<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CHANNELL COMMERCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 3669 95-2453261
(STATE OF INCORPORATION) (PRIMARY STANDARD (I.R.S. EMPLOYER
INDUSTRIAL CLASSIFICATION IDENTIFICATION NUMBER)
CODE NUMBER)
26040 YNEZ ROAD
TEMECULA, CA 92591-9022
(909) 694-9160
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
WILLIAM H. CHANNELL, SR.
CHAIRMAN OF THE BOARD
26040 YNEZ ROAD
TEMECULA, CA 92591-9022
(909) 694-9160
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
EDMUND M. KAUFMAN, ESQ. IRELL & C.N. FRANKLIN REDDICK III, ESQ. TROOP
MANELLA LLP 333 SOUTH HOPE STREET, MEISINGER STEUBER & PASICH LLP 10940
SUITE 3300 LOS ANGELES, CALIFORNIA WILSHIRE BLVD., 8TH FLOOR LOS
90071 (213) 620-1555 ANGELES, CALIFORNIA 90024 (310) 824-
7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value.... 3,565,000 shares $14.00 per share $49,910,000 $17,211
</TABLE>
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- -------------------------------------------------------------------------------
(1) Includes up to 465,000 shares of Common Stock which may be purchased by
the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
----------------
THE FOLLOWING SETS FORTH THE LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS IN PART I OF FORM S-1.
<TABLE>
<CAPTION>
FORM S-1 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus................... Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus.................. Inside Front Cover Page of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges... Prospectus Summary; Risk Factors
4. Use of Proceeds...................... Use of Proceeds
5. Determination of Offering Price...... Outside Front Cover Page of
Prospectus; Underwriting
6. Dilution............................. Dilution
7. Selling Security Holders............. Principal and Selling Stockholders
8. Plan of Distribution................. Outside Front Cover Page of
Prospectus; Underwriting
9. Description of Securities to be
Registered........................... Description of Capital Stock
10. Interests of Named Experts and
Counsel.............................. Legal Matters
11. Information with Respect to the
Registrant
(a) Description of Business......... Prospectus Summary; Business;
Management's Discussion and Analysis
of Financial Condition and Results
of Operations; Certain Transactions
(b) Description of Property......... Business
(c) Legal Proceedings............... Business
(d) Market Price of and Dividends on
Common Equity and Related
Shareholder Matters............. Outside Front Cover Page of
Prospectus; Underwriting; Principal
and Selling Stockholders;
Description of Capital Stock;
Dividend Policy
(e) Financial Statements............ Financial Statements
(f) Selected Financial Data......... Capitalization; Selected Historical,
Pro Forma and Other Financial
Information
(g) Supplementary Financial
Information..................... Not Applicable
(h) Management's Discussion and
Analysis of Financial Condition
and Results of Operations....... Management's Discussion and Analysis
of Financial Condition and Results
of Operations
(i) Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosure........ Not Applicable
(j) Directors and Executive
Officers........................ Management; Certain Transactions
(k) Executive Compensation.......... Management
(l) Security Ownership of Certain
Beneficial Owners and
Management...................... Principal and Selling Stockholders
(m) Certain Relationships and
Related Transactions............ Certain Transactions
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.......................... Not Applicable
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION DATED MAY 13, 1996
3,100,000 SHARES
[LOGO OF CHANNELL COMMERCIAL CORPORATION]
COMMON STOCK
($.01 PAR VALUE)
Of the 3,100,000 shares of Common Stock offered hereby, 2,700,000 shares are
being sold by Channell Commercial Corporation, a Delaware corporation (the
"Company"), and 400,000 shares are being sold by the Selling Stockholder. The
Company will not receive any of the proceeds from the sale of shares of Common
Stock by the Selling Stockholder. See "Principal and Selling Stockholders."
Prior to this Offering, there has been no public market for the Company's
Common Stock. It is currently estimated that the initial public offering price
will be between $12.00 and $14.00 per share. See "Underwriting" for information
relating to the method of determining the initial public offering price.
Application has been made for the Common Stock to be approved for quotation
and trading on the Nasdaq National Market under the symbol "CHNL."
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=============================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share....................... $ $ $ $
- ---------------------------------------------------------------------------------------------
Total(3)........................ $ $ $ $
=============================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $500,000 payable by the Company.
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to an additional 465,000 shares of Common Stock at the Price to
Public, less the Underwriting Discounts and Commissions shown above, solely
to cover over-allotments, if any. If this option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholder will be $ ,
$ , $ and $ , respectively. See
"Underwriting."
The shares of Common Stock offered hereby are being offered by the several
Underwriters named herein, subject to prior sale and acceptance by the
Underwriters and subject to their right to reject any order in whole or in
part. It is expected that the Common Stock will be available for delivery on or
about , 1996 at the offices of Schroder Wertheim & Co.
Incorporated, New York, New York.
SCHRODER WERTHEIM & CO. SMITH BARNEY INC.
, 1996
<PAGE>
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE
"EXCHANGE ACT").
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, (i) all information,
including financial data, in this Prospectus has been adjusted to give pro
forma effect to the transactions described below under "Reorganization and
Termination of S Corporation Status," including the merger of Channell
Commercial Corporation, a California corporation (the "Predecessor"), into
Channell Commercial Corporation, a Delaware corporation (the "Company"), (ii)
all references in this Prospectus to the Company include the Company and the
Predecessor, and (iii) the information in this Prospectus assumes that the
Underwriters' over-allotment option is not exercised.
For a definition of certain terms used herein, see "Glossary of Terms" on
page G-1 hereof.
THE COMPANY
The Company is a leading designer, manufacturer and marketer of precision-
molded thermoplastic enclosures used by cable television ("CATV") operators and
local telephone companies worldwide. The Company believes it was the first to
design, manufacture and market thermoplastic enclosure products for use in the
communications industry on a wide scale. The Company's products house, protect
and provide access to advanced telecommunications electronics and transmission
media, including coaxial cable, copper wire and optical fibers, used in the
delivery of CATV and telephone services. The products are deployed within the
portion of the local signal delivery network, commonly known as the "outside
plant," that connects the network provider's signal origination office with
residences and businesses. The Company also markets a variety of complementary
products manufactured by third parties, including grade level boxes and cable-
in-conduit, in order to provide a full system solution to meet its customers'
outside plant requirements.
From 1991 to 1995, the Company's sales increased from $15.9 million to $41.0
million, a compounded annual growth rate of 26.7%. During the same period,
after giving pro forma effect to certain transactions to be consummated in
connection with the Offering, the Company's adjusted net income increased from
$0.5 million to $6.4 million, a compounded annual growth rate of 90.1%. The
Company's sales and adjusted net income increased from $9.2 million and $1.2
million, respectively, in the first quarter of 1995 to $10.3 million and $1.6
million, respectively, in the first quarter of 1996.
The Company has a leading share of the CATV market for enclosures in the
United States and Canada and markets a wide range of products to local
telephone companies. In the last few years, the Company began to expand its
marketing efforts internationally, with product sales in South America, the
Pacific Rim, the Middle East and Europe. As part of its strategy, the Company
expects to continue to expand its international presence in the future. During
1995, the Company shipped products to more than 4,000 customer locations. The
Company's customers include many of the largest CATV operators and local
telephone companies in the world. In the United States, major customers include
BellSouth, Comcast, Continental Cablevision, GTE, TCI and Time Warner. In
international markets, major customers include Bricast (Australia), Cablenet
(Canada), Cable Systems Media (Israel), Rogers Communications (Canada) and Shaw
Cable (Canada).
The communications industry is experiencing rapid expansion, both
domestically and internationally, in response to a number of factors, including
(i) developments in high-speed communications technologies for video, voice and
data transmission and internet access via cable modem, (ii) the convergence
occurring within the CATV and telecommunications industries, (iii) consumer
demand for enhanced communications services, and (iv) a changing regulatory and
competitive environment. The Company's customers are responding to these
changes by expanding, rebuilding and upgrading their signal delivery networks.
These activities generate demand for the types of highly engineered enclosures
and related outside plant products offered by the Company.
The Company's enclosure products are designed to provide superior
environmental sealing and protection, heat dissipation, easy access for
technicians who maintain and manage outside plant facilities, compatibility
with a variety of signal delivery network architectures, versatility to
accommodate network growth and aesthetic appeal. Many of the Company's
thermoplastic enclosure products are now considered state-of-the-industry and
are often used to replace enclosure products constructed of sheet metal and
other materials that previously
3
<PAGE>
had been the industry standard. For example, the Company's sealed plant
products feature a mechanical sealing system which, unlike many competitors'
products, does not require gels, compounds or heat shrink to create and
maintain the required seal. Many features of the Company's products are
patented in the United States. The Company's products are sold primarily
through a direct sales force of technically trained salespeople who use an
application-based, complete system approach in marketing to customers.
The Company's products are manufactured at its custom designed, 160,000
square foot facility in Temecula, California, which was originally constructed
in 1989. An adjacent 100,000 square foot building is also being constructed and
is expected to be completed in June 1996. The Company's vertically integrated
and modern manufacturing processes enable the Company to control each step in
the manufacturing process, including product design and engineering, custom
tool and die construction, molding, wiring, assembly and packaging. The
Company's manufacturing expertise enables it to tailor its products to satisfy
customer demands rapidly and efficiently.
The Company's strategy is to capitalize on opportunities in the growing and
changing global communications industry by providing enclosures and
complementary products to meet the needs of its customers' evolving
communications networks. The Company's wide range of products, manufacturing
expertise, application-based sales and marketing approach and reputation for
high quality products address key requirements of its customers. Principal
elements of the Company's strategy include the following:
CONTINUE TO FOCUS ON CORE CATV BUSINESS. The Company intends to capitalize on
its position as a leading designer, manufacturer and marketer of broadband
enclosures for the CATV industry in the United States and Canada through new
product development for both domestic and international market applications.
The Company has positioned itself to participate in continued CATV network
construction and upgrades that are designed to improve service quality and
expand network capacity in order to prepare CATV operators for new competition
in the broadband services market. These expansions and upgrades will enable
CATV operators to accommodate increased consumer demand for internet access via
cable modem, telephony and enhanced video services. From 1993 to 1995, the
Company's sales to the CATV industry increased from $20.4 million to $35.4
million, representing a compounded annual growth rate of 31.7%.
INCREASE SALES TO LOCAL TELEPHONE COMPANIES. The Company seeks to leverage
its in-depth knowledge of, and expertise in, the broadband telecommunications
and telephone markets to provide innovative enclosure solutions for the
telephone industry. From 1993 to 1995, the Company's sales to local telephone
companies increased from $3.3 million to $5.6 million, representing a
compounded annual growth rate of 29.7%. The Company intends to continue to
invest in the development of a broader range of products designed specifically
for telephone market applications. The Company has already achieved significant
success in marketing its traditional CATV/broadband products to local telephone
companies which have been designing and deploying broadband networks to deliver
competitive video and data services. The Company will continue to target this
market for growth.
EXPAND INTERNATIONAL PRESENCE. Management believes that international markets
offer significant opportunities for increased sales in both the CATV and
telephone segments. From 1993 to 1995, the Company's international sales
increased from $3.4 million to $6.1 million, representing a compounded annual
growth rate of 34.4%. Trends expected to result in international growth
opportunities include the deregulation and privatization of telecommunications
in many international markets, the focus of numerous countries on building,
expanding and enhancing their communications systems in order to participate
fully in the information-based global economy, and multi-national expansion by
many U.S.-based network carriers. The Company will concentrate on expansion in
international markets that are characterized by deregulation or privatization
of telecommunications and the availability of capital for the construction of
signal delivery networks.
DEVELOP NEW PRODUCTS AND ENTER NEW BUSINESS SEGMENTS. The Company continues
to leverage its core capabilities by developing innovative products that meet
the changing needs of its customers. The Company has a proven record in
designing, developing and manufacturing "next generation" products that provide
solutions for its customers and offer differential advantages over other
suppliers to the industry. In addition, the Company will seek to diversify its
customer base by developing new products for customers outside the
communications industry that require enclosure products, such as the utility
industry.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by:
The Company...................... 2,700,000 shares
The Selling Stockholder.......... 400,000 shares
Common Stock to be outstanding
after the Offering................ 8,837,000 shares(1)
Use of Proceeds.................... Distributions to Existing Stockholders in
connection with the termination of the
Company's S corporation status, new product
development, repayment of indebtedness and
general corporate purposes.
Proposed Nasdaq National Market
symbol............................ CHNL
</TABLE>
- --------
(1) Excludes approximately 425,000 shares of Common Stock subject to stock
options to be issued to certain of the Company's employees and directors
under the Company's 1996 Incentive Stock Plan at the time of the Offering
with an exercise price equal to the public offering price per share. These
options become exercisable in three equal annual installments beginning on
the first anniversary of the date of issuance. See "Management--1996
Incentive Stock Plan."
5
<PAGE>
SUMMARY HISTORICAL, PRO FORMA AND OTHER FINANCIAL INFORMATION
(amounts in thousands, except per share data)
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the notes thereto included in this Prospectus.
Data for the Company's fiscal years ended December 31, 1993, 1994 and 1995 are
derived from the Company's audited Financial Statements and the notes thereto
included in this Prospectus. Data for the Company's fiscal years ended December
31, 1991 and 1992 and the three months ended March 31, 1995 and 1996 are
derived from unaudited financial statements, which the Company believes contain
all necessary adjustments, consisting only of normal recurring adjustments,
necessary to present fairly, and in accordance with generally accepted
accounting principles, the Company's financial position and results of
operations for the periods presented. Financial results for the three months
ended March 31, 1995 and 1996 presented below are not necessarily indicative of
results of operations for a full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................... $15,893 $19,006 $23,713 $34,504 $40,972 $ 9,225 $10,279
Gross profit............ 4,381 6,465 8,879 14,754 17,913 3,738 4,541
License fees(1)......... 602 690 1,039 1,560 2,035 458 531
Income from operations.. 778 2,130 3,173 7,183 9,171 1,633 2,189
Income before income
taxes.................. 542 1,890 3,007 7,027 8,832 1,543 2,124
Pro forma net income(2). 296 1,099 1,816 4,129 5,377 927 1,279
Pro forma net income per
share(3)............... -- -- -- -- 0.72 -- 0.17
Pro forma weighted
average shares
outstanding(3)......... -- -- -- -- 7,448 -- 7,448
OTHER DATA:
Gross margin(4)......... 27.6% 34.0% 37.4% 42.8% 43.7% 40.5% 44.2%
Operating margin(5)..... 4.9 11.2 13.4 20.8 22.3 17.7 21.3
EBITDA(6)............... $ 1,389 $ 2,785 $ 3,949 $ 8,255 $10,583 $ 2,048 $ 2,591
Capital expenditures.... 917 1,172 1,480 5,851 2,160 1,030 472
ADJUSTED FINANCIAL
DATA(7):
Sales (as historically
reported).............. $15,893 $19,006 $23,713 $34,504 $40,972 $ 9,225 $10,279
Adjusted EBITDA(8)...... 1,716 3,200 4,713 9,540 12,343 2,437 3,053
Adjusted income from
operations............. 1,105 2,545 3,937 8,468 10,931 2,022 2,651
Adjusted operating
margin(9).............. 7.0% 13.4% 16.6% 24.5% 26.7% 21.9% 25.8%
Adjusted net income..... $ 492 $ 1,349 $ 2,274 $ 4,899 $ 6,431 $ 1,149 $ 1,555
<CAPTION>
MARCH 31, 1996
---------------------
AS
ACTUAL ADJUSTED(10)
------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Current assets.......... $10,004 $23,866
Total assets............ 20,655 35,189
Long-term obligations
(including current
maturities)............ 2,883 --
Stockholders' equity.... 13,263 31,155
</TABLE>
6
<PAGE>
NOTES TO SUMMARY HISTORICAL, PRO FORMA AND OTHER FINANCIAL INFORMATION
(amounts in thousands, except per share data)
(1) License fees represent the amounts paid by the Company to William H.
Channell, Sr., the Company's Chairman of the Board, for the use of the
Channell Patents (as defined below). Upon consummation of the Offering,
retroactive to January 1, 1996, these patents will be transferred to the
Company, the license fee arrangement with Mr. Channell, Sr. will be
terminated and the Company will no longer pay any license fees with
respect to the Channell Patents (including those accrued during 1996 prior
to the Offering). See "Reorganization and Termination of S Corporation
Status."
(2) Prior to the Offering, the Company was an S corporation for federal and
state income tax purposes. The pro forma presentation reflects a provision
for income taxes as if the Company had always been a C corporation, at an
assumed effective tax rate of approximately 41% less tax credits. Such
presentation does not reflect the adjustments set forth in note (7) below.
(3) Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average shares outstanding. Pro forma
weighted average shares outstanding include 1,311 of the shares offered
hereby by the Company at an assumed price of $13.00 per share, the net
proceeds of which will be used to fund the distributions and payments in
connection with the Termination of the Company's S Corporation Status (as
defined below). See "Reorganization and Termination of S Corporation
Status."
(4) Gross margin is gross profit as a percentage of sales.
(5) Operating margin is income from operations as a percentage of sales.
(6) EBITDA represents income from operations before interest and income taxes,
plus depreciation and amortization expense. EBITDA is not intended to
represent cash flow or any other measure of performance in accordance with
generally accepted accounting principles, but is included here because
management believes that certain investors find it to be a useful tool for
measuring a company's ability to service its debt.
(7) The adjusted financial data reflects, in addition to the pro forma
adjustments referred to in note (2) above, (i) the elimination of the
expense for the license fees payable to Mr. Channell, Sr., and related
income tax impact, which license fees are being terminated as part of the
Termination of the Company's S Corporation Status, and (ii) an increase in
Mr. Channell, Sr.'s annual base salary from $225 to $500 in connection
with the Offering. See "Reorganization and Termination of S Corporation
Status" and "Management--Employment Contracts."
(8) Adjusted EBITDA represents adjusted income from operations before
interest and income taxes, plus depreciation and amortization expense.
See note (6) above.
(9) Adjusted operating margin is adjusted income from operations as a
percentage of sales.
(10) Adjusted to reflect the Termination of the Company's S Corporation Status
and the sale of 2,700 shares of Common Stock by the Company in the
Offering and the application of the net proceeds therefrom.
7
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be carefully considered in evaluating the Company and its
business before purchasing the Common Stock offered by this Prospectus. The
following is not intended as, and should not be considered, an exhaustive list
of relevant factors.
RAPID TECHNOLOGICAL CHANGE
The communications industry is characterized by rapid technological change.
The introduction of products embodying new technologies or the emergence of
new industry standards can render existing products or products under
development obsolete or unmarketable. For example, satellite, wireless and
other communication technologies currently being deployed may represent a
threat to copper, coaxial and fiber optic-based systems by reducing the need
for wire-line networks. To date, however, the Company believes that these
technologies have not had a significant impact on the demand for traditional
wire-line network based services, and management anticipates that a number of
factors, including network capacity requirements, existing investments in
wire-line networks, security and long-term cost effectiveness, will result in
continued growth of wire-line networks. However, there can be no assurance
that future advances or further development of these or other new technologies
will not have a material adverse effect on the Company's business. Further,
the Company's growth strategies are designed, in part, to take advantage of
opportunities that the Company believes are emerging as a result of the
development of enhanced voice, video and other transmission networks and
internet access in the CATV and telecommunications industries. There can be no
assurance that demand resulting from these emerging trends will develop
rapidly or that the Company's products will meet with market acceptance.
NEW PRODUCT DEVELOPMENT
The Company's ability to anticipate changes in technology and industry
standards and to successfully develop and introduce new products on a timely
basis will be a significant factor in the Company's ability to grow and remain
competitive. New product development often requires long-term forecasting of
market trends, development and implementation of new designs and processes and
a substantial capital commitment. The trend toward consolidation of the
communications industry may require the Company to quickly adapt to rapidly
changing market conditions and customer requirements. Although the Company's
manufacturing and marketing expertise has enabled it to successfully develop
and market new products in the past, any failure by the Company to anticipate
or respond in a cost-effective and timely manner to technological developments
or changes in industry standards or customer requirements, or any significant
delays in product development or introduction, could have a material adverse
effect on the Company's business, operating results and financial condition.
Of the net proceeds of this Offering, the Company currently expects that
approximately $7.0 million to $10.0 million will be used for new product
development projects. See "Use of Proceeds."
DEPENDENCE ON THE COMMUNICATIONS INDUSTRY
The Company's sales to the communications industry represent substantially
all of the Company's historical sales and are expected to continue to do so
for the foreseeable future. Within that industry, 86.4% of the Company's total
sales in 1995 were derived from domestic and international sales to the CATV
segment, with 33.1% of total sales for that year attributable to two customers
in that industry, TCI and Time Warner. The Company expects that sales to the
CATV industry will continue to represent a substantial portion of its total
sales. Demand for products to this segment depends primarily on capital
spending by cable operators for constructing, rebuilding, maintaining or
upgrading their systems. The amount of capital spending and, therefore, the
Company's sales and profitability are affected by a variety of factors,
including general economic conditions, access by cable operators to financing,
government regulation of cable operators, demand for cable services and
technological developments in the broadband communications industry. The
Company's remaining sales in 1995 were derived from the telecommunications
industry, primarily local telephone operators. Although local telephone
operators may have greater access to capital than many cable operators, the
same factors dictating the
8
<PAGE>
demand for products in the CATV segment of the industry also apply to the
local telephone segment. Thus, the Company's success is dependent upon
continued demand for products used in signal transmission systems from the
communications industry generally, including both CATV and telephone, which
may be affected by factors beyond the Company's control, including the
convergence of voice, data and video transmission systems occurring within the
CATV and telephone markets, continuing consolidation of companies within those
markets and the provision of internet access by cable operators and local
telephone companies.
PRICE FLUCTUATIONS OF RAW MATERIALS; AVAILABILITY OF COMPLEMENTARY PRODUCTS
The Company's cost of sales may be materially adversely affected by
increases in the market prices of the raw materials used in the Company's
manufacturing processes, including resin. The Company does not engage in
hedging transactions for such materials, although it periodically enters into
contracts for certain raw materials for as much as one year or more. There can
be no assurance that price increases in raw materials can be passed on to the
Company's customers through increases in product prices. In addition, in order
to position itself as a full-line product supplier, the Company relies on
certain manufacturers to supply products that complement the Company's own
product line, including grade level boxes and cable-in-conduit. Although the
Company believes there are multiple sources of supply for these products,
disruptions or delays in the supply of such products could have a material
adverse effect on sales of the Company's own products.
OPERATING LEVERAGE
Because of the relatively high percentage of fixed costs for rent, product
development, engineering, tooling and related fixed manufacturing costs as a
percentage of total costs, the Company's ability to maintain its historic
profitability is dependent on generating a sufficient volume of product sales,
thereby spreading fixed costs over the sales base. In fiscal 1995, such fixed
costs as a percentage of total costs were 33.5%. Due to this "operating
leverage," a reduction in sales or the rate of sales growth could have a
disproportionately adverse effect on the Company's financial results.
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS; LIMITED BACKLOG
The Company's business is somewhat seasonal in nature, with the first and
fourth quarters generally reflecting lower sales due to the impact of adverse
weather conditions on construction projects that may alter or postpone the
needs of customers for delivery of the Company's products. The Company's
operating results may also fluctuate significantly from quarter to quarter due
to several other factors, including the volume and timing of orders from, and
shipments to, major customers, the timing of new product announcements and the
availability of products by the Company or its competitors, the overall level
of capital expenditures by CATV operators and local telephone companies,
market acceptance of new and enhanced versions of the Company's products,
variations in the mix of products the Company sells, and the availability and
cost of raw materials. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Quarterly Results of Operations."
The Company's customers typically require prompt shipment and installation
of the Company's products. As a result, the Company has historically operated
with a relatively small backlog, and sales and operating results in any
quarter are principally dependent upon orders booked and products shipped in
that quarter. The Company's capital expenditures and expense levels are based
in part on expectations of future sales. If sales levels in a particular
period do not meet expectations, operating results may be adversely affected.
INTERNATIONAL OPERATIONS
International sales accounted for 14.4%, 13.2% and 14.8% of the Company's
sales in 1993, 1994 and 1995, respectively, and the Company expects that
international sales may increase as a percentage of sales in the future. Due
to its international sales, the Company is subject to the risks of conducting
business internationally, including unexpected changes in, or impositions of,
legislative or regulatory requirements, fluctuations in the
9
<PAGE>
U.S. dollar which could materially adversely affect U.S. dollar revenues or
operating expenses, tariffs and other barriers and restrictions, potentially
longer payment cycles, greater difficulty in accounts receivable collection,
potentially adverse taxes and the burdens of complying with a variety of
international laws and communications standards. The Company is also subject
to general geopolitical risks, such as political and economic instability and
changes in diplomatic and trade relationships, in connection with its
international operations. There can be no assurance that these risks of
conducting business internationally will not have a material adverse effect on
the Company's business.
COMPETITION
The industries in which the Company operates are highly competitive.
Further, in connection with the anticipated growth in the communications
industry generally and demand for products required in signal transmission
networks in particular, the level and intensity of competition may increase in
the future. In the telephone segment of the industry, the Company's
competition includes a company that has a significant market share. While the
Company's sales to this segment have increased from $3.3 million in 1993 to
$5.6 million in 1995, representing a compounded annual growth rate of 29.7%,
and the Company's strategy includes continued focus on increasing sales to
this segment, there can be no assurance that the Company will be able to
compete successfully against that company or other competitors, many of which
may have access to greater financial resources than the Company. See
"Business--Competition."
DISRUPTIONS AT THE COMPANY'S MANUFACTURING FACILITY; LEASE WITH RELATED PARTY
All of the Company's manufacturing operations are currently located at the
Company's facility in Temecula, California, which also includes the Company's
principal warehouse and corporate offices. The Company's success depends in
large part on the orderly operation of this facility. Because the Company's
manufacturing operations and administrative departments are concentrated at
this facility, a fire, earthquake or other disaster at this facility could
materially and adversely affect its business and results of operations. The
Company maintains standard property and earthquake insurance on this facility
as well as business interruption insurance and back-up data systems. See
"Business--Properties."
The Company currently leases the Temecula facility from William H. Channell,
Sr., a principal stockholder and Chairman of the Board of the Company. Annual
rental expense for this property was approximately $650,000 from 1993 through
1995. An adjacent 100,000 square foot building is being constructed and is
expected to be completed in June, 1996. This building is also being leased
from Mr. Channell, Sr. and requires annual rental payments of $420,000
commencing upon completion of construction. The Company believes the terms of
these leases are no less favorable than would be available from an unrelated
third party after arms' length negotiations. Although the Company has renewal
options through the year 2015 under these leases, there can be no assurance
that the Company and Mr. Channell, Sr. will be able to agree on renewal terms
for the properties currently leased by the Company. The failure of the Company
to renew the leases would require the Company to relocate its existing
facilities. See "Certain Transactions."
KEY PERSONNEL
The future success of the Company depends in part on its ability to attract
and retain key executive, engineering, marketing and sales personnel. Key
personnel of the Company include William H. Channell, Sr., the Chairman of the
Board, William H. Channell, Jr., the President and Chief Executive Officer,
and the other executive officers of the Company listed under "Management--
Executive Officers and Directors." Competition for qualified personnel in the
communications industry is intense, and the loss of certain key personnel
could have a material adverse effect on the Company. The Company has entered
into employment contracts with Mr. Channell, Sr. and Mr. Channell, Jr. See
"Management--Employment Contracts."
10
<PAGE>
CHANGING REGULATORY ENVIRONMENT
The communications industry is subject to regulation in the United States
and other countries. Federal and state regulatory agencies regulate most of
the Company's domestic customers. On February 1, 1996, the United States
Congress passed the Telecommunications Act of 1996 (the "Telecommunications
Act"), which the President signed into law on February 8, 1996. The
Telecommunications Act lifts certain restrictions on the ability of companies,
including RBOCs and other customers of the Company, to compete with one
another and generally reduces the regulation of the communications industry.
While the Company believes that the deregulation of the communications
industry may increase the Company's opportunities to provide solutions for its
customers' signal transmission network needs, the effect of the
Telecommunications Act on the market for the Company's products is difficult
to predict at this time, and there can be no assurance that competition in the
Company's markets will not intensify as a result of such deregulation. Changes
in current or future laws or regulations, in the United States or elsewhere,
could materially adversely affect the Company's business.
MANAGEMENT OF GROWTH; IMPLEMENTATION OF NEW MANAGEMENT INFORMATION SYSTEM
The growth in the Company's business has required, and is expected to
continue to require, significant Company resources in terms of personnel,
management and other infrastructure. The Company's ability to manage any
future growth effectively will require it to attract, train, motivate and
manage new employees successfully, to integrate new employees into its overall
operations and to continue to improve its operational, financial and
management information systems. In particular, in 1996, the Company intends to
implement a new management information system ("MIS"). The Company believes
the new MIS will significantly affect many aspects of its business, including
its accounting, operations, purchasing, sales and marketing functions. The
successful implementation of this system will be important to the Company's
provision of services and to facilitate future growth. If the Company is not
successful in implementing its MIS or if the Company experiences difficulties
in such implementation, the Company could experience problems with delivery of
its products or an adverse impact on its ability to access financial and
accounting information on a timely basis.
ENVIRONMENTAL MATTERS
The Company is subject to a wide variety of federal, state and local
environmental laws and regulations and uses a limited number of chemicals that
are classified as hazardous or similar substances. Although management
believes that the Company's operations are in compliance in all material
respects with current environmental laws and regulations, the Company's
failure to comply with such laws and regulations could have a material adverse
effect on the Company. See "Business--Regulation."
POSSIBLE VOLATILITY OF STOCK PRICE; NO PRIOR PUBLIC MARKET
The market price of shares of the Company's Common Stock may be highly
volatile. Factors such as announcements of technological innovations or new
products by the Company or its competitors, developments in patent or other
proprietary rights by the Company or its competitors, litigation, fluctuations
in the Company's operating results, market conditions for emerging growth
stocks or communications industry stocks in general, regulatory developments
affecting the communications industry, and other factors outside the control
of the Company, could have a significant impact on the future price of the
Common Stock. Immediately prior to the Offering, there has been no public
market for any of the Company's securities. There can be no assurance that a
regular trading market will develop in the Common Stock.
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
and Bylaws and of Delaware law could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. See "Description of Capital Stock--
Delaware Law and Certain Charter and Bylaw Provisions."
11
<PAGE>
CONTROL BY PRINCIPAL STOCKHOLDERS
Immediately following the Offering, the Channell Family Trust dated October
6, 1987 (as amended, the "Channell Family Trust") and members of the Channell
Family will own 64.9% of the outstanding Common Stock (59.7% if the
Underwriters' over-allotment option is exercised in full). As a result of
their interests in the Company, the members of the Channell family together
will be able to elect a majority of the Board of Directors and control the
management and affairs of the Company.
LIMITATION ON DIVIDENDS
The Company's policy is to retain its future earnings to finance the growth
and development of its business and the Company does not anticipate declaring
or paying cash dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of the Company's Common Stock could adversely affect the market
price of the Common Stock. The Channell Family Trust and members of the
Channell family will hold a significant portion of the Company's outstanding
Common Stock following the Offering, and a decision by one or more of them to
sell their shares could adversely affect the market price of the Common Stock.
The Company and each of the Channell Family Trust, William H. Channell, Jr.,
Carrie S. Rouveyrol and Michele Taylor have entered into contractual "lock-up"
agreements with the Representatives of the Underwriters providing that, except
for shares sold pursuant to the Offering, they will not offer, sell, contract
to sell or otherwise dispose of the shares of Common Stock of the Company
owned by them for a period of 180 days after the effective date of the
Offering without the prior written consent of Schroder Wertheim & Co.
Incorporated, subject to certain exceptions. Following the 180-day lock-up
period, 5,737,000 shares (5,272,000 shares if the Underwriters' over-allotment
option is exercised in full) will be eligible for sale in the public market
pursuant to Rule 144 or other exemptions from the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). In general,
under Rule 144, a holder who is an "affiliate" of the Company will be able to
sell, without registration under the Securities Act, within any three-month
period, a number of shares of Common Stock that does not exceed the greater of
1% of the total number of outstanding shares of Common Stock or the average
weekly trading volume during the four calendar weeks preceding the sale. These
volume limits will not apply to a sale by a non-affiliate who has held his or
her stock for more than three years or to any sale that is registered under
the Securities Act. Ms. Rouveyrol and Ms. Taylor have agreed that, during the
two-year period following the date of this Prospectus, unless otherwise
permitted by the Representatives, any sales of shares of Common Stock by them
will be subject to the volume limitations of Rule 144 of the Securities Act,
without regard to whether they are otherwise legally obligated to comply with
such limitations. See "Shares Eligible for Future Sale" and "Underwriting."
DILUTION
Purchasers of the Common Stock in this Offering will experience immediate
and substantial dilution in net tangible book value per share of Common Stock
from the initial public offering price. See "Dilution."
12
<PAGE>
REORGANIZATION AND TERMINATION OF S CORPORATION STATUS
In connection with the consummation of the Offering, the following
transactions will be effected:
Merger of Predecessor Into Company. Prior to the consummation of the
Offering, the Predecessor will be merged with and into the Company, with the
Company being the surviving entity in the merger (the "Merger"). As part of
the Merger, the Predecessor's existing stockholders (the "Existing
Stockholders") will be issued 12.274 shares of the Company's Common Stock in
exchange for each outstanding share of the Predecessor's Common Stock.
Termination of S Corporation Status. Since 1990, the Company has been an S
corporation. Prior to the consummation of the Offering, however, the Company's
S corporation election will be terminated (the "S Corporation Termination").
As a result of the Company's S corporation status, since 1990 through the date
immediately preceding the date of the S Corporation Termination (the
"Termination Date"), the Company's earnings have been and will be taxed for
federal income tax purposes directly to the Existing Stockholders, rather than
to the Company. Other than a tax imposed on S corporations by the State of
California (currently 1.5% of income), state income taxes on earnings also
have been the responsibility of the Existing Stockholders. On the Termination
Date, the Company will become subject to federal and state corporate income
taxes. The Company paid an aggregate of $12.0 million in S corporation
distributions to the Existing Stockholders from January 1, 1993 through April
30, 1996.
Upon the S Corporation Termination, the Company will record deferred tax
assets on its balance sheet with a corresponding credit to its statement of
operations, which will ultimately increase retained earnings. The pro forma
deferred tax assets, relating to temporary differences in the carrying value
of certain assets for book and tax purposes, were approximately $0.8 million.
Prior to the closing of the Offering, the Company will declare a dividend
(currently estimated to aggregate $12.5 million) to the Existing Stockholders
representing all of the Company's S corporation "accumulated adjustments
account" remaining at that time (the "S Corporation Distribution"). An
estimate of the S Corporation Distribution will be paid immediately upon the
closing of the Offering out of the net proceeds thereof. Upon a final
reconciliation of the accumulated adjustments account through the Termination
Date, any remaining amount of the S Corporation Distribution will be paid.
Immediately prior to the Offering, the Company and the Existing Stockholders
will enter into a tax indemnification agreement (the "Tax Agreement") relating
to their respective income tax liabilities. Because the Company will be fully
subject to corporate income taxation after the S Corporation Termination, the
reallocation of income and deductions between the period during which the
Company was treated as an S corporation and the period during which the
Company will be subject to corporate income taxation may increase the taxable
income of one party while decreasing that of another party. Accordingly, the
Tax Agreement is intended to assure that taxes are borne by the Company on the
one hand and the Existing Stockholders on the other only to the extent that
such parties were taxable on the related income. The Tax Agreement generally
provides that, if an adjustment is made to the taxable income of the Company
for a year in which it was treated as an S corporation, the Company and the
Existing Stockholders will indemnify each other against any increase in the
indemnified party's income tax liability (including interest and penalties and
related costs and expenses) with respect to any tax year to the extent such
increase results in a related decrease in the income tax liability of the
indemnifying party for that year. The Company will also indemnify the Existing
Stockholders for all taxes imposed upon them as a result of their receipt of
an indemnification payment under the Tax Agreement, subject to a ceiling on
all indemnification payments equal to the decrease in the related income tax
liability of the Company. Any payment made by the Company to the Existing
Stockholders pursuant to the Tax Agreement may be considered by the Internal
Revenue Service or state taxing authorities to be non-deductible by the
Company for income tax purposes.
Termination of Patent License Fees. Prior to the Offering, William H.
Channell, Sr., the Company's Chairman of the Board, owned certain patents
utilized by the Company in its business (the "Channell Patents"), with respect
to which Mr. Channell, Sr. was entitled to receive license fees based upon the
sale of certain
13
<PAGE>
products embodying the Channell Patents. See "Certain Transactions." Upon
consummation of the Offering, retroactive to January 1, 1996, the Company will
purchase the Channell Patents from Mr. Channell, Sr. for aggregate
consideration of $3.1 million, which will be paid from the net proceeds of the
Offering to the Company. See "Use of Proceeds." As a result, retroactive to
January 1, 1996, the Company will own all of the Channell Patents, the license
fee arrangement between the Company and Mr. Channell, Sr. will be terminated
(the "License Fee Termination") and no license fees (including those accrued
during 1996 prior to the Offering) will be paid to Mr. Channell, Sr. or any
other person with respect to the Channell Patents. The purchase price paid by
the Company to Mr. Channell, Sr. for the Channell Patents was established
based upon an independent third party appraisal of the value of such patents.
As a result, the Company believes that the terms of these transactions
involving the Channell Patents are at least as favorable to the Company as
those that could be obtained from an independent third party.
Unless the context otherwise indicates, references in this Prospectus to the
"Termination of the Company's S Corporation Status" include the S Corporation
Termination, the S Corporation Distribution to the Existing Stockholders and
the License Fee Termination and payments to Mr. Channell, Sr. in connection
therewith.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are expected to be
approximately $32.1 million, assuming an initial public offering price of
$13.00 per share and after deducting estimated underwriting discounts and
commissions and expenses of the Offering. The Company currently intends to use
such proceeds as follows:
. Approximately $15.6 million to fund distributions and payments being
made in connection with the Termination of the Company's S Corporation
Status. See "Reorganization and Termination of S Corporation Status."
. Approximately $7.0 million to $10.0 million to fund new product
development, including capital expenditures for new plant and equipment
and related working capital requirements. New product development
initiatives being studied by the Company include additional products for
the CATV and telecommunications market, including product families and
components designed to complement the Company's existing product line.
. Approximately $3.5 million to repay bank indebtedness of the Company. As
of March 31, 1996, the Company's bank indebtedness consisted of
approximately $2.9 million of borrowings. It is expected that the
Company may incur additional indebtedness under its bank lines before
the closing of this Offering. All outstanding borrowings under the
Company's bank credit facilities were incurred for purposes of facility
expansion and new manufacturing equipment. Such indebtedness matures on
various dates currently extending through 2001 and bears interest at the
bank's reference rate plus 0.5%. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
. The remainder for general corporate purposes, which may include
expansion into new international markets, acquisitions of related
businesses or product lines and potential new facility construction in
addition to that currently underway.
The net proceeds to the Selling Stockholder are expected to be approximately
$4.8 million ($10.5 million if the Underwriters' over-allotment option is
exercised in full), assuming an initial public offering price of $13.00 per
share and after deducting estimated underwriting discounts and commissions.
The Company will not receive any proceeds from the sale of shares by the
Selling Stockholder.
DIVIDEND POLICY
The Company intends to retain future earnings to finance the growth and
development of its business and therefore does not anticipate declaring or
paying cash dividends on its Common Stock in the foreseeable future. The
Company's credit facilities also contain covenants that, under certain
circumstances, may limit its ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
14
<PAGE>
CAPITALIZATION
(amounts in thousands, except per share data)
The following table sets forth the capitalization of the Company (i) at
March 31, 1996, (ii) on a pro forma basis giving effect to the Termination of
the Company's S Corporation Status, and (iii) as adjusted to reflect the
issuance and sale of 2,700,000 shares of Common Stock by the Company, at an
assumed initial public offering price of $13.00 per share, and the application
of the estimated net proceeds therefrom. See "Use of Proceeds." The table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Financial
Statements and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
PRO AS
ACTUAL FORMA(1) ADJUSTED(2)
------- -------- ----------
<S> <C> <C> <C>
Long-term obligations (including current
maturities)................................... $ 2,883 $ 2,883 $ --
Stockholders' equity:
Preferred Stock, $.01 par value; 1,000,000
shares authorized;
none issued................................. -- -- --
Common Stock, $.01 par value; 19,000,000
shares authorized; 6,137,000 shares issued;
8,837,000 shares issued, as adjusted(3)..... 61 61 88
Additional paid-in capital................... 26 (2,543) 29,573
Retained earnings............................ 13,176 1,494 1,494
------- ------- -------
Total stockholders' equity................... 13,263 (988) 31,155
------- ------- -------
Total capitalization....................... $16,146 $ 1,895 $31,155
======= ======= =======
</TABLE>
- --------
(1) The pro forma adjustments set forth in this column give effect to the
Termination of the Company's S Corporation Status. See "Reorganization and
Termination of S Corporation Status" and notes (3) and (8) to "Selected
Historical, Pro Forma and Other Financial Information."
(2) Adjusted to reflect the sale of 2,700,000 shares of Common Stock by the
Company in the Offering and the application of the net proceeds therefrom.
(3) Excludes approximately 425,000 shares of Common Stock subject to stock
options to be issued to approximately 70 of the Company's employees and
directors under the Company's 1996 Incentive Stock Plan at the time of the
Offering with an exercise price equal to the public offering price per
share. These options become exercisable in three equal annual installments
beginning on the first anniversary of the date of issuance.
15
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1996 was $13.3
million, or $2.16 per share of Common Stock. Net tangible book value per share
of Common Stock represents the amount of the Company's total tangible assets
less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale of the 2,700,000 shares of Common
Stock offered by the Company in the Offering at an assumed initial public
offering price of $13.00 per share, net proceeds to the Company of $32.1
million and distributions and payments in connection with the Termination of
the Company's S Corporation Status, the pro forma net tangible book value of
the Company at March 31, 1996 would have been $31.2 million or $3.53 per share
of Common Stock. This represents an immediate increase in net tangible book
value of $3.91 per share of Common Stock to the Existing Stockholders and an
immediate dilution of $9.47 per share of Common Stock to new investors
purchasing Common Stock in the Offering, as illustrated in the following
table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $13.00
Net tangible book value per share before the Offering....... 2.16
Decrease attributable to Termination of the Company's S
Corporation Status......................................... (2.54)
Increase attributable to new investors...................... 3.91
-----
Pro forma net tangible book value per share after the
Offering..................................................... 3.53
------
Dilution in net tangible book value per share to new
investors.................................................... $ 9.47
======
</TABLE>
16
<PAGE>
SELECTED HISTORICAL, PRO FORMA AND OTHER FINANCIAL INFORMATION
(amounts in thousands, except per share data)
The following data should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and the notes thereto included in this Prospectus.
Data for the Company's fiscal years ended December 31, 1993, 1994 and 1995 are
derived from the Company's audited Financial Statements and the notes thereto
included in this Prospectus. Data for the Company's fiscal years ended
December 31, 1991 and 1992 and the three months ended March 31, 1995 and 1996
are derived from unaudited financial statements, which the Company believes
contain all necessary adjustments, consisting only of normal recurring
adjustments, necessary to present fairly, and in accordance with generally
accepted accounting principles, the Company's financial position and results
of operations for the periods presented. Financial results for the three
months ended March 31, 1995 and 1996 presented below are not necessarily
indicative of results of operations for a full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................... $15,893 $19,006 $23,713 $34,504 $40,972 $ 9,225 $ 10,279
Cost of goods sold...... 11,512 12,541 14,834 19,750 23,059 5,487 5,738
------- ------- ------- ------- ------- -------- ---------
Gross profit............ 4,381 6,465 8,879 14,754 17,913 3,738 4,541
Operating expenses
(income)
Selling................ 2,563 3,061 3,767 4,952 5,600 1,339 1,553
General and
administrative........ 911 1,095 1,100 1,445 1,707 448 370
License fees(1)........ 602 690 1,039 1,560 2,035 458 531
Research and
development........... -- 80 486 518 498 122 128
Commission income(2)... (473) (591) (686) (904) (1,098) (262) (230)
------- ------- ------- ------- ------- -------- ---------
3,603 4,335 5,706 7,571 8,742 2,105 2,352
------- ------- ------- ------- ------- -------- ---------
Income from operations.. 778 2,130 3,173 7,183 9,171 1,633 2,189
Interest expense ....... 236 240 166 156 339 90 65
------- ------- ------- ------- ------- -------- ---------
Income before income
taxes.................. 542 1,890 3,007 7,027 8,832 1,543 2,124
Income taxes............ 66 124 69 429 349 61 122
------- ------- ------- ------- ------- -------- ---------
Net income.............. $ 476 $ 1,766 $ 2,938 $ 6,598 $ 8,483 $ 1,482 $ 2,002
======= ======= ======= ======= ======= ======== =========
Pro forma net income(3). $ 296 $ 1,099 $ 1,816 $ 4,129 $ 5,377 $ 927 $ 1,279
Pro forma net income per
share(4)............... -- -- -- -- 0.72 -- 0.17
======= =========
Pro forma weighted
average shares
outstanding(4)......... -- -- -- -- 7,448 -- 7,448
OTHER DATA:
Gross margin(5)......... 27.6% 34.0% 37.4% 42.8% 43.7% 40.5% 44.2%
Operating margin(6)..... 4.9 11.2 13.4 20.8 22.3 17.7 21.3
EBITDA(7)............... $ 1,389 $ 2,785 $ 3,949 $ 8,255 $10,583 $ 2,048 $ 2,591
Capital expenditures.... 917 1,172 1,480 5,851 2,160 1,030 472
ADJUSTED FINANCIAL
DATA(8):
Sales (as historically
reported).............. $15,893 $19,006 $23,713 $34,504 $40,972 $ 9,225 $ 10,279
Adjusted EBITDA(9)...... 1,716 3,200 4,713 9,540 12,343 2,437 3,053
Adjusted income from
operations ............ 1,105 2,545 3,937 8,468 10,931 2,022 2,651
Adjusted operating
margin(10)............. 7.0% 13.4% 16.6% 24.5% 26.7% 21.9% 25.8%
Adjusted net income..... $ 492 $ 1,349 $ 2,274 $ 4,899 $ 6,431 $ 1,149 $ 1,555
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets.............. $4,342 $4,695 $5,068 $8,093 $8,502 $10,612 $10,004
Total assets................ 8,286 9,152 10,189 17,951 19,103 21,359 20,655
Long-term obligations
(including current
maturities)................ 3,292 2,415 1,018 3,684 3,213 4,279 2,883
Stockholders' equity........ 3,575 4,785 6,881 9,417 12,473 13,571 13,263
</TABLE>
17
<PAGE>
NOTES TO SELECTED HISTORICAL, PRO FORMA AND OTHER FINANCIAL INFORMATION
(amounts in thousands, except per share data)
(1) License fees represent the amounts paid by the Company to William H.
Channell, Sr., the Company's Chairman of the Board, for the use of the
Channell Patents. Upon consummation of the Offering, retroactive to
January 1, 1996, these patents will be transferred to the Company, the
license fee arrangement with Mr. Channell, Sr. will be terminated and the
Company will no longer pay any license fees with respect to the Channell
Patents (including those accrued during 1996 prior to the Offering). See
"Reorganization and Termination of S Corporation Status."
(2) Commission income represents the amount of commissions paid to the
Company by the manufacturer of certain cable-in-conduit products in
connection with the Company's sale of such products, which the Company
offers to its customers in order to complement its own product line.
(3) Prior to the Offering, the Company was an S corporation for federal and
state income tax purposes. The pro forma presentation reflects a
provision for income taxes as if the Company had always been a C
corporation, at an assumed effective tax rate of approximately 41% less
tax credits. Such presentation does not reflect the adjustments set forth
in note (8) below.
(4) Pro forma net income per share has been computed by dividing pro forma
net income by the pro forma weighted average shares outstanding. Pro
forma weighted average shares outstanding include 1,311 of the shares
offered hereby by the Company at an assumed price of $13.00 per share,
the net proceeds of which will be used to fund the distributions and
payments in connection with the Termination of the Company's S
Corporation Status. See "Reorganization and Termination of S Corporation
Status."
(5) Gross margin is gross profit as a percentage of sales.
(6) Operating margin is income from operations as a percentage of sales.
(7) EBITDA represents income from operations before interest and income
taxes, plus depreciation and amortization expense. EBITDA is not intended
to represent cash flow or any other measure of performance in accordance
with generally accepted accounting principles, but is included here
because management believes that certain investors find it to be a useful
tool for measuring a company's ability to service its debt.
(8) The adjusted financial data reflects, in addition to the pro forma
adjustments referred to in note (3) above, (i) the elimination of the
expense for the license fees payable to Mr. Channell, Sr., and related
income tax impact, which license fees are being terminated as part of the
Termination of the Company's S Corporation Status, and (ii) an increase
in Mr. Channell, Sr.'s annual base salary from $225 to $500 in connection
with the Offering. See "Reorganization and Termination of S Corporation
Status" and "Management--Employment Contracts."
(9) Adjusted EBITDA represents adjusted income from operations before
interest and income taxes, plus depreciation and amortization expense.
See note (7) above.
(10) Adjusted operating margin is adjusted income from operations as a
percentage of sales.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading designer, manufacturer and marketer of precision-
molded thermoplastic enclosures used by CATV operators and local telephone
companies worldwide. The Company was incorporated on April 23, 1996 as the
successor to the Predecessor, which is being merged into the Company in
connection with the Offering. All financial data contained herein with respect
to the Company include the financial data of the Predecessor.
Since 1990, the Company has been an S corporation for federal and state
income tax purposes. Prior to the Offering, however, the Company will change
in form from an S corporation to a C corporation. As an S corporation, the
Company's income, whether or not distributed, was taxed at the stockholder
level for federal income tax purposes. For California franchise tax purposes,
S corporations were taxed at 2.5% of taxable income in 1993 and 1.5% of
taxable income in 1994, 1995 and the first quarter of 1996. Currently, the top
federal tax rate for C corporations is 35% and the corporate tax rate in
California is 9.3%. As a result, the change in form will affect the earnings
and the cash flows of the Company by increasing the level of federal and state
income tax. The pro forma provision for income taxes in the accompanying
statements of income shows results as if the Company had always been a C
corporation and had adopted Statement of Financial Accounting Standards
No. 109 "Accounting for Income Taxes" prior to January 1, 1991. See
"Reorganization and Termination of S Corporation Status."
