<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
VDI MEDIA
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
CALIFORNIA 7814 95-4272619
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
6920 SUNSET BOULEVARD
HOLLYWOOD, CALIFORNIA 90028
(213) 957-5500
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
--------------------------
R. LUKE STEFANKO
6920 SUNSET BOULEVARD
HOLLYWOOD, CALIFORNIA 90028
(213) 957-5500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
BARRY L. DASTIN, Esq. MARC WEINGARTEN, Esq.
Kaye, Scholer, Fierman, Hays & Schulte Roth & Zabel
Handler, LLP
1999 Avenue of the Stars, Suite 1600 900 Third Avenue
Los Angeles, California 90067 New York, New York 10022
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE DATE 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, 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
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. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AMOUNT TO PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF 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, no par value........ 2,645,000 $13.00 $34,385,000 $11,857
</TABLE>
(1) Includes 345,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of determining the registration fee.
--------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
VDI MEDIA
CROSS REFERENCE SHEET
SHOWING THE LOCATION IN THE PROSPECTUS OF THE INFORMATION
TO BE INCLUDED IN RESPONSE TO ITEMS OF FORM S-1.
<TABLE>
<CAPTION>
FORM S-1 ITEM CAPTION(S) IN PROSPECTUS
- ------------------------------------- --------------------------------
<C> <S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus....... Outside Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus...... Inside Front Cover Page
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,
Underwriting
6. Dilution........................ Dilution
7. Selling Security Holders........ Principal and Selling
Shareholders
8. Plan of Distribution............ Outside Front Cover Page,
Underwriting
9. Description of Securities to be
Registered..................... Description of Capital Stock
10. Interest of Named Experts and
Counsel........................ *
11. Information with Respect to the
Registrant..................... The Company, Dividend Policy,
Selected Financial Data,
Management's Discussion and
Analysis of Financial Condition
and Results of Operations,
Business, Management, Certain
Transactions, Principal and
Selling Shareholders,
Description of Capital Stock,
Index to Financial Statements
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities..... *
</TABLE>
- ------------------------
*Inapplicable
<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 JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
JURISDICTION.
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 17, 1996
PROSPECTUS
2,300,000 SHARES
VDI MEDIA
COMMON STOCK
--------------
Of the 2,300,000 shares of Common Stock being offered hereby, 2,100,000
shares are being sold by VDI Media ("VDI" or the "Company") and 200,000 shares
are being sold by the Selling Shareholder. See "Principal and Selling
Shareholders." The Company will not receive any proceeds from the sale of shares
by the Selling Shareholder. Prior to this offering, there has been no public
market for the Common Stock of the Company. It is currently anticipated that the
initial public offering price will be between $11.00 and $13.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the trading symbol "VDIM."
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE 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>
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) SHAREHOLDER
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...... $ $ $ $
Total (3)...... $ $ $ $
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the offering estimated at $ payable by
the Company.
(3) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 345,000 additional shares of
Common Stock for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares of Common Stock
will be made against payment on or about , 1996, at the office of
Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
-------------------
OPPENHEIMER & CO., INC. PRUDENTIAL SECURITIES INCORPORATED
The date of this Prospectus is , 1996
<PAGE>
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 A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL DATA APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS (I) REFLECTS A THREE
HUNDRED THIRTY THREE-FOR-ONE STOCK SPLIT OF THE COMMON STOCK PRIOR TO THE
CLOSING OF THIS OFFERING AND (II) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED.
THE COMPANY
VDI Media ("VDI" or the "Company") is a leading provider of broadcast
quality video duplication, distribution and related value-added services. The
Company is a leading distributor of national television spot advertising,
trailers and electronic press kits for the motion picture industry, and believes
that it is a leading distributor of national television spot advertising
overall. The Company serviced over 1,200 customers in the year ended December
31, 1995, including MCA Motion Picture Group, Columbia/TriStar Pictures, Inc.,
Fox Filmed Entertainment, Paramount Pictures Corporation, The Walt Disney Motion
Picture Group, Warner Bros. Inc., Turner Pictures, Saatchi & Saatchi and McCann
Erikson. The Company has realized significant growth in revenues, operating
income and pro forma net income over the last five years, with compound annual
growth rates of 29.5%, 47.7% and 44.7%, respectively.
The Company's services include (i) the physical and electronic delivery of
broadcast quality advertising, including spots, trailers, electronic press kits
and infomercials, and syndicated television programming to more than 945
television stations, cable companies and other end-users nationwide and (ii) a
broad range of video services including the duplication of video in all formats,
element storage, standards conversion, closed captioning and transcription
services, and video encoding for air play verification purposes. The value-added
services provided by the Company further strengthen customer relationships and
create opportunities for increased duplication and distribution business.
In 1994, to enhance its competitive position, the Company created Broadcast
One, a national distribution network which employs fiber optic and satellite
technologies in combination with traditional distribution methods to deliver
broadcast quality material throughout the United States. The Company's fiber
optic and satellite technologies provide rapid and reliable electronic
transmission of video spots and other content with a high level of quality,
accountability and flexibility to both advertisers and broadcasters. Through the
Company's state-of-the-art distribution hub in Tulsa, Oklahoma (the "Tulsa
Control Center"), Broadcast One has enabled the Company to expand its presence
in the national advertising market, allowing for greater diversification of its
customer base. The Company currently derives a small percentage of its revenue
from electronic deliveries and anticipates that this percentage will increase as
such technologies become more widely accepted. The Company has a strategic
agreement with VyVx, Inc., a subsidiary of the Williams Companies, which
provides the fiber optic capability of the Broadcast One network. The Company
intends to add new methods of distribution to Broadcast One as technologies
become both standardized and cost-effective.
The primary method of distribution by the Company, and by others in the
industry, continues to be the physical delivery of videotape to end-users. The
Company operates broadcast tape duplication facilities at its two California
locations and at the Tulsa Control Center, which together currently distribute
approximately videotapes a day. By capitalizing on Broadcast One's
capability to link instantaneously the Company's facilities through fiber optic
and satellite technologies and by leveraging the Tulsa Control Center's
proximity to the centrally located Tulsa International Airport, the Company is
able to utilize the optimal delivery method to extend its deadline for same or
next-day delivery of time-sensitive material, a service advantage not available
to many of its competitors. As the Company develops or acquires facilities in
new markets, the Broadcast One network will enable it to maximize the usage of
its network-wide duplication capacity by instantaneously transmitting video
content to facilities with available capacity. The Company's Broadcast One
network and California facilities are designed to cost-effectively serve the
time-sensitive distribution needs of the Company's clients. Management believes
that the Company's success is based on its strong customer relationships which
are maintained through the reliability, quality and cost-effectiveness of its
services, and its extended deadline for processing customer orders.
3
<PAGE>
The broadcast video duplication industry is service-oriented, highly
fragmented and primarily comprised of numerous small regional companies. The
Company has targeted a number of these smaller regional companies as potential
acquisitions. To the extent any such companies are acquired, the Company intends
to integrate their operations into its "hub and spoke" distribution network
controlled through the Tulsa Control Center. The Company will seek to realize
margin gains through such acquisitions through (i) the elimination of
sub-contracted duplication and production work in markets in which it does not
yet have such capabilities, (ii) the elimination of redundant management and
administrative functions and (iii) the greater utilization of its existing high
volume duplication and distribution facilities.
The Company's strategy is to increase its market share within the video
duplication and distribution industry by (i) increasing the timeliness and
efficiency of its operations by exploiting new technologies as they become both
standardized and cost-effective, (ii) acquiring companies with strong customer
relationships in businesses complementary to the Company's operations, (iii)
further penetrating the marketplace by providing a broad array of high quality,
reliable value-added services and (iv) continuing to develop value-added
services such as audio encryption, electronic order entry and order status and
air play verification.
THE OFFERING (1)
<TABLE>
<S> <C>
Common Stock offered by the Company............ 2,100,000 shares
Common Stock offered by the Selling
Shareholder................................... 200,000 shares
Total Common Stock offered..................... 2,300,000 shares
Common Stock to be outstanding after the
offering...................................... 8,760,000 shares (2)
Estimated net proceeds to the Company.......... $ (3)
Use of proceeds by the Company................. To repay approximately $5.0 million of
indebtedness and for general corporate
purposes, including the acquisition of
businesses complementary to the Company's
operations and for capital expenditures.
See "Use of Proceeds."
Proposed Nasdaq National Market symbol......... VDIM
</TABLE>
- ------------------------
(1) Does not include an additional 345,000 shares which will be sold by the
Company in the event the Underwriters exercise their over-allotment option
in full. See "Underwriting."
(2) Excludes 900,000 shares of Common Stock reserved for issuance in respect of
options to be issued under the Company's 1996 Stock Incentive Plan (the
"1996 Plan"). Upon consummation of this offering, the Company intends to
grant options to purchase an aggregate of 300,000 shares of Common Stock
under the 1996 Plan, each at an exercise price per share equal to the
initial public offering price per share of Common Stock. See
"Capitalization" and "Management -- 1996 Stock Incentive Plan."
(3) After deducting the underwriting discount of $ and estimated expenses
of the offering of $ .
4
<PAGE>
SUMMARY SELECTED FINANCIAL AND OTHER DATA
The summary selected financial data set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and Notes thereto
included elsewhere in this Prospectus. The statement of operations data set
forth below with respect to the years ended December 31, 1993, 1994 and 1995,
are derived from the Company's audited Financial Statements and the Notes
thereto included elsewhere in this Prospectus. The statement of operations data
with respect to the years ended December 31, 1991 and 1992, and the interim
periods ended March 31, 1995 and 1996 and the balance sheet data as of March 31,
1996 have been derived from the Company's unaudited financial statements, which,
in the opinion of management, include all adjustments, consisting of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 (1) 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues.......................................... $ 6,597 $ 11,546 $ 17,044 $ 14,468 $ 18,538 $ 4,233 $ 5,837
Cost of sales (2)................................. 3,297 7,710 10,595 9,692 11,256 2,595 3,688
--------- --------- --------- --------- --------- --------- ---------
Gross profit...................................... 3,300 3,836 6,449 4,776 7,282 1,638 2,149
Selling, general and administrative expense....... 2,858 3,498 4,290 3,895 5,181 1,124 1,373
Costs related to establishing a new facility...... -- -- -- 981 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)........................... 442 338 2,159 (100) 2,101 514 776
Dispute settlement................................ -- -- -- 458 -- -- --
Interest expense, net............................. 38 170 241 271 333 96 70
Provision for income taxes........................ 17 -- 29 -- 26 10 18
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................. $ 387 $ 168 $ 1,889 ($ 829) $ 1,742 $ 408 $ 688
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA STATEMENT OF OPERATIONS DATA (3)
Pro forma provision (benefit) for income taxes.... $ 162 $ 67 $ 767 $ (332) $ 707 $ 167 $ 282
Pro forma net income (loss)....................... 242 101 1,151 (497) 1,061 251 424
Pro forma net income (loss) per share............. $ 0.04 $ 0.02 $ 0.17 $ (0.07) $ 0.16 $ 0.04 $ 0.06
Common shares outstanding......................... 6,660 6,660 6,660 6,660 6,660 6,660 6,660
OTHER DATA
EBITDA (4)........................................ $ 728 $ 1,059 $ 3,152 $ 2,209 $ 3,680 $ 902 $ 1,227
Capital expenditures.............................. 765 1,672 1,379 2,071 1,137 49 314
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------------
ACTUAL PRO FORMA (5) AS ADJUSTED (6)
--------- ------------- ---------------
<S> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA
Cash and cash equivalents.............................................. $ 246 $ 246 $ 17,995
Working capital (deficit).............................................. 1,672 (919) 20,206
Property and equipment, net............................................ 3,855 3,855 3,855
Total assets........................................................... 9,153 9,153 26,902
Bank borrowings........................................................ -- 2,530 --
Long-term debt, net of current portion................................. 1,963 1,963 42
Shareholders' equity................................................... 3,697 1,106 23,942
</TABLE>
- ------------------------
(1) The 1994 results of operations reflect (i) the disposition of the Company's
telecine business during the first quarter of 1994, (ii) one-time start-up
costs of $1.0 million related to establishing the Tulsa Control Center,
which costs were in addition to capital expenditures of $0.9 million and
(iii) one-time costs of $0.5 million in connection with a settlement of a
dispute. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
5
<PAGE>
(2) Includes depreciation in the years ended December 31, 1991 through December
31, 1995, and the three month periods ended March 31, 1995 and 1996, in the
amount of $242, $521, $799, $1,059, $1,347, $333 and $384, respectively.
Additional depreciation expenses are allocated to selling, general and
administrative expense.
(3) Prior to this offering, the Company has been exempt from payment of federal
income taxes and has paid certain state income taxes at a reduced rate as a
result of its S Corporation election. Pro forma statement of operations data
reflect the income tax expense that would have been recorded had the Company
not been exempt from paying taxes under the S Corporation election. As a
result of terminating the Company's S Corporation status prior to completion
of this offering, the Company will be required to record a one-time,
non-cash charge against historical earnings for additional deferred taxes
based upon the increase in the effective tax rate from the Company's S
Corporation status (1.5%) to C Corporation status (40%). This charge will
occur in the quarter ending September 30, 1996 and the year ending December
31, 1996. If this charge were recorded at March 31, 1996, the amount would
have been approximately $61,000. This amount may vary as of the closing date
of this offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 2 and 3 of Notes to Financial
Statements.
(4) EBITDA is defined herein as earnings before interest, taxes, depreciation,
amortization and non-recurring charges. EBITDA does not represent cash
generated from operating activities in accordance with generally accepted
accounting principles ("GAAP"), is not to be considered as an alternative to
net income or any other GAAP measurements as a measure of operating
performance and is not necessarily indicative of cash available to fund all
cash needs. Management believes that EBITDA is a useful measure of cash flow
available to the Company to pay interest, repay debt, make acquisitions or
invest in new technologies.
(5) Pro forma balance sheet data reflect (i) the distribution by the Company to
its shareholders of previously taxed and undistributed earnings calculated
as of March 31, 1996, which amount is expected to increase based upon
taxable earnings for the period from April 1, 1996 to the closing date of
this offering, (ii) the additional borrowings incurred to pay such
distribution, (iii) the recording by the Company of additional deferred
taxes as if the Company were treated as a C Corporation at March 31, 1996
and (iv) the reclassification of retained earnings to paid-in capital.
(6) Adjusted to reflect the sale of 2,100,000 shares of Common Stock offered by
the Company hereby at an assumed initial public offering price of $12.00 per
share and the application of the estimated net proceeds therefrom. See "Use
of Proceeds" and "Capitalization." Excludes 900,000 shares of Common Stock
reserved for issuance under the 1996 Plan. Upon consummation of this
offering the Company intends to grant options to purchase an aggregate of
300,000 shares of Common Stock under the 1996 Plan, each at an exercise
price per share equal to the initial public offering price per share of
Common Stock. See "Capitalization" and "Management -- 1996 Stock Incentive
Plan."
6
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS, AS
WELL AS ALL OF THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY.
COMPETITION
The broadcast videotape duplication and distribution industry is a highly
competitive, service-oriented business. The Company has no long-term or
exclusive service agreements with any of its customers. Business is acquired on
a purchase order basis and is based primarily on customer satisfaction with
reliability, timeliness, quality and price.
The Company competes with a variety of duplication and distribution firms,
some of which have a national presence, certain post-production companies and,
to a lesser extent, the in-house duplication and distribution operations of
major motion picture studios and ad agencies. Some of these firms, and all of
the studios, have greater financial, distribution and marketing resources and
have achieved a higher level of brand recognition than the Company. There is no
assurance that the Company will be able to compete effectively against these
competitors merely on the basis of reliability, timeliness, quality and price or
otherwise.
The Company may face competition from companies in related markets which
could offer similar or superior services to those offered by the Company. For
example, telecommunications providers could enter the market as competitors with
materially lower electronic delivery transportation costs. The Company believes
that an increasingly competitive environment could lead to a loss of market
share or price reductions, which could have a material adverse effect on the
Company's financial condition and prospects. See "Business -- Competition."
CUSTOMER AND INDUSTRY CONCENTRATION
Although the Company serviced over 1,200 customers during the year ended
December 31, 1995, 10 motion picture studios and advertising agencies accounted
for approximately 51%, including MCA Motion Picture Group, which accounted for
approximately 11%, of the Company's revenues in such period. If one or more of
these companies were to stop using the Company's services, the business of the
Company could be adversely affected. Because the Company derives substantially
all of its revenue from clients in the entertainment and advertising industries,
the financial condition and prospects of the Company could also be adversely
affected by an adverse change in conditions which impact those industries.
DEPENDENCE ON TECHNOLOGICAL DEVELOPMENTS
Although the Company intends to utilize the most efficient and
cost-effective technologies available for the delivery of video content,
including digital satellite and Internet transmission, as they develop, there is
no assurance that the Company will be able to adapt to such standards in a
timely fashion, or at all. The Company believes that its future growth will
depend, in part, on its ability to add these services and to add customers in a
timely and cost-effective manner. There is no assurance that the Company will be
successful in offering such services or obtaining new customers for these
services. The Company intends to rely on third party vendors for the development
of these technologies and there is no assurance that such vendors will be able
to develop such technologies in a manner that meets the needs of the Company and
its customers. The Company's development efforts have been focused on forming
strategic relationships in the areas of fiber optic, satellite and video
compression technology. The Company obtains its fiber optic transmission
services through VyVx, Inc. ("VyVx"), a subsidiary of the Williams Companies,
through a joint operating agreement which expires in 1999. Any material
interruption in the supply of such services could have a material adverse effect
on the Company's financial condition and prospects. The Company's ability to
successfully expand its electronic video delivery services also depends on its
ability to maintain satellite delivery capability and to obtain cost-effective
point to multi-point fiber optic distribution.
EXPANSION STRATEGY
The Company's growth strategy involves a continuing commitment to both
internal development and expansion through acquisitions. The Company currently
has no agreement or commitment to acquire any
7
<PAGE>
company or business and there is no assurance that the Company will be able to
continue to grow, or to identify and reach mutually agreeable terms to purchase
acquisition targets, or that the Company will be able to profitably manage
additional businesses or successfully integrate such additional businesses into
the Company without substantial costs, delays or other problems. Acquisitions
may involve a number of special risks including: adverse effects on the
Company's reported operating results; diversion of management's attention;
unanticipated problems or legal liabilities; and amortization of acquired
intangible assets. In addition, the Company may require additional funding to
finance its future acquisitions. There is no assurance that the Company will be
able to secure acquisition financing on acceptable terms or at all. The Company
may use working capital (including the proceeds of this offering), or equity, or
raise financing through other equity offerings or the incurrence of debt, in
connection with the funding of any acquisition. Some or all of these risks could
have a material adverse effect on the Company's financial condition and
prospects or could result in dilution to the Company's shareholders. In
addition, to the extent that consolidation becomes more prevalent in the
industry, the prices for attractive acquisition candidates could increase
substantially. There is no assurance that the Company will be able to effect any
such transactions or that any such transactions, if consummated, will prove to
be profitable. See "Business -- Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts and abilities of certain of its
senior management, particularly those of R. Luke Stefanko, Chairman of the Board
of Directors and Chief Executive Officer. The loss or interruption of the
services of key members of management could have a material adverse effect on
the Company's financial condition and prospects if a suitable replacement is not
promptly obtained. The Company intends to obtain a $5.0 million "key man" life
insurance policy on Mr. Stefanko. Although the Company has employment agreements
with Mr. Stefanko and certain of the Company's other key executives, there is no
assurance that such executives will remain with the Company during or after the
term of his or their employment agreement. In addition, the Company's success
depends to a significant degree upon the continuing contributions of, and on its
ability to attract and retain, qualified management, sales, operations,
marketing and technical personnel. The competition for qualified personnel is
intense and the loss of any of such persons, as well as the failure to recruit
additional key personnel in a timely manner, could have a material adverse
effect on the Company's financial condition and prospects. There is no assurance
that the Company will be able to continue to attract and retain qualified
management and other personnel for the development of its business. See
"Management."
ABILITY TO MAINTAIN AND IMPROVE SERVICE QUALITY
The Company's business is dependent on its ability to meet the current and
future demands of its customers, which include reliability, timeliness, quality
and price. Any failure to do so, whether or not caused by factors within the
control of the Company, could result in losses to such clients. Although the
Company disclaims any liability for such losses, there is no assurance that
claims would not be asserted or that dissatisfied customers would refuse to make
further deliveries through the Company in the event of a significant occurrence
of lost deliveries, either of which could have a material adverse effect on the
Company's financial condition and prospects. Although the Company maintains
insurance against business interruption, there is no assurance that such
insurance will be adequate to protect the Company from significant loss in these
circumstances or that a major catastrophe (such as an earthquake or other
natural disaster) would not result in a prolonged interruption of the Company's
business. In addition, the Company's ability to make deliveries within the time
periods requested by customers depends on a number of factors, some of which are
outside of its control, including equipment failure, work stoppages by package
delivery vendors or interruption in services by fiber optic or satellite service
providers.
MANAGEMENT OF GROWTH
Since its inception, the Company has experienced rapid growth that has
resulted in new and increased responsibilities for management personnel and has
placed and continues to place increased demands on the Company's management,
operational and financial systems and resources. To accommodate this growth,
compete effectively and manage future growth, the Company will be required to
continue to implement and improve its operational, financial and management
information systems, and to expand, train, motivate and
8
<PAGE>
manage its work force. There is no assurance that the Company's personnel,
systems, procedures and controls will be adequate to support the Company's
future operations. Any failure to do so could have a material adverse effect on
the Company's financial condition and prospects. See "Management."
In addition, with the expansion of Broadcast One, the Company has had to
subcontract an increasing amount of tape duplication and production work in
those markets in which it does not yet have such capabilities, resulting in
increased expenses and decreased operating margins. As Broadcast One grows,
there could be further decreases in the Company's operating margins. The Company
intends to acquire complementary businesses in these markets in order to
decrease the amount of work it subcontracts.
BROAD DISCRETION AS TO USE OF PROCEEDS
The Company intends to use the net proceeds from the sale of the Common
Stock offered hereby to repay approximately $5.0 million of indebtedness and for
general corporate purposes, including the acquisition of businesses
complementary to the Company's operations and for capital expenditures. The
Company, however, does not have any agreement or commitment to acquire any
particular business nor has it identified particular capital expenditure
projects. The Company's management will therefore have broad discretion with
respect to the use of the proceeds of this offering and there is no assurance
that the Company will be able to consummate acquisitions or identify and arrange
projects that meet the Company's requirements. See "-- Expansion Strategy" and
"Use of Proceeds."
FLUCTUATING RESULTS; SEASONALITY
The Company's operating results have in the past and may in the future vary
depending on factors such as the volume of advertising in response to seasonal
buying patterns, the timing of new product and service introductions, increased
competition, general economic factors, and other factors. As a result, the
Company believes that period to period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as an indication of
future performance. For example, the Company's operating results have
historically been significantly influenced by the volume of business from the
motion picture industry, which is an industry that is subject to seasonal and
cyclical downturns. In any period, the Company's revenues and delivery costs are
subject to variation based on changes in the volume and mix of deliveries
performed during the period. It is possible that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected. Fluctuations in sales due to
seasonality may become more pronounced if the growth rate of the Company's sales
slows. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONTROL BY PRINCIPAL SHAREHOLDER; POTENTIAL ISSUANCE OF PREFERRED STOCK;
ANTI-TAKEOVER PROVISIONS
Upon completion of this offering, R. Luke Stefanko will beneficially own
approximately 63.9% of the outstanding Common Stock. By virtue of this stock
ownership, Mr. Stefanko will be able to determine the outcome of substantially
all matters required to be submitted to a vote of shareholders, including (i)
the election of the board of directors, (ii) amendments to the Company's
Restated Articles of Incorporation and (iii) approval of mergers and other
significant corporate transactions. The foregoing may have the effect of
discouraging, delaying or preventing certain types of transactions involving an
actual or potential change of control of the Company, including transactions in
which the holders of Common Stock might otherwise receive a premium for their
shares over current market prices. See "Principal and Selling Shareholders" and
"Description of Capital Stock." In addition, the Company's Board of Directors
has the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions thereof,
including voting rights, without any further vote or action by the Company's
shareholders. Although the Company has no current plans to issue any shares of
Preferred Stock, the rights of the holders of Common Stock would be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. Issuance of Preferred Stock could have
the effect of discouraging, delaying or preventing a change in control of the
Company. Furthermore, certain provisions of the Company's Restated Articles of
Incorporation and By-laws and of California law also could have the effect of
discouraging, delaying or preventing a change in control of the Company. See
"Management," "Principal and Selling Shareholders" and "Description of Capital
Stock."
9
<PAGE>
NO PRIOR MARKET FOR COMMON STOCK; DETERMINATION OF OFFERING PRICE; PRICE
VOLATILITY
Prior to this offering there has been no public market for the Common Stock
and there can be no assurance that an active trading market will develop or be
sustained after this offering. The initial public offering price of the Common
Stock offered hereby will be determined through negotiations among the Company
and the representatives of the Underwriters (the "Representatives") and may not
be indicative of future market prices. There can be no assurance that the market
price of the Common Stock will not decline below the initial public offering
price. The trading prices of the Company's Common Stock may be subject to wide
fluctuations in response to a number of factors, including variations in
operating results, changes in earnings estimates by securities analysts,
announcements of extraordinary events such as litigation or acquisitions,
announcements of technological innovations or new products or services by the
Company or its competitors, as well as general trends in the Company's industry
and general economic, political and market conditions. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock prevailing from time to time. The Company intends to file a registration
statement under the Securities Act of 1933, as amended (the "Securities Act")
covering approximately 900,000 shares of Common Stock reserved for issuance
under the 1996 Plan. That registration statement is expected to be filed within
90 days after the date hereof and will automatically become effective upon
filing. Upon consummation of this offering, the Company intends to grant options
to purchase an aggregate of 300,000 shares of Common stock under the 1996 Plan,
each at an exercise price per share equal to the initial public offering price.
Beginning 180 days after the date hereof shares of Common Stock will
become eligible for sale in the public market, subject to compliance with Rule
144 under the Securities Act, when certain lock-up agreements between the
Underwriters and the current shareholders of the Company and the recipients of
such options expire. Oppenheimer & Co., Inc. may, in its sole discretion, and at
any time without notice, release all or any portion of the Common Stock subject
to such lock-up agreements prior to such time. See "Management -- 1996 Stock
Incentive Plan" and "Shares Eligible for Future Sale."
IMMEDIATE AND SUBSTANTIAL DILUTION
Assuming an initial public offering price of $12.00 per share, investors
participating in this offering will incur immediate and substantial dilution in
pro forma net tangible book value per share of Common Stock of approximately
$9.27. See "Dilution."
10
<PAGE>
THE COMPANY
VDI is a leading provider of broadcast quality video duplication,
distribution and related value-added services. The Company is a leading
distributor of national television spot advertising, trailers and electronic
press kits for the motion picture industry, and believes that it is a leading
distributor of national television spot advertising overall. The Company
serviced over 1,200 customers in the year ended December 31, 1995, including MCA
Motion Picture Group, Columbia/TriStar Pictures, Inc., Fox Filmed Entertainment,
Paramount Pictures Corporation, The Walt Disney Motion Picture Group, Warner
Bros. Inc., Turner Pictures, Saatchi & Saatchi and McCann Erikson. The Company
has realized significant growth in revenues, operating income and pro forma net
income over the last five years, with compound annual growth rates of 29.5%,
47.7% and 44.7%, respectively.
The Company operates Broadcast One, a communications network which delivers
video using a fiber optic and satellite network to link the Company's multiple
format videotape duplication facilities directly with end-users and to extend
its proximity to the hubs of air and ground couriers. The Company's distribution
network, along with its duplication and value-added services, are designed to
serve all of the distribution and duplication needs of the movie production and
advertising industries in a reliable and time-sensitive manner.
The Company's services include (i) the physical and electronic delivery of
broadcast quality advertising, including spots, trailers, electronic press kits
and infomercials, and syndicated television programming to more than 945
television stations, cable companies and other end-users nationwide and (ii) a
broad range of video services including the duplication of video in all formats,
element storage, standards conversion, closed captioning and transcription
services, and video encoding for air play verification purposes. The value-added
services provided by the Company further strengthen customer relationships and
create opportunities for increased duplication and distribution business.
The Company derives revenue primarily from major and independent motion
picture and television studios, cable television program suppliers, advertising
agencies and, on a more limited basis, national television networks, local
television stations, television program syndicators, corporations and
educational institutions. The Company receives orders with specific routing and
timing instructions provided by the customer. These orders are then entered into
the Company's computer system and scheduled for electronic or physical delivery
via the Company's Hollywood facility or the Tulsa Control Center. When a video
spot is received, the Company's quality control personnel inspect the video to
ensure that it meets applicable FCC requirements and customer specifications and
then initiate the sequence to distribute the video to the designated television
stations either electronically, over fiber optic lines and/or satellite, or via
the most suitable package carrier. The Company believes that fiber optic
delivery is superior to satellite delivery due to its transmission quality. To
the extent such technologies become standardized and cost-effective, the Company
plans to add digital satellite and Internet transmission capabilities in the
future.
The Company was incorporated in California in 1990. The Company's executive
offices are located at 6920 Sunset Boulevard, Hollywood, California 90028, and
its telephone number is (213) 957-5500.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be $ , after deduction of the underwriting
discount and estimated offering expenses payable by the Company. The Company
will not receive any proceeds from the sale of Common Stock by the Selling
Shareholder. Approximately $5.0 million of the estimated net proceeds will be
used to repay certain indebtedness including (i) $2.5 million borrowed on
, 1996 in connection with the distribution to the Company's
shareholders of previously taxed and undistributed earnings calculated as of
March 31, 1996, (ii) $2.4 million of debt outstanding under its term loan
incurred primarily to acquire capital equipment and (iii) $0.1 million of
outstanding capital lease obligations. The amounts outstanding under the term
loan bear interest at the London Interbank Offering Rate plus 2.5% and are
payable in monthly installments through July 2000. In addition, the Company
intends to use a substantial portion of the net proceeds for general corporate
purposes, including the potential acquisition of businesses complementary to the
Company's
11
<PAGE>
operations, and for capital expenditures. The Company currently has no
commitments or agreements to acquire any particular business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." Pending such uses, the Company intends to
invest the net proceeds in short-term investment grade, interest-bearing
securities and certificates of deposit.
DIVIDEND POLICY
The Company currently intends to retain any earnings for use in its business
and does not anticipate paying cash dividends on its Common Stock in the
foreseeable future.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 (i) on an actual basis, (ii) on a pro forma basis reflecting (a) the
distribution by the Company to its shareholders of previously taxed and
undistributed earnings calculated as of March 31, 1996, which amount is expected
to increase based upon taxable earnings for the period from April 1, 1996 to the
closing date of this offering, (b) the additional borrowings incurred to pay
these distributions, (c) the recording by the Company of additional deferred
taxes as if the Company were treated as a C Corporation at March 31, 1996 and
(d) the reclassification of retained earnings to paid-in capital and (iii) as
adjusted to reflect the sale by the Company of 2,100,000 shares of Common Stock
offered hereby at an assumed initial public offering price of $12.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds." This information should be read in conjunction with the Financial
Statements and related Notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1996
-----------------------------------
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Bank borrowings................................................................ $ -- $ 2,530 $ --
Long-term debt, net of current portion......................................... 1,963 1,963 42
Shareholders' equity(1):
Preferred Stock, no par value, 5,000,000 shares
authorized, no shares issued................................................ -- -- --
Common Stock, no par value, 50,000,000 shares
authorized, 6,660,000 shares issued and outstanding and 8,760,000 shares
issued as adjusted.......................................................... 1,015 1,106 23,942
Retained earnings............................................................ 2,682 --
--------- ----------- -----------
Total shareholders' equity................................................... 3,697 1,106 23,942
--------- ----------- -----------
Total capitalization....................................................... $ 5,660 $ 5,599 $ 23,984
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes 900,000 shares of Common Stock reserved for issuance under the 1996
Plan. Upon consummation of this offering the Company intends to grant
options to purchase an aggregate of 300,000 shares of Common Stock under the
1996 Plan, each at an exercise price per share equal to the initial public
offering price of the Common Stock. See "Management -- 1996 Stock Incentive
Plan."
13
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of March 31, 1996,
after giving effect to the distribution to the Company's current shareholders
prior to the offering of previously taxed and undistributed earnings, calculated
as of March 31, 1996, was $1.1 million or approximately $0.17 per share of
Common Stock. Pro forma net tangible book value per share represents the amount
of the Company's tangible assets less total liabilities, divided by the number
of shares of Common Stock outstanding, after giving effect to (i) the
distribution by the Company to its shareholders of previously taxed and
undistributed earnings calculated as of March 31, 1996, which amount is expected
to increase based upon taxable earnings for the period from April 1, 1996 to the
closing date of this offering, (ii) the additional borrowings incurred to pay
these distributions, (iii) the recording by the Company of additional deferred
taxes as if the Company were treated as a C Corporation at March 31, 1996 and
(iv) the reclassification of retained earnings to paid-in capital. After giving
effect to the sale by the Company of 2,100,000 of the shares of Common Stock
offered hereby (at an assumed initial public offering price of $12.00 per
share), the pro forma net tangible book value of the Company as of March 31,
1996 would have been $23.9 million or approximately $2.73 per share. This
represents an immediate increase of $2.56 per share to the existing shareholders
and an immediate dilution of $9.27 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price per share...................... $ 12.00
Pro forma net tangible book value per share
before the offering................................................. 0.17
Increase per share attributable to new investors..................... 2.56
---------
Pro forma net tangible book value per share
after the offering.................................................. 2.73
---------
Dilution per share to new investors.................................. $ 9.27
---------
---------
</TABLE>
The following table summarizes, on a pro forma basis as of March 31, 1996
(after giving effect to the distribution to the Company's current shareholders
prior to the offering of previously taxed and undistributed earnings, calculated
as of March 31, 1996), the difference between the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by the existing shareholders and by the investors
purchasing shares of Common Stock offered hereby.
