-five (45) days after
the close of each quarterly period, unless more frequent reports are
requested by CLCB in its sole discretion; and (3) prompt written
notice of any material adverse change in Lessee's financial
condition or business operations, whether pending or threatened.
The Lessee agree(s) that COMERICA LEASING, A DIVISION OF COMERICA
BANK may provide information relating to Lessee regarding the
Agreement to COMERICA LEASING, A DIVISION OF COMERICA BANK's parent,
affiliates, subsidiaries and service providers and to Federal or
State regulators as may be required by law.
23. LATE RENTAL PAYMENTS. In the event that Lessee should fail to
pay any part of the lease payments or any other sum required to be
paid hereunder within ten (10) days after the due date thereof,
Lessee shall pay to CLCB, in addition to the amount due, a sum equal
to 5 % of the total monthly payment for each month or part thereof
for which said lease payments or other sums shall be delinquent, but
in no event shall such charge exceed the highest lawful amount
chargeable.
24. MISCELLANEOUS. All obligations of Lessee hereunder shall
continue until full performance thereof has been rendered. Any
cancellation or termination by CLCB pursuant to the provisions
hereof shall not release Lessee from any obligations to CLCB. If
there is more than one Lessee named herein, the liability of each
shall be joint and several. THIS AGREEMENT AND ALL SCHEDULES
CONSTITUTE THIS ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO WITH
RESPECT TO THE EQUIPMENT. THIS LEASE MAY NOT BE AMENDED EXCEPT BY A
WRITING SIGNED BY CLCB AND LESSEE AND SHALL BE BINDING UPON AND
INURE TO THE BENEFIT OF THE PARTIES HERETO, THEIR PERMITTED
SUCCESSORS AND ASSIGNS.
Lessee's Initials
A failure by CLCB to require strict performance by Lessee of any
terms, covenants or agreements herein shall not be construed as a
consent or waiver of any other breach of the same or of any other
term, covenant or agreement herein. All notices and other
communications made or required to be given pursuant to this
Agreement shall be in writing and shall be mailed, certified, return
receipt requested, postage prepaid, to the party's address as set
forth herein or such other address as such party shall have
designated in writing. If any provision of this Agreement is
prohibited by, or is unlawful or unenforceable under any applicable
law of any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such prohibition
without invalidating the remaining provisions hereof, provided,
however, that any such prohibition in any jurisdiction shall not
invalidate such provision in any other jurisdiction; and provided,
further, that where the provisions of any such applicable law may be
waived, they are waived by Lessee to the full extent permitted by
law so that the remaining provisions of this Agreement shall be
deemed to be a valid and binding agreement in accordance with its
terms.
LESSEE ACKNOWLEDGES THAT LESSOR IS COMERICA BANK DOING BUSINESS
UNDER THE ASSUMED NAME COMERICA LEASING, AND THAT COMERICA LEASING
OPERATES AS A DIVISION OF COMERICA BANK AND DOES NOT HAVE AN
INDEPENDENT CORPORATE STANDING.
25. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF MICHIGAN. LESSEE AGREES TO
SUBMIT TO THE JURISDICTION OF THE STATE AND/OR FEDERAL COURTS IN THE
STATE OF MICHIGAN. THE VENUE FOR ANY PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT SHALL BE DEEMED PROPER IF SUCH PROCEEDING
IS BROUGHT IN A FEDERAL OR STATE COURT IN MICHIGAN SELECTED SOLELY
BY CLCB. SERVICE OF PROCESS MAY BE MADE BY MAILING A SUMMONS AND
COMPLAINT BY FIRST CLASS MAIL, POSTAGE PREPAID TO THE LAST KNOWN
ADDRESS OF THE LESSEE, TOGETHER WITH THEIR PROMPT SERVICE BY MAIL
UPON THE SECRETARY OF STATE FOR THE STATE OF MICHIGAN.
Lessee's Initials
26. OTHER CONDITIONS.
COMERICA LEASING, A DIVISION OF COMERICABANK
(Lessor)
By:
Mark H. Freund
Its: Vice President
Dated: April 8, 1998
WITNESSES: NETTER DIGITAL ENTERTAINMENT, INC.
(Lessee)
By:
Chad Kalebic
Its: Chief Financial Officer
Dated: April 8, 1998
CA-01/97
Dated April 8, 1998 Lease Agreement No.9818
Schedule No. 001
COMERICA LEASING, A DIVISION OF COMERICA BANK
LEASE SCBEDULE
1. DESCRIPTION OF LEASE: Lease Agreement dated April 8. 1998, by and
between COMERICA LEASING, A DIVISION OF COMERICA BANK (herein "CLCB")
as Lessor, and NETTER DIGITAL ENTERTAINMENT, INC. as Lessee (herein
called "Lease Agreement").
2. DESCRIPTION OF EQUIPMENT:
"As further described on attached Exhibit A".
3. LOCATION: The equipment described above shall be located at 5125
Lankershim Blvd., North Hollywood, CA 91601
4. TERM; RENTAL: The Term of the Lease Agreement for the Equipment
described in this Schedule shall be in accordance with the provisions
of the Lease Agreement and shall continue until all rental payments
are fully paid. Lessee agrees to pay CLCB as rental payments
aggregating $233,585.28 plus any applicable sales and/or use taxes
thereon payable in 36 monthly payments of $6,488.48 each, plus any
applicable sales and/or use taxes commencing May 15, 1998, and on the
same calendar day of each succeeding like period until fully paid.
THE RENTAL PAYMENTS SHALL BE REMITTED TO CLCB AT P.O. DRAWER 67-042,
DETROIT, MICHIGAN 48267, unless CLCB specifies otherwise in writing.
5. INSURANCE: Lessee agrees to maintain adequate property damage
insurance in accordance with the terms of the Lease Agreement, but in
any event not less than the sum of the payments due, protecting CLCB
as a loss payee. The minimum amount indicated above shall not be
construed to imply such amount will be or is adequate, but rather as
a minimum amount.
6. UCC 2A: In accordance with Section 2A of the Michigan Uniform
Commercial Code (MCLA Section 440.3101 et seq.) ("UCC") Lessee
acknowledges either (a) that Lessee has reviewed and approved any
written Supply Contract (as defined by UCC Section 2A-103(i)(y))
covering the Equipment purchased from the "Supplier" (as defmed by
UCC Section 2A103(i)(x)) thereof for lease to Lessee or (b) that
Lessor has informed or advised Lessee, in writing, either previously
or by this Lease Schedule of the following: (i) the identity of the
supplier; (ii) that the Lessee may have rights under the Supply
Contract; and (iii) that the Lessee may contact the Supplier for a
description of any such rights lessee may have under the Supply
Contract.
Lessee acknowledges that Lessee has reviewed and approved the
Purchase Order, Supply Contract or Purchase Agreement covering the
Equipment purchased from the seller or supplier thereof for lease to
Lessee.
Lessee's Initials:
7. ADDITIONAL CONDITIONS: At the end of the Lease term, Lessee may
purchase the equipment for $1.00 provided no event of default shall
have occurred and been left unremedied.
LESSEE ACKNOWLEDGES THAT LESSOR IS A DIVISION OF COMERICA BANK AND
NOT A SEPARATE BODY CORPORATE.