Upon consummation of the Offering, retroactive to January 1, 1996, the
Company will purchase the Channell Patents from William H. Channell, Sr., the
Company's Chairman of the Board. As a result, retroactive to January 1, 1996,
the license fee arrangement between the Company and Mr. Channell, Sr. with
respect to such patents will be terminated and no license fees will be made to
Mr. Channell, Sr. or any other party with respect to the Channell Patents.
Prior to the termination, a 10% license fee on the sale of certain products
utilizing the Channell Patents was payable to Mr. Channell, Sr. See "Certain
Transactions." During 1993, 1994, 1995 and the first quarter of 1996, the
license fees payable to Mr. Channell, Sr. were $1.0 million, $1.6 million,
$2.0 million and $0.5 million, respectively. The license fees accrued during
1996 prior to the Offering will not be paid in the event that the Offering is
consummated.
In connection with the Offering, the annual base salary of Mr. Channell, Sr.
will be increased from $225,000 to $500,000, and the annual base salary of
William H. Channell, Jr., the Company's President and Chief Executive Officer,
will be increased from $350,000 to $500,000, which amounts do not include any
bonuses that may be payable to such executive officers. See "Management--
Employment Contracts." In addition, the Company expects to incur additional
rent expense in 1996 and future periods when compared to prior periods due to
an addition to its facilities (see "Business--Properties") and additional
increases in compensation expense in 1996 when compared with prior periods due
to increased personnel, customary wage increases and the implementation of
management incentive programs described under "Management."
The Company's core business consists of enclosure product sales to the CATV
market, which comprised approximately 86% of the Company's total sales in each
of 1993, 1994 and 1995, with 33.1% of the Company's total sales in 1995
attributable to two CATV customers, TCI and Time Warner. See "Risk Factors--
Dependence on the Communications Industry."
The Company uses numerous raw materials in its manufacturing processes.
Although management believes that the Company has adequate sources of supply
for such raw materials, increases in the market prices of the Company's raw
materials could significantly increase the Company's cost of goods sold and
materially adversely affect the Company's profitability. See "Risk Factors--
Price Fluctuations of Raw Materials; Availability of Complementary Products."
The Company's profitability may also be materially adversely affected by
decreases in its sales volume because many of the costs associated with the
Company's rent, product development, engineering, tooling and other
manufacturing processes are fixed in nature and must be spread over its sales
base in order to maintain historic levels of profitability. See "Risk
Factors--Operating Leverage."
In addition to Company manufactured products, the Company markets
complementary products manufactured by third parties. With respect to sales of
cable-in-conduit products, the Company generally receives
19
<PAGE>
a commission upon the sale of such products. Pursuant to the agreement under
which the Company markets such products, during the term of such agreement and
for a period of two years thereafter, each of the Company and the manufacturer
of such products is prohibited from competing with the other in any product
line that is, or within the year prior to termination has been, represented,
manufactured or sold by the other within the specified market covered by the
Agreement.
Except for historical information contained herein, the matters discussed in
this Prospectus are forward-looking statements that are subject to certain
risks and uncertainties that could cause actual results to differ materially
from those set forth in such forward-looking statements. Such risks and
uncertainties include, without limitation, the Company's ability to develop
new products in response to technological, regulatory and competitive factors
affecting the communications industry, the impact on profitability of
increases in raw material prices or lower sales levels, increased competition
and the effect of changing economic conditions. For a discussion of certain
considerations relevant to an investment in the Common Stock, see "Risk
Factors."
RESULTS OF OPERATIONS
The following table sets forth the Company's operating results for the
periods indicated expressed as a percentage of sales. Results of operations
for the periods ended March 31, 1995 and 1996 are derived from unaudited
interim financial statements and are not necessarily indicative of results of
operations for a full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- --------------
1993 1994 1995 1995 1996
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Sales................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 62.6 57.2 56.3 59.5 55.8
Gross profit............................ 37.4 42.8 43.7 40.5 44.2
Selling................................. 15.9 14.4 13.7 14.5 15.1
General and administrative.............. 4.6 4.2 4.2 4.9 3.6
License fees............................ 4.4 4.5 5.0 4.9 5.2
Research and development................ 2.0 1.5 1.2 1.3 1.2
Commission income....................... (2.9) (2.6) (2.7) (2.8) (2.2)
Income from operations.................. 13.4 20.8 22.3 17.7 21.3
Interest expense........................ 0.7 0.4 0.8 1.0 0.6
Income before income taxes.............. 12.7 20.4 21.5 16.7 20.7
Pro forma income taxes(1)............... 5.0 8.4 8.4 6.6 8.2
----- ----- ----- ------ ------
Pro forma net income(1)................. 7.7% 12.0% 13.1% 10.1% 12.5%
===== ===== ===== ====== ======
Adjusted income from operations(2)...... 16.6% 24.5% 26.7% 21.9% 25.8%
</TABLE>
- --------
(1) Pro forma income taxes and pro forma net income have been determined
giving effect to the Termination of the Company's S Corporation Status.
See "Reorganization and Termination of S Corporation Status" and note (3)
to "Selected Historical, Pro Forma and Other Financial Information."
(2) Adjusted income from operations has been determined giving effect to the
transactions described in notes (3) and (8) to "Selected Historical, Pro
Forma and Other Financial Information."
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1995 WITH THE THREE MONTHS
ENDED MARCH 31, 1996
Sales. Sales increased $1.1 million or 11.4% from $9.2 million in the first
quarter of 1995 to $10.3 million in the first quarter of 1996. CATV sales
increased $1.2 million or 15.6% from $7.8 million in the first quarter of 1995
to $9.0 million in the first quarter of 1996 as a result of continued demand
for CATV outside plant products for network rebuild construction, upgrades and
expansion, particularly in the southeastern part of the United States.
Telecommunications sales decreased $0.1 million or 11.3% from $1.4 million in
the first quarter of 1995 to $1.3 million in the first quarter of 1996 as a
result of the severe weather conditions in the Northeast in the first three
months of 1996.
20
<PAGE>
Domestic sales increased $1.1 million or 13.6% from $8.3 million in the
first quarter of 1995 to $9.4 million in the first quarter of 1996.
International sales decreased $0.1 million or 8.3% from $0.9 million in the
1995 period to $0.8 million in the 1996 period, primarily as a result of a
customer's overstocking of product and a delay in planned network construction
by a large international customer resulting in a reduction of new sales.
Gross Profit. Gross profit increased $0.8 million or 21.5% from $3.7 million
in the first quarter of 1995 to $4.5 million in the first quarter of 1996.
Gross margin increased from 40.5% to 44.2% during the comparable periods. The
improvement in gross profit and gross margin was primarily due to a higher
margin mix of products sold in the 1996 period versus the 1995 period as well
as an overall increase in sales volume, which resulted in higher operating
leverage (i.e., a higher percentage of sales relative to fixed costs).
Selling. Selling expense increased $0.3 million or 16.0% from $1.3 million
in the first quarter of 1995 to $1.6 million in the first quarter of 1996,
primarily as a result of increased payroll and travel expenses in connection
with expanded marketing and sales activities. As a percentage of sales,
selling expense increased from 14.5% in the 1995 period to 15.1% in the 1996
period.
General and Administrative. General and administrative expenses were $0.4
million in both the first quarter of 1995 and 1996, but declined as a
percentage of sales from 4.9% in the 1995 period to 3.6% in the 1996 period as
a result of spreading such expenses over a larger sales base.
License Fees. License fees were approximately $0.5 million in both the first
quarter of 1995 and 1996, but increased as a percentage of sales from 4.9% in
the 1995 period to 5.2% in the 1996 period. License fees accrued during 1996
prior to the Offering will not be paid in the event that the Offering is
consummated, and no license fees will be paid thereafter.
Research and Development. Research and development expenses were $0.1
million in both the first quarter of 1995 and 1996. Research and development
expense is expected to be higher in the future in light of the Company's plans
for new product development following the Offering.
Commission Income. Commission income decreased $0.1 million or 12.2% from
$0.3 million in the first quarter of 1995 to $0.2 million in the first quarter
of 1996. The decrease resulted from lower sales volume of cable-in-conduit
products due to the severe winter weather conditions in the northeastern part
of the United States in the first three months of 1996.
Income From Operations. As a result of the items discussed above, income
from operations increased $0.6 million or 34.0% from $1.6 million in the first
quarter of 1995 to $2.2 million in the first quarter of 1996, and operating
margin increased from 17.7% to 21.3%. After giving effect to the transactions
described in notes (3) and (8) to "Selected Historical, Pro Forma and Other
Financial Information," adjusted income from operations increased $0.7 million
or 31.1% from $2.0 million in the first quarter of 1995 to $2.7 million in the
first quarter of 1996.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1994 WITH THE YEAR ENDED DECEMBER
31, 1995
Sales. Sales increased $6.5 million or 18.8% from $34.5 million in 1994 to
$41.0 million in 1995. CATV sales increased $5.7 million or 19.2% from $29.7
million in 1994 to $35.4 million in 1995, principally due to continued demand
for CATV outside plant products for network rebuild construction, upgrades and
expansion, as well as new product introductions to meet higher performance
requirements of certain CATV customers. Telecommunications sales increased
$0.8 million or 15.7% from $4.8 million in 1994 to $5.6 million in 1995, due
to the completion of field testing of products for sale to certain
telecommunications customers permitting sales of products in quantity to those
customers. Telecommunications sales also benefited from the trend toward
convergence of the CATV and telecommunications markets, as local telephone
company customers increased services relating to video and data transmission
and internet access.
21
<PAGE>
Domestic sales increased $5.0 million or 16.6% from $29.9 million in 1994 to
$34.9 million in 1995, principally due to the factors affecting CATV sales
summarized above. International sales increased $1.5 million or 33.2% from $4.6
million in 1994 to $6.1 million in 1995, mainly due to new CATV network
construction by certain Pacific Rim and European customers.
Gross Profit. Gross profit increased $3.2 million or 21.4% from $14.8 million
in 1994 to $17.9 million in 1995. Gross margin increased from 42.8% in 1994 to
43.7% in 1995. The Company's improvement in gross profit and gross margin was
primarily due to a higher margin mix of products sold as well as an overall
increase in sales volume, which resulted in higher operating leverage.
Selling. Selling expense increased $0.6 million or 13.1% from $5.0 million in
1994 to $5.6 million in 1995, primarily as a result of higher compensation,
shipping and marketing related expenses. As a percentage of sales, selling
expense declined from 14.4% in 1994 to 13.7% in 1995 as a result of spreading
certain fixed selling expenses over a larger sales base.
General and Administrative. General and administrative expenses increased
$0.3 million or 18.1% from $1.4 million in 1994 to $1.7 million in 1995,
primarily as a result of higher compensation expense in connection with staff
increases. As a percentage of sales, general and administrative expense was
4.2% during 1994 and 1995.
License Fees. License fees increased $0.4 million or 30.4% from $1.6 million
in 1994 to $2.0 million in 1995 as a result of an increase in sales of products
subject to patent license fee arrangements relating to the Channell Patents.
Research and Development. Research and development expenses were $0.5 million
in both 1994 and 1995, but declined as a percentage of sales from 1.5% in 1994
to 1.2% in 1995.
Commission Income. Commission income increased $0.2 million or 21.5% from
$0.9 million in 1994 to $1.1 million in 1995, due to higher sales of cable-in-
conduit products.
Income From Operations. As a result of the items discussed above, income from
operations increased $2.0 million or 27.7% from $7.2 million in 1994 to $9.2
million in 1995, and operating margin increased from 20.8% to 22.3%. After
giving effect to the transactions described in notes (3) and (8) to "Selected
Historical, Pro Forma and Other Financial Information," adjusted income from
operations increased $2.5 million or 29.1% from $8.5 million in 1994 to $10.9
million in 1995.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1993 WITH THE YEAR ENDED DECEMBER 31,
1994
Sales. Sales increased $10.8 million or 45.5% from $23.7 million in 1993 to
$34.5 million in 1994. CATV sales increased $9.3 million or 45.7% from $20.4
million in 1993 to $29.7 million in 1994 as a result of the CATV technology
changes referred to above. Telecommunications sales increased $1.5 million or
45.5% from $3.3 million in 1993 to $4.8 million in 1994, principally as a
result of the completion of field testing of products for certain customers,
permitting sales of the products in quantity to those customers.
Domestic sales increased $9.6 million or 47.5% from $20.3 million in 1993 to
$29.9 million in 1994, largely due to changes in broadband technology, which
generated an increase in CATV network rebuilds to convert to 750 MHz systems.
International sales increased $1.2 million or 33.9% from $3.4 million in 1993
to $4.6 million in 1994, as a result of a new marketing arrangement with a
strategic partner in Canada and related increased marketing efforts in that
market in 1994.
Gross Profit. Gross profit increased $5.9 million or 66.2% from $8.9 million
in 1993 to $14.8 million in 1994. Gross margin increased from 37.4% to 42.8%.
The Company's improvement in gross profit and gross margin was primarily due to
a higher margin mix of products sold as well as an overall increase in sales
volume, which resulted in higher operating leverage.
22
<PAGE>
Selling. Selling expense increased $1.2 million or 31.6% from $3.8 million
in 1993 to $5.0 million in 1994, primarily as a result of higher sales
commissions and expenses relating to trade shows, shipping and computer
software. As a percentage of sales, selling expense declined from 15.9% in
1993 to 14.4% in 1994 as a result of spreading certain fixed selling expenses
over a larger sales base.
General and Administrative. General and administrative expenses increased
$0.3 million or 31.4% from $1.1 million in 1993 to $1.4 million in 1994,
primarily as a result of higher profit sharing plan contribution and
consulting expenses. As a percentage of sales, general and administrative
expenses declined from 4.6% in 1993 to 4.2% in 1994 as a result of spreading
the fixed portion of these expenses over a larger sales base.
License Fees. License fees increased $0.6 million or 50.1% from $1.0 million
in 1993 to $1.6 million in 1994, as a result of an increase in sales of
products subject to patent license fee arrangements relating to the Channell
Patents.
Research and Development. Research and development expenses were
approximately $0.5 million in both 1993 and 1994, but declined as a percentage
of sales from 2.0% in 1993 to 1.5% in 1994.
Commission Income. Commission income increased $0.2 million or 31.7% from
$0.7 million in 1993 to $0.9 million in 1994, due to higher sales of cable-in-
conduit products.
Income From Operations. As a result of the items discussed above, income
from operations increased $4.0 million or 126.4% from $3.2 million in 1993 to
$7.2 million in 1994, and operating margin increased from 13.4% to 20.8%.
After giving effect to the transactions described in notes (3) and (8) to
"Selected Historical, Pro Forma and Other Financial Information," adjusted
income from operations increased $4.5 million or 115.1% from $3.9 million in
1993 to $8.5 million in 1994.
QUARTERLY RESULTS OF OPERATIONS
Set forth below is certain unaudited quarterly financial information. The
Company believes that all necessary adjustments, consisting only of normal
recurring adjustments, have been included in the amounts stated below to
present fairly, and in accordance with generally accepted accounting
principles, the selected quarterly information when read in conjunction with
the Financial Statements included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDING
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
------------------------------- ------------------------------- -----------------
1ST 2ND 3RD 4TH 1ST 2ND 3RD 4TH 1ST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
------- ------- ------- ------- ------- ------- ------- ------- -----------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $7,134 $9,219 $9,902 $8,249 $9,225 $11,784 $10,758 $9,205 $10,279
Gross profit............ 2,998 4,116 4,028 3,612 3,738 5,387 4,534 4,254 4,541
Income from operations.. 1,356 2,322 2,004 1,501 1,633 3,005 2,577 1,956 2,189
Income before income
taxes.................. 1,335 2,286 1,961 1,445 1,543 2,887 2,486 1,916 2,124
</TABLE>
Historically, the Company has experienced lower sales in the first and
fourth quarters due to adverse weather conditions that may affect the timing
of orders from customers and create seasonal fluctuations in demand. See "Risk
Factors--Seasonality and Fluctuations in Operating Results; Limited Backlog."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures through
internally generated funds and bank borrowings. Net cash provided by operating
activities was $6.2 million and $9.8 million in 1994 and 1995, respectively.
Net cash provided by financing activities was $0.4 million in 1994, and net
cash used in financing activities was $7.0 million in 1995.
23
<PAGE>
Net cash provided by operating activities was $0.7 million and $0.9 million
for the three months ended March 31, 1995 and 1996, respectively. Net cash
provided by financing activities was $0.1 million for the three months ended
March 31, 1995, and net cash used in financing activities was $1.4 million for
the three months ended March 31, 1996.
The Company made capital expenditures of $5.9 million and $2.2 million in
1994 and 1995, respectively. The Company anticipates making capital
expenditures in 1996 of approximately $4.0 million, primarily relating to
machinery in connection with its expanded facility, material handling, test
equipment, product tooling and MIS.
The Company currently maintains a revolving credit facility (as amended to
date, the "Revolving Credit Facility") with Bank of America National Trust and
Savings Association ("Bank of America"), consisting of (i) a $3.25 million
working capital revolving line of credit, which had no outstanding balance at
March 31, 1996, and (ii) a $4.3 million equipment revolving line of credit and
standby letter of credit facility, which had an outstanding balance of $2.1
million at March 31, 1996. Loans under the working capital line bear interest
at Bank of America's reference rate and mature on May 31, 1996, while loans
under the equipment line bear interest at Bank of America's reference rate
plus 0.5% and are repayable in sixty equal monthly installments of principal
and interest commencing in the first month after issuance of each loan.
Availability of advances under the revolving credit facility expires on May
31, 1996. However, the Company is currently negotiating with Bank of America
for a new revolving credit facility that will refinance its outstanding
indebtedness under the existing Revolving Credit Facility and provide for
credit lines comparable to those under the existing Revolving Credit Facility
with advances available through May 31, 1997. The Company anticipates that
such new revolving credit facility will be consummated prior to the closing of
the Offering.
The Company also has a non-revolving, $1.0 million line of credit (the "Non-
Revolving Line of Credit") with Bank of America for purposes of leasehold
improvements and facility expansion. Availability of advances under this line
of credit expired on August 31, 1994, at which time the line of credit was
fully drawn. As of March 31, 1996, the outstanding principal balance under
such facility was $0.8 million. The Non-Revolving Line of Credit bears
interest at Bank of America's reference rate plus 0.5% and is repayable in 72
equal monthly installments that commenced on October 1, 1994.
The Revolving Credit Facility and the Non-Revolving Line of Credit contain
various covenants that are customary in agreements of this nature, including
certain financial ratios and covenants, and are collateralized by accounts
receivable, inventory, the equipment financed by the Bank of America and
certain other items of personal property. Under certain circumstances,
covenants contained in such facilities may limit the Company's ability to pay
dividends. See "Dividend Policy."
24
<PAGE>
BUSINESS
GENERAL
The Company is a leading designer, manufacturer and marketer of precision-
molded thermoplastic enclosures used by CATV operators and local telephone
companies worldwide. The Company believes it was the first to design,
manufacture and market thermoplastic enclosure products for use in the
communications industry on a wide scale. The Company's products house, protect
and provide access to advanced telecommunications electronics and transmission
media, including coaxial cable, copper wire and optical fibers, used in the
delivery of CATV and telephone services. The products are deployed within the
portion of the local signal delivery network, commonly known as the "outside
plant," that connects the network provider's signal origination office with
residences and businesses. The Company also markets a variety of complementary
products manufactured by third parties, including grade level boxes and cable-
in-conduit, in order to provide a full system solution to meet its customers'
outside plant requirements. For a definition of certain terms used herein, see
"Glossary of Terms" on page G-1 hereof.
INDUSTRY
For more than five years, the communications industry has experienced rapid
expansion, both domestically and internationally, in response to a number of
factors, including developments in high-speed communications technologies, the
convergence occurring within the CATV and telecommunications industries,
consumer demand for enhanced communications services, and a changing
regulatory and competitive environment leading to the deregulation or
privatization of signal delivery operations in many markets. For numerous
countries throughout the world, the implementation or improvement of advanced
communications systems has become a national priority in order to enable such
countries to participate in the information-based global economy.
CATV and local telephone operators are responding to these changes in the
industry by expanding, rebuilding and upgrading their signal delivery networks
in order to deliver enhanced communications services to their customers. These
networks are designed to deliver video, voice and data transmissions and
provide internet access to individual residences and businesses. The networks
employ a variety of signal delivery technologies and architectures, including
HFC, DLC, FTTC and ADSL (see "Glossary of Terms"), which generally carry
broadband and narrowband signals over a combination of electronic hardware,
coaxial cable, copper wire and optical fibers. The outside plants of such
networks include various access devices, fiber optic trunks, nodes and feeders
and other signal transmission electronics. These devices are required to be
housed in secure, protective enclosures, such as those manufactured by the
Company. The diagram below depicts a typical signal delivery network,
consisting of a signal origination office, the outside plant and the end user:
[Diagram depicting signal origination office, the outside plant and the end
user]
25
<PAGE>
Enclosure products are critical components of the outside plants of CATV
operators and local telephone companies, providing protection against weather
and vandalism, access for technicians who maintain and manage the outside
plant and, in some cases, dissipation of heat created by active electronic
hardware. CATV operators and local telephone companies rely significantly on
manufacturers of protective enclosures because any material damage to the
signal delivery networks is likely to disrupt communication services.
Demand for enclosures in the communications industry depends primarily on
the construction, rebuilding, upgrading and maintenance of signal delivery
networks by CATV operators and local telephone companies. In particular,
technological developments in the communications industry are resulting in
significant increases in system upgrades. For example, within the CATV segment
of the industry, networks are being upgraded to support new advanced two-way
services, including internet access via cable modems, telephony and PCS
transport. Within the local telephone company segment of the industry, local
telephone operators are employing new advanced technologies, such as HDSL and
ADSL, which utilize traditional copper wires for broadband services and which
are expected to increase the need for fully sealed outside plant facilities in
order to improve network reliability and longevity. In addition, as local
telephone companies build broadband HFC networks for the delivery of video
services competitive with CATV, they are expected to require products
traditionally used by CATV operators. These and other technological,
regulatory and competitive factors are expected to result in continued growth
of the market for enclosure products designed for the communications industry.
BUSINESS STRATEGY
The Company's strategy is to capitalize on opportunities in the growing and
changing global communications industry by providing enclosures and
complementary products to meet the needs of its customers' evolving
communications networks. The Company's wide range of products, manufacturing
expertise, application-based sales and marketing approach and reputation for
high quality products address key requirements of its customers. Principal
elements of the Company's strategy include the following:
CONTINUE TO FOCUS ON CORE CATV BUSINESS. The Company intends to capitalize
on its position as a leading designer, manufacturer and marketer of broadband
enclosures for the CATV industry in the United States and Canada through new
product development for both domestic and international market applications.
The Company has positioned itself to participate in continued CATV network
construction and upgrades that are designed to improve service quality and
expand network capacity in order to prepare CATV operators for new competition
in the broadband services market. These expansions and upgrades will enable
CATV operators to accommodate increased consumer demand for internet access
via cable modem, telephony and enhanced video services. From 1993 to 1995, the
Company's sales to the CATV industry increased from $20.4 million to $35.4
million, representing a compounded annual growth rate of 31.7%.
INCREASE SALES TO LOCAL TELEPHONE COMPANIES. The Company seeks to leverage
its in-depth knowledge of, and expertise in, the broadband telecommunications
and telephone markets to provide innovative enclosure solutions for the
telephone industry. From 1993 to 1995, the Company's sales to local telephone
companies increased from $3.3 million to $5.6 million, representing a
compounded annual growth rate of 29.7%. The Company intends to continue to
invest in the development of a broader range of products designed specifically
for telephone market applications. The Company has already achieved
significant success in marketing its traditional CATV/broadband products to
local telephone companies which have been designing and deploying broadband
networks to deliver competitive video and data services. The Company will
continue to target this market for growth.
EXPAND INTERNATIONAL PRESENCE. Management believes that international
markets offer significant opportunities for increased sales in both the CATV
and telephone segments. The Company's principal international markets
currently consist of Canada, South America, the Pacific Rim, the Middle East
and Europe. From 1993 to 1995, the Company's international sales increased
from $3.4 million to $6.1 million, representing a compounded annual growth
rate of 34.4%. Trends expected to result in international growth opportunities
include the deregulation and privatization of telecommunications in many
international markets, the focus of
26
<PAGE>
numerous countries on building, expanding and enhancing their communications
systems in order to participate fully in the information-based global economy,
and multi-national expansion by many U.S.-based network carriers. The Company
will concentrate on expansion in international markets that are characterized
by deregulation or privatization of telecommunications and the availability of
capital for the construction of signal delivery networks. See note M of the
notes to the Company's Financial Statements included elsewhere in this
Prospectus for financial data of the Company by geographic region of
operation.
DEVELOP NEW PRODUCTS AND ENTER NEW BUSINESS SEGMENTS. The Company continues
to leverage its core capabilities by developing innovative products that meet
the changing needs of its customers. The Company has a proven record in
designing, developing and manufacturing "next generation" products that
provide solutions for its customers and offer differential advantages over
other suppliers to the industry. In addition, the Company will seek to
diversify its customer base by developing new products for customers outside
the communications industry that require enclosure products, such as the
utility industry.
PRODUCTS
The Company manufactures precision-molded, highly engineered thermoplastic
enclosures that are considered state-of-the-industry for many applications.
The majority of the Company's products are specifically designed for buried
and underground network architectures, including enclosures that provide
technicians with access to these networks for maintenance, upgrades and
installation of new services. These types of networks and enclosures are
generally preferred by the Company's customers due to increased network
reliability, lower maintenance requirements, improved security, utility right
of way issues and aesthetic appeal. Enclosure products for these networks must
be secure, durable and aesthetically pleasing and often provide advanced heat
dissipation characteristics required for active electronics. The Company also
manufactures products that are flush-to-grade and buried, requiring
environmental sealing and load-bearing capabilities. The majority of the
Company's products are constructed of thermoplastic and fitted with metal
frameworks, fasteners and locking mechanisms. The Company also designs and
manufactures a series of termination blocks, brackets and cable management
devices that are mounted inside its enclosure products. The Company is
recognized for its differentiated product designs and the functionality, field
performance and service life of its products as compared with alternative
products.
In order to position itself as a full-line product supplier, the Company
also offers a variety of complementary products, including grade level boxes
and cable-in-conduit. These products are typically purchased by customers as
part of a system package and are sold by the Company through marketing
arrangements with original equipment manufacturers ("OEMs"). The Company seeks
strategic alliances with these OEMs that generally include technical
information exchanges that are used by the Company in the development of new
products and enhancements to existing designs. The Company has established
additional relationships with system integrators and innovative end users.
27
<PAGE>
The Company currently markets 35 enclosure product families, with numerous
options that result in several thousand product configurations. The diagram
below depicts the location of the Company's products in typical outside plants
of CATV operators and local telephone companies:
[Diagram depicting the location of the Company's products
in typical outside plants of CATV and local telephone operators]
The primary functions of the Company's products designed for the CATV
industry are cable routing and management, equipment access, heat dissipation
and security. The Company believes that it offers the broadest line of
enclosure products for use in the CATV industry. In addition to being widely
deployed by CATV operators, these products are also now being approved for use
by a number of telephone companies that are adding fiber optic and broadband
functionality to their networks. The Company anticipates demands for the CATV
product line to result from continued construction of broadband networks and
upgrades of existing CATV networks to accommodate enhanced video services,
internet access via cable modems and wireless PCS transport.
The Company also specializes in the manufacture of products designed to meet
the needs of its local telephone company customers, including sealed plant
products. These products include a sealed chamber to provide environmental
protection for copper wires, coaxial cable and optical fibers that have been
exposed for purposes of splicing and termination. The Company's sealed plant
products feature a mechanical sealing system which, unlike many competitors'
products, does not require gels, compounds or heat shrink to create and
maintain the required seal. This system provides significant value to users in
terms of faster installations, repeat access and elimination of excessive
components and the need for special tools.
28
<PAGE>
Historically, the Company's sealed plant products have been deployed in
areas characterized by severe flooding, moisture and corrosion problems.
Recently, some telephone companies have adopted a complete sealed plant
strategy designed to enhance the reliability of their networks, reduce
maintenance costs and extend the service life of their copper-based systems.
In addition, management expects that demand for sealed plant products may
result from new transmission technologies that enhance the capabilities and
capacity of existing copper networks, such as HDSL and ADSL, which support
high-speed data, video and internet access over existing copper wires. As a
result of these technologies, it is anticipated that network operators may
seek to upgrade their copper wire facilities in order to improve reliability
and performance. The Company's sealed plant products are well suited for such
applications.
The Company continues to review new products to complement its existing
product line and marketing strengths. New product development initiatives
being studied by the Company include additional products for the CATV and
local telephone markets as well as new products for customers in industries
outside of the communications industry, such as the utility industry. See
"Business Strategy" and "Product Development and Engineering."
MARKETING AND SALES
The Company markets its products primarily through a direct sales force of
21 technically trained salespeople and over 25 independent sales distributors
and manufacturers representatives as of March 31, 1996. The Company's sales
force is based in North America and select international markets and is
divided into three groups covering domestic CATV customers, domestic
telecommunications customers and international customers. The Company employs
an application-based, system approach to marketing its products, offering the
customer, where appropriate, a complete, cost-effective system solution to
meet its enclosure and other outside plant requirements. All sales personnel
have technical expertise in the products they market and are assisted by the
Company's engineering and technical marketing specialists in designing these
system solutions.
The Company's direct sales force is supported by a sales/customer service
department that administers and schedules incoming orders, requests for
product enhancements and service inquiries. This department has locations in
Temecula, California, Canada and the United Kingdom, and maintains direct
communications with customers and the Company's field sales and operations
personnel. As of March 31, 1996, the Company employed eight people in its
sales/customer service department.
The sales force receives additional support from the Company's technical and
product marketing department. The field technical service personnel within
this department work closely with the sales staff and customers to develop
system solutions and provide a full range of technical support, training and
certification for users of the Company's products. The product marketing
personnel within this department perform a variety of functions, including
product line management and general marketing services. These individuals also
provide the Company with strategic plans for product development, new market
access, acquisitions and strategic alliances and work closely with the
Company's sales, engineering and manufacturing departments to implement such
strategic plans. As of March 31, 1996, the Company employed ten people in its
technical and product marketing department.
The marketing department also promotes and positions the Company both
domestically and internationally by performing functions relating to public
relations, product literature, market research and advertising. The Company
participates regularly in industry trade shows and exhibits for the CATV and
local telephone markets.
MANUFACTURING OPERATIONS
The Company's products are manufactured at its facility in Temecula,
California. The Company's vertically integrated and modern manufacturing
processes enable the Company to control each step in the manufacturing
process, including product design and engineering; design and development of
its own dies, tools and molds; and wiring, assembly and packaging. The
Company's manufacturing expertise enables it to tailor its products to satisfy
customer demands, rapidly and efficiently produce large volumes of products,
control expenses and ensure
29
<PAGE>
product quality. Management considers the Company's manufacturing expertise a
significant competitive advantage, providing it with the ability to satisfy
the requirements of major customers with relatively short lead-times and
reduce backlog by promptly booking and shipping orders.
The Company's Temecula facility contains approximately 160,000 square feet
of manufacturing, warehouse and office space designed and constructed
specifically to the Company's requirements. An adjacent 100,000 square foot
building is also being constructed and expected to be completed in June, 1996.
This building is intended to enhance manufacturing efficiency, increase
warehouse space and enable the Company to increase manufacturing capacity as
required. In 1996, the Company is expected to be awarded ISO 9000
certification, a worldwide industry standards certification, with respect to
its manufacturing facility. Management has followed a long-term capacity plan,
adding the equipment, facilities and trained personnel required to support
anticipated growth of the Company's business. As a result, management believes
that the Company's manufacturing facility is adequate to meet anticipated
product demand for the foreseeable future.
The Company owns its manufacturing equipment, which is generally state-of-
the-industry, and all manufacturing processes are performed by trained Company
personnel. The Company's broad range of manufacturing processes includes
injection molding, structural foam molding, rotational molding, metal
fabrication, rubber injection, transfer and compression molding, and
termination block fabrication. The Company has implemented several quality and
process assurance programs, including continuous monitoring of key processes
and regular product inspection and testing. The Company is committed to the
production of the highest quality products.
PRODUCT DEVELOPMENT AND ENGINEERING
The Company believes it was the first to design, manufacture and market
thermoplastic enclosure products for use in the communications industry on a
wide scale. Since the original introduction of its products, the Company has
continued to design all of its own products and develop core capabilities in
product engineering and development. As a result, in response to demands of
the communications industry for increasingly sophisticated enclosure products,
the Company has been able to develop a series of products with superior
environmental sealing and protection and heat dissipation, easy access for
technicians, compatibility with a variety of signal delivery network
architectures and versatility to accommodate network growth. Many of the
Company's thermoplastic enclosure products are now considered state-of-the-
industry and are often used to replace enclosure products constructed of sheet
metal and other materials that previously had been the industry standard.
The Company's new product development philosophy is applications based and
customer driven, focusing on the complete design cycle from product concept
through tooling and high-volume manufacturing. A team comprised of
engineering, marketing, manufacturing and direct sales personnel work together
to define, develop and deliver complete system solutions to customers. The
Company is equipped to conduct many of its own product testing procedures for
performance qualification purposes, enabling it to accelerate the product
development process.
As of March 31, 1996, the Company employed 13 people in its product
development and engineering department. In each of 1993, 1994 and 1995, the
Company spent approximately $0.5 million on research and development. The
Company intends to continue to invest in new product development, including
plans to use approximately $7.0 million to $10.0 million of the net proceeds
of the Offering for this purpose.
CUSTOMERS
The Company sells its products directly to CATV operators and telephone
companies throughout the United States, Canada and certain other international
markets, principally developed nations. During 1995, the Company shipped
products to more than 4,000 customer locations, and its five largest customers
accounted for 47.9% of total sales. In 1995, the Company's five largest
customers (by sales volume) were, in the United States,
30
<PAGE>
BellSouth, Comcast, Continental Cablevision, TCI and Time Warner, and in
international markets, Bricast (Australia), Cablenet (Canada), Cable Systems
Media (Israel), Rogers Communications (Canada) and Shaw Cable (Canada). Two
customers, TCI and Time Warner, accounted for 17.5% and 15.6%, respectively,
of the Company's sales in 1995.
INTELLECTUAL PROPERTY
Following consummation of the Offering, the Company will own all of the
patents and other technology employed by it in the manufacture and design of
its products. See "Reorganization and Termination of S Corporation Status."
The Company's patents, which expire between 1996 and 2010, cover various
aspects of the Company's products. In addition, the Company has certain trade
secrets, know-how and trademarks related to its technology and products.
Management does not believe that any single patent or other intellectual
property right is material to the Company's success as a whole. The Company
intends to maintain an intellectual property protection program designed to
preserve its intellectual property assets.
COMPETITION
The industries in which the Company operates are highly competitive. See
"Risk Factors--Competition." The Company believes, however, that several
factors, including its ability to service national and multi-national
customers, direct sales force, focus on enclosure products, specialized
engineering resources and vertically integrated manufacturing operations,
provide the Company with a competitive advantage. Management believes that the
principal competitive factors in the communications equipment market are
product availability, customer service, product performance, new product
capabilities and price. Competitive price pressures are common in the
industry, and long term contracts with major customers are pursued to minimize
the effects of competitive pricing. In the past, the Company has responded to
these pressures effectively with cost control through vertical integration
utilizing advanced manufacturing techniques, cost-effective product designs
and material selection and an aggressive procurement philosophy. In addition,
in the past, certain of the Company's telecommunications customers have
required relatively lengthy field testing of new products prior to purchasing
such products in quantity. In connection with the deregulation of the
telecommunications segment and the related convergence occurring within the
CATV and telecommunications industries, it is uncertain whether and the extent
to which such field testing will continue to be required. While field testing
can delay the introduction of new products, it can also act as a competitive
advantage in that it makes new product introduction and sales by competitors
more difficult.
RAW MATERIALS; AVAILABILITY OF COMPLEMENTARY PRODUCTS
The principal raw materials used by the Company are thermoplastic resins,
neoprene rubbers, hot and cold rolled steel, stainless steel and copper. The
Company also uses certain other raw materials, such as fasteners, packaging
materials and communications cable. Management believes the Company has
adequate sources of supply for the raw materials used in its manufacturing
processes and attempts to develop and maintain multiple sources of supply for
raw materials in order to help ensure the availability and competitive pricing
of these materials.
Most plastic resins are purchased under annual and multi-year contracts to
help stabilize cost and improve supplier delivery performance. Neoprene
rubbers are manufactured by multiple custom compounders using the Company's
proprietary formulas. Metal products are supplied in standard stock shapes,
coils and custom rollforms. All hot and cold rolled steels are either hot
dipped galvanized or zinc or cadmium electro-plated, which coating operations
are conducted by local outside processors.
In addition, in order to position itself as a full-line product supplier,
the Company also relies on certain manufacturers to supply products that
complement the Company's own product line, such as grade level boxes and
cable-in-conduit. The Company believes there are multiple sources of supply
for these products.
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<PAGE>
EMPLOYEES
As of March 31, 1996, the Company employed 245 people (including 29
temporary employees), of whom 40 were in sales, 189 were in manufacturing
operations (including the 29 temporary employees) and 16 were in finance and
administration. The Company considers its employee relations to be good, and
it recognizes that its ability to attract and retain qualified employees is an
important factor in its growth and development. None of the Company's
employees is subject to a collective bargaining agreement, and the Company has
not experienced any material business interruption as a result of labor
disputes within the past five years.
PROPERTIES
The Company occupies approximately 160,000 square feet of manufacturing,
warehouse and office space in Temecula, California, which is leased from
William H. Channell, Sr., the Company's Chairman of the Board. See "Certain
Transactions" and "Risk Factors--Disruptions at the Company's Manufacturing
Facilities; Lease With Related Party." The lease term for this facility
extends through 2005, and the Company has two five-year renewal options to
extend the term to 2015. An adjacent 100,000 square foot building is also
being constructed and is expected to be completed in June, 1996. This building
is also being leased from Mr. Channell, Sr. through 2005, with two five-year
renewal options to extend the term to 2015. See "Manufacturing Operations."
Rental expense in 1996 under the Company's existing facility in Temecula,
California is expected to be $650,000. Rental expense on the addition is
expected to commence upon completion of construction at an annual rate of
$420,000. The Company also leases an aggregate of approximately 40,000 square
feet of warehouse and regional sales office space in California, North
Carolina, Canada and the United Kingdom. The Company considers its current
facilities to be adequate for its operations.
REGULATION
The communications industry is subject to regulation in the United States
and other countries. Federal and state regulatory agencies regulate most of
the Company's domestic customers. On February 1, 1996, the United States
Congress passed the Telecommunications Act, which the President signed into
law on February 8, 1996. The Telecommunications Act lifts certain restrictions
on the ability of companies, including RBOCs and other customers of the
Company, to compete with one another and generally reduces the regulation of
the communications industry. Although the Company believes that the
deregulation of the communications industry may increase the Company's
opportunities to provide solutions for its customers' signal transmission
network needs, the effect of the Telecommunications Act on the market for the
Company's products is difficult to predict at this time.
The Company is also subject to a wide variety of federal, state and local
environmental laws and regulations. The Company utilizes, principally in
connection with its thermoplastic manufacturing processes, a limited number of
chemicals which are classified as hazardous or similar substances. It is
difficult to predict what impact these environmental laws and regulations may
have on the Company in the future. Restrictions on chemical uses or certain
manufacturing processes could restrict the ability of the Company to operate
in the manner that it currently operates or is permitted to operate.
Management believes that the Company's operations are in compliance in all
material respects with current environmental laws and regulations.
Nevertheless, it is possible that the Company may experience releases of
certain chemicals to environmental media which could constitute violations of
environmental law (and have an impact on its operations) or which could cause
the incurrence of material cleanup costs or other damages. For these reasons,
the Company might become involved in legal proceedings involving exposure to
chemicals or the remediation of environmental contamination from past or
present operations. Because certain environmental laws impose joint, several,
strict and retrospective liability upon current owners or operators of
facilities from which there have been releases of hazardous substances, the
Company could be held liable for remedial measures or other damages (such as
liability for personal injury actions) at properties it owns or utilizes in
its operations, even if the contamination was not caused by the Company's
operations. See "Risk Factors--Environmental Matters."
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<PAGE>
LITIGATION
The Company is from time to time involved in ordinary routine litigation
incidental to the conduct of its business. The Company regularly reviews all
pending litigation matters in which it is involved and establishes reserves
deemed appropriate for such litigation matters. Management believes that no
presently pending litigation matters will have a material adverse effect on
the Company's financial statements taken as a whole or on its results of
operations.
BACKGROUND
The Company was incorporated in Delaware on April 23, 1996, as the successor
to the Predecessor. The Company's executive offices are located at 26040 Ynez
Road, Temecula, California 92591-9022, and its telephone number at that
address is (909) 694-9160.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the Company's
executive officers and directors and their ages as of March 31, 1996.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<C> <C> <S>
William H. Channell, Sr. ........... 68 Chairman of the Board
William H. Channell, Jr. ........... 38 President, Chief Executive Officer
and Director
Gary W. Baker....................... 52 Chief Financial Officer
Andrew M. Zogby..................... 35 Vice President, Marketing
Edward J. Burke..................... 40 Vice President, Engineering
Dale C. Wooding..................... 45 Vice President, Manufacturing
John B. Kaiser...................... 44 Vice President, Broadband Sales
George R. Bell...................... 42 Vice President, Telecommunications
Sales
Gary D. Williams.................... 49 Vice President, International Sales
Jacqueline M. Channell.............. 64 Secretary and Director
Arthur L. Addis..................... 76 Director
</TABLE>
The executive officers of the Company serve at the pleasure of the Board of
Directors. The directors of the Company are staggered into three classes, with
the directors in a single class elected at each annual meeting of stockholders
to serve for a term of three years or until their successors have been elected
and qualified. The authorized number of members of the Board of Directors is
currently seven.
William H. Channell, Sr., the son of the Company's founder, James W.
Channell, will assume the position of Chairman of the Board in connection with
the Offering. Prior to the Offering, he had held the position of President and
Chief Executive Officer since 1966. Mr. Channell, Sr. is a co-trustee of the
Channell Family Trust, which is a principal stockholder of the Company, and is
the husband of Jacqueline M. Channell and the father of William H. Channell,
Jr. His initial term as a director expires in 1999.
William H. Channell, Jr. will assume the position of President and Chief
Executive Officer in connection with the Offering. He has been a Director of
the Company since 1984. Since joining the Company in 1979, Mr. Channell, Jr.
has held the positions of Executive Vice President, Director of Marketing and
National Sales Manager. Mr. Channell, Jr. is a principal stockholder of the
Company and is the son of William H. Channell, Sr. and Jacqueline M. Channell.
His initial term as a director expires in 1999.
Gary W. Baker has been the Company's Chief Financial Officer since 1985.
From 1981 to 1985, Mr. Baker was the corporate controller of Symbolics, Inc.,
a publicly traded manufacturer of computer products.
Andrew M. Zogby has been the Company's Vice President, Marketing since
March, 1996. Prior to joining the Company, Mr. Zogby was Director of Strategic
Marketing, Broadband Connectivity Division for ADC Telecommunications, a
publicly-traded, telecommunications equipment supplier to both telephone and
CATV network providers worldwide. He had been with ADC Telecommunications
since 1990. Mr. Zogby has held various technical marketing positions in the
telecommunications equipment industry since 1984.
Edward J. Burke has been the Company's Vice President, Engineering since May
1996 and has served in various similar and other capacities with the Company
since 1984. Mr. Burke has held various technical positions in the
thermoplastic product engineering and tooling design field since 1978.
34
<PAGE>
Dale C. Wooding has been the Company's Vice President, Manufacturing since
May 1996 and has served in various similar and other capacities with the
Company since 1985. Mr. Wooding has held various positions in the
manufacturing management field since 1976.
John B. Kaiser has been the Company's Vice President, Broadband Sales since
May, 1996. He held the position of Director of Marketing for the Company from
1987 to 1991. Between 1991 and his return to the Company, Mr. Kaiser held the
position of District Manager, Southern California, for the General Polymers
Division of Ashland Chemical, a thermoplastics distributor, where his
responsibilities included general management of district operations, including
sales, warehousing, procurement and logistics.
George R. Bell has been the Company's Vice President, Telecommunications
Sales since May 1996 and has served in various similar and other capacities
with the Company since 1989. Mr. Bell has held various sales and marketing
positions in the telecommunications and CATV equipment industry since 1981.
Gary D. Williams has been the Company's Vice President, International Sales
since May 1996 and has served in various similar and other capacities since
1988. Mr. Williams has held various positions in the CATV operations and
equipment field for over 20 years.
Jacqueline M. Channell has been the Company's Secretary and a Director since
1966. She is a co-trustee of the Channell Family Trust, which is a principal
stockholder of the Company, and is the wife of William H. Channell, Sr. and
the mother of William H. Channell, Jr. Mrs. Channell's term as a director
expires in 1998.
Arthur L. Addis has been a Director of the Company since 1981. Since 1974,
Mr. Addis has been the President of Arthur Addis & Associates, a business
consulting firm, and in such capacity has provided consulting services to the
Company since 1981. Mr. Addis has been a member of the boards of directors of
numerous other domestic and international companies in a variety of
industries. Mr. Addis's initial term as a director expires in 1997.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Company (except as indicated below)
receive no additional compensation for their services as directors. The
Company's non-management directors receive compensation consisting of an
annual retainer fee of $15,000 plus $1,000 for attendance at any meeting of
the Board of Directors or any committee thereof, plus direct out-of-pocket
costs related to such attendance. Mrs. Channell also receives non-management
director retainer and attendance fees. Mrs. Channell does not receive separate
compensation for serving as the Company's Secretary. In addition, pursuant to
the Company's 1996 Incentive Stock Plan (as described below), (i) effective
upon consummation of the Offering, each non-management director (including
Mrs. Channell) will receive options to acquire 1,000 shares of the Company's
Common Stock with an exercise price equal to the initial public offering
price, and (ii) on the date of each of the Company's annual stockholder
meetings after the Offering, each non-management director (including non-
executive officers who serve as directors) serving on the Board of Directors
immediately following such meeting will receive options to acquire 1,000
shares of the Company's Common Stock with an exercise price equal to the
market value of the Common Stock on the date such options are granted. These
options will become exercisable at a rate of 33 1/3% per year commencing on
the first anniversary of the date of issuance and will have a term of 10
years.
The Company also engages Arthur Addis & Associates, of which Mr. Addis is
the president, to perform management consulting services for the Company, for
which such firm receives certain fees. See "Certain Transactions."
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the annual and
long-term compensation of the Company's Chief Executive Officer and four
additional most highly compensated executive officers for the year ended
December 31, 1995 (collectively, the "Named Officers").
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------
AWARDS PAYOUTS
--------------------- ----------
SECURITIES
ANNUAL COMPENSATION OTHER ANNUAL RESTRICTED UNDERLYING ALL OTHER
NAME AND POSITIONS -------------------- COMPENSATION STOCK OPTIONS/ LTIP COMPENSATION
HELD WITH THE COMPANY SALARY($) BONUS($) ($)(1) AWARDS($) SARS(#) PAYOUTS($) ($)(2)
--------------------- ---------- --------- ------------ ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
William H. Channell,
Sr..................... $ 225,000 $ -- $-- $-- -- $-- $4,020
Chairman of the
Board(3)
William H. Channell,
Jr..................... 350,000 542,000 -- -- -- -- 4,020
President and Chief
Executive Officer
Gary W. Baker........... 118,657 40,000 -- -- -- -- 4,020
Chief Financial Officer
Edward J. Burke......... 108,486 40,000 -- -- -- -- 4,020
Vice President,
Engineering
Dale C. Wooding......... 95,092 40,000 -- -- -- -- 4,020
Vice President,
Manufacturing
</TABLE>
- --------
(1) For each individual named, compensation excludes perquisites and other
personal benefits, that did not exceed the lesser of $50,000 or 10% of the
total annual salary and bonus reported for such individual.
(2) Amounts reflect payments under the Company's Profit Sharing Plan (as
described below).
(3) The amounts set forth with respect to Mr. Channell, Sr. do not reflect (i)
license fees in the amount of $2.0 million paid to Mr. Channell, Sr. with
respect to 1995 sales of products relating to the Channell Patents or (ii)
payment of premiums by the Company on a life insurance policy for Mr.
Channell, Sr. under which the Company was previously the beneficiary. See
"Employment Contracts" and "Certain Transactions."
In connection with the Offering, each of Mr. Channell, Sr.'s and Mr.
Channell, Jr.'s annual base salary will be increased to $500,000. See
"Employment Contracts." In addition, as an incentive for continued services,
the Company currently intends to grant a cash bonus of $200,000 to each of
Messrs. Baker, Wooding and Burke, which bonus will be payable in three equal
installments on each of December 31, 1997, 1998 and 1999, provided such
executive officer remains employed by the Company and is subject to continued
payment in the event of the death of the executive officer. The average tenure
of these executive officers with the Company is 11 years.
1996 INCENTIVE STOCK PLAN
The Company's 1996 Incentive Stock Plan (the "Stock Plan") currently permits
the granting to the Company's key employees, directors and other service
providers of (i) options to purchase shares of the Company's Common Stock and
(ii) shares of the Company's Common Stock that are subject to certain vesting
and other restrictions ("Restricted Stock"). A maximum of 750,000 shares of
Common Stock have been reserved for issuance under the Stock Plan.
Approximately 425,000 "non-qualified" options to acquire shares of Common
Stock will be granted to approximately 70 of the Company's employees and
directors at the time of the Offering with an exercise price equal to the
public offering price. These options will vest at a rate of 33 1/3% per year
beginning on the first anniversary of the date of issuance and will have a
term of 10 years.
The Stock Plan is administered by the Compensation Committee of the Board of
Directors, which will be composed entirely of two or more directors who are
"disinterested" within the meaning of Rule 16b-3 under the Exchange Act and
"outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code
36
<PAGE>
of 1986, as amended (the "Code"). The aggregate number of stock options or
shares of Restricted Stock that may be granted to any single participant under
the Stock Plan during any fiscal year of the Company is 100,000. The purpose
of the Stock Plan is to secure for the Company and its stockholders the
benefits arising from stock ownership by key employees, directors and other
service providers selected by the Compensation Committee.