<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION
----------------------- --------------------------
NUMBER PERCENT AMOUNT PERCENT AVERAGE PRICE
---------- ----------- ------------- ----------- PER SHARE
-------------
<S> <C> <C> <C> <C> <C>
Existing shareholders..................... 6,660,000 76% $ 995,000 4% $ 0.15
New investors............................. 2,100,000 24 25,200,000 96 12.00
---------- --- ------------- ---
Total................................. 8,760,000 100% $ 26,195,000 100%
---------- --- ------------- ---
---------- --- ------------- ---
</TABLE>
The foregoing computations exclude 900,000 shares of Common Stock reserved
for issuance under the 1996 Plan. Upon consummation of this offering, the
Company intends to grant options to purchase an aggregate of 300,000 shares of
Common Stock under the 1996 Plan, each at an exercise price per share equal to
the initial public offering price. See "Management -- 1996 Stock Incentive
Plan."
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and Notes thereto included elsewhere in
this Prospectus. The statement of operations data set forth below with respect
to the years ended December 31, 1993, 1994 and 1995, and the balance sheet data
as of December 31, 1994 and 1995, are derived from the Company's audited
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. The statement of operations data with respect to the years ended
December 31, 1991 and 1992, and the interim periods ended March 31, 1995 and
1996 and the balance sheet data as of December 31, 1991, 1992 and 1993 and March
31, 1996 have been derived from the Company's unaudited financial statements,
which, in the opinion of management, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair statement of the results for
the unaudited periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1991 1992 1993 1994 (1) 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues......................................... $ 6,597 $ 11,546 $ 17,044 $ 14,468 $ 18,538 $ 4,233 $ 5,837
Cost of sales (2)................................ 3,297 7,710 10,595 9,692 11,256 2,595 3,688
--------- --------- --------- --------- --------- --------- ---------
Gross profit..................................... 3,300 3,836 6,449 4,776 7,282 1,638 2,149
Selling, general and administrative expense...... 2,858 3,498 4,290 3,895 5,181 1,124 1,373
Costs related to establishing a new facility..... -- -- -- 981 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss).......................... 442 338 2,159 (100) 2,101 514 776
Dispute settlement............................... -- -- -- 458 -- -- --
Interest expense, net............................ 38 170 241 271 333 96 70
Provision for income taxes....................... 17 -- 29 -- 26 10 18
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................ $ 387 $ 168 $ 1,889 $ (829) $ 1,742 $ 408 $ 688
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
PRO FORMA STATEMENT OF OPERATIONS DATA (3)
Pro forma provision (benefit) for income taxes... $ 162 $ 67 $ 767 $ (332) $ 707 $ 167 $ 282
Pro forma net income (loss)...................... 242 101 1,151 (497) 1,061 251 424
Pro forma net income (loss) per share............ $ 0.04 $ 0.02 $ 0.17 $ (0.07) $ 0.16 $ 0.04 $ 0.06
Common shares outstanding........................ 6,660 6,660 6,660 6,660 6,660 6,660 6,660
OTHER DATA
EBITDA (4)....................................... $ 728 $ 1,059 $ 3,152 $ 2,209 $ 3,680 $ 902 $ 1,227
Capital expenditures............................. 765 1,672 1,379 2,071 1,137 49 314
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1996
----------------------------------------------------- --------------------------
1991 1992 1993 1994 1995 ACTUAL PRO FORMA (5)
--------- --------- --------- --------- --------- --------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents................ $ 35 $ 44 $ 33 $ 60 $ 415 $ 246 $ 246
Working capital (deficit)................ 122 (646) 392 (1,329) 1,079 1,672 (919)
Property and equipment, net.............. 1,544 3,271 3,670 4,402 3,992 3,855 3,855
Total assets............................. 3,179 5,806 7,253 8,189 9,340 9,153 9,153
Bank borrowings.......................... 350 775 525 1,644 100 -- 2,530
Long-term debt, net of current portion... 652 1,552 1,388 1,457 2,150 1,963 1,963
Shareholders' equity..................... 1,085 1,253 2,803 1,706 3,019 3,697 1,106
</TABLE>
- ------------------------
(1) The 1994 results of operations reflect (i) the disposition of the Company's
telecine business during the first quarter of 1994, (ii) one-time start-up
costs of $1.0 million related to establishing the Tulsa Control Center,
which costs were in addition to capital expenditures of $0.9 million and
(iii) one-time costs of $0.5 million in connection with a settlement of a
dispute. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
15
<PAGE>
(2) Includes depreciation in the years ended December 31, 1991 through December
31, 1995, and the three month periods ended March 31, 1995 and 1996, in the
amount of $242, $521, $799, $1,059, $1,347, $333 and $384, respectively.
Additional depreciation expenses are allocated to selling, general and
administrative expense.
(3) Prior to this offering, the Company has been exempt from payment of federal
income taxes and has paid certain state income taxes at a reduced rate as a
result of its S Corporation election. Pro forma statement of operations data
reflect the income tax expense that would have been recorded had the Company
not been exempt from paying taxes under the S Corporation election. As a
result of terminating the Company's S Corporation status prior to completion
of this offering, the Company will be required to record a one-time,
non-cash charge against historical earnings for additional deferred taxes
based upon the increase in the effective tax rate from the Company's S
Corporation status (1.5%) to C Corporation status (40%). This charge will
occur in the quarter ending September 30, 1996 and the year ending December
31, 1996. If this charge were recorded at March 31, 1996, the amount would
have been approximately $61,000. This amount may vary as of the closing date
of this offering. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 2 and 3 of Notes to Financial
Statements.
(4) EBITDA is defined herein as earnings before interest, taxes, depreciation,
amortization and non-recurring charges. EBITDA does not represent cash
generated from operating activities in accordance with GAAP, and is not to
be considered as an alternative to net income or any other GAAP measurements
as a measure of operating performance and is not necessarily indicative of
cash available to fund all cash needs. Management believes that EBITDA is a
useful measure of cash flow available to the Company to pay interest, repay
debt, make acquisitions or invest in new technologies.
(5) Pro forma balance sheet data reflect (i) the distribution by the Company to
its shareholders of previously taxed and undistributed earnings calculated
as of March 31, 1996, which amount is expected to increase based upon
taxable earnings for the period from April 1, 1996 to the closing date of
this offering, (ii) the additional borrowings incurred to pay such
distribution, (iii) the recording by the Company of additional deferred
taxes as if the Company were treated as a C Corporation at March 31, 1996
and (iv) the reclassification of retained earnings to paid-in capital.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company generates revenues principally from duplication, distribution
and ancillary services. Duplication services are comprised of the physical
duplication of video materials from a source videotape or audiotape "Master" to
a target tape "Clone". Distribution services include the physical or electronic
distribution of video and audio materials to a customer-designated location
utilizing one or more of the Company's delivery methods. Distribution services
typically consist of deliveries of national television spot commercials and
electronic press kits and associated trafficking instructions to designated
stations and supplemental deliveries to non-broadcast destinations. Ancillary
services include video and audio editing services, closed captioning services,
standards conversion and other services related to the modifications of video
and audio content materials prior to distribution.
The Company recognizes revenue for services based on the shipment and/or
delivery of customer materials. Rates charged to customers vary based upon the
time-sensitivity of delivery, number of locations and the time at which video or
audio materials are made available to the Company to begin the duplication and
distribution process. Shorter delivery schedules and shorter lead times
typically command higher prices.
Duplication services generally are priced from $11.00 to $13.50 depending on
the format, length of source material and quantity of tapes ordered. Customers
often combine multiple commercials, or spots, on the same duplication order
("tied spots"). Tied spots are priced at a lower level reflecting the lower
variable cost of adding additional content to single duplication orders. The
Company charges $3.00 to $5.00 for each additional tied spot, depending on the
number of additional spots. Distribution services rates range from $6.00 to
$8.00 for single spots delivered the following morning and from $4 to $6 for two
day delivery. The price is determined by the number of packages and delivery
locations. Production services are typically billed at an hourly rate for use of
the Company's production facilities or on a firm price for specific services.
The Company's historical business has been concentrated in the provision of
duplication and other services to the major motion picture studios primarily
located in the Los Angeles area. This business, therefore, does not benefit from
the economies of scale inherent in the high-volume, national distribution of
broadcast materials. The Company believes the significant operating leverage
provided by the Broadcast One network and the Tulsa Control Center could provide
the Company the opportunity to grow its revenues at a rate faster than the
growth in its operating costs due to (i) lower per unit delivery expenses as
multiple orders destined for particular television stations are consolidated and
(ii) the reduction of per unit electronic delivery costs as the use of such
services increases. The Company believes that the Tulsa Control Center can
support a substantially higher volume of production and distribution with low
incremental cost increases.
The Company's cost of services includes salary expenses for personnel in the
areas of customer service, operations and shipping, as well as shipping
expenses, videotape materials, equipment maintenance and packaging supplies.
Additionally, a significant portion of fixed costs, including depreciation and
occupancy costs, are allocated to cost of sales, which creates operating
leverage at higher sales levels.
Selling, general and administrative expenses include the salary, travel
expenses and insurance of all sales and administrative personnel. The Company
believes that its current selling and administrative infrastructure will sustain
higher sales levels.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the amount, and percentage relationship to
revenues, of certain items included within the Company's Statement of Operations
for the years ended December 31, 1993, 1994 and 1995 and for the three month
periods ended March 31, 1995 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------------------- ----------------------
1993 1994 1995 1995
---------------------- ---------------------- ---------------------- ----------------------
PERCENT PERCENT PERCENT PERCENT
OF OF OF OF
AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES AMOUNT REVENUES
--------- ----------- --------- ----------- --------- ----------- --------- -----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 17,044 100.0% $ 14,468 100.0% $ 18,538 100.0% $ 4,233 100.0%
Cost of sales................... 10,595 62.2 9,692 67.0 11,256 60.7 2,595 61.3
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Gross profit.................... 6,449 37.8 4,776 33.0 7,282 39.3 1,638 38.7
Selling, general and
administrative expense......... 4,290 25.2 3,895 26.9 5,181 27.9 1,124 26.6
Costs related to establishing a
new facility................... -- -- 981 6.8 -- -- -- --
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Operating income (loss)......... 2,159 12.6 (100) (0.7) 2,101 11.4 514 12.1
Dispute settlement.............. -- -- 458 3.2 -- -- -- --
Interest expense................ 241 1.4 271 1.9 333 1.8 96 2.3
Provision for income taxes...... 29 0.1 26 0.1 10 0.2
--------- ----------- --------- ----------- --------- ----------- --------- -----------
Net income (loss)............... $ 1,889 11.1% $ (829) (5.8%) $ 1,742 9.5% $ 408 9.6%
--------- ----------- --------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<CAPTION>
1996
----------------------
PERCENT
OF
AMOUNT REVENUES
--------- -----------
<S> <C> <C>
Revenues........................ $ 5,837 100.0%
Cost of sales................... 3,688 63.2
--------- -----------
Gross profit.................... 2,149 36.8
Selling, general and
administrative expense......... 1,373 23.5
Costs related to establishing a
new facility................... -- --
--------- -----------
Operating income (loss)......... 776 13.3
Dispute settlement.............. -- --
Interest expense................ 70 1.2
Provision for income taxes...... 18 0.3
--------- -----------
Net income (loss)............... $ 688 11.8%
--------- -----------
--------- -----------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995
REVENUES. Revenues increased by $1.6 million or 37.9% to $5.8 million for
the three month period ended March 31, 1996 compared to $4.2 million for the
three month period ended March 31, 1995 due to the increased use of the
Company's services by existing customers and the addition of new customers. In
addition, the three month period ended March 31, 1996 includes incremental
revenues derived from the Company's West Los Angeles duplication and
distribution facility which opened late in fiscal 1995.
GROSS PROFIT. Gross profit increased $0.5 million or 31.2% to $2.1 million
for the three month period ended March 31, 1996 compared to $1.6 million for the
three month period ended March 31, 1995. As a percentage of sales, gross profit
decreased from 38.7% to 36.8%. This decrease is primarily attributable to
increased cost of sales related to the sub-contracting of duplication services
in certain regional markets.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expenses increased $0.2 million or 22.2% to $1.4 million for the
three month period ended March 31, 1996 compared to $1.1 million for the three
month period ended March 31, 1995. As a percentage of sales, selling, general
and administrative expenses decreased to 23.5% for the three month period ended
March 31, 1996 compared to 26.6% for the three month period ended March 31,
1995. This decrease in selling, general and administrative expenses as a percent
of sales was primarily due to the spreading of overhead over a higher sale base
in the three month period ended March 31, 1996 than in the comparable period in
1995.
OPERATING INCOME. Operating income increased $0.3 million or 51.0% to $0.8
million for the three month period ended March 31, 1996 compared to $0.4 million
for the three month period ended March 31, 1995.
INCOME TAXES. Prior to the completion of the offering, the Company operated
as an S Corporation. As such, the Company was not responsible for federal income
taxes and provided for state income taxes at reduced rates. As a result of the
change in tax status effective with the completion of this offering, the Company
will, in future periods, provide for all income taxes at higher statutory rates.
These factors are estimated to result in an effective tax rate for periods
subsequent to the offering of approximately 40%. Consequently, a 40% effective
rate has been used in the pro forma tax provision for all periods presented.
However, for the period in which the offering closes, the Company will record an
additional one-time non-cash charge for additional deferred taxes based upon an
increase in the effective tax rate for the Company's S Corporation status (1.5%)
to C Corporation status (40%) applied to the temporary differences between
18
<PAGE>
the financial reporting and tax bases of the Company's assets and liabilities.
If this charge were recorded at March 31, 1996, the amount would have been
approximately $61,000. This amount may vary as of the closing date of this
offering.
NET INCOME. Net income for the three month period ended March 31, 1996
increased $0.3 million or 68.6% to $0.7 million compared to $0.4 million for the
three month period ended March 31, 1995. Such increase is primarily attributable
to the factors described above.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased by $4.0 million or 28.1% to $18.5 million for
the year ended December 31, 1995 compared to $14.5 million for the year ended
December 31, 1994. The primary reason for this increase was the increased use of
the Company's services by existing customers and the addition of new customers.
New customers were obtained as a result of marketing the Company's national
distribution network through the Tulsa Control Center and the Company's sales
office in New York, both of which opened in September 1994.
GROSS PROFIT. Gross profit increased $2.5 million or 52.5% to $7.3 million
for the year ended December 31, 1995 compared to $4.8 million for the year ended
December 31, 1994. As a percentage of sales, gross profit increased to 39.3% in
1995 from 33.0% in 1994. The increase in 1995 gross profit resulted from several
factors, including (i) increased sales volume being absorbed over a partially
fixed cost base (ii) decreased videotape costs through the tying of multiple
spots onto a single videotape, (iii) reduced freight costs through arrangements
made with certain package delivery carriers to consolidate shipments to common
geographic regions, and (iv) negotiation of consignment inventory agreements
with major vendors which reduced the usage of high cost "fill-in" vendors. These
factors which positively impacted 1995 gross profit were partially offset by
increased expenses associated with subcontracting duplication services in
certain regions. Furthermore, 1994 gross profit was adversely impacted by the
Company's decision to discontinue its telecine operation and the absorption of
costs related to the operations of the Tulsa Control Center which was opened in
September 1994, before the generation of associated Broadcast One revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased $1.3 million or 33.0% to $5.2 million for the
year ended December 31, 1995 compared to $3.9 million for the year ended
December 31, 1994. As a percentage of sales, selling, general and administrative
expenses increased to 27.9% from 26.9% in 1994. This increase was principally
due to increases in the number of sales, customer service and other
administrative employees and rent paid at new facilities opened during the year
in New York and Tulsa, Oklahoma. Such costs provide the Company with the ability
to increase capacity and, as a consequence, revenues.
OPERATING INCOME. Operating income was $2.1 million for the year ended
December 31, 1995 compared to an operating loss of $0.1 million for the year
ended December 31, 1994, primarily as a result of increased production volume
and greater operating leverage as fixed costs related to the Tulsa Control
Center were spread over greater revenues. In addition, the prior year included
certain expenses relating to the establishment of the Broadcast One facility.
OTHER. In 1994, management settled a dispute with an equipment lessor
regarding ownership of certain video duplication equipment. The settlement
amount of $0.5 million was recognized as a period cost in the Company's results
of operations.
INTEREST EXPENSE. Interest expense for the year ended December 31, 1995
increased $0.1 million or 22.9% to $0.3 million as a result of increased bank
borrowings in connection with the establishment of the Tulsa Control Center.
NET INCOME (LOSS). Net income for the year ended December 31, 1995 of $1.7
million increased $2.6 million from a loss of $0.8 million for the year ended
December 31, 1994. This increase is primarily attributable to the sales and
gross profit increases described above. In addition, during the year ended
19
<PAGE>
December 31, 1994 the Company settled a dispute with a third party equipment
lessor regarding ownership of certain video duplication equipment. The
settlement of $0.5 million was reflected in the Company's 1994 results of
operations.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993
REVENUES. Revenues decreased $2.5 million or 15.1% to $14.5 million for the
year ended December 31, 1994 compared to $17.0 million for the year ended
December 31, 1993. This decrease is primarily attributable to the Company's
disposition of its telecine operation in March 1994 in order to focus on its
core business of video duplication and distribution. The Company exchanged its
telecine production equipment for previously leased video duplication equipment.
This decrease was offset in part by growth in the Company's core duplication and
distribution business.
GROSS PROFIT. Gross profit decreased $1.7 million or 25.9% to $4.8 million
for the year ended December 31, 1994 compared to $6.5 million for the year ended
December 31, 1993. As a percentage of sales, gross profit decreased to 33.0% in
1994 from 37.8% in 1993. 1994 gross profit was adversely impacted by the
Company's decision to discontinue its telecine operation and the absorption of
costs related to the operations of the Tulsa Control Center which was opened in
September 1994, before the generation of associated Broadcast One revenue.
Although telecine operations historically earned higher sales margins than the
Company's duplication and distribution business, such operations required
significantly greater capital expenditures than the Company's core duplication
and distribution business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense decreased $0.4 million or 9.2% to $3.9 million for the
year ended December 31, 1994 compared to $4.3 million for the year ended
December 31, 1993. As a percentage of sales, selling, general and administrative
expense increased to 26.9% in 1994 from 25.2% in 1993. This increase was
primarily due to the spreading of overhead over a lower sales base in 1994 as
compared to 1993.
OTHER. During 1994, the Company established the Tulsa Control Center.
Pre-operating costs incurred in connection with the establishment of this
facility, aggregating $1.0 million, have been charged to results of operations.
Such costs principally comprise payroll and other costs necessary to prepare
this facility for operations and to ensure that the quality of videotapes
produced at the facility conformed to the Company's standards.
OPERATING LOSS. The Company incurred a loss from operations of $0.8 million
for the year ended December 31, 1994 compared to income from operations of $1.9
million for the year ended December 31, 1993. The loss is principally
attributable to costs incurred in connection with the establishment of the Tulsa
Control Center and management's disposition of the Company's telecine operation
in 1994.
NET INCOME (LOSS). The Company incurred a loss of $0.8 million for the year
ended December 31, 1994 compared to net income of $1.9 million for the year
ended December 31, 1993. The loss is primarily attributable to the revenue
decrease related to disposition of the telecine operation, in addition to the
incurrence of pre-operating costs of $1.0 million related to the establishment
of the Tulsa Control Center and the settlement of a dispute in the amount of
$0.5 million.
SEASONALITY
The Company's quarterly revenues may demonstrate seasonality, due to the
impact of the Company's customer concentration in the motion picture and
advertising industries. In fiscal 1994 and 1995, revenues from motion picture
customers represented % and % of revenues, respectively, and revenues from
advertising agencies represented % and % of revenues, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through
internally generated cash flow, borrowings under lending agreements with
financial institutions and, to a lesser degree, borrowings from related parties.
At March 31, 1996, the Company's cash and cash equivalents aggregated $0.2
million.
The Company's operating activities provided cash of $2.0 million in 1993,
$1.1 million in 1994, $2.6 million in 1995 and $0.5 million in the three months
ended March 31, 1996.
The Company's investing activities used cash of $1.4 million in 1993, $2.1
million in 1994, $1.1 million in 1995 and $0.3 million in the three months ended
March 31, 1996. Such activities represent addition of capital
20
<PAGE>
equipment related to facilities expansion to accommodate increased customer
demands for the Company's services and the establishment of the Tulsa Control
Center. Such additions were financed through a combination of
internally-generated funds, bank borrowing and capital leasing arrangements with
equipment manufacturers and leasing companies. The Company's business is
equipment intensive, requiring periodic expenditures of cash or the incurrence
of additional debt to acquire additional videotape duplication equipment in
order to increase capacity or replace existing equipment.
During the three months ended March 31, 1996, the Company made $0.3 million
of capital expenditures in tenant improvements to upgrade its archiving
facilities and increase storage capacity, as well as to build out its West Los
Angeles facility. The Company expects to use a portion of the net proceeds of
this offering to retire interest-bearing debt, of which $2.6 million was
outstanding at March 31, 1996. The Company also expects to spend approximately
$1.2 million on capital expenditures during the last three quarters of 1996 to
upgrade and replace equipment, and for management information systems upgrades.
The remaining proceeds of the offering will be used for general corporate
purposes, including potential acquisitions.
The Company's financing activities used cash of $0.6 million and $1.1
million in 1993 and 1995 and provided cash of $1.0 million in 1994. Financing
activities include distributions to the Company's shareholders, which
principally represented amounts for the payment of income tax obligations during
the period the Company was an S Corporation, and the borrowing and/or repayment
of borrowing for capital additions.
The Company believes that, subsequent to the offering, its current banking
relationship will be enhanced through the availability of a larger working
capital line of credit. Management believes that cash generated from operations,
borrowings under its bank line of credit and the net proceeds to the Company of
this offering will fund necessary capital expenditures and provide adequate
working capital for at least the next 12 months. Management is currently
negotiating with its bank to increase amounts available under, and the term of,
its credit facility.
In connection with the purchase of a portion of the Common Stock owned by
one of the Company's founders in April 1996, the Company borrowed an additional
$1.2 million under its revolving credit agreement and loaned such amount to the
Company's chief executive officer. This loan is expected to be repaid prior to
consummation of this offering from distributions to the Company's current
shareholders of previously taxed but undistributed earnings. See "Certain
Transactions."
The Company has no history of significant uncollectible accounts and
management does not believe that this will change materially in the future.
As a result of termination of its S Corporation status upon completion of
this offering, the Company will be required to record deferred taxes which
relate primarily to timing differences between financial and income tax
reporting of depreciation and certain valuation allowances that were
attributable to periods it had elected to be treated as an S Corporation. This
one-time non-cash charge is expected to be recorded in the quarter ending
September 30, 1996. As of March 31, 1996, the amount of the Company's deferred
taxes to be recorded would have been approximately $61,000. This amount may vary
through the closing date of this offering. See Notes 2 and 3 of Notes to the
Financial Statements.
IMPACT OF NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation", which will be effective for the Company beginning
January 1, 1997. SFAS 123 requires expanded disclosures on stock-based
compensation arrangements with employees and encourages, but does not require,
compensation cost to be measured based upon the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will apply APB Opinion No. 25 for
stock-based compensation awards to employees pursuant to the 1996 Plan and will
disclose the required pro forma effect on its net income and earnings per share.
INFLATION
The Company does not believe that inflation will have a significant impact
on its results of operations or financial condition.
21
<PAGE>
THE INDUSTRY
BACKGROUND
The broadcast videotape duplication and distribution industry is a
service-oriented business in which images and sound are processed from film or
videotape onto a master videotape, and then duplicated for television broadcast
and distributed, either by physical or electronic delivery, to television
stations and cable companies, and other end-users. The industry is highly
fragmented and primarily comprised of numerous small regional companies. Success
in the industry is based on strong customer relationships which are maintained
through reliability, quality, cost-effectiveness and timeliness.
The processes used to create and deliver television advertising have evolved
in conjunction with technological developments in the television industry.
Initially, television commercials were created on celluloid film and delivered
by mail to the network or individual television stations across the country
where the commercial was to air. Later, the use of videotape in the television
industry allowed commercials to be produced and duplicated more quickly and sent
to multiple destinations in a more timely fashion. As overnight courier services
developed, commercials could be delivered more rapidly across the country.
Finally, the creation of national networks, such as the Company's Broadcast One
network, has allowed for even more rapid delivery for same or next-day airing of
finished spots.
The primary users of videotape duplication and distribution services are
advertisers, including major motion picture companies, and their agencies.
Advertisers and their agencies constantly seek to increase the speed at which
advertisements are delivered to television stations and to improve the quality
of the commercial being broadcast. In addition, advertisers and agencies require
a method of rapid verification of whether and when a spot has been aired in
order to take advantage of increasingly sophisticated marketing techniques.
Advertisers seek to target ever smaller, more specific demographic groups by
advertising in select geographic markets and by producing many variations of
commercials oriented to different demographic audiences. As a consequence,
routing instructions specifying which stations are to receive particular
commercials, and the traffic instructions given to those stations specifying the
times and rotation of spot airings, have grown increasingly complex. To the
extent that spots can be released just before their scheduled broadcast,
advertising agencies have extra creative time to re-edit spots, and advertisers
gain extra time to refine the spots to respond to competitors' promotions and
shifting market demands.
The fluctuation in the number of releases by major motion picture companies
creates erratic demand for the creation, editing and duplication of publicity
and promotional materials. As a result, the studios generally out-source such
services. The studios' demand for duplication and distribution services is
further enhanced by their practice of promoting releases in part by distributing
electronic press kits which are given to television stations free of charge.
While the television broadcast industry has adopted digital technology for
much of its production processes and certain of its in-station functions, the
predominant method for distributing spot advertisements to television stations
continues to be the physical delivery of analog video tapes. While the core
business of the Company continues to involve such physical distribution,
management believes that customers will migrate to electronic delivery
technologies as they become standardized and widely accepted. These
technologies, including fiber optic and satellite transmission, reduce the time
required for transportation, giving the creators of the content additional time
in which to refine the finished product. However, management believes that use
of these technologies is not wide-spread among end-users due in part to inertia
on the part of decision-makers at television stations to change their reception
systems and concern regarding additional associated costs, quality and
reliability.
TELEVISION ADVERTISING
According to industry sources, approximately $34 billion was spent in the
United States in 1994 on television advertising. This amount includes the
production of commercials and purchase of air time for (i) advertisements to air
on national broadcast and cable network and syndicated programming, where
commercials are distributed in conjunction with the origination of the
programming, (ii) local broadcast and
22
<PAGE>
cable television advertising, consisting of locally produced and aired
commercials, and (iii) national spot advertising, which is produced and
distributed nationally to air during commercial time slots controlled by
individual television stations and cable systems.
The market for television advertising has grown by approximately 200% since
1980, with significant expansion in all segments. The following table shows the
expenditures in the television advertising market by segment for certain years
between 1980 and 1994:
TELEVISION ADVERTISING BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL TV NATIONAL NATIONAL LOCAL NATIONAL CABLE
YEAR ADVERTISING NETWORK SPOT MARKET SYNDICATION ADVERTISING
- ------------------------ ----------- --------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1980.................... $ 11,469 $ 5,130 $ 3,269 $ 2,967 $ 50 $ 53
1985.................... 21,022 8,060 6,004 5,714 520 724
1990.................... 28,405 9,383 7,788 7,856 1,589 1,789
1991.................... 27,402 8,933 7,110 7,565 1,853 1,941
1992.................... 29,409 10,249 7,551 8,079 1,370 2,160
1993.................... 30,584 10,209 7,800 8,435 1,576 2,564
1994.................... 34,167 10,942 8,993 9,464 1,734 3,034
</TABLE>
- ------------------------
Source: Television Bureau of Advertising
MOTION PICTURE STUDIO ADVERTISING
According to industry sources, major and independent motion picture
companies spent in excess of $1.9 billion in 1995 on advertising. This amount
includes the purchase of air time for commercial broadcast and cable television,
as well as traditional forms of print advertisements (E.G., newspaper
advertisements and magazines), but does not include other forms of promotion
such as the production of trailers or electronic press kits. Between 1985 and
1995, advertising spending by major and independent motion picture companies has
increased by over 650%.
SYNDICATED PROGRAMMING
Syndicated television and radio programming is either produced by the
syndicator or purchased from an independent producer and licensed to a
television or radio station for broadcast. Syndicated programming may be
distributed to network-owned or affiliated stations, independent stations and,
in some cases, cable system operators. Most syndicated programming is owned and
licensed by major syndication companies and is delivered using third-party
distribution facilities such as those provided by the Company's network.
RADIO ADVERTISING
According to industry sources, approximately $10.5 billion was spent in the
United States in 1994 on radio advertising. This figure includes the production
of commercials and the purchase of air time for (i) advertisements distributed
in conjunction with syndicated and broadcast network programming, (ii) locally
produced and aired commercials, and (iii) national spot advertising. The
predominant methods for distributing national spot advertising to radio stations
are via physical delivery of analog audio tapes and electronic transmission via
telephone lines. The remainder of radio spots are produced in-house at radio
stations, delivered by local delivery services or picked up by station employees
from the originating studio. While the Company historically has not generated a
significant portion of its revenue from distribution of audio tape for radio, it
intends to explore this market as opportunities arise.
23
<PAGE>
The following table shows the expenditures in the radio advertising market
by segment for certain years between 1985 and 1994:
RADIO ADVERTISING BY SEGMENT
(IN MILLIONS)
<TABLE>
<CAPTION>
TOTAL RADIO NATIONAL NATIONAL LOCAL
YEAR ADVERTISING NETWORK SPOT MARKET
- ------------------------------ ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
1985.......................... $ 6,490 $ 365 $ 1,335 $ 4,790
1990.......................... 8,726 482 1,635 6,609
1991.......................... 8,476 490 1,575 6,411
1992.......................... 8,654 424 1,505 6,725
1993.......................... 9,457 458 1,657 7,342
1994.......................... 10,529 463 1,902 8,164
</TABLE>
- ------------------------
Source: Television Bureau of Advertising
24
<PAGE>
BUSINESS
VDI is a leading provider of broadcast quality video duplication,
distribution and related value-added services. The Company is a leading
distributor of national television spot advertising, trailers and electronic
press kits for the motion picture industry and believes that it is a leading
distributor of national television spot advertising overall. The Company
serviced over 1,200 customers in the year ended December 31, 1995, including MCA
Motion Picture Group, Columbia/TriStar Pictures, Inc., Fox Filmed Entertainment,
Paramount Pictures Corporation, The Walt Disney Motion Pictures Group, Warner
Bros. Inc, Turner Pictures, Saatchi & Saatchi and McCann Erikson. The Company
has realized significant growth in revenues, operating income and pro forma net
income over the last five years, with compound annual growth rates of 29.5%,
47.7% and 44.7%, respectively.
The Company operates Broadcast One, a communications network which delivers
video using a fiber optic and satellite network to link the Company's multiple
format videotape duplication facilities directly with end-users and to extend
its proximity to the hubs of air and ground couriers. The Company's distribution
network, along with its duplication and value-added services, are designed to
serve all of the distribution and duplication needs of the movie production and
advertising industries in a reliable and time-sensitive manner.
The Company's services include (i) the physical and electronic delivery of
broadcast quality advertising, including spots, trailers, electronic press kits
and infomercials, and syndicated television programming to more than 945
television stations, cable companies and other end-users nationwide and (ii) a
broad range of video services including the duplication of video in all formats,
element storage, standards conversion, closed captioning and transcription
services, and video encoding for air play verification purposes. The value-added
services provided by the Company further strengthen customer relationships and
create opportunities for increased duplication and distribution business.
The Company derives revenue primarily from major and independent motion
picture and television studios, cable television program suppliers, advertising
agencies and, on a more limited basis, national television networks, local
television stations, television program syndicators, corporations and
educational institutions. The Company receives orders with specific routing and
timing instructions provided by the customer. These orders are then entered into
the Company's computer system and scheduled for electronic or physical delivery
via the Company's Hollywood facility or the Tulsa Control Center. When a video
spot is received, the Company's quality control personnel inspect the video to
ensure that it meets applicable FCC requirements and customer specifications and
then initiate the sequence to distribute the video to the designated television
stations either electronically, over fiber optic lines and/or satellite, or via
the most suitable package carrier. The Company believes that fiber optic
delivery is superior to satellite delivery due to its transmission quality. To
the extent such technologies become standardized and cost-effective, the Company
plans to add digital satellite and Internet transmission capabilities in the
future.
STRATEGY
The Company's strategy is to increase its market share within the video
duplication and distribution industry by (i) increasing the timeliness and
efficiency of its operations by exploiting new technologies as they become both
standardized and cost-effective, (ii) acquiring companies with strong customer
relationships in businesses complementary to the Company's operations, (iii)
further penetrating the marketplace by providing a broad array of high quality,
reliable value-added services and (iv) continuing to develop value-added
services such as audio encryption, electronic order entry and order status and
air play verification.
EXPLOIT NEW TECHNOLOGIES. The Company believes that timely and accurate
delivery is essential to its continued success, and intends to remain
competitive by providing complete market coverage with the most
cost-effective and reliable delivery methods available. As exemplified by
the opening of the Tulsa Control Center, the Company strives to offer
delivery systems utilizing the most current technology accepted in the
evolving marketplace. As new delivery methods become standardized and cost-
25
<PAGE>
effective, the Company intends to rapidly position itself to offer these
services to its clients. The Company expects to remain current with such
technology by means of strategic alliances with reliable and cost-effective
vendors.