The foregoing is hereby approved and agreed to by the undersigned as
a Schedule to and a part of the Lease Agreement, the provisions of
which are hereby incorporated herein by reference and which shall
govern, notwithstanding anything contrary or inconsistent herein.
COMERICA LEASING, NETTER DIGITAL ENTERTAINMENT, INC.
A DIVISION OF COMERICA BANK
(Lessor) (Lessee)
Address: 5125 Lankershim, Blvd
North Hollywood, CA 91601
By: By:
Mark H.Freund Chad Kalebic
Its: /Vice President Its: Chief Financial
Officer
06AP-1-97
Authorized Financial Services
Digital Financial Services
Master Lease Agreement No. 6713377
MASTER LEASE AGREEMENT dated as of October 23, 1997 by and between Digital
Financial Services, a division of General Electric Capital Corporation
(hereinafter, called "Lessor"), having its principal place of business at
1400 Computer Drive, Westborough, Massachusetts 01581, and Netter Digital
Entertainment, Inc. (hereinafter called "Lessee") having its principal place
of business at 5125 Lankershim Boulevard , North Hollywood, CA 91601.
Lessee and Lessor hereby agree to the Terms and Conditions of Lease set forth
below on pages 1 through 4, and further agree that the only amendment,
modification or waiver of the terms hereof must be in writing signed by both
parties. THIS AGREEMENT AND EACH LEASE WILL BE GOVERNED BY THE LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS.
LESSEE: Netter Digital Entertainment, Inc. LESSOR: Digital Financial
Services, a division of General Electric Capital Corporation
By: By:
(signature)
(signature)
Diane T. O'Kane-McEntee
(Print Or Type Name) (Print Or Type Name)
Sr. Lease Administrator
(Print Or Type Title) (Print Or Type Title)
TERMS AND CONDITIONS OF LEASE
1.LEASE OF PROPERTY
Lessor agrees to lease to Lessee, subject to the terms of this Master
Lease Agreement (this 'Agreement) the equipment (the "Equipment") and/or
software ("Software") listed on each schedule executed from time to time
pursuant to this Agreement (each, an "Equipment Schedule").
Each Equipment Schedule shall be substantially in either the form
annexed hereto as Schedule "A" Commercial or Schedule "A" Tax Oriented, shall
incorporate by reference therein all of the terms and conditions of this
Agreement and shall include such other terms and conditions upon which the
parties may agree.
Each Equipment Schedule will constitute a separate agreement (each, a
"Lease') for the lease of the Equipment and, if applicable, for the payment
of any software license fee being financed ("Software License Fee") with
respect to items of operating or application Software listed on such
Equipment Schedule.
Lessor and Lessee agree that each Lease is a "Finance Lease" as defined
by Section 1 03 of Article 2A of the Uniform Commercial Code, and that Lessor
has not selected, manufactured or supplied the Equipment and/or Software, and
is acquiring the Equipment for the purposes of leasing it to Lessee pursuant
to the Lease.
2. TERM
The term of this Agreement shall commence on the date set forth above and
shall continue in effect thereafter as long as any Lease entered into
pursuant to this Agreement remains in effect. The term of each Lease shall
commence on the date the Equipment and/or Software is accepted by Lessee as
set forth in Section 6 "Delivery and Lessee Acceptance" ("Commencement Date")
and shall continue thereafter for the number of months/years set forth in
such Lease ("Initial Term").
3. LEASE PAYMENTS
As rent ("Lease Payments") for the Equipment and/or Software subject to
any Lease, Lessee hereby agrees to pay the amounts specified in the related
Equipment Schedule at the times specified therein. LESSEE AND LESSOR
ACKNOWLEDGE THAT EACH LEASE CONSTITUTES A NET LEASE AND SUCH LEASE PAYMENTS
ARE TO BE MADE WITHOUT NOTICE OR DEMAND AND WITHOUT ABATEMENT, DEDUCTION OR
SET-OFF OF ANY AMOUNT WHATSOEVER, AND LESSEE FURTHER ACKNOWLEDGES THAT ITS
OBLIGATION TO PAY LEASE PAYMENTS AND ANY OTHER AMOUNTS OWING HEREUNDER AND
UNDER ANY LEASE SHALL BE ABSOLUTE AND UNCONDITIONAL. LESSEE AGREES THAT NO
LEASE ENTERED INTO IN CONNECTION WITH THIS AGREEMENT MAY BE TERMINATED EXCEPT
AS EXPRESSLY PROVIDED HEREIN.
Lease Payments shall be paid to Lessor at the address of Lessor set forth
above or at such other address as Lessor may designate from time to time in
writing or, if such Lease Payments are payable to an Assignee (as such term
is defined in Section 1 7 hereof), then at the address designated from time
to time by such Assignee in writing.
Any Lease Payments or other sums payable under any Lease which are not
paid when due shall be subject to a late charge of five cents ($.05) per
dollar on and in addition to such Lease Payment or other sum, or such lesser
amount as may be the maximum permitted by law, to compensate Lessor for
additional collection costs not contemplated by the Lease.
4. ASSIGNMENT OF PURCHASE DOCUMENTS
Lessee hereby assigns to Lessor all of Lessee's rights and interest in
and to: (a) the Equipment described in any Equipment Schedule and lb) any
purchase order, contract or other documents (collectively, 'Purchase
Documents) relating thereto that Lessee has entered into with the seller of
the Equipment as specified in such Equipment Schedule (the 'Seller). The
foregoing assignment is an assignment of rights only, and Lessee shall remain
liable for all obligations under the Purchase Documents except for the
obligation to pay for the Equipment as described in Section 7 hereof. If the
Seller is not Digital Equipment Corporation, Lessee shall deliver to Lessor a
writing acceptable to Lessor whereby Seller acknowledges, and provides any
required consent to, such assignment. If Lessee has not entered into any
Purchase Document for the Equipment with Seller, Lessee authorizes Lessor to
act as Lessee's agent to issue a purchase order to Seller for the Equipment
and for associated matters and such purchase order shall be considered a
Purchase Document for the purposes of this Section 4. By entering into the
applicable Equipment Schedule, Lessee represents and warrants that Lessee
either (y) has reviewed, approved and received a copy of the associated
Purchase Documents or (z) has been informed by Lessor (i) of the identity of
the Seller, (ii) that Lessee may have rights under the Purchase Documents and
(iii) that Lessee may contact Seller for a description of such rights.
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5. SOFTWARE PRODUCT LICENSE AND FINANCING OF LICENSE FEE
Lessee acknowledges that any Software listed on any Equipment Schedule or
incorporated as a component of any Equipment listed on such Equipment
Schedule is furnished to Lessee under separate software product license or
licenses with the licensor thereof (Licensor'). -Any separately stated
license fee for such Software is shown on the applicable Equipment Schedule
as the Software License Fee. Lessee's rights to the Software are governed by
its license agreement with the Licensor. Lessee shall have a continuing
right to use the Software with the Equipment (or as otherwise provided) in
accordance with the terms and conditions of such license agreement upon
payment of all amounts due under the applicable Lease.