All options granted under the Stock Plan are non-transferable and
exercisable in installments determined by the Compensation Committee, except
that each option is to be exercisable in minimum annual installments of 20%
commencing with the first anniversary of the option's grant date. Each option
granted has a term specified in the option agreement, but all options expire
no later than ten years from the date of grant. Options under the Stock Plan
may be designated as "incentive stock options" for federal income tax purposes
or as options which are not qualified for such treatment, or "non-qualified
stock options." In the case of incentive stock options, the exercise price
must be at least equal to the fair market value of the stock on the date the
option is granted. The exercise price of a non-qualified option need not be
equal to the fair market value of the stock at the date of grant, but may be
granted with any exercise price which is not less than 85% of the fair market
value at the time the option is granted, as the Compensation Committee may
determine. The aggregate fair market value (determined at the time the options
are granted) of the shares covered by incentive stock options granted to any
employee under the Stock Plan (or any other plan of the Company) which may
become exercisable for the first time in any one calendar year may not exceed
$100,000.
Upon exercise of any option, the purchase price must generally be paid in
full either in cash or by certified or cashier's check. However, in the
discretion of the Compensation Committee, the terms of a stock option grant
may permit payment of the purchase price by means of (i) cancellation of
indebtedness owed by the Company, (ii) delivery of shares of Common Stock
already owned by the optionee (valued at fair market value as of the date of
exercise), (iii) delivery of a promissory note secured by the shares issued,
(iv) delivery of a portion of the shares issuable upon exercise (i.e.,
exercise for the "spread" on the option payable in shares), or (v) any
combination of the foregoing or any other means permitted by the Compensation
Committee.
Any grants of Restricted Stock will be made pursuant to Restricted Stock
Agreements, which will provide for vesting of shares at a rate to be
determined by the Compensation Committee with respect to each grant of
Restricted Stock. Until vested, shares of Restricted Stock are generally non-
transferable and are forfeited upon termination of employment.
PROFIT SHARING AND SAVINGS PLANS
The Company maintains a qualified Profit Sharing Plan. Any employee who has
completed two years of employment with the Company is eligible to participate
in such plan. A participating employee is fully vested at all times in his or
her account, including any interest credited to the account. However, a
participating employee may not withdraw all of any portion of his or her
account prior to the date that he or she either (i) incurs total and permanent
disability or (ii) terminates employment with the Company. Annual
contributions by the Company to the Profit Sharing Plan are discretionary and
do not exceed the amount allowable for federal income tax purposes.
The Company also maintains a qualified "savings plan" pursuant to Section
401(k) of the Code. This plan allows any employee who has completed three
months of employment with the Company to contribute each pay period up to 15%
of his or her earnings (but not more than $9,500 annually) for investment in
annuity contracts and mutual funds. A participating employee is fully vested
at all times in his or her account, including any interest credited to the
account. However, a participating employee may not withdraw all of any portion
of his or her account prior to the date that he or she either (i) incurs total
and permanent disability or (ii) terminates employment with the Company. The
Company is under no obligation to make, and has not made, any contributions on
behalf of employees participating in this plan.
37
<PAGE>
EMPLOYMENT CONTRACTS
The Company has entered into employment agreements with each of William H.
Channell, Sr. and William H. Channell, Jr., engaging them as the Chairman of
the Board and President and Chief Executive Officer of the Company,
respectively. For their service, each of Messrs. Channell, Sr. and Channell,
Jr. is entitled to receive an annual salary of $500,000, subject to annual
review. In addition, each executive is entitled to participate in the Stock
Plan, the Profit Sharing Plan and the Incentive Plan (described below). The
employment agreements provide that each executive is entitled to certain other
benefits paid for by the Company, including an automobile allowance, health
insurance and sick leave, in accordance with the Company's customary practices
for senior executive officers. Each of the employment agreements has a term of
five years. In the event either executive is terminated without cause (as
defined in the employment agreements), he is entitled to receive, as a
severance benefit, an amount equal to three times his annual base salary, and
any options or Restricted Stock previously granted to such executive will
become immediately vested.
In addition, prior to the Offering, the Company maintained and paid the
premiums with respect to a $3.0 million whole life insurance policy for Mr.
Channell, Sr., under which the Company was named as the beneficiary. In
connection with the Offering, this policy will be transferred to Mr. Channell,
Sr. in consideration of the payment by Mr. Channell, Sr. to the Company of an
amount equal to the estimated $328,000 cash surrender value of this policy as
of the closing of the Offering, and the beneficiary under this policy will be
redesignated as Mr. Channell, Sr.'s wife, Jacqueline M. Channell. Thereafter,
the Company will continue to pay premiums with respect to this policy until
Mr. Channell, Sr.'s death.
INCENTIVE COMPENSATION PLAN
Effective beginning in the Company's 1996 fiscal year, the Board of
Directors adopted the Company's 1996 Performance-Based Annual Incentive
Compensation Plan (the "Incentive Plan"). Eligible participants consist of key
employees of and other service providers to the Company. The Incentive Plan is
administered by the Compensation Committee of the Board of Directors. The
amount of awards granted under the Incentive Plan are determined based on an
objective computation of the actual performance of the Company relative to
pre-established performance goals. Measures of performance may include level
of sales, EBITDA, net income, income from operations, earnings per share,
return on sales, expense reductions, return on capital, stock appreciation or
return on equity. Awards under the Incentive Plan are payable in cash or, at
the election of the Compensation Committee, Common Stock of the Company. The
Compensation Committee may establish a bonus pool from which all awards under
the Incentive Plan may be granted as well as individual, non-bonus pool
awards. No participant in the Incentive Plan may receive awards under such
plan during any fiscal year of the Company in excess of $1,000,000 or 100,000
shares of Common Stock.
38
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus, including beneficial ownership by the Selling Stockholder, each
person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Common Stock, each of the Company's directors
and individuals who have agreed to serve as directors commencing immediately
following completion of the Offering, each of the Named Officers, and all
directors, prospective directors and executive officers as a group. Except as
otherwise noted, the Company believes that the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them. Information regarding percentage
ownership after the Offering assumes no exercise of the Underwriters' over-
allotment option.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(2) SHARES AFTER OFFERING(2)
----------------------- BEING --------------------
NAME(1) SHARES PERCENT OFFERED(3) SHARES PERCENT(3)
------- ------------ ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
William H. Channell, Sr.
and Jacqueline M.
Channell,
as co-trustees of the
Channell Family
Trust(4)............... 3,620,830 59.0% 400,000 3,220,830 36.4%
William H. Channell,
Jr..................... 1,534,250 25.0 -- 1,534,250 17.4
Carrie S. Rouveyrol(5).. 490,960 8.0 -- 490,960 5.6
Michele Taylor(5)....... 490,960 8.0 -- 490,960 5.6
Gary W. Baker........... -- -- -- -- --
Edward J. Burke......... -- -- -- -- --
Dale C. Wooding......... -- -- -- -- --
Arthur L. Addis......... -- -- -- -- --
All current executive
officers, directors and
prospective directors
as a group (14
persons)............... 5,155,080 84.0% 400,000 4,755,080 53.8%
</TABLE>
- --------
(1) The address for each stockholder is 26040 Ynez Road, Temecula, California
92591-9022.
(2) Upon the consummation of the Offering, the Company will issue to certain
employees and directors options to acquire 425,000 shares of Common Stock
with an exercise price equal to the public offering price. These options
will become exercisable in three equal annual installments beginning on
the first anniversary of the date of issuance. This chart does not reflect
any of the portion of these options that will be issued to certain
individuals listed in the chart.
(3) In the event the Underwriters' over-allotment option is exercised in full,
the Channell Family Trust will sell an additional 465,000 shares of Common
Stock, thereby reducing its percentage ownership after the Offering to
31.2% and reducing the percentage ownership of the Company's current
executive officers, directors and prospective directors as a group to
48.5%.
(4) William H. Channell, Sr., the Company's Chairman of the Board, and
Jacqueline M. Channell, the secretary and a director of the Company, are
the sole trustees of the Channell Family Trust and together have sole
voting and dispositive power over the shares of Common Stock owned by such
trust.
(5) Ms. Rouveyrol and Ms. Taylor are daughters of William H. Channell, Sr. and
Jacqueline M. Channell.
39
<PAGE>
CERTAIN TRANSACTIONS
The Company leases approximately 160,000 square feet of manufacturing,
warehouse and office space in Temecula, California, from William H. Channell,
Sr., a principal stockholder and the Chairman of the Board of the Company. The
term of the lease is through December 31, 2005, with two five-year renewal
options. The original monthly rental payment (commencing in 1990) is $54,182,
and the lease provides for annual cost of living increases beginning in 1993.
For the 1993-1996 period, the lease was amended to waive the cost of living
increases. An adjacent 100,000 square foot building is also being constructed
and is expected to be completed in June 1996. This building is also being
leased from Mr. Channell, Sr. through 2005, with two five-year renewal
options, requiring monthly rental payments of approximately $35,000. The
Company believes that the terms of these leases are no less favorable to the
Company than could be obtained from an independent third party.
Prior to the Offering, Mr. Channell, Sr. owned the Channell Patents, which
are utilized by the Company in its business, and a 10% license fee on the sale
of certain products utilizing such patents was payable to Mr. Channell, Sr.
For 1993, 1994 and 1995, the expense for these license fees totaled
$1.0 million, $1.6 million and $2.0 million, respectively. Upon consummation
of the Offering, retroactive to January 1, 1996, the Channell Patents will be
transferred to the Company, the license fee arrangement between the Company
and Mr. Channell, Sr. will be terminated and no license fees (including those
accrued during 1996 prior to the Offering) will be paid to Mr. Channell, Sr.
or any other person with respect to the Channell Patents. See "Reorganization
and Termination of S Corporation Status" and "Use of Proceeds."
Prior to the consummation of the Offering, the Company maintained and paid
the premiums with respect to a $3.0 million whole life insurance policy for
Mr. Channell, Sr., under which the Company was named as the beneficiary. In
connection with the Offering, this policy will be transferred to Mr. Channell,
Sr. in consideration of the payment by Mr. Channell, Sr. to the Company of an
amount equal to the estimated $328,000 cash surrender value of this policy as
of the closing of the Offering, and the beneficiary under this policy will be
redesignated as Mr. Channell, Sr.'s wife, Jacqueline M. Channell. Thereafter,
the Company will continue to pay premiums with respect to this policy until
Mr. Channell, Sr.'s death.
During 1994, Mr. Channell, Sr. made a non-interest bearing loan of $100,000
to the Company, which loan was repaid in full as of March 31, 1996.
The Company engages Arthur Addis & Associates, the president of which is
Arthur L. Addis, a director of the Company, to provide management consulting
services to the Company. For these services, the Company paid this firm a fee
of $90,000 in each of 1993 and 1994 and $60,000 in 1995. The Company currently
pays this firm an annual retainer fee of $60,000, payable monthly. The Company
believes that the fees paid to Arthur Addis & Associates are fair and
reasonable to the Company.
40
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Pursuant to the terms of the Company's Restated Certificate of
Incorporation, the Company's authorized capital stock consists of 19,000,000
shares of Common Stock, $.01 par value per share, and 1,000,000 shares of
Preferred Stock, $.01 par value per share. The following description of the
Company's capital stock does not purport to be complete or to give full effect
to the provisions of statutory or common law and is in all respects qualified
by reference to the applicable provisions of the Company's Restated
Certificate of Incorporation.
COMMON STOCK
Immediately prior to the closing of the Offering, the Company's issued and
outstanding capital stock will consist of 6,137,000 shares of Common Stock
owned by four stockholders, all of whom are members of, or are controlled by
members of, the Channell family.
The holders of Common Stock are entitled to one vote for each share held.
Shares of Common Stock may not be voted cumulatively. All holders of Common
Stock are entitled to receive such dividends, if any, as may be declared from
time to time by the Company's Board of Directors in its discretion from funds
legally available therefor, and upon liquidation or dissolution are entitled
to receive all assets available for distribution to the stockholders, in each
case subject to the preferences that may be applicable to any outstanding
Preferred Stock. The Common Stock has no preemptive, redemption, sinking fund,
conversion or other subscription rights. All of the outstanding shares of
Common Stock are, and the shares of Common Stock offered by the Company in the
Offering will be, when issued and paid for, fully paid and nonassessable. The
rights, preferences and privileges of holders of Common Stock are subject to,
and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock that the Company may designate and issue in the
future.
PREFERRED STOCK
There are currently no shares of the Company's Preferred Stock outstanding.
The Company's Board of Directors is authorized to issue from time to time up
to 1,000,000 shares of Preferred Stock in one or more series, to determine the
rights, preferences, privileges and restrictions with respect thereto and to
fix the number and designation of shares constituting any series, in each case
without further stockholder approval. The issuance of shares of Preferred
Stock, while potentially providing desirable flexibility in connection with
possible acquisitions or other corporate purposes, could have the effect of
making it more difficult for a third party to acquire control of the Company.
The Company has no present intention to issues shares of Preferred Stock.
ELECTION OF DIRECTORS; STAGGERED BOARD
Pursuant to the Company's Restated Certificate of Incorporation, the
Company's Board of Directors is staggered into three classes. At each annual
meeting of stockholders, the directors in a single class will be elected to
serve as directors for a term of three years. Immediately following the
closing of the Offering, the Company expects that the Board of Directors will
be comprised of seven members. The initial assignment of existing and
prospective directors to classes is indicated above under "Management--
Executive Officers and Directors."
DELAWARE LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law.
In general, Section 203 of the Delaware Law prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the board of directors and of the
holders of at least two-thirds of the outstanding shares of voting stock not
owned by the interested stockholder. The existence of this provision would be
expected to have the effect of discouraging takeover attempts, including
attempts that might result in a premium over the market price for the shares
of Common Stock held by stockholders.
41
<PAGE>
In addition, pursuant to the Company's Restated Certificate of Incorporation
and Bylaws, (i) any action required or permitted to be taken by the Company's
stockholders may be taken only at a duly called annual or special meeting of
the stockholders, rather than by written consent of the stockholders, (ii) a
special meeting of the Company's stockholders may only be called by the
Company's Board of Directors, Chairman of the Board or Chief Executive
Officer, (iii) the Company's stockholders must comply with certain advance
notice procedures with regard to the nomination of candidates for election as
directors or for stockholder proposals to be submitted at stockholder
meetings, and (iv) directors of the Company may only be removed for cause and
only by the affirmative vote of 75% of the voting power of the Company or a
majority of the Board of Directors. Such provisions could have the effect of
making it more difficult for a third party to effect a change in the control
of the Board of Directors and therefore may discourage another person or
entity from making a tender offer for the Company's Common Stock, including
offers at a premium over the market price of the Common Stock, and might
result in a delay in changes in control of management. In addition, these
provisions could have the effect of making it more difficult for proposals
favored by the stockholders to be presented for stockholder consideration.
The Company has also included in its Restated Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty to the extent
permitted by the Delaware Law and to indemnify its directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is Boston
Equiserve L.P., a joint venture of the First National Bank of Boston, N.A. and
State Street Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 8,837,000 shares of
Common Stock outstanding. Of these shares, the 3,100,000 shares being offered
hereby (3,565,000 shares if the Underwriters' over-allotment option is
exercised in full) will be freely tradeable under the Securities Act, subject
to observance of the volume limitations described below in the case of shares
beneficially owned by "affiliates" of the Company.
The remaining 5,737,000 shares of Common Stock outstanding (5,272,000 shares
if the Underwriters' over-allotment option is exercised in full) are
"restricted securities" within the meaning of Rule 144 under the Securities
Act ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
the Securities Act, including Rule 144 promulgated thereunder, which is
summarized below. Sales of unrestricted shares or the Restricted Shares in the
public market could adversely affect the market price of the Common Stock.
The Company and each of the Channell Family Trust, William H. Channell, Jr.,
Carrie S. Rouveyrol and Michele Taylor have entered into contractual "lock-up"
agreements with the Representatives of the Underwriters providing that, except
for shares sold pursuant to the Offering, they will not offer, sell, contract
to sell or otherwise dispose of the shares of Common Stock of the Company
owned by them for a period of 180 days after the effective date of the
Offering without the prior written consent of Schroder Wertheim & Co.
Incorporated, subject to certain exceptions. Following the 180-day lock-up
period, 5,737,000 shares (5,272,000 shares if the Underwriters' over-allotment
option is exercised in full) will be eligible for sale in the public market
pursuant to Rule 144 or other exemptions from the registration requirements of
the Securities Act. Shares eligible to be sold by affiliates pursuant to Rule
144 are subject to the volume restrictions described below. In general, under
Rule 144, a holder who is an "affiliate" of the Company will be able sell,
without registration under the Securities Act, within any three-month period,
a number of shares of Common Stock that does not exceed the greater of 1% of
the total number of outstanding shares of Common Stock or the average weekly
trading volume during the four calendar weeks preceding the sale. These volume
limits will not apply to a sale by a non-affiliate who has held his or her
stock for more than three years or to any sale that is registered under the
Securities Act. Ms. Rouveyrol and Ms. Taylor have agreed that, during the two-
year period following the date of this Prospectus, unless otherwise permitted
by the Representatives, any sales of shares of Common Stock by them will be
subject to the volume limitations of Rule 144 of the Securities Act, without
regard to whether they are otherwise legally obligated to comply with such
limitations. See "Underwriting."
42
<PAGE>
UNDERWRITING
The Underwriters named below have severally agreed, subject to certain
conditions, to purchase from the Company and the Selling Stockholder the
aggregate number of shares of Common Stock set forth opposite their respective
names.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Schroder Wertheim & Co. Incorporated............................
Smith Barney Inc. ..............................................
-------
Total.........................................................
=======
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all the 3,100,000 shares of Common Stock offered hereby, if any are
purchased. Schroder Wertheim & Co. Incorporated and Smith Barney Inc., as
representatives (the "Representatives") of the several Underwriters, have
advised the Company and the Selling Stockholder that the Underwriters propose
to offer the shares to the public initially at the public offering price set
forth on the cover page of this Prospectus; that the Underwriters propose
initially to offer a concession not in excess of $ per share to certain
dealers, including the Underwriters; that the Underwriters and such dealers
may initially allow a discount not in excess of $ per share to other
dealers; and that the initial public offering price and the concession and
discount to dealers may be changed by the Representatives after the Offering.
The Selling Stockholder has granted to the Underwriters an option, expiring
at the close of business on the 30th day after the date of the Underwriting
Agreement, to purchase up to an additional 465,000 shares of Common Stock, at
the initial public offering price less underwriting discounts and commissions,
all as set forth on the cover page of this Prospectus. The Underwriters may
exercise the option only to cover over-allotments, if any, in the sale of
shares of Common Stock in the Offering. To the extent that the Underwriters
exercise this option, each Underwriter will be committed, subject to certain
conditions, to purchase a number of the additional shares proportionate to
such Underwriter's initial commitment.
The Company and each of the Channell Family Trust, William H. Channell, Jr.,
Carrie S. Rouveyrol and Michele Taylor have agreed not to offer to sell, grant
any option to purchase or otherwise dispose of any shares of Common Stock held
by them for a period of 180 days after the date of this Prospectus without the
prior written consent of Schroder Wertheim & Co. Incorporated, subject to
certain exceptions. In addition, Ms. Rouveyrol and Ms. Taylor have agreed
that, during the two-year period following the date of this Prospectus, unless
otherwise permitted by the Representatives, any sales of shares of Common
Stock by them will be subject to the volume limitations of Rule 144 of the
Securities Act, without regard to whether they are otherwise legally obligated
to comply with such limitations.
In connection with the Offering, certain underwriters may engage in passive
market making transactions in the Company's Common Stock on the Nasdaq
National Market immediately prior to the commencement of sales in the
Offering, in accordance with Rule 10b-6A under the Exchange Act. Passive
market making consists of displaying bids on Nasdaq limited by the bid prices
of independent market makers and purchases limited by such prices and effected
in response to order flow. Net purchases by a passive market maker on each day
are limited to a specified percentage of the passive market maker's average
daily trading volume in the Common Stock during a specified prior period and
must be discontinued when such limit is reached. Passive market making may
stabilize the market price of the Common Stock at a level above that which
might otherwise prevail and, if commenced, may be discontinued at any time.
43
<PAGE>
Application has been made for the Common Stock to be approved for quotation
and trading on the Nasdaq National Market under the symbol "CHNL."
Prior to the Offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be negotiated between the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in
relation to market valuation of companies in related businesses.
The Company, the Selling Stockholder and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the law firm of Irell & Manella LLP, Los Angeles, California, and
certain legal matters will be passed upon for the Underwriters by the law firm
of Troop Meisinger Steuber & Pasich LLP, Los Angeles, California.
EXPERTS
The financial statements of the Company as of December 31, 1994 and December
31, 1995, and for each of the three years in the period ended December 31,
1995, have been included herein and in the Registration Statement of which
this Prospectus is a part in reliance upon the reports of Grant Thornton LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent public accountants
and quarterly reports containing unaudited financial information for each of
the first three quarters of each fiscal year.
44
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants........................ F-2
Balance Sheets as of December 31, 1994, December 31, 1995 and March 31,
1996 (unaudited)......................................................... F-3
Statements of Income for the years ended December 31, 1993, December 31,
1994 and December 31, 1995 and for the three months ended March 31, 1995
and 1996 (unaudited)..................................................... F-4
Statements of Stockholders' Equity for the years ended December 31, 1993,
December 31, 1994 and December 31, 1995 and for the three months ended
March 31, 1996 (unaudited)............................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, December
31, 1994 and
December 31, 1995 and for the three months ended March 31, 1995 and 1996
(unaudited).............................................................. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Channell Commercial Corporation
We have audited the accompanying balance sheets of Channell Commercial
Corporation as of December 31, 1994 and 1995, and the related statements of
income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Channell Commercial
Corporation as of December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting
principles.
Los Angeles, California
May 9, 1996 (except for Note N as to
which the date is , 1996)
The foregoing report is in the form which will be signed upon consummation
of the transaction described in Note N to the financial statements.
GRANT THORNTON LLP
Los Angeles, California
May 9, 1996
F-2
<PAGE>
CHANNELL COMMERCIAL CORPORATION
BALANCE SHEETS
(amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
UNAUDITED
DECEMBER 31, MARCH 31, 1996
--------------- ------------------
PRO
FORMA
(NOTE
1994 1995 HISTORICAL B)
------- ------- ---------- -------
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash..................................... $ 797 $ 1,375 $ 390 $ 390
Accounts receivable...................... 4,358 4,122 6,688 6,688
Accounts receivable--related party....... -- -- -- 56
Inventories (Note C)..................... 2,605 2,609 2,584 2,584
Deferred income taxes.................... -- -- -- 146
Prepaid expenses......................... 333 396 342 342
------- ------- ------- -------
Total current assets................... 8,093 8,502 10,004 10,206
PROPERTY AND EQUIPMENT, at cost, net
(Notes D and F)........................... 9,314 10,062 10,132 10,132
DEFERRED INCOME TAXES...................... -- -- -- 672
OTHER ASSETS............................... 544 539 519 519
------- ------- ------- -------
TOTAL ASSETS............................ $17,951 $19,103 $20,655 $21,529
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Accounts payable......................... $ 1,303 $ 1,251 $ 2,555 $ 2,555
Accrued expenses......................... 1,046 972 773 773
Accrued license fees--related party
(Note J)................................ 394 471 475 --
Current maturities of long-term
obligations (Note F).................... 848 860 832 832
Distributions payable to stockholders.... 1,795 674 706 16,306
Income taxes payable..................... 312 49 -- --
------- ------- ------- -------
Total current liabilities.............. 5,698 4,277 5,341 20,466
LONG-TERM OBLIGATIONS (Note F)............. 2,836 2,353 2,051 2,051
STOCKHOLDERS' EQUITY (DEFICIT) (Note N)
Preferred stock, par value $.01 per
share, authorized--1,000,000 shares,
none issued and outstanding............. -- -- -- --
Common stock, par value $.01 per share,
authorized--19,000,000 shares; issued
and outstanding--6,137,000
shares.................................. 61 61 61 61
Additional paid-in capital............... 26 26 26 (2,543)
Retained earnings........................ 9,330 12,386 13,176 1,494
------- ------- ------- -------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)..... 9,417 12,473 13,263 (988)
------- ------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY.................................. $17,951 $19,103 $20,655 $21,529
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CHANNELL COMMERCIAL CORPORATION
STATEMENTS OF INCOME
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
------------------------- ---------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
Sales.............................. $23,713 $34,504 $40,972 $9,225 $10,279
Cost of goods sold................. 14,834 19,750 23,059 5,487 5,738
------- ------- ------- ------ -------
Gross profit................... 8,879 14,754 17,913 3,738 4,541
------- ------- ------- ------ -------
Operating expenses (income)
Selling........................... 3,767 4,952 5,600 1,339 1,553
General and administrative........ 1,100 1,445 1,707 448 370
License fees--related party (Note
J)............................... 1,039 1,560 2,035 458 531
Research and development.......... 486 518 498 122 128
Commission income................. (686) (904) (1,098) (262) (230)
------- ------- ------- ------ -------
5,706 7,571 8,742 2,105 2,352
------- ------- ------- ------ -------
Income from operations......... 3,173 7,183 9,171 1,633 2,189
Interest expense................... 166 156 339 90 65
------- ------- ------- ------ -------
Income before income taxes..... 3,007 7,027 8,832 1,543 2,124
Income taxes (Note G).............. 69 429 349 61 122
------- ------- ------- ------ -------
Net income..................... $ 2,938 $ 6,598 $ 8,483 $1,482 $ 2,002
======= ======= ======= ====== =======
PRO FORMA INFORMATION (UNAUDITED)
(Note B):
Historical income before income
taxes............................ $ 3,007 $ 7,027 $ 8,832 $1,543 $ 2,124
Pro forma income taxes............ 1,191 2,898 3,455 616 845
------- ------- ------- ------ -------
Pro forma net income.............. $ 1,816 $ 4,129 $ 5,377 $ 927 $ 1,279
======= ======= ======= ====== =======
Pro forma net income per share.... $ 0.72 $ 0.17
======= =======
Pro forma weighted average shares
outstanding...................... 7,448 7,448
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CHANNELL COMMERCIAL CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
(amounts in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance, January 1, 1993............................ $61 $26 $ 4,904
Net income.......................................... -- -- 2,938
Dividends declared.................................. -- -- (1,048)
--- --- -------
Balance, December 31, 1993.......................... 61 26 6,794
Net income.......................................... -- -- 6,598
Liquidating dividend--Canadian corporation.......... -- -- (298)
Dividends declared.................................. -- -- (3,764)
--- --- -------
Balance, December 31, 1994.......................... 61 26 9,330
Net income.......................................... -- -- 8,483
Dividends declared.................................. -- -- (5,427)
--- --- -------
Balance, December 31, 1995.......................... 61 26 12,386
Dividends declared.................................. -- -- (1,212)
Net income (unaudited).............................. -- -- 2,002
--- --- -------
Balance, March 31, 1996 (unaudited)................. $61 $26 $13,176
=== === =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
CHANNELL COMMERCIAL CORPORATION
STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS
YEARS ENDED DECEMBER ENDED
31, MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income...................... $ 2,938 $ 6,598 $ 8,483 $ 1,482 $ 2,002
Non-cash items included in net
income:
Depreciation and amortization.. 776 1,072 1,412 415 402
Disposal of unproductive
assets........................ 376 80 -- -- --
(Increase) decrease in assets:
Accounts receivable............ (596) (1,527) 236 (873) (2,566)
Inventories.................... (163) (709) (4) (710) 25
Prepaid expenses............... (43) (70) (63) 155 54
Other.......................... -- (8) 6 1 (80)
Increase (decrease) in
liabilities:
Accounts payable............... 385 25 (52) 1,120 1,304
Accrued expenses............... 550 436 3 (512) (195)
Income taxes payable........... (42) 304 (263) (353) (49)
------- ------- ------- ------- -------
Net cash provided by operating
activities....................... 4,181 6,201 9,758 725 897
------- ------- ------- ------- -------
INVESTING ACTIVITIES:
Acquisition of property and
equipment...................... (1,480) (5,851) (2,160) (1,030) (472)
Other........................... 5 (29) (1) -- --
------- ------- ------- ------- -------
Net cash used in investing
activities....................... (1,475) (5,880) (2,161) (1,030) (472)
------- ------- ------- ------- -------
FINANCING ACTIVITIES:
Liquidating dividend--Canadian
corporation.................... -- (298) -- -- --
Repayment of long-term
obligations.................... (1,691) (614) (877) (205) (230)
Dividends paid.................. (1,604) (1,969) (6,547) (515) (1,180)
Proceeds from issuance of long-
term debt...................... 194 3,279 405 800 --
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities............. (3,101) 398 (7,019) 80 (1,410)
------- ------- ------- ------- -------
(Decrease) increase in cash....... (395) 719 578 (225) (985)
Cash, beginning of period......... 473 78 797 797 1,375
------- ------- ------- ------- -------
Cash, end of period............... $ 78 $ 797 $ 1,375 $ 572 $ 390
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
(amounts in thousands, except per share data)
NOTE A--DESCRIPTION OF BUSINESS
The Company is a designer, manufacturer and marketer of precision-molded
thermoplastic enclosures used by cable television ("CATV") operators and local
telephone companies.
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition--The Company recognizes revenue from product sales and
commision income at the time of shipment. Commission income is treated as a
reduction of operating expenses.
Cash--For purposes of reporting cash flows, cash and its equivalents include
cash on hand, cash in banks and short-term investments with original
maturities of 90 days or less.
Combination--The Company purchased substantially all of the assets of
Channell Commercial Canada Ltd. (CCCL) as of December 31, 1993. CCCL was
liquidated in 1994. The Canadian operations are continued by the Company as a
separate division. Prior to the combination, CCCL was owned by the majority
stockholder of the Company. For periods prior to the combination, the accounts
of CCCL have been included in the accompanying financial statements in a
manner similar to a pooling of interests.
Inventories--Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method of accounting.
Depreciation and amortization--Property, equipment and improvements are
stated at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets. Capital lease assets are amortized
using the straight-line method over the useful life of the asset. Expenditures
for all maintenance and repairs are charged against income. Additions, major
renewals and replacements that increase the useful lives of assets are
capitalized. Amortization of leasehold improvements is computed using the
straight-line method over the shorter of the lease term or the estimated
useful life of the leasehold improvements.
Fair value of financial instruments--The carrying value of financial
instruments potentially subject to valuation risk (principally consisting of
cash, accounts receivable, accounts payable and long-term obligations)
approximate fair value.
Income taxes--Effective February 1, 1990, the Company and its stockholder
elected to be taxed under Section 1361 of the Internal Revenue Code as an "S"
Corporation. Under these provisions, the Company does not pay federal
corporate income taxes on its taxable income. Instead, the stockholders are
individually liable for federal income taxes based on the Company's taxable
income. This election is also valid for state income tax reporting; however, a
provision for state income taxes is required based on a 1.5% tax rate.
Estimates--In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
New Accounting Standards--In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." Statement No. 121 provides specific guidance regarding when
impairment of long-lived assets such as plant, equipment and certain
intangibles, including goodwill, should be recognized and how impairment
losses of such assets should be measured. Statement No. 121 is effective for
fiscal years beginning after December 15, 1995. The Company has adopted
Statement No. 121 for 1996 and expects that the impact on its statements of
operations and financial position will not be material.
F-7
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands, except per share data)
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation." Statement No. 123 permits
a company to choose either a new fair value based method of accounting for its
stock based compensation arrangements or to comply with the current APB
Opinion 25 intrinsic value based method, adding pro forma disclosures of net
income and income per share computed as if the fair valued based method had
been applied in the financial statements. Statement No. 123 is effective for
fiscal years beginning after December 15, 1995. The Company has chosen to
retain APB Opinion 25 and in 1996 will provide pro forma disclosures of net
income and income per share.
Unaudited financial statements--The balance sheet as of March 31, 1996 and
the related statements of income, stockholders' equity and cash flows for the
three months ended March 31, 1995 and 1996 were prepared from the Company's
books and records without audit. However, in the opinion of management, such
information includes all adjustments (consisting of normal accruals), which
are necessary to properly reflect the financial position at March 31, 1996 and
the results of operations and cash flows for the three months ended March 31,
1995 and 1996. The results of operations for the three months ended March 31,
1996 are not necessarily indicative of the results to be expected for the
year.
Pro forma financial information (unaudited)--The pro forma income statement
presentation reflects a provision for income taxes as if the Company had
always been a C corporation using an assumed effective tax rate of
approximately 41% less tax credits. The pro forma March 31, 1996 balance sheet
presentation gives effect to (i) the termination of the Company's S
Corporation status, (ii) the effects of $12,500 of planned distributions to
stockholders, (iii) the acquisition by the Company of an undivided interest in
certain patents to be acquired, in connection with the contemplated public
offering of common stock, from Mr. William H. Channell, Sr., Chairman of the
Board, for an aggregate consideration of $3.1 million, which will be paid from
the net proceeds of the proposed offering and accounted for as a distribution,
and (iv) the contribution by Mr. Channell, Sr. of license fees attributable to
product sales in 1996 relating to the Channell Patents.
Pro forma net income per share has been computed by dividing pro forma net
income by the pro forma weighted average shares outstanding. Pro forma
weighted average shares outstanding includes 1,311 shares to be offered in the
contemplated public offering at an assumed price of $13.00 per share, the net
proceeds of which will be used to fund the distributions to existing
stockholders in connection with the termination of the Company's S Corporation
status and to acquire patents from Mr. Channell, Sr.
NOTE C--INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- MARCH 31,
1994 1995 1996
------ ------ ---------
<S> <C> <C> <C>
Raw materials..................................... $ 513 $1,111 $1,094
Work-in-process................................... 1,064 744 732
Finished goods.................................... 1,028 754 758
------ ------ ------
$2,605 $2,609 $2,584
====== ====== ======
</TABLE>
F-8
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands, except per share data)
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
---------------- USEFUL
1994 1995 LIVES
------- ------- -----------
<S> <C> <C> <C>
Machinery and equipment.................... $11,167 $12,889 3-10 years
Office furniture and equipment............. 925 1,059 3- 7 years
Leasehold improvements..................... 1,866 1,893 15-20 years
Construction in progress................... 714 930 --
------- -------
14,672 16,771
Less accumulated depreciation and amortiza-
tion...................................... (5,358) (6,709)
------- -------
$ 9,314 $10,062
======= =======
</TABLE>
NOTE E--LINE OF CREDIT
The Company has in place a $3,250 line of credit with a bank for working
capital purposes. This line of credit bears interest at the bank's reference
rate, payable monthly. The line of credit expires on May 31, 1996. The Company
is subject to various covenants identical to those described in Note F. No
balances were outstanding at December 31, 1994 and 1995. This line of credit
is collateralized by accounts receivable, inventory, the equipment financed by
the bank and certain other items of personal property. The Company is
currently in the process of renegotiating its line of credit.
NOTE F--LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1994 1995
------ ------
<S> <C> <C>
Equipment line of credit with a bank, for equipment
acquisitions, collateralized by accounts receivable,
inventory, the equipment financed by the bank and
certain other items of personal property, with interest
at the bank's reference rate plus 0.5% (effective rate
at December 31, 1995 of 9.0%) payable $61 per month,
through 2000. This line allows borrowings up to $4,300
including standby letters of credit up to $500......... $2,564 $2,282
Non-revolving line of credit with a bank, allowing
borrowings up to $1,000, collateralized by accounts
receivable, inventory, the equipment financed by the
bank and certain other items of personal property, with
interest at the bank's reference rate plus 0.5%
(effective rate at December 31, 1995 of 9.0%) payable
$13 per month, due through 2000........................ 972 806
Notes payable to stockholder, due on demand............ 120 120
Other.................................................. 28 5
------ ------
3,684 3,213
Less current maturities................................ (848) (860)
------ ------
$2,836 $2,353
====== ======
</TABLE>
F-9
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands, except per share data)
NOTE F--LONG-TERM OBLIGATIONS--CONTINUED
Maturities of long-term obligations are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996.......................................................... $ 860
1997.......................................................... 798
1998.......................................................... 732
1999.......................................................... 516
2000.......................................................... 187
Thereafter..................................................... 120
------
$3,213
======
</TABLE>
The lines of credit contain various financial and operating covenants which,
among other things, impose certain limitations on the Company's ability to
incur additional indebtedness, merge or consolidate, sell its assets, make
certain investments or, under certain circumstances, pay dividends. The
Company is also required to comply with covenants related to tangible net
worth and other financial ratios.
NOTE G--INCOME TAXES
The Company and its stockholders have elected to be taxed as an "S"
Corporation. Accordingly, the Company does not pay federal corporate income
taxes.
The components of income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
----------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
State................................................. $ 68 $116 $130
Research and development credit...................... (3) (9) (8)
Manufacturer's credit................................ -- -- (86)
---- ---- ----
Total state taxes.................................... 65 107 36
Canadian.............................................. 4 322 313
---- ---- ----
$ 69 $429 $349
==== ==== ====
</TABLE>
Income taxes include the state corporate franchise tax for California and
the Canadian tax imposed on the taxable income of the Company's Canadian
operations. The actual state tax provision differs from the expected statutory
tax due to non-deductible entertainment expense and officers' life insurance
premiums.
Temporary differences between financial statement and income tax reporting
are due to the accounting for doubtful accounts, accrued license fees and
depreciation. The effect of these temporary differences on the Company's
balance sheet is not material.
F-10
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands, except per share data)
NOTE H--RETIREMENT PLANS
Eligible employees of the Company are included in a profit-sharing plan.
Annual contributions by the Company to this plan are discretionary and will not
exceed that allowable for Federal income tax purposes. The accompanying
statements of income include expenses of $150, $150 and $198 which have been
accrued for the plan for the years ended December 31, 1993, December 31, 1994
and December 31, 1995, respectively.
During 1993, the Company established an additional retirement plan in
accordance with section 401(k) of the Internal Revenue Code. Under the terms of
this plan, eligible employees may make voluntary contributions to the extent
allowable by law. The Company is under no obligation and has not made
contributions on behalf of employees to this plan.
NOTE I--CASH FLOW INFORMATION
Supplemental disclosure of cash flow information is as follows:
<TABLE>
<CAPTION>
THREE
MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
-------------- ---------
1993 1994 1995 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Interest paid........................................ $151 $191 $352 $94 $69
Income taxes paid.................................... 128 100 957 387 171
</TABLE>
NOTE J--RELATED PARTY TRANSACTIONS
Under the terms of exclusive licensing agreements, Mr. Channell, Sr. received
payments for the use of certain patents or pending patents. These payments are
based on the sale of products. Operations have been charged with $1,039, $1,560
and $2,035 for the years ended December 31, 1993, 1994 and 1995, respectively.
See note B concerning contemplated transactions with Mr. Channell, Sr. to
terminate these agreements in connection with the contemplated public offering
of the Company's Common Stock.
The Company leases its facilities under an operating lease with Mr. Channell,
Sr. Rentals paid for the years ended December 31, 1993, 1994 and 1995 were $650
each year.
The following is a schedule of future minimum rental payments, exclusive of
property taxes and insurance:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996.......................................................... $ 650
1997.......................................................... 650
1998.......................................................... 650
1999.......................................................... 650
2000.......................................................... 650
Thereafter.................................................... 3,250
------
$6,500
======
</TABLE>
F-11
<PAGE>
CHANNELL COMMERCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(amounts in thousands, except per share data)
NOTE K--COMMITMENTS
The Company is obligated under the terms of several non-cancelable operating
leases for its sales fleet and shipping trailer. Expense for the periods ended
December 31, 1993, 1994 and 1995 was $102, $97 and $120, respectively.
The following is a schedule of future minimum rental payments:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S> <C>
1996............................................................ $100
1997............................................................ 58
1998............................................................ 16
----
$174
====
</TABLE>
In March, 1996 the Company entered into an agreement to lease certain
computer equipment and software in an amount up to $988. Lease terms commence
in April 1996 and will extend for a three year period. The leases will be
accounted for as capital leases.
NOTE L--CREDIT CONCENTRATIONS, MAJOR CUSTOMERS AND VENDORS
The Company maintains the majority of its cash balances in one financial
institution located in California which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such accounts and
believes it is not exposed to any significant credit risk on cash and cash
equivalents.
One customer made up 15.5%, 18.1% and 17.5% of sales in 1993, 1994 and 1995,
respectively. In 1995, another customer made up 15.6% of sales. Credit risk
with respect to accounts receivable is generally diversified due to the large
number of entities comprising the Company's base and their geographic
dispersion. The Company controls credit risk through credit approvals, credit
limits and monitoring procedures.
Purchases from two vendors in 1993, 1994 and 1995 comprised 20.4%, 17.2% and
18.9%, respectively, of the Company's material purchases for the year.
NOTE M--INTERNATIONAL SALES
The Company's international sales are as follows:
<TABLE>
<CAPTION>
YEARS
ENDED DECEMBER 31,
--------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
Canada.............................................. $1,712 $3,799 $3,717
Other............................................... 1,692 758 2,354
------ ------ ------
$3,404 $4,557 $6,071
====== ====== ======
</TABLE>
NOTE N--REORGANIZATION
As part of a proposed public offering of the Company's common stock, the
Company will be merged into a newly formed corporation, with the newly formed
corporation being the surviving entity while retaining the same name as the
predecessor. As part of the merger, the predecessor's existing stockholders
will be issued 12.274 shares of the newly formed corporation's common stock in
exchange for each outstanding share of the predecessor's common stock. This
exchange has been accounted for as a reorganization and the number of
outstanding shares has been restated on a retroactive basis similar to a stock
split.
F-12
<PAGE>
GLOSSARY OF TERMS
ADSL (Asymmetric Digital Subscriber Line): A standard allowing digital
broadband signals and standard telephone service to be transmitted up to
12,000 feet over a twisted copper pair.
Broadband: Transmission rates in excess of 1.544 mega bits per second
typically deployed for delivery of high speed data, video and voice services.
Cable Modem: Electronic transmission device placed on the CATV network,
located at end user locations, providing two-way, high-speed data service
capability including internet access for subscribers.
CATV (Community Antenna TV, commonly called cable television): A system for
distributing television programming by a cable network rather than by
broadcasting electromagnetic radiation.
Coaxial Cable: The most commonly used means of transmitting cable television
signals. It consists of a cylindrical outer conductor (shield) surrounding a
center conductor held concentrically in place by an insulating material.
DLC (Digital Loop Carrier): Telecommunications transmission technology which
multiplexes multiple individual voice circuits onto copper or fiber cables.
Fiber Node: Refers to the equipment that terminates the fiber cables
originating from the host digital terminal. This network element converts the
optical signals to their coax electrical, RF equivalents. Synonymous with
optical network interface (ONI).
Fiber Optics: The process of transmitting infrared and visible light
frequencies through a low-loss glass fiber with a transmitting laser or LED
and a photo diode receiver.
FTTC (Fiber-To-The-Curb): In a long distance network consisting of fiber
optics, fiber-to-the-curb refers to the fiber optics running from the
distribution plant to the curb, at which point copper is used for the curb-to-
home connection.
HDSL (High bit rate Digital Subscriber Line): By using sophisticated coding
techniques, a large amount of information may be transmitted over copper. The
HDSL scheme uses such coding over four copper wires and is primarily intended
for high capacity bidirectional business services.
Headend: The primary transmission point in a cable system supplying the hubs
and trunk cables.
HFC (Hybrid Fiber Coax): A type of distribution plant that utilizes fiber
optics to carry service from a CO to the carrier serving area, then coaxial
cable within the CSA to or close to the individual residences.
ONU (Optical Network Unit): The curb mounted electronics device which
converts fiber optic signals to electrical for service delivery or copper
wires.
PCS (Personal Communications Services): Any service offered on a personal
communications network. These include basic telephone, voice mail, paging and
others. Personal communications networks operate in the 1800-2000 mHz range,
utilizing low power cells compared to traditional cellular technology.
RBOC (Regional Bell Operating Company): A term for the seven regional
holding companies created when AT&T divested the Bell operating companies.
Sealed Plant: An industry term referring to the environmental protection
devices built into access and termination products deployed in the outside
plant portion of the telecommunications network.
G-1
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE SECURITIES COVERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH AN OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATES AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Reorganization and Termination
of S Corporation Status.................................................. 13
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Selected Historical, Pro Forma and Other Financial Information............ 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 25
Management................................................................ 34
Principal and Selling Stockholders........................................ 39
Certain Transactions...................................................... 40
Description of Capital Stock.............................................. 41
Shares Eligible for Future Sale........................................... 42
Underwriting.............................................................. 43
Legal Matters............................................................. 44
Experts................................................................... 44
Available Information..................................................... 44
Index to Financial Statements............................................. F-1
Glossary of Terms......................................................... G-1
</TABLE>
---------------
UNTIL (25 DAYS AFTER THE DATE HEREOF), ALL DEALERS EFFECTING
TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,100,000 SHARES
[LOGO OF CHANNELL COMMERCIAL CORPORATION]
COMMON STOCK
($.01 PAR VALUE)
SCHRODER WERTHEIM & CO.
SMITH BARNEY INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses payable in connection with the
offering of the securities to be registered and offered hereby. All of such
expenses are estimates, other than the registration fee payable to the
Securities and Exchange Commission and to the National Association of
Securities Dealers, Inc., and all such expenses will be paid by the Company.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............. $ 17,211
NASD Fee........................................................ 5,491
Nasdaq National Market Listing Fees............................. *
Blue Sky Fees................................................... *
Printing and Engraving Expenses................................. *
Legal Fees and Expenses......................................... *
Accounting Fees and Expenses.................................... *
Miscellaneous................................................... *
--------
Total......................................................... $500,000
========
</TABLE>
- --------
*To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware ("GCL") empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer, employee or
agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise. Depending on the character of the proceeding, a corporation may
indemnify against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if the person indemnified acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful. In the
case of any action by or in the right of the corporation, no indemnification
may be made in respect to any claim, issue or matter as to which such person
shall have been adjudged to be liable for negligence or misconduct in the
performance of his or her duty to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit
was brought shall determine that despite the adjudication of liability such
person is fairly and reasonably entitled to indemnity for such expenses which
the court shall deem proper. Section 145 further provides that to the extent a
director or officer of a corporation has been successful in the defense of any
action, suit or proceeding referred to above or in the defense of any claim,
issue or matter therein, he or she shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him or her in
connection therewith.
The Restated Certificate of Incorporation and Bylaws of the Company provide,
in effect, that to the extent and under the circumstances permitted by Section
145 of the GCL and subject to certain conditions, the Company shall indemnify
any person who was or is a party or is threatened to be made a party to or is
involved in any action, suit or proceeding of the type described above by
reason of the fact that he or she is or was a director or officer of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of the Company.
The Company's Restated Certificate of Incorporation currently provides that,
to the fullest extent permitted by applicable law, a director of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement(1)
3.1 Form of Restated Certificate of Incorporation of the Company(2)
3.2 Form Bylaws of the Company(2)
4 Form of Common Stock Certificate(1)
5 Opinion of Irell & Manella LLP(2)
10.1 Form of Tax Indemnity Agreement between the Company and the Existing
Stockholders(1)
10.2 Channell Commercial Corporation 1996 Incentive Stock Plan (including
form of Stock Option Agreements and Restricted Stock Agreement)(2)
10.3 Business Loan Agreement dated as of January 21, 1994 between the
Company and Bank of America National Trust and Savings Association, as
amended ("Bank of America")(2)
10.4 Business Loan Agreement dated as of April 19, 1995 between the Company
and Bank of America, as amended(1)
10.5 The Company's Profit Sharing Plan(2)
10.6 Agreement dated as of September 30, 1982 between the Company and
Integral Corporation, as amended(2)
10.7 Form of Employment Agreement between the Company and each of William
H. Channell, Sr. and William H. Channell, Jr.(1)
10.8 Form of Channell Commercial Corporation 1996 Performance-Based Annual
Incentive Compensation Plan(1)
10.9 Lease dated December 22, 1989 between the Company and William H.
Channell, Sr., as amended(1)
10.10 Form of Lease between the Company and William H. Channell, Sr. with
respect to facility expansion(1)
10.11 Lease dated May 17, 1994 between the Company and the Z. Paul Akian and
Sonia Akian Family Trust(2)
10.12 Lease dated March 1, 1994 between the Company and Allstate Life
Insurance Company(2)
10.13 Lease dated November 2, 1989 between the Company and Meadowvale Court
Property Management Ltd., as amended(2)
10.14 Lease Agreement dated as of March 1, 1996 between Winthrop Resources
Corp. and the Company(1)
10.15 Form of Indemnification Agreement for officers and directors of the
Company(1)
10.16 Form of Patent Transfer Agreement(1)
10.17 401(k) Plan of the Company(2)
11 Statement Regarding Computation of Earnings Per Share(1)
21 Subsidiaries of the Registrant: None
23.1 Consent of Irell & Manella LLP (included in Exhibit 5)
23.2 Consent of Grant Thornton LLP(2)
24 Power of Attorney (see "Signatures")
27 Financial Data Schedule(1)
</TABLE>
- --------
(1) To be filed by amendment.
(2) Filed herewith.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the items listed in item 14 hereof, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Form S-1 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Temecula,
State of California, on May 10, 1996.
CHANNELL COMMERCIAL CORPORATION,
a Delaware corporation
By /s/ William H. Channell, Sr.
__________________________________
William H. Channell, Sr.
Chairman of the Board
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints each of William H. Channell, Sr., William H.
Channell, Jr. and Gary W. Baker as his or her true and lawful attorney-in-fact
and agent, with full power of substitution, from him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all
amendments and post-effective amendments to this Registration, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
including, without limitation, a registration statement filed pursuant to
Section 462 of the Securities Act of 1933, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully as to all intents and
purposes as he or she might or could do in person, thereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-1
Registration Statement has been signed by the following persons in the
capacities indicated below as of May 10, 1996.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ William H. Channell, Sr. Chairman of the Board
____________________________________
William H. Channell, Sr.
/s/ William H. Channell, Jr. President and Chief
____________________________________ Executive Officer and
William H. Channell, Jr. Director
(Principal Executive
Officer)
/s/ Gary W. Baker Chief Financial Officer
____________________________________ (Principal Financial and
Gary W. Baker Accounting Officer)
/s/ Jacqueline M. Channell Secretary and Director
____________________________________
Jacqueline M. Channell
/s/ Arthur L. Addis Director
____________________________________
Arthur L. Addis
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
<C> <S> <C>
3.1 Form of Restated Certificate of Incorporation of the
Company
3.2 Form Bylaws of the Company
5 Opinion of Irell & Manella LLP
10.2 Channell Commercial Corporation 1996 Incentive Stock
Plan (including form of Stock Option Agreements and
Restricted Stock Agreement)
10.3 Business Loan Agreement dated as of January 21, 1994
between the Company and Bank of America National Trust
and Savings Association, as amended ("Bank of America")
10.5 The Company's Profit Sharing Plan
10.6 Agreement dated as of September 30, 1982 between the
Company and Integral Corporation, as amended
10.11 Lease dated May 17, 1994 between the Company and the Z.
Paul Akian and Sonia Akian Family Trust
10.12 Lease dated March 1, 1994 between the Company and
Allstate Life Insurance Company
10.13 Lease dated November 2, 1989 between the Company and
Meadowvale Court Property Management Ltd., as amended
10.17 401(k) Plan of the Company
23.2 Consent of Grant Thornton LLP
</TABLE>
<PAGE>
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
CHANNELL COMMERCIAL CORPORATION
ONE: The name of the corporation is Channell Commercial Corporation
(hereinafter referred to as the "Corporation").