GROWTH THROUGH ACQUISITIONS. VDI intends to acquire existing content
delivery businesses with strong customer relationships that will complement
the Company's VDI/Broadcast One operations. The video duplication and
distribution industry is highly fragmented with many small regional
competitors. Management believes that, as a result of consolidation within
the entertainment and advertising agency industries, its customers would
prefer a single company with a national presence to handle all of their
media delivery needs. The Company intends to expand its points of presence
in regional markets, underserviced markets and markets in which the Company
currently outsources work. Building the Company's client base through the
acquisition of companies in different regions or with complementary business
operations will become increasingly more important and create scale
economies, which will provide a competitive advantage over regional
competitors. The Company intends to integrate these acquired operations into
its "hub and spoke" distribution network. The Company will seek to realize
margin gains at the acquired companies through the elimination of
duplicative management and administrative functions and the optimization of
duplication capacity.
INCREASE MARKET PENETRATION. The Company intends to increase its market
penetration by continuing to emphasize its reliability, superior service,
extended deadlines, value-added services and customer focused approach. By
capitalizing on Broadcast One's capability to link instantaneously the
Company's facilities through fiber optic and satellite technology and by
leveraging the Tulsa Control Center's proximity to the centrally located
Tulsa International Airport, the Company is able to utilize the optimal
delivery method and extend its deadline for next-day delivery of
time-sensitive material, a service advantage not available to many of its
competitors. In order to maintain the highest level of service, the Company
has established procedures to monitor quality, track delivery of video
instructions to the stations and verify receipt by each station.
Additionally, the Company's customer support staff is available 24 hours a
day to respond to order status and other inquiries, thus relieving the
pressure on customers to track the status of individual deliveries.
EXPAND VALUE-ADDED SERVICES. In order to satisfy unmet or underserved
market needs and to provide a broad array of services to its customers, the
Company intends to continue to expand the range of services it provides.
This expansion effort has targeted additional services such as audio
encryption, electronic order entry and order status and air play
verification. The Company may also develop additional services such as
digital indexing, archiving and on-demand distribution. To further serve its
customers, the Company is developing software products to automate the
process of order entry and verification, thereby reducing customer support
costs by providing direct interfaces to existing automation systems and
providing remote order entry software that features data validation,
verification and editing capabilities. The Company believes that the
value-added services will allow it to capture additional duplication and
distribution business and further strengthen existing customer
relationships.
DISTRIBUTION NETWORK
VDI operates a full service distribution network providing its customers
with reliable, time-sensitive and high quality distribution services. The
Company's historical customer base consists of motion picture and television
studios and post-production facilities located primarily in the Los Angeles
region. In 1994, the Company created the Broadcast One network to serve the
national distribution needs of its customers. The Company provides tape
duplication, shipping, satellite and point-to-point fiber optic transmission
services at its California facilities, which process video that is both received
from and distributed within the Los Angeles region, and at the Tulsa Control
Center, the distribution hub of the Broadcast One network.
Commercials, trailers, electronic press kits and related distribution
instructions emanating from Los Angeles based clients are collected at the
Company's Hollywood facility where they are processed locally or transmitted
over Broadcast One's fiber optic or satellite network for processing at the
Tulsa Control Center. Video content collected from Broadcast One's clients is
generally transmitted via Broadcast One's fiber optic network directly to the
Tulsa Control Center for processing. Orders are routinely received into the
26
<PAGE>
evening hours for delivery the next morning. The Company has the ability to
process customer orders from receipt to transmission in less than one hour. Upon
receipt of an order, the Company creates a master by completing the required
production services, such as closed-captioning, local market customization or
value-added editing services. Once complete, the master is distributed to
television stations either physically or electronically.
For electronic distribution, the master is digitized and delivered by fiber
optic or satellite transmission to television stations equipped to receive such
transmissions. The Company's Hollywood and Tulsa facilities have 24-hour access
to its fiber optic network, allowing it to transmit finished projects to
end-users upon completion. The Company has a joint operating agreement with
VyVx, a subsidiary of the Williams Companies, which provides the fiber optic
capability of the Broadcast One network. The Company currently derives
approximately 2% of its revenue from electronic delivery to television stations
and anticipates that this level will increase as fiber optic and satellite
technologies become more widely accepted.
For television stations desiring physical distribution, the master is
duplicated onto specific tape formats and, in most cases, shipments of multiple
spots are combined, or tied, onto one tape, then sorted and consolidated into
packages by destination. This provides the Company with a significant cost
advantage because the majority of deliveries contain multiple customer orders at
a fixed cost per package. The increase in the Company's volume has historically
provided a decreasing delivery cost per order due to order consolidation and the
volume discount structure inherent in air courier pricing.
The Tulsa Control Center, through which the majority of VDI's overnight
deliveries are made, currently distributes as many as spots a day.
Strategically located near the Tulsa International Airport, the Tulsa Control
Center extends the Company's deadline for processing next-day delivery orders by
several hours. A significant portion of the operating expenses of the Tulsa
Control Center are fixed and the facility contains ample space in which to
expand operations, providing the opportunity for improved operating margins as
the Company's business grows. By utilizing the Tulsa Control Center's full
capacity, the Company believes it can further increase its duplication and
distribution capacity without significant additional capital expenditures.
The Company's Hollywood facility has 150 videotape duplication machines, and
distributes as many as spots a day. The Hollywood facility operates 24
hours a day, seven days a week.
Traffic instructions that detail air play information accompany all
deliveries. For fiber optic and satellite deliveries, the traffic instructions
are telecopied to network stations and arrive with or prior to the video
content. For physical deliveries, a printed copy of the traffic instructions is
included with the tape duplications. The Company's customer service staff
contacts television stations each morning to verify receipt of the prior night's
distribution, allowing timely retransmission of any unconfirmed deliveries. Tape
deliveries are verified electronically through an on-line interface with the
Company's air courier services.
VALUE-ADDED SERVICES
VDI maintains video and audio post-production and editing facilities as a
component of its full service, value-added approach to its customers. Production
services are performed in the Company's offices in Hollywood and West Los
Angeles, California, and at the Tulsa Control Center. The Hollywood and West Los
Angeles facilities also enable the Company to provide duplication and
post-production services for local customers, which include MCA Motion Picture
Group, Columbia/TriStar Pictures, Inc., Fox Filmed Entertainment, Paramount
Pictures Corporation, The Walt Disney Motion Pictures Group, Warner Bros. Inc.,
Turner Pictures, Saatchi & Saatchi and McCann Erikson.
27
<PAGE>
The following summarizes the value-added post-production services that the
Company provides to its customers:
STANDARDS CONVERSION
Throughout the world there are several different broadcasting
"standards" in use. To permit a program recorded in one standard to be
broadcast in another, it is necessary for the recorded program to be
converted to the applicable standard. This process involves changing the
number of video lines per frame, the number of frames per second, and color
system. VDI's headquarters in Hollywood, California has facilities for the
conversion of videotape between all international formats, including NTSC,
PAL and SECAM.
VIDEOTAPE EDITING
VDI provides digital editing services at its West Los Angeles and Tulsa
locations. The editing suites are equipped with (i) state-of-the-art digital
editing equipment that provides precise and repeatable electronic transfer
of video and/or audio information from one or more sources to a new master
videotape and (ii) large production switchers to effect complex transitions
from source to source while simultaneously inserting titles and/or digital
effects over background video. Videotape is edited into completed programs
such as television shows, infomercials, commercials, movie trailers,
electronic press kits, specials, and corporate and educational
presentations.
ENCODING
VDI provides encoding services, known as "veil encoding," in which a
code is placed within the video portion of an advertisement or an electronic
press kit. Such codes can be monitored from standard television broadcasts
to determine which advertisements or portions of electronic press kits are
shown on or during specific television programs, providing customers direct
feedback on allotted air time. The Company provides veil encoding services
for a number of its motion picture studio clients to enable them to
customize their promotional material. The Company has recently acquired an
"ice encoding" system which will enable it to place codes within the audio
portion of a videotape thereby enhancing the overall quality of the encoded
videotape.
ANCILLARY AUDIO SERVICES
VDI provides videotape audio editing and rerecording services for motion
pictures and television programming in addition to commercial and other
non-broadcast purposes. VDI owns one of a limited number of Sonic Systems,
or non-linear audio editing systems which allow sound to be generated,
processed, modified, digitized and manipulated to the artistic requirements
of the client. Other audio services available through VDI include voice
overs, live sound effects, digital audio recording with pulse code
modulation equipment and an "automated dialog replacement" system which
enables the Company to reproduce and recreate synchronized dialog.
ELEMENT STORAGE
The Company provides its clients with storage space for their master
tapes and is well positioned to receive follow-on orders for duplication and
distribution requests with respect to those tapes. The Company currently
stores more than 100,000 masters and believes that as a result of growth in
its Broadcast One network it will have the opportunity to increase revenue
from this service.
NEW MARKETS
The Company believes that the development of the Broadcast One network and
its array of value-added services will provide the Company with the opportunity
to enter or significantly increase its presence in several new or expanding
markets.
INTERNATIONAL. The Company believes that the growth in the distribution of
domestic content into international markets will create increased demand for
services currently provided by the Company such as standards conversions and
audio and digital mastering. As electronic distribution methods become
standardized and cost-effective for the international market, the Company
believes it will also have an opportunity to enter the international market for
its core distribution business.
28
<PAGE>
RADIO. The Company believes the growth of Broadcast One will strengthen its
relationships with advertisers who make spot market purchases of both television
and radio advertising, resulting in the expansion of its presence in the
distribution of radio advertisements. The Company presently provides spot radio
advertising distribution for a small number of its Broadcast One clients.
CABLE. The Company believes that continued consolidation of cable system
ownership among multiple system operators will attract increasing national spot
advertising on local cable systems, especially in major markets, increasing the
volume of advertisements which could be distributed by the Broadcast One network
to cable operators.
SALES AND MARKETING
Historically, the Company has marketed its services almost exclusively
through industry contacts and referrals and has engaged in very limited formal
advertising. While VDI intends to continue to rely primarily on its reputation
and business contacts within the industry for the marketing of its services, the
Company has recently expanded its direct sales force to communicate the
capabilities and competitive advantages of the Company's distribution network to
potential new customers. In addition, the Company's sales force solicits
corporate advertisers who may be in a position to influence agencies in
directing deliveries through the Company. The Company currently has sales
representatives located in New York and Los Angeles. The Company's marketing
programs are directed toward communicating its unique capabilities and
establishing itself as the predominant value-added distribution network for the
motion picture and advertising industries.
CUSTOMERS
Since its inception in 1990, VDI has added customers and increased its sales
based on a combination of reliability, timeliness, quality and price. The
integration of the Tulsa Control Center with the Company's regional facilities
has given its customers a time advantage in the ability to deliver broadcast
quality material. The Company markets its services to major and independent
motion picture and television production companies, cable television program
suppliers, advertising agencies and, on a more limited basis, national
television networks, local television stations, television program syndicators,
corporations and educational institutions. The Company's clients include, among
others, MCA Motion Picture Group, Columbia/TriStar Pictures Inc., Fox Filmed
Entertainment, Paramount Pictures Corporation, The Walt Disney Motion Picture
Group, Warner Bros. Inc., Turner Pictures, Saatchi & Saatchi and McCann Erikson.
The Company solicits the motion picture and television industries, other
advertisers and their agencies to generate distribution revenues. In the year
ended December 31, 1995 the Company serviced more than 1,200 customers, of which
the 10 largest accounts generated approximately 51% of the Company's revenues in
that year. The eight major motion picture studios accounted for approximately
42%. including MCA Motion Picture Group which accounted for approximately 11%,
of the Company's revenue for the year ended December 31, 1995.
The Company has no long-term or exclusive agreements with any of its
clients. Because clients generally do not make arrangements with the Company
until shortly before its facilities and services are required, the Company
usually does not have any significant backlog of service orders. The Company's
services are generally offered on an hourly or per unit basis based on volume.
CUSTOMER SERVICE
VDI has built its reputation in the market with a strong commitment to
customer service. The customer service staff develops strong relationships with
clients within the studios and advertising agencies and are trained to emphasize
the Company's ability to confirm delivery, meet difficult delivery time frames
and provide reliable and cost-effective service. Several studios are customers
because of the Company's ability to meet often-changing or rush delivery
schedules.
The Company has a customer service staff of 13 people, at least one member
of which is available 24 hours a day. This staff serves as a single point of
problem resolution and supports not only the Company's customers, but also the
television stations and cable systems to which the Company delivers.
29
<PAGE>
COMPETITION
The videotape duplication and distribution industry is a highly competitive
service-oriented business. Certain competitors (both independent companies and
divisions of large companies) provide all or most of the services provided by
the Company, while others specialize in one or several of these services.
Substantially all of the Company's competitors have a presence in the Los
Angeles area, currently the principal market for the Company's services. Due to
the current and anticipated future demand for videotape duplication and
distribution services in the Los Angeles area, the Company believes that both
existing and new competitors may expand or establish videotape post-production
service facilities in this area.
The Company believes that it maintains a competitive position in its market
by virtue of the quality of the value-added service it provides, its customer
service and scheduling personnel, engineering expertise and state-of-the-art
equipment. The Company believes that prices for its services are competitive
within its industry, although some competitors may offer certain of their
services at lower rates than the Company.
The principal competitive factors affecting this market are reliability,
timeliness, quality and price. The Company competes with a variety of
duplication and distribution firms, some of which have a national presence,
certain post-production companies and, to a lesser extent, the in-house
duplication and distribution operations of major motion picture studios and ad
agencies, that have traditionally distributed taped advertising spots via
physical delivery. Some of these competitors have long-standing ties to clients
that will be difficult for the Company to change. Several companies have systems
for delivering video content electronically. Moreover, some of these
distribution and duplication firms and post-production companies have greater
financial, distribution and marketing resources and have achieved a higher level
of brand recognition than the Company. As a result, there can be no assurance
that the Company will be able to compete effectively against these competitors
merely on the basis of reliability, timeliness, quality and price or otherwise.
See "Risk Factors -- Competition."
PROPERTIES AND EQUIPMENT
The Company's 30,000 square foot headquarters in Hollywood, California
houses facilities for its duplication services, a vault utilized for storage of
master videotapes, approximately 5,000 square feet of space which is utilized by
the Company's management, administrative and accounting personnel and standards
conversion equipment. The Tulsa Control Center is a 20,000 square foot facility
utilized by the Company as the Broadcast One network control center as well as
VDI's nationwide physical duplication and distribution center. The Company also
maintains an 8,000 square foot facility in West Los Angeles, California utilized
for film-to-tape transfers, video tape editing and audio services.
The Company's leases for its Hollywood and Tulsa facilities expire in 1999.
The Company's lease for the West Los Angeles facility expires in December 1997.
The Company's aggregate rental cost in 1995 was approximately $0.7 million.
Except for approximately 5% of the Company's equipment which is leased on a
long-term basis for terms ranging through 1999, all of the Company's equipment
has been purchased either for cash, on an installment basis or through a
like-kind exchange.
EMPLOYEES
The Company had 130 full-time employees as of March 31, 1996. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage. The Company believes that its
relations with its employees are good.
LEGAL PROCEEDINGS
There are currently no legal proceedings to which the Company is a party,
other than routine matters incidental to the business of the Company. From time
to time, the Company may become a party to various legal actions and complaints
arising in the ordinary course of business.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning each person who is
presently an executive officer or director of the Company. All officers and
directors hold office until their respective successors are elected and
qualified, or until their earlier resignation or removal.
<TABLE>
<CAPTION>
NAME POSITION AGE
- ----------------- ---------------------------------------- ---
<S> <C> <C>
R. Luke Stefanko Chairman of the Board, Chief Executive 35
Officer, President and Director
Donald R. Stine* Chief Financial Officer and Director 34
Steve Terry Vice President and General Manager of 48
Operations
Russell Ruggieri Vice President of Engineering 47
Eric Bershon Vice President and General Manager of 30
Broadcast One
Tom Ennis Vice President of Sales and Marketing 37
</TABLE>
- ------------------------
* Member of the Audit Committee
R. Luke Stefanko has been Chief Executive Officer and Director since he
co-founded the Company in 1990. Mr. Stefanko was elected to the newly-created
position of Chairman of the Board in May 1996. Mr. Stefanko has more than 17
years of experience in the videotape duplication and distribution industry,
including serving as a director and Vice President/Operations of A.M.E., Inc.
("AME"), a video duplication company, from 1979 to January 4, 1990. Mr. Stefanko
is Mr. Stine's brother-in-law.
Donald R. Stine has been Chief Financial Officer of the Company since he
joined the Company in August, 1994 and became a Director in 1996. Mr. Stine was
a Director of Finance for The Walt Disney Company from 1988 to 1994. Mr. Stine
is Mr. Stefanko's brother-in-law.
Steve Terry has been Vice President and General Manager of Operations since
he joined the Company in 1990. Mr. Terry has 27 years of experience in the video
duplication and distribution industry, including positions held at Vidtronics,
Compact Video and AME.
Russell Ruggieri joined the Company in 1990 as Director of Engineering and
is currently serving as Vice President of Engineering. Mr. Ruggieri has over 23
years of experience in the television broadcasting and video duplication and
distribution business.
Eric Bershon joined the Company in 1993 as Vice President of Sales and is
currently Vice President and General Manager of Broadcast One. Prior to joining
the Company, Mr. Bershon worked at MediaTech West as Vice President and General
Manager from 1988 to 1992.
Tom Ennis joined the Company as a consultant in August 1995 and has been
Vice President of Sales and Marketing since March 1996. Prior to joining the
Company, Mr. Ennis served as Vice President of Sales and Infomercial Services at
Starcomm Television Services from 1990 to 1995.
The Company intends to add two persons to the Board of Directors as
independent directors prior to the consummation of this offering.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company is paid a fee of $1,000
for each meeting of the Board of Directors attended. Members of the Board of
Directors who are not employees of the Company receive stock option grants upon
election or re-election. See "-- 1996 Stock Incentive Plan." Directors are
reimbursed for travel and other reasonable expenses relating to meetings of the
Board of Directors.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth all cash compensation, including bonuses and
deferred compensation, paid for the year ended December 31, 1995 by the Company
to (i) its Chief Executive Officer and (ii) each of the Company's other most
highly compensated individuals who were serving as officers on December 31, 1995
and whose salary plus bonus exceeded $100,000 for such year (the persons
described in (i) and (ii) above, the "Named Executives"). No bonuses or long
term compensation awards were granted to any of the foregoing persons for the
year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION YEAR SALARY
- --------------------------------------------------------------------------- --------- ----------
<S> <C> <C>
R. Luke Stefanko, Chief Executive Officer.................................. 1995 $ 273,000
Robert Semmer, then President.............................................. 1995 $ 200,000
Donald Stine, Chief Financial Officer...................................... 1995 $ 120,000
Robert Bajorek, then Vice President........................................ 1995 $ 273,000
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
No stock option or stock appreciation rights were granted to the Named
Executives during the fiscal year ended December 31, 1995.
1996 STOCK INCENTIVE PLAN
PLAN SUMMARY
The 1996 Stock Incentive Plan (the "1996 Plan" or the "Plan") authorizes the
granting of awards to officers and key employees of the Company, as well as to
third parties providing valuable services to the Company, e.g., independent
contractors, consultants and advisors to the Company. Members of the Board of
Directors who are also officers or employees of the Company are eligible to
receive awards under the 1996 Plan. Non-employee directors are only eligible for
the non-discretionary stock option awards described below. At May 15, 1996,
there were approximately 150 persons eligible to receive awards. Awards can be
Stock Options ("Options"), Stock Appreciation Rights ("SARs"), Performance Share
Awards ("PSAs") and Restricted Stock Awards ("RSAs"). The 1996 Plan is
administered by a committee appointed by the Board of Directors and consisting
of two or more members, each of whom must be disinterested or, in the absence of
a committee, the Board of Directors (the "Committee"). The Committee determines
the number of shares to be covered by an award, the term and exercise price, if
any, of the award and other terms and provisions of awards. Members of the Board
of Directors who are not also employees of the Company receive, at such time as
they are appointed, elected or re-elected to serve as members of the Board of
Directors, non-discretionary annual awards of stock options to purchase 3,000
shares of Common Stock at the fair market value on the date the stock option is
granted. The Company has reserved 900,000 shares for issuance in respect of
options exercisable under the 1996 Plan. The number and kind of shares available
under the 1996 Plan are subject to adjustment in certain events. Shares relating
to Options or SARs which are not exercised, shares relating to RSAs which do not
vest and shares relating to PSAs which are not issued will again be available
for issuance under the 1996 Plan.
The Company has reserved 900,000 shares of Common Stock for issuance under
the Plan. Upon consummation of this offering the Company intends to grant
options to purchase 300,000 shares of Common Stock at an exercise price per
share equal to the initial public offering price per share of Common Stock.
An Option granted under the 1996 Plan may be an incentive stock option
("ISO") or a non-qualified Option. ISOs will only be granted to employees of the
Company. The exercise price for Options is to be determined by the Committee,
but in the case of an ISO is not to be less than fair market value of the Common
Stock on the date the Option is granted (110% of fair market value in the case
of an ISO granted to any person who owns more than 10% of the voting power of
the Company). In general, the exercise price is payable in any combination of
cash, shares of Common Stock already owned by the participant for at least six
months, or, if authorized by the Committee, a promissory note secured by the
Common Stock issuable upon exercise. In addition, the award agreement may
provide for "cashless" exercise and payment. The aggregate fair market
32
<PAGE>
value (determined on the date of grant) of the shares of Common Stock for which
ISOs may be granted to any participant under the 1996 Plan and any other plan by
the Company or its affiliates which are exercisable for the first time by such
participant during any calendar year may not exceed $100,000.
The Options granted under the 1996 Plan become exercisable on such dates as
the Committee determines in the terms of each individual Option, provided
however, that such date may not be earlier that six months after the award date.
A Director who is not also an employee of the Company will, upon appointment,
election or re-election to the Board of Directors, automatically be granted a
nonqualified option to purchase 3,000 shares, vesting in equal tranches over
four years, at an exercise price equal to the fair market value of Common Stock
on the date of grant. Options become immediately exercisable in full in the
event of a disposition of all or substantially all of the assets or capital
stock of the Company by means of a sale, merger, consolidation, reorganization,
liquidation or otherwise, unless the Committee arranges for the optionee to
receive new Options covering shares of the corporation purchasing or acquiring
the assets or stock of the Company, in substitution of the Options granted under
the plan (which Options shall thereupon terminate). The Committee in any event
may, on such terms and conditions as it deems appropriate, accelerate the
exercisability of Options granted under the Plan. An ISO to a holder of more
than 10% of the voting power of the Company must expire no later than five years
from the date of grant. A non-qualified Option must expire no later than ten
years from the date of the grant.
The Options granted under the 1996 Plan are not transferable other than by
will or the laws of descent and distribution. Options which have become
exercisable by the date of termination of employment or of service on the
Committee must be exercised within certain specified periods of time from the
date of termination, the period of time to depend on the reason for termination.
Such Options generally lapse three months after termination of employment other
than by reason of retirement, total disability or death, in which case they
generally terminate one year thereafter. If a participant is discharged for
cause, all Options will terminate immediately. Options which have not yet become
exercisable on the date the participant terminates employment or service on the
Committee for a reason other than retirement, death or total disability shall
terminate on that date.
An SAR is the right to receive payment based on the appreciation in the fair
market value of Common Stock from the date of grant to the date of exercise. In
its discretion, the Committee may grant an SAR concurrently with the grant of an
Option. Such SAR is only exercisable at such time, and to the extent, that the
related Option is exercisable. Upon exercise of an SAR, the holder receives for
each share with respect to which the SAR is exercised an amount equal to the
difference between the exercise price under the related Option and the fair
market value of a share of Common Stock on the date of exercise of the SAR. The
Committee in its discretion may pay the amount in cash, shares of Common Stock
or a combination thereof.
Each SAR granted concurrently with an Option will have the same termination
provisions and exercisability periods as the related Option. In its discretion,
the Committee may also grant SARs independently of any Option, subject to such
conditions consistent with the terms of the Plan as the Committee may provide in
the award agreement. Upon the exercise of an SAR granted independently of any
Option, the holder receives for each share with respect to which the SAR is
exercised an amount in cash based on the percentage specified in the award
agreement of the excess, if any, of fair market value of a share of Common Stock
on the date of exercise over such fair market value on the date the SAR was
granted. The termination provisions and exercisability periods of an SAR granted
independently of any Option will be determined by the Committee.
An RSA is an award of a fixed number of shares of Common Stock subject to
transfer restrictions. The Committee specifies the purchase price, if any, the
recipient must pay for such shares. Shares included in an RSA may not be sold,
assigned, transferred, pledged or otherwise disposed of or encumbered until they
have vested. These restrictions may not terminate earlier than six months after
the award date. The recipient is entitled to dividend and voting rights
pertaining to such RSA shares even though they have not vested, so long as such
shares have not been forfeited.
A PSA is an award of a fixed number of shares of Common Stock, the issuance
of which is contingent upon the attainment of such performance objectives, and
the payment of such consideration, if any, as is specified by the Committee.
Issuance shall in any case not be earlier than six months after the award date.
The 1996 Plan permits a participant to satisfy his tax withholding with
shares of Common Stock instead of cash if the Committee agrees.
33
<PAGE>
Upon the date a participant is no longer employed by the Company for any
reason, shares subject to the participant's RSAs which have not become vested by
that date or shares subject to a participant's PSAs which have not been issued
shall be forfeited in accordance with the terms of the related award agreements.
The exercisability of all of the outstanding awards may be accelerated,
subject to the discretion of the Committee, upon the occurrence of an "Event",
(defined in the Plan) to include approval by the shareholders of the dissolution
on liquidation of the Company, certain mergers, consolidations, sale of
substantially all of the Company's business and/or assets and a "change in
control". The 1996 Plan defines a change in control to have occurred (i) if a
"person," as defined in Section 13(d) and 14(d) under the Exchange Act acquires
20% or more of the voting power of the then outstanding securities of the
Company and (ii) if during any two consecutive year periods there is a change of
a majority of the members of the Board of Directors, unless the election or
nomination of the new directors is approved by at least three-fourths of the
members still in office from the beginning of the two year period.
The 1996 Plan provides for anti-dilution adjustments in the event of a
reorganization, merger, combination recapitalization, reclassification, stock
dividend, stock split or reverse stock split. Upon the dissolution or
liquidation of the Company, or upon a reorganization, merger or consolidation of
the Company as a result of which the Company is not the surviving entity, the
Plan will terminate, and any outstanding awards will terminate and be forfeited,
subject to the Committee's ability to provide for (i) certain payments to
participants in cash or Common Stock in lieu of such outstanding awards, and
(ii) the assumption by the successor corporation of either the Plan or the
awards outstanding under the Plan.
The Board of Directors may, at any time, terminate or suspend the 1996 Plan.
The 1996 Plan currently provides that the Board of Directors or the Committee
may amend the 1996 Plan at any time; provided, however, that no amendment may
operate to increase the maximum number of aggregate shares issuable, materially
increase the benefits accruing to participants or change the classes of eligible
persons under the 1996 Plan without the approval of the holders of a majority of
the shares of Common Stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not have a Compensation Committee during 1995. As a result,
Messrs. Stefanko and Stine participated in deliberations concerning executive
officer compensation. The Board of Directors will establish a Compensation
Committee prior to the consummation of this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation limit the liability of directors for
monetary damages to the maximum extent permitted by California law. Such
limitation of liability has no effect on the availability of equitable remedies,
such as injunctive relief or rescission.
The Company's By-laws provide that the Company will indemnify its directors
and officers and may indemnify its employees and agents (other than officers and
directors) against certain liabilities to the fullest extent permitted by
California law. The Company is also empowered under its By-laws to enter into
indemnification agreements with its directors and officers and to purchase
insurance on behalf of any person whom it is required or permitted to indemnify.
The Company has entered into indemnification agreements with each of its current
directors and officers, which provide for indemnification of, and advancement of
expenses to, such persons to the greatest extent permitted by California law,
including by reason of action or inaction occurring in the past and
circumstances in which indemnification and advances of expenses are
discretionary under California law.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
34
<PAGE>
CERTAIN TRANSACTIONS
Pursuant to a stock purchase agreement dated as of April 1, 1996 (the
"Agreement"), Mr. Stefanko and Mr. Stine purchased 2,264,400 and 666,000 shares
of Common Stock, respectively, from Robert Bajorek, the co-founder of the
Company, for a total of $6.7 million. Pursuant to the Agreement, Mr. Stefanko
paid Mr. Bajorek $1.1 million on April 1, 1996. The Company extended Mr.
Stefanko a demand loan bearing interest at an annual rate of 6.0% to make that
cash payment. Mr. Stefanko has agreed to repay this loan with a portion of the
proceeds of his S Corporation distribution. Mr. Stefanko and Mr. Stine executed
non-recourse notes in the amount of $4.0 million and $1.6 million, respectively,
in favor of Mr. Bajorek for the balance of the aggregate purchase price. These
notes amortize commencing in 1998, reach maturity in 2006 and bear interest at a
rate of 4.5%. The notes are secured by the Common Stock purchased and contain
acceleration provisions which require Mr. Stefanko or Mr. Stine, as the case may
be, to apply one-half of the proceeds of a sale of his Common Stock or the sale
of substantially all of the assets of VDI towards the prepayment of the amount
then outstanding under such note. In connection with his sale of Common Stock,
Mr. Bajorek agreed not to compete with the Company in California for a period of
three years.
Upon its formation in 1990 the Company elected to be treated as an S
Corporation for federal income tax purposes which resulted in the taxable income
of the Company being taxed directly to its shareholders rather than to the
Company. As a consequence of this offering the Company will no longer qualify as
an S corporation. The Company maintains an accumulated adjustments account (the
"AAA account") which currently holds its taxed but undistributed earnings.
Immediately prior to the consummation of this offering, VDI will distribute the
balance of the amount in the AAA account, at March 31, 1996 approximately $2.5
million, to the Company's current shareholders. Purchasers of Common Stock in
the offering will not be entitled to any portion of such distribution.
A relative of Mr. Stefanko loaned the Company $300,000 in 1991 and an
additional $300,000 in 1995. These loans bear interest at an annual rate of 9%
and 13%, respectively. The aggregate balance of these notes as of March 31, 1996
was $235,000. The Company intends to repay these loans in full prior to the
consummation of the offering. In 1994 the Company loaned Robert Semmer, a former
executive officer of the Company, $253,000, of which $200,000 remained
outstanding as of March 31, 1996. This loan bears interest at an annual rate of
10% and amortizes over five years beginning in June 1996. The Company expects
that this loan will be repaid prior to the closing of this offering.
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Company's Common Stock as of the date of this
Prospectus, as adjusted to reflect the sale of the shares offered by this
Prospectus, by (i) the Selling Shareholder, (ii) each person who is known by the
Company to beneficially own more than five percent of the Company's outstanding
Common Stock, (iii) each of the Company's directors, (iv) each of the Named
Executives, and (v) all current directors and executive officers as a group. 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, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON
STOCK
COMMON STOCK BENEFICIALLY OWNED
COMMON STOCK TO BE SOLD -------------------------
BENEFICIALLY IN THE BEFORE THE AFTER THE
BENEFICIAL OWNERS OWNED OFFERING OFFERING OFFERING
- --------------------------------------------------------- ----------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
R. Luke Stefanko (1)..................................... 5,594,400 -- 84.0% 63.9%
Donald Stine (1)......................................... 666,000 -- 10.0% 7.6%
Robert Semmer............................................ -- -- -- --
Robert Bajorek........................................... 399,600 200,000 6.0% 2.3%
All current directors and executive officers as a group
(2 persons)............................................. 6,260,400 -- 94.0% 71.5%
</TABLE>
The address of each of these shareholders is 6920 Sunset Boulevard, Hollywood,
California 90028.
- ------------------------
(1) Of such shares, 2,644,400 held by Mr. Stefanko and all of Mr. Stine's shares
are pledged to Mr. Bajorek. See "Certain Transactions."
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
At the closing of this offering, the authorized capital stock of the Company
will consist of 50,000,000 shares of Common Stock, without par value, and
5,000,000 shares of Preferred Stock, without par value.
COMMON STOCK
As of April 1, 1996, there were 6,660,000 shares of Common Stock outstanding
held of record by three shareholders. Holders of Common Stock are entitled to
one vote per share on all matters to be voted upon by the shareholders. Subject
to preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available therefore. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all assets remaining after payment of
liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable, and the shares of Common Stock to be outstanding upon completion of
the offering contemplated by this Prospectus will be fully paid and
non-assessable.
PREFERRED STOCK
As of the date of the sale of shares offered by this Prospectus, 5,000,000
shares of Preferred Stock will be authorized and no shares will be outstanding.
The Board of Directors has the authority to issue the shares of Preferred Stock
in one more series and to fix the rights, preferences, privileges and
restrictions granted to or imposed upon any unissued shares of Preferred Stock
and to fix the number of shares constituting any series and the designations of
such series, without any further vote or action by the shareholders. Although it
presently has no intention to do so, the Board of Directors, without shareholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
issuance of Preferred Stock may have the effect of discouraging, delaying, or
preventing a change in control of the Company. The Company has no present plans
to issue any of the Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION AND BY-LAWS
Certain provisions of law and the Company's Articles of Incorporation and
By-laws could make the acquisition of the Company by means of a tender offer, a
proxy contest or otherwise and the removal of incumbent officers and directors
more difficult. These provisions are expected to discourage certain types of
coercive takeover practices and inadequate takeover bids and to encourage
persons seeking to acquire control of the Company to first negotiate with the
Company.