6. DELIVERY AND LESSEE ACCEPTANCE
Lessee shall cause the Equipment and/or Software to be delivered to Lessee
at the location shown on the applicable Equipment Schedule and Lessee shall
accept the Equipment and/or Software as soon as it is delivered or, if
acceptance criteria is specified in the applicable Purchase Documents or
Software license, as soon as it has met such criteria. Lessee shall evidence
its acceptance of the Equipment and/or Software and commencement of the Lease
with respect thereto by executing and delivering to Lessor a Certificate of
Acceptance substantially in the form of Schedule B hereto. By such execution
and delivery, Lessee (a) represents and warrants that it has selected the
Equipment and Software, lb) irrevocably accepts such Equipment and Software
subject to the Lease, and (c) confirms the Commencement Date of the Lease.
7. PURCHASE OF EQUIPMENT
Provided that no Event of Default (as defined in Section 22) exists, and no
event has occurred and is continuing that with notice or lapse of time or
both constitutes an Event of Default, Lessor shall be obligated to purchase
the Equipment from Seller and advance the Software License Fee to the
Licensor, as the case may be, and to lease the same to the Lessee if (and
only if) Lessor receives on or before the "Latest Commencement Date" set
forth in the applicable Equipment Schedule, the related Certificate of
Acceptance and said Equipment Schedule (both executed by the Lessee), and
such other documents and assurances as Lessor may reasonably request. If for
any reason a Lease does not commence by such Latest Commencement Date, Lessor
shall have no obligation to purchase the Equipment or advance the Software
License Fee, and Lessor may reassign to Lessee all rights under the Purchase
Documents and Lessee shall be liable to Seller and Licensor for any payment
due under the Purchase Documents or any Software license documents,
respectively. Notwithstanding anything herein to the contrary, if there is a
material adverse change in Lessee's financial condition prior to the
Commencement Date of any Lease, Lessor may, upon notice, cancel its
obligations under such Lease to lease the Equipment and/or Software to
Lessee.
8. QUIET ENJOYMENT AND DISCLAIMER OF WARRANTIES
(a) So long as Lessee shall not be in default of any of the provisions of
this Agreement and any Lease, neither Lessor nor any Assignee of Lessor will
disturb Lessee's quiet and peaceful possession of the Equipment and/or
Software and Lessee's unrestricted use thereof for the purposes intended.
(b) Disclaimer of Warranties: Lessee acknowledges that it has made the
selection of each item of Equipment and Software based upon its own judgment
and expressly disclaims any reliance upon statements made by Lessor. LESSOR
MAKES NO EXPRESS OR IMPLIED WARRANTIES INCLUDING THOSE OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR USE WITH RESPECT TO THE EQUIPMENT AND SOFTWARE AND
HEREBY DISCLAIMS THE SAME. LESSOR SHALL HAVE NO LIABILITY FOR ANY DAMAGES,
WHETHER DIRECT, INDIRECT, GENERAL, SPECIAL, INCIDENTAL, EXEMPLARY OR
CONSEQUENTIAL, INCURRED BY LESSEE AS A RESULT OF ANY DEFECT OR MALFUNCTION OF
THE EQUIPMENT OR SOFTWARE. LESSEE SHALL LOOK SOLELY TO THE EQUIPMENT SELLER
OR SOFTWARE LICENSOR FOR ANY AND ALL CLAIMS RELATED TO THE EQUIPMENT OR
SOFTWARE. LESSEE UNDERSTANDS AND AGREES THAT NEITHER THE SELLER NOR THE
LICENSOR NOR ANY SALESPERSON OR AGENT OF THEM IS AN AGENT OF LESSOR. NO
SALESPERSON OR AGENT OF THE SELLER OR LICENSOR IS AUTHORIZED TO WAIVE OR
ALTER THIS AGREEMENT OR ANY LEASE, AND NO REPRESENTATION BY THEM SHALL IN ANY
WAY AFFECT LESSEE'S DUTY TO PAY THE LEASE PAYMENTS AND PERFORM ITS
OBLIGATIONS UNDER ANY LEASE. LESSOR HEREBY ASSIGNS TO LESSEE, FOR AND DURING
THE TERM OF THE APPLICABLE EQUIPMENT SCHEDULE, ANY WARRANTY ON THE EQUIPMENT
OR SOFTWARE PROVIDED BY THE SELLER OR LICENSOR.
9. TITLE, LOCATION AND INSPECTION
Title to each item of Equipment leased hereunder shall remain with Lessor
at all times and Lessee shall have no right, title or interest therein except as
expressly set forth in the Lease of such Equipment. Lessee at its expense
will protect and defend Lessor's title and the interest of any Assignee to
the Equipment and will keep the Equipment free and clear from any and all
claims, liens, encumbrances and legal processes of Lessee's creditors and
other persons.
Lessee shall not move any Equipment from the location shown on the
applicable Equipment Schedule without in each instance obtaining Lessor's prior
written consent thereto. All items of Equipment shall at all times be and
remain personal property notwithstanding that any such Equipment may now or
hereafter be attached or fixed to realty. Lessee shall keep all Equipment
free from any marking or labeling which might be interpreted as a claim of
ownership thereof by Lessee or any party other than Lessor or anyone so
claiming through Lessor.
Lessor shall have the right, upon reasonable prior notice to Lessee and
during Lessee's regular business hours, to inspect the Equipment at its
location.
Lessee shall, upon request of Lessor, make Lessee's log and maintenance
records pertaining to the Equipment available to Lessor for inspection.
10. RETURN OF EQUIPMENT
Upon termination (by expiration or otherwise) of each Lease and unless the
Equipment is purchased as provided in the applicable Equipment Schedule,
Lessor or such other party as may be appointed by Lessor shall, at Lessee's
sole cost and expense, de-install the Equipment and prepare the Equipment for
return to Lessor. Lessee shall, pursuant to Lessor's instructions and at
Lessee's sole cost and expense (including, without limitation, expenses of
transportation and in-transit insurance), return the Equipment to Lessor in
the same operating order, repair, condition and appearance as when received,
except for normal depreciation and wear and tear, and eligible for a
maintenance contract with the manufacturer or the Equipment at standard
rates. Lessee shall return the Equipment to Lessor at such address within
the continental United States as directed by Lessor.
11. USE AND MAINTENANCE
Lessee shall use the Equipment in a good and careful manner and in
compliance with applicable operating instructions and all applicable laws and
regulations, including without limitation all applicable environmental laws
and regulations, and for no purpose other than that for which such Equipment
was designed.
Lessee, at its sole cost and expense, shall maintain the Equipment in good
repair, condition and working order, shall enter into and maintain in full
force and effect during the term of the applicable Lease a standard
maintenance contract with the Seller or such other party reasonably
acceptable to Lessor, and shall comply with all of its obligations contained
therein. Lessee shall, at Lessor's request, provide Lessor with a copy of
such maintenance contract. All parts furnished in connection with such
maintenance or repairs shall become property of Lessor and part of the
Equipment for all purposes hereof.
12. ALTERATIONS AND ATTACHMENTS
Without the prior written consent of Lessor, Lessee shall not make any
alterations, modification or attachments to the Equipment. All such
permitted alterations, modifications and attachments made to the Equipment
which cannot be readily removed without materially damaging the functional
capabilities or economic value of the Equipment shall become the property of
the Lessor and a part of the Equipment for all purposes hereof.