TWO: The address of the Corporation's registered office in the State of
Delaware is 1050 South State Street, in the City of Dover, County of Kent, and
the name of its registered agent at such address is Corp America, Inc.
THREE: The purpose of the Corporation is to engage in any lawful act or
activity for which a Corporation may be organized under the Delaware General
Corporation Law.
FOUR: The total number of shares of all classes of stock which the
Corporation shall have authority to issue is Twenty Million (20,000,000),
consisting of Nineteen Million (19,000,000) shares of Common Stock, par value
one cent ($.01) per share (the "Common Stock"), and One Million (1,000,000)
shares of Preferred Stock, par value one cent ($.01) per share (the "Preferred
Stock"). The term "Voting Stock" shall hereafter refer to all shares of capital
stock entitled to vote generally in the election of directors.
A. Common Stock
------------
1. Except where otherwise provided by law, by this Restated
Certificate of Incorporation, or by resolution of the Board of Directors
pursuant to this Article FOUR, the holders of the Common Stock issued and
outstanding shall have and possess the exclusive right to notice of
stockholders' meetings and the exclusive voting rights and powers of the capital
stock.
2. Subject to any preferential rights of the Preferred Stock,
dividends may be paid on the Common Stock, as and when declared by the Board of
Directors, out of any funds of the corporation legally available for the payment
of such dividends.
<PAGE>
B. Preferred Stock
---------------
The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of shares of Preferred Stock in
series, and by filing a certificate pursuant to the applicable law of the State
of Delaware (such certificate being hereinafter referred to as a "Preferred
Stock Designation"), to establish from time to time the number of shares to be
included in each such series, and to fix the designation, powers (including but
not limited to voting powers, if any), preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof.
The number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such holders is required pursuant to the terms of any Preferred Stock
Designation.
FIVE: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this Restated
Certificate of Incorporation or the Bylaws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Board of Directors may adopt, amend or repeal the Bylaws of the
Corporation.
C. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
SIX: The Corporation reserves the right to amend and repeal any
provision contained in this Restated Certificate of Incorporation in the manner
from time to time prescribed by the laws of the State of Delaware. All rights
herein conferred are granted subject to this reservation.
SEVEN: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for any breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which such director derived any
improper personal benefit. No amendment to or repeal of this Article SEVEN
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
-2-
<PAGE>
director occurring prior to such amendment or repeal. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. Any repeal or modification
of this provision shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
EIGHT: A. Right to Indemnification. Each person who was or is made a
------------------------
party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another Corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in Section C of this Article EIGHT
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
B. Right to Advancement of Expenses. The right to indemnification
--------------------------------
conferred in Section A of this Article EIGHT shall include the right to be paid
by the Corporation the expenses (including attorneys' fees) incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a director or officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section B or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article EIGHT shall be contract
rights and such rights shall continue as to an
-3-
<PAGE>
indemnitee who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the indemnitee's heirs, executors and administrators.
C. Right of Indemnitee to Bring Suit. If a claim under Section A or
---------------------------------
B of this Article EIGHT is not paid in full by the Corporation within sixty
(60) days after a written claim has been received by the Corporation, except in
the case of a claim for an advancement of expenses, in which case the applicable
period shall be twenty (20) days, the indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim.
If successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the indemnitee shall be entitled to be paid also the expense of
prosecuting or defending such suit. In (i) any suit brought by the indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the Corporation to recover an advancement or expenses pursuant to
the terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article EIGHT or otherwise shall be on the Corporation.
D. Non-Exclusivity of Rights. The rights to indemnification and to
-------------------------
the advancement of expenses conferred in this Article EIGHT shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Restated Certificate of Incorporation,
Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.
E. Insurance. The Corporation may maintain insurance, at its
---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another Corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
-4-
<PAGE>
F. Indemnification of Employees and Agents of the Corporation. The
----------------------------------------------------------
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses to
any employee or agent of the Corporation to the fullest extent of the provisions
of this Article with respect to the indemnification and advancement of expenses
of directors and officers of the Corporation.
G. Amendment. Any repeal or modification of this Article EIGHT
---------
shall not change the rights of any officer or director to indemnification with
respect to any action or omission occurring prior to such repeal or
modification.
NINE: The following provisions are inserted for the definition, limitation
and regulation of actions of the stockholders of the Corporation:
A. Action to be Taken at Stockholder Meetings Only. Any action required
-----------------------------------------------
or permitted to be taken by the stockholders of the Corporation must be effected
at a duly called annual or special meeting of such stockholders and may not be
effected by the written consent of such stockholders.
B. Calling of Special Meetings. Special meetings of the stockholders,
---------------------------
other than those required by statute, may be called only by the Board of
Directors pursuant to a resolution approved by a majority of the directors then
in office, the Chairman of the Board or Chief Executive Officer. The Board of
Directors may postpone, reschedule or cancel any previously scheduled special
meeting.
Only such business shall be conducted at a special meeting of stockholders
as shall have been brought before the meeting pursuant to the Corporation's
notice of meeting. Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the Corporation's notice of meeting (a) by or at
the direction of the Board of Directors or (b) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice as
provided in this Article NINE, Clause (B), who shall be entitled to vote at the
meeting and who complies with the notice procedures set forth in this Article
NINE, Clause (B). Nominations by stockholders of persons for election to the
Board of Directors may be made at such a special meeting of stockholders if the
stockholder's notice required by Article NINE, Clause (C) shall be delivered to
the Secretary of the Corporation at the principal executive offices of the
Corporation not earlier than the ninetieth day prior to such special meeting and
not later than the close of business on the later of the seventy-fifth day prior
to such special meeting or the tenth day following the day on which a public
announcement (as defined in subparagraph (e) of Article NINE, Clause (C)) is
first made of the special meeting and of the nominees proposed by the Board of
Directors to be elected at such meeting.
C. Notice of Nominations and Action to be Taken at an Annual Meeting.
-----------------------------------------------------------------
(a) Nominations of persons for election to the board of directors of the
Corporation and the proposal of business to be considered by the stockholders
may be
-5-
<PAGE>
made at an annual meeting of stockholders (i) pursuant to the Corporation's
notice of meeting, (ii) by or at the direction of the Board of Directors or
(iii) by any stockholder of the Corporation who was a stockholder of record at
the time of giving of the notice provided for in this Article NINE, Section (C)
who is entitled to vote at the meeting and who complied with the notice
procedures set forth in this Article NINE, Section (C).
(b) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (iii) of paragraph (a) of
this Article NINE, Section (C), the stockholder must have given timely notice
thereof in writing to the Secretary of the Corporation and such business must be
a proper matter for stockholder action under the General Corporation Law of the
State of Delaware. To be timely, a stockholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not less
than seventy-five days nor more than ninety days prior to the first anniversary
of the preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is advanced by more than thirty days or
delayed by more than sixty days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Such stockholder's notice shall set forth (i) as to each person
whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (ii) as to any other business that the stockholder
proposes to bring before the meeting, a brief description of the business
desired to be brought before the meeting, the reasons for conducting such
business at the meeting and any financial or other interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf the proposal
is made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (1) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (2) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(c) Notwithstanding anything in the second sentence of paragraph (b) of
this Article NINE, Section (C) to the contrary, in the event that the number of
directors to be elected to the board of directors of the Corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased board of directors made by the
Corporation at least eighty-five days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by this Article
NINE, Section (C) shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive offices of the Corporation
not later than the close of business on the tenth day following the day on which
such public announcement is first made by the Corporation.
-6-
<PAGE>
(d) Only such persons who are nominated in accordance with the procedures
set forth in this Article NINE, Section (C) shall be eligible to serve as
directors and only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Article NINE, Section (C). The presiding
officer of the meeting shall have the power and duty to determine whether a
nomination or any business proposed to be brought before the meeting was made in
accordance with the procedures set forth in this Article NINE, Section (C) and,
if any proposed nomination or business is not in compliance with this Article
NINE, Section (C), to declare that such defective proposed business or
nomination shall be disregarded.
(e) For purposes of this Article NINE, Section (C), "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(f) Notwithstanding the foregoing provisions of this Article NINE, Section
(C), a stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Article NINE, Section (C). Nothing in this Article
NINE, Section (C) shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the Corporation's proxy statement pursuant to
Rule 14a-8 under the Exchange Act.
(g) The bylaws of the Corporation may contain additional provisions not
inconsistent with this Article NINE, Clause (C) regarding nominations of persons
for election to the Board of Directors of the Corporation and the proposal of
business to be transacted by the stockholders. Without limiting the category of
such provisions which would not be inconsistent with this Article NINE, Clause
(C), a provision in the bylaws of the Corporation which sets forth additional
information which must be provided by a stockholder in the notice required by
this Article NINE, Clause (C) shall not be deemed to be so inconsistent.
D. Voting. The stockholders shall not have the right to cumulate their
------
votes in the election of directors.
TEN: (A) Except as otherwise fixed pursuant to the provisions of Article
FOUR hereof relating to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional directors under specified circumstances, the
number of directors of the Corporation shall be fixed from time to time by or
pursuant to the Bylaws. The directors, other than those who may be elected by
the holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with respect to
the time for which they severally hold office, into three classes: Class I,
Class II and Class III. Each class shall consist, as nearly as may be possible,
of one-third of the whole number of the Board of Directors. The terms of office
of the initial classes of directors shall be as follows: the Class I Directors
shall be elected to hold office for a
-7-
<PAGE>
term to expire at the first annual meeting of stockholders thereafter, or until
his or her earlier resignation or removal; the Class II Directors shall be
elected to hold office for a term to expire at the second annual meeting of
stockholders thereafter, or until his or her earlier resignation or removal; and
the Class III Directors shall be elected to hold office for a term to expire at
the third annual meeting of stockholders thereafter, or until his or her earlier
resignation or removal, and in the case of each class, until their respective
successors are duly elected and qualified. At each annual meeting of
stockholders the directors elected to succeed those whose terms have expired
shall be identified as being of the same class as the directors they succeed and
shall be elected to hold office for a term to expire at the third annual meeting
of stockholders after their election, or until his or her earlier resignation or
removal, and until their respective successors are duly elected and qualified.
(B) Except as otherwise fixed pursuant to the provisions of Article FOUR
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors:
(a) In case of any increase in the number of directors, the additional
director or directors, and in case of any vacancy in the Board of Directors due
to death, resignation, removal, disqualification or any other reason, the
successors to fill the vacancies, shall be elected by a majority of the
directors then in office, even though less than a quorum, or by a sole remaining
director.
(b) Directors appointed in the manner provided in paragraph (a) to newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or any other cause shall hold office for
a term expiring at the next annual meeting of stockholders at which the term of
the class to which they have been elected expires.
(c) No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(C) Except as otherwise fixed pursuant to the provisions of Article FOUR
hereof relating to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation to
elect directors, any director or directors may be removed from office at any
time, but only for cause and only by the affirmative vote of (x) 75% of the
Voting Power, voting together as a single class, or (y) a majority of the Board
of Directors.
ELEVEN: In addition to any other considerations which the Board of
Directors, any committee thereof or any individual director lawfully may take
into account in determining whether to take or refrain from taking corporate
action on any matter, including making or declining to make any recommendations
to the stockholders of the Corporation, the Board of Directors, any committee
thereof or any individual director may in its, his or her discretion consider
the long term as well as the short term best interests of the Corporation
(including the possibility that these interests may best be
-8-
<PAGE>
served by the continued independence of the Corporation), taking into account
and weighing as deemed appropriate the effects of such action on employees,
suppliers, distributors and customers of the Corporation and its subsidiaries
and the effect upon communities in which the offices or facilities of the
Corporation and its subsidiaries are located and any other factors considered
pertinent. This Article ELEVEN shall be deemed to grant discretionary authority
to the Board of Directors, any committee thereof and each individual director,
and shall not be deemed to provide to any specific constituency any right to be
considered.
-9-
<PAGE>
EXHIBIT 3.2
................................................................................
CHANNELL COMMERCIAL CORPORATION
BYLAWS
................................................................................
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES...................................................... 1
Section 1. Registered Office.............................. 1
Section 3. Other Offices.................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS.................................... 1
Section 1. Place of Meetings.............................. 1
Section 2. Annual Meeting................................. 1
Section 3. Special Meetings............................... 1
Section 4. Notice of Meetings............................. 1
Section 5. Quorum; Adjournment............................ 2
Section 6. Proxies and Voting............................. 2
Section 7. Stock List..................................... 3
ARTICLE III BOARD OF DIRECTORS......................................... 3
Section 1. Duties and Powers.............................. 3
Section 2. Number and Term of Office...................... 3
Section 3. Vacancies...................................... 4
Section 4. Meetings....................................... 4
Section 5. Quorum......................................... 5
Section 6. Actions of Board Without a Meeting............. 5
Section 7. Meetings by Means of Conference
Telephone.................................... 5
Section 8. Committees..................................... 5
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 9. Compensation.................................. 6
Section 10. Removal...................................... 6
ARTICLE IV OFFICERS................................................... 6
Section 1. General....................................... 6
Section 2. Election; Term of Office...................... 6
Section 3. Chairman of the Board......................... 6
Section 4. Chief Executive Officer....................... 7
Section 5. President..................................... 7
Section 6. Vice President................................ 7
Section 7. Secretary..................................... 7
Section 8. Assistant Secretaries......................... 8
Section 9. Treasurer..................................... 8
Section 10. Assistant Treasurers......................... 8
Section 11. Other Officers............................... 8
ARTICLE V STOCK....................................................... 9
Section 1. Form of Certificates.......................... 9
Section 2. Signatures.................................... 9
Section 3. Lost Certificates............................. 9
Section 4. Transfers..................................... 9
Section 5. Record Date................................... 9
Section 6. Beneficial Owners............................. 10
Section 7. Voting Securities Owned by the Corporation.... 10
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI NOTICES..................................................... 10
Section 1. Notices....................................... 10
Section 2. Waiver of Notice.............................. 10
ARTICLE VII GENERAL PROVISIONS........................................ 11
Section 1. Dividends..................................... 11
Section 2. Disbursements................................. 11
Section 3. Corporation Seal.............................. 11
ARTICLE VIII DIRECTORS' LIABILITY AND INDEMNIFICATION................. 11
Section 1. Directors' Liability.......................... 11
Section 2. Right to Indemnification...................... 12
Section 3. Right to Advancement of Expenses.............. 12
Section 4. Right of Indemnitee to Bring Suit............. 12
Section 5. Non-Exclusivity of Rights..................... 13
Section 6. Insurance..................................... 13
Section 7. Indemnification of Employees and Agents
of the Corporation.......................... 13
Section 8. Amendment..................................... 14
ARTICLE IX AMENDMENTS................................................. 14
</TABLE>
iii
<PAGE>
BYLAWS
OF
CHANNELL COMMERCIAL CORPORATION
-------------------------------
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
-------
Section 1. Registered Office. The registered office of the Corporation
---------- -----------------
shall be in the City of Dover, County of Kent, State of Delaware.
Section 2. Corporate Headquarters. The corporate headquarters of the
---------- ----------------------
Corporation shall be in the City of Temecula, California.
Section 3. Other Offices. The Corporation may also have offices at such
---------- -------------
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
---------- -----------------
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware, as shall be designated
from time to time by the Board of Directors or the officer of the Corporation
calling the meeting as authorized by the Corporation's Certificate of
Incorporation and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual Meeting. Each Annual Meeting of Stockholders shall be
---------- --------------
held on such date and at such time as shall be designated from time to time by
the Board of Directors and stated in the notice of the meeting, at which
meetings the stockholders shall elect by a plurality vote a Board of Directors,
and transact such other business as may properly be brought before the meeting.
Section 3. Special Meetings. Special meetings of the stockholders, other
---------- ----------------
than those required by statute, may be called only as provided, and for the
purposes specified, in the Corporation's Certificate of Incorporation.
Section 4. Notice of Meetings. Written notice of the place, date, and
---------- ------------------
time of all meetings of the stockholders shall be given not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or as required from
<PAGE>
time to time by the Delaware General Corporation Law or the Certificate of
Incorporation. The notice of a special meeting shall also state the purpose or
purposes for which the meeting is called.
Section 5. Quorum; Adjournment. At any meeting of the stockholders, the
---------- -------------------
holders of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or the Certificate of Incorporation. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares of stock entitled to vote who are present, in person or
by proxy, may adjourn the meeting to another place, date, or time without notice
other than announcement at the meeting, until a quorum shall be present or
represented.
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 6. Proxies and Voting. At any meeting of the stockholders, every
---------- ------------------
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law or the Certificate of
Incorporation.
All voting, including on the election of directors but excepting where
otherwise provided herein or required by law or the Certificate of
Incorporation, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or such stockholder's proxy, or at
the discretion of the chairperson of the meeting, a stock vote shall be taken.
Every stock vote shall be taken by ballots, each of which shall state the name
of the stockholder or proxy voting and such other information as may be required
under the procedure established for the meeting. Every vote taken by ballots
shall be counted by an inspector or inspectors appointed by the Board of
Directors or the chairperson of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
2
<PAGE>
Section 7. Stock List. A complete list of stockholders entitled to vote
---------- ----------
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in such stockholder's name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. Duties and Powers. The business of the Corporation shall be
---------- -----------------
managed by or under the direction of the Board of Directors which may exercise
all such powers of the Corporation and do all such lawful acts and things as are
not by law or by the Certificate of Incorporation or by these Bylaws directed or
required to be exercised or done by the stockholders.
Section 2. Number and Term of Office. The Board of Directors shall
---------- -------------------------
consist of one (1) or more members. The number of directors shall be fixed and
may be changed from time to time by resolution duly adopted by a majority of the
directors then in office, except as otherwise provided by law or the Certificate
of Incorporation. Except as provided in Section 3 of this Article, directors
shall be elected by the holders of record of a plurality of the votes cast at
Annual Meetings of Stockholders. Any director may resign at any time upon
written notice to the Corporation. Directors need not be stockholders.
The directors, other than those who may be elected by the holders of any
class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be classified, with respect to the time for
which they severally hold office, into three classes: Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of one-third
of the whole number of the Board of Directors. The terms of office of the
initial classes of directors shall be as follows: the Class I Directors shall
be elected to hold office for a term to expire at the first annual meeting of
stockholders thereafter, or until his or her earlier resignation or removal; the
Class II Directors shall be elected to hold office for a term to expire at the
second annual meeting of stockholders thereafter, or until his or her earlier
resignation or removal; and the Class III Directors shall be elected to hold
office for a term to expire at the third annual meeting of stockholders
thereafter, or until his or her earlier resignation or removal, and in the case
of each class, until their respective successors are duly elected
3
<PAGE>
and qualified. At each annual meeting of stockholders the directors elected to
succeed those whose terms have expired shall be identified as being of the same
class as the directors they succeed and shall be elected to hold office for a
term to expire at the third annual meeting of stockholders after their election,
or until his or her earlier resignation or removal, and until their respective
successors are duly elected and qualified. This paragraph of Article III,
Section 2 is also contained in Article TEN, Section (A) of the Corporation's
Certificate of Incorporation, and accordingly, may be altered, amended or
repealed only to the extent and at the time the comparable Certificate Article
is altered, amended or repealed.
Section 3. Vacancies. Except as otherwise fixed pursuant to the
---------- ---------
provisions of Article FOUR of the Corporation's Certificate of Incorporation
relating to the rights of the holders of any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation to elect
directors:
(a) In case of any increase in the number of directors, the additional
director or directors, and in case of any vacancy in the Board of Directors due
to death, resignation, removal, disqualification or any other reason, the
successors to fill the vacancies, shall be elected by a majority of the
directors then in office, even though less than a quorum, or by a sole remaining
director, and the director or directors so chosen shall hold office until the
next Annual Meeting or special meeting of stockholders duly called for that
purpose and until their successors are duly elected and qualified, or until
their earlier resignation or removal.
(b) Directors appointed in the manner provided in paragraph (a) to newly
created directorships resulting from any increase in the authorized number of
directors or any vacancies on the Board of Directors resulting from death,
resignation, removal, disqualification or any other cause shall hold office for
a term expiring at the next annual meeting of stockholders at which the term of
the class to which they have been elected expires.
(c) No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
This Article III, Section 3 is also contained in Article TEN, Section (B)
of the Corporation's Certificate of Incorporation, and accordingly, may be
altered, amended or repealed only to the extent and at the time the comparable
Certificate Article is altered, amended or repealed.
Section 4. Meetings. The Board of Directors of the Corporation may hold
---------- --------
meetings, both regular and special, either within or without the State of
Delaware. The first meeting of each newly-elected Board of Directors shall be
held immediately following the Annual Meeting of Stockholders and no notice of
such meeting shall be necessary to be given the newly-elected directors in order
legally to constitute the meeting, provided a quorum shall be present. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to
4
<PAGE>
time be determined by the Board of Directors. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the President or a
majority of the directors then in office. Notice thereof stating the place,
date and hour of the meeting shall be given to each director either by mail not
less than forty-eight (48) hours before the date of the meeting, by telephone,
telegram or facsimile transmission on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances. Meetings may be held at any time without
notice if all the directors are present or if all those not present waive such
notice in accordance with Section 2 of Article VI of these Bylaws.
Section 5. Quorum. Except as may be otherwise specifically provided by
---------- ------
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the directors then in office shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present.
Section 6. Actions of Board Without a Meeting. Unless otherwise provided
---------- ----------------------------------
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board of
Directors or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
---------- -----------------------------------------
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 7 shall constitute
presence in person at such meeting.
Section 8. Committees. The Board of Directors may, by resolution passed
---------- ----------
by a majority of the directors then in office, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member
of a committee, and in the absence of a designation by the Board of Directors of
an alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not such members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any committee, to the extent allowed by law and
provided in the Bylaw or resolution establishing such
5
<PAGE>
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 9. Compensation. Unless otherwise restricted by the Certificate
---------- ------------
of Incorporation or these Bylaws, the Board of Directors shall have the
authority to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 10. Removal. Any director or directors may be removed from office
----------- -------
only as provided in the Corporation's Certificate of Incorporation.
ARTICLE IV
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be appointed by
---------- -------
the Board of Directors and shall consist of a Chairman of the Board, a Chief
Executive Officer, a President, such number of Vice Presidents as the Board of
Directors shall elect from time to time, a Secretary, a Treasurer (or a position
with the duties and responsibilities of a Treasurer) and such other officers and
assistant officers (if any) as the Board of Directors may from time to time
appoint. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. Election; Term of Office. The Board of Directors at its first
---------- ------------------------
meeting held after each Annual Meeting of Stockholders shall elect a Chairman of
the Board or a President, or both, a Secretary and a Treasurer (or a position
with the duties and responsibilities of a Treasurer), and may also elect at that
meeting or any other meeting, such other officers and agents as it shall deem
necessary or appropriate. Each officer of the Corporation shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors together with the powers and duties customarily exercised by
such officer; and each officer of the Corporation shall hold office until such
officer's successor is elected and qualified or until such officer's earlier
resignation or removal. Any officer may resign at any time upon written notice
to the Corporation. The Board of Directors may at any time, with or without
cause, by the affirmative vote of a majority of directors then in office, remove
any officer.
Section 3. Chairman of the Board. The Chairman of the Board shall preside
---------- ---------------------
at all meetings of the stockholders and the Board of Directors and shall have
such other
6
<PAGE>
duties and powers as may be prescribed by the Board of Directors from time to
time. The Board of Directors may also designate one of its members as Vice
Chairman of the Board. The Vice Chairman of the Board shall, during the absence
or inability to act of the Chairman of the Board, have the powers and perform
the duties of the Chairman of the Board, and shall have such other powers and
perform such other duties as shall be prescribed from time to time by the Board
of Directors.
Section 4. Chief Executive Officer. The Chief Executive Officer shall
---------- -----------------------
have general charge and control over the affairs of the Corporation, subject to
the Board of Directors, shall see that all orders and resolutions of the Board
of Directors are carried out, shall report thereon to the Board of Directors,
and shall have such other powers and perform such other duties as shall be
prescribed from time to time by the Board of Directors.
Section 5. President. The President shall have general and active
---------- ---------
management of the business of the Corporation and shall see that all orders and
resolutions of the Board of Directors are carried into effect. The President
shall have and exercise such further powers and duties as may be specifically
delegated to or vested in the President from time to time by these Bylaws or the
Board of Directors. In the absence of the Chairman of the Board or the Vice
Chairman of the Board (if any) or in the event of the inability of or refusal to
act by the Chairman of the Board or the Vice Chairman of the Board (if any), or
if the Board has not designated a Chairman or Vice Chairman, the President shall
perform the duties of the Chairman of the Board, and when so acting, shall have
all of the powers and be subject to all of the restrictions upon the Chairman of
the Board.
Section 6. Vice President. In the absence of the President or in the
---------- --------------
event of his inability or refusal to act, the Vice President (or in the event
there be more than one vice president, the vice presidents in the order
designated by the directors, or in the absence of any designation, then in the
order of their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The vice presidents shall perform such other duties and have
such other powers as the Board of Directors or the President may from time to
time prescribe.
Section 7. Secretary. The Secretary shall attend all meetings of the
---------- ---------
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or the President. If the Secretary shall be unable or shall refuse to cause to
be given notice of all meetings of the stockholders and special meetings of the
Board of Directors, and if there be no Assistant Secretary, then either the
Board of Directors or the President may choose another officer to cause such
notice to be given. The Secretary shall have custody of the seal of the
Corporation and the Secretary or any
7
<PAGE>
Assistant Secretary, if there be one, shall have authority to affix the same to
any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest the affixing by his or her signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
Section 8. Assistant Secretaries. Except as may be otherwise provided in
---------- ---------------------
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Secretary, and shall have the authority to
perform all functions of the Secretary, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Secretary.
Section 9. Treasurer. The Treasurer shall have the custody of the
---------- ---------
corporate funds and securities, shall keep complete and accurate accounts of all
receipts and disbursements of the Corporation, and shall deposit all monies and
other valuable effects of the Corporation in its name and to its credit in such
banks and other depositories as may be designated from time to time by the Board
of Directors. The Treasurer shall disburse the funds of the Corporation, taking
proper vouchers and receipts for such disbursements. The Treasurer shall, when
and if required by the Board of Directors, give and file with the Corporation a
bond, in such form and amount and with such surety or sureties as shall be
satisfactory to the Board of Directors, for the faithful performance of his or
her duties as Treasurer. The Treasurer shall have such other powers and perform
such other duties as the Board of Directors or the President shall from time to
time prescribe.
Section 10. Assistant Treasurers. Except as may be otherwise provided in
----------- --------------------
these Bylaws, Assistant Treasurers, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, or the Treasurer, and shall have the authority to
perform all functions of the Treasurer, and when so acting, shall have all the
powers of and be subject to all the restrictions upon the Treasurer.
Section 11. Other Officers. Such other officers as the Board of Directors
----------- --------------
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
8
<PAGE>
ARTICLE V
STOCK
-----
Section 1. Form of Certificates. Every holder of stock in the
---------- --------------------
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board or the President or a Vice
President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by such holder in the Corporation.
Section 2. Signatures. Any or all the signatures on the certificate
---------- ----------
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Section 3. Lost Certificates. The Board of Directors may direct a
---------- -----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen or destroyed. When authorizing such issue of a new
certificate, the Board of Directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate, or such owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
Section 4. Transfers. Stock of the Corporation shall be transferable
---------- ---------
in the manner prescribed by law and in these Bylaws. Transfers of stock shall
be made on the books of the Corporation only by the person named in the
certificate or by such person's attorney lawfully constituted in writing and
upon the surrender of the certificate therefor, which shall be cancelled before
a new certificate shall be issued.
Section 5. Record Date. In order that the Corporation may determine
---------- -----------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty (60) days nor less than ten
(10) days before the date of such meeting, nor more than sixty (60) days prior
to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
9
<PAGE>
Section 6. Beneficial Owners. The Corporation shall be entitled to
---------- -----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
Section 7. Voting Securities Owned by the Corporation. Powers of
---------- ------------------------------------------
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the Chairman of the Board, the President,
any Vice President or the Secretary and any such officer may, in the name of and
on behalf of the Corporation, take all such action as any such officer may deem
advisable to vote in person or by proxy at any meeting of security holders of
any corporation in which the Corporation may own securities and at any such
meeting shall possess and may exercise any and all rights and power incident to
the ownership of such securities and which, as the owner thereof, the
Corporation might have exercised and possessed if present. The Board of
Directors may, by resolution, from time to time confer like powers upon any
other person or persons.
ARTICLE VI
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law, the
---------- -------
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, facsimile transmission, telex or cable and
such notice shall be deemed to be given at the time of receipt thereof if given
personally or at the time of transmission thereof if given by telegram,
facsimile transmission, telex or cable.
Section 2. Waiver of Notice. Whenever any notice is required by law,
---------- ----------------
the Certificate of Incorporation or these Bylaws to be given to any director,
member or a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to notice.
10
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
---------- ---------
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special meeting
or by any Committee of the Board of Directors having such authority at any
meeting thereof, and may be paid in cash, in property, in shares of the capital
stock or in any combination thereof. Before payment of any dividend, there may
be set aside out of any funds of the Corporation available for dividends such
sum or sums as the Board of Directors from time to time, in its absolute
discretion, deems proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any proper purpose, and the Board of Directors may modify or
abolish any such reserve.
Section 2. Disbursements. All notes, checks, drafts and orders for
---------- -------------
the payment of money issued by the Corporation shall be signed in the name of
the Corporation by such officers or such other persons as the Board of Directors
may from time to time designate.
Section 3. Corporation Seal. The corporate seal, if the Corporation
---------- ----------------
shall have a corporate seal, shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
DIRECTORS' LIABILITY AND INDEMNIFICATION
----------------------------------------
Section 1. Directors' Liability. A director of the Corporation shall
---------- --------------------
not be personally liable to the Corporation or its stockholders for monetary
damages for any breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law or (iv) for any transaction from which such
director derived any improper personal benefit. If the Delaware General
Corporation Law is amended to authorize corporate action further eliminating the
personal liability of directors, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as amended. Any repeal or modification of
this provision shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
11
<PAGE>
Section 2. Right to Indemnification. Each person who was or is made
---------- ------------------------
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director or an officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or agent or in
any other capacity while serving as a director, officer, employee or agent,
shall be indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in Section 4 of this Article VIII
with respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a proceeding
(or part thereof) initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the Corporation.
Section 3. Right to Advancement of Expenses. The right to
---------- --------------------------------
indemnification conferred in Section 2 of this Article VIII shall include the
right to be paid by the Corporation the expenses (including attorneys' fees)
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section 3 or otherwise. The rights to indemnification and to the
advancement of expenses conferred in Sections 2 and 3 of this Article VIII shall
be contract rights and such rights shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
Section 4. Right of Indemnitee to Bring Suit. If a claim under
---------- ---------------------------------
Section 2 or 3 of this Article VIII is not paid in full by the Corporation
within sixty (60) days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty (20) days, the indemnitee may
at any time thereafter bring suit against the Corporation to recover
12
<PAGE>
the unpaid amount of the claim. If successful in whole or in part in any such
suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or brought by the Corporation to recover an
advancement or expenses pursuant to the terms of an undertaking, the burden or
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article VIII or otherwise shall be on the
Corporation.
Section 5. Non-Exclusivity of Rights. The rights to indemnification
---------- -------------------------
and to the advancement of expenses conferred in this Article VIII shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise.
Section 6. Insurance. The Corporation may maintain insurance, at its
---------- ---------
expense, to protect itself and any director, officer, employee or agent of the
Corporation or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
Section 7. Indemnification of Employees and Agents of the
---------- ----------------------------------------------
Corporation. The Corporation may, to the extent authorized from time to time by
- -----------
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
13
<PAGE>
Section 8. Amendment. This Article VIII is also contained in
---------- ---------
Articles SEVEN and EIGHT of the Corporation's Certificate of Incorporation, and
accordingly, may be altered, amended or repealed only to the extent and at the
time the comparable Certificate Article is altered, amended or repealed. Any
repeal or modification of this Article VIII shall not change the rights of an
officer or director to indemnification with respect to any action or omission
occurring prior to such repeal or modification.
ARTICLE IX
AMENDMENTS
----------
Except as otherwise specifically stated within an Article to be altered,
amended or repealed, these Bylaws may be altered, amended or repealed and new
Bylaws may be adopted at any meeting of the Board of Directors or of the
stockholders, provided notice of the proposed change was given in the notice of
the meeting.
14
<PAGE>
THIS IS TO CERTIFY:
That I am the duly elected, qualified and acting Secretary of Channell
Commercial Corporation and that the foregoing bylaws were adopted as the bylaws
of said corporation as of the 26th day of April, 1996 by Unanimous Written
Consent of the Directors of said corporation.
Dated as of April 26, 1996
---------------------------------------------
Jacqueline M. Channell, Secretary
15
<PAGE>
EXHIBIT 5
[Letterhead of Irell & Manella LLP]
May 10, 1996
Channell Commercial Corporation
26040 Ynez Road
Temecula, California 92591-9022
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 (the "Registration
Statement") being filed by you on May 13, 1996 with the Securities and Exchange
Commission (the "Commission") in connection with the public offering by Channell
Commercial Corporation (the "Company") of 3,565,000 shares of the Company's
Common Stock, par value $.01 per share (the "Shares", which shares shall be
deemed to include any additional shares that may be registered by the Company in
connection herewith pursuant to Rule 462(b) promulgated under the Securities Act
of 1933, as amended (the "Act")). The Shares are to be sold to the Underwriters
for resale to the public as described in the Registration Statement and pursuant
to the Underwriting Agreement described in the Registration Statement. As your
counsel in connection with this transaction, we have examined the proceedings
proposed to be taken in connection with said sale and issuance of the Shares and
such other matters and documents as we have deemed necessary or relevant as a
basis for this opinion.
Based on these examinations, it is our opinion that, upon completion of
the proceedings being taken or which we, as your counsel, contemplate will be
taken prior to the issuance of the Shares, the Shares, when issued, sold and
paid for in the manner referred to in the Registration Statement, will be
legally and validly issued, fully paid and non-assessable.
<PAGE>
[Second Page Letterhead
of Irell & Manella LLP]
Channell Commercial Corporation
May 10, 1996
Page 2
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a part of the Registration Statement.
In addition, in the event that the Company elects to register additional Shares
pursuant to a registration statement filed under Rule 462(b) of the Act in
connection with the current Registration Statement, we consent to the use of
this opinion in connection with such additional registration statement and to
the incorporation by reference of this opinion in such registration statement.
Very truly yours,
/s/ IRELL & MANELLA LLP
--------------------------
Irell & Manella LLP
<PAGE>
EXHIBIT 10.2
CHANNELL COMMERCIAL CORPORATION
1996 INCENTIVE STOCK PLAN
-------------------------
1. Purpose. The purpose of this 1996 Incentive Stock Plan (this "PLAN")
-------
is to secure for the Company and its stockholders the benefits arising from
stock ownership by key employees, directors and other service providers as the
Committee (as hereinafter defined) may from time to time determine.
With respect to Stock Options (as hereinafter defined), the Plan will
provide a means whereby key employees, directors and other service providers of
the Company may purchase shares of Common Stock, par value $.01 per share, of
the Company ("COMMON STOCK") (i) pursuant to Stock Options that will qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended (the "CODE"), and (ii) pursuant to "non-incentive" or "non-
qualified" Stock Options.
2. Administration. The Plan shall be administered by the Board of
--------------
Directors of the Company or, in the discretion of the Board, a Committee (in
either case, the "COMMITTEE") consisting of two or more directors of the Company
to whom administration of the Plan has been duly delegated. If the Committee is
not the entire Board of Directors, the Committee shall be appointed by the Board
of Directors of the Company. From and after such time as the Company is subject
to the reporting requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT"), no director shall be appointed to
or shall serve on the Committee who has been granted or awarded equity
securities of the Company pursuant to the Plan or (except any such grant or
award that does not disqualify such director as a "disinterested person" under
Rule 16b-3 promulgated under the Exchange Act) any other plan of the Company or
its affiliates during the period of one year prior to such appointment. Except
as otherwise provided in the Company's Bylaws, any action of the Committee with
respect to administration of the Plan shall be taken by a majority vote at a
meeting at which a quorum is duly constituted or by unanimous written consent of
the Committee's members.
Subject to the provisions of the Plan, the Committee shall have sole and
final authority (i) to construe and interpret the Plan, (ii) to define the terms
used herein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to make awards of Restricted Shares and Stock Options
hereunder, (v) to determine the individuals to whom and the time or times at
which such awards shall be made, the number of shares of Common Stock to be
subject to such awards, the vesting of such awards and the other terms of such
awards, (vi) in the case of Stock Options, to determine
-1-
<PAGE>
whether such Stock Options shall be intended as "incentive stock options" or
"non-incentive" or "non-qualified" Stock Options under Section 422 of the Code,
and (vii) to make all other determinations necessary or advisable for the
administration of the Plan. All determinations and interpretations made by the
Committee shall be binding and conclusive on all participants in the Plan and
their legal representatives and beneficiaries.
3. Shares Subject to the Plan. The shares to be allocated under this Plan
--------------------------
shall consist of the Company's authorized but unissued Common Stock. Subject to
adjustment as provided in Section 7 hereof, the aggregate number of shares of
Common Stock that may be allocated to awards made to participants shall not
exceed seven hundred and fifty thousand (750,000) of such shares. Shares of
Common Stock issued pursuant to the Plan and subsequently reacquired by the
Company shall be available for reissuance under the Plan, and shares of Common
Stock that are subject to Stock Options that lapse or terminate without exercise
shall be available to be subject to newly issued Stock Options under the Plan.
4. Eligibility and Participation. All key employees, directors and
-----------------------------
other service providers (excluding Committee members to the extent provided in
Section 2) of the Company shall be eligible for selection to participate in the
Plan (each, a "PARTICIPANT").
5. Awards. (a) A Participant may receive one or more awards hereunder,
------
at any time and from time to time, as determined by the Committee. As
determined by the Committee, awards may be in the form of (i) grants of
restricted stock the vesting of which is subject to certain conditions to be
determined by the Committee ("RESTRICTED SHARES"), (ii) options to purchase
Common Stock ("STOCK OPTIONS"), or (iii) any combination of the foregoing. All
awards of Restricted Shares shall be pursuant to, and shall be subject to the
terms and restrictions provided in, a Restricted Stock Agreement substantially
in the form attached to this Plan as Exhibit A or such alternative form
-
(consistent with the terms of this Plan) as the Commitee may choose from time to
time; and all awards of Stock Options shall be pursuant to, and shall be subject
to the terms and restrictions provided in, either (i) an Incentive Stock Option
Agreement substantially in the form attached to this Plan as Exhibit B or such
-
alternative form (consistent with the terms of this Plan) as the Commitee may
choose from time to time or (ii) a Nonqualified Stock Option Agreement
substantially in the form attached to this Plan as Exhibit C or such alternative
-
form (consistent with the terms of this Plan) as the Commitee may choose from
time to time. Subject to the terms of this Plan, the Committee shall determine
the exact terms and restrictions included in each of
-2-
<PAGE>
the foregoing agreements, as applicable, with respect to each award to a
Participant.
(b) In addition to awards that may be granted pursuant to paragraph 5(a)
hereof, on the date of each of the Company's annual stockholder meetings, each
non-management director (including non-executive officers who serve as
directors) serving on the Board of Directors immediately following such meeting
shall receive 1,000 non-qualified Stock Options, which shall (i) have an
exercise price equal to the fair market value of the Common Stock on the date
such options are granted, (ii) vest at a rate of 33-1/3% per year commencing on
the first anniversary of the date of issuance and (iii) have a term of ten
years. For purposes hereof, "fair market value" of a share of Common Stock of
the Company shall be determined for purposes of this Plan by reference to the
closing price on the principal stock exchange on which such shares are then
listed or, if such shares are not then listed on a stock exchange, by reference
to the closing price (if approved for quotation on the NASDAQ National Market
System) or the mean between the bid and asked price (if other over-the-counter
issue) of a share as supplied by the National Association of Securities Dealers,
Inc. through NASDAQ (or its successor in function), in each case as reported by
The Wall Street Journal for the business day immediately preceding the date on
which the option is exercised (or, if for any reason no such price is available,
in such other manner as the Committee may deem appropriate to reflect the then
fair market value thereof).
6. Provisions Applicable to Incentive Stock Options. No Stock Option
------------------------------------------------
intended as an "incentive stock option" within the meaning of Section 422 of the
Code shall be granted to any person who owns shares of the Company's or any of
its parent or subsidiary corporation's outstanding Common Stock or such other
capital stock as may hereinafter be issued by the Company or any of its parent
or subsidiary corporations possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or any of such
corporations, unless the purchase price of such Stock Option is at least one
hundred ten percent (110%) of the per share fair market value of the Common
Stock on the date the Stock Option is granted and such Stock Option by its terms
is not exercisable after the expiration of five (5) years from the date such
Stock Option is granted. In addition, no Stock Option intended as an "incentive
stock option" shall be issued to any Participant with a purchase price of less
than one hundred percent (100%) of the per share fair market value of the Common
Stock on the date the Stock Option is granted or with a term of longer than ten
(10) years from the date such Stock Option is granted.
If a holder of an "incentive stock option" ceases to be employed by the
Company or any subsidiary of the Company for
-3-
<PAGE>
any reason other than the option holder's death or permanent disability (within
the meaning of Section 22(e)(3) of the Code), the option holder's "incentive
stock option" shall not be entitled to incentive treatment under the Code if
exercised after more than three months after the date the option holder ceased
to be an employee of one of such corporations (unless by its terms such Stock
Option sooner expires). If a holder of an "incentive stock option" ceases to be
employed by the Company or any subsidiary of the Company on account of death or
permanent disability (within the meaning of Section 22(e)(3) of the Code), such
Stock Option shall not be entitled to incentive treatment under the Code if
exercised after one year after the date of such death or permanent disability
unless by its terms it sooner expires. During such period after death, any
vested unexercised portion of the Stock Option may be exercised by the person or
persons to whom the option holder's rights under the Stock Option shall pass by
will or the laws of descent and distribution.
To the extent that the aggregate fair market value of Common Stock or other
capital stock with respect to which "incentive stock options" are exercisable
for the first time by any individual during any calendar year (under all plans
of the Company and its parent and subsidiary corporations) exceeds $100,000,
such Stock Options shall be treated as Stock Options which are not "incentive
stock options."
7. Adjustments. If the outstanding shares of the Common Stock of the
-----------
Company are increased, decreased, changed into or exchanged for a different
number or kind of shares or securities of the Company through:
(i) a distribution or payment of a dividend on the Common stock in
shares of Common Stock;
(ii) subdivision or reclassification, in a stock split or similar
transaction, of the outstanding shares of Common Stock into a greater
number of shares;
(iii) combination or reclassification of, in a reverse stock spilt or
similar transaction, the outstanding shares of Common Stock into a smaller
number of shares; or
(iv) issuance of any shares of capital stock by reclassification of
the Common Stock;
then an appropriate and proportionate adjustment shall be made in the maximum
number and kind of shares which may be awarded under this Plan.
Adjustments under this paragraph 7 shall be made by the Committee, whose
determination as to what adjustments shall be
-4-
<PAGE>
made, and the extent thereof, shall be final, binding and conclusive.
8. Amendment and Termination of Plan. The Committee may at any time
---------------------------------
suspend or terminate the Plan. The Committee may also at any time amend or
revise the terms of the Plan.
Notwithstanding the foregoing, no amendment, suspension or termination of
the Plan that would materially adversely affect any rights or obligations of any
Participant under any Restricted Stock Agreement or Management Stock Option and
Stockholders Agreement shall be effective as to such Participant unless there
shall have been specific action of the Committee and consent of the Participant.
9. No Employment Rights. The selection of any person to receive an award
--------------------
under this Plan shall not give such person any right to be retained in the
employment of the Company or any of its subsidiaries or any of their affiliates
and the right and the power of the Company or any of its subsidiaries or any of
their affiliates to discharge any such person shall not be affected by such
award. No person shall have any right or claim whatever, directly, indirectly
or by implication, to receive an award, nor any expectancy thereof, unless and
until an award in fact shall have been made to such person by the Committee as
provided herein. The award to any person hereunder at any time shall not create
any right or implication that any other or further award may or shall be made at
another time. Each award hereunder shall be separate and distinct from every
other award and shall not be construed as a part of any continuing series of
awards or compensation.
10. Plan Not Exclusive. The Plan is not exclusive. The Company may have
------------------
other plans, programs and arrangements for compensation or the issuance of
shares or options. The Plan does not require that Participants hereunder be
precluded from participation in such other plans, programs and arrangements.
11. Term. The term of this Plan shall commence as of _______________ and
----
shall expire on the ninetieth (90th) day after the tenth (10th) anniversary of
such date, unless earlier terminated.
-5-
<PAGE>
Exhibit A = Channell Commercial Corporation Restricted Stock Agreement
Exhibit B = Channell Commercial Corporation Incentive Stock Option Agreement
Exhibit C = Channell Commercial Corporation Nonqualified Stock Option
Agreement
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<PAGE>
CHANNELL COMMERCIAL CORPORATION
RESTRICTED STOCK AGREEMENT
THIS AGREEMENT is made as of _____________, 1996 between CHANNELL
COMMERCIAL CORPORATION, a Delaware corporation (the "Company"), and
______________ ("Participant").
WITNESSETH:
WHEREAS, the Company has adopted the Channell Commercial Corporation 1996
Incentive Stock Plan (the "Plan"), which is incorporated into this Agreement by
reference and made a part of it; and
WHEREAS, the Company regards Participant as valuable to it, and has
determined that it would be to the advantage and interest of the Company and its
stockholders to grant the Restricted Stock provided for in this Agreement to
Participant as an inducement to remain in the service of the Company and as an
incentive for increased efforts during such service;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties to this Agreement hereby agree as follows:
1. Grant. Contemporaneously with the execution of this Agreement,
-----
the Company will issue ______ shares of the Common Stock of the Company (the
"Restricted Stock") to the Participant. Stock certificates evidencing this
Restricted Stock will be delivered to the Secretary of the Company at the
corporate headquarters of the Company (the "Escrow Holder"), accompanied by
blank stock powers executed by the Participant, to be held by the Escrow Holder
for the periods set forth in paragraph 3 below, subject to the rights and
limitations set forth in this Agreement. The Company shall pay the costs and
charges of the Escrow Holder (if any) and any applicable stock transfer taxes.
All shares of Restricted Stock shall be deemed issued to the Participant as
fully paid and nonassessable shares. Except as otherwise provided in this
Agreement, the Participant shall have all rights of a stockholder with respect
to the Restricted Stock, including rights to vote, to receive dividends
(including stock dividends), to participate in stock splits or other
recapitalizations, and to exchange such shares in any merger, consolidation or
other reorganization or exchange of shares. The Participant hereby
acknowledges and represents that the Restricted Stock is acquired for investment
and not with a view to the distribution thereof, and that the Participant does
not intend to subdivide the Participant's interest in the Restricted Stock with
any other person.
<PAGE>
2. Restriction on Transfer. The Participant shall not have any
-----------------------
right to sell, give, pledge, hypothecate or otherwise transfer or dispose of any
Restricted Stock until the restrictions in this paragraph 2 lapse as provided in
paragraph 3 of this Agreement. Prior to the lapse of such restrictions, the
Restricted Stock shall continue to be held in escrow by the Escrow Holder.
Notwithstanding the foregoing, unless otherwise provided pursuant to the terms
of any employment agreement between the Participant and the Company, should
Participant's employment be terminated prior to the lapse of restrictions on any
Restricted Stock for any reason, including death, disability, retirement or
voluntary or involuntary termination, such unvested portion of the Restricted
Stock shall be transferred and delivered to the Company by the Escrow Holder
without payment of any consideration to Participant therefor and Participant
shall forfeit all rights with respect to such Restricted Stock. For purposes of
the Restricted Stock award, Participant's employment shall be considered to
continue so long as Participant is a bona fide employee of the Company or of any
corporation affiliated with the Company as determined by the Compensation
Committee of the Board of Directors.
3. Lapse of Restrictions. The restrictions imposed on the Restricted
---------------------
Stock under paragraph 2 of this Agreement shall lapse as to ______% of the
Shares of Restricted Stock covered hereby on each anniversary of this Agreement.
Upon lapse of restrictions on shares of Restricted Stock, the Escrow Holder
shall, upon receiving confirmation from the Company that Participant's
withholding requirements under paragraph 6 have been satisfied, transmit to
Participant the certificates evidencing such stock.
4. Acceleration of Lapse. The Compensation Committee may, in its
---------------------
sole discretion, accelerate, in whole or in part, the time set forth in
paragraph 3 above for lapsing of the restrictions on Restricted Stock in the
event a financial hardship arises with respect to Participant, including,
without limitation, an adverse change in the applicable laws, regulations or
rulings relating to treatment of the Restricted Stock for tax purposes. Upon
the occurrence of (i) the dissolution or liquidation of the Company, (ii) a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation
or, as a result of which it is the surviving corporation and its outstanding
voting securities are converted to or reclassified as cash, securities of
another corporation or other property, (iii) upon a sale of assets of the
Company or its subsidiaries having a fair market value equal to more than fifty
percent (50%) of the total fair market value of the Company's assets to an
entity which is not controlling, controlled by or under common control with the
Company, or (iv) the acquisition of a record or beneficial interest in more than
fifty percent (50%)
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<PAGE>
of the then outstanding voting securities of the Company, either in a single
transaction or a series of transactions, by an entity or "group" within the
meaning of Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder which is not an affiliate of the Company, any
restrictions imposed upon and remaining applicable to shares awarded hereunder
shall automatically terminate.
5. Additional Securities as Restricted Stock. Any securities
-----------------------------------------
received as the result of ownership of Restricted Stock, including, without
limitation, warrants and securities received as a stock dividend or stock split,
or as a result of a recapitalization or reorganization (all such securities to
be considered "Restricted Stock" for all purposes under this Agreement), shall
be held by the Escrow Holder in the same manner and subject to the same
conditions as the Restricted Stock with respect to which they were issued.