The Company's Articles of Incorporation also provide that so long as the
Company shall have a class of stock registered pursuant to the Exchange Act as
amended, shareholder action can be taken only at an annual or special meeting of
shareholders and may not be taken by written consent. In addition, upon
qualification of the Company as a "listed corporation" as defined in the
California Corporations Code, cumulative voting will be eliminated.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is Chemical Mellon.
36
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company and there is no assurance a significant public market for the Common
Stock will develop or be sustained after the offering. Therefore, future sales
of substantial amounts of Common Stock in the public market could adversely
affect market prices prevailing from time to time. Furthermore, since only a
limited number of shares will be available for sale shortly after this offering
because of certain contractual and legal restrictions on resale (described
below), sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the prevailing
market price and the ability of the Company to raise equity capital in the
future.
Upon completion of this offering, 8,760,000 shares of Common Stock (assuming
no exercise of options to be granted under the 1996 Plan concurrently with the
closing of this offering) will be outstanding. Of these shares, the 2,300,000
shares sold in this offering will be freely tradeable without restriction under
the Securities Act. The remaining 6,460,000 shares of Common Stock held by
existing shareholders are "restricted" securities within the meaning of Rule 144
under the Securities Act. Restricted securities may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rule 144 promulgated under the Securities Act, which rule is summarized below.
All shareholders, officers and directors of the Company have entered into
contractual "lock-up" agreements providing that they will not directly or
indirectly publicly offer, sell, assign, encumber or otherwise transfer or
dispose of any shares of Common Stock of the Company, or any other securities
convertible into or exchangeable for shares of Common Stock into or of the
Company, for 180 days after the effective date of this offering without the
prior written consent of Oppenheimer & Co., Inc. Taking into account the lock-up
agreements, shares will be available for sale in the public market
beginning 180 days after the effective date of this offering. The approximately
6,460,000 remaining restricted shares will not be eligible for sale pursuant to
Rule 144 until the expiration of the applicable two-year holding periods. See
"Underwriting."
In general, under Rule 144 as currently in effect, if two years have elapsed
since the date of acquisition of beneficial ownership of restricted shares of
Common Stock from the Company or any affiliate, the acquiror or subsequent
holder thereof is entitled to sell within any three-month period a number of
such shares that does not exceed the greater of 1% of the then outstanding
shares of the same series of Common Stock or the reported average weekly trading
volume of the Common Stock on national securities exchanges during the four
calendar weeks preceding such sale. Sales under Rule 144 are also subject to
certain provisions regarding the manner of sale, notice requirements and the
availability of current public information about the Company. If three years
have elapsed since the date of acquisition of restricted shares of Common Stock
from the Company or any affiliate and the acquiror or subsequent holder is not
deemed to have been an affiliate of the Company for at least 90 days prior to a
proposed transaction, such person would be entitled to sell such shares under
Rule 144 without regard to the limitations described above.
At May 15, 1996, the Company had reserved 900,000 shares of Common Stock for
issuance pursuant to the 1996 Plan. The Company intends to file a registration
statement on Form S-8 under the Securities Act approximately 90 days after the
date of this Prospectus to register shares to be issued pursuant the 1996 Plan.
Shares of Common Stock issued under the 1996 Plan after the effective date of
such registration statement will be freely tradeable in the public market,
subject to lock-up agreements and, in the case of sales by affiliates, to the
amount, manner of sale, notice and public information requirements of Rule 144.
37
<PAGE>
UNDERWRITING
Subject to the terms and conditions in the Underwriting Agreement among the
Company, the Selling Shareholder and the Underwriters named below, for whom
Oppenheimer & Co., Inc. and Prudential Securities Incorporated are acting as
representatives (the "Representatives"), each of the Underwriters named below
have severally agreed to purchase from the Company and the Selling Shareholder,
and the Company and the Selling Shareholder have agreed to sell to the
Underwriters, the shares of Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Oppenheimer & Co., Inc. ...................................................
Prudential Securities Incorporated.........................................
-----------------
Total.................................................................... 2,300,000
-----------------
-----------------
</TABLE>
Of such shares of Common Stock, 2,100,000 shares are being sold by the
Company and 200,000 shares are being sold by the Selling Shareholder.
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligations is such that they are committed to purchase all of the above shares
of Common Stock if any are purchased.
The Underwriters propose to offer the shares of Common Stock directly to the
public at the public offering price set forth on the cover page of this
Prospectus, and at such price less a concession not in excess of $ per share
to certain dealers, of which a concession not in excess of $ may be
reallowed to certain other dealers. After the public offering, the public
offering price, allowances, concessions, and other selling terms may be changed
by the Representatives.
The Underwriters have advised the Company that they do not intend to confirm
sales of Common Stock offered hereby to accounts over which they exercise
discretionary authority.
The Company has granted to the Underwriters an option, exercisable within 30
days after the date of this Prospectus, to purchase from the Company up to an
aggregate of 345,000 additional shares of Common Stock to cover over-allotments,
if any, at the public offering price less the underwriting discount set forth on
the cover page of this Prospectus. If the Underwriters exercise the
over-allotment option, then each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof as the number of shares of Common Stock to be purchased by
it, as shown on the above table, bears to the 2,300,000 shares of Common Stock
offered hereby. The Company will be obligated, pursuant to the over-allotment
option, to sell such shares to the Underwriters to the extent such over-
allotment option is exercised. The Underwriters may exercise such over-allotment
option only to cover over-allotments made in connection with the sale of the
shares of Common Stock offered hereby.
All of the shareholders, officers and directors of the Company have agreed
that they will not, without the prior written consent of the Representatives,
directly or indirectly, publicly offer, sell, assign, encumber or otherwise
transfer or dispose of any shares of Common Stock, or any other securities
convertible into or exchangeable for shares of Common Stock, until 180 days
after the date of this offering, except for the shares offered hereby, or
pursuant to a will or the laws of interstate succession, provided the transferee
agrees in writing to be bound by such restrictions.
The Company has agreed not to publicly offer, sell, assign, encumber or
otherwise transfer or dispose of any shares of Common Stock, or any securities
convertible into or exchangeable for shares of Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of
Oppenheimer & Co., Inc.; provided, however, that the Company may issue shares or
options to purchase shares of Common
Stock (i) in connection with this offering or the Underwriters' over-allotment
option (ii) pursuant to the 1996 Plan or (iii) in connection with acquisitions
of publicly-held companies.
38
<PAGE>
The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, losses and expenses, including
liabilities under the Securities Act, and to contribute to the payment that the
Underwriters may be required to make in respect thereof.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock offered hereby
will be determined by negotiation between the Company and the Representatives.
The factors to be considered in determining the initial public offering price
will include the history of and prospects for the industry in which the Company
competes, the ability of the Company's management, the past and present
operations of the Company, the historical results of the operations of the
Company, the prospects for future earnings of the Company, the general condition
of the securities markets at the time of the offering, the prices of similar
securities of generally comparable companies and other factors deemed relevant.
The anticipated offering price set forth on the cover page of this
Prospectus should not be considered an indication of the actual value of the
Common Stock. Such price is subject to change as a result of market conditions
and other factors and no assurance can be given that the Common Stock can be
resold at the offering price.
LEGAL MATTERS
The validity of the shares of Common Stock being sold in the offering will
be passed upon for the Company by Kaye, Scholer, Fierman, Hays & Handler, LLP,
Los Angeles, California. Certain legal matters in connection with this offering
will be passed upon for the Underwriters by Schulte Roth & Zabel, New York, New
York.
EXPERTS
The financial statements as of December 31, 1995 and 1994 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and such Common Stock, reference is made
to the Registration Statement and the exhibits and schedules filed as part
thereof. Statements contained in this Prospectus as to the contents of any
contract or any other document referred to are not necessarily complete, and, in
each instance, if such contract or document is filed as an exhibit, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference to such exhibit. A copy of the Registration Statement, and the
exhibits and schedules thereto, may be inspected without charge at the public
reference facilities maintained by the Commission in Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission.
The Company intends to furnish to its shareholders annual reports containing
financial statements audited by independent auditors and quarterly reports
containing unaudited financial data for the first three quarters of each fiscal
year.
39
<PAGE>
VDI MEDIA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants................................ F-2
Balance Sheet at December 31, 1994 and 1995 and March 31, 1996
(Unaudited)..................................................... F-3
Statement of Operations for each of the three years in the period
ended December 31, 1995 and for the (Unaudited) three months
ended March 31, 1995 and 1996................................... F-4
Statement of Shareholders' Equity for each of the three years in
the period ended December 31, 1995 and for the (Unaudited) three
months ended March 31, 1996..................................... F-5
Statement of Cash Flows for each of the three years in the period
ended December 31, 1995 and for the (Unaudited) three months
ended March 31, 1995 and 1996................................... F-6
Notes to Financial Statements.................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of VDI Media
In our opinion, the accompanying balance sheet and the related statements of
operations, of shareholders' equity and of cash flows present fairly, in all
material respects, the financial position of VDI Media at December 31, 1994 and
1995, and the results of its operations and its cash flows for the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 15, 1996
F-2
<PAGE>
VDI MEDIA
BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
---------------------- MARCH 31, 1996
1994 1995 1996 -----------
---------- ---------- ----------- PRO FORMA
(UNAUDITED) (UNAUDITED
NOTE 3)
<S> <C> <C> <C> <C>
Current assets:
Cash................................................................ $ 60,000 $ 415,000 $ 246,000 $ 246,000
Accounts receivable, net of allowances for doubtful accounts of
$103,000 and $284,000, respectively................................ 2,974,000 4,398,000 4,558,000 4,558,000
Amounts receivable from employees (Note 4).......................... 383,000 207,000 227,000 227,000
Inventories......................................................... 252,000 178,000 117,000 117,000
Prepaid expenses and other current assets........................... 28,000 52,000 17,000 17,000
---------- ---------- ----------- -----------
Total current assets.............................................. 3,697,000 5,250,000 5,165,000 5,165,000
Property and equipment, net (Note 5)................................ 4,402,000 3,992,000 3,855,000 3,855,000
Other assets, net................................................... 90,000 98,000 133,000 133,000
---------- ---------- ----------- -----------
$8,189,000 $9,340,000 $9,153,000 $9,153,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $1,763,000 $2,237,000 $1,741,000 $1,741,000
Accrued expenses.................................................... 451,000 843,000 848,000 848,000
Accrued settlement obligation (Note 9).............................. 458,000 41,000
Bank borrowings (Note 6)............................................ 1,644,000 100,000 2,530,000
Current portion of notes payable (Note 7)........................... 524,000 773,000 764,000 764,000
Current portion of subordinated notes payable to related party (Note
7)................................................................. 60,000 30,000 25,000 25,000
Current portion of capital lease obligations (Note 8)............... 126,000 147,000 115,000 115,000
Deferred income taxes............................................... 61,000
---------- ---------- ----------- -----------
Total current liabilities......................................... 5,026,000 4,171,000 3,493,000 6,084,000
---------- ---------- ----------- -----------
Notes payable, less current portion (Note 7).......................... 1,307,000 1,821,000 1,656,000 1,656,000
---------- ---------- ----------- -----------
Subordinated notes payable to related party, less current portion
(Note 7)............................................................. 30,000 225,000 210,000 210,000
---------- ---------- ----------- -----------
Capital lease obligations, less current portion (Note 8).............. 120,000 104,000 97,000 97,000
---------- ---------- ----------- -----------
Commitments and contingencies (Note 9)
Shareholders' equity:
Common stock -- no par value; 33,300,000 shares authorized;
6,660,000 shares issued and outstanding............................ 1,015,000 1,015,000 1,015,000 1,106,000
Retained earnings................................................... 691,000 2,004,000 2,682,000
---------- ---------- ----------- -----------
Total shareholders' equity........................................ 1,706,000 3,019,000 3,697,000 1,106,000
---------- ---------- ----------- -----------
$8,189,000 $9,340,000 $9,153,000 $9,153,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
VDI MEDIA
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues......................................................... $17,044,000 $14,468,000 $18,538,000 $4,233,000 $5,837,000
Cost of goods sold............................................... 10,595,000 9,692,000 11,256,000 2,595,000 3,688,000
----------- ----------- ----------- ---------- ----------
Gross profit..................................................... 6,449,000 4,776,000 7,282,000 1,638,000 2,149,000
Selling, general, and administrative expense..................... 4,290,000 3,895,000 5,181,000 1,124,000 1,373,000
Costs related to establishing a new facility (Note 5)............ 981,000
----------- ----------- ----------- ---------- ----------
Operating income (loss).......................................... 2,159,000 (100,000) 2,101,000 514,000 776,000
Dispute settlement (Note 9)...................................... 458,000
Interest expense................................................. 254,000 284,000 375,000 103,000 70,000
Interest income.................................................. (13,000) (13,000) (42,000) (7,000)
----------- ----------- ----------- ---------- ----------
Income (loss) before income taxes................................ 1,918,000 (829,000) 1,768,000 418,000 706,000
Provision for income taxes....................................... 29,000 26,000 10,000 18,000
----------- ----------- ----------- ---------- ----------
Net income (loss)................................................ $ 1,889,000 $ (829,000) $ 1,742,000 $ 408,000 $ 688,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Unaudited pro forma data (Note 3):
Income (loss) before income taxes.............................. $ 1,918,000 $ (829,000) $ 1,768,000 $ 418,000 $ 706,000
Pro forma provision for (benefit from) income taxes............ 767,000 (332,000) 707,000 167,000 282,000
----------- ----------- ----------- ---------- ----------
Pro forma net income (loss).................................... $ 1,151,000 $ (497,000) $ 1,061,000 $ 251,000 $ 424,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Pro forma net income (loss) per share.......................... $ 0.17 $ (0.07) $ 0.16 $ 0.04 $ 0.06
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
Weighed average number of shares............................... 6,660,000 6,660,000 6,660,000 6,660,000 6,660,000
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
VDI MEDIA
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------- RETAINED SHAREHOLDERS'
SHARES AMOUNT EARNINGS EQUITY
--------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1992..................................... 6,660,000 $ 1,015,000 $ 238,000 $ 1,253,000
Net income....................................................... 1,889,000 1,889,000
Distributions to shareholders.................................... (338,000) (338,000)
--------- ----------- ----------- -------------
Balance at December 31, 1993..................................... 6,660,000 1,015,000 1,789,000 2,804,000
Net loss......................................................... (829,000) (829,000)
Distributions to shareholders.................................... (269,000) (269,000)
--------- ----------- ----------- -------------
Balance at December 31, 1994..................................... 6,660,000 1,015,000 691,000 1,706,000
Net income....................................................... 1,742,000 1,742,000
Distributions to shareholders.................................... (429,000) (429,000)
--------- ----------- ----------- -------------
Balance at December 31, 1995..................................... 6,660,000 1,015,000 2,004,000 3,019,000
Unaudited information:
Net income....................................................... 688,000 688,000
Distributions to shareholders.................................... (10,000) (10,000)
--------- ----------- ----------- -------------
Balance March 31, 1996........................................... 6,660,000 $ 1,015,000 $ 2,682,000 $ 3,697,000
--------- ----------- ----------- -------------
--------- ----------- ----------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
VDI MEDIA
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------- --------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................................. $ 1,889,000 $ (829,000) $ 1,742,000 $ 408,000 $ 688,000
Adjustments to reconcile net income (loss) to net cash provided
by operating activities --
Depreciation and amortization................................ 993,000 1,328,000 1,579,000 388,000 451,000
Provision for doubtful accounts.............................. 43,000 40,000 181,000 22,000 72,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable................. (1,131,000) 12,000 (1,616,000) (861,000) (232,000)
Decrease (increase) in other receivable.................... 51,000 (281,000) 176,000 (13,000) (20,000)
(Increase) decrease in inventories......................... (73,000) 52,000 74,000 (56,000) 61,000
(Increase) in prepaid expenses and current other assets.... (28,000) (24,000) 35,000
(Increase) decrease in other assets........................ (19,000) 39,000 (8,000) 3,000 (35,000)
(Decrease) increase in accounts payable.................... (57,000) 661,000 474,000 (424,000) (496,000)
Increase (decrease) in accrued expenses.................... 307,000 (331,000) 392,000 405,000 5,000
Increase (decrease) in accrued settlement obligation....... 458,000 (417,000) (42,000) (41,000)
----------- ----------- ----------- --------- ---------
Net cash provided by (used in) operating activities...... 2,003,000 1,121,000 2,553,000 (170,000) 488,000
----------- ----------- ----------- --------- ---------
Cash used in investing activities:
Capital expenditures........................................... (1,379,000) (2,071,000) (1,137,000) (49,000) (314,000)
----------- ----------- ----------- --------- ---------
Cash flows from financing activities:
Distributions to shareholders.................................. (338,000) (269,000) (429,000) (69,000) (10,000)
Change in revolving credit agreement........................... (250,000) 1,119,000 (1,544,000) (49,000) (100,000)
Proceeds from notes payable.................................... 387,000 750,000 877,000 13,000
Repayment on notes payable..................................... (192,000) (177,000) (114,000) (146,000) (174,000)
Proceeds from subordinated notes payable to related parties.... 60,000 195,000 284,000
Repayment on subordinated notes payable to related parties..... (122,000) (110,000) (30,000) (20,000)
Repayment on capital lease obligations......................... (180,000) (336,000) (16,000) 126,000 (39,000)
----------- ----------- ----------- --------- ---------
Net cash (used in) provided by financing activities...... (635,000) 977,000 (1,061,000) 159,000 (343,000)
----------- ----------- ----------- --------- ---------
Net (decrease) increase in cash.................................. (11,000) 27,000 355,000 (60,000) (169,000)
Cash at beginning of period...................................... 44,000 33,000 60,000 60,000 415,000
----------- ----------- ----------- --------- ---------
Cash at end of period............................................ $ 33,000 $ 60,000 $ 415,000 $ -- $ 246,000
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid for:
Interest..................................................... $ 274,000 $ 294,000 $ 375,000 $ 103,000 $ 71,000
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
Income tax................................................... $ 5,000 $ 30,000 $ (6,000) $ -- $ --
----------- ----------- ----------- --------- ---------
----------- ----------- ----------- --------- ---------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
VDI Media (the "Company") is a leading provider of broadcast quality video
duplication, distribution and related value added services. The Company's
services consists of (i) the physical and electronic delivery of broadcast
quality advertising, syndicated television programming, electronic press kits
and infomercials to television stations, cable television and other end-users
nationwide, (ii) a broad range of video services, including the duplication of
video in all formats, elements storage, standards conversions, closed captioning
and transcription services, and video encoding for air play verification. The
Company also provides its customers value-added post-production and editing
services. The Company's principal administrative facility is located in
Hollywood, California. Additional duplication and distribution facilities are
located in Culver City, California and Tulsa, Oklahoma.
In April 1996, the Company commenced implementation of a plan to sell a
portion of its common shares in an initial public offering. Prior to the
offering, the Company had elected S Corporation for federal and state income tax
purposes. As a result of the offering, the S Corporation status of the Company
will terminate. Thereafter the Company will pay federal and state income taxes
as a C Corporation (Notes 2 and 3).
On May 15, 1996, the Board of Directors approved a 333-for-1 common stock
split. All share and per share amounts in the accompanying financial statements
have been retroactively restated to reflect this split.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
INTERIM FINANCIAL DATA
The interim financial data is unaudited; however, in the opinion of the
management, the interim data includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results of the
interim periods.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
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.
REVENUES AND RECEIVABLES
The Company records revenues and receivables at the time products are
delivered to customers. Although sales and receivables are concentrated in the
entertainment industry, credit risk is limited due to the financial stability of
the customer base. The Company performs on-going credit evaluations and
maintains reserves for potential credit losses. Such losses have historically
been within management's expectations.
INVENTORIES
Inventories comprise raw materials, principally tape stock, and are stated
at the lower of cost or market. Cost is determined using the average cost
method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for additions and
major improvements are capitalized. Maintenance, repairs and minor renewals are
expensed as incurred. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. Amortization of leasehold
improvements is computed using the straight-line method over the lesser of the
estimated useful lives of the improvements or the remaining lease term. The
estimated useful life of the property and equipment and leasehold improvements
is five years.
F-7
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
The Company has elected to be taxed as an S Corporation for both federal and
state income tax purposes, and, as a result, is not subject to federal taxation
and is subject to state taxation on income at a reduced rate (1.5%). Therefore,
no asset or liability for federal income taxes has been included in the
historical financial statements. The shareholders are liable for individual
federal and state income taxes on their allocated portions of the Company's
taxable income.
The provision for income taxes includes state taxes currently payable and
deferred taxes arising from the expected future tax consequences of temporary
differences between the carrying amount and the tax bases of certain assets and
liabilities, primarily, property, plant and equipment.
Upon completion of the public offering discussed in Note 1, the Company's S
Corporation status for federal and state income tax purposes will terminate.
This will result in the establishment of a net deferred tax liability calculated
at normal federal and state income tax rates, causing a one-time non-cash charge
against earnings for additional income tax expense equal to the amount of the
net change in the deferred tax liability. As of March 31, 1996, the amount of
the current deferred tax liability which would have been recorded had the
Company's S Corporation status terminated on that date was $483,000 (Note 3).
The deferred tax liability comprises certain asset valuation allowances and
excess tax over book depreciation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
To meet the reporting requirements of SFAS No. 107 ("Disclosures about Fair
Value of Financial Instruments"), the Company calculates the fair value of
financial instruments and includes this additional information in the notes to
financial statements when the fair value is different than the book value of
those financial instruments. When the fair value is equal to the book value, no
additional disclosure is made. The Company uses quoted market prices whenever
available to calculate these fair values.
NOTE 3 -- PRO FORMA INFORMATION:
PRO FORMA STATEMENT OF OPERATIONS INFORMATION (UNAUDITED)
As discussed in Note 2, the Company has elected treatment as an S
Corporation for federal and state income tax purposes. Upon completion of the
offering discussed in Note 1, the S Corporation status will terminate. The
accompanying statement of operations includes unaudited pro forma income tax
provisions, using a tax rate of 40%, to reflect the estimated income tax expense
of the Company as if it had been subject to normal federal and state income
taxes for the periods presented.
Pro forma net income per share is calculated using the weighted average
number of common shares outstanding.
PRO FORMA BALANCE SHEET INFORMATION (UNAUDITED)
The pro forma information presented in the accompanying balance sheet as of
March 31, 1996 reflects (i) the distribution by the Company to its shareholders
of its previously taxed and undistributed earnings calculated as of March 31,
1996, which amount is expected to increase based upon the Company's taxable
earnings for the period from April 1, 1996 through the closing date of the
proposed initial public offering and (ii) an increase in the Company's deferred
tax liability of $483,000 calculated in accordance with SFAS 109 as if the
termination of the Company's S corporation status occurred on March 31, 1996
(Note 2).
NOTE 4 -- AMOUNTS RECEIVABLE FROM EMPLOYEES:
Amounts loaned to employees are unsecured and bear interest at rates
approximating 10%.
F-8
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Machinery and equipment............................................... $ 6,233,000 $ 7,146,000
Leasehold improvements................................................ 645,000 742,000
Equipment under capital lease......................................... 538,000 687,000
Vehicles.............................................................. 212,000 210,000
Computer equipment.................................................... 105,000 106,000
----------- -----------
7,733,000 8,891,000
Less: Accumulated depreciation and amortization....................... (3,331,000) (4,899,000)
----------- -----------
$ 4,402,000 $ 3,992,000
----------- -----------
----------- -----------
</TABLE>
Depreciation expense aggregated $993,000, $1,328,000 and $1,579,000 for the
three years in the period ended December 31, 1995, respectively.
In August 1994, the Company established a distribution facility in Tulsa,
Oklahoma. Equipment and leasehold improvements were capitalized. Costs incurred
in establishing this facility, such as employee costs and initial facility
rental and tape stock, were charged against 1994 results of operations.
In March 1994, the Company entered into a noncash exchange of production
equipment with a net book value of $433,000 for substantially similar assets.
NOTE 6 -- BANK LINE OF CREDIT:
The Company has a $2,000,000 revolving credit agreement with a bank. Amounts
available pursuant to this agreement are determined by eligible accounts
receivable, as defined, and are secured by substantially all of the Company's
assets. In addition, repayment of amounts borrowed is guaranteed by the
Company's shareholders. Interest accrues at the London Interbank Offering Rate
(LIBOR) (5.69% at December 31, 1995) plus 2.25%. The terms of the revolving
credit agreement include covenants regarding the maintenance of various
financial ratios. The Company was in compliance with these covenants as of
December 31, 1995. The revolving credit agreement expires on June 30, 1996. The
Company is in the process of negotiating a new agreement with the bank.
NOTE 7 -- LONG-TERM DEBT AND NOTES PAYABLE:
TERM LOAN
The Company also has a $2,825,000 term loan with a bank which is secured by
the assets of the Company. The term loan is to be repaid in monthly installments
of principal and interest through July 2000. Interest accrues at LIBOR plus
2.5%. The terms of the loan agreement include covenants regarding the
maintenance of various financial ratios. The Company was in compliance with
these covenants as of December 31, 1995.
F-9
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- LONG-TERM DEBT AND NOTES PAYABLE: (CONTINUED)
SUBORDINATED NOTES PAYABLE TO RELATED PARTY
Subordinated notes payable comprise the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
-------- --------
<S> <C> <C>
Note payable, unsecured, payable in December 1998 along with interest
accrued at a rate of 13%............................................. $225,000
Note payable, unsecured, bearing interest at 9% per annum, payable in
monthly installments of $5,000....................................... $ 90,000 30,000
-------- --------
90,000 255,000
Less current portion.................................................. (60,000) (30,000)
-------- --------
$ 30,000 $225,000
-------- --------
-------- --------
</TABLE>
The subordinated notes arise from an agreement between the Company and a
relative of one of the Company's principal stockholders. Such notes payable are
subordinated to amounts borrowed under the revolving credit agreement and term
loan. Interest expense aggregated $21,000, $13,000 and $20,000 for the three
years in the period ended December 31, 1995, respectively.
EQUIPMENT FINANCING
The Company has financed the purchase of certain equipment through the
issuance of notes payable. Certain of these notes bear interest at rates ranging
from 11.5% to 12.0% and are payable in monthly installments through August 1996.
Certain other notes are also payable in monthly installments through September
1997, however, such notes do not contain a stated interest rate. For financial
statement presentation purposes, interest has been imputed at rates ranging from
10.1% to 12.5%.
Annual maturities for all long-term debt and notes payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------
<S> <C>
1996........................................................... $ 803,000
1997........................................................... 948,000
1998........................................................... 547,000
1999........................................................... 447,000
2000........................................................... 104,000
----------
$2,849,000
----------
----------
</TABLE>
F-10
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- CAPITAL LEASE OBLIGATIONS:
The Company leases certain equipment under capital lease arrangements.
Future minimum lease commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------
<S> <C>
1996........................................................... $ 163,000
1997........................................................... 37,000
1998........................................................... 37,000
1999........................................................... 37,000
2000........................................................... 9,000
---------
283,000
Less: Amount representing interest.................................... (32,000)
---------
Present value of future minimum lease payments........................ 251,000
Less: Current portion................................................. (147,000)
---------
Long-term portion..................................................... $ 104,000
---------
---------
</TABLE>
NOTE 9 -- COMMITMENTS AND CONTINGENCIES:
The Company leases office and production facilities in California and
Oklahoma under operating leases which expire in May and July 1999, respectively.
The Oklahoma lease provides for a renewal option of five years; the California
lease has no renewal option. Approximate minimum annual rentals under these
noncancellable operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
---------------------------
<S> <C>
1996........................................................... $ 553,000
1997........................................................... 553,000
1998........................................................... 553,000
1999........................................................... 244,000
----------
Total.......................................................... $1,903,000
----------
----------
</TABLE>
Total rental expense was approximately $396,000, $447,000 and $595,000 for
the three years in the period ended December 31, 1995, respectively.
In February 1995, the Company settled a dispute arising out of the asset
exchange described in Note 5. In consideration of a mutual release from further
liability, including threatened litigation, the Company paid $458,000. This
amount has been recorded as of December 31, 1994, as the agreement represents
the culmination of events occurring prior to that date.
In March 1994, the Company entered into a five year agreement with a
telecommunications company to provide access to its fiber optic network. The
Company utilizes this network to deliver audio and video products to its
customers. In consideration for access to the fiber optic network, the Company
shares 50% of revenues arising from point to multi-point delivery services
utilizing this network with the telecommunications company. No such revenues
have been earned pursuant to this agreement as of December 31, 1995.
NOTE 10 -- SALES TO MAJOR CUSTOMERS:
For the year ended December 31, 1993, sales to two customers amounted to
$2,686,000 and $1,775,000. Sales to a single customer amounted to $1,735,000 and
$2,066,000 for the years ended December 31, 1994 and 1995, respectively.
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION:
As described in Note 5, the Company engaged in a noncash exchange of assets.
F-11
<PAGE>
VDI MEDIA
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 -- SUPPLEMENTAL CASH FLOW INFORMATION: (CONTINUED)
The Company has financed the acquisition of certain equipment through
capital lease obligations. For the year ended December 31, 1995, assets
aggregating $149,000 were acquired.
NOTE 12 -- SUBSEQUENT EVENTS:
Effective April 1, 1996, the Company's co-founder and chief executive
officer purchased 2,264,400 shares of common stock of the Company from its
co-founder for total consideration of approximately $5.1 million. In order to
effect this transaction, the chief executive officer borrowed $1.1 million from
the Company and issued notes payable in the amount of approximately $4 million.
This note is to be repaid in April 2006 and bears interest at a rate of 4.5%.
This note is secured by the common stock purchased.
Concurrently, the co-founder agreed to sell 666,000 shares of common stock
of the Company to the Company's chief financial officer. In exchange, the chief
financial officer also executed a note payable to the co-founder in the amount
of $1.6 million; the terms of the chief financial officer's note are identical
to those issued by the chief executive officer. These notes also contain
acceleration provisions which require that the chief executive officer and chief
financial officer prepay one-half of the proceeds from the sale of any of such
shares of common stock or the sale of substantially all of the assets of VDI.
The chief executive officer expects to repay amounts borrowed from the
Company with the proceeds from a final S Corporation distribution and future
borrowings collateralized by their common stock holdings.
In May 1996, the Board of Directors approved the 1996 Stock Incentive Plan.
The Plan provides for the award of options to purchase up to 900,000 shares of
the Company's common stock, as well as stock appreciation rights, performance
share awards and restricted stock awards.
The Board has also authorized the issuance of up to 5,000,000 shares of
preferred stock. The voting rights, liquidation preferences and other privileges
inuring to the benefit of preferred stockholders have not yet been established.
As of May 15, 1996, no such shares had been issued.
F-12
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................................... 3
Risk Factors.......................................... 7
The Company........................................... 11
Use of Proceeds....................................... 11
Dividend Policy....................................... 12
Capitalization........................................ 13
Dilution.............................................. 14
Selected Financial Data............................... 15
Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 17
The Industry.......................................... 22
Business.............................................. 25
Management............................................ 31
Certain Transactions.................................. 35
Principal and Selling Shareholders.................... 35
Description of Capital Stock.......................... 36
Shares Eligible for Future Sale....................... 37
Underwriting.......................................... 38
Legal Matters......................................... 39
Experts............................................... 39
Additional Information................................ 39
Index to Financial Statements......................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
2,300,000 SHARES
VDI MEDIA
[LOGO]
COMMON STOCK
-----------------
P R O S P E C T U S
-----------------
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the offering of the Common Stock being
registered herein are estimated as follows:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 11,857
Legal fees and expenses........................................... 240,000
NASD filing fees.................................................. 3,939
Accounting fees and expenses...................................... 185,000
Blue sky fees and expenses........................................ 10,000
Printing.......................................................... 90,000
Transfer agent fee................................................ 9,000
Nasdaq listing fee................................................ 39,400
Miscellaneous..................................................... 10,904
---------
Total........................................................... $ 600,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 317(b) of the California Corporations Code (the "Corporations Code")
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any "proceeding" (as defined in Section 317(a)
of the Corporations Code), other than an action by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person is or was a director, officer, employee or other agent of the corporation
(collectively, an "Agent"), against expenses, judgments, fines, settlements and
other amounts actually and reasonably incurred in connection with such
proceeding if the Agent acted in good faith and in a manner the Agent reasonably
believed to be in the best interest of the corporation and, in the case of a
criminal proceeding, had no reasonable cause to believe the conduct was
unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person is or was an Agent, against expenses actually and reasonably
incurred by the Agent in connection with the defense or settlement of such
action if the Agent acted in good faith and in a manner such Agent believed to
be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any matter as to which an
Agent shall have been adjudged to be liable to the corporation, unless the court
in which such proceeding is or was pending shall determine that such Agent is
fairly and reasonably entitled to indemnity for expenses (ii) of amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval.
Section 317(d) of the Corporations Code requires that an Agent be
indemnified against expenses actually and reasonably incurred to the extent the
Agent has been successful on the merits in the defense of proceedings referred
to in subdivisions(b) or (c) of Section 317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct, by any of the following: (i) a majority vote of a quorum consisting of
directors who are not parties to the proceeding, (ii) if such a quorum of
directors is not obtainable, by independent legal counsel in a written opinion,
(iii) approval of the shareholders, provided that any shares owned by the Agent
may not vote thereon, or (iv) the court in which such proceeding is or was
pending.
II-1
<PAGE>
Pursuant to Section 317(f) of the Corporations Code, the corporation may
advance expenses incurred in defending any proceeding upon receipt of an
undertaking by the Agent to repay such amount if it is ultimately determined
that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or any agreement which prohibits or otherwise limits indemnification, or where
it would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain insurance
on behalf of an Agent for liabilities arising by reason of the Agents' status,
whether or not the corporation would have the power to indemnify the Agent
against such liability under the provisions of Section 317.