-2-
13. INSURANCE
For the entire term of each Lease and until Lessee returns or purchases the
Equipment pursuant to the terms of such Lease, Lessee shall obtain and
maintain at its own expense, (a) insurance against the loss of or damage to
the Equipment including, without limitation, loss by fire or other casualty,
and (b) public liability and property damage insurance. All such insurance
shall be in such amounts, in such form and with such insurers as shall be
satisfactory to Lessor. Each insurance policy will name Lessee as an insured
and Lessor as an additional insured and loss payee, and shall contain a
clause requiring the insurer to give Lessor at least thirty (30) days prior
written notice of any alteration in the terms of such policy or of the
cancellation thereof. Lessee shall furnish to Lessor a certificate of
insurance or other evidence showing that such insurance coverage is in
effect. Lessee further agrees to give Lessor prompt notice of any insurance
claims made or to be made pursuant to this Section. Lessee shall immediately
upon notice from Lessor cause any Assignee to be named as additional insured
and/or loss payees, as their interests may appear, under any insurance policy
carried by Lessee with respect to the Equipment.
14. TAXES
In addition to Lease Payments as provided for herein, Lessee shall pay when
due all fees, assessments and sales, use, property, excise and other taxes or
levies of whatever nature now or hereafter imposed by any governmental body
or agency upon any Lease or any Equipment and/or Software; provided, however,
Lessee shall not be liable for any corporate franchise taxes and/or taxes
imposed upon the net income of Lessor. Applicable sales and use taxes will
be added to the Lease Payments unless Lessee provides evidence of direct
payment authority or an exemption certificate valid in the state to which the
Equipment will be shipped.
15. RISK OF LOSS
Lessee hereby assumes and bears the entire risk of loss, theft, damage to
or destruction of the Equipment during the continuance of the applicable Lease.
No such event shall relieve Lessee from its obligation to make Lease Payments
or to perform any of its other obligations or pay any other sums payable by
Lessee or under such Lease, except if such Lease terminates pursuant to
Subsection (c) below.
In the event of loss or damage to any Equipment, Lessee shall immediately
give notice thereof to Lessor and Lessee shall, at the option of Lessor:
(a) place such Equipment in good repair, condition and working order, or
(b) replace such Equipment with identical Equipment in good repair,
condition and working order, with clear title thereto in Lessor, or
(c) pay to Lessor in cash within thirty (30) days after demand therefor an
amount equal to the total Lease Payments and other sums then due and owing under
such Lease and either (i) the appropriate sum (herein called "Stipulated Loss
Value") set forth in the applicable Lease or (ii) if no such Stipulated Loss
Value is so set forth in said Lease, the amount of all Lease Payments remaining
and to become due thereunder with respect to the affected Equipment plus the
option price contained in any applicable purchase option set forth in said Lease
and the amount equal to any increased tax liability to Lessor, including
interest and penalties, arising from the loss to Lessor of any Federal tax
benefits under the Internal Revenue Code of 1986, as may be amended, with
respect to such Lease and the affected Equipment.
Upon payment by Lessee as aforesaid, Lessor shall transfer to Lessee,
WITHOUT RECOURSE OR WARRANTY, EXPRESS OR IMPLIED (except for usual warranties of
title), all of Lessor's right, title and interest, if any, in such Equipment
on an "AS IS", "WHERE IS" basis. The proceeds of any insurance payable with
respect to any loss or damage to the Equipment shall be applied at the option
of Lessor either towards (i) Lessee's replacement, restoration or repair of
the Equipment or (ii) payment of any of Lessee's other obligations under the
applicable Lease. Lessee hereby appoints Lessor as Lessee's attorney-in-fact
to make claim for, or receive payment of and execute and endorse all
documents, checks or drafts issued with respect to such loss or damage under
any insurance policy relating thereto.
16. NO ASSIGNMENT BY LESSEE
LESSEE SHALL NOT TRANSFER, SELL, ASSIGN, SUBLET, SUBLICENSE, PLEDGE OR
OTHERWISE DISPOSE OF, ENCUMBER OR SUFFER A LIEN OR ENCUMBRANCE UPON OR
AGAINST LESSEE'S INTEREST IN ANY LEASE OR THE EQUIPMENT WITHOUT IN EACH SUCH
INSTANCE OBTAINING THE PRIOR WRITTEN CONSENT OF LESSOR THERETO. Any attempt
by Lessee to do any of the foregoing without such consent shall be null and
void. Lessor's consent to any of the foregoing acts shall not constitute
consent to any other similar act nor shall such consent relieve Lessee from
its duty to fully perform all of its agreements, covenants and conditions set
forth in such Lease.
17. ASSIGNMENT BY LESSOR
Lessee acknowledges that Lessor may (i) sell and assign its interest in
each Lease, the Lease Payments due thereunder and the Equipment and Software
listed therein, in whole or in part to an assignee (the 'Assignee) which may
be represented by a bank or trust company acting as a trustee of such
Assignee. LESSEE ACKNOWLEDGES THAT ANY ASSIGNMENT OR TRANSFER BY LESSOR OR
ANY ASSIGNEE SHALL NOT MATERIALLY CHANGE LESSEE'S OBLIGATIONS UNDER THE
ASSIGNED LEASE.
Any Assignee shall be entitled to enforce all the rights so assigned but
shall be under no obligation to Lessee to perform any of Lessor's obligations
under the assigned Lease, the sole remedy of Lessee being against Lessor with
Lessee's rights against Lessor being unaffected except as provided herein.
Lessee agrees that upon notice of assignment of this Lease, it shall pay
directly to the Assignee, unconditionally, all amounts which become due
hereunder. Lessee specifically covenants and agrees that it will not assert
against any Assignee any claims by way of abatement, defense, set-off,
counterclaim, recoupment or otherwise which Lessee may have against Lessor or
any third party and LESSEE SHALL NOT ASSERT AGAINST SUCH ASSIGNEE IN ANY
ACTION FOR LEASE PAYMENTS OR OTHER MONIES PAYABLE HEREUNDER ANY DEFENSE
EXCEPT THE DEFENSE OF PAYMENT TO SUCH ASSIGNEE.
18. REPRESENTATIONS AND WARRANTIES OF LESSEE
Lessee hereby represents, warrants and covenants that, with respect to this
Agreement and each Lease executed pursuant hereto:
(a) the execution, delivery and performance thereof by Lessee have been
duly authorized by all necessary corporate action and shall not contravene any
law or the provisions of any agreement to which Lessee is bound;
(b) the individual executing such was duly authorized to do so;
(c) this Agreement and each such Lease constitute legal, valid and binding
agreements of Lessee enforceable in accordance with their
respective terms;
(d) all financial statements furnished to Lessor are true and correct in
all material respects and Lessee shall furnish Lessor with its annual
audited financial statements and such other financial information as Lessor
may reasonably request from time to time;
(e) the Equipment is personal property and when subjected to use by the
Lessee will not be or become a fixture under applicable law; and
(f) the Equipment and/or Software will be used for business or commercial
purposes only, and not for consumer, personal, home, family,
or agricultural purposes.
19. GENERAL INDEMNITY
Lessee shall and does hereby agree to defend, indemnify and hold Lessor and
any Assignee harmless from and against any and all claims, costs, expenses,
damages and liabilities, including reasonable attorneys' fees, arising out of
or pertaining to the lease, possession, ownership, licensing, operation,
control, use, maintenance, delivery or return of the Equipment and Software.