Participant shall be entitled to direct the Escrow Holder to exercise any
warrant or option received and considered Restricted Stock hereunder upon
supplying the funds necessary to do so, in which event the securities so
purchased shall constitute Restricted Stock. In the event any Restricted Stock
consists of a security by its terms or otherwise convertible into or
exchangeable for another security at the election of the holder thereof,
Participant may exercise any such right of conversion or exchange in the event
the failure to exercise or delay in exercising such right would result in its
loss or diminution in value, and any securities so acquired shall be deemed
Restricted Stock. In the event of any change in certificates evidencing
Restricted Stock by reason of any recapitalization, reorganization or other
transaction which results in a creation of Restricted Stock, the Escrow Holder
is authorized to deliver to the issuer the certificates evidencing Restricted
Stock in exchange for the replacement certificates, which shall be deemed to be
Restricted Stock.
6. Withholding. Upon lapse of restrictions on Restricted Stock under
-----------
paragraph 3 above or, if Participant shall make an election pursuant to Section
83(b) of the Internal Revenue Code of 1986, as amended, on the date hereof,
Participant shall make appropriate arrangements with the Company for the
satisfaction of all applicable federal, state, and local income, employment and
other tax withholding requirements. If Participant does not make such
arrangements in a manner satisfactory to the Company, the Company shall be
authorized on behalf of Participant to sell any of Participant's Restricted
Stock held by the Escrow Holder in order to satisfy such withholding
requirements. Upon receiving payment of Participant's withholding obligation,
the Company shall inform the Escrow Holder that Participant's withholding
requirements under this paragraph 6 have been satisfied.
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<PAGE>
7. Additional Securities, Etc. - Delivery into Escrow. The Company
--------------------------------------------------
shall transmit to the Escrow Holder for the account of Participant all
dividends, interest and other distributions paid or made with respect to
Restricted Stock. The Escrow Holder shall, upon receipt thereof, disburse
forthwith to Participant, less any applicable federal or state withholding
taxes, any dividends, interest or other distributions paid or made in cash or
property (other than securities) on Restricted Stock and shall hold as
Restricted Stock subject to the provisions of this Agreement, any securities so
received.
8. No Guarantee of Employment. Subject to the terms of any written
--------------------------
employment contract to the contrary, the Company (or any of its affiliates which
employs Participant) shall have the right to terminate or change the terms of
the employment of Participant at any time and for any reason whatsoever, with or
without cause. The award of the Restricted Stock hereunder to Participant shall
not create any right or implication that any other or future award may or shall
be made at another time. The awards hereunder shall be separate and distinct
from every other award and shall not be construed as a part of any continuing
series of awards or compensation.
9. Successors and Assigns. This Agreement shall be binding upon and
----------------------
shall inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, successors and assigns.
10. Notices. Any notice or other paper or payment required to be
-------
given or sent pursuant to the terms of this Agreement shall be sufficiently
given or served hereunder to any part when transmitted by registered or
certified mail, postage prepaid, addressed to the party to be served as follows:
a. if to the Company: Channell Commercial Corporation
26040 Ynez Road
Temecula, California 92591-9022
Attn: President
b. if to Participant: ___________________________
___________________________
___________________________
Any party, by written notice, may designate another address for notices to be
sent from time to time.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly exercised this Agreement
as of the date written above.
CHANNELL COMMERCIAL CORPORATION
By ______________________________
Its _____________________________
PARTICIPANT
_______________________________
________________________________
[Social Security Number]
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<PAGE>
CHANNELL COMMERCIAL CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
--------------------------------
This INCENTIVE STOCK OPTION AGREEMENT is made as of this _____ day of
_____, between CHANNELL COMMERCIAL CORPORATION, a Delaware corporation (the
"COMPANY"), and ____________________ ("OPTIONEE"). All capitalized terms not
specifically defined herein shall have the meanings set forth in the Company's
1996 Incentive Stock Plan (the "PLAN").
R E C I T A L S
---------------
A. The Plan provides for the granting to key employees, directors and
consultants of the Company or of its subsidiary corporations (as defined in the
Plan) as the Committee may from time to time select, of options to purchase
shares of common stock of the Company.
B. Optionee is a [___________] of the Company.
C. Pursuant to the Plan, the Committee has determined that it is to the
advantage and best interests of the Company and its stockholders to grant an
incentive stock option to Optionee covering shares of the Company's common
stock, $.01 par value (or any class of stock into which such common stock is
converted or reclassified as provided in Section 7 of the Plan) (each herein
referred to as "COMMON STOCK") as an inducement to remain in the service of the
Company and as an incentive for increased effort during such service, and has
approved the execution of this Incentive Stock Option Agreement between the
Company and Optionee.
D. The option granted hereby is intended to qualify as an "INCENTIVE STOCK
OPTION" under Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to Optionee the right and option
---------------
("OPTION") to purchase on the terms and conditions hereinafter set forth, all or
any part of an aggregate of ____________ shares of the Common Stock at the
purchase price of $______ per share, which price is not less than the fair
market value of such stock (as determined pursuant to Section 4) on the date of
this Agreement; provided, however, that if Optionee possesses more than ten
-------- -------
percent (10%) of the total combined voting power of all classes of stock of the
Company and its affiliates (a "10% SHAREHOLDER"), such price is not less than
one hundred and ten percent (110%) of the fair market value of such stock (as
determined pursuant to Section 4) on the date of this Agreement. The Option
shall be exercisable from time to time
<PAGE>
in accordance with the provisions of this Agreement or earlier in accordance
with Section 5.
2. Vesting. Optionee may not purchase any shares by exercise of this
-------
Option between the date of this Agreement and the first anniversary date of this
Agreement. On and for a period of ______ years after the following anniversary
dates of this Agreement, this Option may be exercised up to the indicated
percentage of shares covered by this Option (the shares as to which the Option
vests herein sometimes called "VESTED OPTION SHARES"), subject to Section 5
below:
<TABLE>
<CAPTION>
Cumulative
Percentage of
Percentage of Originally
Originally Covered Shares
Covered Shares as to Which
Anniversary as to Which Option is
Date Option Vests Exercisable
- ----------- -------------- --------------
<S> <C> <C>
</TABLE>
Subject to earlier termination under Section 5, at any time after shares
covered by this Agreement become Vested Option Shares, but no later than the
fifth anniversary date of the date shares become Vested Option Shares (the
"EXPIRATION DATE" with respect to such Shares), Optionee may purchase all or any
part of the Vested Option Shares which Optionee theretofore failed to purchase.
In each case the number of shares which may be purchased shall be calculated to
the nearest full share. Unless Optionee indicates otherwise in writing when it
exercises this Option, Optionee shall be deemed to exercise Vested Option Shares
in the order in which they vested.
Upon the occurrence of (i) the dissolution or liquidation of the Company,
(ii) a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation
or, as a result of which it is the surviving corporation and its outstanding
voting securities are converted to or reclassified as cash, securities of
another corporation or other property, (iii) upon a sale of assets of the
Company or its subsidiaries having a fair market value equal to more than fifty
percent (50%) of the total fair market value of the Company's assets to an
entity which is not controlling, controlled by or under common control with the
Company, or (iv) the acquisition of a record or beneficial interest in more than
fifty percent (50%) of the then outstanding voting securities of the Company,
either in a single transaction or a series of transactions, by an entity or
"group" within the meaning of Section 13(d) of the Exchange Act and the rules
and regulations promulgated thereunder which is not an affiliate of the Company,
any
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<PAGE>
restrictions imposed upon and remaining applicable to shares awarded hereunder
shall automatically terminate.
3. Manner of Exercise. Each exercise of this Option shall be by means of
------------------
a written notice of exercise delivered to the Company, specifying the number of
shares to be purchased and accompanied by payment to the Company of the full
purchase price of the shares to be purchased solely in cash or by check payable
to the order of the Company, or by such other means as the Committee may approve
in its sole and absolute discretion. This Option may not be exercised for a
fraction of a share and no partial exercise of this Option may be for less than
one hundred (100) shares.
This Option may be exercised (i) during the lifetime of Optionee only by
Optionee; (ii) to the extent permitted by the Committee or by the terms of this
Agreement, Optionee's spouse if such spouse obtained the Option pursuant to a
qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder ("QUALIFIED DOMESTIC RELATIONS ORDER"); and (iii) after
Optionee's death by his or her transferees by will or the laws of descent or
distribution.
4. Fair Market Value of Common Stock. The fair market value of a share of
---------------------------------
Common Stock of the Company shall be determined for purposes of the Plan by
reference to the closing price on the principal stock exchange on which such
shares are then listed or, if such shares are not then listed on a stock
exchange, by reference to the closing price (if approved for quotation on the
NASDAQ National Market System) or the mean between the bid and asked price (if
other over-the-counter issue) of a share as supplied by the National Association
of Securities Dealers, Inc. through NASDAQ (or its successor in function), in
each case as reported by The Wall Street Journal, for the business day
-----------------------
immediately preceding the date on which the option is exercised (or, if for any
reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Termination of Employment; Death or Permanent Disability. Except as
--------------------------------------------------------
may otherwise be provided by the terms of any employment agreement between the
Company and Optionee, if Optionee ceases to be employed by the Company or one of
its subsidiaries for any reason other than Optionee's death or "PERMANENT
DISABILITY" (within the meaning of Section 22(e)(3) of the Code), the Option
shall be exercisable with respect to each of the Vested Option Shares until the
earlier of (i) the respective Expiration Date for such Shares, or (ii) the date
three months after the date Optionee ceases to be an employee of the Company or
any such subsidiary to the extent exercisable on the date of such cessation of
employment, and shall thereafter expire and be void and of no further force or
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<PAGE>
effect. A leave of absence approved in writing by the Board of Directors or the
Committee shall not be deemed a termination of employment for the purposes of
this Section 5, but the Option may not be exercised during any such leave of
absence, except during the first three months thereof. If Optionee dies or
becomes "permanently disabled" while Optionee is employed by the Company or one
of its subsidiaries, the Option shall expire with respect to each of the Vested
Option Shares on the earlier of (i) the Expiration Date applicable to such
Shares, or (ii) a date one (1) year after the date of such death or "permanent
disability," to the extent exercisable on the date of death or "permanent
disability," and shall thereafter expire and be void and of no further force or
effect. During such period after death, the Option may, to the extent that it
remained unexercised (but exercisable by Optionee according to the Option's
terms) on the date of such death, be exercised by the person or persons to whom
Optionee's rights under the Option shall pass by Optionee's will or by the laws
of descent and distribution or by Optionee's spouse who obtained the Option
pursuant to a Qualified Domestic Relations Order.
6. Shares to be Issued in Compliance with Federal Securities Laws and
------------------------------------------------------------------
Exchange Rules. By accepting the Option, Optionee represents and agrees, for
- --------------
Optionee and his or her legal successors (by will or the laws of descent and
distribution or through a Qualified Domestic Relations Order), that none of the
shares purchased upon exercise of the option will be acquired with a view to any
sale, transfer or distribution of said shares in violation of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and the rules and regulations
promulgated thereunder, or any applicable state "blue sky" laws. If required by
the Committee at the time the Option is exercised, Optionee or any other person
entitled to exercise the Option shall furnish evidence satisfactory to the
Company (including a written and signed representation) to such effect in form
and substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation of the Securities Act or state blue sky
laws by such person.
7. Withholding of Taxes. Upon any disposition by Optionee or Optionee's
--------------------
legal successor of shares of Common Stock acquired pursuant to the exercise of
this Option within two (2) years of the granting of this Option or within one
(1) year of the exercise of this Option (an "EARLY DISPOSITION"), the Company
shall have the right to require Optionee or Optionee's legal successor to pay
the Company the amount of any taxes which the Company may be required to
withhold with respect to such shares. Optionee agrees, as partial consideration
for the designation of this Option as an incentive stock option under Section
422 of the Code, to notify the Company in writing promptly, and in no event
later than thirty (30) days following, any Early Disposition.
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<PAGE>
8. No Assignment. This Option and all other rights and privileges granted
-------------
hereby shall not be transferred, either voluntarily or by operation of law
otherwise than by will or the laws of descent and distribution or pursuant to a
Qualified Domestic Relations Order. Upon any attempt to so transfer or
otherwise dispose of this Option or any other right or privileges granted hereby
contrary to the provisions hereof, this Option and all rights and privileges
contained herein shall immediately become null and void and of no further force
or effect.
9. Adjustment for Reorganizations, Stock Splits, etc. If the outstanding
-------------------------------------------------
shares of Common Stock (or any other class of shares or securities which shall
have become issuable upon the exercise of this Option pursuant to this sentence)
are increased, decreased, changed into or exchanged for a different number or
kind of shares or securities of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split, reverse stock
split or other similar transaction, an appropriate and proportionate adjustment
shall be made in the maximum number and kind of shares receivable upon the
exercise of this Option, without change in the total price applicable to the
unexercised portion of this Option, but with a corresponding adjustment in the
price for each share or other unit of any security covered by this option.
10. Participation by Optionee in Other Company Plans. Nothing herein
------------------------------------------------
contained shall affect the right of Optionee to participate in and receive
benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
11. No Rights as a Stockholder Until Issuance of Stock Certificate.
--------------------------------------------------------------
Neither Optionee nor any other person legally entitled to exercise this Option
shall be entitled to any of the rights or privileges of a stockholder of the
Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to Optionee.
12. Not an Employment or Service Contract. Nothing herein contained shall
-------------------------------------
be construed as an agreement by the Company or any of its subsidiaries, express
or implied, to employ Optionee or contract for Optionee's services, to restrict
the Company's or such subsidiary's right to discharge Optionee or cease
contracting for Optionee's services or to modify, extend or otherwise affect in
any manner whatsoever, the terms of any employment agreement or contract for
services which may exist between Optionee and the Company or any of its
subsidiaries.
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<PAGE>
13. Agreement Subject to the Plan. The Option hereby granted is subject
-----------------------------
to, and the Company and Optionee agree to be bound by, all of the terms and
conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
Optionee's rights under this Option without the prior written consent of
Optionee.
14. Execution. The interpretation, performance and enforcement of this
---------
Agreement shall be governed by the internal substantive laws of the State of
California.
CHANNELL COMMERCIAL CORPORATION,
a Delaware corporation
By:
------------------------
Title:
---------------------
OPTIONEE
---------------------------
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<PAGE>
By his or her signature below, the spouse of Optionee agrees to be bound by
all of the terms and conditions of the foregoing Agreement.
OPTIONEE'S SPOUSE
-------------------------------
Name:
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<PAGE>
CHANNELL COMMERCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
-----------------------------------
This NONQUALIFIED STOCK OPTION AGREEMENT is made as of this ____ day
of ____, between CHANNELL COMMERCIAL CORPORATION, a Delaware corporation (the
"COMPANY"), and __________________ ("OPTIONEE"). All capitalized terms not
specifically defined herein shall have the meanings set forth in the Company's
1996 Incentive Stock Plan (the "PLAN").
R E C I T A L S
---------------
A. The Plan provides for the granting to key employees, directors
(other than members of the Committee), and consultants of the Company or of its
subsidiary corporations (as defined in the Plan) as the Committee may from time
to time select, of options to purchase shares of common stock of the Company.
B. Optionee is a [_____________] of the Company.
C. Pursuant to the Plan, the Committee has determined that it is to
the advantage and best interests of the Company and its stockholders to grant a
nonqualified stock option to Optionee covering shares of the Company's common
stock, $.01 par value (or any class of stock into which such common stock is
converted or reclassified as provided in Section 7 of the Plan) (each herein
sometimes referred to as "COMMON STOCK") as an inducement to remain in the
service of the Company and as an incentive for increased effort during such
service, and has approved the execution of this Nonqualified Stock Option
Agreement between the Company and Optionee.
D. The option granted hereby is not intended to qualify as an
---
"INCENTIVE STOCK OPTION" under Section 422 of the Internal Revenue Code of 1986,
as amended (the "CODE").
NOW, THEREFORE, the parties hereto agree as follows:
1. Grant of Option. The Company grants to Optionee the right and
---------------
option ("OPTION") to purchase on the terms and conditions hereinafter set forth,
all or any part of an aggregate of ______ shares of the Common Stock at the
purchase price of $________ per share, which price is equal to the fair market
value of such stock (as determined pursuant to Section 4) on the date of this
Agreement. The Option shall be exercisable from time to time in accordance with
the provisions of this Agreement or earlier in accordance with Section 5.
2. Vesting. Optionee may not purchase any shares by exercise of this
-------
Option between the date of this Agreement and the first anniversary date of this
Agreement. On and for a period of _____ years after the following anniversary
dates of this Agreement, this Option may be exercised up to the
<PAGE>
indicated percentage of shares covered by this Option (the shares as to which
the Option vests herein sometimes called "VESTED OPTION SHARES"), subject to
Section 5 below:
<TABLE>
<CAPTION>
Cumulative
Percentage of
Percentage of Originally
Originally Covered Shares
Covered Shares as to Which
Anniversary as to Which Option is
Date Option Vests Exercisable
- ----------- -------------- --------------
<S> <C> <C>
</TABLE>
Subject to earlier termination under Section 5, at any time after shares
covered by this Agreement become Vested Option Shares, but no later than the
fifth anniversary date of the date shares become Vested Option Shares (the
"EXPIRATION DATE" with respect to such Shares), Optionee may purchase all or any
part of the Vested Option Shares which Optionee theretofore failed to purchase.
In each case the number of shares which may be purchased shall be calculated to
the nearest full share. Unless Optionee indicates otherwise in writing when it
exercises this Option, Optionee shall be deemed to exercise Vested Option Shares
in the order in which they vested.
Upon the occurrence of (i) the dissolution or liquidation of the
Company, (ii) a reorganization, merger or consolidation of the Company with one
or more corporations as a result of which the Company is not the surviving
corporation or, as a result of which it is the surviving corporation and its
outstanding voting securities are converted to or reclassified as cash,
securities of another corporation or other property, (iii) upon a sale of
assets of the Company or its subsidiaries having a fair market value equal to
more than fifty percent (50%) of the total fair market value of the Company's
assets to an entity which is not controlling, controlled by or under common
control with the Company, or (iv) the acquisition of a record or beneficial
interest in more than fifty percent (50%) of the then outstanding voting
securities of the Company, either in a single transaction or a series of
transactions, by an entity or "group" within the meaning of Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder which is not
an affiliate of the Company, any restrictions imposed upon and remaining
applicable to shares awarded hereunder shall automatically terminate.
3. Manner of Exercise. Each exercise of this Option shall be by
------------------
means of a written notice of exercise delivered to the Company, specifying the
number of shares to be purchased and accompanied by payment to the Company of
the full purchase price of the shares to be purchased solely in cash or by check
payable to the order of the Company, or by such other means as
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<PAGE>
the Committee may approve in its sole and absolute discretion. This Option may
not be exercised for a fraction of a share and no partial exercise of this
Option may be for less than one hundred (100) shares.
This Option may be exercised (i) during the lifetime of Optionee only
by Optionee; (ii) to the extent permitted by the Committee or by the terms of
this Agreement, Optionee's spouse if such spouse obtained the Option pursuant to
a qualified domestic relations order as defined by the Code or Title I of ERISA,
or the rules thereunder ("QUALIFIED DOMESTIC RELATIONS ORDER"); and (iii) after
Optionee's death by his or her transferees by will or the laws of descent or
distribution.
4. Fair Market Value of Common Stock. The fair market value of a
---------------------------------
share of Common Stock of the Company shall be determined for purposes of the
Plan by reference to the closing price on the principal stock exchange on which
such shares are then listed or, if such shares are not then listed on a stock
exchange, by reference to the closing price (if approved for quotation on the
NASDAQ National Market System) or the mean between the bid and asked price (if
other over-the-counter issue) of a share as supplied by the National Association
of Securities Dealers, Inc. through NASDAQ (or its successor in function), in
each case as reported by The Wall Street Journal, for the business day
-----------------------
immediately preceding the date on which the option is exercised (or, if for any
reason no such price is available, in such other manner as the Committee may
deem appropriate to reflect the then fair market value thereof).
5. Termination of Employment; Death or Permanent Disability. Except
--------------------------------------------------------
as may otherwise be provided by the terms of any employment agreement between
the Company and the Optionee, if Optionee ceases to be employed by the Company
or one of its subsidiaries for any reason other than optionee's death or
"PERMANENT DISABILITY" (within the meaning of Section 22(e)(3) of the Code), the
Option shall be exercisable with respect to each of the Vested Option Shares
until the earlier of (i) the respective Expiration Date for such Shares, or (ii)
the date three months after the date Optionee ceases to be an employee of the
Company or any such subsidiary to the extent exercisable on the date of such
cessation of employment, and shall thereafter expire and be void and of no
further force or effect. A leave of absence approved in writing by the Board of
Directors or the Committee shall not be deemed a termination of employment for
the purposes of this Section 5, but the Option may not be exercised during any
such leave of absence, except during the first three months thereof. If
Optionee dies or becomes "permanently disabled" while Optionee is employed by
the Company or one of its subsidiaries, the Option shall expire with respect to
each of the Vested Option Shares on the earlier of (i) the Expiration Date
applicable to
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<PAGE>
such Shares, or (ii) a date twelve months after the date of such death or
"permanent disability," to the extent exercisable on the date of death or
"permanent disability," and shall thereafter expire and be void and of no
further force or effect. During such period after death, the Option may, to the
extent that it remained unexercised (but exercisable by Optionee according to
the Option's terms) on the date of such death, be exercised by the person or
persons to whom Optionee's rights under the Option shall pass by Optionee's will
or by the laws of descent and distribution or by Optionee's spouse who obtained
the Option pursuant to a Qualified Domestic Relations Order.
6. Shares to be Issued in Compliance with Federal Securities Laws and
------------------------------------------------------------------
Exchange Rules. By accepting the Option, Optionee represents and agrees, for
- --------------
Optionee and his or her legal successors (by will or the laws of descent and
distribution or through a Qualified Domestic Relations Order), that none of the
shares purchased upon exercise of the option will be acquired with a view to any
sale, transfer or distribution of said shares in violation of the Securities Act
of 1933, as amended (the "SECURITIES ACT"), and the rules and regulations
promulgated thereunder, or any applicable state "BLUE SKY" laws. If required by
the Committee at the time the Option is exercised, Optionee or any other person
entitled to exercise the Option shall furnish evidence satisfactory to the
Company (including a written and signed representation) to such effect in form
and substance satisfactory to the Company, including an indemnification of the
Company in the event of any violation of the Securities Act or state blue sky
laws by such person.
7. Withholding of Taxes. Upon the exercise of this Option, the
--------------------
Company shall have the right to require Optionee or Optionee's legal successor
to pay the Company the amount of any taxes which the Company may be required to
withhold with respect to such shares.
8. No Assignment. This Option and all other rights and privileges
-------------
granted hereby shall not be transferred, either voluntarily or by operation of
law otherwise than by will or the laws of descent and distribution or pursuant
to a Qualified Domestic Relations Order. Upon any attempt to so transfer or
otherwise dispose of this Option or any other right or privileges granted hereby
contrary to the provisions hereof, this Option and all rights and privileges
contained herein shall immediately become null and void and of no further force
or effect.
9. Adjustment for Reorganizations, Stock Splits, etc. If the
--------------------------------------------------
outstanding shares of Common Stock (or any other class of shares or securities
which shall have become issuable upon the exercise of this Option pursuant to
this sentence) are increased, decreased, changed into or exchanged for a
-4-
<PAGE>
different number or kind of shares or securities of the Company through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, an appropriate and
proportionate adjustment shall be made in the maximum number and kind of shares
receivable upon the exercise of this Option, without change in the total price
applicable to the unexercised portion of this Option, but with a corresponding
adjustment in the price for each share or other unit of any security covered by
this option.
10. Participation by Optionee in Other Company Plans. Nothing herein
------------------------------------------------
contained shall affect the right of Optionee to participate in and receive
benefits under and in accordance with the then current provisions of any
pension, insurance, profit sharing or other employee welfare plan or program of
the Company or of any subsidiary of the Company.
11. No Rights as a Stockholder Until Issuance of Stock Certificate.
--------------------------------------------------------------
Neither Optionee nor any other person legally entitled to exercise this Option
shall be entitled to any of the rights or privileges of a stockholder of the
Company in respect of any shares issuable upon any exercise of this Option
unless and until a certificate or certificates representing such shares shall
have been actually issued and delivered to Optionee.
12. Not an Employment or Service Contract. Nothing herein contained
-------------------------------------
shall be construed as an agreement by the Company or any of its subsidiaries,
express or implied, to employ Optionee or contract for Optionee's services, to
restrict the Company's or such subsidiary's right to discharge Optionee or cease
contracting for Optionee's services or to modify, extend or otherwise affect in
any manner whatsoever, the terms of any employment agreement or contract for
services which may exist between Optionee and the Company or any of its
subsidiaries.
13. Agreement Subject to the Plan. The Option hereby granted is
-----------------------------
subject to, and the Company and Optionee agree to be bound by, all of the terms
and conditions of the Plan, as the same shall be amended from time to time in
accordance with the terms thereof, but no such amendment shall adversely affect
Optionee's rights under this Option without the prior written consent of
Optionee.
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<PAGE>
14. Execution. The interpretation, performance and enforcement of
---------
this Agreement shall be governed by the internal substantive laws of the State
of California.
CHANNELL COMMERCIAL CORPORATION,
a Delaware corporation
By:
---------------------------
Title:
---------------------
OPTIONEE
------------------------------
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<PAGE>
By his or her signature below, the spouse of Optionee agrees to be bound by
all of the terms and conditions of the foregoing Agreement.
OPTIONEE'S SPOUSE
------------------------------
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<PAGE>
EXHIBIT 10.3
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BANK OF AMERICA BUSINESS LOAN AGREEMENT
NATIONAL TRUST AND SAVINGS ASSOCIATION
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This Agreement dated as of 4-19, 1995, is between Bank of America National Trust
---- --
and Savings Association (the "Bank") and Channell Commercial Corporation (the
"Borrower").
1. FACILITY NO. 1 LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit ("Facility No. 1") to the Borrower. The amount of the
line of credit (the "Facility No. 1 Commitment") is Three Million Two
Hundred Fifty Thousand Dollars ($3,250,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) Each advance must be for at least Fifteen Thousand Dollars ($15,000), or
for the amount of the remaining available line of credit, if less.
(d) The Borrower agrees not to permit the outstanding principal balance of
the line of credit to exceed the Facility No. 1 Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and May 1, 1996 (the "Expiration Date") unless the Borrower is in
default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time
to time by the Bank in San Francisco, California, as its Reference Rate.
The Reference Rate is set by the Bank based on various factors,
including the Bank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for
pricing some loans. The Bank may price loans to its customers at, above,
or below the Reference Rate. Any change in the Reference Rate shall take
effect at the opening of business on the day specified in the public
announcement of a change in the Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on May 1, 1995, and then monthly
thereafter until payment in full of any principal outstanding under this
line of credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than thirty (30) days after the Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or portions of the
line of credit (during the availability period) bear interest at the rate(s)
described below during an interest period agreed to by the Bank and the
Borrower. Each interest rate is
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<PAGE>
a rate per year. Interest will be paid on the last day of each interest period,
and on the first day each month during the interest period. At the end of any
interest period, the interest rate will revert to the rate based on the
Reference Rate, unless the Borrower has designated another optional interest
rate for the portion.
1.6 FIXED RATE. The Borrower may elect to have all or portions of the
principal balance of the line of credit bear interest at the Fixed Rate, subject
to the following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the Borrower
agree will apply to the portion during the applicable interest period.
(b) The interest period during which the Fixed Rate will be in effect will
be no shorter than thirty (30) days and no longer than one hundred
eighty (180) days.
(c) Each Fixed Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any portion of
the principal balance of the line of credit which is scheduled to be
repaid before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already
bearing interest at the Fixed Rate will not be converted to a different
rate during its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which:
(i) the additional interest which would have been payable on the
amount prepaid had it not been paid until the last day of the
interest period, exceeds
(ii) the interest which would have been recoverable by the Bank by
placing the amount prepaid on deposit in the certificate of
deposit market for a period starting on the date on which it was
prepaid and ending on the last day of the interest period for
such portion.
2. FACILITY NO. 2: LINE OF CREDIT AMOUNT AND TERMS
2.1 EQUIPMENT LINE.
(a) From time to time during the availability period, the Bank will make
equipment loans (the "Equipment Loans") to the Borrower as provided
herein. Each Equipment Loan must be for at least Twenty Five Thousand
Dollars ($25,000), or for the amount of the remaining available line of
credit, if less. The total of all Equipment Loans outstanding under the
Equipment Line (the "Facility No. 2") plus the outstanding amounts of
any standby letters of credit, including amounts drawn on letters of
credit and not yet reimbursed issued pursuant to Paragraph 2.4 at any
one time may not exceed Four Million Three Hundred Thousand Dollars
($4,300,000) (the "Facility No. 2 Commitment").
(b) This is a revolving line of credit with a within line facility for
standby letters of credit and the Borrower may, during the availability
period, reborrow amounts repaid or prepaid.
(c) The existing Equipment Loans to the Borrower in the principal amount
outstanding of Two Million Four Hundred Fifty Four Thousand Seven
Hundred Forty Eight and 39/100 Dollars ($2,454,748.39) shall be deemed
to be outstanding under this Agreement; provided, however, that they
shall continue to bear interest, and shall be payable, as stated in the
existing documentation concerning those loans. The outstanding principal
amount of the existing loans shall be included in calculating the
Borrower's compliance with the limit on Equipment Loans described in (a)
above.
(d) The Borrower shall use the proceeds of each Equipment Loan to purchase
equipment for use in the Borrower's business. All equipment acquired
with the proceeds of an Equipment Loan shall be free and clear of any
security interests, liens, encumbrances or rights of others except the
security interests of the
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<PAGE>
Bank under any security agreements required under this Agreement. Each
request for an Equipment Loan shall be accompanied by (1) a copy of the
purchase order or invoice for the equipment to be purchased with the
proceeds of such Equipment Loan, (2) a security agreement executed by
the Borrower covering the equipment being purchased, and (3) such
financing statements, fixture filings or other documentation as
reasonable requested by the Bank to perfect the Bank's security interest
in such equipment. The amount of each Equipment Loan shall not exceed
80% of the purchase price including tax, license and accessories of the
equipment being purchased.
(e) The Borrower shall repay principal of each Equipment Loan in sixty (60)
approximately equal monthly installments, commencing on the first day of
the month following the date the Equipment Loan is made and continuing
on the first day of each successive month thereafter until the first day
of the sixtieth month following the month in which the Equipment Loan is
made (the "Equipment Loan Maturity Date"), on which date all remaining
principal and interest then owing with respect to the Equipment Loan
shall be due and payable.
(f) The Borrower may at any time prepay an Equipment Loan in full or in
part. Partial prepayments shall be applied to the most remote
installments of the Equipment Loan.
(g) The principal balance of each Equipment Loan shall bear interest at a
rate per annum equal to the Bank's Reference Rate plus one half (.50)
percentage point. The Borrower will pay interest monthly on the first
day of each month until the Equipment Loan Maturity Date, on which date
all accrued and unpaid interest shall be due and payable.
2.2 OPTIONAL INTEREST RATES. Instead of the interest rate based on the
Bank's Reference Rate, the Borrower may elect to have all or any portion of an
Equipment Loan bear interest at the rate(s) described below during an interest
period agreed to by the Bank and the Borrower. Each interest rate is a rate per
year. Interest will be paid on the last day of each interest period, and on the
first day each month during the interest period. At the end of any interest
period, the interest rate will revert to the rate based on the Reference Rate,
unless the Borrower has designated another optional interest rate for the
portion.
2.3 LONG TERM RATE. The Borrower may elect to have all or any portion of an
Equipment Loan bear interest at the Long Term Rate, subject to the following
requirements:
(a) The interest period during which the Long Term Rate will be in effect
will be one year or more. The Borrower will immediately begin repaying
principal of the Long Term Rate portion under an amortization schedule
agreed to by the Bank and the Borrower at the time of the designation.
These payments will be separate from the payments required by the
Paragraph 2.1(e) above which will be calculated without taking into
account any Long Term Rate portions.
(b) The "Long Term Rate" means the fixed interest rate the Bank and the
Borrower agree will apply to the portion during the applicable interest
period.
(c) Each Long Term Rate portion will be for an amount not less than One
Hundred Thousand Dollars ($100,000).
(d) Any Equipment Loan already bearing interest at the Long Term Rate will
not be converted to a different rate during its interest period.
(e) The Borrower may prepay the Long Term Rate portion in whole or in part
in the minimum amount of One Hundred Thousand Dollars ($100,000). The
Borrower will give the Bank irrevocable written notice of the Borrower's
intention to make the prepayment, specifying the date and amount of the
prepayment. The notice must be received by the Bank at least 5 banking
days in advance of the prepayment. All prepayments of principal on the
Long Term Rate portion will be applied on the most remote principal
installment or installments then unpaid.
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<PAGE>
(f) Each prepayment of a Long Term Rate portion, whether voluntary, by
reason of acceleration or otherwise, will be accompanied by payment of
all accrued interest on the amount of the prepayment and the prepayment
fee described below.
(g) The prepayment fee will be the sum of fees calculated separately for
each Prepaid Installment, as follows:
(i) The Bank will first determine the amount of interest which would
have accrued each month for the Prepaid Installment had it
remained outstanding until the applicable Original Payment Date,
using the Long Term Rate;
(ii) The Bank will then subtract from each monthly interest amount
determined in (i), above, the amount of interest which would
accrue for that Prepaid Installment if it were reinvested from
the date of prepayment through the Original Payment Date, using
the following rate:
(A) If the Original Payment Date is more than 5 years after the
date of prepayment: the Treasury Rate plus one-quarter of
one percentage point;
(B) If the Original Payment Date is 5 years or less after the
date of prepayment: the Money Market Rate.
(iii) If (i) minus (ii) for the Prepaid Installment is greater than
zero, the Bank will discount the monthly differences to the date
of prepayment by the rate used in (ii) above. The sum of the
discounted monthly differences is the prepayment fee for that
Prepaid Installment.
(h) The following definitions will apply to the calculation of the
prepayment fee:
"Money Market" means the domestic certificate of deposit market, the
eurodollar deposit market or other appropriate money market selected by
the Bank.
"Money Market Rate" means the fixed interest rate per annum which the
Bank determines could be obtained by reinvesting a specified Prepaid
Installment in the Money Market from the date of prepayment through the
Original Payment Date.
"Original Payment Dates" means the dates on which principal of the Long
Term Rate portion would have been paid if there had been no prepayment.
If a portion of the principal would have been paid later than the end of
the interest period in effect at the time of prepayment, then the
Original Payment Date for that portion will be the last day of the
interest period.
"Prepaid Installment" means the amount of the prepaid principal of the
Long Term Rate portion which would have been paid on a single Original
Payment Date.
"Treasury Rate" means the interest rate yield for U.S. Government
Treasury Securities which the Bank determines could be obtained by
reinvesting a specified Prepaid Installment in such securities from the
date of prepayment through the Original Payment Date.
(i) The Bank may adjust the Treasury Rate and Money Market Rate to reflect
the compounding, accrual basis, or other costs of the Long Term Rate
portion. Each of the rates is the Bank's estimate only and the Bank is
under no obligation to actually reinvest any prepayment. The rates will
be based on information from either the Telerate or Reuters information
services, The Wall Street Journal, or other information sources the Bank
-----------------------
deems appropriate.
2.4 STANDBY LETTERS OF CREDIT UNDER FACILITY NO. 2.
(i) Facility No. 2 may be used for financing standby letters of
credit with a maximum maturity of May 1, 1996.
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<PAGE>
(ii) The amount of outstanding standby letters of credit, including
amounts drawn on letters of credit and not yet reimbursed, may
not exceed at any one time Five Hundred Thousand Dollars
($500,000).
The Borrower agrees:
(a) any sum drawn under a letter of credit may, at the option of the Bank,
be deemed an Equipment Loan outstanding under Facility No. 2 and shall
bear interest and be due as described in Paragraph 2.1 hereof.
(b) if there is a default under this Agreement, to immediately prepay and
make the Bank whole for any outstanding letters of credit.
(c) the issuance of any letter of credit and any amendment to a letter of
credit is subject to the Bank's written approval and must be in form and
content satisfactory to the Bank and in favor of a beneficiary
acceptable to the Bank.
(d) to sign the Bank's form Application and Agreement for Standby Letter of
Credit.
(e) to pay any issuance and/or other fees that the Bank notifies the
Borrower will be charged for issuing and processing letters of credit
for the Borrower.
(f) to allow the Bank to automatically charge its checking account for
applicable fees, discounts, and other charges.
(g) to pay the Bank a non-refundable fee equal to one and one half percent
(1.50%) per annum of the outstanding undrawn amount of each standby
letter of credit, payable quarterly in advance, calculated on the basis
of the face amount outstanding on the day the fee is calculated.
3. FEES AND EXPENSES
3.1 FEES.
(a) LOAN FEE (FACILITY NO. 1). The Borrower agrees to pay a fee equal to
.25% per annum of the Facility No. 1 Commitment calculated on a prorated
basis and due on or before the date of execution of this Agreement.
3.2 EXPENSES.
(a) The Borrower agrees to immediately repay the Bank for expenses that
include, but are not limited to, filing, recording and search fees,
appraisal fees, title report fees, and documentation fees.
(b) The Borrower agrees to reimburse the Bank for the cost of periodic
audits and appraisals of the personal property collateral securing this
Agreement, at such intervals as the Bank may reasonably require but no
more frequently than annually. The audits and appraisals may be
performed by employees of the Bank or by independent appraisers.
4. COLLATERAL (FACILITY NO. 1)
4.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under
Facility No. 1 will be secured by personal property the Borrower now owns or
will own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Inventory.
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<PAGE>
(b) Receivables.
5. COLLATERAL (FACILITY NO. 2)
5.1 PERSONAL PROPERTY. The Borrower's obligations to the Bank under
Facility No. 2 will be secured by personal property the Borrower now owns or
will own in the future as listed below. The collateral is further defined in
security agreement(s) executed by the Borrower. In addition, all personal
property collateral securing this Agreement shall also secure all other present
and future obligations of the Borrower to the Bank (excluding any consumer
credit covered by the federal Truth in Lending law, unless the Borrower has
otherwise agreed in writing). All personal property collateral securing any
other present or future obligations of the Borrower to the Bank shall also
secure this Agreement.
(a) Specific equipment and fixtures.
6. DISBURSEMENTS, PAYMENTS AND COSTS
6.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Bank, or by another means
acceptable to the Bank.
6.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each
payment by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time
to time;
(c) made in immediately available funds, or such other type of funds
selected by the Bank;
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
6.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments or
for the designation of optional interest rates given by any one of the
individuals authorized to sign loan agreements on behalf of the
Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 06004-12147, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably
believes are made by any individual authorized by the Borrower to give
such instructions. This indemnity and excuse will survive this
Agreement.
6.4 DIRECT DEBIT (PRE-BILLING).
(a) The Borrower agrees that the Bank will debit the Borrower's deposit
account number 06004-12147 (the "Designated Account") on the date each
payment of interest and any fees becomes due for Facility No. 1 and on
the date each payment of principal and interest and any fees for
Facility No. 2 from the Borrower becomes due (the "Due Date"). If the
Due Date is not a banking day, the Designated Account will be debited on
the next banking day.
(b) Approximately 10 days prior to each Due Date, the Bank will mail to the
Borrower a statement of the amounts that will be due on that Due Date
(the "Billed Amount"). The calculation will be made on the
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<PAGE>
assumption that no new extensions of credit or payments will be made
between the date of the billing statement and the Due Date, and that
there will be no changes in the applicable interest rate.
(c) The Bank will debit the Designated Account for the Billed Amount,
regardless of the actual amount due on that date (the "Accrued Amount").
If the Billed Amount debited to the Designated Account differs from the
Accrued Amount, the discrepancy will be treated as follows:
(i) If the Billed Amount is less than the Accrued Amount, the Billed
Amount for the following Due Date will be increased by the amount
of the discrepancy. The Borrower will not be in default by reason
of any such discrepancy.
(ii) If the Billed Amount is more than the Accrued Amount, the Billed
Amount for the following Due Date will be decreased by the amount
of the discrepancy.
Regardless of any such discrepancy, interest will continue to accrue
based on the actual amount of principal outstanding without compounding.
The Bank will not pay the Borrower interest on any overpayment.
(d) The Borrower will maintain sufficient funds in the Designated Account to
cover each debit. If there are insufficient funds in the Designated
Account on the date the Bank enters any debit authorized by this
Agreement, the debit will be reversed.
6.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day
is a day other than a Saturday or a Sunday on which the Bank is open for
business in California. All payments and disbursements which would be due on a
day which is not a banking day will be due on the next banking day. All payments
received on a day which is not a banking day will be applied to the credit on
the next banking day.
6.6 TAXES. The Borrower will not deduct any taxes from any payments it makes
to the Bank. If any government authority imposes any taxes on any payments made
by the Borrower, the Borrower will pay the taxes and will also pay to the Bank,
at the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
6.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the
Bank's costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments
for credit.
6.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
6.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance,
any amount not paid when due under this Agreement (including interest) shall
bear interest from the due date at the Bank's Reference Rate plus one and one
quarter (1.25) percentage points. This may result in compounding of interest.
6.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is one
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<PAGE>
(1.0) percentage point higher than the rate of interest otherwise provided under
this Agreement. This will not constitute a waiver of any default.
7. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
7.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance
by the Borrower of this Agreement and any instrument or agreement required under
this Agreement have been duly authorized.
7.2 SECURITY AGREEMENTS. Signed original security agreements, assignments,
financing statements and fixture filings (together with collateral in which the
Bank requires a possessory security interest), which the Bank requires.
7.3 EVIDENCE OF PRIORITY. Evidence that security interests and liens in
favor of the Bank are valid, enforceable, and prior to all others' rights and
interests, except those the Bank consents to in writing. All title documents for
motor vehicles must show the Bank's interest.
7.4 CONSENT TO REMOVAL. For any personal property collateral located on
real property which is subject to a mortgage or deed of trust or which is not
owned by the Borrower, a Consent to Removal from the owner of the real property
and the holder of any mortgage or deed of trust.
7.5 INSURANCE. Evidence of insurance coverage, as required in the
"Covenants" section of this Agreement.
7.6 OTHER ITEMS. Any other items that the Bank reasonably requires.
8. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
8.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
8.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
8.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
8.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
8.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement,
or obligation by which the Borrower is bound.
8.6 FINANCIAL INFORMATION. All financial and other information that has
been or will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the
Borrower's financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
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<PAGE>
8.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would impair the Borrower's
financial condition or ability to repay the loan, except as have been disclosed
in writing to the Bank.
8.8 COLLATERAL. All collateral required in this Agreement is owned by the
grantor of the security interest free of any title defects or any liens or
interests of others.
8.9 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
8.10 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
8.11 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year.
8.12 NO EVENT OF DEFAULT. There is no event which is, or with notice or
lapse of time or both would be, a default under this Agreement.
8.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the
Borrower has more than one place of business, its chief executive office) is
located at the address listed under the Borrower's signature on this Agreement.
9. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
9.1 USE OF PROCEEDS. To use the proceeds of Facility No. 1 only to support
operating cash flow needs. To use the proceeds of Facility No. 2 only to finance
the purchase of new equipment or vehicles. To use the standby letters of credit
under Facility No. 2 only for performance bonds for purchase orders on new
equipment.
9.2 FINANCIAL INFORMATION. To provide the following financial information
and statements and such additional information as requested by the Bank from
time to time:
(a) Within 90 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be reviewed by a
Certified Public Accountant ("CPA") acceptable to the Bank. The
statements shall be prepared on a consolidated basis. For each fiscal
year end, the CPA is to validate inventory figures (testing and
costing).
(b) Within 45 days of the period's end, the Borrower's monthly financial
statements. These financial statements may be Borrower prepared. The
statements shall be prepared on a consolidated basis. On a quarterly
basis, the Borrower is to provide the Bank with an indication of
officers' salaries, bonuses, and license fees.
(c) By January 31, 1996, the Borrower's projections prepared on a quarterly
format for the fiscal year 1996.
9.3 QUICK RATIO. To maintain on a consolidated basis a ratio of quick
assets to current liabilities of at least .7:1.0.
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities not classified as long-term investments. This ratio
will be calculated at the end of each fiscal quarter.
9.4 TANGIBLE NET WORTH. To maintain on a consolidated basis tangible net
worth equal to at least the sum of the following:
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<PAGE>
(a) Eight Million Seven Hundred Fifty Thousand Dollars ($8,750,000); plus
(b) the sum of 20% of net income after income taxes (without subtracting
losses) earned in each quarterly accounting period commencing with March
31, 1995.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets. This ratio will be calculated at the end
of each fiscal quarter.
9.5 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain on a
consolidated basis a ratio of total liabilities not subordinated to tangible net
worth plus liabilities subordinated to the Bank in a manner acceptable to the
Bank (using the Bank's standard form) not exceeding 1.15:1.0. This ratio will be
calculated at the end of each fiscal quarter.
"Total liabilities not subordinated" means the sum of current liabilities plus
long term liabilities, excluding debt subordinated to the Borrower's obligations
to the Bank in a manner acceptable to the Bank, using the Bank's standard form.
9.6 CASH FLOW TO DEBT SERVICE COVERAGE RATIO. To maintain on a consolidated
basis a cash flow to debt service coverage ratio of at least 1.3:1.0.
"Cash flow to debt service coverage ratio" means the ratio of cash flow to the
sum of interest expense, the current portion of long term debt to the Bank
(existing and new), current portion of other long term debt and current portion
of long term debt for lease obligations. "Cash flow" is defined as the sum of
net profit before tax, plus interest expense plus depreciation and amortization,
less dividends and non-financed capital expenditures and cash taxes. This ratio
will be calculated at the end of each fiscal quarter, using the results of that
quarter and each of the 3 immediately preceding quarters. The current portion of
long term debt will be measured as of the first day of the fiscal year in which
the quarter falls.
9.7 LIMITATION ON LOSSES. Not to incur on a consolidated basis a net loss
after taxes and extraordinary items in any two consecutive quarterly accounting
periods.
9.8 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts (other than those to the Bank), or become liable for the debts of others
without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of
business.
(c) Obtaining surety bonds in the usual course of business.
(d) Debts and lines of credit in existence on the date of this Agreement
disclosed in writing to the Bank.
9.9 OTHER LIENS. Not to create, assume, or allow any security interest or
lien (including judicial liens) on property the Borrower now or later owns,
except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
(c) Liens outstanding on the date of this Agreement disclosed in writing to
the Bank.
9.10 LOANS TO OFFICERS. Not to make any additional loans, advances or other
extensions of credit to any of the Borrower's executives, officers, directors or
shareholders (or any relatives of any of the foregoing) unless the
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<PAGE>
debt is subordinated to the Borrower's obligations to the Bank in a manner
acceptable to the Bank, using the Bank's standard form.
9.11 CHANGE OF OWNERSHIP. Not to cause, permit, or suffer any change, direct
or indirect, in majority stock ownership by William H. Channell, Sr.
9.12 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its Facility No. 1 for a period of at least 30
consecutive days in each line-year. "Line-year" means the period from May 1,
1995 to May 1, 1996, and each subsequent one-year period (if any).
9.13 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over Five Hundred Thousand Dollars ($500,000) against the
Borrower.
(b) any substantial dispute between the Borrower and any government
authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's financial condition or
operations.
(e) any change in the Borrower's name, legal structure, place of business,
or chief executive office if the Borrower has more than one place of
business.
9.14 BOOKS AND RECORDS. To maintain adequate books and records.
9.15 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrower's properties, books or records are in
the possession of a third party, the Borrower authorizes that third party to
permit the Bank or its agents to have access to perform inspections or audits
and to respond to the Bank's requests for information concerning such
properties, books and records.
9.16 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
9.17 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrower now has.
9.18 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep the Borrower's properties in good working condition.
9.19 PERFECTION OF LIENS. To help the Bank perfect and protect its security
interests and liens, and reimburse it for related costs it incurs to protect its
security interests and liens.
9.20 COOPERATION. To take any action requested by the Bank to carry out the
intent of this Agreement.
9.21 INSURANCE.
(a) INSURANCE COVERING COLLATERAL. To maintain all risk property damage
insurance policies covering the tangible property comprising the
collateral. Each insurance policy must be in an amount acceptable to the
Bank. The insurance must be issued by an insurance company acceptable to
the Bank and must include a lender's loss payable endorsement in favor
of the Bank in a form acceptable to the Bank.
(b) GENERAL BUSINESS INSURANCE. To maintain insurance satisfactory to the
Bank as to amount, nature and carrier covering property damage
(including loss of use and occupancy) to any of the Borrower's
properties, public liability insurance including coverage for
contractual liability, product liability and workers' compensation, and
any other insurance which is usual for the Borrower's business.
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<PAGE>
(c) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
9.22 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written
consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, merger, pool, joint venture, syndicate, or
other combination.
(d) lease, or dispose of all or a substantial part of the Borrower's
business or the Borrower's assets.
(e) acquire or purchase a business or its assets.
(f) sell or otherwise dispose of any assets for less than fair market value,
or enter into any sale and leaseback agreement covering any of its fixed
or capital assets.
(g) voluntarily suspend its business for more than 7 days in any 30 day
period.
10. DEFAULT
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
10.1 FAILURE TO PAY. The Borrower fails to make a payment under this
Agreement when due.
10.2 LIEN PRIORITY. The Bank fails to have an enforceable first lien (except
for any prior liens to which the Bank has consented in writing) on or security
interest in any property given as security for this loan.
10.3 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
10.4 BANKRUPTCY. The Borrower files a bankruptcy petition, a bankruptcy
petition is filed against the Borrower, or the Borrower makes a general
assignment for the benefit of creditors.
10.5 RECEIVERS. A receiver or similar official is appointed for the
Borrower's business, or the business is terminated.
10.6 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more
trade creditors against the Borrower in an aggregate amount of Five Hundred
Thousand Dollars ($500,000) or more.
10.7 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower, or the Borrower enters into any settlement agreements with respect to
any litigation or arbitration, in an aggregate amount of Five Hundred Thousand
Dollars ($500,000) or more.
10.8 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's financial condition or
ability to repay.
10.9 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the
Borrower's financial condition, properties or prospects, or ability to repay the
loan.
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<PAGE>
10.10 CROSS-DEFAULT. Any default occurs under any agreement in connection
with any credit the Borrower has obtained from anyone else or which the Borrower
has guaranteed.
10.11 DEFAULT UNDER RELATED DOCUMENTS. Any subordination agreement, security
agreement, or other document required by this Agreement is violated or no longer
in effect.
10.12 OTHER BANK AGREEMENTS. The Borrower fails to meet the conditions of, or
fails to perform any obligation under any other agreement the Borrower has with
the Bank or any affiliate of the Bank.