Reference is also made to Section 8 of the Underwriting Agreement between
the Representatives, the Selling Shareholder and the Registrant (see Exhibit
1.1), which provides for indemnification of the Registrant under certain
circumstances.
Article III of the Restated Articles of Incorporation of the Registrant
provides for the indemnification of the officers and directors of the Registrant
to the fullest extent permissible under California law.
In addition, Article IV of the Bylaws of the Registrant authorizes the
Registrant to enter into agreements with agents of the Registrant providing for
or permitting indemnification in excess of that permitted under Section 317 of
the Corporations Code, to the extent permissible under California law, and to
purchase and maintain insurance to the extent provided by Section 3.17(i).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of VDI Media (formerly, VDI)
3.2 By-laws of VDI Media
4.1* Specimen Certificate for Common Stock
4.2* 1996 Stock Incentive Plan of VDI Media
5.1* Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP with respect to legality
10.1* Employment Agreement between VDI Media and Luke Stefanko
10.2* Employment Agreement between VDI Media and Donald Stine
10.3* Employment Agreement between VDI Media and Eric Bershon
10.4* Employment Agreement between VDI Media and Dolly Rosell
10.5 Revolving Credit Agreement between VDI Media (formerly, VDI) and Union Bank dated
June 30, 1994.
10.6* Joint Operating Agreement effective as of March 1, 1994, between VDI Media
(formerly, VDI) and VyVx, Inc.
10.7 Lease Agreement between VDI Media (formerly, VDI) and 6920 Sunset Boulevard
Associates dated May 17, 1994 (Hollywood facility).
10.8 Lease Agreement between VDI Media (formerly, VDI) and 3767 Overland Associates,
LTD dated April 25, 1996 (West Los Angeles facility).
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.9 Lease Agreement between VDI Media (formerly, VDI) and The Bovaird Supply Company
dated June 3, 1994 (Tulsa facility).
10.10 Loan Agreement between VDI Media (formerly, VDI) and R. Luke Stefanko dated as of
April 1, 1996.
10.12* Term Loan Agreement between VDI Media (formerly, VDI) and Union Bank.
23.1* Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (included on page II-4)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
b. Financial Statement Schedules:
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing date specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to provide prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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 Act and is therefore unenforceable In the event that a claim
for indemnification against such liabilities (other than payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of such 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 Act and will
be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement 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 Act will be deemed to be part of this registration statement as of the
time it was declared effective.
(d) For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus will be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time will be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles and State of
California, on the 17th day of May, 1996.
VDI MEDIA
By /s/ DONALD R. STINE
------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that, the undersigned directors and officers
of VDI Media, a California corporation (the "Corporation"), hereby constitute
and appoint R. Luke Stefanko and Donald Stine, each with full power of
substitution and resubstitution, their true and lawful attorneys and agents to
sign the names of the undersigned directors and officers in the capacities
indicated below to the registration statement to which this Power of Attorney is
filed as an exhibit, and all amendments (including post-effective amendments)
and supplements thereto, and all instruments or documents filed as a part
thereof or in connection therewith, and to file the same, with all exhibits
thereto, and all other instruments or documents in connection therewith, with
the Securities and Exchange Commission; and each of the undersigned hereby
ratifies and confirms all that said attorneys, agents, or any of them, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
NAME TITLE DATE
- ----------------------------------- ------------------------- --------------
/s/ R. LUKE STEFANKO Chief Executive Officer,
- ----------------------------------- President Chairman of May 17, 1996
R. Luke Stefanko the Board and Director
Chief Financial Officer,
/s/ DONALD R. STINE Director
- ----------------------------------- (principal financial May 17, 1996
Donald R. Stine officer)
II-4
<PAGE>
EXHIBIT 10.10
Entered into this 1st day of April, 1996.
Luke Stefanko and VDI hereby enter into an agreement whereby Luke Stefanko
will borrow $1,200,000 one million two hundred thousand dollars secured by this
note agreement and subject to the following terms:
<TABLE>
<C> <S> <C>
-- Amount $1,200,000
-- Term 5 years*
Interest 6%
-- Rate
</TABLE>
* Or, if earlier, the date (A) VDI enters into an agreement to offer securities
for sale to the public markets, or (B) the date VDI distributes previously
taxed and unpaid distributions to its shareholders, in which case this loan
shall become due and payable within 30 days thereafter.
Luke Stefanko agrees that this loan is subject to all terms, conditions and
covenants which have been previously imposed on VDI by its creditors.
<TABLE>
<S> <C>
/s/ R. LUKE STEFANKO
R. Luke Stefanko
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. TITLE
- ------------- ----------------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation of VDI Media (formerly, VDI)
3.2 By-laws of VDI Media (formerly, VDI)
4.1* Specimen Certificate for Common Stock
4.2* 1996 Stock Incentive Plan of VDI Media
5.1* Opinion of Kaye, Scholer, Fierman, Hays & Handler, LLP with respect to legality
10.1* Employment Agreement between VDI Media and Luke Stefanko
10.2* Employment Agreement between VDI Media and Donald Stine
10.3* Employment Agreement between VDI Media and Eric Bershon
10.4* Employment Agreement between VDI Media and Dolly Rosell
10.5 Revolving Credit Agreement between VDI Media (formerly, VDI) and Union Bank dated June 30,
1994
10.6* Joint Operating Agreement, effective as of March 1, 1994, between VDI (formerly, VDI) and
VyVx, Inc.
10.7 Lease Agreement between VDI Media (formerly, VDI) and 6920 Sunset Boulevard Associates dated
May 17, 1994 (Hollywood facility)
10.8 Lease Agreement between VDI Media (formerly, VDI) and 3767 Overland Associates, Ltd. dated
April 25, 1996
(West Los Angeles facility)
10.9 Lease Agreement between VDI Media (formerly, VDI) and The Bovaird Supply Company dated June 3,
1994 (Tulsa facility)
10.10 Loan Agreement between VDI Media and R. Luke Stefanko dated as of April 1, 1996
10.12* Term Loan Agreement between VDI Media (formerly, VDI) and Union Bank
23.1* Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP (included in Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP
24.1 Power of Attorney (included on page II-4)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
EXHIBIT 1.1
[2,200,000] Shares
VDI Media
Common Stock
UNDERWRITING AGREEMENT
________ __, 1996
Oppenheimer & Co., Inc.
Prudential Securities Incorporated
c/o Oppenheimer & Co., Inc.
Oppenheimer Tower
World Financial Center
New York, New York 10281
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
VDI Media, a California corporation (the "Company"), and the selling
shareholder named on Schedule II to this Agreement (the "Selling
Shareholder") propose to sell to you and the other underwriters named on
Schedule I to this Agreement (the "Underwriters"), for whom you are acting as
Representatives, an aggregate of [2,200,000] shares (the "Firm Shares") of
the Company's Common Stock, no par value (the "Common Stock"). Of the
[2,200,000] Firm Shares, [2,100,000] are to be issued and sold by the Company
and [100,000] are to be sold by the Selling Shareholder. In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional [315,000] shares (the "Option Shares") of Common Stock from it
solely for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
-1-
<PAGE>
1. SALE AND PURCHASE OF THE SHARES. On the basis of the
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company and the Selling Shareholder agree, severally and
not jointly, to sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase, at $[ ]
per share (the "Initial Price"), the total number of Firm Shares
(adjusted by the Representatives to eliminate fractions) which bears
the same proportion to the number of Firm Shares to be sold by the
Company or the Selling Shareholder, as the case may be, as the number
of Firm Shares set forth opposite the name of such Underwriter on
Schedule I to this Agreement bears to the total number of Firm Shares
to be sold by the Company and the Selling Shareholder.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be
purchased by each Underwriter shall be the same percentage (adjusted by
the Representatives to eliminate fractions) of the total number of
Option Shares to be purchased by the Underwriters as such Underwriter
is purchasing of the Firm Shares. Such option may be exercised only to
cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date (as defined below), and only once thereafter
within 30 days after the date of this Agreement, in each case upon
written or facsimile notice, or verbal or telephonic notice confirmed
by written or facsimile notice, by the Representatives to the Company
no later than 12:00 noon, New York City time, on the business day
before the Firm Shares Closing Date or at least two business days
before the Option Shares Closing Date (as defined below), as the case
may be, setting forth the number of Option Shares to be purchased and
the time and date (if other than the Firm Shares Closing Date) of such
purchase.
2. DELIVERY AND PAYMENT. Delivery of the certificates for the Firm
Shares shall be made by the Company and the Custodian (as hereinafter
defined) on behalf of the Selling Shareholder to the Representatives for the
respective accounts of the Underwriters, and payment of the purchase price by
certified or official bank check or checks payable in New York Clearing House
(next day) funds to the Company and the Custodian, shall take place at the
offices of Oppenheimer & Co., Inc., at Oppenheimer Tower, World Financial
Center, New York, New York 10281, at 10:00 a.m., New York City time, on the
third business day following the date of this Agreement; provided, however,
that if the Shares
-2-
<PAGE>
sold hereunder are priced and this Agreement is entered into after 4:30 p.m.,
New York City time, on any business day, payment and delivery in respect of
the Firm Shares shall take place on the fourth business day following the
date of this Agreement; in either case unless some other time shall be agreed
upon by the Company, the Selling Shareholder and the Representatives (such
time and date of delivery and payment are called the "Firm Shares Closing
Date").
In the event the option with respect to the Option Shares is exercised,
delivery of the certificates for the Option Shares shall be made by the
Company to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price by certified or official bank
check or checks payable in New York Clearing House (next day) funds to the
Company shall take place at the offices of Oppenheimer & Co., Inc. specified
above at the time and on the date (which may be the same date as, but in no
event shall be earlier than, the Firm Shares Closing Date) specified in the
notice referred to in Section 1(b) (such time and date of delivery and
payment are called the "Option Shares Closing Date"). The Firm Shares
Closing Date and the Option Shares Closing Date are called, individually, a
"Closing Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking
and packaging, at such place as is designated by the Representatives, on the
business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
Company has prepared in conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a registration statement on Form (No.
333-[ ]), including a preliminary prospectus relating to the Shares, and
has filed with the Commission the Registration Statement (as hereinafter
defined) and such amendments thereof as may have been required to the date of
this Agreement. Copies of such Registration Statement (including all
amendments thereof) and of the related preliminary prospectus have heretofore
been delivered by the Company to you. The term "preliminary prospectus"
means the preliminary prospectus (as described in Rule 430 of the Rules)
included at any time as a part of the Registration Statement or filed with
the Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules. The Registration Statement, as amended
at the time and on the date it becomes effective (the "Effective Date"),
including all exhibits and information, if
-3-
<PAGE>
any, deemed to be part of the Registration Statement pursuant to Rule 424(b)
and Rule 430A of the Rules, is called the "Registration Statement." The term
"Prospectus" means the prospectus in the form first used to confirm sales of
the Shares (whether such prospectus was included in the Registration
Statement at the time of effectiveness or was subsequently filed with the
Commission pursuant to Rule 424(b) of the Rules). If the Company files a
registration statement to register a portion of the Shares and relies on Rule
462(b) for such registration statement to become effective upon filing with
the Commission (the "Rule 462(b) Registration Statement"), then any reference
to the "Registration Statement" herein shall be deemed to include both the
registration statement referred to above (No. 333-[ ]) and the Rule
462(b) Registration Statement, as each such registration statement may be
amended pursuant to the Securities Act.
The Company and the Selling Shareholder understand that the Underwriters
propose to make a public offering of the Shares, as set forth in and pursuant
to the Prospectus, as soon after the Effective Date and the date of this
Agreement as the Representatives deem advisable. The Company and the Selling
Shareholder hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each preliminary
prospectus and are authorized to distribute the Prospectus (as from time to
time amended or supplemented if the Company furnishes amendments or
supplements thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement and
all other registration statements and reports filed with the Commission
by the Company complied, and on the date of the Prospectus, on the date
any post-effective amendment to the Registration Statement shall become
effective, on the date any supplement or amendment to the Prospectus is
filed with the Commission, at all times that a prospectus must be
delivered by the Underwriters pursuant to the Securities Act and on
each Closing Date, the Registration Statement, the Prospectus (and any
amendment thereof or supplement thereto) and all other registration
statements and reports filed with the Commission by the Company will
comply, in all material respects, with the applicable provisions of the
Securities Act and the Rules and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and the rules and regulations of the
Commission thereunder; the Registration Statement did not, as of the
Effective Date, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading; and on the
other dates referred to above neither the Registration Statement nor
the Prospectus, nor any
-4-
<PAGE>
amendment thereof or supplement thereto, will contain any untrue statement
of a material fact or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. When any related preliminary prospectus was first filed with
the Commission (whether filed as part of the Registration Statement or
any amendment thereto or pursuant to Rule 424(a) of the Rules) and when
any amendment thereof or supplement thereto was first filed with the
Commission, such preliminary prospectus as amended or supplemented
complied in all material respects with the applicable provisions of
the Securities Act and the Rules and did not contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements
therein not misleading. Notwithstanding the foregoing, the Company
makes no representation or warranty as to the last paragraph of the
cover page of the Prospectus, the paragraph with respect to
stabilization on the inside front cover page of the Prospectus and the
statements contained under the caption "Underwriting" in the Prospectus
(to the extent such statements relate to the Underwriters). The Company
acknowledges that the statements referred to in the previous sentence
constitute the only information furnished in writing by the
Representatives on behalf of the several Underwriters specifically for
inclusion in the Registration Statement, any preliminary prospectus or
the Prospectus.
(b) The consolidated financial statements of the Company
(including all notes and schedules thereto) included in the
Registration Statement and Prospectus comply as to form in all material
respects with the requirements of the Securities Act and the Exchange
Act and present fairly on a consolidated basis the financial position,
the results of operations and cash flows and the shareholders' equity
and the other information purported to be shown therein of the Company
at the respective dates and for the respective periods to which they
apply; and such financial statements have been prepared in conformity
with generally accepted accounting principles, consistently applied
throughout the periods involved, and all adjustments necessary for a
fair presentation of the results for such periods have been made; and
the other financial and statistical information and the supporting
schedules included in the Prospectus and in the Registration Statement
present fairly, in all material respects, the information required to
be stated therein.
(c) Price Waterhouse LLP, whose report is filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants
as required by the Securities Act and the Rules.
-5-
<PAGE>
(d) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State
of California. The Company has no subsidiary or subsidiaries and does
not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization. The Company
is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its business
makes such qualification necessary, except for such jurisdictions where
the failure to so qualify would not have a material adverse effect on
the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company. Except as disclosed
in the Registration Statement and the Prospectus, the Company does not
own, lease or license any asset or property or conduct any business
outside the United States of America. The Company has all requisite
power and authority, and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits of and from all
governmental or regulatory bodies, including without limitation the
Federal Communications Commission, or any other person or entity, to
own, lease and license its assets and properties and conduct its
businesses as now being conducted and as described in the Registration
Statement and the Prospectus, except for such authorizations,
approvals, consents, orders, licenses, certificates and permits the
failure to so obtain would not have a material adverse effect upon the
assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company; no such
authorization, approval, consent, order, license, certificate or permit
contains a materially burdensome restriction other than as disclosed in
the Registration Statement and the Prospectus; and the Company has all
such corporate power and authority, and such authorizations, approvals,
consents, orders, licenses, certificates and permits to enter into,
deliver and perform this Agreement and to issue and sell the Shares to
be issued and sold by the Company (except as may be required under the
Securities Act and state and foreign Blue Sky laws).
(e) Neither the Commission nor the Blue Sky or securities
authorities of any jurisdiction has issued an order suspending the
effectiveness of the Registration Statement, preventing or suspending
the use of any preliminary prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to permit
the effectiveness of the Registration Statement or suspending the
registration or qualification of the Shares, nor has any of such
authorities instituted or threatened to institute any proceedings with
respect to such an order in any jurisdiction in which the Shares are to
be sold.
-6-
<PAGE>
(f) The Company owns, or possesses adequate and enforceable
rights to use, all licenses or other rights to use, all patents,
trademarks, trademark applications, trade names, service marks,
copyrights, copyright applications, technology, know-how and other
similar rights and proprietary knowledge (collectively, "Intangibles")
necessary for the conduct of its business as described in the
Registration Statement and the Prospectus. The Company has not
received any notice of, or is not aware of, any infringement of or
conflict with asserted rights of others with respect to any Intangibles
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would have a material adverse effect upon
the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company, taken as a whole.
Except as set forth in the Registration Statement or the Prospectus,
the discoveries, inventions, products or processes of the Company
referred to in the Registration Statement or the Prospectus do not
infringe or conflict with any right or patent of any third party, or
any discovery, invention, product or process which is the subject of a
patent application filed by any third party which would have a material
adverse effect on the Company.
(g) The Company has good title to each of the items of real
and personal property which are reflected in the financial statements
referred to in Section 4(b) or are referred to in the Registration
Statement and the Prospectus as being owned by it and valid and
enforceable leasehold interests in each of the items of real and
personal property which are referred to in the Registration Statement
and the Prospectus as being leased by it, in each case free and clear
of all liens, encumbrances, claims, security interests and defects,
other than those described in the Registration Statement and the
Prospectus and those which do not and will not have a material adverse
effect upon the assets or properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company.
(h) There is no litigation or governmental or other
proceeding or investigation before any court or before or by any public
body or board pending or, to the knowledge of the Company, threatened
(and the Company does not know of any basis therefor) against, or
involving the assets, properties or business of, the Company which
would materially adversely affect the value or the operation of any
such assets or properties or the business, results of operations,
prospects or condition (financial or otherwise) of the Company, which
would prevent the consummation of the transactions contemplated by this
Agreement or is required to be disclosed in the Prospectus.
-7-
<PAGE>
(i) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
except as described therein, (i) there has not been any material
adverse change in the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the
Company, whether or not arising from transactions in the ordinary
course of business; (ii) the Company has not sustained any material
loss or interference with its assets, businesses or properties (whether
owned or leased) from fire, explosion, earthquake, hurricane, flood or
other calamity, whether or not covered by insurance, or from any labor
dispute or any court or legislative or other governmental action, order
or decree; and (iii) since the date of the latest balance sheet
included in the Registration Statement and the Prospectus, except as
reflected therein, the Company has not (A) issued any securities or
incurred any liability or obligation, direct or contingent, for
borrowed money, except such liabilities or obligations incurred in the
ordinary course of business, (B) entered into any transaction not in
the ordinary course of business or (C) declared or paid any dividend or
made any distribution on any shares of its stock or redeemed, purchased
or otherwise acquired or agreed to redeem, purchase or otherwise
acquire any shares of its stock or other securities.
(j) There is no document or contract of a character required
to be described in the Registration Statement and the Prospectus or to
be filed as an exhibit to the Registration Statement which is not
described or filed as required. Each agreement to which the Company is
a party which is described in the Prospectus or is filed as an Exhibit
to the Registration Statement is in full force and effect and is valid
and enforceable by and against the Company, in accordance with its
terms, assuming the due authorization, execution and delivery thereof
by each of the other parties thereto. Neither the Company, nor, to the
best knowledge of the Company, any other party is in default in the
observance or performance of any term or obligation to be performed by
it under any such agreement, and no event has occurred which with
notice or lapse of time or both would constitute such a default, in any
such case which default or event would have a material adverse effect
on the assets or properties, business, results of operations, prospects
or condition (financial or otherwise) of the Company. No default
exists, and no event has occurred which with notice or lapse of time or
both would constitute a default, in the due performance and observance
of any term, covenant or condition, by the Company of any other
agreement or instrument to which the Company is a party or by which it
or its properties or business may be bound or affected which default or
event would have a material adverse effect on the assets or properties,
business, results of operations, prospects or condition (financial or
otherwise) of the Company.
-8-
<PAGE>
(k) The Company is not in violation of any term or provision
of its charter or by-laws, or of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation, where the
consequences of such violation would have a material adverse effect on
the assets or properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company.
(l) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation, the
issuance and sale by the Company of the Shares) will give rise to a
right to terminate or accelerate the due date of any payment due under,
or conflict with or result in the breach of any term or provision of,
or constitute a default (or an event which with notice or lapse of time
or both would constitute a default) under, or require any consent or
waiver under, or result in the execution or imposition of any lien,
charge or encumbrance upon any properties or assets of the Company
pursuant to the terms of, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party or by
which the Company or any of its properties or businesses is bound, or
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation applicable to the Company or violate any provision of the
Articles of Incorporation or By-laws of the Company except for such
consents or waivers which have already been obtained and are in full
force and effect.
(m) The Company has authorized and outstanding capital stock
as set forth under the captions "Capitalization" and "Description of
Capital Stock" in the Prospectus. All of the outstanding shares of
Common Stock, no par value, have been duly and validly issued and are
fully paid and nonassessable and none of them was issued in violation
of any preemptive or other similar right. The Shares, when issued and
sold by the Company pursuant to this Agreement, will be duly and
validly issued, fully paid and nonassessable and none of them will be
issued in violation of any preemptive or other similar right. Except
as disclosed in the Registration Statement and the Prospectus, there is
no outstanding option, warrant or other right calling for the issuance
of, and there is no commitment, plan or arrangement to issue, any share
of stock of the Company, or any security convertible into, or
exercisable or exchangeable for, such stock. The Common Stock and the
Shares conform in all material respects to all statements in relation
thereto contained in the Registration Statement and the Prospectus.
(n) Except as described in the Registration Statement and
the Prospectus, no holder of any security of the Company has the right
to have any security owned by such
-9-
<PAGE>
holder included in the Registration Statement or to demand registration
of any security owned by such holder during the period ending 180 days
after the date of this Agreement.
(o) Each Shareholder listed on Schedule III hereto, director
and executive officer of the Company has delivered to the
Representatives his or her enforceable written agreement that, except,
in the case of the Selling Shareholder, for the sale of the Shares to
be sold by the Selling Shareholder pursuant to the Registration
Statement, he or she will not, for a period of 180 days after the date
of this Agreement, directly or indirectly, offer, sell (including
"short sales"), assign, encumber or otherwise transfer or dispose of
(collectively, "Transfer"), or contract to Transfer, any shares of
Common Stock, or any other securities convertible into or exchangeable
for shares of Common Stock, or any other equity securities of the
Company owned by him or her, without the prior written consent of the
Representatives, except for (i) sales to the several Underwriters
pursuant to this Agreement or (ii) pursuant to will or the laws of
intestate succession, provided the transferee agrees in writing to be
bound by such restrictions.
(p) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares.
This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except (i) as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles and
(ii) to the extent that rights to indemnity or contribution under this
Agreement may be limited by Federal and state securities laws or the
public policy underlying such laws.
(q) The Company is not involved in any labor dispute nor, to
the knowledge of the Company, is any such dispute threatened, which
dispute would have a material adverse effect on the assets or
properties, business, results of operations, prospects or condition
(financial or otherwise) of the Company; and the Company is not aware
of any existing or imminent labor disturbances by the employees of any
of its principal suppliers, manufacturers or contractors which would
have a material adverse effect on the assets or properties, business,
results of operations, prospects or condition (financial or otherwise)
of the Company.
-10-
<PAGE>
(r) No transaction has occurred between or among the Company
and any of its officers, directors or shareholders or any affiliate or
affiliates of any such officer, director or shareholder, that is
required to be described in and is not described in the Registration
Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of
any of the Shares.
(t) The Company has filed all Federal, state, local and
foreign tax returns which are required to be filed through the date
hereof, or has received valid extensions thereof, and has paid all
taxes shown on such returns and all assessments received by it to the
extent that the same are material and have become due.
(u) The Shares have been duly authorized for quotation on
the National Association of Securities Dealers, Inc. Automated
Quotation ("Nasdaq") National Market.
(v) The Company has complied with all of the requirements
and filed the required forms as specified in Florida Statutes Section
517.075.
(w) The Company is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for,
an "investment company," as each such term is defined in the Investment
Company Act of 1940, as amended.
(x) The Company is insured by insurers of recognized
financial responsibility against such losses and risks and in such
amounts as are customary in the business in which it is engaged; and
the Company has no reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition (financial or otherwise), business prospects, net
worth or results of operations of the Company, except as described in
or contemplated by the Prospectus.
(y) The Company has not, directly or indirectly, paid or
delivered any fee, commission or other sum of money or item of
property, however characterized, to any
-11-
<PAGE>
finder, agent, government official or other party, in the United States
or any other country, which is in any manner related to the business
or operations of the Company, which the Company knows or has reason
to believe have been illegal under any federal, state or local laws
of the United States or any other country having jurisdiction; and
the Company has not participated, directly or indirectly, in any
boycotts or other similar practices in contravention of law
affecting any of its actual or potential customers.
(z) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the accounting
records for assets are compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(aa) The Company (i) is in compliance with any and all
applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment
or hazardous or toxic substances or wastes, pollutants or contaminants
(collectively, "Environmental Laws"), (ii) has received all permits,
licenses or other approvals required under applicable Environmental
Laws to conduct business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the
terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on the
Company.
(bb) The Company meets, and on the Effective Date of the
Registration Statement and on each Closing Date will meet, the
conditions for use of Form S -1 under the Securities Act and the Rules.
5. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDER. The
Selling Shareholder represents and warrants to each Underwriter that:
(a) Such Selling Shareholder is, and on each Closing Date
will be, the sole lawful owner of the Shares to be sold by it
hereunder, and has, and on such date will have, good title to the
Shares to be sold by such Selling Shareholder hereunder, free and clear
of any lien, charge, claim, encumbrance, security interest,
Shareholders'
-12-
<PAGE>
agreement, voting trust, restriction on transfer or other defect
in title, provided that all restrictions on the sale of the
Shares as contemplated hereby have been waived and the purchasers of
the Shares shall acquire the Shares free of such agreements and
restrictions as more fully provided in Section 5(b) hereof.
(b) Such Selling Shareholder has, and on each Closing Date
will have, full legal right, power and authority, and every approval
required by law, to sell, assign, transfer and deliver such Shares in
the manner provided in this Agreement; delivery of certificates for the
Shares to be sold by such Selling Shareholder pursuant hereto will,
upon payment therefor, pass good title thereto to each Underwriter,
free and clear of any lien, charge, claim, encumbrance, security
interest, Shareholders' agreement, voting trust, restriction on
transfer or other defect in title; and there are no outstanding
options, warrants, rights or other agreements or arrangements requiring
such Selling Shareholder at any time to transfer any Shares which may
be sold to the Underwriters pursuant to this Agreement.
(c) Such Selling Shareholder has duly executed and delivered
a power of attorney (the "Power of Attorney"), in the form heretofore
delivered to the Representatives, appointing [______________] as such
Selling Shareholder's attorney-in-fact (the "Attorney-in-Fact"), with
full power and authority to execute, deliver and perform this Agreement
on behalf of such Selling Shareholder.
(d) Such Selling Shareholder has duly executed and delivered
a custody agreement (the "Custody Agreement"), in the form heretofore
delivered to the Representatives pursuant to which certificates in
negotiable form for the Shares to be sold by such Selling Shareholder
under this Agreement, in the case of the Shares, were deposited with
[______________], as a custodian (the "Custodian"). The Custody
Agreement and the Custodian's authority thereunder and the appointment
of the Attorney-in-Fact are irrevocable and the obligations of such
Selling Shareholder hereunder and under the Custody Agreement are not
subject to termination by such Selling Shareholder, except as provided
in this Agreement, the Power of Attorney or the Custody Agreement, or
by operation of law, whether by the death or incapacity of such Selling
Shareholder (if such Selling Shareholder is an individual), the death
or incapacity of any trustee or executor or the termination of any
trust or estate (if such Selling Shareholder is a trust or estate), the
dissolution or liquidation of any corporation or partnership (if such
Selling Shareholder is a corporation or a partnership), or the
occurrence of any other event. If any event referred to in the
preceding sentence should occur before the delivery of the Shares
hereunder, the certificates for the Shares to be sold by such Selling
Shareholder shall be delivered by the Custodian on behalf of such
Selling Shareholder in accordance with the terms and
-13-
<PAGE>
conditions of this Agreement and the Custody Agreement, and action taken
by the Custodian pursuant to the Custody Agreement shall be as valid as if
such event had not occurred, whether or not the Custodian or the
Attorney-in-Fact, or any one of them, shall have received notice of
such event.
(e) The execution, delivery and performance of this
Agreement, the Power of Attorney, and the Custody Agreement and the
consummation of the transactions to be performed by such Selling
Shareholder contemplated hereby and thereby, including the delivery and
sale of the Shares to be delivered and sold by such Selling Shareholder
hereunder and thereunder, will not conflict with or result in a
violation by such Selling Shareholder of, or constitute a default
under, any material agreement, indenture or other instrument to which
such Selling Shareholder is a party or by which it is bound, or to
which any of its properties is subject, nor will the performance by
such Selling Shareholder of its obligations hereunder or thereunder
violate any law, rule, administrative regulation, or decree of any
court or any governmental agency or body, having jurisdiction over such
Selling Shareholder or any of its properties or result in the creation
or imposition of any lien, charge, claim, security interest,
encumbrance or restriction whatsoever upon such Shares.
(f) Except for permits and similar authorizations required
under the Securities Act, the securities or Blue Sky laws of certain
jurisdictions, and such permits and authorizations which have been
obtained, no consent, approval, authorization or order of any court,
governmental agency or body, or financial institution is required in
connection with the consummation of the transactions to be performed by
such Selling Shareholder contemplated by this Agreement, including the
delivery and sale of the Shares to be sold by such Selling Shareholder.
(g) Each of this Agreement, the Power of Attorney, and the
Custody Agreement has been duly and validly authorized, executed and
delivered by such Selling Shareholder and constitutes a legal, valid
and binding obligation of such Selling Shareholder, enforceable against
such Selling Shareholder in accordance with its terms, except (i) as
the enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles and (ii) to the extent that rights to indemnity or
contribution under this Agreement may be limited by Federal and state
securities laws or the public policy underlying such laws.
(h) The sale by such Selling Shareholder of Shares pursuant
hereto is not prompted by any adverse information concerning the
Company.
-14-
<PAGE>
(i) Such Selling Shareholder has not since the filing of the
Registration Statement (i) sold, bid for, purchased, attempted to
induce any person to purchase, or paid anyone any compensation for
soliciting purchases of, the Common Stock or (ii) paid or agreed to pay
to any person any compensation for soliciting another to purchase any
securities of the Company, except for the sale of the Shares by the
Selling Shareholder under this Agreement.
(j) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to cause or result
in, or which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
Common Stock to facilitate the sale or resale of the Shares.
(k) To the extent that any statements or omissions are made
in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendment or supplement thereto in reliance upon and
in conformity with written information furnished to the Company by or
on behalf of the Selling Shareholder specifically for use therein: (i)
on the Effective Date, the Registration Statement and all other
registration statements and reports filed with the Commission by the
Company complied, and on the date of the Prospectus, on the date any
post-effective amendment to the Registration Statement shall become
effective, on the date any supplement or amendment to the Prospectus is
filed with the Commission, at all times that a prospectus must be
delivered by the Underwriters pursuant to the Securities Act and on
each Closing Date, the Registration Statement, the Prospectus (and any
amendment thereof or supplement thereto) and all other registration
statements and reports filed with the Commission by the Company will
comply, in all material respects, with the applicable provisions of the
Securities Act and the Rules and the Exchange Act and the rules and
regulations of the Commission thereunder; the Registration Statement
did not, as of the Effective Date, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading; and on the other dates referred to above, neither of the
Registration Statement, nor the Prospectus, nor any amendment thereof
or supplement thereto, will contain any untrue statement of a material
fact or will or will omit to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading; and (ii) when any related preliminary prospectus was
first filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the
Rules) and when any amendment thereof or supplement thereto was first
filed with the Commission, such preliminary prospectus as amended or
supplemented complied in all material respects with the applicable
provisions of the Securities Act and the Rules and did not contain any
untrue statement of a material fact or
-15-
<PAGE>
omit to state any material fact required to be state therein
or necessary to make the statements therein not misleading. Such
Selling Shareholder has reviewed the most recent preliminary
prospectus, the Prospectus and the Registration Statement and
the information regarding such Selling Shareholder set forth
therein under the caption "Principal and Selling Shareholders" is
complete and accurate. From the date of such effectiveness or filing,
as the case may be, through each Closing Date, such Selling Shareholder
will advise the Representatives in writing if and to the extent that
such information does not conform with the requirements of the
Securities Act and the Rules or contains any untrue statement of a
material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations
of the Underwriters under this Agreement are several and not joint. The
respective obligations of the Underwriters to purchase the Shares are subject
to each of the following terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(A)(a) of this Agreement. The
Registration Statement shall have become effective no later than 5:00
p.m., New York City time, on the date of this Agreement or such later
time and date as shall be consented to in writing by the
Representatives.
(b) No order preventing or suspending the use of any
preliminary prospectus or the Prospectus shall have been or shall be in
effect and no order suspending the effectiveness of the Registration
Statement shall be in effect and no proceedings for such purpose shall
be pending before or threatened by the Commission, and any requests for
additional information on the part of the Commission (to be included in
the Registration Statement or the Prospectus or otherwise) shall have
been complied with to the satisfaction of the Representatives.
(c) The representations and warranties of the Company and
the Selling Shareholder contained in this Agreement and in the
certificates delivered pursuant to Sections 6(d) and 6(e),
respectively, shall be true and correct when made and on and as of each
Closing Date as if made on such date and the Company and the Selling
Shareholder shall have performed all covenants and agreements and
satisfied all the conditions contained in this Agreement required to be
performed or satisfied by it or them at or before such Closing Date.