Lessor and any Assignee may, at its option and at its sole expense,
participate in any such action with counsel of its own choice. The
provisions of this Section shall survive any expiration or other termination
of this Agreement and any Lease.
20. FURTHER ASSURANCES
If requested by Lessor, Lessee shall promptly secure, execute, and/or
deliver to Lessor such further documents and take such further action
as Lessor shall deem necessary or desirable to carry out the intent and
purpose of this Agreement or any Lease and to protect Lessor's interest in
the Equipment and/or Software. Lessor is hereby authorized by Lessee, at
Lessee's expense, to cause this Agreement, any Lease or any other statement
or instrument showing the interest of Lessor and any Assignee in the
Equipment to be filed and Lessee agrees to execute and deliver Uniform
Commercial Code financing statements or other documents reasonably requested
by Lessor for such purpose.
21. NOTICES
All notices and other communications made or required to be given under
this Agreement and any Lease shall be in writing and shall be deemed given upon
receipt when sent certified mail, return receipt requested, postage prepaid,
if to Lessor, at the address set forth in the applicable Equipment Schedule
with a copy to any Assignee at the addresses) set forth in any notice thereof
given to Lessee and if to Le,%see, at the address set forth in the applicable
Equipment Schedule or to such other addresses) as either party shall
hereafter designate by notice to the other.
22. DEFAULT
The occurrence of any one or more of the following events (each herein
called"An event of Default") shall constitute a default under this called
agreement:
(a) default by Lessee in the payment of any Lease Payments or other sum
payable by Lessee under any Lease which continues for ten (10) days after
the due date for such payment; or
(b) default by Lessee or any guarantor of Lesse in the performance of any
other term, covenant or conditionof this agreement or any Lease or garanty of
Lessee's obligations hereunder or thereunder; or the inaccuracy in any
material respect of any representation or warranty made by Lessee or any such
guarantor ("Guarantor') hereunder or thereunder or in any document or
certificate furnished to Lessor in connection herewith or therewith, and such
default or inaccuracy continues for a period of fifteen (15) days after
written notice thereof from Lessor; or
(c) Lessee or Guarantor shall become insolvent or bankrupt or make an
assignment for the benefit of creditors or consent to the appointment of a
trustee or receiver or either shall be appointed for Lessee or Guarantor or
for a substantial part of its property without its consent, or bankruptcy,
arrangement, reorganization or insolvency proceedings shall be instituted by
or against Lessee or Guarantor, or Lessee or Guarantor shall dissolve or
otherwise terminate its corporate existence or sell, transfer or dispose of
all or substantially all of its assets or stock; or
(d) Lessee shall be in default under any other lease, equipment
schedule or other agreement at any time executed with Lessor or any Assignee.
23. REMEDIES
(a) Upon the occurrence of any one or more Events of Default
(hereinafter the 'Default Date'), and at any time thereafter, Lessor may, at
its option and without notice, exercise any remedy afforded by law
(including those of equitable relief) and/or any one or more of the following
remedies: (i) enter the premises where the Equipment and/or Software is
located and repossess the same without any process of law and without
any liability for storage or otherwise (except that Lessor shall be liable
for damages resulting from the negligence of Lessor or its agents in any such
entry or repossession); (ii) terminate this Agreement upon written notice to
Lessee, with respect to all or any Leases entered into hereunder (which
termination shall be without prejudice to any of Lessor's other rights
hereunder); (iii) demand immediate payment of the following which Lessor and
Lessee expressly acknowledge and agree shall constitute fair damages for
breach of this Lease (Damages'): the sum of (x) the total amount of all Lease
Payments payable from the Default Date to the end of the Initial Term (or if
such Default Date occurs during any renewal thereof, then to the expiration
of such renewal term), discounted to present value as of the Default Date,
plus (y) the Equipment's anticipated residual value at the end of the Initial
Term or if renewed, at the end of any renewal term, discounted to present
value as of the Default Date, all of which shall become immediately due and
payable; or (iv) retain, sell or lease the Equipment. If the Equipment is
sold, then Lessor shall apply to the Damages the proceeds of such sale. If
the Equipment is re-leased, Lessor shall apply to the Damages the total
stipulated lease payments under the new lease to the end of the initial Term
of the Lease in default or any renewal term thereof if applicable, discounted
to present value as of the Default Date. For the purposes of this Section
23, discounted present value shall be computed on the basis of the lease
charge rate inherent in the Lease.
(b) In any event Lessee shall pay to Lessor on demand (i) all costs,
including reasonable attorneys' fees, incurred by Lessor in collecting any
sums due from Lessee, or in protecting, repossessing, storing, moving,
repairing, preparing for sale or lease and in selling or leasing the
Equipment (ii) all past due Lease Payments, late charges and other amounts due
but unpaid as of the Default Date; and (iii) an amount equal to any increased
tax liability to Lessor, including interest and penalties, arising from the
loss to Lessor of any Federal tax benefits under the Internal Revenue Code of
1986, as may be amended, with respect to this Agreement or any Lease,
including but not limited to any increased tax liability due to any
disallowance or recapture of all or any portion of any Accelerated Cost
Recovery System deductions or interest deductions whether such disallowance
or recapture is caused by an Event of Default or by Lessor's exercise of any
of its remedies hereunder.
(c) Each of Lessor's remedies provided herein or by law, shall be
cumulative to and not exclusive of every other remedy, and remedies may be
exercised simultaneously or cumulatively in Lessor's discretion. No failure
or delay by Lessor to exercise any right or remedy shall be a waiver thereof,
nor shall any written waiver or consent extend to any instance other than the
one for which it is given.
24. MISCELLANEOUS
(a) Lessor and Lessee acknowledge that there are no agreements or
understandings, written or oral, between Lessor and Lessee with respect to
the Equipment and/or Software except as set forth herein and in each Lease
and that each such Lease, incorporating the terms of this Agreement, contains
the entire agreement between Lessor and Lessee with respect thereto. Neither
this Agreement nor any Lease may be altered, modified, terminated or
discharged except by a writing signed by both parties.
(b) TIME IS OF THE ESSENCE WITH RESPECT TO EACH LEASE EXECUTED PURSUANT
HERETO.
(c) The captions set forth herein and in each Equipment Schedule are
for convenience only and shall not define or limit any of the terms herein or
therein.
(d) Each Lease shall become effective and binding as of the date each
is accepted by Lessor in the Commonwealth of Massachusetts, and, upon such
date such Lease shall be binding upon and inure to the benefit of both
parties hereto and their respective legal representatives, successors and
assigns, unless otherwise expressly provided herein.
(e) All agreements, representations, indemnities and warranties made by
Lessee in this Agreement or any Lease, or any document delivered pursuant
hereto or thereto shall be for the benefit of Lessor and any Assignee and
shall survive the expiration or sooner termination of this Agreement or such
Lease.