10.13 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions
of, or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
11. ENFORCING THIS AGREEMENT; MISCELLANEOUS
11.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
11.2 CALIFORNIA LAW. This Agreement is governed by California law.
11.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and
the Bank's successors and assignees. The Borrower agrees that it may not assign
this Agreement without the Bank's prior consent. The Bank may sell
participations in or assign this loan, and may exchange financial information
about the Borrower with actual or potential participants or assignees. If a
participation is sold or the loan is assigned, the purchaser will have the right
of set-off against the Borrower.
11.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those
that arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted
between the Borrower and the Bank, including claims for injury to
persons, property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United
States Arbitration Act. The United States Arbitration Act will apply
even though this Agreement provides that it is governed by California
law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of
the filing of a lawsuit, and any claim or controversy which may be
arbitrated under this paragraph is subject to any applicable statute of
limitations. The arbitrators will have the authority to decide whether
any such claim or controversy is barred by the statute of limitations
and, if so, to dismiss the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
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<PAGE>
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or
claim, at the time of the proposed submission to arbitration, arises
from or relates to an obligation to the Bank secured by real property
located in California. In this case, both the Borrower and the Bank must
consent to submission of the claim or controversy to arbitration. If
both parties do not consent to arbitration, the controversy or claim
will be settled as follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
(ii) The designated referee (or the panel of referees) will be
appointed by a court as provided in California Code of Civil
Procedure Section 638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an
active attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed
the referee, in accordance with the provisions of California Code
of Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank
to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property
collateral; or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including
the suing party, to submit the controversy or claim to arbitration if
the other party contests the lawsuit. However, if the controversy or
claim arises from or relates to an obligation to the Bank which is
secured by real property located in California at the time of the
proposed submission to arbitration, this right is limited according to
the provision above requiring the consent of both the Borrower and the
Bank to seek resolution through arbitration.
(j) If the Bank forecloses against any real property securing this
Agreement, the Bank has the option to exercise the power of sale under
the deed of trust or mortgage, or to proceed by judicial foreclosure.
11.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Bank retains all
rights, even if it makes a loan after default. If the Bank waives a default, it
may enforce a later default. Any consent or waiver under this Agreement must be
in writing.
11.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all
reasonable costs incurred by the Bank in connection with administering this
Agreement.
11.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any
reasonable costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration
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<PAGE>
proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys' fees incurred in connection with the lawsuit or arbitration
proceeding, as determined by the court or arbitrator. As used in this paragraph,
"attorneys' fees" includes the allocated costs of in-house counsel.
11.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank
and the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
11.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
11.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
11.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
11.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement entered into as of May 12, 1994, between the Bank and the Borrower,
and any credit outstanding thereunder shall be deemed to be outstanding under
this Agreement.
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<PAGE>
This Agreement is executed as of the date stated at the top of the first page.
[LOGO - BA]
BANK OF AMERICA Channell Commercial Corporation
NATIONAL TRUST AND SAVINGS ASSOCIATION
X /s/ Curt L. McCombs X /s/ William H. Channell, Sr.
------------------------------------ ----------------------------
By: Curt L. McCombs By: William H. Channell, Sr.
Title: Vice President Title: President
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO
ARE TO BE SENT: THE BORROWER
ARE TO BE SENT:
3650 14th Street, 2nd Floor 26040 Ynez Road
Riverside, CA 92501 Temecula, CA 92390
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<PAGE>
EXHIBIT 10.5
CHANNELL COMMERCIAL CORPORATION
PROFIT SHARING PLAN
ADOPTION AGREEMENT
BENEFIT CONSULTING GROUP
<PAGE>
NON-STANDARDIZED PROFIT SHARING PLAN
ADOPTION AGREEMENT
PREAMBLE. The Company hereby adopts the regional prototype defined
contribution plan of the Sponsor (identified as number R2) subject to the
further terms and conditions specified in this adoption agreement. This
action is taken for the purpose of:
[_] a) creating a new plan to be effective on .
----------------
and further identified as plan number .
----
[X] b) amending and restating in its entirety that previously existing plan
known as Channell Commercial Corporation Profit Sharing Plan, plan
---------------------------------------------------
number 001, which was originally made effective on February 1, 1986.
--- ----------------
For purposes hereof, this amendment and restatement shall become
effective on February 1, 1989; provided however, that those
----------------
provisions which are required by Title XVIII of the Tax Reform Act of
1986 [ ] shall [X] shall not be made separately effective as of
the first day of the first Plan Year beginning after 31 December
1984.
1
<PAGE>
ARTICLE 1
DEFINITIONS
1.10 Company - The business organization(s) specified by this section shall
be: Channell Commercial Corporation
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1.11 Compensation -
a) Basis of Determination - "Compensation" shall be determined on the
basis of:
[_] #1. 415 safe harbor compensation
[_] #2. Section 3121(a) wages
[X] #3. Section 3401(a) wages
b) Exclusions - The payments described by this sub-section shall be:
Compensation in excess of $75,000 shall be disregarded.
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provided however, that there shall be no payments described by this sub-
section if paragraph 3.02(a)(2) of this Adoption Agreement specifies
that basic accruals are to be provided on the basis of an integrated
formula.
c) Salary Reduction Amounts - "Compensation" shall
[X] include
[_] exclude salary reduction amounts.
d) Applicable Period -
1. Pre-1992 Plan Years - "Compensation" shall be attributable to the
Plan Year during which such Compensation is:
[X] #1. Actually paid or made available to the Employee.
[_] #2. Accrued by the Employer.
e) Application -
2. Application of Limitation to Family Members -
B. Overriding Provisions - none.
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f) Effectivity - The date specified by this sub-section shall be .
-------
1.22 Limitation Year - The day and month specified by this section for
concluding a "Limitation Year" shall be the 31st day of December.
---- --------
1.23 Normal Retirement Age - The age specified by this section shall be the
earlier of:
a)
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2
<PAGE>
b) the later of:
1. the time the Participant attains age sixty-five (65); or,
2. the fifth (5th) anniversary of the first day of the first Plan
Year in which the Participant commenced participation in the Plan.
1.25 Paired Plans - This Plan is not eligible for pairing.
1.27 Plan - The term "Plan" shall mean the plan established on the terms and
conditions of this adoption agreement, the related basic defined contribution
plan of the Sponsor, and the Trust. This Plan shall henceforth be known as
Channell Commercial Corporation Profit Sharing Plan
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1.28 Plan Year - The day and month specified by this section for concluding a
"Plan Year" shall be the 31st day of December.
---- --------
1.29 Qualified Joint and Survivor Annuity -
a) In General - The percentage of the survivor annuity shall be
50 (Fifty) percent.
-----------
1.32 Shared Employee -
b) Benefit Accruals for Shared Employees -
2. Special Rule - Benefit accruals of shared employees
[X] shall
[_] shall not
be determined on the basis of proposed regulations.
1.34 Super Top-Heavy - This Plan [_] shall [X] shall not be deemed to be
super top-heavy.
1.36 Top-Heavy - This Plan [_] shall [X] shall not be deemed to be top-heavy.
1.37 Top-Heavy Ratio.
f) Actuarial Assumptions - This sub-section specifies an interest rate of
Six (6) percent and the following mortality table:
-------
1984 Unisex Table.
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1.38 Trust - The trust specified by this section shall be:
Channell Commercial Corporation Profit Sharing Trust.
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1.43 Year of Participation -
a) In General -
1. Service Requirement - The service requirement
[_] is not applicable
[X] is applicable
and the number of Hours of Service specified by this paragraph
shall be 1,000 Hours of Service; or, if lesser, one thousand
-----
(1,000) Hours of Service.
2. Employment Requirement - The employment requirement
[X] is
[_] is not applicable.
3
<PAGE>
c) Effect of Failure to Meet Minimum Coverage -
1. In General - If coverage is required to be expanded in order to
satisfy the minimums of Code section 410(b); then, such expansion
shall be effected by means of
[_] covering all participants
[X] covering the minimum number of participants necessary to meet
such requirement.
1.44 Year of Service - This Plan does not provide for a general definition of
the term "Year of Service".
4
<PAGE>
ARTICLE 2
PARTICIPATION
2.01 DEFINITIONS.
a) Break in Service - The number of Hours of Service specified by this
sub-section shall be 500 ; or, if lesser,
-----
five hundred (500) Hours of Service.
b) Computation Period - The shift in eligibility computation periods to
the plan year
[_] shall
[X] shall not apply.
d) Excluded Employees -
1. Union Employees - The union exclusion
[X] shall
[_] shall not apply.
2. Nonresident Aliens - The nonresident alien exclusion
[X] shall
[_] shall not apply.
e) Ineligible Employee - The Employees identified by this sub-section are:
None
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f) Year of Service -
1. In General - The number of Hours of Service specified by this
paragraph shall be ; or, if lesser, one thousand (1,000).
----
2.02 MINIMUM AGE AND SERVICE REQUIREMENTS.
a) In General - The minimum age and service requirements prescribed by
this Plan as a condition of participation shall be age 21 and
--
[_] one (1) Year of Service
[X] two (2) Years of Service
[_] "Months of Employment".
---------
b) Special Rules -
1. Alternative Age and Service Conditions -
This paragraph
[_] shall [X] shall not apply.
If this paragraph applies; then, notwithstanding sub-section (a)
of this section to the contrary, the minimum age and service
requirements prescribed by this Plan as a condition of
participation shall be age and
----
[_] one (1) Year of Service
[_] two (2) Years of Service
[_] "Months of Employment"; provided
--------------
however, that this provision shall apply only to those Employees
who are included within the class of Employees described as
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5
<PAGE>
2.03 COMMENCEMENT OF INITIAL PARTICIPATION.
a) In General - This sub-section specifies the following:
[X] 1. Semi-annual entry dates and prospective entry.
[_] 2. Semi-annual entry dates and coincident entry.
[_] 3. Annual entry dates with proximate entry.
[_] 4. Annual entry dates with retrospective entry.
b) Additional Entry Dates - The dates specified by this sub-section
shall be:
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----------------------------------------------------------------
----------------------------------------------------------------
The above language must be sufficiently specific so that each additional
entry date can be determined solely by reference to such language and
without regard for any other factors.
2.06 BREAK IN SERVICE RULES.
a) 2-Year Service Rule - The 2-year break in service rule
[X] shall
[_] shall not apply.
2.07 PREDECESSOR SERVICE. The business organizations specified by this
section to be taken into account as a predecessor employer are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
[_] All service [_] Service from with the predecessor
----------------
employer shall be taken into account under this section.
2.08 WAIVERS.
a) In General - Waivers of participation
[X] shall
[_] shall not be permitted.
2.09 COVERAGE. The plans specified by this section are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
6
<PAGE>
ARTICLE 3
BENEFIT ACCRUAL
3.01 DEFINITIONS.
a) Applicable Percentage -
1. In General - The percentage specified by this paragraph shall be:
[X] #1. three percent (3%).
[_] #2. five percent (5%).
2. Buy-Back Minimum - The buy-back minimum
[_] shall
[X] shall not apply.
c) Considered Compensation - "Considered Compensation"
[_] shall
[X] shall not
be determined by disregarding any Compensation which is attributable to
Hours of Service performed while not a Participant.
g) Year of Top-Heavy Participation -
2. Exclusions - The following employees shall be excluded from
receiving a top-heavy minimum allocation:
[_] #1. None.
[_] #2. Key employees.
[X] #3. Employees who are not in Service on the Anniversary
Date.
3.02 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES.
a) Fixed Contribution Plans -
1. Top-Heavy Minimum -
B. Coordination With Other Plans -
ii) Overriding Provisions - The following shall apply:
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
2. Basic Accruals - Basic accruals shall be provided on the basis
of:
[_] A. a nonintegrated formula.
[X] B. an integrated formula.
i) Definitions -
II) Excess Contribution Percentage - This sub-
clause [ ] shall not [X] shall apply and
the "Excess Contribution Percentage" shall
not exceed the "Base Contribution
Percentage" by more than 5.7 percent.
---
III) Integration Level - The dollar amount
specified by this sub-clause for a Plan
Year shall be the lesser of the taxable
wage base in effect at the beginning of
such Plan Year or:
7
<PAGE>
[_] #1. $
-------------------
[_] #2. The greater of $
-------
or percent of the
-----
taxable wage base in effect
at the beginning of such
Plan Year.
[X] #3. The taxable wage base in
effect at the beginning of
such Plan Year.
3.03 COMPANY CONTRIBUTIONS.
a) Profit Sharing Plans -
3. Discretionary Contributions - Company contributions shall be
made:
[X] #1 without regard for the availability of "Net Profits".
[_] #2 only from "Net Profits". For purposes of applying the
provisions of this paragraph, the term "Net Profits"
shall be defined
[_] in accordance with paragraph 3.03(a)(1) of the
basic plan document
[_] as follows:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
8
<PAGE>
ARTICLE 4
ACCOUNTS
4.02 EARMARKED ACCOUNTS. Earmarking of accounts shall be permitted only
with respect to the following selected type(s) of accounts, if any:
[_] #1. Rollover Accounts.
[_] #2. Transferred Accounts.
[_] #3. Employee non-deductible contribution Accounts.
[_] #4. Frozen employee deductible contribution Accounts.
[_] #5. Individual Accounts.
[_] #6. Other -
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
9
<PAGE>
ARTICLE 5
VESTING
5.01 DEFINITIONS.
a) Break in Service - The number of Hours of Service specified by this
sub-section shall be 500 ; or, if lesser, five hundred (500) Hours of
-----
Service.
c) Nonforfeitable Percentage -
1. General Rule -
A. In General -
<TABLE>
<CAPTION>
Nonforfeitable Percentage
Years of Service Top-Heavy Years Non Top-Heavy Years
================ ============== ===================
<S> <C> <C>
0 0 % 0 %
--- ---
1 0 % 0 %
--- ---
2 100 % 100 %
--- ---
3 100 % 100 %
--- ---
4 100 % 100 %
--- ---
5 100 % 100 %
--- ---
6 100 % 100 %
--- ---
7 100 % 100 %
--- ---
</TABLE>
B. Switching - The Plan Years specified by this sub-
paragraph shall be:
[X] #1. All Plan Years.
[_] #2. The first Plan Year for which this Plan is
Top-Heavy and each succeeding Plan Year.
[_] #3. Each Plan Year for which this Plan is Top-
Heavy.
C. Minimum Vesting in Top-Heavy Years - If, for any Plan Year
specified by sub-paragraph (B) of this paragraph, the schedule
set forth in sub-paragraph (A) of this paragraph does not
provide for a Nonforfeitable Percentage of one hundred percent
(100%) after three (3) Years of Service; then, the
Nonforfeitable Percentage for such Plan Year shall not be less
than twenty percent (20%) after two (2) Years of Service; plus,
twenty percent (20%) for each additional Year of Service.
D. Minimum Vesting in Non Top-Heavy Years - If, for any Plan Year
not specified by sub-paragraph (B) of this paragraph, the
schedule set forth in sub-paragraph (A) of this paragraph does
not provide for a Nonforfeitable Percentage of one hundred
percent (100%) after five (5) Years of Service; then, the
Nonforfeitable Percentage for such Plan Year shall not be less
than twenty percent (20%) after three (3) Years of Service;
plus, twenty percent (20%) for each additional Year of Service.
E. Shifts Between Vesting Schedules - Any shift between schedules
used to determine Nonforfeitable Percentage which are occasioned
by a change in top-heavy status, shall be treated as an
amendment to the Plan's vesting schedule subject to the
provisions of paragraph 5.01(c)(3) of the basic Plan document.
10
<PAGE>
2. Accelerated Vesting -
B. Full Vesting on Death -
Full vesting on death [X] shall [_] shall not apply.
C. Full Vesting on Disability -
Full vesting on disability [X] shall [_] shall not apply.
E. Full Vesting at Age 70 1/2 -
Full vesting at age seventy and one-half (70 1/2)
[_] shall [X] shall not apply.
3. Former Schedule -
A. Mandatory Former Schedule - The pre-TRA vesting schedule
[_] shall
[X] shall not apply to Employees with no post-TRA
service.
d) Vesting Computation Period - The term "Vesting Computation Period"
shall mean and include each twelve (12) consecutive month period
which ends on:
[_] #1. a day of .
----------- ---------------------
[X] #2. an anniversary of the date the Employee commenced Service.
e) Year of Service -
1. In General - The number of Hours of Service specified by this
paragraph shall be 1,000 ; or, if lesser, one thousand (1,000).
-----
2. Minimum Age - The age specified by this paragraph shall be
18 ; or, if younger, the age of eighteen (18).
----
3. Pre-Plan Years - Pre-plan years [_] shall [X] shall not be
disregarded.
4. Rule of Parity - The rule of parity [X] shall [_] shall not
apply.
5. 1-Year Hold-Out Rule - The 1-year hold-out rule [X] shall
[_] shall not apply.
5.06 PREDECESSOR SERVICE - The business organizations specified by this
section to be taken into account as a predecessor employer are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
[_] All service [_] Service from ___________________ with the predecessor
employer shall be taken into account under this section.
11
<PAGE>
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.02 COMMENCEMENT OF BENEFITS.
b) Election of Non-Standard Commencement -
1. Early Commencement -
A. Separation from Service or Attainment of Age 70 1/2 -
ii) Funds Accumulated in a Profit Sharing Plan for More
than 2 Years - Funds accumulated for more than two (2)
years [X] may [_] may not be distributed.
iii) Overriding Provisions Relating to Early Commencement of
Benefit Distributions - The following provisions shall
apply for purposes of applying the provisions of
paragraph 6.02(b)(1) of this Plan and shall supersede
any contrary provision:
------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
B. Hardship - This Plan [X] does [ ] does not permit
distributions on account of hardship.
6.03 FORM OF BENEFITS.
a) Definitions -
3. Optional Form - The benefit forms specified as permissible by
this paragraph are as follows:
Single lump sum
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
provided however, that no benefit form may be specified above
which would cause the Plan to fail to satisfy the requirements
of sub-section 401(a) of the Code.
b) Automatic Form Generally Required -
3. Profit Sharing Exception - The profit sharing exception
[X] shall
[_] shall not apply.
6.05 MINIMUM DISTRIBUTION REQUIREMENTS.
b) Special Rules -
3. Recalculation of Life Expectancies - The life expectancy of the
Employee [_] shall [X] shall not be recalculated; and, the
life expectancy of the spouse [_] shall [X] shall not be
recalculated. The preceding sentence shall apply [X] in all
cases [_] only in any case where the employee (or spouse) has
failed to make an appropriate election specifying whether or
not life expectancies are to be recalculated.
12
<PAGE>
6.07 QUALIFIED DOMESTIC RELATIONS ORDERS.
a) Distribution Prior to Earliest Retirement Age - Distributions to
Alternate Payees under Qualified Domestic Relations Orders
[X] shall
[_] shall not
be permitted prior to the earliest retirement age.
13
<PAGE>
ARTICLE 7
LIMITATIONS
If the Employer maintains or maintained another qualified plan in which any
Participant in this Plan is or was a participant or could become a
participant; then, the remainder of this Article must be completed. The
remainder of this Article must also be completed if the Employer maintains a
welfare benefit fund, as defined in section 419(e) of the Code, or an
individual medical account, as defined section 415(l)(2) of the Code, under
which amounts are treated as Annual Additions with respect to any Participant
in this Plan.
7.03 LIMITATIONS ON CONTRIBUTIONS.
c) Non-Regional Prototype Defined Contribution Plans - If an Employee is
covered under another defined contribution plan maintained by the
Employer which is not a Regional Prototype Plan; then, Annual
Additions which may be credited to such Employee's Account(s) under
this Plan for any Limitation Year shall be:
[X] #1. Limited in accordance with paragraphs (1) through (4) of
this sub-section as though the other plan were a Regional
Prototype Plan.
[ ] #2. Limited in accordance with the following method which shall
limit total Annual Additions to the Maximum Permissible
Amount and properly reduce any Excess Amounts in a manner
that precludes Employer discretion:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
7.04 ADDITIONAL LIMITATION WHERE DISSIMILAR TYPE PLANS BENEFIT THE SAME
EMPLOYEE.
c) Additional Limitations - The limitations prescribed by this sub-
section shall be as follows:
---------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
14
<PAGE>
ARTICLE 8
EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS
8.01 DEFINITIONS.
j) Matching Contributions Account -
2. Vesting - The schedule specified by this paragraph shall be:
[_] #1. The "Nonforfeitable Percentage" shall be one hundred
percent (100%) at all times.
[_] #2. The schedule specified in sub-paragraph 5,01(c)(i)(A)
of this Adoption Agreement
[_] #3. The following schedule:
<TABLE>
<CAPTION>
Years of Service Nonforfeitable Percentage
================ =========================
<S> <C>
0 _______% or 0% if greater
1 _______% or 0% if greater
2 _______% or 20% if greater
3 _______% or 40% if greater
4 _______% or 60% if greater
5 _______% or 80% if greater
6 or more _______% or 100% if greater
</TABLE>
k) Qualifying Compensation - The items of compensation specified as
excluded by this sub-section shall be: none
------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
m) Qualified Non-Elective Contributions - The "Qualified Non-Elective
Contribution" for a particular Plan Year shall be allocated among the
various Restricted Accounts of Employees who are eligible to make
Elective Deferrals with respect to such Plan Year pursuant to the
provisions of sub-section 8.05(b) and who are not Highly Compensated
Employees as follows:
[_] 1. In the ratio which each such Employee's Compensation for
such Plan Year bears to the total Compensation of all
such Employees for such Plan Year.
[_] 2. In the ratio which each such Employee's Compensation not in
excess of the "Base Amount" bears to the total Compensation of
all such Employees not in excess of the "Base Amount" for such
Plan Year. For purposes of the preceding sentence only, the
term "Base Amount" shall mean $ .
-------------------
8.04 EMPLOYEE CONTRIBUTIONS. Employee contributions
[X] shall
[_] shall not be permitted.
15
<PAGE>
b) Matching Contributions -
1. In General -
A. Fixed Match - The percentage specified by this sub-paragraph
shall be %.
------
C. Limitation - With respect to a Participant who made Employee
Contributions for a Plan Year, the Matching Contributions
on behalf of such Employee for such Plan Year shall be
limited so as to not exceed:
[_] #1. $
-------------------
[ ] #2. % of such Participant's Compensation
----------
for such Plan Year.
[ ] #3. % of such Participant's Compensation
--------
for such Plan Year not to exceed $
----------
for such Plan Year.
[X] #4. No limit.
8.05 ELECTIVE DEFERRALS. Elective Deferrals
[_] shall be permitted effective as of .
------------
[X] shall not be permitted.
a) Definitions -
1. Enrollment Period - The periods specified by this paragraph shall
be
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
f) Matching contributions -
1. In General
A. Fixed Match - The percentage specified by this sub-paragraph
shall be %.
------
C. Limitation - with respect to a Participant who made Elective
Deferrals for a Plan Year, the Matching contributions on behalf
of such Participant for such Plan Year shall be limited so as to
not exceed:
[_] #1. $ .
----------------
[_] #2. % of such Participant's Compensation for
--------
such Plan Year.
[_] #3. % of such Participant's Compensation for
---------
such Plan Year not to exceed $ for
---------------
such Plan Year.
[_] #4. No limit.
16
<PAGE>
8.08 ROLLOVER CONTRIBUTIONS.
a) Employees Eligible - The class of Employees specified by this sub-
section shall be:
[X] #1. Only Employees who are in Service.
[ ] #2. Only Employees who are Participants and in Service.
17
<PAGE>
ARTICLE 10
DEATH BENEFITS AND INSURANCE
10.01 DEATH BENEFITS.
c) Special Rules -
1. Purchase of Life Insurance -
A. Mandatory Purchase - The percentage specified by this sub-
paragraph shall be zero percent.
--------
B. Election of Additional Optional Insurance - The purchase of
optional life insurance
[X] shall
[_] shall not be permitted.
2. Limitation on Premiums - The percentage specified by this
paragraph shall be twenty-five percent (25%).
18
<PAGE>
ARTICLE 14
PLAN TERMINATION
14.06 DISPOSITION OF EXCESS ASSETS ON PLAN TERMINATION.
b) Operative Provisions -
[_] #1. Revert to Company - Excess assets shall revert to the
Company.
[X] #2. Allocation to Beneficiaries and Successor Beneficiaries -
Excess assets shall be allocated to Beneficiaries and
Successor Beneficiaries.
19
<PAGE>
ARTICLE 16
MISCELLANEOUS
16.01 PLAN TYPE. This Plan shall be a profit sharing type of defined
contribution plan which is of the non-standardized form.
16.06 PAIRING PROVISIONS. No provision.
20
<PAGE>
EXECUTION
IN WITNESS WHEREOF, the Company has evidenced the adoption of the Plan by the
below action of its authorized representative(s).
Channell Commercial Corporation
By /s/ William H. Channell Dated: 1-8-93
---------------------------------- -------------------------
William H. Channell Title: President
------------------------------------ -------------------------
(Typed or printed name of signator)
By Dated:
--------------------------------- -------------------------
Title:
--------------------------------- -------------------------
(Typed or printed name of signator)
By Dated:
--------------------------------- --------------------------
Title:
--------------------------------- --------------------------
(Typed or printed name of signator)
NOTE: THE ADOPTING EMPLOYER MAY NOT RELY ON THE SPONSOR'S NOTIFICATION LETTER
WITH RESPECT TO THE QUALIFICATION OF THIS PLAN AND MUST APPLY TO THE
APPROPRIATE KEY DISTRICT OFFICE FOR A DETERMINATION LETTER IN ORDER TO
OBTAIN RELIANCE.
This adoption agreement may be used only in conjunction with basic plan
document #R2.
WARNING: IMPROPERLY COMPLETING THIS ADOPTION AGREEMENT MAY RESULT IN
DISQUALIFICATION OF THIS PLAN.
(If required, additional signature pages may be appended.)
21
<PAGE>
EXHIBIT 10.6
AGREEMENT
---------
INTEGRAL CORPORATION is pleased to appoint CHANNELL COMMERCIAL CORPORATION,
and its agents, 620 West Foothill Boulevard, Glendora, California 91740, as our
sales representative effective September 1, 1982, covering the following
territory:
(AMENDMENT "A" Cable Television - All sales to Franchise Operators, Contractors
- -------------- ----------------------------------------------------------------
or Distributors in the United States and/or Possessions.
- ----------------========================================
This Agreement covers the sales of all Integral products including but not
limited to Coaxial Cablecon sold in the territory outlined above.
A commission of five (5) percent of the net sales will be paid by Integral
Corporation upon invoicing of the product(s) to the aforementioned customer(s).
However, if payment is not received within 120 days after invoicing, commission
paid on the delinquent invoice will be deducted from the representative's
account, and re-paid upon receipt of payment to Integral Corporation.
In the event representative services his or other territories by operating
a warehouse utilizing Integral Corporation's products on a consigned basis, a
three (3) percent warehouse commission will be paid on the invoice amount of the
individual field warehouse shipment. The representative agrees to conduct a
physical inventory on a biannual basis of any consigned stock and report this
inventory to Integral Corporation.
<PAGE>
If consigned stock is to be moved from a representatives warehouse,
representative agrees to give all possible assistance, including personnel and
equipment, to facilitate the transfer.
Limited Liability
- -----------------
The representative is in fact and in law an independent contractor and has
no power to bind Integral Corporation in any regard to third parties.
Attachment "A" (Integral Corporation's Terms and Conditions of Sale) contains
Integral Corporation's warranty of its products and all orders accepted by
Integral Corporation shall be covered by these terms and conditions of sale.
Integral Corporation neither assumes or authorizes any other person to assume
for it any other liability in connection therewith.
(AMENDMENT "B")
- ---------------
Mutually Exclusive Agreement
- ----------------------------
During the terms of this Agreement, Integral Corporation agrees not to
represent, manufacture or sell any product that is competitive to any product
that representative manufactures, represents, or sells. Integral Corporation
further agrees that during the term of this Agreement, Channell Commercial
Corporation shall have the exclusive right to sell Integral Corporation products
in the territory outlined above.
Representative agrees not to represent, manufacture, or sell any product
that is competitive to any product that Integral Corporation represents,
manufactures, or sells during the term of this Agreement.
-2-
<PAGE>
Termination
- -----------
The termination date of this Agreement shall be ninety (90) days after
written notice is given to the other party.
If representative terminates this Agreement:
1. Representative will continue to solicit orders for Integral
Corporation during the ninety (90) day's notice given.
2. Integral Corporation will continue to pay five (5) percent
commission to representative on the net sales invoiced
during the ninety (90) day's notice given.
If Integral Corporation terminates this Agreement:
1. Representative will continue to solicit orders for six (6)
months after the termination date.
(AMENDMENT "C")
- ---------------
2. Integral Corporation will continue to pay five (5) percent
----------------------------------------------------------
commission to representative on the net sales invoiced for
----------------------------------------------------------
six (6) months after the termination date.
------------------------------------------
(AMENDMENT "D")
- ---------------
3. Integral Corporation shall pay a commission of three (3)
--------------------------------------------------------
percent to representative on the net sales invoiced as a
----------------------------------------------------====
result of orders entered by representative prior to the end
===========================================================
of six (6) months from the termination date as long as these
============================================================
sales are invoiced during the period between six (6) months
===========================================================
-3-
<PAGE>
from the termination date to two (2) years from the
===================================================
termination date.
=================
(AMENDMENT "E")
- ---------------
Non-Competition
- ---------------
Upon termination of this Agreement by either party, for any reason
whatsoever, Channell Commercial Corporation shall not compete, directly or
indirectly with Integral Corporation in any product line that is represented,
manufactured or sold by Integral Corporation on the date of termination of this
Agreement, or that had been represented, manufactured, or sold by Integral
Corporation for one (1) year prior to the termination of this Agreement, within
the territory began during the term of this Agreement, for a period of two (2)
years after the date of termination of this Agreement. This non-compete clause
shall be construed as an Agreement independent of any other provision of this
Agreement; and the existence of any claim or cause of action of Channell
Commercial Corporation against Integral Corporation, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Integral Corporation of the non-compete section.
Upon termination of this Agreement by either party, for any reason
whatsoever, Integral Corporation shall not compete, directly or indirectly with
Channell Commercial Corporation in any product line that is represented,
manufactured, or sold by Channell Commercial Corporation other than products
represented under this Agreement on the date of termination of this Agreement,
or that had been represented, manufactured, or sold by Channell Commercial
Corporation for one (1) year prior to the termination of this Agreement, within
the territory begun during the term of this Agreement, for a period of two (2)
years after the date of termination of this
-4-
<PAGE>
Agreement. This non-compete clause shall be construed as an Agreement
independent of any other provision of this Agreement; and the existence of any
claim or cause of action of Integral Corporation against Channell Commercial
Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by Channell Commercial Corporation of
this non-compete section.
This Agreement, signed this 30th day of September, 1982, shall be construed
under the laws of the State of Texas.
INTEGRAL CORPORATION CHANNELL COMMERCIAL CORPORATION
/s/ James L. Gray /s/ William H. Channell, Sr.
- ---------------------------- ----------------------------------
James L. Gray, President William H. Channell, President
/s/ G. Paul Hagist /s/ William H. Channell, Jr.
- ---------------------------- ----------------------------------
G. Paul Hagist William H. Channell, Jr.
Vice President of Marketing Product Promotion
-5-
<PAGE>
(AMENDMENT "A")
- ---------------
Cable Television - All sales to Franchise Operators, Contractors or
Distributors in the United States and Canada and/or
either countries possessions.
Telephone - All sales to Operators, Contractors or Distributors in
Canada and/or possessions.
(AMENDMENT "B")
- ---------------
Integral Corporation holds Channell Commercial harmless if a liability or
personal injury lawsuit is filed against them. It will be Integral's
responsibility to solely supply all legal council if Channell is named as a co-
defendant on any lawsuits. Furthermore, if a lawsuit does arise, Integral
Corporation will represent both parties equally and will not hold Channell
liable for any financial judgment that is levied against it. This does not
apply if Channell has erred by making unauthorized promises or erroneous
statements without Integral's permission.
(AMENDMENT "C")
- ---------------
2. Integral Corporation will continue to pay five (5) percent commission
to representative on the net sales invoiced for twelve (12) months
after the termination date.
Channell must achieve a mutually agreed to "reasonable forecast" in
order to receive post separation commissions past six (6) months
beyond termination. Channell must actively promote Cablecon during
the entire period that commissions are paid. Integral makes the final
decision in case there is a conflict regarding the volumes comprising
a "reasonable forecast".
In any case Channell is protected on commissionable volumes not to
exceed their last full year's activity.
(AMENDMENT "D")
- ---------------
3. Integral Corporation will pay a commission of three (3) percent to
Channell on the net sales invoiced twelve (12) months after the
termination date until the end of month twenty-four (24). After two
(2) years from the termination date Integral Corporation will have no
financial obligation to Channell.
-6-
<PAGE>
(AMENDMENT "E")
- ---------------
Major change in stockholder control or company acquisition:
- ----------------------------------------------------------
If Integral Corporation is sold or 51% of its outstanding shares of stock
are no longer controlled by James L. Gray, then Channell Commercial will have
three options:
1) Ratify this existing contract with the new controlling identity at
Integral.
2) Renegotiate a new contract with this identity, or
3) Give notice of resignation and be paid as outlined in Amendments C (2)
and D (3). Channell is protected on commissionable volumes not to
exceed their last full year of activity.
If Channell Commercial is sold or 51% of its outstanding shares are no
longer controlled by either William H. Channell, Sr. or William H. Channell, Jr.
then Integral will have three options:
1) Ratify this existing contract with the new controlling identity at
Channell.
2) Renegotiate a new contract with this identity, or
3) Withdraw support of new managements plans and only continue to pay 5%
for one complete calendar year.
INTEGRAL CORPORATION CHANNELL COMMERCIAL CORPORATION
/s/ James L. Gray /s/ William H. Channell
- ------------------------------ --------------------------------------
James L. Gray, President William H. Channell, President
-7-
<PAGE>
EXHIBIT 10.11
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, May
17, 1994, is made by and between Z. Paul Akian and Sonia Akian Family Trust
("LESSOR") and Channell Commercial Corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 43300 Business Park Drive, Stes. A101,
A102, A103, located in the City of Temecula, County of Riverside, State of
California, with zip code 92590, as outlined on Exhibit A attached hereto
("PREMISES"). The "BUILDING" is that certain building containing the Premises
and generally described as (describe briefly the nature of the Building):
Approximately 21,178 square feet (ground floor) of industrial space, part of a
larger building. In addition to Lessee's rights to use and occupy the Premises
as hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: Twenty (20) unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES") and 0 reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: Month ("ORIGINAL TERM") commencing May 19, 1994. ("COMMENCEMENT
DATE") and ending See Addendum, #49 ("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $6,353.00 per month ("BASE RENT"), payable on the eighteenth
(18th day) of each month commencing May 18, 1994. (Also see Paragraph 4.)
[ ] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $6,353.00 as Base Rent for the period
May 19 through June 18, 1994.
1.7 SECURITY DEPOSIT: $6,353.00 ("SECURITY DEPOSIT"). (Also see Paragraph
5.)
1.8 PERMITTED USE: Warehouse/distribution of communications equipment and
related articles ("PERMITTED USE") (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[x] CB Commercial represents Lessor exclusively ("LESSOR'S BROKER");
[x] Rancon Real Estate represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _______________ represents both Lessor and Lessee ("DUAL AGENCY"). (Also
see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $3,176)
for brokerage services rendered by said Broker(s) in connection with this
transaction.
1.11. GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 and Exhibits A all of which constitute a part of
this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free of
debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has been
advised by the Broker(s) to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use;
(b) that Lessee has made such investigation as it deems necessary with reference
to such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth In Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cast and expense, correct any
non-compliance of the Premises with said warranties.
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2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in
Paragraph 1.2(b) on those portions of the Common Areas designated from time to
time by Lessor for parking. Lessee shall not use more parking spaces than said
number. Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREAS--DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS-LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS--RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of driveways, entrances, parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas:
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Industrial Center as Lessor may, in
the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period. Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use
set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit
the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition. Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene. (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all air lines, power panels, electrical
distribution, security, fire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself,
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and
to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined as
any increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall include,
but not be limited to, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a general
premium rate increase. The term "Insurance Cost Increase" shall not, however,
include any premium increases resulting from the nature of the occupancy of any
other lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "BASE PREMIUM." If a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period immediately preceding the
Commencement Date, the "Base Premium" shall be the annual premium applicable to
such twelve (12) month period. If the Building was not fully occupied during
such twelve (12) month period, the "Base Premium" shall be the lowest annual
premium reasonably obtainable for the Required Insurance as of the Commencement
Date, assuming the most nominal use possible of the Building. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and to any Lender(s), insuring against loss or damage to
the Premises. Such insurance shall be for full replacement cost, as the same
shall exist from time to time, or the amount required by any Lender(s), but in
no event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. If the coverage is available and
commercially appropriate, Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor
shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents. Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade Fixtures
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a) irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE--INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or
(ii) the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date
specified in said notice. If Lessor or a Lender commences the repair or
restoration of the Premises within thirty (30) days after the receipt of such
notice, this Lease shall continue in full force and effect. "COMMENCE" as used
in this Paragraph 9.6 shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any
form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial Center
or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the
amount of Real Property Taxes, which are assessed against the Premises, Building
or Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor. If any of Lessee's said property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee's property
within ten (10) days after receipt of a written statement setting forth the
taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental
value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of Base
Rent coming due, and any underpayment for the period retroactively to the
effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
as reasonably determined by Lessor (without the Lease being considered an
encumbrance or any deduction for depreciation or obsolescence, and considering
the Premises at its highest and best use and in good condition) or one hundred
ten percent (110%) of the price previously in effect, (ii) any index-oriented
rental or price adjustment formulas contained in this Lease shall be adjusted to
require that the base index be determined with reference to the index applicable
to the time of such adjustment, and (iii) any fixed rental adjustments scheduled
during the remainder of the Lease term shall be increased in the same ratio as
the new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1.000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent, Lessee's Share of Common Area
Operating Expenses, or any other monetary payment required to be made by Lessee
hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or
of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor
may reserve the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
Subparagraph 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace period
under the unlawful detainer statue shall run concurrently after the one such
statutory notice, and the failure of Lessee to cure the Default within the
greater of the two (2) such grace periods shall constitute both an unlawful
detainer and a Breach of this Lease entitling Lessor to the remedies provided
for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee
has the right to sublet or assign, subject only to reasonable limitations.
Lessor and Lessee agree that the limitations on assignment and subletting in
this Lease are reasonable. Acts of maintenance or preservation, efforts to relet
the Premises, or the appointment of a receiver to protect the Lessor's interest
under this Lease, shall not constitute a termination of the Lessee's right to
possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 Inducement Recapture In Event of Breech. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease. all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provisions shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to
Lessor of rent and other sums due hereunder will cause Lessor to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages: provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation. Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter. repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 Procuring Cause. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 Additional Terms. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(a) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 Assumption of Obligations. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1 10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify protect, defend and hold the other harmless from and against liability
for compensation or charges which may be claimed by any such unnamed broker,
finder or other similar party by reason of any dealings or actions of the
indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy end Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as here in above defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Pest-Due Obligations. Any monetary payment due Lessor hereunder.
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
Time of Essence. Time is of the essence with respect to the performance of all
obligations to be performed or observed by the Parties under this Lease.
Rent Defined. All monetary obligations of Lessee to Lessor under the terms of
this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
-8-
<PAGE>
23. Notice
23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
by messenger or by courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid. or by
facsimile transmission during normal business hours, and shall be deemed
sufficiently given it served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent by
regular mail, the notice shall be deemed given forty-eight (48) hours after the
same is addressed as required herein and mailed with postage prepaid. Notices
delivered by United States Express Mail or overnight courier that guarantees
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the United States Postal Service or courier. If any notice is
transmitted by facsimile transmission or similar means, the same shall be deemed
served or delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge hereof. Any payment given Lessor by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying state
of a Default or Breach at the time of accepting rent, the acceptance of rent by
Lessor shall not be a waiver of any Default or Breach by Lessee of any
provision, statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless agreed to in writing by Lessor at or before the time of
deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals.
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however that
upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architect, attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 Form of Guaranty. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
-9-
<PAGE>
37.2 Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon reason
request by Lessor to give: (a) evidence of the due execution of the guaranty
called for by this Lease, including the authority of the Guarantor (and of the
party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease. Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions.
39. Options.
39.1 Definition. As used in this Lease, the word "Option" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach.
40. Rules end Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make "payment under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. Month to Month Tenancy. It is understood between Lessor and Lessee that the
term of the lease shall be a tenancy from month to month. Lessor and Lessee
agree that either party shall have the right to cancel this notice to the
other party agreement upon thirty (30) days written.
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
<TABLE>
<S> <C>
LESSOR
Executed at: Valencia, Ca Executed at:
----------------------------- -----------------------------
on: 5-23-94 on:
--------------------------------------- --------------------------------------
By LESSOR: By LESSEE:
Z. Paul Akian and Sonia Akian Family Trust Channell Commercial Corporation
- ------------------------------------------ ------------------------------------------
- ------------------------------------------ ------------------------------------------
By: /s/ Z. Paul Akian By: /s/ William H. Channell
-------------------------------------- ---------------------------------------
Named Printed: Z. Paul Akian Named Printed: William H. Channell
--------------------------- ---------------------------
Title: Trustee Title: President
---------------------------------- -----------------------------------
By: By:
-------------------------------------- --------------------------------------
Named Printed: Named Printed:
--------------------------- ----------------------------
Title: Title:
------------------------------------ ------------------------------------
Address: 26235 Technology Drive Address: 27040 Ynez Road
--------------------------------- ----------------------------------
Valencia, CA 91355 Temecula, CA 92591
- ------------------------------------------ -------------------------------------------
Telephone: (805) 295-0800 Telephone: (909) 694-9160
------------------------- --------------------------
Facsimile: (805) 295-0200 Facsimile: (909) 694-9170
------------------------- --------------------------
BROKER: CB Commercial BROKER: Rancon Real Estate
Executed at: Executed at:
----------------------------- ------------------------------
on: on:
--------------------------------------- ---------------------------------------
By: /s/ Marty Smith By: /s/ Michael A. Pappas
-------------------------------------- ---------------------------------------
Named Printed: Marty Smith Named Printed: Michael A. Pappas
--------------------------- ----------------------------
Title: Agent Title: Agent
----------------------------------- ------------------------------------
Address: 5130 Avenida Encinas Address: 27740 Jefferson Ave., Ste. 100
--------------------------------- ----------------------------------
Carlsbad, CA 92008 Temecula, CA 92590
- ------------------------------------------ -------------------------------------------
Telephone: (619) 438-8500 Telephone: (909) 676-8418
------------------------- ---------------------------
Facsimile: (619) 438-8592 Facsimile: (909) 699-0387
------------------------- ---------------------------
</TABLE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345
So. Figueroa St., M-1, Los Angeles, CA 90071. (213) 687-8777.
Initials: WHC
----
ZPA
----
MULTI-TENANT--GROSS
(c) American Industrial Real Estate Association 1993
-11-
<PAGE>
[EXHIBIT "A"]
[MAP APPEARS HERE]
<PAGE>
[LOGO OF CHANNELL ALQUIST-PRIOLO SPECIAL EARTHQUAKE STUDIES ZONE ACT
COMMERCIAL CORPORATION] LEASE-ADDENDUM TO LEASE OR PROPOSAL TO LEASE
CB COMMERCIAL REAL ESTATE GROUP, INC.
BROKERAGE AND MANAGEMENT
LICENSED REAL ESTATE BROKER
This Addendum is attached as Exhibit B to the Proposal to Lease or Lease dated
-
May 17, 1994, in which Channell Commercial Corporation is referred to as Lessee
- ------ -- -------------------------------
and Z. Paul Akian and Sonia Akian Family Trust is referred to as Lessor, for the
------------------------------------------
property commonly known as 43300 Business Park Drive, Stes. A-101, A-102, A-103
----------------------------------------------------
(the "Property").
The property which is the subject of this agreement is or may be situated in a
Special Studies Zone as designated under the Alquist-Priolo Special Studies Zone
Act, Sections 2621-2630, inclusive, of the California Public Resources Code;
and, as such, the construction or development on the Property of any structure
for human occupancy may be subject to the findings of a geologic report prepared
by a geologist registered in the State of California, unless such report is
waived by the city or county under the terms of that Act. No representations on
the subject are made by Lessor or by CB COMMERCIAL REAL ESTATE GROUP, INC.* or
its agents or employees, and the Lessee should make his/her/its own inquiry or
investigation.
*or by Rancon Real Estate Corporation
Receipt of a copy is hereby acknowledged.
Dated May 19, 1994 Lessee: Channell Commercial Corporation
------ -- ----------------------------------------
By: Dale C. Wooding /s/ Dale C. Wooding
--------------------------------------------
Title: Director of Manufacturing
----------------------------------------
Receipt of a copy is hereby acknowledged.
Dated May 23, 1994, 19 Lessor: Z. Paul Akian & Sonia Akian Family Trust
------------ -- ----------------------------------------
By: /s/ Z. Paul Akian
-------------------------------------------
Title: Trustee
-----------------------------------------
For further information contact appropriate city or county agencies:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The term "Lessee" shall be deemed to include a tenant, and the term "Lessor"
shall be deemed to include a landlord.
(For property only in California)
<PAGE>
EXHIBIT 10.12
LEASE
This Lease made 3-1- , 1994 between ALLSTATE LIFE INSURANCE COMPANY, an
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Illinois Insurance company ("Landlord") and Channell Commercial Corporation
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("Tenant").
ARTICLE ONE
DEFINITIONS, SCHEDULES AND ADDENDA
1.1 DEFINITIONS:
a. LEASED PREMISES shall mean Suite R, as described in Schedule 1.
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b. BUILDING shall mean Commerce Center VI located at .
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c. PROJECT shall mean Commerce Center VI located at .
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d. TENANT'S SQUARE FOOTAGE shall mean 12,512 rentable square feet;
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Total Square Footage of the Building shall mean 178,560 rentable square
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feet, which may be adjusted pursuant to paragraph 7.2(iii) below.
e. LEASE COMMENCEMENT DATE shall mean April 1994, which may be
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adjusted pursuant to the provisions of this Lease; Lease Expiration Date
shall mean March 31, 1997; Lease Term shall mean the period between
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Lease Commencement Date and Lease Expiration Date.
f. BASE RENT shall mean $ 40.664.00 ($ 3.25 per square foot of Tenant's
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Square Footage) per year, payable in monthly installments of $ 3,388.67, plus
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applicable sales tax, if any; the total Base Rent payable over the entire Lease
Term is $121,992.00 Base Rent is subject to adjustment as provided in ARTICLE
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THREE below.
g. TENANT'S PRO RATA SHARE shall mean 7.0% which may be adjusted pursuant to
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paragraph 7.2(iii) below. Tenant's Pro Rata Share of Operating Costs for the
first year of the Lease Term is estimated to be $ 2.252.16 ($ 0.18 per square
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foot of Tenant's Square Footage) payable in monthly installments of $ 187.68,
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subject to adjustment pursuant to Article 3.3b and c below.
h. DEPOSIT shall mean $3,388.67 Prepaid Rent shall mean $ 0 of which $ 0
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represents the first monthly installment of Base Rent, and $ 0 represents the
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estimated last monthly installment(s) of Base Rent.
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i. PERMITTED PURPOSE shall mean office, storage warehousing and light assembly
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of telecommunications equipment.
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j. MANAGING AGENT shall mean CB Commercial Group, Inc. whose address is 1900
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Charlotte Plaza, Charlotte, NC 28244.
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k. BROKER OF RECORD shall mean CB Commercial Group, Inc.
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l. LANDLORD'S MAILING ADDRESS: ALLSTATE LIFE INSURANCE COMPANY, Allstate Plaza
G5B, Northbrook, IL 60062.
m. TENANT'S MAILING ADDRESS: 26040 Ynez Road, P.O. Box 9022, Temecula, CA
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92589-9022.
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1.2 SCHEDULES AND ADDENDA: The schedules and addenda listed below are
incorporated into this lease by reference unless lined out. The terms of
schedules, exhibits and typewritten addenda, if any, attached or added hereto
shall control over any inconsistent provisions in the paragraphs of this Lease.
a. SCHEDULE 1: Description of Premises and Floor Plan
b. SCHEDULE 2: Rules and Regulations
c. SCHEDULE 3: Utility Services
d. SCHEDULE 4: Maintenance Services
e. SCHEDULE 5: Parking
f. SCHEDULE 6: Work Letter
g. SCHEDULE 7: Certificate of Acceptance
ARTICLE TWO
PREMISES
2.1 LEASE OF PREMISES: In consideration of the Rent and the provisions of
this Lease, Landlord leases to Tenant and Tenant accepts from Landlord the
Leased Premises. Tenant's Square Footage is a stipulated amount based on
Landlord's method of determining Total Square Footage for rental purposes and
may not reflect the actual amount of floor space available for Tenant's use.
2.2 PRIOR OCCUPANCY: Tenant shall not occupy the Leased Premises prior to
Lease Commencement Date except with the express prior written consent of
Landlord. If with Landlord's consent Tenant occupies the Leased Premises, Tenant
shall pay Landlord for the period from the first day of such occupancy rent in
the amount specified in Article 1.1 to be payable on the first day of such
occupancy and thereafter on the first day of every calendar month until the
first day of the Lease Term. A prorated monthly installment shall be paid for
the fraction of the month if Tenant's occupancy of the Leased Premises commences
on any day other than the first day of the month. If Tenant shall occupy the
Leased Premises prior to Lease Commencement Date, all covenants and conditions
of this Lease shall be binding on the parties commencing at such prior
occupancy.
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ARTICLE THREE
PAYMENT OF RENT
3.1 RENT: Tenant shall pay each monthly installment of Base Rent in advance
by the fifth (5th) calendar day of each month. Monthly installments for any
fractional calendar month, at the beginning or end of the Lease Term, shall be
prorated based on the number of days in such month. Base Rent, together with all
other amounts payable by Tenant to Landlord under this Lease, including, without
limitation, any late charges and interest due Landlord for Rent not paid when
due, shall be sometimes referred to collectively as "Rent". Tenant shall pay all
Rent, without deduction or set-off, to Landlord or Managing Agent at a place
specified by Landlord. Rent not paid when due shall bear interest until paid, at
the rate of 2% per month from the date when due. Tenant shall also pay a late
charge of $50 with each late payment of rent.