-16-
<PAGE>
(d) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated such
Closing Date, of the chief executive or chief operating officer and the
chief financial or chief accounting officer of the Company to the
effect that the signers of such certificate have carefully examined the
Registration Statement, the Prospectus and this Agreement and that the
representations and warranties of the Company in this Agreement are
true and correct on and as of such Closing Date with the same effect as
if made on such Closing Date and the Company has performed all
covenants and agreements and satisfied all conditions contained in this
Agreement required to be performed or satisfied by it at or prior to
such Closing Date.
(e) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives and dated such
Closing Date, of the Selling Shareholder, to the effect that such
Selling Shareholder has carefully examined the Registration Statement,
the Prospectus and this Agreement and that the representations and
warranties of such Selling Shareholder contained in this Agreement are
true and correct as if made on and as of such Closing Date, with the
same effect as if made on such Closing Date, and such Selling
Shareholder has performed all covenants and agreements and satisfied
all conditions contained in this Agreement required to be performed or
satisfied by such Selling Shareholder at or prior to such Closing Date.
(f) The Representatives shall have received on the Effective
Date, at the time this Agreement is executed and on each Closing Date:
(i) A signed letter from Price Waterhouse LLP addressed to the
Representatives and dated, respectively, the Effective Date, the
date of this Agreement and each such Closing Date, in form and
substance satisfactory to the Representatives, confirming that
they are independent accountants within the meaning of the
Securities Act and the Rules, that the response to Item 10 of the
Registration Statement is correct insofar as it relates to them
and stating in effect that:
(A) in their opinion the audited financial statements and
the schedules to the financial statements included in the
Registration Statement and the Prospectus and reported on by
them comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and
the Rules;
-17-
<PAGE>
(B) on the basis of a reading of the amounts included in
the Registration Statement and the Prospectus under the
headings "Summary Financial Information," "Selected
Consolidated Financial Information," "Capitalization,"
"Dilution" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," carrying out
certain procedures (but not an examination in accordance with
generally accepted auditing standards) which would not
necessarily reveal matters of significance with respect to
the comments set forth in such letter, a reading of the
minutes of the meetings of the shareholders and directors of
the Company (including committees thereof), and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company, as to
transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to
their attention which caused them to believe that:
(1) the amounts in "Summary Financial Information,"
"Selected [Consolidated] Financial Data,"
"Capitalization," "Dilution" and "Management's Discussion
and Analysis of Financial Condition and Results of
Operations," included in the Registration Statement and
the Prospectus do not agree with the corresponding
amounts in the audited financial statements from which
such amounts were derived; and
(2) (x) there were, at a specified date not more
than five business days prior to the date of the letter,
any changes in the short-term or long-term debt of the
Company or capital stock of the Company or any decreases
in net income or in working capital or the Shareholders'
equity in the Company, as compared with the amounts shown
on the Company's unaudited March 31, 1996 balance sheet
included in the Registration Statement or (y) for the
period from March 31, 1996 to such specified business
date not more than five business days prior to the date
of the letter, there were any decreases, as compared with
the corresponding period in the preceding year, in net
revenues or in the total per share amounts of net income
in which case the Company shall deliver to the
Representatives a letter containing an explanation by the
Company as to the significance thereof unless said
explanation is not deemed necessary by the
Representatives or is set forth in or contemplated by the
Registration Statement;
(C) on the basis of a reading of the pro forma financial
statements included in the Registration Statement and the
Prospectus, carrying
-18-
<PAGE>
out certain procedures that would not necessarily reveal matters
of significance with respect to the comments set forth in
this clause (C), inquiries of certain officials of the Company
who have responsibility for financial and accounting matters
and proving the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the pro
forma financial statements, nothing came to their attention
that caused them to believe that the pro forma financial
statements included in the Prospectus do not comply in
form in all material respects with the applicable
accounting requirements of Rule 11-02 of Regulation S-X, or
that the pro forma adjustments have not been properly applied
to the historical amounts in the compilation of those
statements; and
(D) they have performed certain other procedures as a
result of which they have determined that certain information
of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information
derived from the general accounting records of the Company)
set forth in the Registration Statement and the Prospectus
and reasonably specified by the Representatives agrees with
the accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the date
of the letter.
(g) The Representatives shall have received on each Closing Date
from Kaye, Scholer, Fierman, Hays & Handler, LLP, counsel for the
Company [and the Selling Shareholder], an opinion, addressed to the
Representatives, dated such Closing Date, and stating in effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of California. The Company has no other subsidiary and does
not control, directly or indirectly, any corporation, partnership,
joint venture, association or other business organization. The
Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction in which the character or
location of its assets or properties (owned, leased or licensed)
or the nature of its businesses makes such qualification
necessary, except for such jurisdictions where the failure to so
qualify would not have a material adverse effect on the assets or
properties, business, results of operations, prospects or
condition (financial or otherwise) of the Company.
(ii) The Company has all requisite power and authority to
own, lease and license its assets and properties and conduct its
business as now being
-19-
<PAGE>
conducted and as described in the Registration Statement and
the Prospectus; and the Company has all requisite corporate
power and authority and all necessary authorizations, approvals,
consents, orders, licenses, certificates and permits, other
than those required under the Securities Act and state and
foreign Blue Sky laws, to enter into, deliver and perform this
Agreement and to authorize, issue and sell the Shares.
(iii) The Company has authorized and issued capital stock
as set forth in the Registration Statement and the Prospectus.
The certificates evidencing the Shares are in due and proper legal
form and have been duly issued by the Company. All of the
outstanding shares of Common Stock of the Company have been duly
and validly authorized and have been duly and validly issued and
are fully paid and nonassessable and none of them was issued in
violation of any preemptive or other similar right. The Shares,
when issued and sold pursuant to this Agreement, will be duly and
validly issued, outstanding, fully paid and nonassessable and none
of them will have been issued in violation of any preemptive or
other similar right. To such counsel's knowledge, except as
disclosed in the Registration Statement and the Prospectus, there
is no outstanding option, warrant or other right calling for the
issuance of, and no commitment, plan or arrangement to issue, any
share of stock of the Company or any security convertible into,
exercisable for, or exchangeable for stock of the Company. The
Common Stock and the Shares conform in all material respects to
the descriptions thereof contained in the Registration Statement
and the Prospectus.
(iv) The agreement of the Company's Shareholders set forth
on Schedule III to this Agreement and directors and officers
stating that, except in the case of the Selling Shareholder, for
the sale of the Shares to be sold by the Selling Shareholder
pursuant to the Registration Statement, for a period of 180 days
from the date of this Agreement they will not, without the
Representatives' prior written consent, directly or indirectly
offer, sell (including "short sales"), assign, encumber or
Transfer, or contract to Transfer, any shares of Common Stock, or
any other securities convertible into or exchangeable for shares
of Common Stock or any other equity securities owned by them,
except for (i) sales to the several Underwriters pursuant to this
Agreement or (ii) pursuant to will or the laws of intestate
succession, provided the transferee agrees in writing to be bound
by such restrictions, has been duly and validly executed and
delivered by such persons and constitutes the legal, valid and
binding obligation of each such person enforceable against each such
person in accordance with its terms, except as the enforceability
-20-
<PAGE>
thereof may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles.
(v) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the
Shares. This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, except (i) as such
enforceability may be limited by applicable usury, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles and (ii) to the
extent that rights to indemnity or contribution under this
Agreement may be limited by Federal or state securities laws or
the public policy underlying such laws.
(vi) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation,
the issuance and sale by the Company of the Shares to be issued
and sold by the Company) will give rise to a right to terminate or
accelerate the due date of any payment due under, or conflict with
or result in the breach of any term or provision of, or constitute
a default (or any event which with notice or lapse of time, or
both, would constitute a default) under, or require consent or
waiver under, or result in the execution or imposition of any
lien, charge or encumbrance upon any properties or assets of the
Company pursuant to the terms of, any indenture, mortgage, deed of
trust, note or other agreement or instrument of which such counsel
is aware and to which the Company is a party or by which the
Company or any of its respective properties or businesses is
bound, or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation of which such counsel is aware or
violate any provision of the Articles of Incorporation or the
By-laws of the Company.
(vii) To such counsel's knowledge, no default exists, and no
event has occurred which with notice or lapse of time, or both,
would constitute a default, in the due performance and observance
of any term, covenant or condition by the Company of any
indenture, mortgage, deed of trust, note or any other agreement or
instrument to which the Company is a party or by which the Company
or any of its respective assets or properties or businesses may be
bound or affected, where the
-21-
<PAGE>
consequences of such default would have a material and adverse
effect on the assets, properties, business, results of operations,
prospects or condition (financial or otherwise) of the Company.
(viii) To such counsel's knowledge, the Company is not in
violation of any term or provision of its Articles of
Incorporation or Bylaws or charter or by-laws, as the case may be,
or any franchise, license, permit, judgment, decree, order,
statute, rule or regulation, where the consequences of such
violation would have a material adverse effect on the assets or
properties, businesses, results of operations, prospects or
condition (financial or otherwise) of the Company.
(ix) No consent, approval, authorization or order of any
court or governmental agency or body is required for the
performance of this Agreement by the Company or the consummation
of the transactions contemplated hereby, except such as have been
obtained under the Securities Act and such as may be required
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the several
Underwriters.
(x) To the best of such counsel's knowledge there is no
litigation or governmental or other proceeding or investigation
before any court or before or by any public body or board pending
or threatened against, or involving the assets, properties or
businesses of, the Company which might have a material adverse
effect upon the assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the
Company.
(xi) The Company owns, or possesses adequate and enforceable
rights to use, all licenses or other rights to use, all
Intangibles necessary for the conduct of its business as described
in the Prospectus. The Company has not infringed or is not in
conflict with asserted rights of others with respect to
Intangibles which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding would have a material
adverse effect upon its assets or properties, business, results of
operations, prospects or condition (financial or otherwise) of the
Company. Except as set forth in the Registration Statement or the
Prospectus, the discoveries, inventions, products or processes of
the Company referred to in the Registration Statement or
Prospectus do not infringe or conflict with any right or patent of
any third party, or any discovery, invention, product or process
which is the subject of a patent application filed by any third
party which would have a material adverse effect on the Company.
-22-
<PAGE>
(xii) The statements in the Prospectus under the captions
"Description of Capital Stock," "Shares Eligible for Future Sale,"
"Business," "Management," "Risk Factors," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Certain Transactions," insofar as
such statements constitute a summary of documents referred to
therein or matters of law, are fair summaries in all material
respects and accurately present the information called for with
respect to such documents and matters. All contracts and other
documents required to be filed as exhibits to, or described in,
the Registration Statement have been so filed with the Commission
or are fairly described in the Registration Statement, as the case
may be.
(xiii) The Registration Statement, all preliminary
prospectuses and the Prospectus and each amendment or supplement
thereto (except for the financial statements and schedules and
other financial data included therein, as to which such counsel
expresses no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules.
(xiv) The Registration Statement has become effective under
the Securities Act, and no stop order suspending the effectiveness
of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are threatened, pending
or contemplated.
(xv) Such counsel does not know that any of the
representations and warranties of the Company or the Selling
Shareholder contained in this Agreement are not true or correct or
that any of the covenants and agreements herein contained to be
performed on the part of the Company or the Selling Shareholder or
any of the conditions herein contained, or set forth in the
Registration Statement and the Prospectus, to be fulfilled or
complied with by the Company or the Selling Shareholder, have not
been or will not be duly and timely performed, fulfilled or
complied with.
(xvi) Assuming that the Underwriters acquire their respective
interests in the Shares to be sold by the Selling Shareholder in
good faith and without notice of any adverse claims (within the
meaning of Section 8-302 of the Uniform Commercial Code), upon
delivery to the Underwriters of such Shares registered in their
names, the Underwriters will acquire good title to such Shares
free and clear of all adverse claims.
-23-
<PAGE>
(xvii) To the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement, the Power of Attorney
and the Custody Agreement and the consummation of the transactions
to be performed by the Selling Shareholder contemplated hereby and
thereby (including, without limitation, the delivery and sale of
the Shares to be delivered and sold by such Selling Shareholder
hereunder and thereunder), will not give rise to a right to
terminate or accelerate the due date of any payment due under, or
violate or conflict with or result in the breach of any term or
provision of, or constitute a default (or any event which with
notice or lapse of time, or both, would constitute a default)
under, or require consent or waiver under, or result in the
execution or imposition of any lien, charge or encumbrance upon
any properties or assets of such Selling Shareholder pursuant to
the terms of any indenture, mortgage, deed of trust, note or other
agreement or instrument of which such counsel is aware and to
which such Selling Shareholder is a party or by which it or any of
such Selling Shareholder's properties or businesses is bound, or
any franchise, license, permit, judgment, decree, order, statute,
rule or regulation of which such counsel is aware, which would
have a material adverse effect upon the ability of such Selling
Shareholder to consummate the transactions contemplated hereby and
thereby, or result in the creation of imposition of any lien,
charge, claim, encumbrance, security interest or restriction
whatsoever upon the Shares to be sold by such Selling Shareholder.
(xviii) No consent, approval, authorization or order of any
court, governmental agency or body or financial institution is
required in connection with the performance of this Agreement by
the Selling Shareholder or the consummation of the transactions
contemplated hereby, including the delivery and sale of the Shares
to be delivered and sold by such Selling Shareholder, except such
as have been obtained under the Securities Act and such as may be
required under state securities or Blue Sky laws in connection
with the purchase and distribution of the Shares by the several
Underwriters.
(xix) Each of this Agreement, the Power of Attorney and the
Custody Agreement has been duly and validly, executed and
delivered by the Selling Shareholder and constitutes a legal,
valid and binding obligation of such Selling Shareholder,
enforceable against such Selling Shareholder in accordance with
its terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) to the extent
-24-
<PAGE>
that rights to indemnity or contribution under this Agreement may
be limited by Federal and state securities laws or the public
policy underlying such laws.
To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company, the
Selling Shareholder and public officials and on the opinions of other counsel
satisfactory to the Representatives as to matters which are governed by laws
other than the laws of the State of California, the General Corporation Law
of the State of Delaware and the Federal laws of the United States; PROVIDED
that such counsel shall state that in their opinion the Underwriters and they
are justified in relying on other opinions. Copies of such certificates and
other opinions shall be furnished to the Representatives and counsel for the
Underwriters. Such counsel shall also state that, in rendering its opinion
to the Underwriters pursuant to Section 6(h), Schulte Roth & Zabel may rely
on the opinion of such counsel as to all maters which are governed by
California law.
In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Representatives, counsel to the Underwriters, and
representatives of the independent certified public accountants of the
Company, at which conferences the contents of the Registration Statement and
the Prospectus and related matters were discussed and, although such counsel
is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified in the foregoing opinion),
on the basis of the foregoing, no facts have come to the attention of such
counsel which lead such counsel to believe that the Registration Statement at
the time it became effective (except with respect to the financial statements
and notes and schedules thereto and other financial data, as to which such
counsel need express no belief) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus as amended or supplemented (except with respect to the financial
statements and notes and schedules thereto and other financial data, as to
which such counsel need express no belief), on the date thereof, contained
any untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(h) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives and their
counsel and the Underwriters shall have received from Schulte Roth &
Zabel a favorable opinion, addressed to the Representatives and dated
each Closing Date, with respect to the Shares, the Registration
Statement and the Prospectus, and such other related matters as the
Representatives may reasonably request, and the Company shall have
furnished to Schulte Roth & Zabel such documents as they may reasonably
request for the purpose
-25-
<PAGE>
of enabling them to pass upon such matters. In rendering its opinion
to the Underwriters, Schulte Roth & Zabel may rely on the opinion of
Kaye, Scholer, Fierman, Hays & Handler, LLP, as to all matters which
are governed by California law.
(i) The Representatives shall have received on each Closing
Date a certificate, addressed to the Representatives, and dated such
Closing Date, of an executive officer of the Company to the effect that
the signer of such certificate has reviewed and understands the
provisions of Section 517.075 of the Florida Statutes, and represents
that the Company has complied, and at all times will comply, with all
provisions of Section 517.075 and further, that as of such Closing
Date, neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba.
(j) The Representatives shall have received from each of the
Shareholders listed on Schedule III hereto and each director and
executive officer of the Company his or her enforceable written
agreement as described in Section 4(o).
(k) The Company shall have furnished or caused to be furnished
to the Representative such further certificates or documents as the
Representative shall have reasonably requested.
7. COVENANTS OF THE COMPANY. (A) The Company covenants and agrees as
follows:
(a) The Company shall prepare the Prospectus in a form approved by
the Representatives and file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than the Commission's close of
business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act, and shall
promptly advise the Representatives (i) when any amendment to the
Registration Statement shall have become effective, (ii) of any request
by the Commission for any amendment of the Registration Statement or
the Prospectus or for any additional information, (iii) of the
prevention or suspension of the use of any preliminary prospectus or
the Prospectus or of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
institution or threatening of any proceeding for that purpose and (iv)
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for
such purpose.
-26-
<PAGE>
The Company shall not file any amendment of the Registration Statement
or supplement to the Prospectus unless the Company has furnished the
Representatives a copy for their review prior to filing and shall not
file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any
event occurs as a result of which the Prospectus, as then amended or
supplemented, would include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading, or if it shall be necessary to amend or supplement the
Prospectus to comply with the Securities Act or the Rules, the Company
promptly shall prepare and file with the Commission, subject to the
second sentence of paragraph (a) of this Section 7(A), an amendment or
supplement which shall correct such statement or omission or an
amendment which shall effect such compliance.
(c) The Company shall make generally available to its security
holders and to the Representatives as soon as practicable, but not
later than 45 days after the end of the 12-month period beginning at
the end of the fiscal quarter of the Company during which the Effective
Date occurs (or 90 days if such 12-month period coincides with the
Company's fiscal year), an earnings statement (which need not be
audited) of the Company, covering such 12-month period, which shall
satisfy the provisions of Section 11(a) of the Securities Act or Rule
158 of the Rules.
(d) The Company shall furnish to the Representatives and counsel
for the Underwriters, without charge, signed copies of the Registration
Statement (including all exhibits thereto and amendments thereof) and
to each other Underwriter a copy of the Registration Statement (without
exhibits thereto) and all amendments thereof and, so long as delivery
of a prospectus by an Underwriter or dealer may be required by the
Securities Act or the Rules, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof and
supplements thereto as the Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under
the laws of such jurisdictions as the Representatives may designate and
shall maintain such qualifications in effect so
-27-
<PAGE>
long as required for the distribution of the Shares; PROVIDED, HOWEVER,
that the Company shall not be required in connection therewith, as a
condition thereof, to qualify as a foreign corporation or to execute a
general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction.
(f) For a period of five years after the date of this Agreement,
the Company shall supply to the Representatives, and to each other
Underwriter who may so request in writing, copies of such financial
statements and other periodic and special reports as the Company may
from time to time distribute generally to the holders of any class of
its capital stock and to furnish to the Representatives a copy of each
annual or other report it shall be required to file with the Commission.
(g) Without the prior written consent of the Representatives, for
a period of 180 days after the date of this Agreement, the Company
shall not directly or indirectly, offer, sell (including "short
sales"), assign, encumber or Transfer, or contract to Transfer, any
shares of Common Stock, or any other securities convertible into or
exchangeable for shares of Common Stock, or any other equity securities
of the Company, except for (i) the issuance of the Shares pursuant to
the Registration Statement; (ii) the issuance of shares of Common Stock
and/or pursuant to stock options outstanding on the date hereof or the
issuance of shares of Common Stock or stock options thereon pursuant to
the Company's 1996 Stock Plan (the "1996 Plan") In the event that
during this period, any shares of Common Stock are issued in connection
with (i) the 1996 Plan or (ii) any registration effected on Form S-8 or
any successor form, the Company shall obtain the enforceable written
agreement of such grantee or purchaser or holder of such securities
that, for a period of 180 days after the date of this Agreement, such
person will not directly or indirectly, without the prior written
consent of the Representatives, offer, sell (including "short sales"),
assign, encumber or Transfer, or contract to Transfer or exercise any
registration rights with respect to, any shares of Common Stock (or any
other securities convertible into or exchangeable for any shares of
Common Stock, or any other equity securities) owned by such person.
(h) The Company shall cause each director and executive officer of
the Company, and each Shareholder set forth on Schedule III to this
Agreement to deliver to the Representatives his or her enforceable
written agreement that, except, in the case of a Selling Shareholder,
for the sale of the Shares to be sold by such Selling Shareholder
pursuant to the Registration Statement, he or she will not, for a
period of 180 days after the date of this Agreement, directly or
indirectly, without the prior written consent of the Representatives,
offer, sell (including "short sales"), assign,
-28-
<PAGE>
encumber or Transfer, or contract to Transfer any shares of Common
Stock, or any other securities convertible into or exercisable or
exchangeable for, shares of Common Stock, or any other equity securities
of the Company except for (i) sales to the several Underwriters pursuant
to this Agreement or (ii) pursuant to will or the laws of intestate
succession, provided the transferee agrees in writing to be bound by
such restrictions.
(i) On or before completion of this offering, the Company shall
make all filings required under applicable securities laws and by the
Nasdaq (including any required registration under the Exchange Act).
(j) The Company shall file timely and accurate reports in
accordance with the provisions of Florida Statutes Section 517.075, or
any successor provision, and any regulations promulgated thereunder, if
at any time after the Effective Date, the Company or any of its
affiliates commences engaging in business with the government of Cuba
or any person or affiliate located in Cuba.
(k) The Company will apply the net proceeds from the offering of
the Shares in the manner set forth under "Use of Proceeds" in the
Prospectus.
(B) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses incident
to the public offering of the Shares and the performance of the obligations
of the Company and the Selling Shareholder under this Agreement including
those relating to: (i) the preparation, printing, filing and distribution of
the Registration Statement including all exhibits thereto, each preliminary
prospectus, the Prospectus, all amendments and supplements to the
Registration Statement, the Prospectus, and the printing, filing and
distribution of this Agreement; (ii) the fees and disbursements of counsel
for the Company and the Selling Shareholder and of the Company's independent
public accountants; (iii) the preparation and delivery of certificates for
the Shares to the Underwriters; (iv) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of the
various jurisdictions referred to in Section 7(A)(e), including the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such registration and qualification and the preparation,
printing, distribution and shipment of preliminary and supplementary Blue Sky
memoranda; (v) the furnishing (including costs of shipping and mailing) to
the Representatives and to the Underwriters of copies of each preliminary
prospectus, the Prospectus and all amendments or supplements to the
Prospectus, and of the several documents required by this Section to be so
furnished, as may be reasonably requested for
-29-
<PAGE>
use in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (vi) the filing fees
of the National Association of Securities Dealers, Inc. in connection with
its review of the terms of the public offering; (vii) the furnishing
(including costs of shipping and mailing) to the Representatives and to the
Underwriters of copies of all reports and information required by Section
6(A)(f); (viii) inclusion of the Common Stock for quotation on the Nasdaq;
and (ix) all transfer taxes, if any, with respect to the sale and delivery of
the Shares by the Company and the Selling Shareholder to the Underwriters.
Subject to the provisions of Section 9, the Underwriters agree to pay,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the performance
of the obligations of the Underwriters under this Agreement not payable by
the Company pursuant to the preceding sentence, including, without
limitation, the fees and disbursements of counsel for the Underwriters.
8. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement, the Prospectus,
or any amendment thereof or supplement thereto, or arise out of or are
based upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; PROVIDED, HOWEVER, that such indemnity shall
not inure to the benefit of any Underwriter (or any person controlling
such Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by such
Underwriter if such untrue statement or omission or alleged untrue
statement or omission was made in such preliminary prospectus, the
Registration Statement, the Prospectus, or such amendment or
supplement, and was contained in the last paragraph of the cover page
of the Prospectus, in the paragraph relating to stabilization on the
inside front cover page of the Prospectus or under the caption
"Underwriting" in the Prospectus (to the extent such statements relate
to the
-30-
<PAGE>
Underwriters). This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) The Selling Shareholder agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Exchange Act, against any and all losses, claims,
damages and liabilities, joint and several (including any reasonable
investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or
any claim asserted), to which it may become subject, under the
Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement, or the Prospectus or any amendment thereof or supplement
thereto, or arise out of or are based upon any omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each
case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made
therein in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Selling Shareholder for
use in any preliminary prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto. Notwithstanding
the foregoing, the liability of the Selling Shareholder pursuant to the
provisions of this Section 8(b) shall be limited to an amount equal to
the aggregate net proceeds received by each Selling Shareholder from
the sale of the Shares sold by each Selling Shareholder hereunder.
This indemnity agreement will be in addition to any liability which the
Selling Shareholder may otherwise have.
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Selling Shareholder, each person, if
any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, each director
of the Company and each officer of the Company who signs the
Registration Statement, to the same extent as the foregoing indemnities
from the Company and the Selling Shareholder to each Underwriter, but
only insofar as such losses, claims, damages or liabilities arise out
of or are based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus, the
Registration Statement, the Prospectus, or any amendment thereof or
supplement thereto, and was contained in the last paragraph of the
cover page
-31-
<PAGE>
of the Prospectus, in the paragraph relating to stabilization on the
inside front cover page of the Prospectus or under the caption
"Underwriting" in the Prospectus (to the extent such statements relate
to the Underwriters); PROVIDED, HOWEVER, that the obligation of each
Underwriter to indemnify the Company or the Selling Shareholder
(including any controlling person, director or officer thereof), as the
case may be, shall be limited to the net proceeds received by the
Company or the Selling Shareholder, as the case may be, from such
Underwriter.
(d) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of
all papers served. No indemnification provided for in Section 8(a),
8(b) or 8(c) shall be available to any party who shall fail to give
notice as provided in this Section 8(d) if the party to whom notice was
not given was unaware of the proceeding to which such notice would have
related and was materially prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any
such action, suit or proceeding shall not relieve it from any liability
that it may have to any indemnified party for contribution or otherwise
than under this Section. In case any such action, suit or proceeding
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate in, and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense thereof
and the approval by the indemnified party of such counsel, the
indemnifying party shall not be liable to such indemnified party for
any legal or other expenses, except as provided below and except for
the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in any
such action, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of counsel
by such indemnified party has been authorized in writing by the
indemnifying parties, (ii) the indemnified party shall have reasonably
concluded that there may be a conflict of interest between the
indemnifying parties and the indemnified party in the conduct of the
defense of such action (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of
the indemnified party) or (iii) the indemnifying parties shall not have
-32-
<PAGE>
employed counsel, as provided above, to assume the defense of such
action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding
or claim effected without its written consent.
9. CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 8(a), 8(b) or 8(c) for any reason is unavailable to or insufficient
to hold harmless an indemnified party under Section 8(a), 8(b) or 8(c) then
each indemnifying party shall contribute to the aggregate losses, claims,
damages and liabilities (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted) to
which the indemnified party may be subject in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other from
the offering of the Shares or, if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to above but also the relative fault of the
Company and the Selling Shareholder, on the one hand and the Underwriters on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the
Company, the Selling Shareholder and the Underwriters shall be deemed to be
in the same proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the Company
or the Selling Shareholder, as set forth in the table on the cover page of
the Prospectus, bear to (y) the underwriting discounts received by the
Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company, the Selling Shareholder or the
Underwriters shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact related to
information supplied by the Company, the Selling Shareholder or the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that it
would not be just and equitable if contribution pursuant to this Section 9
were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 9, (i) in no case shall any
Underwriter (except as may be provided in the Agreement Among Underwriters)
be liable or responsible for any amount in excess of the underwriting
discount applicable to the Shares purchased by such Underwriter hereunder
-33-
<PAGE>
less the amount of any damages which such Underwriter has otherwise been
required to pay by reason of any untrue or alleged untrue statement or
omission or alleged omission which was made in any preliminary prospectus,
the Registration Statement, the Prospectus or any amendment thereof or
supplement thereto; and (ii) the Company shall be liable and responsible for
any amount in excess of the amount set forth in clause (i) of this sentence;
and (iii) in no case shall any Selling Shareholder be liable and responsible
for any amount in excess of the aggregate net proceeds of the sale of the
Shares received by such Selling Shareholder hereunder; PROVIDED, HOWEVER,
that no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 9, each person, if any, who controls an Underwriter
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act shall have the same rights to contribution as such
Underwriter and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i), (ii) and
(iii) in the immediately preceding sentence of this Section 9. Any party
entitled to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in respect
of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or
parties from whom contribution may be sought shall not relieve the party or
parties from whom contribution may be sought from any other obligation it or
they may have hereunder or otherwise than under this Section. No party shall
be liable for contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriters' obligations to
contribute pursuant to this Section 9 are several in proportion to their
respective underwriting commitments and not joint.
10. TERMINATION. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives notifying the
Company and the Selling Shareholder at any time:
(a) in the absolute discretion of the Representatives at or before
any Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or
in the opinion of the Representatives will in the future materially
disrupt, the securities markets; (ii) if the Company shall have
sustained a loss or interference with its business by fire, flood,
accident, hurricane, earthquake,
-34-
<PAGE>
theft, sabotage or other calamity or malicious act which is material to
the Company, whether or not said loss shall have been insured, or by
court or governmental action, order or decree which will, in the
opinion of the Representatives, make it inadvisable or impractical to
proceed with the offering; (iii) if there has been, since the
respective dates as of which information is given in the Prospectus,
any material adverse change in the assets or properties, business,
results of operations, prospects or condition (financial or otherwise)
of the Company, whether or not arising in the ordinary course of
business; (iv) if there has occurred any new outbreak or material
escalation of hostilities or other calamity or crisis the effect of
which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable or impractical
to proceed with the offering; (v) if there shall be such a material
adverse change in general financial, political or economic conditions
in the United States or elsewhere or the effect of international
conditions on the financial markets in the United States is such as to
make it, in the judgment of the Representatives, inadvisable or
impractical to proceed with the offering; (vi) if trading in the Shares
has been suspended by the Commission or trading generally on The New
York Stock Exchange, Inc., on the American Stock Exchange, Inc. or the
Nasdaq has been suspended or limited, or minimum or maximum ranges for
prices for securities shall have been fixed, or maximum ranges for
prices for securities have been required, by said exchanges or
automated quotation system or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (vii) if a banking moratorium has been
declared by any state or Federal authority, or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as
required by this Agreement.
If this Agreement is terminated pursuant to any of its provisions,
neither the Company nor the Selling Shareholder shall be under any liability
to any Underwriter (except as otherwise provided in Section 7(B), and no
Underwriter shall be under any liability to the Company or the Selling
Shareholder except that (y) if this Agreement is terminated by the
Representatives because of any failure, refusal or inability on the part of
the Company or the Selling Shareholder to comply with the terms or to fulfill
any of the conditions of this Agreement, the Company will reimburse the
Underwriters for all out-of-pocket expenses (including the reasonable fees
and disbursements of their counsel) incurred by them in connection with the
proposed purchase and sale of the Shares or in contemplation of performing
their obligations hereunder and (z) no Underwriter who shall have failed or
refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation
or termination of its
-35-
<PAGE>
obligations under this Agreement, shall be relieved of liability to the
Company, the Selling Shareholder or to the other Underwriters for damages
occasioned by its failure or refusal.
11. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 10) to purchase on any Closing
Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other
arrangements as the Representatives may deem advisable or one or more of the
remaining Underwriters may agree to purchase such Shares in such proportions
as may be approved by the Representatives, in each case upon the terms set
forth in this Agreement. If no such arrangements have been made by the close
of business on the business day following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; PROVIDED, HOWEVER, that in no
event shall the maximum number of Shares that any Underwriter has
agreed to purchase pursuant to Section 1 be increased pursuant to this
Section 11 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to an additional business day within
which it may, but is not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representatives to purchase
such Shares upon the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration
Statement or Prospectus) may be effected by the Representatives and the
Company. If the number of Shares to be purchased on such Closing Date by such
defaulting Underwriter or Underwriters shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, and none
of the nondefaulting Underwriters or the Company shall make arrangements
pursuant to this Section within the period stated for the purchase of the
Shares that the defaulting Underwriters agreed to purchase, this Agreement
shall terminate with respect to the
-36-
<PAGE>
Shares to be purchased on such Closing Date without liability on the part of
any nondefaulting Underwriter to the Company or the Selling Shareholder and
without liability on the part of the Company or the Selling Shareholder,
except in both cases as provided in Sections 7(B), 8, 9 and 10. The
provisions of this Section shall not in any way affect the liability of any
defaulting Underwriter to the Company, the Selling Shareholder or to the
nondefaulting Underwriters arising out of such default. A substitute
underwriter hereunder shall become an Underwriter for all purposes of this
Agreement.
12. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its directors
or officers, of the Selling Shareholder and of the Underwriters set forth in
or made pursuant to this Agreement shall remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter or
the Company, the Selling Shareholder or any of the officers, directors or
controlling persons referred to in Sections 8 and 9 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 7(B), 8,
9 and 10 shall survive the termination or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company and the Selling Shareholder and their respective successors and
assigns, and, to the extent expressed herein, for the benefit of persons
controlling any of the Underwriters and the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser
of Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered or by telephone, telex or facsimile transmission if subsequently
confirmed in writing, (a) if to the Representatives, c/o Oppenheimer & Co.,
Inc., Oppenheimer Tower, World Financial Center, New York, New York 10281
Attention: Mark A. Leavitt; (b) if to the Company or the Selling
Shareholder, to the Company's agent for service as such agent's address
appears on the cover page of the Registration Statement.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of
laws.
-37-
<PAGE>
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
VDI MEDIA
By: ___________________________________
Name: _____________________________
Title: ____________________________
SELLING SHAREHOLDER NAMED ON
SCHEDULE II ANNEXED HERETO
By_____________________________________
Attorney-in-Fact For the
Selling Shareholder listed on
Schedule II annexed hereto
Confirmed:
OPPENHEIMER & CO., INC.