(f) EACH OF LESSEE AND LESSOR WAIVES TRIAL BY JURY IN ANY LITIGATION
ARISING OUT OF, OR IN CONNECTION WITH THIS AGREEMENT, ANY LEASE EXECUTED
PURSUANT HERETO, OR ANY TRANSACTION CONTEMPLATED HEREBY. To the extent
permitted by applicable law, Lessee hereby waives any and all rights and
remedies conferred on Lessee by Sections 508 through 522 of Article 2A of the
Uniform Commercial Code. To the extent permitted by applicable law, Lessee
also hereby waives any rights now or hereafter conferred by statute or
otherwise which may require Lessor to sell, lease or otherwise use any
Equipment or Software in mitigation of Lessor's damages hereunder or which
may otherwise limit or modify any of Lessor's rights or remedies hereunder.
No omission or delay by Lessor at any time to enforce any right or remedy
reserved to it or to require performance by Lessee of any of the terms,
covenants or provisions of this Agreement or any Lease at the times
designated herein or therein, shall be a waiver of any such right or remedy
to which Lessor is entitled, nor shall it in any way affect the right of
Lessor to thereafter enforce such provisions.
(g) If any term or provision of this Agreement or any Lease or the
application thereof to any person or circumstance shall to any extent be held
invalid or unenforceable, the remainder of this Agreement or such Lease or
the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby and each term and provision, of this Agreement and any such
Lease shall be valid and enforceable to the fullest extent permitted by law.
(h) If requested by Lessor, Lessee, upon execution of this Agreement
and thereafter upon execution of each Lease shall provide -Lessor with
certified resolutions and an opinion from Lessee's counsel addressed to
Lessor and if requested by Lessor to any Assignee with respect to the
representations and warranties contained in this Agreement and such Lease and
shall also supply such other documents as Lessor or such Assignee may
reasonably request.
(i) If more than one Lessee is named in this Agreement or in any
Lease, the liability of each such Lessee shall be joint and several.
Digital Financial Services
Schedule A (Tax Oriented) Financial Services
Equipment Schedule No. 001 dated as of October 23 , 1997 ("Lease")
To Master Lease Agreement No. 6713377 dated as of October 23 , 1997
between Digital Financial Services and Netter Digital
Entertainment, Inc. (Agreement)
LESSEE: LEGAL NAME: Netter Digital Entertainment, Inc.
TRADE NAME (if any):
ADDRESS: 5125 Lankershim Boulevard
North Hollywood, CA 91601
Address for Invoices:
Person to Contact Regarding Invoices:
LESSOR: NAME: Digital Financial Services,
a division of General Electric
Capital Corporation
ADDRESS: 1400 Computer Drive
Westborough, Massachusetts 01581
Attention: Operations Manager
A. The Latest Commencement Date for this Lease, as described in
Section 7 of the Agreement, is January 15, 1998.
B. LEASE PAYMENTS:
Lessee agrees to pay Lease Payments pursuant to and in the manner
stated in Section 3 of the Agreement. Unless Lessee has exercised the
option in the following paragraph, the first Lease Payment shall be
due and paid on the Commencement Date, and all subsequent Lease
Payments shall be due and paid on the same day of each subsequent pay
riod in the amounts set forth below.
Payment Amount $13,407.36 Payment Period Monthly
Option to have Lease Payments due on the first day of the month:
If the box at the beginning of this paragraph is checked, and
Lessee has initialed its agreement at the bottom of this
paragraph, then Lease Payments will be due on the first day of
the month, commencing on the first day of the month following the
Commencement Date (the"First Payment Due Date"). If this option
is elected, Lessee agrees to pay interim rent equal to the Lease
Payment prorated on a daily basis, for each day from the
Commencement Date to the First Payment Due Date. Such interim
rent payment will be due on the First Payment Due Date with the
first Lease Payment.
Lessee's Initials
C. TERM:
The Initial term of this Equipment Schedule shall be for a period
of Twenty Four (24) months
D. END OF TERM OPTIONS; NOTICE:
Lessee shall have the options to return the Equipment, purchase the
Equipment or renew this Lease at the end of the Initial Term and each
renewal period, if any, subject to the conditions described in this Lease.
Lessee must provide Lessor with notice, at least ninety (90) days
prior to the expiration of the Initial Term or then current renewal
term (as applicable), of its intention to exercise an option to
purchase or renew, or to return the Equipment in accordance with
Section 1 0 of the Agreement (Notice of Intent). If such Notice of
Intent is not provided to the Lessor at least ninety (90) days prior
to the expiration of such term, Lessee shall continue to pay Lease
Payments to Lessor in the amount and at the times specified during the
Initial Term or such renewal term until the later of (i) the
expiration of ninety days following Lessor's receipt of Lessee's
Notice of Intent (Notice Period), or (ii) the purchase of the
Equipment pursuant to Paragraph F of this Equipment Schedule or the
return of the Equipment in accordance with Section 1 0 of the
Agreement. If an option to renew is exercised, the renewal term shall
commence upon the later of the expiration of the Notice Period or the
expiration of the Initial Term or then current renewal term, if any.
E. RENEWAL OPTIONS:
Lessee shall have the right to renew this Lease as to all, but not
less than all, of the Equipment and Software listed herein for three
(3) successive periods of one (1) year each, upon the same terms and conditions
contained herein, except that Lease Payments shall be the then fair
market rental value thereof. Fair market rental value shall be
determined by mutual agreement between Lessor and Lessee or if a
dispute arises, then by an independent appraiser selected by Lessor,
at Lessee's expense. Fair market rental value shall be paid on a
monthly or yearly basis as directed by Lessor.
Lessee's renewal options are contingent upon the following: (i) Lessee
shall provide Lessor with Lessee's Notice of Intent to renew not less
than ninety (90) days prior to the expiration of the Initial Term or
the renewal term, as the case may be, and (ii) at the time of the
giving of such notice and the commencement of said renewal term, no
default or Event of Default hereunder or under the Agreement or any
other agreement between Lessor and Lessee shall have occurred and be
continuing, in Lessor's sole determination. Failure to exercise a
preceding option shall preclude Lessee from exercising any subsequent
options.
F. PURCHASE OPTION:
Subject to the conditions stated herein, Lessor hereby grants to
Lessee a non-assignable option to purchase all, but not less than all,
of the Equipment described in this Lease at the expiration of the Initial
Term or and Renewal hereof for an amount equal to the then fair market value of
the Equipment (herein the 'Option Price). The fair market value of
the Equipment shall be determined by mutual agreement between the
parties or if a dispute arises, then by an independent appraiser
selected by Lessor, at Lessee's expense.
Lessee's right to purchase said Equipment is contingent upon all
of the following:
(i) no default or Event of Default on the part of Lessee under
this Lease, the Agreement or any other agreement between Lessor
and Lessee shall have occurred and be continuing in Lessor's sole
determination; and
(ii) Lessor shall have received Lessee's Notice of Intent to
purchase at least ninety 190) days prior to the date upon which
the Initial Term or renewal term expires, as the case may be; and
(iii) at least thirty (30) days prior to the expiration date of
the Initial Term or renewal term, as the case may be, Lessor
shall have received in cash a sum equal to (i) the Option Price
and (ii) all taxes, whether currently in existence or hereafter
enacted, which shall be or become due and payable directly or
indirectly as a result of the sale or transfer of the Equipment,
except Lessee may provide Lessor with a certificate of exemption
or other similar document with respect to such taxes.