3.2 DEPOSIT; PREPAID RENT: Tenant has paid to Landlord the Deposit and
Prepaid Rent as security for performance of Tenant's obligations under this
Lease. In the event Tenant fully complies with all the terms and conditions of
this Lease, the Deposit shall be refunded to Tenant, without interest unless
otherwise required by law, upon expiration of this Lease. Landlord may, but is
not obligated to, apply a portion of the Deposit to cure any default hereunder
and Tenant shall pay on demand the amount necessary to restore the Deposit in
full within 10 days after notice by Landlord.
3.3 OPERATING COSTS: Tenant shall pay Tenant's Pro Rata Share of Operating
Costs as follows:
a. "Operating Costs" shall mean all expenses relating to the exterior of
the Building or the Project, including but not limited to: real estate
taxes and assessments; gross rents, sales, use, business, corporation,
franchise or other taxes (except income taxes); utilities not separately
paid by tenants; insurance premiums and (to the extent used) deductibles;
association fees; maintenance, repairs and replacements; refurbishing and
repainting; equipment, tools, materials and supplies; property management
including management fees; security; employees and contractors; resurfacing
and restripping of walks, drives and parking areas; signs, directories and
markers; landscaping; and snow and rubbish removal. Operating Costs shall
not include expenses for legal services, real estate brokerage and leasing
commissions, Landlord's income taxes, income tax accounting, interest,
depreciation, general corporate overhead, or capital improvements to the
Building or Project except for capital improvements installed for the
purpose of reducing or control1ing expenses, or required by any
governmental or other authority having or asserting jurisdiction over the
Project. If any expense, though paid in one year, relates to more than one
calendar year at option of Landlord such expenses may be proportionately
allocated among such related calendar years.
b. Tenant shall pay, in equal monthly installments, Tenant's Pro Rata
Share of Operating Costs for each calendar year which falls (in whole or in
part) during the Lease Term (prorated for any partial calendar year at the
beginning or end of the Lease Term). Annually, or from time to time,
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based on actual and projected Operating Costs data, Landlord may adjust its
estimate of Operating Costs upward or downward. All monthly installments
are due 15 days after notice to Tenant of a revised estimate of Operating
Costs and shall be in equal monthly amounts sufficient to result in the
unpaid balance of Tenant's Pro Rata Share of Operating Costs being paid in
full by the end of the calendar year in which such adjustment is made, and
thereafter shall be in equal amounts sufficient to result in Tenant's Pro
Rata Share of Operating Costs being paid in full by the end of each
succeeding calendar year. In the event that the Building is not fully
leased during any calendar year, Landlord may make appropriate adjustments
to the Operating Costs to adjust such expenses to a 95% leased basis, and
such adjusted expenses shall be used for purposes of this paragraph 3.3.
c. As soon as possible, each year Landlord shall compute the actual
Operating Costs for the Prior calendar year, and shall give notice thereof
to Tenant. Within 30 days after receipt of such notice, Tenant shall pay
any deficiency in Tenant's Pro Rata Share of Operating Costs for the prior
calendar year (prorated for any partial calendar year at the beginning or
end of the Lease Term). In the event of overpayment by Tenant, Landlord
shall apply the excess to the next payment of Rent when due, until such
excess is exhausted or until no further payments of Rent are due, in which
case, Landlord shall pay to Tenant the balance of such excess within 30
days thereafter.*
Section 3.4 PROPERTY TAXES:
(a) REAL PROPERTY TAXES. Landlord shall pay the "Base Real Property Taxes"
on the Project during the Lease Term. Base Real Property Taxes are real property
taxes applicable to the Property as shown on the tax bill for the most recent
tax fiscal year ending prior to the Lease Commencement Date. Tenant shall pay
Landlord the amount, if any, by which the real property taxes during the Lease
Term exceed the Base Real Property Taxes.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real Property Tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Project; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Project or against Landlord's business of
leasing the Project; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Project by
any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Project due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Project; and (v) upon or with respect to the possession, leasing, operating,
management, maintenance, alteration, repair, use or occupancy by Tenant of the
Leased Premises or (vi) any parties thereof any charge or fee replacing any tax
previously included within the definition of real property tax. "Real property
tax" does not, however, include Landlord's federal or state income, franchise,
inheritance or estate taxes.
(c) JOINT ASSESSMENT. If the Project is not separately assessed, Landlord
shall reasonably determine Tenant's share of the real property tax payable by
Tenant under Paragraph 3.4(a) from the assessor's worksheets or other reasonably
available information. Tenant shall pay such share to Landlord within fifteen
(15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have Personal property taxes separately from the Project.
(ii) If any of Tenant's personal property is taxed with the
Project, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
ARTICLE FOUR
IMPROVEMENTS BY LANDLORD
4.1 CONSTRUCTION CONDITIONS: Landlord shall construct the improvements
described in the work letter attached hereto as Schedule 6 (the "Improvements").
The expenses to be incurred as between Landlord and Tenant for construction of
the Improvements are specified in Schedule 6. If any act, omission or change
requested or caused by Tenant increases the cost of work or materials or the
time required for completion of construction, Tenant shall reimburse Landlord
for such increase in cost at the time the increased cost is incurred and shall
reimburse Landlord for any loss in Rent at the time the Rent would have become
due. "Tenant or Tenant's Agent shall be granted authority to audit Landlord's
books given reasonable notice in the office of Managing Agent within forty-five
(45) days of Landlord's notice of actual operating costs for the prior year.
Tenant ease/net3 shall be responsible for all expenses of said audit.
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4.2 COMMENCEMENT OF POSSESSION: If the Leased Premises are not
substantially complete by the scheduled Lease Commencement Date, subject only to
items which do not materially affect the use thereof, then the Lease
Commencement Date shall be extended to the date 5 days after Landlord shall
notify Tenant that the Leased Premises are ready for occupancy. In such an event
the Lease Expiration Date shall remain the same. If Landlord fails to cause the
Leased Premises to be ready for occupancy at the time of the scheduled Lease
Commencement Date, (i) neither Landlord nor Landlord's agents, officers,
employees, or contractors shall be liable for any damage, loss, liability or
expense caused thereby, (ii) nor shall this Lease become void or voidable unless
such failure continues for more than 180 days, in which case Tenant may
terminate this Lease upon 20 days written notice to Landlord. Prior to occupying
the Leased Premises, Tenant shall execute and deliver to Landlord a letter in
the form attached as SCHEDULE 7, acknowledging the Lease Commencement Date and
certifying that the Improvements have been substantially completed and that
Tenant has examined and accepted the Leased Premises. Tenant hereby authorizes
any agent or employee who receives the keys to the Leased Premises on behalf of
Tenant to execute and deliver such letter in Tenant's name. If Tenant fails to
deliver such letter, Tenant shall conclusively be deemed to have made such
acknowledgment and certification by occupying the Leased Premises.
ARTICLE FIVE
PROJECT SERVICES
5.1 PROJECT SERVICES: Landlord shall furnish:
a. Utility Services: The utility services listed on SCHEDULE 3 ("Utility
Services"). Should Tenant, in Landlord's sole judgment, use additional,
unusual or excessive Utility Services, Landlord reserves the right to
charge for such services as determine either by a separate submeter,
installed at Tenant's expense, or by methods specified by an engineer
selected by Landlord.
b. Maintenance Services: Maintenance of all exterior areas including
lighting, landscaping, cleaning, painting, maintenance and repair of the
exterior of the Building and its structural portions and roof, including
all of the services listed on SCHEDULE 4 ("Maintenance Services").
c. Parking: Parking under the terms and conditions described in
SCHEDULE 5 ("Parking").
Utility Services, Maintenance Services and Parking described above shall be
collectively referred to as "Project Services".
5.2 INTERRUPTION OF SERVICES: Landlord does not warrant that any of the
Project Services will be free from interruption. Any Project Service may be
suspended by reason of accident or of necessary repairs, alterations or
improvements, or by strikes or lockouts, or by reason of operation of law, or
causes beyond the reasonable control of Landlord. Subject to possible rent
abatement as may be provided pursuant to the conditions described in Article 8,
any such interruption or discontinuance of such Project Services shall never be
deemed a disturbance of Tenant's use and possession of the Leased Premises, or
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render Landlord liable to Tenant for damages by abatement of rent or otherwise,
or relieve Tenant from performance of Tenant's obligations under this Lease.
However, Landlord shall use its best efforts to cause the Project Services to be
restored promptly.
ARTICLE SIX
TENANT'S COVENANTS
6.1 USE OF LEASED PREMISES: Tenant agrees to:
a. Permitted Usage: Continuously use the Leased Premises for the
Permitted Purpose only and for no other purpose.
b. Compliance with Laws: Comply with the provisions of all recorded
covenants, conditions and restrictions and all building, zoning, fire and
other governmental laws, ordinances, regulations or rules applicable to the
Leased Premises and all requirements of the carriers of insurance covering
the Project.
c. Nuisances or Waste: Not do or permit anything to be done in or about
the Leased Premises, or bring or keep anything in the Leased Premises that
may increase Landlord's fire and extended coverage insurance premium,
damage the Building or the Project, constitute waste, constitute an immoral
purpose, or be a nuisance, public or private, or menace or other
disturbance to tenants of adjoining premises or anyone else, or use or
store any toxic chemicals, wastes, elements or substances in the Leased
Premises.
d. Alterations and Improvements: Make no alterations, improvements or
Utility Installations in on or about the Leased Premises without the prior
written approval of Landlord and Landlord's mortgagee, if any. As used in
this Paragraph 6.1 (d) the term "Utility Installations" shall mean air
lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, and plumbing. Landlord may require that
Tenant remove any or all of said alterations, improvements or Utility
Installations at the expiration of the Term, and restore the Leased
Premises to their prior condition, Landlord may require Tenant to provide
Landlord, at Tenant's sole cost and expense, a lien and completion bond in
an amount equal to one and one-half times the estimated cost of such
improvements, to insure Landlord against any liability for mechanic's and
materialmen's liens and to insure completion of the work. Should Tenant
make any alterations, improvements or Utility Installations without the
prior approval of Landlord, Landlord may require that Tenant remove any or
all of the same.
Any alterations, improvements or Utility Installations in, or about
the Leased Premises that Tenant shall desire to make and which requires the
consent of the Landlord shall be presented to Landlord in written form,
with proposed detailed plans. If Landlord shall give its consent, the
consent shall be deemed conditioned upon Tenant acquiring a permit to do so
from appropriate governmental agencies, the furnishing of a copy thereof to
Landlord prior to the commencement of the work and compliance
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by Tenant with all conditions of said permit in a prompt and expeditious
manner.
Tenant shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Tenant at or for use
in the Leased Premises which claims are or may be secured by any mechanic's
or materialmen's lien against the Leased Premises or any interest therein.
Tenant shall give Landlord not less than ten (10) days notice prior to the
commencement of any work in the Leased Premises, and Landlord shall have
the right to post notices of nonresponsibility in or on the Leased Premises
as provided by law. If Tenant shall, in good faith, contest the validity of
any such lien, claim or demand, then Tenant shall, at its sole expense,
defend itself and Landlord against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Landlord or the Leased Premises, upon the condition
that if Landlord shall require, Tenant shall furnish to Landlord a surety
bond satisfactory to Landlord in an amount equal to such contested lien
claim or demand indemnifying Landlord against liability for the same and
holding the Leased Premises free from the effect of such lien or claim. In
addition, Landlord may require Tenant to pay Landlord's attorneys fees and
costs in participating in such action if Landlord shall decide it is to its
best interest to do so.
Unless Landlord requires their removal, as set forth in this Paragraph
6.1 (d), all alterations, improvements and Utility Installations (whether
or not such Utility Installations constitute trade fixtures of Tenant),
which may be made on the Leased Premises, shall become the property of
Landlord and remain upon and be surrendered with the Leased Premises at the
expiration of the term. Notwithstanding the provisions of this Paragraph
6.1 (d) Tenant's machinery and equipment, other than that which is affixed
to the Leased Premises so that it cannot be removed without material damage
to the Leased Premises, shall remain the Property of Tenant and may be
removed by Tenant. Notwithstanding anything to the contrary otherwise
stated in this Lease, Tenant shall leave air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning and plumbing in the Project in good operating condition.
e. Liens: Keep the Leased Premises, the Building and the Project free
from liens arising out of any work performed, materials furnished or
obligations incurred by or for Tenant. If, at any time, a lien or
encumbrance is filed against the Leased Premises, the Building or the
Project as a result of Tenant's work, materials or obligations, Tenant
shall promptly discharge such lien or encumbrance. If such lien or
encumbrance has not been removed within 30 days from the date it is filed,
Tenant agrees to deposit with Landlord cash in an amount equal to 150% of
the amount of the lien, to be held by Landlord as security for the lien
being discharged.
f. Rules and Regulations: Observe, perform and abide by all the rules and
regulations promulgated by Landlord from time to time. Schedule 2 sets
forth Landlord's rules and regulations in effect on the date hereof.
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g. Signage: Obtain the prior approval of the Landlord and Landlord's
mortgagee, if any, before placing any sign or symbol in doors or windows or
elsewhere in or about the Leased Premises, or upon any other part of the
Building, or Project including building directories. Any signs or symbols
which have been placed without Landlord's approval may be removed by
Landlord. Upon expiration or termination of this Lease, all signs installed
by Tenant shall be removed and any damage resulting therefrom shall be
promptly repaired, or such removal and repair may be done by Landlord and
the cost charged to Tenant as Rent.
6.2 INSURANCE: Tenant shall, at its own expense, procure and maintain
during the Lease Term comprehensive general liability insurance with respect to
the Leased Premises and Tenant's activities in the Leased Premises and in the
Building and the Project, providing bodily injury, broad form property damage
with a maximum $1,000 deductible, as follows:
a. $1,000,000 with respect to bodily injury or death to any one person;
b. $5,000,000 with respect to bodily injury or death arising out of any
one occurrence;
c. $1,000,000 with respect to property damage or other loss arising out
of any one occurrence;
d. fire and extended casualty insurance covering Tenant's trade fixtures,
merchandise and other personal property in an amount not less than 100% of
their actual replacement cost; and
e. worker's compensation insurance in at least the statutory amounts.
Nothing in this paragraph 6.2 shall prevent Tenant from obtaining insurance
of the kind and in the amounts provided for under this paragraph under a blanket
insurance policy covering other properties as well as the Leased Premises,
provided, however, that any such policy of blanket insurance (i) shall specify
the amounts of the total insurance allocated to the Leased Premises, which
amounts shall not be less than the amounts required by sections a. through c.
hereof, and (ii) such amounts so specified shall be sufficient to prevent any
one of the assureds from becoming a coinsurer within the terms of the applicable
policy, and (iii) shall, as to the Leased Premises, otherwise comply as to
endorsements and coverage with the provisions of this paragraph.
Tenant's insurance shall be with a Best's Insurance Reports A+ rated
company (or A rated, if Class XIII or larger). Landlord and Landlord's
mortgagee, if any, shall be named as "additional insureds" under Tenant's
insurance, and such Tenant's insurance shall be primary and non-contributing
with Landlord's insurance. Tenant's insurance policies shall contain
endorsements requiring 30 days notice to Landlord and Landlord's mortgagee, if
any, prior to any cancellation, lapse or nonrenewal or any reduction in amount
of coverage.
Tenant shall deliver to Landlord as a condition precedent to its taking
occupancy of the Leased Premises a certificate or certificates evidencing such
insurance.
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6.3 REPAIRS: Tenant, at its sole expense, agrees to maintain the interior
of the Leased Premises in good order, condition and repair, (whether or not such
portion of the Leased Premises requiring repair or the means of repairing the
same are reasonably or readily accessible to Tenant and whether or not the need
for such repairs occurs as a result of Tenant's use, any prior use, the elements
or the age of such portion of the Leased Premises) including, without limiting
the generality of the foregoing, all plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities and equipment within the Leased
Premises, fixtures, interior walls, ceilings, floors, windows, doors, plate
glass and skylights located within the Leased Premises and signs located on the
Leased Premises. If Tenant fails to maintain or keep the Leased Premises in good
repair and such failure continues for 5 days after written notice from Landlord
or if such failure results or may imminently result in a nuisance or health or
safety risk, Landlord may perform any such required maintenance and repairs and
the cost thereof shall be payable by Tenant as Rent within 10 days of receipt of
an invoice from Landlord. Tenant shall also pay to Landlord the costs of any
repair to the Building or Project necessitated by any act or neglect of Tenant.
6.4 ASSIGNMENT AND SUBLETTING: Tenant shall not assign, mortgage, pledge,
or encumber this Lease, or permit all or any part of the Leased Premises to be
subleased to another, without the prior written consent of Landlord and
Landlord's mortgagee, if any. Any transfer of this Lease by merger,
consolidation, reorganization or liquidation of Tenant, or by operation of law,
or change in ownership of or power to vote the majority of the outstanding
voting stock of a corporate Tenant, or by change in ownership of a controlling
partnership interest in a partnership Tenant, shall constitute an assignment for
the purposes of this paragraph.
Landlord agrees that it will not unreasonably withhold its consent to
Tenant's assigning this Lease or subletting the Leased Premises. In addition to
other reasonable bases, Tenant hereby agrees that Landlord shall be deemed to be
reasonable in withholding its consent, if (a) such proposed assignment or
sublease is for less than the whole of the Leased Premises or is for a term less
than the whole of the remaining Lease Term; or (c) to any party who is then a
tenant of the Building or the Project if Landlord has comparable area; or (d)
Tenant is in default under any of the terms, covenants, conditions, provisions
and agreements of this Lease past any period of cure provided for herein at the
time of request for consent or on the effective date of such subletting or
assigning or; (f) the proposed subtenant or assignee is, in Landlord's good
faith judgment, incompatible with other tenants in the Building, or seeks to use
any portion of the Leased Premises for a use not consistent with other uses in
the Building, or is financially incapable of assuming the obligations of this
Lease. Tenant shall submit to Landlord the name of a proposed assignee or
subtenant, the terms of the proposed assignment or subletting, the nature of the
proposed subtenant's business and such information as to the assignee's or
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subtenant's financial responsibility and general reputation as Landlord may
reasonably require.
No subletting or assignment, even with the consent of Landlord, shall
relieve Tenant of its primary obligation to pay the Rent and to perform all of
the other obligations to be performed by Tenant hereunder. The acceptance of
rent by Landlord from any other person shall not be deemed to be waiver by
Landlord of any provision of this Lease or to be a consent to any assignment,
subletting or other transfer. Consent to one assignment, subletting or other
transfer shall not be deemed to constitute consent to any subsequent assignment,
subletting or other transfer.
In lieu of giving any consent to a sublet or an assignment, Landlord may,
at Landlord's option, elect to terminate this Lease, or in the case of a
proposed subletting of all or a portion of the Leased Premises, elect to
terminate the Lease with respect to that portion of the Leased Premises being
proposed for subletting, and the effective date of any such termination shall be
30 days after the proposed effective date of any proposed assignment or
subletting.
One-half of any proceeds in excess of Base Rent which is received by Tenant
pursuant to an assignment or subletting consented to by Landlord shall be
remitted to Landlord as extra Rent within 10 days of receipt by Tenant. For
purposes of this paragraph, all money or value in whatever form received by
Tenant from or on account of any party as consideration for an assignment or
subletting shall be deemed to be proceeds received by Tenant pursuant to an
assignment or subletting.
6.5 ESTOPPEL CERTIFICATE: From time to time and within 10 days after
request by Landlord, Tenant shall execute and deliver a certificate to any
proposed lender or purchaser, or to Landlord, together with a true and correct
copy of this Lease, certifying with any appropriate exceptions, (i) that this
Lease is in full force and effect without modification, (ii) the amount, if any,
of Prepaid Rent and Deposit paid by Tenant to Landlord, (iii) the nature and
kind of concessions, rental or otherwise, if any, which Tenant has received or
is entitled to receive, (iv) that Landlord has performed all of its obligations
due to be performed under this Lease and that there are no defenses,
counterclaims, deductions or offsets outstanding or other excuses for Tenant's
performance under this Lease, and (v) any other fact reasonably requested by
Landlord or such proposed lender or purchaser.
6.6 BROKERAGE COMMISSIONS: Tenant represents to the Landlord that no
broker or agent was instrumental in procuring or negotiating or consummating
this Lease other than Broker of Record, and Tenant agrees to defend and
indemnify Landlord against any loss, expense or liability incurred by Landlord
as a result of a claim by any other broker or finder in connection with this
Lease or its negotiation.
ARTICLE SEVEN
LANDLORDS RESERVED RIGHTS
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7.2 ADDITIONAL RIGHTS RESERVED TO LANDLORD: Without notice and without
liability to Tenant or without effecting an eviction or disturbance of Tenant's
use or possession, Landlord shall have the right to (i) grant utility easements
or other easements in, or replat, subdivide or make other changes in the legal
status of the land underlying the Building or the Project as Landlord shall deem
appropriate in its sole discretion, provided such changes do not substantially
interfere with Tenant's use of the Leased Premises for the Permitted Purpose;
(ii) enter the Leased Premises at reasonable times and at any time in the event
of an emergency to inspect, alter or repair the Leased Premises or the Building
and to perform any acts related to the safety, protection, reletting, sale or
improvement of the Leased Premises or the Building; (iii) add to or take away
from the Project any building or portion thereof, in which event Total Square
Footage shall be adjusted accordingly; (iv) change the name or street address of
the Building or the Project; (v) install and maintain signs on and in the
Building and the Project; and (vi) make such rules and regulations as, in the
sole judgment of Landlord, may be needed from time to time for the safety of the
tenants, the care and cleanliness of the Leased Premises, the Building and the
Project and the preservation of good order therein.
ARTICLE EIGHT
CASUALTY AND UNTENANTABILITY
8.1 CASUALTY AND UNTENANTABILITY: If the Building is made substantially
untenantable or if Tenant's use and occupancy of the Leased Premises are
substantially interfered with due to damage to the common areas of the Building
or the Leased Premises are made wholly or partially untenantable by fire or
other casualty, Landlord may, by notice to Tenant within 60 days after the
damage, terminate this Lease. Such termination shall become effective as of the
date of such casualty.
If the Leased Premises are made partially or wholly untenantable by fire or
other casualty and this Lease is not terminated as provided above, Landlord
shall restore the Leased Premises to the condition specified in the work letter
described in SCHEDULE 6.
If the Landlord does not terminate this Lease as provided above, and
Landlord fails within 180 days from the date of such casualty to restore the
damaged common areas thereby eliminating substantial interference with Tenant's
use and occupancy of the Leased Premises, or fails to restore the Leased
Premises to the condition specified in the work letter described in SCHEDULE 6,
Tenant may terminate this Lease as of the end of such 180 day period.
In the event of termination of this Lease pursuant to this article 8, Rent
shall be prorated on a per diem basis and paid to the date of the casualty,
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unless the Leased Premises shall be tenantable, in which case Rent shall be
payable to the date of the lease termination. If the Leased Premises are
untenantable and this Lease is not terminated, Rent shall abate on a per diem
basis from the date of the casualty until the Leased Premises are ready for
occupancy by Tenant. If part of the Leased Premises are untenantable, Rent shall
be prorated on a per diem basis and apportioned in accordance with the part of
the Leased Premises which is usable by Tenant until the damaged part is ready
for Tenant's occupancy. Notwithstanding the foregoing, if any damage was
proximately caused by an act or omission of Tenant, its employees, agents,
contractors, licensees or invitees, then, in such event, Tenant agrees that Rent
shall not abate or be diminished during the term of this Lease.
ARTICLE NINE
CONDEMNATION
9.1 CONDEMNATION: If all or any part of the Leased Premises shall be taken
under power of eminent domain or sold under imminent threat to any public
authority or private entity having such power, this Lease shall terminate as to
the part of the Leased Premises so taken or sold, effective as of the date
possession is required to be delivered to such authority. In such event, Base
Rent shall abate in the ratio that the portion of Tenant's Square Footage taken
or sold bears to Tenant's Square Footage. If a partial taking or sale of the
Leased Premises, the Building or the Project (i) substantially reduces Tenant's
Square Footage resulting in a substantial inability of Tenant to use the Leased
Premises for the Permitted Purpose, or (ii) renders the Building or the Project
commercially unviable to Landlord in Landlord's sole opinion, either Tenant in
the case of (i), or Landlord in the case of (ii), may terminate this Lease by
notice to the other party within 30 days after the terminating party receives
written notice of the portion to be taken or sold. Such termination shall be
effective 180 days after notice thereof, or when the portion is taken or sold,
whichever is sooner. All condemnation awards and similar payments shall be paid
and belong to Landlord, except any amounts awarded or paid specifically to
Tenant for removal and reinstallation of Tenant's trade fixtures, personal
property or Tenant's moving costs.
ARTICLE TEN
WAIVER OF CERTAIN CLAIMS
10.1: WAIVER AND INDEMNITY
Except for those claims arising from Landlord's breach of this Lease, negligence
or willful misconduct, Tenant, to the extend permitted by law, waives all claims
it may have against Landlord, and against Landlord's agents and employees for
any damages sustained by Tenant or by any occupant of the Leased Premises, or by
any other person, resulting from any cause arising at any time. Except for those
claims arising from Tenant's breach of this Lease, negligence or willful
misconduct, Landlord, to the extent permitted by law, waives all claims it may
have against Tenant, and against Tenant's agents and employees for any damages
sustained by Landlord or by any occupant of the Leased Premises, or by any other
person, resulting from any cause arising at any time. Tenant and Landlord each
agree to hold the other party harmless and indemnified against claims and
liability for injuries to all persons and for damage to or loss of property
occurring in or about the Leased Premises or the Building, due to the other
party's breach of this Lease or any act of negligence or default under this
Lease by the other party, its contractors, agents, employees, licensees, and
invitees. Tenant agrees to indemnify, defend, reimburse and hold Landlord
harmless against any Environmental Damages incurred by Landlord arising from
Tenant's breach of paragraph 6.1(d) of this Lease. Environmental Damages means
all claims, judgments, losses, penalties, fines, liabilities, encumbrances,
liens, costs and reasonable expenses of investigation, defense or good faith
settlement resulting from violations of Environmental Laws, and including,
without limitation: (i) damages for personal injury and injury to property or
natural resources; (ii) reasonable fees and disbursement of attorneys,
consultants, contractors, experts and laboratories; and (iii) costs of any
cleanup, remediation, removal, response, abatement, containment, closure,
restoration or monitoring work required by any Environmental Law and other costs
reasonably necessary to restore full economic use of the Leased Premises or
Project.
12a
10.2 WAIVER OF SUBROGATION: Tenant and Landlord release each other and
waive any right of recovery against each other for loss or damage to the waiving
party or its respective property, which occurs in or about the Leased Premises,
whether due to the negligence of either party, their agents, employees,
officers,
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contractors, licensees, invitees or otherwise, to the extent that such loss or
damage is insurable against under the terms of standard fire and extended
coverage insurance policies. Tenant and Landlord agree that all policies of
insurance obtained by either of them in connection with the Leased Premises
shall contain appropriate waiver of subrogation clauses.
10.3 LIMITATION OF LANDLORD'S LIABILITY: The obligations of Landlord under
this Lease do not constitute personal obligations of the individual partners,
shareholders, directors, officers, employees or agents of Landlord, and Tenant
shall look solely to Landlord's interest in the Leased Premises and to no other
assets of Landlord for satisfaction of any liability in respect of this Lease.
Tenant will not seek recourse against the individual partners, shareholders,
directors, officers, employees or agents of Landlord or any of their personal
assets for such satisfaction. Notwithstanding any other provisions contained
herein, Landlord shall not be liable to Tenant, its contractors, agents or
employees for any consequential damages or damages for loss of profits.
ARTICLE ELEVEN
TENANTS DEFAULT AND LANDLORD'S REMEDIES
11.1 TENANT'S DEFAULT: It shall be an "Event of Default" if Tenant shall
(i) fail to pay any monthly installment of Base Rent or any other sum payable
hereunder within 5 days after such payment is due and payable; (ii) violate or
fail to perform any of the other conditions, covenants or agreements herein made
by Tenant, and such violation or failure shall continue for 15 days after
written notice thereof to Tenant by Landlord; (iii) make a general assignment
for the benefit of its creditors or file a petition for bankruptcy or other
reorganization, liquidation, dissolution or similar relief; (iv) have a
proceeding filed against Tenant seeking any relief mentioned in (iii) above;
(v) have a trustee, receiver or liquidator appointed for Tenant or a substantial
part of its property; (vi) abandon or vacate the Leased Premises; (vii) default
under any other lease, if any, within the Building or the Project; or (viii) if
Tenant is a partnership, if any partner of the partnership is involved in any of
the acts or events described in subparagraphs (i) through (vii) above.
11.2 REMEDIES OF LANDLORD: If an Event of Default occurs, Landlord may, at
its option, within 5 days after written notice from Landlord, reenter the Leased
Premises, remove all persons therefrom, take possession of the Leased Premises,
and remove all of Tenants personal property at Tenants risk and expense and,
either (i) terminate this Lease and Tenant's right of possession of the Leased
Premises or (ii) maintain this Lease in full force and effect and endeavor to
relet all or part of the Leased Premises. In the event Landlord elects to
maintain this Lease, Landlord shall have the right to relet the Leased Premises
for such rent and upon such terms as Landlord deems reasonable and necessary,
and Tenant shall be liable for all damages sustained by Landlord, including but
not limited to, any deficiency in Rent for the period of time which would have
remained in the Lease Term in the absence of any termination, leasing fees,
attorneys' fees, other marketing and collection costs and all expenses of
placing the Leased Premises in first class rentable condition. Landlord retains
the right to terminate this Lease, at any time, notwithstanding that Landlord
fails to terminate this Lease initially. If Landlord is unable after diligent
efforts
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to relet the Leased Premises within 60 days after termination of this Lease,
Landlord may elect at any time thereafter to have Tenant immediately pay, as
liquidated damages and not as a penalty, all Rent then due and the present value
(discounted at 10%) of all Rent which would have become due (based on Base Rent
payable at the time of such election) for the period of time which would have
remained in the Lease Term in the absence of any termination.
The remedies granted to Landlord herein shall be cumulative and shall not
exclude any other remedy allowed by law, and shall not prevent the enforcement
of any claim Landlord may have against Tenant for anticipatory breach of the
unexpired term of this Lease, including without limitation, a claim for
attorney's fees incurred by Landlord.
ARTICLE TWELVE
TERMINATION
12.1 SURRENDER OF LEASED PREMISES: On expiration of this Lease, if no Event
of Default exists, Tenant shall surrender the Leased Premises in the same
condition as when the Lease Term commenced, ordinary wear and tear excepted.
Except for furnishings, trade fixtures and other personal property installed at
Tenant's expense, all alterations, additions, improvements or Utility
Installations, whether temporary or permanent in character, made in or upon the
Leased Premises, either by Landlord or Tenant, shall be Landlord's property and
at the expiration or earlier termination of the term shall remain on the Leased
Premises without compensation to Tenant, except if requested by Landlord,
Tenant, at its expense and without delay, shall remove any alterations,
additions or improvements made to the Leased Premises by Tenant designated by
Landlord to be removed, and repair any damage to the Leased Premises or the
Building caused by such removal. If Tenant fails to repair the Leased Premises,
Landlord may complete such repairs and Tenant shall reimburse Landlord for such
repair and restoration. Landlord shall have the option to require Tenant to
remove all its property. If Tenant fails to remove such property as required
under this Lease, Landlord may dispose of such property in its sole discretion
without any liability to Tenant, and further may charge the cost of any such
disposition to Tenant.
12.2 HOLD OVER TENANCY: If Tenant shall hold over after the Lease
Expiration Date, Tenant may be deemed, at Landlord's option, to occupy the
Leased Premises as a tenant from month to month, which tenancy may be terminated
by one month's written notice. During such tenancy, Tenant agrees to pay to
Landlord, monthly in advance, an amount equal to triple of all Rent which would
become due (based on Base Rent payable for the last month of the Lease Term,
together with all other amounts payable by Tenant to Landlord under this Lease),
and to be bound by all of the terms, covenants and conditions herein specified.
If Landlord relets the Leased Premises or any portion thereof to a new tenant
and the term of such new lease commences during the period for which Tenant
holds over, Landlord shall be entitled to recover from Tenant all costs and
expenses, attorneys fees, damages or loss of profits incurred by Landlord as a
result of Tenant's failure to deliver possession of the Leased Premises to
Landlord when required under this Lease.
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ARTICLE THIRTEEN
UTILITIES
13.1 UTILITIES: Tenant shall pay for all gas, heat, light, power,
telephone and other utilities and services to the Leased Premises, together with
any taxes thereon. If any such services are not separately metered to Tenant,
Tenant shall pay a reasonable proportion to be determined by Landlord of all
charges jointly metered with other premises.
ARTICLE FOURTEEN
ENVIRONMENTAL PROVISIONS
14.1 HAZARDOUS SUBSTANCES:
a. DEFINITIONS: Hazardous Material means any substance (i) the presence
of which requires remediation under any Environmental Requirements (as defined
hereafter); or (ii) which is or becomes defined as a "hazardous waste",
hazardous substance", pollutant or contaminant under any Environmental
Requirements (as defined hereafter); or (iii) which is toxic, explosive,
corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or
otherwise hazardous and is or becomes regulated by any governmental authority,
department, commission, board, agency or instrumentality of the United States,
or the state in which the Project is located or any political subdivision
thereof; or (iv) the presence of which causes a nuisance upon the Project or to
adjacent properties or poses a hazard to the health or safety of persons upon
the Project or to adjacent properties; or (v) the presence of which on adjacent
properties would constitute a trespass by either Landlord or Tenant; or (vi)
which contains gasoline, diesel fuel or other petroleum hydrocarbons; or (vii)
which contains polychlorinated biphenyls (PCB's), asbestos or urea formaldehyde
materials.
b. ENVIRONMENTAL REQUIREMENTS: Environmental Requirements means all
applicable present and future statutes, regulations, rules, ordinances, codes,
licenses, permits, orders or approvals of all governmental agencies,
departments, commissions, boards, bureaus, or instrumentalities of the United
States, states and political subdivisions thereof and all applicable judicial,
administrative and regulatory decrees, judgments, and final orders relating to
the protection of human health or the environment, including, without
limitation: (i) all requirements pertaining to reporting, licensing, permitting,
investigation and remediation of emissions, discharges, releases or threatened
releases of Hazardous Materials, chemical substances, pollutants, contaminants,
or hazardous or toxic substances, materials or wastes whether solid, liquid or
gaseous in nature, into the air, surface water, groundwater, or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of chemical substances, pollutants,
contaminants, or hazardous or toxic substances, materials or wastes, whether
solid, liquid or gaseous in nature; and (ii) all requirements pertaining to the
protection of the health and safety of employees and the public; and (iii) all
laws, standards or guidelines relating to indoor air quality or pollution,
including those adopted by the Occupational Safety and Health Administration or
any federal, state or local governmental agency. Tenant hereby discloses to
Landlord that Tenant anticipates the use of a LPG type fork lift within the
Premises. Tenant shall operate said LPG forklift and associated equipment in
accordance with all the provisions of this paragraph.
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c. ENVIRONMENTAL DAMAGES: Environmental Damages means all claims,
judgments, losses, penalties, fines, liabilities, encumbrances, liens, costs and
reasonable expense of investigation and defense of any claim, whether or not
such claim is ultimately defeated, and of any good faith settlement of judgment,
of whatever nature, which are incurred at any time resulting from Hazardous
Material upon or beneath the Project or migrating or threatening to migrate to
or from the Project, or the existence of violations of Environmental
Requirements regardless of whether such violations arose prior to the present
ownership or operation of the Project, and including, without limitation: (i)
damages for personal injury, or injury to property or natural resources
occurring upon or off the Project, including the cost of demolition and
rebuilding of any improvements on real property; and (ii) reasonable fees and
disbursements of attorneys, consultants, contractors, experts, laboratories and
all other reasonable costs incurred in enforcing this Lease or collecting any
sums due hereunder and in connection with the investigation or remediation of
such Hazardous Materials or violation of Environmental Requirements including
the preparation of any feasibility studies or reports or the performance of any
cleanup, remediation, removal, response, abatement, containment, closure,
restoration or monitoring work required by any federal, state or local
governmental agency or political subdivision, or reasonably necessary to make
full economic use of the Project in a manner consistent with its current use.
d. ENVIRONMENTAL INDEMNIFICATION:
(1) Tenant agrees to indemnify, defend, reimburse and hold harmless
Landlord and its directors, officers, shareholders, employees, partners, agents,
contractors, subcontractors, experts, licensees, affiliates, invitees and
successors and assigns from and against any Environmental Damages arising from
the presence of Hazardous Materials upon or beneath the Project or migrating to
or from the Project, or arising in any manner whatsoever out of Tenant's
violation of any Environmental Requirements pertaining to the Project or the
Tenant's activities thereon during the term of the Lease, or Tenant's breach
of any covenant or the inaccuracy of any representation contained in this Lease
except to the extent such Environmental Damages are proximately caused by
Landlord.
(2) Landlord agrees to indemnify, defend, reimburse and hold harmless
Tenant and its directors, officers, shareholders, employees, partners, agents,
contractors, subcontractors, experts, licensees, affiliates, invitees and
successors and assigns from and against any Environmental Damages arising from
the presence of Hazardous Materials upon or beneath the Project or migrating to
or from the Project, or arising in any manner whatsoever; and which
Environmental Damages are proximately caused by Landlord's violation of any
Environmental Requirements pertaining to the Project or Landlord's activities
thereon during the term of the Lease, or Landlord's breach of any covenant or
the inaccuracy of any representation of Landlord contained in this Lease.
(3) These indemnities shall include, but not be limited to, the burden and
expense of defending all claims, suits and administrative proceedings (with
counsel reasonably approved by the indemnified parties), even if such claims,
suits or proceedings are groundless, false or fraudulent, and conducting all
negotiations of any description, and paying and discharging, any judgments,
16
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penalties or other sums due against such indemnified persons. Either party, at
its sole expense, may employ additional counsel of its choice to associate with
counsel representing the other party.
(4) The obligations of both parties in this paragraph shall survive the
termination of this Lease, and the discharge of all other obligations owed by
the parties to each other under this Lease and shall not be affected by any
investigation by or on behalf of either party, or by any information which
either party may obtain.
e. ENVIRONMENTAL COVENANTS: Neither Landlord nor Tenant and/or their
respective employees, agents, contractors or invitees shall cause or permit (i)
the existence or the commission of a violation of any Environmental Requirements
upon or beneath the Project or any portion thereof; or (ii) any Hazardous
Material to be brought upon, treated, kept, stored, disposed of, discharged,
released, produced, manufactured, generated, refined or used upon or beneath the
Project or any portion thereof, provided, however, that Landlord and Tenant may
each store, use or dispose of products of a type customarily found in offices
and used in connection with the operation and maintenance of buildings provided
that each shall comply with all Environmental Requirements and not allow such
Hazardous Materials to contaminate the Leased Premises, Building or the
environment. If either Landlord or Tenant shall become aware of or receive
notice or other communication concerning any actual, alleged, suspected or
threatened violation of Environmental Requirements, or liability of either party
for Environmental Damages in connection with the Project or past or present
activities of any person thereon, or that any environmental representation or
covenant set forth in this Lease is not or is no longer accurate, including
notice or other communication concerning any actual or threatened investigation,
inquiry, lawsuit, claim, citation, summons, proceeding, complaint, notice,
order, writ, or injunction, then such party shall promptly deliver to the other
party a copy of or a written description of said notice or communication.
ARTICLE FIFTEEN
MISCELLANEOUS
15.1 QUIET ENJOYMENT: If and so long as Tenant pays all Rent and keeps and
performs each and every term, covenant and condition herein contained on the
part of Tenant to be kept and performed, Tenant shall quietly enjoy the Leased
Premises without hindrance by Landlord.
15.2 ACCORD AND SATISFACTION: No receipt and retention by Landlord of any
payment tendered by Tenant in connection with this Lease shall constitute an
accord and satisfaction, or a compromise or other settlement, notwithstanding
any accompanying statement, instruction or other assertion to the contrary
unless Landlord expressly agrees to an accord and satisfaction, or a compromise
or other settlement, in a separate writing duly executed by Landlord. Landlord
will be entitled to treat any such payments as being received on account of any
item or items of Rent, interest, expense or damage due in connection herewith,
in such amounts and in such order as Landlord may determine at its sole option.
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15.3 SEVERABILITY: The parties intend this Lease to be legally valid and
enforceable in accordance with all of its terms to the fullest extent permitted
by law. If any term hereof shall be invalid or unenforceable, the parties agree
that such term shall be stricken from this Lease to the extent unenforceable,
the same as if it never had been contained herein. Such invalidity or
unenforceability shall not extend to any other term of this Lease, and the
remaining terms hereof shall continue in effect to the fullest extent permitted
by law, the same as if such stricken term never had been contained herein.
15.4 SUBORDINATION AND ATTORNMENT: The rights of Tenant under this Lease
are and shall be subordinate to all leases in which Landlord is lessee and to
the lien of any first mortgage or first deed of trust, now or hereafter in force
against the Building or the Project, and to all advances made or hereafter to be
made thereunder ("Superior Instruments"). If requested in writing by Landlord or
any first mortgagee or ground lessor of Landlord, Tenant agrees to execute a
subordination agreement required to further effect the provisions of this
paragraph.
In the event of any transfer in lieu of foreclosure or termination of a
lease in which Landlord is lessee or the foreclosure of any Superior Instrument,
or sale of the Property pursuant to any Superior Instrument, Tenant shall attorn
to such purchaser, transferee or lessor and recognize such party as landlord
under this Lease, provided such party acquires and accepts the Leased Premises
subject to this Lease. The agreement of Tenant to attorn contained in the
immediately preceding sentence shall survive any such foreclosure sale or
transfer.
15.5 APPLICABLE LAW: This Lease shall be construed according to the laws of
the state in which the Leased Premises are located.
15.6 BINDING EFFECT; GENDER: This Lease shall be binding upon and inure to
the benefit of the parties and their successors and assigns. It is understood
and agreed that the terms "Landlord" and "Tenant" and verbs and pronouns in the
singular number are uniformly used throughout this Lease regardless of gender,
number or fact of incorporation of the parties hereto.
15.7 TIME: Time is of the essence of this Lease.
15.8 ENTIRE AGREEMENT: This Lease and the schedules and addenda attached
set forth all the covenants, promises, agreements, representations, conditions,
statements and understandings between Landlord and Tenant concerning the Leased
Premises and the Building and the Project, and there are no representations,
either oral or written between them other than those in this Lease. This Lease
shall not be amended or modified except in writing signed by both parties.
Failure to exercise any right in one or more instances shall not be construed as
a waiver of the right to strict performance or as an amendment to this Lease.
15.9 NOTICES: All notices pursuant to this Lease shall be in writing and
shall be effective when mailed by certified mail or delivered (i) to Landlord or
Tenant at the addresses designated in Article 1.1 with a copy to the Managing
Agent, or (ii) to such other addresses as may hereafter be designated by either
party by written notice.
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SUBMISSION OF THIS INSTRUMENT FOR EXAMINATION OR SIGNATURE BY TENANT DOES
NOT CONSTITUTE A RESERVATION OF OR OPTION FOR LEASE, AND IT IS NOT EFFECTIVE AS
A LEASE OR OTHERWISE UNTIL EXECUTION AND DELIVERY BY BOTH LANDLORD AND TENANT.
This Lease is executed as of the date first written above.
WITNESS: LANDLORD:
/s/ Joan Silvestria ALLSTATE LIFE INSURANCE,COMPANY
- ------------------------
By /s/ K.S. Klimala
- ------------------------ --------------------------------
By /s/ Paul Knachel
--------------------------------
Authorized Signatories
WITNESS: TENANT:
/s/ ???? CHANNELL COMMERCIAL CORPORATION
- ------------------------
By /s/ William H. Channell
- ------------------------ --------------------------------
Its President
----------------------------
By
--------------------------------
Its
----------------------------
Where Tenant is a corporation, this Lease shall be signed by a President or
Vice President and Secretary or Assistant Secretary of Tenant. Any other
signatories shall require a certified corporate resolution.
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ACKNOWLEDGEMENTS
----------------
STATE OF Illinois
---------------
COUNTY OF Cook
--------------
BE IT REMEMBERED, that on this 29 day of April, 1994, before me, the
-- ----- --
subscriber, a Notary Public, in and for said County, personally appeared the
above named Allstate Life Insurance Company, an Illinois Insurance corporation
------------------------------- ------------------
LANDLORD, in the foregoing Lease, by K.S. Klimala & Paul Knachel as Authorized
--------------------------- ----------
Signatories, duly authorized by resolution adopted by the Board of Directors of
- -----------
said corporation and acknowledged the signing of the same to be their voluntary
acts and deeds for and as the act and deed of said corporation, for the uses and
purposes therein mentioned.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year last aforesaid.
/s/ Joan M. Silvestri
-----------------------------------
[SEAL APPEARS HERE] Notary Public
STATE OF California
---------------
COUNTY OF Riverside
--------------
BE IT REMEMBERED, that on this 4th day of March, 1994, before me, the
--- ----- --
subscriber, a Notary Public, in and for said County, and State, personally
appeared the above named William H Channell, TENANT in the foregoing Lease, by
------------------
Channell Commercial Corp. as William H Channell President and acknowledged the
- ------------------------- ---------
signing of the same to be his voluntary act and deed of the corporation, for the
---
uses and purposes therein contained.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year last aforesaid.
/s/ Judy Toole
[SEAL APPEARS HERE] -----------------------------------
Notary Public
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SCHEDULE 1
DESCRIPTION OF THE PREMISES AND FLOOR PLAN
------------------------------------------
[PAGE 1 OF FLOOR PLAN APPEARS HERE]
<PAGE>
SCHEDULE 1
DESCRIPTION OF THE PREMISES AND FLOOR PLAN
------------------------------------------
[PAGE 2 OF FLOOR PLAN APPEARS HERE]
<PAGE>
SCHEDULE 2
RULES AND REGULATIONS
---------------------
1. The sidewalks and entrances of the Building and Project shall not be
obstructed or used as a waiting or lounging place by tenants, and their agents,
servants, employees, invitees, licensees and visitors. All entrance doors
leading from any Leased Premises are to be kept closed at all times.
2. Landlord will furnish each tenant with two keys to each door lock on the
Leased Premises, and Landlord may make a reasonable charge for any additional
keys and access cards requested by any tenant. No tenant shall alter any lock,
or install new or additional locks or bolts, on any door without the prior
written approval of Landlord. In the event of such alteration or installation
approval by Landlord, the tenant making such alteration shall supply Landlord
with a key for any such lock or bolt. Each tenant, upon the expiration or
termination of its tenancy, shall deliver to Landlord all keys and access cards
in any such tenant's possession for all locks and bolts in the Building.
3. Tenants will see that (i) the windows are closed, (ii) the doors securely
locked, and (iii) all water faucets and other utilities are shut off (so as to
prevent waste or damage) each day before leaving the Leased Premises.
4. The walls, partitions, skylights, windows, doors and transoms that reflect
or admit light into passageways or into any other part of the Building shall not
be covered or obstructed by any of the tenants.
5. The toilet rooms, toilets, urinals, wash bowls and water apparatus shall
not be used for any purpose other than for those for which they were constructed
or installed, and no sweepings, rubbish, chemicals, or other unsuitable
substances shall be thrown or placed therein. The expense of any breakage,
stoppage or damage resulting from violation(s) of this rule shall be borne by
the tenant by whom, or by whose agents, employees, invitees, licensees or
visitors, such breakage, stoppage or damage shall have been caused.
6. No sign, name, placard, advertisement or notice visible from the exterior
of any Leased Premises, shall be inscribed, painted or affixed by any tenant on
any part of the Building or Project without the prior written approval of
Landlord. All signs or letterings on doors, or otherwise, approved by Landlord
shall be inscribed, painted or affixed at the sole cost and expense of the
tenant, by a person approved by Landlord.
7. No signaling, telegraphic or telephonic instruments or devices, or other
wires, instruments or devices, shall be installed in connection with any Leased
Premises without the prior written approval of Landlord. Such installations, and
the boring or cutting for wires, shall be made at the sole cost and expense of
the tenant and under control and direction of Landlord. Landlord retains, in all
cases, the right to require (i) the installation and use of such electrical
protecting devices that prevent the transmission of excessive currents of
electricity into or through the Building, (ii) the changing of wires and of
their
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installation and arrangement underground or otherwise as Landlord may direct,
and (iii) compliance on the part of all using or seeking access to such wires
with such rules as Landlord may establish relating thereto. All such wires used
by tenants must be clearly tagged at the distribution boards and junction boxes
and elsewhere in the Building, with (i) the number of the Leased Premises to
which said wires lead, (ii) the purpose for which said wires are used, and
(iii) the name of the company operating same.
8. Tenant, their agents, servants or employees, shall not (a) go on the roof
of the Building, (b) use any additional method of heating or air conditioning
the Leased Premises, (c) bring in or keep in or about the Leased Premises any
vehicles or animals of any kind, (d) install any radio or television antennae or
any other device or item on the roof, exterior walls, windows or windowsills of
the Building, (e) place objects against glass partitions, doors or windows which
would be unsightly from the interior or exterior of the Building, (f) use any
Leased Premises (i) for lodging or sleeping, (ii) for cooking (except that the
use by any tenant of Underwriter's Laboratory equipment for brewing coffee, tea
and similar beverages shall be permitted, provided that such use is in
compliance with law), (iii) for any manufacturing, storage or sale of
merchandise or property of any kind, (g) cause or permit unusual or
objectionable odor to be produced or permeate from the Leased Premises,
including, without limitation, duplicating or printing equipment fumes, and
Tenant, its agents, servants and employees, invitees, licensees, or visitors
shall not permit the operation of any musical or sound producing instruments or
device which may be heard outside Leased Premises, Building or garage facility,
or which may emit electrical waves which will impair radio or television
broadcast or reception from or into the Building.
9. Tenants shall not store or use in any Leased Premises any (a) ether,
naptha, phosphorous, benzol, gasoline, benzine, petroleum, crude or refined
earth or coal oils, flashlight powder, kerosene or camphene, (b) any other
flammable, combustible, explosive or illuminating fluid, gas or material of any
kind, and (c) any other fluid, gas or material of any kind having an offensive
odor, without the prior written consent of Landlord. Except for Tenant's use of
a LPG forklift truck as described in Paragraph 14.1 (b).
10. No canvassing, soliciting, distribution of hand bills or other written
material, or peddling shall be permitted in the Building or the Project, and
tenants shall cooperate with Landlord in prevention and elimination of same.
11. If any Leased Premises becomes infested with vermin, the tenant, at its
sole cost and expense, shall cause its premises to be exterminated from time to
time to the satisfaction of the Landlord and shall employ such exterminators as
shall be approved by Landlord.