PRUDENTIAL SECURITIES INCORPORATED
Acting severally on behalf of themselves
and as representatives of the several
Underwriters named in Schedule I annexed
hereto.
By: OPPENHEIMER & CO., INC.
-38-
<PAGE>
By: ___________________________________
Name: _____________________________
Title: ____________________________
-39-
<PAGE>
SCHEDULE I
Number of
Firm Shares to
Name Be Purchased
- ---- ------------
Oppenheimer & Co., Inc.
Prudential Securities, Incorporated
Total
------------
------------
-1-
<PAGE>
SCHEDULE II
SELLING SHAREHOLDER
Number of
Firm Shares
Selling Shareholder To Be Sold
- ------------------- -----------
Total
------------
------------
-1-
<PAGE>
SCHEDULE III
SHAREHOLDERS EXECUTING CERTAIN AGREEMENTS
PURSUANT TO SECTION 7(A)(h)
-1-
<PAGE>
OFFICER'S CERTIFICATE OF RESTATED ARTICLES OF INCORPORATION
OF
VDI
The undersigned certify that:
1. They are the chief executive officer and the secretary, respectively,
of VDI, a California corporation.
2. The Corporation was incorporated on March 22, 1990 under the name D2D,
Inc., which name was changed to VDI by Certificate of Amendment on July
19,1990. By this Restated Articles of Incorporation, the Corporation is
changing its name to VDI Media.
3. This Restated Article of Incorporation has been unanimously approved
by the Board of Directors of the Corporation and has been approved by the
shareholders owing a majority of the outstanding shares of the Corporation's
common stock, the sole class of stock currently outstanding.
4. The Articles of Incorporation of this Corporation are amended and
restated to read as follows:
I.
The name of this Corporation is VDI Media.
II.
The purpose of this Corporation is to engage any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporation Code.
III.
The liability of the agents ( as defined in Section 317 of the California
Corporations Code) of the Corporation (the "Agents") for monetary damages shall
be eliminated to the fullest extent permissible under California law.
This Corporation is authorized to provide indemnification of Agents for
breach of duty to the Corporation and its shareholders through bylaw provisions
or through agreements with the Agents, or both, in excess of the indemnification
otherwise permitted by Section 317 of the
<PAGE>
California Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the California Corporation Code.
IV.
The address in the State of California of the Corporation's agent for
service of process is: R. Luke Stefanko, 6920 Sunset Boulevard, Hollywood,
California 90028.
V.
A. AUTHORIZED SHARES. The aggregate number of shares of capital stock
that the Corporation is authorized to issue is fifty-five million (55,000,000)
shares, consisting of (i) fifty million (50,000,000) shares of Common Stock
having no par value and (ii) five million (5,000,000) shares of Preferred Stock
having no par value. All cross references in each subdivision of this ARTICLE V
refer to other paragraphs in such subdivision unless otherwise indicated.
B. COMMON STOCK
1. The Board of Directors may, in its discretion, out of funds
legally available for the payment of dividends and at such times and in such
manner as determined by the Board Directors, declare and pay dividends on the
Common Stock.
2. Upon reinstatement of this article to read as herein set forth,
each outstanding share of Common Stock is split up and converted into 333 shares
of Common Stock.
3. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after there shall have been paid
to or set aside for the holders of shares of Preferred Stock the full
preferential amounts to which they are entitled, if any, the holders of
outstanding shares of Common Stock shall be entitled to receive pro rata,
according to the number of shares of held by each, the remaining assets of the
Corporation available for distribution.
4. Except as otherwise provided by law and except as may be
determined by the Board of Directors with respect to the Preferred Stock
pursuant to Section C of this ARTICLE V, only the holders of Common Stock shall
be entitled to vote for the election of Directors of the Corporation and for all
other corporate purposes. Upon any such vote the holders of Common Stock shall,
except as otherwise provided by law, be entitled to one vote for each share of
Common Stock held by them respectively.
C. PREFERRED STOCK. The Preferred Stock may be issued from time to
time in one or more series in any manner permitted by law and the provisions of
the Restated Articles of Incorporation of the Corporation, as determined from
time to time by the Board of Directors and stated in the resolution or
resolutions providing for the issuance thereof, prior to the issuance of
2
<PAGE>
any shares thereof. Unless otherwise provided in the resolution establishing a
series of Preferred Stock, prior to the issue of any shares of a series so
established or to be established, the Board of Directors may, by resolution,
amend the relative rights an preferences of the shares of such series, and,
after the issue of shares of a series whose number has been designated by the
Board of Directors, the resolution establishing the series may be amended by the
Board of Directors to increase (but not above the total authorized shares of
the class) or to decrease (but not below the number of shares of such series
then outstanding) the number of shares of that series.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of each class of stock
shall be governed by the following provisions:
1. The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of Preferred Stock in
one or more series, with such voting powers, full or limited, or without
voting powers and with such designations, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
resolution or resolutions providing for the issue thereof adopted by the Board
of Directors, except if such resolution or resolutions conflict with the
provisions of the Restated Articles of Incorporation of the Corporation. Said
resolution or resolutions may provide for (but not limiting the generally
thereof) the following:
a. The number of shares to constitute each such series, and the
designation of each such series.
b. The dividend rate of each such series, the conditions and
dates upon which such dividends shall be payable, the
relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series
of any class or classes of stock, and whether such dividends
shall be cumulative or non-cumulative.
c. Whether the shares of each such series shall be subject to
redemption by the Corporation and if made subject to such
redemption, the times, prices and other terms and conditions
of such redemption.
d. The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of each such series.
e. Whether or not the shares of each such series shall be
convertible into or exchangeable for shares of any other
class or classes or any other series of any other class or
classes of stock of the Corporation, and, if provision be
made for conversion or exchange,
3
<PAGE>
the times, prices, rates of exchange, adjustments, and other
terms and conditions of such conversion or exchange.
f. The extent, if any, to which the holders of the shares of
each such series shall be entitled to vote with respect to
the election of Directors or otherwise.
g. The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
h. The rights of the holders of the shares of each such series
upon the dissolution of, or upon the distribution of the
assets of, the Corporation.
2. Except as otherwise required by law and except for such voting powers
with respect to the election of Directors or other matters as may be stated in
the resolutions of the Board of Directors creating any series of Preferred
Stock, the holders of any such series shall have no voting powers whatsoever.
Any amendment of the Restated Articles of Incorporation of the Corporation
which shall increase or decrease the number of authorized shares of any class or
classes of stock may be adopted by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote.
VI.
The Corporation shall have perpetual existence.
VII.
For so long as a class of the Corporation's stock is registered pursuant to
the Securities Exchange Act of 1934, as amended, shareholder action shall be
taken only at an annual meeting or special meeting of the shareholders and shall
not be taken by written consent.
5. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the board of directors.
4
<PAGE>
6. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 902, California Corporations Code. The total number of outstanding
shares of the Corporation is 20,000. The number of shares voting in favor of
the amendment equaled or exceeded the vote required. The percentage vote
required was more than 50%.
DATE: May 15, 1996
/s/ R. Luke Stefanko
---------------------------
R. Luke Stefanko
Chief Executive Officer
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
DATE: May 15, 1996
/s/ R. Luke Stefanko
-----------------------------
R. Luke Stefanko
Chief Executive Officer
/s/ Donald R. Stine
-----------------------------
Donald R. Stine
Secretary
5
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
VDI MEDIA
A CALIFORNIA CORPORATION
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
OFFICES
Section 1. Principal Executive Office . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Qualification to do Business . . . . . . . . . . . . . . . 1
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . 2
Section 3. Special Meetings. . . . . . . . . . . . . . . . . . . . . . 2
Section 4. Notice of Meetings of Shareholders. . . . . . . . . . . . . 2
Section 5. Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Adjourned Meetings and Notice
Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 7. Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(a) Voting Rights of Shares and
Shareholders. . . . . . . . . . . . . . . . . . . . . . . . 5
(b) Record Date Requirements. . . . . . . . . . . . . . . . . . 5
(c) Voting of Shares by Fiduciaries,
Receivers, Pledgeholders and Minors . . . . . . . . . . . . 6
(d) Voting of Shares by Corporations. . . . . . . . . . . . . . 7
(e) Voting of Shares Owned of Record
by Two or More Persons. . . . . . . . . . . . . . . . . . . 8
(f) Election of Directors; Cumulative
Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 8. Waiver of Notice and Consent of
Absentees . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9. Action Without a Meeting . . . . . . . . . . . . . . . . . 10
Section 10. Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 11. Inspectors of Election . . . . . . . . . . . . . . . . . . 13
ARTICLE III
DIRECTORS
Section 1. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Number and Qualification of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Election and Term of Office. . . . . . . . . . . . . . . . 14
Section 4. Resignation and Removal of Directors . . . . . . . . . . . 14
Section 5. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 15
- i -
<PAGE>
Page
----
Section 6. Place of Meetings. . . . . . . . . . . . . . . . . . . . . 15
Section 7. Regular Meetings . . . . . . . . . . . . . . . . . . . . . 15
Section 8. Special Meetings . . . . . . . . . . . . . . . . . . . . . 16
Section 9. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10. Waiver of Notice or Consent. . . . . . . . . . . . . . . . 16
Section 11. Adjournment. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 12. Meetings by Conference Telephone . . . . . . . . . . . . . 17
Section 13. Action Without a Meeting . . . . . . . . . . . . . . . . . 17
Section 14. Fees and Compensation. . . . . . . . . . . . . . . . . . . 17
Section 15. Committees . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IV
OFFICERS
Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 2. Elections. . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3. Other Officers . . . . . . . . . . . . . . . . . . . . . . 19
Section 4. Removal and Resignation. . . . . . . . . . . . . . . . . . 20
Section 5. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6. Chairman of the Board. . . . . . . . . . . . . . . . . . . 20
Section 7. President. . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 8. Vice Presidents. . . . . . . . . . . . . . . . . . . . . . 21
Section 9. Secretary. . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 10. Chief Financial Officer. . . . . . . . . . . . . . . . . . 22
ARTICLE V
MISCELLANEOUS
Section 1. Record Date. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2. Inspection of Corporate Records. . . . . . . . . . . . . . 23
Section 3. Checks, Drafts, etc. . . . . . . . . . . . . . . . . . . . 24
Section 4. Annual and Other Reports . . . . . . . . . . . . . . . . . 24
Section 5. Contracts, etc., How Executed. . . . . . . . . . . . . . . 25
Section 6. Certificate for Shares . . . . . . . . . . . . . . . . . . 26
Section 7. Representation of Shares of Other
Corporations . . . . . . . . . . . . . . . . . . . . . . . 27
Section 8. Inspection of Bylaws . . . . . . . . . . . . . . . . . . . 27
Section 9. Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 10. Construction and Definitions . . . . . . . . . . . . . . . 27
ARTICLE VI
INDEMNIFICATION
Section 1. Indemnification of Agents. . . . . . . . . . . . . . . . . 28
- ii -
<PAGE>
Page
----
ARTICLE VII
AMENDMENTS
Section 1. Power of Shareholders. . . . . . . . . . . . . . . . . . . 28
Section 2. Power of Directors . . . . . . . . . . . . . . . . . . . . 28
- iii -
<PAGE>
BYLAWS
OF
VDI MEDIA
A CALIFORNIA CORPORATION
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE.
The principal executive office of the corporation shall be located at
such place as the board of directors shall from time to time determine.
SECTION 2. OTHER OFFICES.
Other offices may at any time be established by the board of directors
at any place or places where necessary or appropriate to carry out the business
of the corporation.
SECTION 3. QUALIFICATION TO DO BUSINESS.
The corporation shall qualify to do business in any jurisdiction in
which its business, properties or activities require it to do so.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETINGS.
All meetings of shareholders shall be held at the principal executive
office of the corporation or at any other place within or without the State of
California which may be designated either by the board of directors or by the
shareholders in accordance with these bylaws.
SECTION 2. ANNUAL MEETINGS.
The board of directors by resolution shall designate the time, place
and date (which shall be in the case of
<PAGE>
the first annual meeting, not more than fifteen (15) months after the
organization of the corporation and, in the case of all other annual meetings,
no more than fifteen (15) months after the date of the last annual meeting) of
the annual meeting of the shareholders for the election of directors and the
transaction of any other proper business.
SECTION 3. SPECIAL MEETINGS.
Special meetings of the shareholders, for the purpose of taking any
action which is within the powers of the shareholders, may be called by the
chairman of the board, or by the president, or by the board of directors, or by
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting.
SECTION 4. NOTICE OF MEETINGS OF SHAREHOLDERS.
(a) Written notice of each meeting of shareholders, whether annual or
special, shall be given to each shareholder entitled to vote thereat, either
personally or by first class mail or other means of written communication,
charges prepaid, addressed to such shareholder at the address of such
shareholder appearing on the books of the corporation or given by such
shareholder to the corporation for the purpose of notice. If any notice
addressed to the shareholder at the address of such shareholder appearing on the
books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is
unable to deliver the notice to the shareholder at such address, all future
notices shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one (1) year from the date of the giving of the notice to all other
shareholders. If no address appears on the books of the corporation or is given
by the shareholder to the corporation for the purpose of notice, notice shall be
deemed to have been given to such shareholder if given either personally or by
first class mail or other means of written communication addressed to the place
where the principal executive office of the corporation is located, or if
published at least once in a newspaper of general circulation in the county in
which the principal executive office is located.
(b) All such notices shall be given not less than ten (10) days nor
more than sixty (60) days before the meeting to each shareholder entitled to
vote thereat. Any such notice shall be deemed to have been given at the time
when
2
<PAGE>
delivered personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with
the foregoing provisions, executed by the secretary, assistant secretary or any
transfer agent of the corporation shall be prima facie evidence of the giving of
the notice.
(c) All such notices shall state the place, date and hour of such
meeting. In the case of a special meeting such notice shall also state the
general nature of the business to be transacted at such meeting, and no other
business may be transacted thereat. In the case of an annual meeting, such
notice shall also state those matters which the board of directors at the time
of the mailing of the notice intends to present for action by the shareholders.
Any proper matter may be presented at an annual meeting of shareholders though
not stated in the notice, provided that unless the general nature of a proposal
to be approved by the shareholders relating to the following matters is stated
in the notice or a written waiver of notice, any such shareholder approval will
require unanimous approval of all shareholders entitled to vote:
(1) A proposal to approve a contract or other transaction between the
corporation and one or more of its directors or any corporation, firm or
association in which one or more of its directors has a material financial
interest or is also a director;
(2) A proposal to amend the articles of incorporation;
(3) A proposal to approve the principal terms of a reorganization as
defined in Section 181 of the General Corporation Law;
(4) A proposal to wind up and dissolve the corporation;
(5) If the corporation has both preferred and common shares
outstanding and the corporation is in the process of winding up, a proposal to
adopt a plan of distribution of shares, obligations or securities of any other
corporation or assets other than money which is not in accordance with the
liquidation rights of the preferred shares as specified in the articles.
(d) The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of the notice to be
presented by management for election.
3
<PAGE>
(e) Upon request in writing that a special meeting of shareholders be
called for any proper purpose, directed to the chairman of the board, president,
vice president or secretary by any person (other than the board) entitled to
call a special meeting of shareholders, the officer forthwith shall cause notice
to be given to the shareholders entitled to vote that a meeting will be held at
a time requested by the person or persons calling the meeting, not less than
thirty-five (35) nor more than sixty (60) days after receipt of the request.
SECTION 5. QUORUM.
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote at any meeting shall constitute a quorum for the
transaction of business. The shareholders present at a duly called or held
meeting at which a quorum is present may continue to transact business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
SECTION 6. ADJOURNED MEETINGS AND NOTICE
THEREOF.
(a) Any shareholders' meeting, annual or special. whether or not a
quorum is present, may be adjourned from time to time by vote of a majority of
the shares, the holders of which are either present in person or by proxy
thereat, but in the absence of a quorum, no other business may be transacted at
any such meeting, except as provided in Section 8 of this Article II.
(b) When a shareholders' meeting is adjourned to another time or
place, except as provided in this subsection (b), notice need not be given of
the adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting the corporation may
transact any business which might have been transacted at the original meeting.
If the adjournment is for more than forty-five (45) days or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each shareholder of record entitled to
vote at the meeting.
4
<PAGE>
SECTION 7. VOTING.
(a) VOTING RIGHTS OF SHARES AND SHAREHOLDERS.
(1) Except as provided in Section 708 of the General Corporation
Law (Election of Directors) and except as may be otherwise provided in the
articles of incorporation of this corporation, each outstanding share,
regardless of class, shall be entitled to one (1) vote on each matter submitted
to a vote of shareholders.
(2) Any holder of shares entitled to vote on any matter may vote
part of the shares in favor of the proposal and refrain from voting the
remaining shares or vote them against the proposal, other than elections to
office, but, if the shareholder fails to specify the number of shares such
shareholder is voting affirmatively, it will be conclusively presumed that the
shareholder's approving vote is with respect to all shares such shareholder is
entitled to vote.
(b) RECORD DATE REQUIREMENTS.
(1) In order that the corporation may determine the shareholders
entitled to notice of any meeting or to vote 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 other lawful action, the board may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days prior to the date of such meeting nor more than sixty (60) days
prior to any other action.
(2) If no record date is fixed:
(a) The record date for determining shareholders entitled
to notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held.
(b) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the board has been taken, shall be the day on which the first written
consent is given.
(c) The record date for determining shareholders for any
other purpose shall be at the close of
5
<PAGE>
business on the day on which the board adopts the resolution relating thereto,
or the sixtieth (60th) day prior to the date of such other action, whichever is
later.
(3) A determination of shareholders of record entitled to notice
of or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting unless the board fixes a new record date for the adjourned meeting, but
the board shall fix a new record date if the meeting is adjourned for more than
forty-five (45) days from the date set for the original meeting.
(4) Shareholders at the close of business on the record date are
entitled to notice and to vote or to receive the dividend, distribution or
allotment of rights or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the articles or by agreement or
in the General Corporation Law.
(c) VOTING OF SHARES BY FIDUCIARIES, RECEIVERS,
PLEDGEHOLDERS AND MINORS.
(1) Subject to subdivision (3) of subsection (d) hereof, shares
held by an administrator, executor, guardian, conservator or custodian may be
voted by such holder either in person or by proxy, without a transfer of such
shares into the holder's name; and shares standing in the name of a trustee may
be voted by the trustee, either in person or by proxy, but no trustee shall be
entitled to vote shares held by such trustee without a transfer of such shares
into the trustee's name.
(2) Shares standing in the name of a receiver may be voted by
such receiver; and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into the receiver's name if
authority to do so is contained in the order of the court by which such receiver
was appointed.
(3) Subject to the provisions of Section 10 and except where
otherwise agreed in writing between the parties, a shareholder whose shares are
pledged shall be entitled to vote such shares until the shares have been
transferred into the name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
(4) Shares standing in the name of a minor may be voted and the
corporation may treat all rights incident thereto as exercisable by the minor,
person or by proxy, whether or not the corporation has notice, actual or
6
<PAGE>
constructive, of the nonage, unless a guardian of the minor's property has been
appointed and written notice of such appointment given to the corporation.
(5) If authorized to vote the shares by the power of attorney by
which the attorney in fact was appointed, shares held by or under the control of
an attorney in fact may be voted and the corporation may treat all rights
incident thereto as exercisable by the attorney in fact, in person or by proxy,
without the transfer of the shares into the name of the attorney in fact.
(d) VOTING OF SHARES BY CORPORATIONS.
(1) Shares of this corporation standing in the name of another
corporation, domestic or foreign, may be voted by an officer, agent or
proxyholder as the bylaws of the other corporation may prescribe or, in the
absence of such provision, as the board of the other corporation may determine
or, in the absence of that determination, by the chairman of the board,
president or any vice president of the other corporation, or by any other person
authorized to do so by the chairman of the board, president or any vice
president of the other corporation. Shares which are purported to be voted or
any proxy purported to be executed in the name of a corporation (whether or not
any title of the person signing is indicated) shall be presumed to be voted or
the proxy executed in accordance with the provisions of this subdivision, unless
the contrary is shown.
(2) Shares of this corporation owned by a subsidiary of this
corporation shall not be entitled to vote on any matter.
(3) Shares of this corporation held by this corporation in a
fiduciary capacity, and any of its shares held in a fiduciary capacity by a
subsidiary of this corporation, shall not be entitled to vote on any matter,
except as follows: To the extent that the settlor or beneficial owner possesses
and exercises a right to vote or to give this corporation or the subsidiary of
this corporation binding instructions as to how to vote such shares, or (ii)
where there are one or more cotrustees who are not affected by the prohibitions
of this subsection 7.(d), in which case the shares may be voted by the
cotrustees as if it or they are the sole trustee.
7
<PAGE>
(e) VOTING OF SHARES OWNED OF RECORD BY TWO OR MORE PERSONS.
(1) If shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a shareholder voting agreement
or otherwise, or if two or more persons (including proxyholders) have the same
fiduciary relationship respecting the same shares, unless the secretary of the
corporation is given written notice to the contrary and is furnished with a copy
of the instrument or order appointing them or creating the relationship wherein
it is so provided, their acts with respect to voting shall have the following
effect:
(a) If only one votes, such act binds all;
(b) If more than one vote, the act of the majority so
voting binds all;
(c) If more than one vote, but the vote is evenly split on
any particular matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any such
tenancy is held in unequal interests, a majority or even split for the purpose
of this section shall be a majority or even split in interest.
(f) ELECTION OF DIRECTORS; CUMULATIVE VOTING.
(1) Every shareholder complying with subsection (2) and entitled
to vote in any election of directors may cumulate such shareholder's votes and
give one (1) candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shareholders' shares are
normally entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit.
(2) No shareholder shall be entitled to cumulate votes (i.e.,
cast for any candidate a number of votes greater than the number of votes which
such shareholder normally is entitled to cast) unless such candidate or
candidates' names have been placed in nomination prior to the voting and the
shareholder has given notice at the meeting prior to the voting of the
shareholder's intention to cumulate the shareholder's votes. If any one (1)
8
<PAGE>
shareholder has given such notice, all shareholders may cumulate their votes for
candidates in nomination.
(3) In any election of directors, the candidates receiving the
highest number of affirmative votes of the shares entitled to be voted for them
up to the number of directors to be elected by such shares are elected; votes
against the director and votes withheld shall have no legal effect.
(4) Elections for directors need not be by ballot unless a
shareholder demands election by ballot at the meeting and before the voting
begins.
SECTION 8. WAIVER OF NOTICE AND CONSENT OF
ABSENTEES.
The transactions of any meeting of shareholders, however called and
noticed and wherever held, are as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy, signs a written waiver of notice or
a consent to the holding of the meeting, or an approval of the minutes thereof.
All such waivers, consents and approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. Attendance of a person at
a meeting shall constitute a waiver of notice of and presence at such meeting,
except when the person objects, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters required by law or these bylaws to be
included in the notice but was not so included if such objection is expressly
made at the meeting, provided however, that any person making such objection at
the beginning of the meeting or to the consideration of matters required to be
but not included in the notice may orally withdraw such objections at the
meeting or thereafter waive such objection by signing a written waiver thereof
or a consent to the holding of the meeting or the consideration of the matters
or an approval of the minutes of the meeting. Neither the business to be
transacted at nor the purpose of any annual or special meeting of shareholders
need be specified in any written waiver of notice, consent to the holding of the
meeting or approval of the minutes thereof, except that the general nature of
the proposals specified in subdivisions (1) through (5) of subsection (c) of
Section 4 of this Article II, shall be so stated.
9
<PAGE>
SECTION 9. ACTION WITHOUT A MEETING.
(a) Directors may be elected without a meeting by a consent in
writing, setting forth the action so taken, signed by all of the persons who
would be entitled to vote for the election of directors, provided that, a
director may be elected at any time to fill a vacancy not filled by the
directors, other than to fill a vacancy created by removal, by the written
consent of a majority of the outstanding shares entitled to vote for the
election of directors.
(b) Any other action which, under any provision of the General
Corporation Law may be taken at any annual or special meeting of the
shareholders, may be taken without a meeting, and without prior notice except as
hereinafter set forth, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted.
(c) Unless the consents of all shareholders entitled to vote have
been solicited in writing:
(1) Notice of any shareholder approval without a meeting, by
less than unanimous written consent, of, (i) a contract or other transaction
between the corporation and one or more of its directors or any corporation,
firm or association in which one or more of its directors has a material
financial interest or is also a director, indemnification of an agent of the
corporation as authorized by Section 16, of Article III, of these bylaws, (iii)
a reorganization of the corporation as defined in Section 181 of the General
Corporation Law, or (iv) the distribution of shares, obligations or securities
of any other corporation or assets other than money which is not in accordance
with the liquidation rights of preferred shares if the corporation is in the
process of winding up, shall be given at least ten (10) days before the
consummation of the action authorized by such approval; and
(2) Prompt notice shall be given of the taking of any other
corporate action including the filling of a vacancy on the board of directors
approved by shareholders without a meeting by less than unanimous written
consent, to those shareholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner and shall be deemed to have
been given as provided in Section 4 of Article II of these bylaws.
10
<PAGE>
(d) Any shareholder giving a written consent, or the shareholder's
proxyholders, or a transferee of the shares or a personal representative of the
shareholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the corporation.
SECTION 10. PROXIES.
(a) Every person entitled to vote shares may authorize another person
or persons to act by proxy with respect to such shares. Any proxy purporting to
be executed in accordance with the provisions of this Section 10 shall be
presumptively valid.
(b) No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every
proxy continues in full force and effect until revoked by the person executing
it prior to the vote pursuant thereto, except as otherwise provided in this
section. Such revocation may be effected by a writing delivered to the
corporation stating that the proxy is revoked or by a subsequent proxy executed
by the person executing the prior proxy and presented to the meeting, or as to
any meeting by attendance at such meeting and voting in person by the person
executing the proxy. The dates contained on the forms of proxy presumptively
determine the order of execution, regardless of the postmark dates on the
envelopes in which they are mailed.
(c) A proxy is not revoked by the death or incapacity of the maker
unless, before the vote is counted, written notice of such death or incapacity
is received by the corporation.
(d) Except when other provision shall have been made by written
agreement between the parties, the record holder of shares which such person
holds as pledgee or otherwise as security or which belong to another shall issue
to the pledgor or to the owner of such shares, upon demand therefor and payment
of necessary expenses thereof, a proxy to vote or take other action thereon.
(e) A proxy which states that it is irrevocable is irrevocable for
the period specified therein (notwithstanding subsection (c)) when it is held by
any of the following or a nominee of any of the following:
11
<PAGE>
(1) A pledgee;
(2) A person who has purchased or agreed to purchase or holds an
option to purchase the shares or a person who has sold a portion of such
person's shares in the corporation to the maker of the proxy;
(3) A creditor or creditors of the corporation or the
shareholder who extended or continued credit to the corporation or the
shareholder in consideration of the proxy if the proxy states that it was given
in consideration of such extension or continuation of credit and the name of the
person extending or continuing credit;
(4) A person who has contracted to perform services as an
employee of the corporation, if a proxy is required by the contract of
employment and if the proxy states that it was given in consideration of such
contract of employment, the name of the employee and the period of employment
contracted for; or
(5) A person designated by or under an agreement under Section
706 of the General Corporation Law;
(6) A beneficiary of a trust with respect to shares held by the
trust.
Notwithstanding the period of irrevocability specified, the proxy
becomes revocable when the pledge is redeemed, the option or agreement to
purchase is terminated or the seller no longer owns any shares of the
corporation or dies, the debt of the corporation or the shareholder is paid, the
period of employment provided for in the contract of employment has terminated,
the agreement under Section 706 of the General Corporation Law has terminated,
or the person ceases to be a beneficiary of the trust. In addition to the
foregoing subdivisions (1) through (6), a proxy may be made irrevocable
(notwithstanding subsection (c)) if it is given to secure the performance of a
duty or to protect a title, either legal or equitable, until the happening of
events which, by its terms discharge the obligations secured by it.
(f) A proxy may be revoked notwithstanding a provision making it
irrevocable, by a transferee of shares without knowledge of the existence of the
provision unless the existence of the proxy and its irrevocability appears on
the certificate representing such shares.
12
<PAGE>
SECTION 11. INSPECTORS OF ELECTION.
(a) In advance of any meeting of shareholders, the board of directors
may appoint any persons as inspectors of election to act at such meeting and any
adjournment thereof. If inspectors of election are not so appointed, or if any
persons so appointed fail to appear or refuse to act, the chairman of any such
meeting may, and on the request of any shareholder or his proxy shall, appoint
inspectors of election (or persons to replace those who so fail or refuse) at
the meeting. The number of inspectors shall be either one (1) or three (3). If
appointed at a meeting on the request of one or more shareholders or proxies,
the majority of shares represented in person or by proxy shall determine whether
one (1) or three (3) inspectors are to be appointed.
(b) The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all shareholders.
(c) The inspectors of election shall perform their duties
impartially, in good faith, to the best of their ability and as expeditiously as
is practical. If there are three (3) inspectors of election, the decision, act
or certificate of a majority is effective in all respects as the decision, act
or certificate of all. Any report or certificate made in the inspectors of
election is prima facie evidence of the facts stated therein.
ARTICLE III
DIRECTORS
SECTION 1. POWERS.
Subject to the General Corporation Law and any limitations in the
articles of incorporation of this corporation relating to action requiring
approval by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
13
<PAGE>
SECTION 2. NUMBER AND QUALIFICATION OF
DIRECTORS.
The number of directors of this corporation shall be two (2). After
the issuance of shares this number may be changed only by an amendment to the
articles of incorporation or the bylaws approved by the affirmative vote or
written consent of a majority of the outstanding shares entitled to vote. If
the number of directors is or becomes five (5) or more, an amendment of the
articles of incorporation or the bylaws reducing the fixed number of directors
to less than five (5) cannot be adopted if the votes cast against its adoption
at a meeting or the shares not consenting in the case of action by written
consent are equal to more than sixteen and two-thirds percent (16-2/3%) of the
outstanding shares entitled to vote.
SECTION 3. ELECTION AND TERM OF OFFICE.
The directors shall be elected at each annual meeting of shareholders,
but if any such annual meeting is not held or the directors are not elected at
any annual meeting, the directors may be elected at any special meeting of
shareholders held for that purpose. Each director, including a director elected
to fill a vacancy, shall, subject to Section 4, hold office until the expiration
of the term for which elected and until his successor has been elected and
qualified.
SECTION 4. RESIGNATION AND REMOVAL OF DIRECTORS.
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of directors of
the corporation, unless the notice specifies a later time for the effectiveness
of such resignation. If the resignation is effective at a future time a
successor may be elected to take office when the resignation becomes effective.
The board of directors may declare vacant the office of a director who has been
declared of unsound mind by an order of court or convicted of a felony. Any or
all of the directors may be removed without cause if such removal is approved by
the affirmative vote of a majority of the outstanding shares entitled to vote;
provided, however, that no director may be removed (unless the entire board is
removed) when the votes cast against removal (or, if such action is taken by
written consent, the shares held by persons not consenting in writing to such
removal) would be sufficient to elect such director if voted cumulatively at an
election at which the same total number of votes were cast (or, if such action
is taken by written consent, all shares entitled to vote were
14
<PAGE>
voted) and the entire number of directors authorized at the time of the
director's most recent election were then being elected. No reduction of the
authorized number of directors shall have the effect of removing any director
prior to the expiration of his term of office.
SECTION 5. VACANCIES.
A vacancy or vacancies on the board of directors shall exist on the
death, resignation or removal of any director, or if the board declares vacant
the office of a director if he is declared of unsound mind by an order of court
or is convicted of a felony, or if the authorized number of directors is
increased or if the shareholders fail to elect the full authorized number of
directors to be voted for at any shareholders' meeting at which an election of
directors is held. Vacancies on the board of directors (except vacancies
created by the removal of a director) may be filled by a majority of the
directors then in office, or by a sole remaining director. The shareholders may
elect a director at any time to fill any vacancy not filled by the directors or
which occurs by reason of the removal of a director. Any such election by
written consent of shareholders other than to fill a vacancy created by removal,
shall require the consent of a majority of the outstanding shares entitled to
vote. If the resignation of a director states that it is to be effective at a
future time, a successor may be elected to take office when the resignation
becomes effective.
SECTION 6. PLACE OF MEETINGS.
Regular and special meetings OF the board of directors may be held at
any place within or without the State of California which has been designated in
the notice of the meeting, or, if not stated in the notice or there is no
notice, designated by resolution or by written consent of all of the members of
the board of directors. If the place of a regular or special meeting is not
designated in the notice or fixed by a resolution of the board or consented to
in writing by all members of the board of directors, it shall be held at the
corporation's principal executive office.
SECTION 7. REGULAR MEETINGS.
Immediately following each annual shareholders' meeting the board of
directors shall hold a regular meeting to elect officers and transact other
business. Such meeting shall be held at the same place as the annual
shareholders' meeting or such other place as shall be fixed by the board
15
<PAGE>
of directors. Other regular meetings of the board of directors shall be held at
such times and places as are fixed by the board. Call and notice of regular
meetings of the board of directors shall not be required and is hereby dispensed
with.
SECTION 8. SPECIAL MEETINGS.
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two (2) directors. Notice of the time and place
of special meetings shall be delivered personally to each director or by
telephone or telegraph or sent to the director by mail. In case notice is given
by mail or telegram, it shall be sent, charges prepaid, addressed to the
director at his address appearing on the corporate records, or if it is not on
these records or is not readily ascertainable, at the place where the meetings
of directors are regularly held. If notice is delivered personally or given by
telephone or telegraph, it shall be given or delivered to the telegraph office
at least forty-eight (48) hours before the meeting. If notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
meeting. Such mailing, telegraphing or delivery, personally or by telephone, as
provided in this section, shall be due, legal and personal notice to such
director. A notice need not specify the purpose of any regular or special
meeting of the board of directors.