It is expressly understood by the parties hereto that any purchase
hereunder SHALL BE WITHOUT REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, on the part of Lessor and that Lessor sells the Equipment
hereunder on a "AS IS," "WHERE IS" basis.
G. TAX INDEMNIFICATION
This Lease has been entered into on the assumption that Lessor shall
be entitled to certain deductions, credits, and other tax benefits as
are provided in the Internal Revenue Code of 1986, including amendments as may
occur (the "Code"), to an owner or property including without
limitation, depreciation deductions and interest deductions with
respect to any debt incurred to finance the purchase of the Equipment.
If, as a result of any acts or omissions by Lessee or as a result of
any changes in the Code (including any changes in the marginal
corporate income tax rate), the regulations issued thereunder or the
administrative or judicial interpretations thereof, Lessor's projected
after-tax economic return resulting from ownership and lease of the
Equipment hereunder is reduced, then Lessee's Lease Payments shall be
increased in an amount (based on Lessor's reasonable calculations)
sufficient to providethe same net after-tax economic return as if such
acts or omissions or changes had not occurred. Appropriate increases
shall also be made in any applicable Stipulated Loss Value Rider to
this Lease.
H. ADDITIONAL TERMS:
The terms contained on the Riders listed herein and attached hereto
shall be applicable and constitute a part of this Lease: Float to
Acceptance Rider and Rider No.11: TPOptions.
I. MODIFICATIONS:
In the event that additions and/or deletions to the Equipment and/or
Software listed herein are made prior to the Commencement Date as a
result ofa written direction or change order issued by Lessee and accepted by
Lessor, Lessee authorizes Lessor to modify the Equipment and Software
listed in herein to reflect such additions or deletions and to adjust
the Lease Payment amount and any other affected terms accordingly.
Lessor will deliver to Lessee a written notice containing any final
terms that differ from those set forth in this Equipment Schedule.
J. MASTER LEASE AGREEMENT:
This Lease is entered into pursuant to the Agreement identified above.
Except to the extent expressly modified hereby, the parties hereto by
theirexecution and delivery hereof, reaffirm and incorporate herein by
reference all of the terms, covenants and conditions of said Agreement
as if such terms, covenants and conditions were fully set forth in
this Equipment Schedule. All of the capitalized words used herein or
in the Riders annexed hereto shall have the meanings ascribed to them
in the Agreement unless otherwise expressly stated herein or therein.
K. EQUIPMENT AND SOFTWARE:
Equipment:
Quantity Model No./Description Equipment Cost
1 DA-5 1 HAB-FB AlphaServer
4100 51400 Drawer Digital UNIX
w/peripherals per attached
Quotation No. 98Dl NZ0052 $180,000.00
2 DA-51 HAA-FB AlphaServer
4100 5/400 Drawer Windows NT
w/peripherals per attached
Quotation No. 98Dl NZ0053-01 $80,000.00
1 FN-NCDNP-AB ClearVISN Site Package
w/peripherals per
attached Quotation No. 98DEQAOO28-08 $93,609.50
Total Equipment Costs: $353,609.50
Software:
Quantity Model No./Description Software License Fee
Total Software License Fees:
Total Equipment Costs and Software License Fees: $353,609.50
L. LOCATION OF EQUIPMENT ADDRESS: 5125 Lankershim Boulevard
COUNTY: Los Angeles County
CITY, STATE & ZIP: North Hollywood, CA 91601
M. COUNTERPARTS:
This Equipment Schedule may be executed in any number of counterparts,
each of which shall be sequentially numbered. No security interest in
this Lease may be created through the transfer or possession of any
counterpart other than Counterpart No. 1 of this Equipment Schedule,
but no transfer or possession of the Agreement will be required to
create a security interest in the Lease evidenced by this Equipment
Schedule.
LESSEE: Netter Digital Entertainment, Inc. LESSOR: Digital Financial Services,
a division of General Electric Corp.
By: By:
(Signature) (Signature)
Diane T. O'Kane-McEntee
(Print Or Type Name) (Print Or Type Name)
Sr. Lease Administrator
(Print Or Type Title) (Print Or Type Title)
Federal Tax ID or Social Security Number: 95-3392054
Digital Financial Services
Schedule A (Tax Oriented) Financial Services
Equipment Schedule No. 002 dated as of April 17, 1998 ("Lease")
To Master Lease Agreement No. 6713377 dated as of October 23 , 1997
between Digital Financial Services and Netter Digital
Entertainment, Inc. (Agreement)
LESSEE: LEGAL NAME: Netter Digital Entertainment, Inc.
TRADE NAME (if any):
ADDRESS: 5125 Lankershim Boulevard
North Hollywood, CA 91601
Address for Invoices:
Person to Contact Regarding Invoices:
LESSOR: NAME: Digital Financial Services,
a division of General Electric
Capital Corporation
ADDRESS: 1400 Computer Drive
Westborough, Massachusetts 01581
Attention: Operations Manager
A. The Latest Commencement Date for this Lease, as described in
Section 7 of the Agreement, is July 14, 1998.
B. LEASE PAYMENTS:
Lessee agrees to pay Lease Payments pursuant to and in the manner
stated in Section 3 of the Agreement. Unless Lessee has exercised the
option in the following paragraph, the first Lease Payment shall be
due and paid on the Commencement Date, and all subsequent Lease
Payments shall be due and paid on the same day of each subsequent pay
riod in the amounts set forth below.
Payment Amount $11,461.60 Payment Period Monthly
Option to have Lease Payments due on the first day of the month:
If the box at the beginning of this paragraph is checked, and
Lessee has initialed its agreement at the bottom of this
paragraph, then Lease Payments will be due on the first day of
the month, commencing on the first day of the month following the
Commencement Date (the"First Payment Due Date"). If this option
is elected, Lessee agrees to pay interim rent equal to the Lease
Payment prorated on a daily basis, for each day from the
Commencement Date to the First Payment Due Date. Such interim
rent payment will be due on the First Payment Due Date with the
first Lease Payment.
Lessee's Initials
C. TERM:
The Initial term of this Equipment Schedule shall be for a period
of Twenty Eight (28) months
D. END OF TERM OPTIONS; NOTICE:
Lessee shall have the options to return the Equipment, purchase the
Equipment or renew this Lease at the end of the Initial Term and each
renewal period, if any, subject to the conditions described in this Lease.
Lessee must provide Lessor with notice, at least ninety (90) days
prior to the expiration of the Initial Term or then current renewal
term (as applicable), of its intention to exercise an option to
purchase or renew, or to return the Equipment in accordance with
Section 1 0 of the Agreement (Notice of Intent). If such Notice of
Intent is not provided to the Lessor at least ninety (90) days prior
to the expiration of such term, Lessee shall continue to pay Lease
Payments to Lessor in the amount and at the times specified during the
Initial Term or such renewal term until the later of (i) the
expiration of ninety days following Lessor's receipt of Lessee's
Notice of Intent (Notice Period), or (ii) the purchase of the
Equipment pursuant to Paragraph F of this Equipment Schedule or the
return of the Equipment in accordance with Section 1 0 of the
Agreement. If an option to renew is exercised, the renewal term shall
commence upon the later of the expiration of the Notice Period or the
expiration of the Initial Term or then current renewal term, if any.