12. No screens, awnings or other coverings or projections of any nature shall
be attached to or used in connection with any door, window or wall of the
premises of the building without the prior written consent of Landlord.
13. Landlord shall have the right to prohibit any unreasonable advertising by
tenant which, in Landlord's opinion, tends to impair the reputation of Landlord
or of the Building, and upon written notice from Landlord, Tenant shall refrain
from or discontinue such advertising.
2
<PAGE>
14. Wherever the word "tenant" occurs, it is understood and agreed that it
shall also mean tenant's associates, employees, agents and any other person
entering the Building or the Leased Premises under the express or implied
invitation of tenant. Tenant shall cooperate with Landlord to assure compliance
by all such parties with rules and regulations.
15. Landlord reserves the right to make reasonable amendments, modifications
and additions to the rules and regulations heretofore set forth, and to make
additional reasonable rules and regulations, as in Landlord's sole judgment may
from time to time be needed for the safety, care, cleanliness and preservation
of good order of the Building.
3
<PAGE>
SCHEDULE 3
UTILITY SERVICES
----------------
The Landlord shall provide, as part of Operating Costs, except as otherwise
provided, the following services:
Water for drinking, lavatory and toilet purposes from the regular Building
supply (at the prevailing temperature) through fixtures installed by Landlord,
(or by Tenant with Landlord's written consent).
<PAGE>
SCHEDULE 4
MAINTENANCE SERVICES
--------------------
Landlord agrees to maintain the exterior of the Building and Project to
include lawn and shrub care, snow removal, maintenance of the structure, roof,
mechanical and electrical equipment, architectural finish, and so on, excluding
only those items specifically excepted elsewhere in this Lease.
<PAGE>
SCHEDULE 5
PARKING
-------
Landlord hereby grants to Tenant a license to the use during the term of this
Lease the parking facilities. Tenant agrees to comply with such reasonable rules
and regulations as may be made by Landlord from time to time in order to insure
the proper operation of the parking facilities. Tenant agrees not to overburden
the parking facilities and agrees to cooperate with Landlord and other tenants
in the use of parking facilities. Landlord reserves the right in its sole
discretion to determine whether parking facilities are becoming crowded, and in
such event, to allocate specific parking spaces among Tenant and other tenants
or to take such other steps necessary to correct such condition, including but
not limited to policing and towing, and if Tenant, its agents, officers,
employees, contractors, licensees or invitees are deemed by Landlord to be
contributing to such condition, to charge to Tenant as Rent that portion of the
cost thereof which Landlord reasonably determines to be caused thereby. Landlord
may, in its sole discretion, change the location and nature of the parking
spaces available to Tenant, provided that after such change, there shall be
available to Tenant approximately the same number of spaces as available before
such change.
<PAGE>
SCHEDULE 6
- -------------------------------
Allstate Life Insurance Company
- -------------------------------
Date March 1, 1994
-------------------------
WORK LETTER AGREEMENT
---------------------
Channell Commercial Corporation
- -------------------------------
- -------------------------------
- -------------------------------
- -------------------------------
Re: Suite R
---------------------
Commerce Center VI
- -------------------------------
Gentlemen:
You (referred to as "Tenant"), and we (referred to as "Landlord") are executing,
simultaneously with this work letter agreement, a written lease (the "Lease")
pertaining to the space referred to above (the "Leased Premises"). This work
letter agreement is attached to the Lease as Schedule 6 and made a part thereof.
To induce Tenant and Landlord, each, to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this work letter
agreement may apply thereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant mutually agree as follows:
1. Definitions The terms defined in this paragraph, for purposes of this work
-----------
letter agreement, shall have the meanings specified herein, and, in
addition to the terms defined herein, terms defined in the Lease shall, for
purposes of this work letter agreement, have the meanings specified
therein.
1.01 "Base Tenant Improvements" means the Building Standard items which
----
are supplied, installed and finished by Landlord, according to Building
Standard specifications and which shall be paid for by Landlord (subject
to the Allowance) as provided for in paragraph 2.03 below.
1.02 "Building Standard" means the quantity and quality of materials,
----
finishing and workmanship specified by Landlord for the Building, as set
forth on Exhibit 1 attached hereto and made a part hereof.
1.03 "Construction Documents" means the construction drawings, plans and
----
specifications referred to in paragraphs 2.02 and 2.03 below to be
attached hereto and made a part hereof.
<PAGE>
1.04 "Extraordinary Tenant Improvements" means any work Tenant requests
----
Landlord to do in connection with the Leased Premises, other than Base
Tenant Improvements.
1.05 "Leasehold Improvements" means the aggregate of Base Tenant
----
Improvements and Extraordinary Tenant Improvements, as contemplated by the
Construction Documents.
1.06 "Substantial Completion" means that the Leasehold Improvements have
----
been substantially completed according to the Construction Documents,
except for items which will not materially affect the use of the Leased
Premises or which customarily are deemed to be "punchlist work".
2. Construction Documents; Payments
--------------------------------
2.01 The parties have approved a preliminary floor plan for the Leased
----
Premises, a copy of which is attached to the Lease as Schedule 1 (the
"Preliminary Plan"). The estimated cost of completing the Leasehold
Improvements according to the Preliminary P1an (the "Estimate") is
$3,500.00. The Estimate represents Landlord's good faith estimate of the
---------
cost of completing the Leasehold Improvements. Landlord shall have no
liability if the Final Cost (defined in paragraph 2.03 below) is greater
than the Estimate.
2.02 Landlord, within 30 days hereof, shall cause the consultants
---- --
(defined below) to prepare and submit to Tenant for approval or disapproval
all drawings, plans and specifications necessary to construct the Leasehold
Improvements. The following companies shall prepare the drawings, plans and
specifications which are to comprise the Construction Documents:
Architectural N/A
----------------------------------
Mechanical N/A
----------------------------------
Electrical N/A
----------------------------------
Plumbing N/A
----------------------------------
(collectively, the "Consultants"). The fees and expenses of the Consultants
for preparing the initial drawings, plans and specifications which are to
comprise the Construction Documents shall be included in the Final Cost
(defined in paragraph 2.03 below) and allocated accordingly between Base
Tenant Improvements and Extraordinary Tenant Improvements. Tenant shall
receive an appropriate credit for any advance payments made to the
Consultants.
<PAGE>
2.03 Upon Tenant's approval of the final form of the drawings, plans and
----
specifications, which when submitted by Landlord shall constitute the
Construction Documents, Landlord shall prepare an analysis in its sole
judgement of the cost of constructing the Leasehold Improvements according
to the Construction Documents (the "Final Cost"). An analysis of the cost
of the Extraordinary Tenant Improvements shall be submitted to Tenant for
its approval. The Final Cost of the Base Tenant Improvements shall be paid
for by Landlord (the "Landlord's Share") and the costs attributable to the
construction of the Extraordinary Tenant Improvements shall be paid for by
Tenant (the "Tenant's Share"). Within 5 days of receipt, Tenant shall
-
approve the Final Cost of the Extraordinary Tenant Improvements. If Tenant
does not approve the Final Cost of the Extraordinary Tenant Improvements,
it shall promptly notify Landlord thereof; in which case Tenant and
Landlord shall use their best efforts to amend the Construction Documents
in a manner satisfactory to each. If they are unable to do so within 5 days
-
after Tenant notifies Landlord as provided in the preceding sentence,
either party may thereafter terminate the Lease by delivering written
notice to the other. Tenant acknowledges that Landlord's sole obligation is
to pay the costs attributable to the construction of the Base Tenant
Improvements, up to an aggregate maximum limit of $ 0.28 per square foot of
-----
Tenant's Square Footage (the "Allowance"), and Tenant shall pay all other
costs of the construction of the Leasehold Improvements as the Tenant's
Share. If the Construction Documents require the construction or
installation of additional improvements beyond those regularly provided by
Landlord in the core of the Building in which the Leased Premises are
located (including, without limitation, extra sprinklers, fire hose
cabinets and other safety devices), Tenant agrees to pay all costs and
expenses arising from the construction and installation of such additional
improvements. All costs attributable to changes and variations from the
Construction Documents (including, without limitation, any fees and
expenses of the Consultants and any increased costs of construction) shall
be paid by Tenant.
3. Leasehold Improvements
----------------------
3.01 The following provisions shall apply to the construction of the
----
Leasehold Improvements:
(a) All work involved in the completion of the Leasehold
Improvements shall be carried out by Landlord and its agents and
contractors under the sole direction of Landlord. Tenant shall
cooperate with Landlord and its agents and contractors to promote the
efficient and expeditious completion of the Leasehold Improvements;
and
(b) Landlord agrees to construct the Leasehold Improvements in
accordance with the Construction Documents, provided Tenant has
complied with all the applicable provisions of this work letter
agreement and the Lease.
<PAGE>
3.02 If there are any changes in the Leasehold Improvements requested by,
----
or on behalf of, Tenant from the work as reflected in the Construction
Documents, each such change must receive the prior written approval of
Landlord, and Tenant shall bear the cost of all such changes.
3.03 Landlord shall have no obligation to commence construction of any
----
work in the Leased Premises until (a) Tenant has submitted and Landlord has
approved the Construction Documents and Tenant shall have approved the
Final Cost for the construction of the Leasehold Improvements as required
by the provisions hereof, and (b) Landlord shall have received Tenant's
advance payment in an amount equal to the Tenant's Share.
4. Lease Commencement Date
-----------------------
4.01 Landlord shall notify Tenant when Substantial Completion has been
----
achieved, and thereafter the Lease Commencement Date shall be established
as set forth in the Lease. Notwithstanding anything to the contrary
contained in the Lease or this work letter agreement, the Lease
Commencement Date shall not be extended for any delay in Substantial
Completion to the extent that such delay is caused in whole or in part by
any act or omission attributable to Tenant, including without limitation:
(a) Tenant's request for any Extraordinary Tenant Improvements;
(b) Tenant's failure to furnish promptly information concerning
Tenant's requirements pertaining to construction of the Leasehold
Improvements or any other information requested by the Consultants as
necessary or useful to prepare the initial drawings, plans and
specifications which are to comprise the Construction Documents;
(c) Tenant's failure to submit promptly the initial drawings, plans
and specifications which are to comprise the Construction Documents;
(d) Tenant's failure to approve promptly the Final Cost; and
(e) Tenant's request for any changes in the Leasehold Improvements
from the work as reflected in the Construction Documents.
4.02 In any event, Rent payable under the Lease shall not abate by reason
----
of any delay, expense or other burden arising out of or incurred in
connection with the design or construction of the Leasehold Improvements to
the extent that such delay, expense or other burden is caused in whole or
in part by any act or omission attributable to Tenant (including, without
limitation, the acts and omissions referred to in subparagraphs (a) through
(e) of paragraph 4.01 above).
<PAGE>
5. Tenant's Access To Leased Premises
----------------------------------
5.01 Landlord, in its sole discretion, may permit Tenant and Tenant's
----
agents or independent contractors to enter the Leased Premises prior to the
scheduled Lease Commencement Date in order that Tenant may do other work as
may be required by Tenant to make the Leased Premises ready for Tenant's
use and occupancy. Such permission must be in writing prior to entry. If
Landlord permits such prior entry, then such license shall be subject to
the condition that Tenant and Tenant's agents, contractors, workmen,
mechanics, suppliers, and invitees shall work in harmony and not interfere
with Landlord and its agents and contractors in doing its work in the
Leased Premises or the Building or with other tenants and occupants of the
Building or the Project. If at any time such entry shall cause or threaten
to cause disharmony or interference, Landlord, in its sole discretion,
shall have the right to withdraw and cancel such license upon notice to
Tenant. Tenant agrees that any such entry into the Leased Premises shall be
deemed to be under all of the terms, covenants, conditions and provisions
of the Lease, except as to the covenant to pay periodic Rent. Tenant
further agrees that, to the extent permitted by law, Landlord and its
principals shall not be liable in any way for any injury or death to any
person or persons, loss or damage to any of the Leasehold Improvements or
installations made in the Leased Premises or loss or damage to property
placed therein or there about, the same being at Tenant's sole risk.
5.02 In addition to any other conditions or limitations on such license
----
to enter the Leased Premises prior to the Lease Commencement Date, Tenant
expressly agrees that none of its agents, contractors, workmen, mechanics,
suppliers or invitees shall enter the Leased Premises prior to the Lease
Commencement Date unless and until each of them shall furnish Landlord with
satisfactory evidence of insurance coverage, financial responsibility and
appropriate written releases of mechanics' or materialmen's lien claims.
6. Miscellaneous Provisions Landlord and Tenant further agree as follows:
------------------------
6.01 Except as herein expressly set forth with respect to the Leasehold
----
Improvements, Landlord has no agreement with Tenant and has no obligation
to do any work with respect to the Leased Premises. Any other work in the
Leased Premises which may be permitted by Landlord pursuant to the terms
and conditions of the Lease, including any alterations or improvements as
contemplated by paragraph 11 of the Lease, shall be done at Tenant's sole
cost and expense and in accordance with the terms and conditions of the
Lease.
6.02 This work letter agreement shall not be deemed applicable to:
----
(a) any additional space added to the original Leased Premises at any time,
whether by the exercise of any options under the Lease or otherwise, or
(b) any portion of the original Leased Premises or any additions thereto
<PAGE>
in the event of a renewal or extension of the original Lease Term, whether
by the exercise of any options under the Lease or any amendment or
supplement thereto. The construction of any additions or improvements to
the Leased Premises not contemplated by this work letter agreement shall be
effected pursuant to a separate work letter agreement, in the form then
being used by Landlord and specifically addressed to the allocation of
costs relating to such construction.
6.03 Any person signing this work letter agreement on behalf of Tenant
----
warrants and represents he has authority to do so.
6.04 This work letter agreement shall be binding upon and inure to the
----
benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
6.05 Anything in the Lease to the contrary notwithstanding, notices and
----
other items to be delivered pursuant to this work letter agreement shall be
effective upon receipt of same by the party to whom such notice or item is
directed.
If the foregoing correctly sets forth our understanding, kindly acknowledge your
approval in the space provided below for that purpose and return to us two
signed counterparts of this work letter agreement.
Very truly yours,
ALLSTATE LIFE INSURANCE COMPANY
an Illinois insurance company
By: /s/ K.S. Klimala
---------------------------
By: /s/ Paul Knachel
---------------------------
Authorized Signatories
AGREED TO AND ACCEPTED this
24th day of February, 198
- ---- -------- -
- -------------------------------
- -------------------------------
a California corporation
----------
By: /s/ William H. Channell
---------------------------
Its President
----------------------
<PAGE>
EXHIBIT 2 TO WORK LETTER AGREEMENT
-------------------
TENANT CONSTRUCTION
WORK LETTER
Tenant Channell Commercial Corporation Date
------------------------------- ---------------
Location Commerce Center VI, Suite R
-----------------------------
Tenant Square Footage +/-12,512 SF
----------------
Cost
----
1. Partitions
----------
Demising
Interior
2. Doors, Frames & Hardware
------------------------
Entrance
Interior
3. Ceilings
--------
4. Lighting
--------
5. Carpeting (office area only) $2,000.00
---------
6. Power Distribution
------------------
7. Telephone Distribution
----------------------
8. Paint Office Interior $1,500.00
Total $3,500.00
---------
<PAGE>
Page 2
EXHIBIT 2 TO WORK LETTER
PAYMENT
A. Landlord's Share $ 3,500.00
----------
B. Tenant's Share $ 0
----------
(i) Credits to Tenant for Advance
Payments $ 0
----------
(ii) Balance to be paid by Tenant prior
to commencement of work $ 0
----------
Agreed and accepted: Tenant Landlord
CHANNELL COMMERCIAL CORP. ALLSTATE LIFE INSURANCE COMPANY
-------------------------
/s/ William H. Channell /s/ K.S. Klimala
------------------------- --------------------------
/s/ Paul Knachel
--------------------------
Its Authorized Signatories
<PAGE>
SCHEDULE 7
CERTIFICATE OF ACCEPTANCE
-------------------------
TENANT ----------------------------------
LOCATION ----------------------------------
This letter is to certify that:
1. The above referenced space has been accepted by the Tenant for possession.
2. The subject space is substantially complete in accordance with the plans
and specifications used in constructing the demised premises.
3. The subject space can now be used for intended purposes.
The execution of this certificate shall not relieve the Landlord of its
obligation to expeditiously complete all work in which the Tenant is entitled
under the terms of its lease with the Landlord. Neither this certificate, nor
Tenant's occupancy of the premises, shall be construed to relieve the Landlord
of its responsibility to remedy, correct, replace, reconstruct or repair any
deviation, deficiency or defect in the work or in the materials or equipment
furnished by the Landlord, without cost to Tenant, if a claim with respect
thereto is made by Tenant.
Commencement Date , 19 .
------------------- --
Expiration Date , 19 .
------------------- --
Executed this day of , 19 .
----- ----------
-----------------------------------
TENANT
By:
-------------------------------
Authorized Signature
<PAGE>
EXHIBIT 10.13
[LOGO OF ROYAL LEPAGE]
OFFER TO LEASE
--------------
This Agreement made this 2nd day of November, 1989 A.D.
BETWEEN: MEADOWVALE COURT PROPERTY MANAGEMENT LIMITED, a body corporate
carrying on business in the City of Toronto, in the Province of
Ontario (hereinafter referred to as the "Landlord")
AND: CHANNELL COMMERCIAL CANADA LTD. carrying on business in the City of
Mississauga, in the Province of Ontario (hereinafter referred to as
the "Tenant").
- -------------------------------------------------------------------------------
The Tenant hereby offers to lease from the Landlord a portion of the building
situated at 6555B Mississauga Road, in the City of Mississauga, in the Province
of Ontario, and containing approximately five hundred and forty-two (542) gross
rentable square feet, more or less, on the ground floor, as outlined on Schedule
"A", attached hereto and forming part of this Offer to Lease (hereinafter
referred to as the "Premises").
1. AREA
----
This Offer is for approximately five hundred and forty-two (542) square
feet rentable more or less as outlined in red on the attached floor plan
marked Schedule "A".
The actual space of the Premises and common area apportionment shall be
measured by the Landlord's architect in accordance with the BOMA standards
of measurement and the annual net rental payable shall be adjusted to
reflect actual rentable square
1
<PAGE>
footage, if there is any discrepancy.
2. OCCUPANCY
---------
Provided the lease has been signed, the Tenant may occupy the Premises as
of November 15, 1989 or earlier if the Premises are available. The Tenant
will not be required to pay any rent or additional rent for any period of
occupancy up to November 15, 1989 but all other terms of the lease will
apply. The Landlord shall use its best efforts to have the premises ready
for occupancy November 15, 1989.
The completion of Leasehold improvements by November 15, 1989 by the
Landlord, is conditional upon the Tenant completing its colour selections
by November 8, 1989.
2
<PAGE>
COLCHESTER PROPERTY MANAGEMENT INC.
Per: /s/ Michael A. Wright ^^??
------------------------------
3
<PAGE>
[LOGO OF ROYAL LEPAGE]
3. TERM
----
The term shall be for a period of two (2) years and shall commence on the
fifteenth day of November, 1989 and end on the sixteenth day of October,
1991. Notwithstanding the foregoing, the lease commencement date shall be
adjusted to coincide with the occupancy date if such occupancy, being the
date the premises are available for occupancy by the Tenant, falls after
November 15, 1989.
4. "NET RENT"
----------
The Tenant agrees to pay as "net" rent for the Premises, eleven dollars
($11.00) per square foot of rentable area per annum in equal consecutive
monthly payments; payable in advance on the first day of each and every
month of said term. Due to the term commencing on November 15, 1989, and
the first full month being paid in advance, the rental payment for
December 1989 shall be prorated to half a month's rental similarly at the
end of the term to account for the remaining half month's rental.
5. ADDITIONAL RENT
---------------
The Tenant shall pay as additional rent its proportionate share of realty
taxes and all operating costs as defined in the Landlord's standard net
lease form for the building which shall include but is not limited to
heating, air conditioning, janitorial services each business day and
periodic window cleaning. The Landlord represents that the Tenant's
proportionate share of additional costs is estimated as six dollars and
thirty cents ($6.30) per square foot for 1989 including hydro.
4
<PAGE>
6. USE
---
The Premises will be used for the purpose of general offices.
7. LEASE
-----
The Tenant shall execute and deliver to the Landlord a lease to be drawn by
the Landlord, subject to reasonable amendments as agreed between the
Landlord and the Tenant, or its solicitors, prior to any commencing of the
Tenant's leasehold improvements. All the terms and conditions in this Offer
shall be incorporated into the lease, and should there be any conflicting
terms in the lease, the terms of this Offer shall take precedence.
5
<PAGE>
[LOGO OF ROYAL LEPAGE]
Terms and expressions defined in the lease shall have the same meaning when
used in the Offer unless the context otherwise requires.
8. HEATING
-------
The Premises to be heated by the Landlord as further defined in the
lease document.
9. AIR CONDITIONING
----------------
The Premises to be air conditioned by the Landlord as further defined in
the lease document.
10. BUSINESS TAX
------------
The Tenant will be responsible for the payment of its own business tax.
11. JANITORIAL
----------
The Landlord shall provide janitorial services to the Premises each
business day, as well as window cleaning.
12. HYDRO
-----
The Tenant shall pay its proportionate share, as defined in the Landlord's
standard net
6
<PAGE>
lease form,of hydro consumed within the Premises, and for the replacement
of tubes and ballasts. The cost of hydro is included in the Landlord's
estimate of six dollars and thirty cents ($6.30) per square foot for 1989
additional rent.
13. LANDLORD'S WORK
---------------
The Landlord agrees to complete the following Leasehold Improvements to the
Premises at its cost prior to November 15, 1989.
a) repair any damaged ceiling tiles and light fixtures and lenses;
b) install vertical blinds on windows and clean windows;
7
<PAGE>
[LOGO OF ROYAL LEPAGE]
c) rewire thermostat;
d) paint all new drywall, doors and frames, and touch up all marked drywall
areas;
e) remove existing door frame, and construct wall and install door as per
the attached floor plan marked Schedule "A".
f) install mail slot in front door.
14. PARKING
-------
The Landlord agrees to allow the Tenant the free use of the parking lot on
a first come first serve basis for the duration of the term and any renewal
on the basis of approximately three (3) spaces per one thousand (1,000)
square feet leased.
15. NO REPRESENTATION
-----------------
It is understood and agreed that there are no covenants, representations,
agreements, warranties, or conditions in any way relating to the subject
matter of this Offer, whether expressed or implied, collateral or
otherwise, except those set forth herein.
16. DEPOSIT
-------
Accompanying this Offer to Lease is a deposit of one thousand five hundred
and sixty-two dollars and seventy-seven cents ($1,562.77) payable to Royal
LePage Real Estate Services Ltd., In Trust, (agents for the Landlord),
which deposit is to be held "In Trust"
8
<PAGE>
and designated for application against the first and last month's gross
rent payable under the lease, and to be returned without interest or
deduction if this Offer to Lease is not accepted.
9
<PAGE>
THIS LEASE AMENDING AGREEMENT dated as of the 11th day of September 1994.
BETWEEN:
COLCHESTER PROPERTY MANAGEMENT INC.
(the "Landlord")
OF THE FIRST PART
- and -
CHANNELL COMMERCIAL CANADA DIV. OF CHANNEL
COMMERCIAL CORP.
(the "Tenant")
OF THE SECOND PART
WHEREAS Meadowvale Court Property Management Limited leased to Channell
Commercial Canada Ltd., pursuant to a lease dated the 1st day of December 1989
(the "Lease"), property known as 6555B Mississauga Rd, Mississauga, Ontario for
a term of five (5) years terminating on the 31st day of October 1991.
WHEREAS by letter agreement dated October 1st, 1991, Meadowvale Court
Management and Channell Commercial Canada Ltd. agreed to an extension of the
subject lease for a further period of one (1) year commencing the 15th day of
November 1991 and terminating the 14th day of November 1992 upon terms and
conditions as stated in such agreement letter.
WHEREAS by letter agreement dated September 10th, 1992 Colchester Property
Management Inc. and Channell Commercial Canada Ltd. agreed to an extension of
the subject lease for a further period of one (1) year
10
<PAGE>
commencing the 15th day of November, 1992 and terminating October 31st, 1993
upon the same terms and conditions.
11
<PAGE>
WHEREAS by letter agreement dated February 7th, 1994, Colchester Property
Management Inc. and Channell Commercial Canada Div. of Channell Commercial Corp.
agreed to an extension of the subject lease for a further period of one (1) year
commencing November 1st, 1993 and terminating October 31st, 1994 upon the same
terms and conditions.
NOW THIS LEASE AMENDING AGREEMENT WITNESSETH that, in consideration of the
payment of the sum of $10.00 paid by each of the Landlord and Tenant to the
other, the receipt and sufficiency of which is hereby acknowledged, the parties
hereto hereby agree as follows:
1. The Lease is hereby amended as follows:
(a) page 1:change name of Tenant to read
CHANNELL COMMERCIAL CANADA
DIV. OF CHANNELL COMMERCIAL CORP.
(b) clause 2 page 2 shall be amended to read as follows:
(a) "demised premises", containing 496 square feet,
(b) "building proportionate share" shall mean 8.40% of the
amount to be apportioned;
(c) "project proportionate share" shall mean 0.69% of the amount
to be apportioned;
(c) the Term of the Lease (as contemplated in clause 3 page 2
thereof) shall terminate on the last day of October 1995;
(d) the rental provisions (as contemplated in clause 4 page 3 thereof)
shall be changed to read as follows:
YIELDING AND PAYING therefor yearly and every year during the term
hereby granted the sum of FOUR THOUSAND SIX HUNDRED AND SIXTY THREE
DOLLARS AND EIGHT CENTS ($4,663.08) of lawful money of Canada, to paid in
advance, without deduction, in equal consecutive monthly installments of
THREE HUNDRED AND EIGHTY EIGHT DOLLARS AND FIFTY NINE CENTS ($388.59)
each on the first day of each month during the term hereby demised: the
first of such payments to be made on the first day of November 1994
12
<PAGE>
(e) clause 27 page 29, address of Landlord to be changed to read as
follows:
13
<PAGE>
"Montreal Trust Company of Canada, 5th Floor, 15 King
Street West, Toronto, Ontario M5H 1B4"
(f) clause 31 page 32 to be deleted in its' entirety and replaced with the
following:
Colchester Property Management Inc., in executing this lease,
is acting as the duly authorized agent for and on behalf of
Montreal Trust Company of Canada as "mortgagee in possession".
2. The Tenant hereby confirms that it is in possession of the Property and is
paying rent and other charges in accordance with the terms of the Lease.
3. The Tenant hereby confirms that the Landlord has complied with all of its
obligations contained in the Lease.
4. The Tenant hereby confirms that it has not assigned or subleased its interest
in the lease.
5. This Lease Amending Agreement shall enure to the benefit of each of the
Landlord and the Tenant and their respective successors and permitted
assigns.
6. The Lease, as amended by this Lease Amending Agreement, shall hereafter be
referred to as "the Lease".
CHANNELL COMMERCIAL CANADA
DIV. OF CHANNELL COMMERCIAL CORP.
Per: /s/ Lynda Forsyth
----------------------------
14
<PAGE>
[LOGO OF COLCHESTER]
October 15, 1994
Memo to: Lynda Forsyth
Channel Commercial Canada
From: Michael Wright
Colchester Property Management
Lease amending agreement as we discussed, please change and initial date of
agreement as required and sign all 4 copies and return 3 to us. Thank you.
496 s.f. @ $9.40/s.f. $388.59 net rent
496 s.f. @ $7.50/s.f. $310.00 operating costs
-------
$698.59 total net rent & operating
costs
$ 48.90 gst
-------
$747.49 gross rent
. area s.f. went up slightly when actual space remeasured
. net rental rate went down
. operating costs went up
. amount for gross rent remains the same
15
<PAGE>
6547 Mississauga Road, Mississauga, Ontario L5N 1A6
Telephone (905) 819.1177
16
<PAGE>
EXHIBIT 10.17
-----
CHANNELL COMMERCIAL CORPORATION
401 (K) SAVINGS PLAN
BENEFIT CONSULTING GROUP
<PAGE>
NON-STANDARDIZED PROFIT SHARING PLAN
ADOPTION AGREEMENT
PREAMBLE. The Company hereby adopts the regional prototype defined
contribution plan of the Sponsor (identified as number R2) subject to the
further terms and conditions specified in this adoption agreement. This
action is taken for the purpose of:
[X] a) creating a new plan to be effective on January 1, 1993. and further
----------------
identified as plan number 002.
----
[_] b) amending and restating in its entirety that previously existing plan
known as , plan
---------------------------------------------------
number , which was originally made effective on .
--- ----------------
For purposes hereof, this amendment and restatement shall become
effective on ; provided however, that those
----------------
provisions which are required by Title XVIII of the Tax Reform Act of
1986 [ ] shall [X] shall not be made separately effective as of the
first day of the first Plan Year beginning after 31 December 1984.
1
<PAGE>
ARTICLE 1
DEFINITIONS
1.10 Company - The business organization(s) specified by this section shall
be: Channell Commercial Corporation
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
1.11 Compensation -
a) Basis of Determination - "Compensation" shall be determined on the
basis of:
[_] #1. 415 safe harbor compensation
[_] #2. Section 3121(a) wages
[X] #3. Section 3401(a) wages
b) Exclusions - The payments described by this sub-section shall be:
None
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
provided however, that there shall be no payments described by this sub-
section if paragraph 3.02(a)(2) of this Adoption Agreement specifies
that basic accruals are to be provided on the basis of an integrated
formula.
c) Salary Reduction Amounts - "Compensation" shall
[X] include
[_] exclude salary reduction amounts.
d) Applicable Period -
1. Pre-1992 Plan Years - "Compensation" shall be attributable to the
Plan Year during which such Compensation is:
[X] #1. Actually paid or made available to the Employee.
[_] #2. Accrued by the Employer.
e) Application -
2. Application of Limitation to Family Members -
B. Overriding Provisions - none.
-------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
f) Effectivity - The date specified by this sub-section shall be .
-------
1.22 Limitation Year - The day and month specified by this section for
concluding a "Limitation Year" shall be the 31st day of December.
---- --------
1.23 Normal Retirement Age - The age specified by this section shall be the
earlier of:
a)
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
2
<PAGE>
b) the later of:
1. the time the Participant attains age sixty-five (65); or,
2. the fifth (5th) anniversary of the first day of the first Plan
Year in which the Participant commenced participation in the Plan.
1.25 Paired Plans - This Plan is not eligible for pairing.
1.27 Plan - The term "Plan" shall mean the plan established on the terms and
conditions of this adoption agreement, the related basic defined contribution
plan of the Sponsor, and the Trust. This Plan shall henceforth be known as
Channell Commercial Corporation 401(k) Savings Plan
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1.28 Plan Year - The day and month specified by this section for concluding a
"Plan Year" shall be the 31st day of December.
---- --------
1.29 Qualified Joint and Survivor Annuity -
a) In General - The percentage of the survivor annuity shall be
50 (Fifty) percent.
-----------
1.32 Shared Employee -
b) Benefit Accruals for Shared Employees -
2. Special Rule - Benefit accruals of shared employees
[X] shall
[_] shall not
be determined on the basis of proposed regulations.
1.34 Super Top-Heavy - This Plan [_] shall [X] shall not be deemed to be
super top-heavy.
1.36 Top-Heavy - This Plan [_] shall [X] shall not be deemed to be top-heavy.
1.37 Top-Heavy Ratio.
f) Actuarial Assumptions - This sub-section specifies an interest rate of
Six (6) percent and the following mortality table:
-------
1984 Unisex Table.
----------------------------------------------------------------------
1.38 Trust - The trust specified by this section shall be:
Channell Commercial Corporation 401(k) Savings Trust.
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
1.43 Year of Participation -
a) In General -
1. Service Requirement - The service requirement
[_] is not applicable
[X] is applicable
and the number of Hours of Service specified by this paragraph
shall be 1,000 Hours of Service; or, if lesser, one thousand
-----
(1,000) Hours of Service.
2. Employment Requirement - The employment requirement
[X] is
[_] is not applicable.
3
<PAGE>
c) Effect of Failure to Meet Minimum Coverage -
1. In General - If coverage is required to be expanded in order to
satisfy the minimums of Code section 410(b); then, such expansion
shall be effected by means of
[_] covering all participants
[X] covering the minimum number of participants necessary to meet
such requirement.
1.44 Year of Service - This Plan does not provide for a general definition of
the term "Year of Service".
4
<PAGE>
ARTICLE 2
PARTICIPATION
2.01 DEFINITIONS.
a) Break in Service - The number of Hours of Service specified by this
sub-section shall be 500; or, if lesser,
-----
five hundred (500) Hours of Service.
b) Computation Period - The shift in eligibility computation periods to
the plan year
[_] shall
[X] shall not apply.
d) Excluded Employees -
1. Union Employees - The union exclusion
[X] shall
[_] shall not apply.
2. Nonresident Aliens - The nonresident alien exclusion
[X] shall
[_] shall not apply.
e) Ineligible Employee - The Employees identified by this sub-section are:
None
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
-----------------------------------------------------------------------
f) Year of Service -
1. In General - The number of Hours of Service specified by this
paragraph shall be ; or, if lesser, one thousand (1,000).
----
2.02 MINIMUM AGE AND SERVICE REQUIREMENTS.
a) In General - The minimum age and service requirements prescribed by
this Plan as a condition of participation shall be age 21 and
--
[_] one (1) Year of Service
[X] two (2) Years of Service
[_] 3 (three) "Months of Employment".
---------
b) Special Rules -
1. Alternative Age and Service Conditions -
This paragraph
[_] shall [X] shall not apply.
If this paragraph applies; then, notwithstanding sub-section (a)
of this section to the contrary, the minimum age and service
requirements prescribed by this Plan as a condition of
participation shall be age and
----
[_] one (1) Year of Service
[_] two (2) Years of Service
[_] "Months of Employment"; provided
--------------
however, that this provision shall apply only to those Employees
who are included within the class of Employees described as
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
5
<PAGE>
2.03 COMMENCEMENT OF INITIAL PARTICIPATION.
a) In General - This sub-section specifies the following:
[X] 1. Semi-annual entry dates and prospective entry.
[_] 2. Semi-annual entry dates and coincident entry.
[_] 3. Annual entry dates with proximate entry.
[_] 4. Annual entry dates with retrospective entry.
b) Additional Entry Dates - The dates specified by this sub-section
shall be:
------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
The above language must be sufficiently specific so that each additional
entry date can be determined solely by reference to such language and
without regard for any other factors.
2.06 BREAK IN SERVICE RULES.
a) 2-Year Service Rule - The 2-year break in service rule
[_] shall
[X] shall not apply.
2.07 PREDECESSOR SERVICE. The business organizations specified by this
section to be taken into account as a predecessor employer are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
[_] All service [_] Service from with the predecessor
----------------
employer shall be taken into account under this section.
2.08 WAIVERS.
a) In General - Waivers of participation
[ ] shall
[X] shall not be permitted.
2.09 COVERAGE. The plans specified by this section are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
6
<PAGE>
ARTICLE 3
BENEFIT ACCRUAL
3.01 DEFINITIONS.
a) Applicable Percentage -
1. In General - The percentage specified by this paragraph shall be:
[X] #1. three percent (3%).
[_] #2. five percent (5%).
2. Buy-Back Minimum - The buy-back minimum
[_] shall
[X] shall not apply.
c) Considered Compensation - "Considered Compensation"
[_] shall
[X] shall not
be determined by disregarding any Compensation which is attributable to
Hours of Service performed while not a Participant.
g) Year of Top-Heavy Participation -
2. Exclusions - The following employees shall be excluded from
receiving a top-heavy minimum allocation:
[X] #1. None.
[_] #2. Key employees.
[_] #3. Employees who are not in Service on the Anniversary
Date.
3.02 ALLOCATION OF CONTRIBUTIONS AND FORFEITURES.
a) Fixed Contribution Plans -
1. Top-Heavy Minimum -
B. Coordination With Other Plans -
ii) Overriding Provisions - The following shall apply:
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
2. Basic Accruals - Basic accruals shall be provided on the basis
of:
[_] A. a nonintegrated formula.
[X] B. an integrated formula.
i) Definitions -
II) Excess Contribution Percentage - This sub-
clause [ ] shall not [X] shall apply and
the "Excess Contribution Percentage" shall
not exceed the "Base Contribution
Percentage" by more than 5.7 percent.
---
III) Integration Level - The dollar amount
specified by this sub-clause for a Plan
Year shall be the lesser of the taxable
wage base in effect at the beginning of
such Plan Year or:
7
<PAGE>
[_] #1. $
-------------------
[_] #2. The greater of $
-------
or percent of the
-----
taxable wage base in effect
at the beginning of such
Plan Year.
[X] #3. The taxable wage base in
effect at the beginning of
such Plan Year.
3.03 COMPANY CONTRIBUTIONS.
a) Profit Sharing Plans -
3. Discretionary Contributions - Company contributions shall be
made:
[X] #1 without regard for the availability of "Net Profits".
[_] #2 only from "Net Profits". For purposes of applying the
provisions of this paragraph, the term "Net Profits"
shall be defined
[_] in accordance with paragraph 3.03(a)(1) of the
basic plan document
[_] as follows:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
8
<PAGE>
ARTICLE 4
ACCOUNTS
4.02 EARMARKED ACCOUNTS. Earmarking of accounts shall be permitted only
with respect to the following selected type(s) of accounts, if any:
[X] #1. Rollover Accounts.
[X] #2. Transferred Accounts.
[_] #3. Employee non-deductible contribution Accounts.
[_] #4. Frozen employee deductible contribution Accounts.
[X] #5. Individual Accounts.
[_] #6. Other -
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
9
<PAGE>
ARTICLE 5
VESTING
5.01 DEFINITIONS.
a) Break in Service - The number of Hours of Service specified by this
sub-section shall be 500 ; or, if lesser, five hundred (500) Hours of
---
Service.
c) Nonforfeitable Percentage -
1. General Rule -
A. In General -
<TABLE>
<CAPTION>
Nonforfeitable Percentage
Years of Service Top-Heavy Years Non Top-Heavy Years
================ ============== ===================
<S> <C> <C>
0 0 % 0 %
--- ---
1 0 % 0 %
--- ---
2 20 % 0 %
--- ---
3 40 % 20 %
--- ---
4 60 % 40 %
--- ---
5 80 % 60 %
--- ---
6 100 % 80 %
--- ---
7 100 % 100 %
--- ---
</TABLE>
B. Switching - The Plan Years specified by this sub-
paragraph shall be:
[X] #1. All Plan Years.
[_] #2. The first Plan Year for which this Plan is
Top-Heavy and each succeeding Plan Year.
[ ] #3. Each Plan Year for which this Plan is Top-
Heavy.
C. Minimum Vesting in Top-Heavy Years - If, for any Plan Year
specified by sub-paragraph (B) of this paragraph, the schedule
set forth in sub-paragraph (A) of this paragraph does not
provide for a Nonforfeitable Percentage of one hundred percent
(100%) after three (3) Years of Service; then, the
Nonforfeitable Percentage for such Plan Year shall not be less
than twenty percent (20%) after two (2) Years of Service; plus,
twenty percent (20%) for each additional Year of Service.
D. Minimum Vesting in Non Top-Heavy Years - If, for any Plan Year
not specified by sub-paragraph (B) of this paragraph, the
schedule set forth in sub-paragraph (A) of this paragraph does
not provide for a Nonforfeitable Percentage of one hundred
percent (100%) after five (5) Years of Service; then, the
Nonforfeitable Percentage for such Plan Year shall not be less
than twenty percent (20%) after three (3) Years of Service;
plus, twenty percent (20%) for each additional Year of Service.
E. Shifts Between Vesting Schedules - Any shift between schedules
used to determine Nonforfeitable Percentage which are occasioned
by a change in top-heavy status, shall be treated as an
amendment to the Plan's vesting schedule subject to the
provisions of paragraph 5.01(c)(3) of the basic Plan document.
10
<PAGE>
2. Accelerated Vesting -
B. Full Vesting on Death -
Full vesting on death [X] shall [_] shall not apply.
C. Full Vesting on Disability -
Full vesting on disability [X] shall [_] shall not apply.
E. Full Vesting at Age 70 1/2 -
Full vesting at age seventy and one-half (70 1/2)
[_] shall [X] shall not apply.
3. Former Schedule -
A. Mandatory Former Schedule - The pre-TRA vesting schedule
[_] shall
[X] shall not apply to Employees with no post-TRA
service.
d) Vesting Computation Period - The term "Vesting Computation Period"
shall mean and include each twelve (12) consecutive month period
which ends on:
[_] #1. a day of .
----------- ---------------------
[X] #2. an anniversary of the date the Employee commenced Service.
e) Year of Service -
1. In General - The number of Hours of Service specified by this
paragraph shall be 1,000; or, if lesser, one thousand (1,000).
-----
2. Minimum Age - The age specified by this paragraph shall be
18; or, if younger, the age of eighteen (18).
--
3. Pre-Plan Years - Pre-plan years [_] shall [X] shall not be
disregarded.
4. Rule of Parity - The rule of parity [X] shall [_] shall not
apply.
5. 1-Year Hold-Out Rule - The 1-year hold-out rule [X] shall
[_] shall not apply.
5.06 PREDECESSOR SERVICE - The business organizations specified by this
section to be taken into account as a predecessor employer are as follows:
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
[_] All service [_] Service from ___________________ with the predecessor
employer shall be taken into account under this section.
11
<PAGE>
ARTICLE 6
DISTRIBUTION OF BENEFITS
6.02 COMMENCEMENT OF BENEFITS.
b) Election of Non-Standard Commencement -
1. Early Commencement -
A. Separation from Service or Attainment of Age 70 1/2 -
ii) Funds Accumulated in a Profit Sharing Plan for More
than 2 Years - Funds accumulated for more than two (2)
years [X] may [_] may not be distributed.
iii) Overriding Provisions Relating to Early Commencement of
Benefit Distributions - The following provisions shall
apply for purposes of applying the provisions of
paragraph 6.02(b)(1) of this Plan and shall supersede
any contrary provision:
------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
B. Hardship - This Plan [X] does [ ] does not permit
distributions on account of hardship.
6.03 FORM OF BENEFITS.
a) Definitions -
3. Optional Form - The benefit forms specified as permissible by
this paragraph are as follows:
Single lump sum
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
provided however, that no benefit form may be specified above
which would cause the Plan to fail to satisfy the requirements
of sub-section 401(a) of the Code.
b) Automatic Form Generally Required -
3. Profit Sharing Exception - The profit sharing exception
[X] shall
[_] shall not apply.
6.05 MINIMUM DISTRIBUTION REQUIREMENTS.
b) Special Rules -
3. Recalculation of Life Expectancies - The life expectancy of the
Employee [_] shall [X] shall not be recalculated; and, the
life expectancy of the spouse [_] shall [X] shall not be
recalculated. The preceding sentence shall apply [X] in all
cases [_] only in any case where the employee (or spouse) has
failed to make an appropriate election specifying whether or
not life expectancies are to be recalculated.
12
<PAGE>
6.07 QUALIFIED DOMESTIC RELATIONS ORDERS.
a) Distribution Prior to Earliest Retirement Age - Distributions to
Alternate Payees under Qualified Domestic Relations Orders
[X] shall
[_] shall not
be permitted prior to the earliest retirement age.
13
<PAGE>
ARTICLE 7
LIMITATIONS
If the Employer maintains or maintained another qualified plan in which any
Participant in this Plan is or was a participant or could become a
participant; then, the remainder of this Article must be completed. The
remainder of this Article must also be completed if the Employer maintains a
welfare benefit fund, as defined in section 419(e) of the Code, or an
individual medical account, as defined section 415(l)(2) of the Code, under
which amounts are treated as Annual Additions with respect to any Participant
in this Plan.
7.03 LIMITATIONS ON CONTRIBUTIONS.
c) Non-Regional Prototype Defined Contribution Plans - If an Employee is
covered under another defined contribution plan maintained by the
Employer which is not a Regional Prototype Plan; then, Annual
Additions which may be credited to such Employee's Account(s) under
this Plan for any Limitation Year shall be:
[X] #1. Limited in accordance with paragraphs (1) through (4) of
this sub-section as though the other plan were a Regional
Prototype Plan.
[ ] #2. Limited in accordance with the following method which shall
limit total Annual Additions to the Maximum Permissible
Amount and properly reduce any Excess Amounts in a manner
that precludes Employer discretion:
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
7.04 ADDITIONAL LIMITATION WHERE DISSIMILAR TYPE PLANS BENEFIT THE SAME
EMPLOYEE.
c) Additional Limitations - The limitations prescribed by this sub-
section shall be as follows: N/A
---------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
14
<PAGE>
ARTICLE 8
EMPLOYEE CONTRIBUTIONS AND ELECTIVE DEFERRALS
8.01 DEFINITIONS.
j) Matching Contributions Account -
2. Vesting - The schedule specified by this paragraph shall be:
[_] #1. The "Nonforfeitable Percentage" shall be one hundred
percent (100%) at all times.
[X} #2. The schedule specified in sub-paragraph 5.01(c)(l)(A) of
this Adoption Agreement.
[_] #3. The following schedule:
<TABLE>
<CAPTION>
Years of Service Nonforfeitable Percentage
================ =========================
<S> <C>
0 _______% or 0% if greater
1 _______% or 0% if greater
2 _______% or 20% if greater
3 _______% or 40% if greater
4 _______% or 60% if greater
5 _______% or 80% if greater
6 or more _______% or 100% if greater
</TABLE>
k) Qualifying Compensation - The items of compensation specified as
excluded by this sub-section shall be: none
------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
----------------------------------------------------------------
m) Qualified Non-Elective Contributions - The "Qualified Non-Elective
Contribution" for a particular Plan Year shall be allocated among the
various Restricted Accounts of Employees who are eligible to make
Elective Deferrals with respect to such Plan Year pursuant to the
provisions of sub-section 8.05(b) and who are not Highly Compensated
Employees as follows:
[X] 1. In the ratio which each such Employee's Compensation for
such Plan Year bears to the total Compensation of all
such Employees for such Plan Year.
[_] 2. In the ratio which each such Employee's Compensation not in
excess of the "Base Amount" bears to the total Compensation of
all such Employees not in excess of the "Base Amount" for such
Plan Year. For purposes of the preceding sentence only, the
term "Base Amount" shall mean $ .
-------------------
8.04 EMPLOYEE CONTRIBUTIONS. Employee contributions
[X] shall
[_] shall not be permitted.
15
<PAGE>
b) Matching Contributions -
1. In General -
A. Fixed Match - The percentage specified by this sub-paragraph
shall be -0- %.
----
C. Limitation - With respect to a Participant who made Employee
Contributions for a Plan Year, the Matching Contributions
on behalf of such Employee for such Plan Year shall be
limited so as to not exceed:
[_] #1. $
-------------------
[ ] #2. % of such Participant's Compensation
----------
for such Plan Year.
[ ] #3. % of such Participant's Compensation
--------
for such Plan Year not to exceed $
----------
for such Plan Year.
[X] #4. No limit.
8.05 ELECTIVE DEFERRALS. Elective Deferrals
[X] shall be permitted effective as of February 1, 1993.
-----------------
[_] shall not be permitted.
a) Definitions -
1. Enrollment Period - The periods specified by this paragraph shall
be:
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
-----------------------------------------------------------------
f) Matching contributions -
1. In General -
A. Fixed Match - The percentage specified by this sub-paragraph
shall be -0-%.
----
C. Limitation - With respect to a Participant who made Elective
Deferrals for a Plan Year, the Matching Contributions on behalf
of such Participant for such Plan Year shall be limited so as to
not exceed:
[_] #1. $ .
-----------------
[_] #2. ------------% of such Participant's Compensation for
such Plan Year.
[_] #3. ------------% of such Participant's Compensation for
such Plan Year not to exceed $ for
------------------
such Plan Year.
[X] #4. No Limit.
16
<PAGE>
8.08 ROLLOVER CONTRIBUTIONS.
a) Employees Eligible - The class of Employees specified by this sub-
section shall be:
[X] #1. Only Employees who are in Service.
[ ] #2. Only Employees who are Participants and in Service.
17
<PAGE>
ARTICLE 10
DEATH BENEFITS AND INSURANCE
10.01 DEATH BENEFITS.
c) Special Rules -
1. Purchase of Life Insurance -
A. Mandatory Purchase - The percentage specified by this sub-
paragraph shall be zero percent.
----
B. Election of Additional Optional Insurance - The purchase of
optional life insurance
[X] shall
[_] shall not be permitted.
2. Limitation on Premiums - The percentage specified by this
paragraph shall be twenty-five percent (25%).
18
<PAGE>
ARTICLE 14
PLAN TERMINATION
14.06 DISPOSITION OF EXCESS ASSETS ON PLAN TERMINATION.
b) Operative Provisions -
[_] #1. Revert to Company - Excess assets shall revert to the
Company.
[X] #2. Allocation to Beneficiaries and Successor Beneficiaries -
Excess assets shall be allocated to Beneficiaries and
Successor Beneficiaries.
19
<PAGE>
ARTICLE 16
MISCELLANEOUS
16.01 PLAN TYPE. This Plan shall be a profit sharing type of defined
contribution plan which is of the non-standardized form.
16.06 PAIRING PROVISIONS. No provision.
20
<PAGE>
EXECUTION
IN WITNESS WHEREOF, the Company has evidenced the adoption of the Plan by the
below action of its authorized representative(s).
Channell Commercial Corporation
By /s/ William H. Channell Dated: 1-8-93
---------------------------------- -------------------------
William H. Channell Title: President
---------------------------------- -------------------------
(Typed or printed name of signator)
By Dated:
--------------------------------- -------------------------
Title:
--------------------------------- -------------------------
(Typed or printed name of signator)
By Dated:
--------------------------------- --------------------------
Title:
--------------------------------- --------------------------
(Typed or printed name of signator)
NOTE: THE ADOPTING EMPLOYER MAY NOT RELY ON THE SPONSOR'S NOTIFICATION LETTER
WITH RESPECT TO THE QUALIFICATION OF THIS PLAN AND MUST APPLY TO THE
APPROPRIATE KEY DISTRICT OFFICE FOR A DETERMINATION LETTER IN ORDER TO
OBTAIN RELIANCE.
This adoption agreement may be used only in conjunction with basic plan
document #R2.
WARNING: IMPROPERLY COMPLETING THIS ADOPTION AGREEMENT MAY RESULT IN
DISQUALIFICATION OF THIS PLAN.
(If required, additional signature pages may be appended.)
21
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 9, 1996, which will be signed upon
consummation of the transaction described in Note N to the financial
statements and accompanying the financial statements of Channell Commercial
Corporation contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
Los Angeles, CA
May 9, 1996