E. RENEWAL OPTIONS:
Lessee shall have the right to renew this Lease as to all, but not
less than all, of the Equipment and Software listed herein for three
(3) successive periods of one (1) year each, upon the same terms and conditions
contained herein, except that Lease Payments shall be the then fair
market rental value thereof. Fair market rental value shall be
determined by mutual agreement between Lessor and Lessee or if a
dispute arises, then by an independent appraiser selected by Lessor,
at Lessee's expense. Fair market rental value shall be paid on a
monthly or yearly basis as directed by Lessor.
Lessee's renewal options are contingent upon the following: (i) Lessee
shall provide Lessor with Lessee's Notice of Intent to renew not less
than ninety (90) days prior to the expiration of the Initial Term or
the renewal term, as the case may be, and (ii) at the time of the
giving of such notice and the commencement of said renewal term, no
default or Event of Default hereunder or under the Agreement or any
other agreement between Lessor and Lessee shall have occurred and be
continuing, in Lessor's sole determination. Failure to exercise a
preceding option shall preclude Lessee from exercising any subsequent
options.
F. PURCHASE OPTION:
Subject to the conditions stated herein, Lessor hereby grants to
Lessee a non-assignable option to purchase all, but not less than all,
of the Equipment described in this Lease at the expiration of the Initial
Term or and Renewal hereof for an amount equal to the then fair market value of
the Equipment (herein the 'Option Price). The fair market value of
the Equipment shall be determined by mutual agreement between the
parties or if a dispute arises, then by an independent appraiser
selected by Lessor, at Lessee's expense.
Lessee's right to purchase said Equipment is contingent upon all
of the following:
(i) no default or Event of Default on the part of Lessee under
this Lease, the Agreement or any other agreement between Lessor
and Lessee shall have occurred and be continuing in Lessor's sole
determination; and
(ii) Lessor shall have received Lessee's Notice of Intent to
purchase at least ninety 190) days prior to the date upon which
the Initial Term or renewal term expires, as the case may be; and
(iii) at least thirty (30) days prior to the expiration date of
the Initial Term or renewal term, as the case may be, Lessor
shall have received in cash a sum equal to (i) the Option Price
and (ii) all taxes, whether currently in existence or hereafter
enacted, which shall be or become due and payable directly or
indirectly as a result of the sale or transfer of the Equipment,
except Lessee may provide Lessor with a certificate of exemption
or other similar document with respect to such taxes.
It is expressly understood by the parties hereto that any purchase
hereunder SHALL BE WITHOUT REPRESENTATIONS OR WARRANTIES, EXPRESS
OR IMPLIED, on the part of Lessor and that Lessor sells the Equipment
hereunder on a "AS IS," "WHERE IS" basis.
G. TAX INDEMNIFICATION
This Lease has been entered into on the assumption that Lessor shall
be entitled to certain deductions, credits, and other tax benefits as
are provided in the Internal Revenue Code of 1986, including amendments as may
occur (the "Code"), to an owner or property including without
limitation, depreciation deductions and interest deductions with
respect to any debt incurred to finance the purchase of the Equipment.
If, as a result of any acts or omissions by Lessee or as a result of
any changes in the Code (including any changes in the marginal
corporate income tax rate), the regulations issued thereunder or the
administrative or judicial interpretations thereof, Lessor's projected
after-tax economic return resulting from ownership and lease of the
Equipment hereunder is reduced, then Lessee's Lease Payments shall be
increased in an amount (based on Lessor's reasonable calculations)
sufficient to providethe same net after-tax economic return as if such
acts or omissions or changes had not occurred. Appropriate increases
shall also be made in any applicable Stipulated Loss Value Rider to
this Lease.
H. ADDITIONAL TERMS:
The terms contained on the Riders listed herein and attached hereto
shall be applicable and constitute a part of this Lease: Float to
Acceptance Rider and Rider No.11: TPOptions.
I. MODIFICATIONS:
In the event that additions and/or deletions to the Equipment and/or
Software listed herein are made prior to the Commencement Date as a
result ofa written direction or change order issued by Lessee and accepted by
Lessor, Lessee authorizes Lessor to modify the Equipment and Software
listed in herein to reflect such additions or deletions and to adjust
the Lease Payment amount and any other affected terms accordingly.
Lessor will deliver to Lessee a written notice containing any final
terms that differ from those set forth in this Equipment Schedule.
J. MASTER LEASE AGREEMENT:
This Lease is entered into pursuant to the Agreement identified above.
Except to the extent expressly modified hereby, the parties hereto by
theirexecution and delivery hereof, reaffirm and incorporate herein by
reference all of the terms, covenants and conditions of said Agreement
as if such terms, covenants and conditions were fully set forth in
this Equipment Schedule. All of the capitalized words used herein or
in the Riders annexed hereto shall have the meanings ascribed to them
in the Agreement unless otherwise expressly stated herein or therein.
K. EQUIPMENT AND SOFTWARE:
Equipment:
Quantity Model No./Description Equipment Cost
2 CT-RENDT_WC Render Tower System
WNT w/Peripherals per attatched
Wyle Quotation #989W1202T6 $92,700.00
6 CT-RENDT-WX Render Tower Upgrade
WNT w/peripherals per attatched Wyle
Quotation #989W1202T6 $232,200.00
Total Equipment Costs: $324,900.00
Software:
Quantity Model No./Description Software License Fee
Total Software License Fees:
Total Equipment Costs and Software License Fees: $324,900.00
L. LOCATION OF EQUIPMENT ADDRESS: 5125 Lankershim Boulevard
COUNTY: Los Angeles County
CITY, STATE & ZIP: North Hollywood, CA 91601
M. COUNTERPARTS:
This Equipment Schedule may be executed in any number of counterparts,
each of which shall be sequentially numbered. No security interest in
this Lease may be created through the transfer or possession of any
counterpart other than Counterpart No. 1 of this Equipment Schedule,
but no transfer or possession of the Agreement will be required to
create a security interest in the Lease evidenced by this Equipment
Schedule.
LESSEE: Netter Digital Entertainment, Inc. LESSOR: Digital Financial Services,
a division of General Electric Corp.
By: By:
(Signature) (Signature)
Diane T. O'Kane-McEntee
(Print Or Type Name) (Print Or Type Name)
Sr. Lease Administrator
(Print Or Type Title) (Print Or Type Title)
Federal Tax ID or Social Security Number: 95-3392054
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,025,207
<SECURITIES> 0
<RECEIVABLES> 2,042,514
<ALLOWANCES> (22,434)
<INVENTORY> 1,488,883
<CURRENT-ASSETS> 5,112,514
<PP&E> 2,645,559
<DEPRECIATION> (625,566)
<TOTAL-ASSETS> 9,377,479
<CURRENT-LIABILITIES> 3,772,110
<BONDS> 0
0
304,366
<COMMON> 33,344
<OTHER-SE> 4,726,171
<TOTAL-LIABILITY-AND-EQUITY> 9,377,479
<SALES> 3,073,760
<TOTAL-REVENUES> 23,300,460
<CGS> 1,519,365
<TOTAL-COSTS> 19,608,680
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,538
<INCOME-PRETAX> 147,102
<INCOME-TAX> 38,000
<INCOME-CONTINUING> 109,102
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,102
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