SECTION 9. QUORUM
A majority of the authorized number of directors shall constitute a
quorum of the board for the transaction of business. Every act or decision done
or made by a majority of the directors present at a meeting duly held at which a
quorum is present is the act of the board of directors, subject to the
provisions of Section 310 (Transactions with Interested Directors) and
subdivision (e) of Section 317 (Indemnification of Corporate Agents) of the
General Corporation Law. A meeting at which a quorum is initially present may
continue to transact business notwithstanding the withdrawal of directors,
provided that any action taken is approved by at least a majority of the
required quorum for such meeting.
SECTION 10. WAIVER OF NOTICE OR CONSENT.
The transactions of any meeting of the board of directors, however
called and noticed or wherever held,
16
<PAGE>
shall be as valid as though had at a meeting duly held after regular call and
notice, if a quorum is present and if, either before or after the meeting, each
of the directors not present or who, though present, has prior to the meeting or
at its commencement, protested the lack of proper notice to him, signs a written
waiver of notice, or a consent to holding the meeting, or an approval of the
minutes of the meeting. All such waivers, consents and approvals shall be filed
with the corporate records or made a part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors. Notice of a meeting need not be given to any
director who attends the meeting without protesting, prior to or at its
commencement, the lack of notice to such director.
SECTION 11. ADJOURNMENT.
A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. If the meeting is
adjourned for more than twenty-four (24) hours, notice of the adjournment to
another time or place shall be given prior to the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
SECTION 12. MEETINGS BY CONFERENCE TELEPHONE.
Members of the board of directors may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation by
directors in a meeting in the manner provided in this section constitutes
presence in person at such meeting.
SECTION 13. ACTION WITHOUT A MEETING.
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, if all members of the board shall individually
or collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the board. Such
action by written consent shall have the same force and effect as a unanimous
vote of such directors.
SECTION 14. FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if
any, for their services, and such reimbursement for expenses, as may be fixed or
determined by resolution of the board.
17
<PAGE>
SECTION 15. COMMITTEES.
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one or more directors as alternate members of any committee,
who may replace any absent member at any meeting of the committee. The
appointment of members or alternate members of a committee requires the vote of
a majority of the authorized number of directors. The board may delegate to any
such committee, to the extent provided in such resolution, any of the board's
powers and authority in the management of the corporation's business and affairs
except with respect to:
(a) The approval of any action for which the General Corporation Law
or the articles of incorporation of this corporation also requires shareholders'
approval or approval of the outstanding shares;
(b) The filling of vacancies on the board of directors or any
committee;
(c) The fixing of compensation of directors for serving on the board
or on any committee;
(d) The amendment or repeal of bylaws or the adoption of new bylaws;
(e) The amendment or repeal of any resolution of the board which by
its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board;
and
(g) The appointment of other committees of the board or the members
thereof.
The board may prescribe appropriate rules, not inconsistent with these
bylaws, by which proceedings of any such committee shall be conducted. The
provisions of these bylaws relating to the calling of meetings of the board,
notice of meetings of the board and waiver of such notice, adjournments of
meetings of the board, written consents to board meetings and approval of
minutes, action by the board by consent in writing without a meeting, the place
of holding such meetings, meetings by conference telephone or similar
communications equipment, the quorum for such meetings,
18
<PAGE>
the vote required at such meetings and the withdrawal of directors after
commencement of a meeting shall apply to committees of the board and action by
such committees. In addition, any member of the committee designated by the
board as the chairman or as secretary of the committee or any two (2) members of
a committee may call meetings of the committee. Regular meetings of any
committee may be held without notice if the time and place of such meetings are
fixed by the board of directors or the committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.
The officers of the corporation shall be a chairman of the board or a
president, or both, a secretary and a chief financial officer. The corporation
may also have, at the discretion of the board of directors, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article IV. Any number of offices may be held by the same
person.
SECTION 2. ELECTIONS.
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 3 or Section 5 of this
Article IV, shall be chosen no less frequently than annual meetings of
shareholders shall be held, by the board of directors, and each such officer
shall serve at the pleasure of the board of directors until the regular meeting
of the board of directors following the annual meeting of shareholders and until
his successor is elected and qualified.
SECTION 3. OTHER OFFICERS.
The board of directors may appoint, and may empower the chairman of
the board or the president or both of them to appoint such other officers as the
business of the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
19
<PAGE>
SECTION 4. REMOVAL AND RESIGNATION.
Any officer may be removed with or without cause either by the board
of directors or, except for an officer chosen by the board, by any officer upon
whom the power of removal may be conferred by the board (subject, in each case,
to the rights, if any, of an officer under any contract of employment). Any
officer may resign at any time upon written notice to the corporation (without
prejudice however, to the rights, if any, of the corporation under any contract
to which the officer is a party). Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein. If the
resignation is effective at a future time, a successor may be elected to take
office when the resignation becomes effective. Unless a resignation specifies
otherwise, its acceptance by the corporation shall not be necessary to make it
effective.
SECTION 5. VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
the bylaws for regular appointments to such office.
SECTION 6. CHAIRMAN OF THE BOARD.
The board of directors may, in its discretion, elect a chairman of the
board, who, unless otherwise determined by the board of directors, shall preside
at all meetings of the board of directors at which he is present and shall
exercise and perform any other powers and duties assigned to him by the board or
prescribed by the bylaws. If the office of president is vacant, the chairman of
the board shall be the general manager and chief executive officer of the
corporation and shall exercise the duties of the president as set forth in
Section 7. He shall preside as chairman at all meetings of the shareholders
unless otherwise determined by the board of directors.
SECTION 7. PRESIDENT.
Subject to any supervisory powers, if any, that may be given by the
board of directors or the bylaws to the chairman of the board, if there be such
an officer, the president shall be the corporation's general manager and chief
executive officer and shall, subject to the control of the board of directors,
have general supervision, direction and control of the business, affairs and
officers of the corporation. Unless otherwise determined by the board of
directors, and in the absence of the chairman of the board,
20
<PAGE>
or if there be none, he shall preside as chairman at all meetings of the board
of directors and of the shareholders. He shall have the general powers and
duties of management usually vested in the office of president of a corporation;
shall have any other powers and duties that are prescribed by the board of
directors or the bylaws; and shall be primarily responsible for carrying out all
orders and resolutions of the board of directors.
SECTION 8. VICE PRESIDENTS.
In the absence or disability of the chief executive officer, the vice
presidents in order of their rank as fixed by the board of directors, or if not
ranked, the vice president designated by the board of directors, or if there has
been no such designation, the vice president designated by the chief executive
officer, shall perform all the duties of the chief executive officer, and when
so acting, shall have all the powers of, and be subject to all the restrictions
on, the chief executive officer. Each vice president shall have any of the
powers and perform any other duties that from time to time may be prescribed for
him by the board of directors or the bylaws or the chief executive officer.
SECTION 9. SECRETARY.
The secretary shall keep or cause to be kept a book of minutes of all
meetings and actions by written consent of all directors, shareholders and
committees of the board of directors. The minutes of each meeting shall state
the time and place that it was held and such other information as shall be
necessary to determine whether the meeting was held in accordance with law and
these bylaws and the actions taken thereat. The secretary shall keep or cause
to be kept at the corporation's principal executive office, or at the office of
its transfer agent or registrar, a record of the shareholders of the
corporation, giving the names and addresses of all shareholders and the number
and class of shares held by each. The secretary shall give, or cause to be
given, notice of all meetings of shareholders, directors and committees required
to be given under these bylaws or by law, shall keep or cause the keeping of the
corporate seal in safe custody and shall have any other powers and perform any
other duties that are prescribed by the board of directors or the bylaws or the
chief executive officer. If the secretary refuses or fails to give notice of
any meeting lawfully called, any other officer of the corporation may give
notice of such meeting. The assistant secretary, or if there be more than one,
any assistant secretary, may perform any or all of the duties and exercise any
or all of the
21
<PAGE>
powers of the secretary unless prohibited from doing so by the board of
directors, the chief executive officer or the secretary, and shall have such
other powers and perform any other duties as are prescribed for him by the board
of directors or the chief executive officer.
SECTION 10. CHIEF FINANCIAL OFFICER.
The chief financial officer, who shall also be deemed to be the
treasurer, when a treasurer may be required, shall keep and maintain, or cause
to be kept and maintained, adequate and correct books and records of account.
The chief financial officer shall cause all money and other valuables in the
name and to the credit of the corporation to be deposited at the depositories
designated by the board of directors or any person authorized by the board of
directors to designate such depositories. He shall render to the chief
executive officer and board of directors when requested by either of them, an
account of all his transactions as chief financial officer and of the financial
condition of the corporation; and shall have any other powers and perform any
other duties that are prescribed by the board of directors or the bylaws or the
chief executive officer. The assistant treasurer, or if there be more than one,
any assistant treasurer, may perform any or all of the duties and exercise any
or all of the powers of the chief financial officer unless prohibited from
doing so by the board of directors, the chief executive officer or the chief
financial officer, and shall have such other powers and perform any other duties
as are prescribed for him by the board of directors, the chief executive officer
or the chief financial officer.
ARTICLE V
MISCELLANEOUS
SECTION 1. RECORD DATE.
The board of directors may fix, in advance, a record date for the
determination of the shareholders entitled to notice of any meeting of
shareholders or to vote or entitled to receive payment of any dividend or
distribution or allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. The record date so fixed shall be not more
than sixty (60) days nor less than ten (10) days prior to the date of such
meeting, nor more than sixty (60) days prior to any other action for the
purposes of which it is fixed. When a record date is so
22
<PAGE>
fixed, only shareholders of record at the close of business on that date are
entitled to notice of and to vote at any such meeting, to receive a dividend,
distribution, or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise provided in the articles of
incorporation or bylaws.
SECTION 2. INSPECTION OF CORPORATE RECORDS.
The accounting books and records and record of shareholders, and
minutes of proceedings of the shareholders and the board and committees of the
board of this corporation or of a subsidiary of this corporation shall be open
to inspection upon the written demand on the corporation of any shareholder or
holder of a voting trust certificate at any time during usual business hours,
for a purpose reasonably related to such holder's interests as a shareholder or
as the holder of such voting trust certificate. Such inspection by a
shareholder or holder of a voting trust certificate may be made in person or by
agent or attorney, and the right of inspection includes the right to copy and
make extracts.
A shareholder or shareholders holding at least five percent (5%) in
the aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
absolute right to inspect and copy the record of shareholders' names and
addresses and shareholdings during usual business hours upon five (5) business
days' prior written demand upon the corporation or to obtain from the transfer
agent for the corporation, upon written demand and upon the tender of its usual
charges, a list of the shareholders' names and addresses, who are entitled to
vote for the election of directors, and their shareholdings, as of the most
recent record date for which it has been compiled or as of a date specified by
the shareholder subsequent to the date of demand. The list shall be made
available on or before the later of five (5) business days after the demand is
received or the date specified therein as the date as of which the list is to be
compiled.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of this corporation and any subsidiary of this
23
<PAGE>
corporation. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts.
SECTION 3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or
other evidences of indebtedness, issued in the name of or payable to the
corporation, shall be signed or endorsed by such person or persons and in such
manner as, from time to time, shall be determined by resolution of the board of
directors. The board of directors may authorize one or more officers of the
corporation to designate the person or persons authorized to sign such documents
and the manner in which such documents shall be signed.
SECTION 4. ANNUAL AND OTHER REPORTS.
(a) The statutory requirement that the board of directors cause an
annual report to be sent to shareholders is hereby waived.
(b) If no annual report for the last fiscal year has been sent to the
shareholders, the corporation shall, upon the written request of any
shareholder made more than one hundred twenty (120) days after the close of such
fiscal year, deliver or mail to the person making the request within thirty (30)
days thereafter the annual report for the last year. A shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of any
class of the corporation may make a written request to the corporation for an
income statement of the corporation for the three (3) month, six (6) month or
nine (9) month period of the current fiscal year ended more than thirty (30)
days prior to the date of the request and a balance sheet of the corporation as
of the end of such period and, in addition, if no annual report for the last
fiscal year has been sent to shareholders, then the annual report for the last
fiscal year. The statements shall be delivered or mailed to the person making
the request within thirty (30) days thereafter. A copy of such statements shall
be kept on file in the principal executive office of the corporation for twelve
(12) months and they shall be exhibited at all reasonable times to any
shareholder demanding an examination of them or a copy shall be mailed to such
shareholder.
(c) The quarterly income statements and balance sheets referred to in
this section shall be accompanied by the report thereon, if any, of any
independent accountants engaged by the corporation or the certificate of an
authorized officer of the corporation that such financial
24
<PAGE>
statements were prepared without audit from the books and records of the
corporation.
(d) Unless otherwise determined by the board of directors or the
chief executive officer, the chief financial officer and any assistant treasurer
are each authorized officers of the corporation to execute the certificate that
the annual report and quarterly income statements and balance sheets referred to
in this section were prepared without audit from the books and records of the
corporation.
Any report sent to the shareholders shall be given personally or by
mail or other means of written communication, charges prepaid, addressed to such
shareholder at the address of such shareholder appearing on the books of the
corporation or given by such shareholder to the corporation for the purpose of
notice or set forth in the written request of the shareholder as provided in
this section. If any report addressed to the shareholder at the address of such
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the report to the shareholder
at such address, all future reports shall be deemed to have been duly given
without further mailing if the same shall be available for the shareholder upon
written demand of the shareholder at the principal executive office of the
corporation for a period of one (1) year from the date of the giving of the
report to all other shareholders. If no address appears on the books of the
corporation or is given by the shareholder to the corporation for the purpose of
notice or is set forth in the written request of the shareholder as provided in
this section, such report shall be deemed to have been given to such shareholder
if sent by mail or other means of written communication addressed to the place
where the principal executive office of the corporation is located, or if
published at least once in a newspaper of general circulation in the county in
which the principal executive office is located. Any such report shall be
deemed to have been given at the time when delivered personally or deposited in
the mail or sent by other means of written communication. An affidavit of
mailing of any such report in accordance with the foregoing provisions, executed
by the secretary, assistant secretary or any transfer agent of the corporation
shall be prima facie evidence by the giving of the report.
SECTION 5. CONTRACTS, ETC., HOW EXECUTED.
The board of directors, except as the bylaws or articles of
incorporation otherwise provide, may authorize
25
<PAGE>
any officer or officers, agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
SECTION 6. CERTIFICATE FOR SHARES.
(a) Every holder of shares in the corporation shall be entitled to
have a certificate signed in the name of the corporation by the chairman or vice
chairman of the board or the president or a vice president and by the chief
financial officer or an assistant treasurer or the secretary or any assistant
secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may
be 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.
(b) Any such certificate shall also contain such legend or other
statement as may be required by Section 418 of the General Corporation Law, the
Corporate Securities Law of 1968, and any agreement between the corporation and
the issuee thereof, and may contain such legend or other statement as may be
required by any other applicable law or regulation or agreement.
(c) Certificates for shares may be issued prior to full payment
thereof, under such restrictions and for such purposes, as the board of
directors or the bylaws may provide, provided, however, that any such
certificates so issued prior to full payment shall state the total amount of the
consideration to be paid therefor and the amount paid thereon.
(d) No new certificate for shares shall be issued in place of any
certificate theretofore issued unless the latter is surrendered and cancelled at
the same time; provided, however, that a new certificate may be issued without
the surrender and cancellation of the old certificate if the certificate
theretofore issued is alleged to have been lost, stolen or destroyed. In case
of any such allegedly lost, stolen or destroyed certificate, the corporation may
require the owner thereof or the legal representative of such owner to give the
corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any
26
<PAGE>
expense or liability) on account of the alleged loss, theft or destruction of
any such certificate or the issuances of such new certificate.
SECTION 7. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS.
Unless the board of directors shall otherwise determine, the chairman
of the board, the president, any vice president and the secretary of this
corporation are each authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to such officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
person authorized so to do by proxy or power of attorney or other document duly
executed by any such officer.
SECTION 8. INSPECTION OF BYLAWS.
The corporation shall keep in its principal executive office in
California, or if its principal executive office is not in California, at its
principal business office in California, the original or a copy of the bylaws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the corporation has no office in
California, it shall upon the written request of any shareholder, furnish him a
copy of the bylaws as amended to date.
SECTION 9. SEAL.
The corporation may have a common seal.
SECTION 10. CONSTRUCTION AND DEFINITIONS.
Unless the context otherwise requires, the general provisions, rules
of construction and definitions contained in the General Corporation Law shall
govern the construction of these bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the singular
number includes the plural and the plural number includes the singular, and the
term "Person" includes a corporation as well as a natural person.
27
<PAGE>
ARTICLE VI
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF AGENTS.
The board of directors of this corporation is authorized to enter into
an agreement or agreements with any agent or agents of the corporation,
providing for or permitting indemnification in excess of that permitted under
Section 317 of the General Corporation Law, subject to the limitations of
Section 204 of the General Corporation Law.
ARTICLE VII
AMENDMENTS
SECTION 1. POWER OF SHAREHOLDERS.
New bylaws may be adopted or these bylaws may be amended or repealed
by the affirmative vote of a majority of the outstanding shares entitled to vote
or by the written assent of shareholders entitled to vote such shares, except as
otherwise provided by law or by the articles of incorporation of this
corporation.
SECTION 2. POWER OF DIRECTORS.
Subject to the right of shareholders as provided in Section 1 of this
Article VII to adopt, amend or repeal bylaws, bylaws other than a bylaw or
amendment thereof changing the authorized number of directors may be adopted,
amended or repealed by the board of directors.
28
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting secretary of D2D, INC., a
California corporation; and
(2) That the foregoing bylaws, comprising twenty-eight (28) pages,
constitute the bylaws of such corporation as duly adopted by unanimous written
consent action of the board of directors of the corporation duly taken as of May
1, 1990.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of such corporation this 11th of May 1990.
/s/ Kim Bajorek
-----------------------------------------
Kim Bajorek
Secretary
<PAGE>
OFFICERS' CERTIFICATE OF
AMENDMENT OF BYLAWS
OF
VDI MEDIA
VDI Media, a corporation organized and existing under and by virtue of the
Corporations Code of the State of California (hereafter the "Corporation") does
hereby certify:
1. This Amendment of the Bylaws of the Corporation has been unanimously
approved by the Board of Directors of the Corporation and has been approved by
the shareholders owning a majority of the outstanding shares of the
Corporation's common stock, the sole class of stock currently outstanding.
2. Article II, Section 7(f) of the Bylaws of the Corporation was restated
to read in its entirety as follows:
At such time as this Corporation shall become a "listed corporation",
as that term was used in Section 301.5 of the California Corporations
Code, the shareholders of the Corporation shall have no right to
cumulative votes for the election of directors, and any such rights
are hereby eliminated as permitted in said Section 301.5.
3. Article III, Section 2 of the Bylaws of the Corporation was restated
to read in its entirety as follows:
The number of directors of this corporation shall be five(5). After
the issuance of shares this number may be changed only by an amendment
to the articles of incorporation or Bylaws approved by the affirmative
vote or written consent of a majority of the directors of this
Corporation.
4. Article VI of the Bylaws of this Corporation was restated to read in
its entirety as follows:
SECTION 1. INDEMNIFICATION OF AGENTS.
The board of directors of this Corporation was authorized to enter
into an agreement or agreements with any agent or agents of the Corporation,
providing for or permitting indemnification in excess of that permitted under
Section 317 of the General Corporation Law, subject to the limitations of
Section 204 of the General Corporation Law.
SECTION 2. INSURANCE.
The Corporation may purchase and maintain insurance to the extent
provided by Section 317(i) on behalf of any Agent against any liability by him
in any such position, or arising out of his status as such, whether or not the
Corporation would have the power to
<PAGE>
indemnify him against such liability under Section 317, the articles of
incorporation or hereunder.
5. Article VII, Section 2 of the Bylaws of the Corporation was restated
to read in its entirety as follows:
Subject to the right of shareholders, as provided in Section 1 of this
Article VII, to adopt, amend or repeal bylaws, bylaws may be adopted,
amended or repealed by the board of directors without the approval of
shareholders.
The following officers of the Corporation declare under penalty of perjury
under the laws of the State of California that the matters set forth in this
certificate are true and correct to the best of our knowledge.
Date: May 15, 1996 /s/ R. Luke Stefanko
-------------------------
R. Luke Stefanko
Chief Executive Officer
/s/ Donald R. Stine
-------------------------
Donald R. Stine
Secretary
<PAGE>
EXHIBIT 10.5
[LOGO] REVOLVING CREDIT AGREEMENT
This Revolving Credit Agreement ("Agreement") is entered into as of June
30, 1994 between Union Bank ("Bank") and VDI ("Borrower") with respect to the
following:
1. THE REVOLVING CREDIT ("LOAN")
1.1 Amount $2,000,000
1.2 Purpose: The Loan will be used for the following purpose working
capital.
1.3 Availability period: present through June 30, 1995
1.4 Interest rate: The interest rate shall be calculated at that rate set
forth in the promissory note ("Note") required under Article 3.
1.5 Principal and interest payments: At the times set forth in the Note
required under Article 1.11
1.6 Loan fee: N/A Dollars ($ N/A ) payable on .
1.7 Fee on unutilized portion of the Loan: On N/A, 19 and on the
day of each month thereafter until , 19 , or the earlier
termination of the Loan, Borrower shall pay to Bank a fee of N/A % per
year on the average daily unused portion of the Loan for the preceding
month computed on the basis of actual days elapsed over a year of 360
days.
1.8 Other fee: N/A
1.9 Balances: Borrower shall maintain all of its major accounts with Bank
during the term of the Loan, including any compensating balances as set
forth in Article 5.4.
1.10 Any prepayment fee and the calculation therefor shall be set forth in
the Note.
1.11 Method of Making Advances under the Loan: Borrower shall execute Bank's
standard promissory note, and each disbursement in a minimum amount of
$10,000 under the Note shall be made during the availability period in
accordance with the Bank form of authorization to disburse executed by
the Borrower. The Bank shall enter each amount borrowed and repaid on
the back of the Note, and such entries shall be prima facie evidence of
the amount of the Loan outstanding. Bank may use an alternate method
to evidence the amount of the Loan outstanding. Notwithstanding
anything to the contrary contained herein, Borrower agrees that for at
least N/A consecutive days during each twelve month period, there shall
be no Loan outstanding under this Revolving Credit Agreement.
1.12 See Attachment.
2. COLLATERAL
Security for the payment and performance of all sums and all other
obligations under this Agreement shall be evidenced by the documents executed
by Borrower and/or accommodation pledgor in connection with this Loan.
3. CONDITIONS TO AVAILABILITY OF THE LOAN
Before Bank is obligated to make any advance, Bank must receive all of the
following, each of which must be in form and substance satisfactory to Bank:
3.1 The original, executed Note;
3.2 Original, executed security agreement(s) and deed(s) of trust covering
the collateral referenced in Article 2;
3.3 All collateral referenced in Article 2 in which Bank wishes to have a
possessory security interest;
3.4 Financing statement(s) executed by Borrower;
3.5 Evidence that the security interests and liens in favor of Bank are
valid, enforceable, and prior to the rights and interests of others,
except those consented to in writing by Bank;
3.6 Continuing guaranty(ies) in favor of Bank, executed by Robert Bajorek;
R. Luke Stefanko;
Borrower shall cause each Guarantor to submit not later than ninety
(90) days after the end of each fiscal year the Guarantor's financial
statement, confirmed as to its correctness by Guarantor's signature,
either on Bank's form therefor or prepared by an independent certified
public accountant as of the end of each fiscal year;
3.7 Subordination agreement(s) in favor of Bank on its standard form
executed by N/A;
3.8 Evidence that the execution, delivery, and performance by Borrower of
this Agreement and the execution, delivery, and performance by Borrower
and any corporate guarantor or corporate subordinating creditor of any
instrument or agreement required under this Agreement, as appropriate,
have been duly authorized.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants (and each request for an advance shall be
deemed a representation and warranty made on the date of such request) that:
<PAGE>
4.1 Borrower is a corporation duly organized and existing under the laws of
the state of its organization and the execution, delivery, and
performance of this Agreement are within Borrower's powers, have been
duly authorized, and are not in conflict with the terms of any charter,
bylaw, or other organization papers of Borrower;
4.2 The execution, delivery, and performance of this Agreement are not in
conflict with any law or any indenture, agreement, or undertaking to
which Borrower is a party or by which Borrower is bound or affected;
4.3 All financial information submitted by Borrower to Bank, whether
previously or in the future, is and will be true and correct in all
material respects upon submission and is and will be complete upon
submission insofar as may be necessary to give Bank a true and accurate
knowledge of the subject matter thereof;
4.4 Borrower is properly licensed and in good standing in each state in
which Borrower is doing business, and Borrower has qualified under, and
complied with, where required, the fictitious name statute of each state
in which Borrower is doing business;
4.5 There is no event which is, or with notice or lapse of time or both
would be, an Event of Default (as defined in Article 6) under this
Agreement;
4.6 Borrower is not engaged in the business of extending credit for the
purpose of, and no part of the Loan will be used for, purchasing or
carrying margin stock within the meaning of the Federal Reserve Board
Regulation U; and
4.7 All defined benefit pension plans as defined in the Employees Retirement
Income Security Act of 1974, as amended ("ERISA"), of Borrower meet, as
of the date hereof, the minimum funding standards of Section 302 of
ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA has occurred with respect to any such plan.
5. COVENANTS
Borrower agrees, so long as the Loan is available and until full and final
payment of all sums outstanding under this Agreement and the Note, Borrower
will:
5.1 At all times maintain:
(a) A ratio of current assets to current liabilities of at least N/A
Current assets are defined as cash and other assets reasonably
expected to be realized in cash, sold, or consumed within one year,
or during the operating cycle of the business of the Borrower,
whichever is longer. Current liabilities are defined as those
obligations whose liquidation is reasonably expected to require the
use of existing resources classified as current assets, or the
creation of other current liabilities.
(b) A quick ratio of cash, accounts receivable and marketable securities
to current liabilities of at least .70 : 1.0 ;
(c) Net working capital equal to at least $ N/A (Net working capital
shall mean the excess of current assets over current liabilities);
(d) A minimum tangible net worth of $ 2,800,000 (Tangible net worth
shall mean net worth after deducting patents, trademarks, goodwill
and other similar intangible assets); and
(e) A ratio of total liabilities(1) to tangible net worth(2) of not
greater than 2.0 : 1.0 .
(1) including current portion of subordinated debt.
(2) plus long term portion of subordinated debt.
(f) Cash Flow Coverage to be no less than 1.1 at YE 12/31/94.
Defined as follows:
Numerator: Net income plus depreciation and amortization
expense.
Denominator: Interest Expense plus current portion of long term
debt (including subordinated debt and capital lease
obligations) plus unfinanced equipment purchases/
leases (to be defined as capital expenditures plus
capital leases incurred during prior 12 months less
term debt and capital lease obligations incurred
during prior 12 months.)
(g) The company will not post an operating or net loss in any two
consecutive quarters of any fiscal year.
(h) Borrower will notify Bank on a quarterly basis of year to date
dollar amount of assets acquired under capital leases.
(i) Borrower will not incur any liens on equipment located at the Tulsa,
Oklahoma facility.
5.2 Give written notice to Bank within fifteen (15) days of:
(a) All litigation affecting Borrower where the amount is One Hundred
Thousand Dollars ($100,000) or more;
(b) Any substantial dispute which may exist between Borrower and any
governmental regulatory body or law enforcement authority;
(c) Any Event of Default under this Agreement or any event which, upon
notice or a lapse of time or both, would become an Event of Default;
(d) Any other matter which has resulted or might result in a material
adverse change in Borrower's financial condition or operations; and
(e) Any change in Borrower's name or principal place of business.
5.3 Furnish to Bank:
(a) Within thirty (30) days after the close of each of the first three
fiscal quarters, its financial statement as of the close of that
quarter prepared in accordance with generally accepted accounting
principles by [X] Borrower's chief financial officer; [x] a(n)
(independent/certified/public or applicable combination thereof)
accountant selected by Borrower and reasonably satisfactory to Bank;
(b) Within 90 days after the close of each fiscal year, a copy of its
financial statement prepared on a(n) review (internal, compilation,
review, audited) basis in accordance with generally accepted
accounting principles applied on a basis consistent with the
previous year by [ ] Borrower's chief financial officer; [X] a(n)
independent certified public (independent/certified/public or
applicable combination thereof) accountant selected by Borrower and
reasonably satisfactory to Bank.
(c) Monthly account receivable agings within twenty (20) days of month
end.
5.4 Maintain on deposit with Bank average daily collected demand deposit
balances equal to at least N/A % of the average daily outstanding
balance of the Loan and N/A % of the committed amount of the Loan.
Balances shall be calculated by Bank in its sole discretion after
reduction for (a) uncollected funds, (b) reserve requirements of the
Federal Reserve Board, and (c) balances necessary to compensate Bank for
account activity charges and cost of all services provided by Bank to
the Borrower and not paid under a separate agreement. These balances
shall be computed N/A as of the last day of each N/A. Borrower shall be
charged a fee for any deficiency for such N/A equal to N/A of the per
annum rate of % plus the average Union Bank Reference Rate for the
N/A multiplied by the amount of average daily balances which Borrower
would have had to maintain on deposit with Bank to make up the
deficiency. This fee shall be due and payable ten (10) days after Bank
notified Borrower of the amount due and owing. Failure to maintain
required balances shall not be a default hereunder unless and until
Borrower shall fail to pay the fee when due.
5.5 Pay or reimburse Bank for any out-of-pocket expenses incurred by it in
connection with this Agreement or on any agreements or financing
statements or other instruments delivered under this Agreement.
<PAGE>
5.6 Maintain and preserve all rights, privileges and franchises now enjoyed,
conduct Borrower's business in an orderly, efficient and customary
manner, keep all Borrower's properties in good working order and
condition, and from time to time make all needed repairs, renewals or
replacements so that the efficiency of Borrower's properties shall be
fully maintained and preserved.
5.7 Maintain and keep in force in adequate amounts such insurance as is
usual in the business carried on by Borrower.
5.8 Maintain adequate books, accounts and records and prepare all financial
statements required hereunder in accordance with generally accepted
accounting principles and practices consistently applied, and in
compliance with the regulations of any governmental regulatory body
having jurisdiction over Borrower or Borrower's business and permit
employees or agents of Bank at any reasonable time to inspect Borrower's
properties, and to examine or audit Borrower's books, accounts and
records and make copies and memoranda thereof.
5.9 At all times meet, for all Borrower's defined benefit pension plans as
defined in the Employees Retirement Income Security Act of 1974, as
amended ("ERISA"), the minimum funding standards of Section 302 of
ERISA, and no Reportable Event or Prohibited Transaction as defined in
ERISA will occur with respect to any such plan.
5.10 At all times comply with, or cause to be complied with, all laws,
statutes, rules, regulations, orders and directions of any governmental
authority having jurisdiction over Borrower or Borrower's business.
5.11 Except as provided in this Agreement, or in the ordinary course of
business as currently conducted, not make any loans or advances, become
a guarantor or surety, pledge its credit or properties in any manner,
extend credit.
5.12 Not purchase the debt or equity of another person or entity except for
savings accounts and certificates of deposit of Bank, direct U.S.
Government obligations and commercial paper issued by corporations with
top ratings of Moody's or Standard & Poor's, provided all such permitted
investments shall mature within one year of purchase.
5.13 Not create, assume or suffer to exist any mortgage, encumbrance,
security interest, pledge, or other lien (including the lien of an
attachment, judgment, or execution), securing a charge or obligation, on
or in any of Borrower's property, real or personal, whether now owned or
hereafter acquired, except to Bank and as set forth in Articles 5.17 and
5.18.
5.14 Not sell or discount any receivables or evidence of indebtedness, except
to Bank, borrow any money, incur directly or indirectly, any liabilities
for borrowed money, except pursuant to agreements made with the Bank.
5.15 Neither liquidate, dissolve, enter into any consolidation, merger,
partnership, or other combination; nor convey, sell, or lease all or the
greater part of its assets or business; nor purchase or lease all or the
greater part of the assets or business of another.
5.16 Not engage in any business activities or operations substantially
different from or unrelated to present business activities and
operations.
5.17 Not, in any single fiscal year of Borrower, expend or incur obligations
of more than One Million Seven Hundred Fifty Thousand Dollars
($1,750,000) for the acquisition of fixed or capital assets. Fifty
Thousand
5.18 Not, in any single fiscal year of Borrower, enter into the lease of any
personal property which would cause Borrower's aggregate annual
obligations under all such leases to exceed N/A Dollars ($ ).
6. EVENTS OF DEFAULT
The occurrence of any of the following events ("Events of Default") shall
terminate any obligation on the part of Bank to make or continue the Loan
and, at the option of Bank, shall make all sums of interest and principal
outstanding under the Loan immediately due and payable, without notice of
default, presentment or demand for payment, protest or notice of nonpayment
or dishonor, or other notices or demands of any kind or character:
6.1 Borrower shall default in the due and punctual payment of the principal
of or the interest on the Note or any renewal thereof, and such default
shall not be cured within ten (10) business days after the occurrence
thereof; or
6.2 Any representation or warranty made by Borrower herein or in any
certificate or financial or other statement heretofore or hereafter
furnished by Borrower or its officers or any Guarantor shall prove to be
in any material respect false and misleading; or
6.3 Default shall be made by Borrower in the due performance or observance
of any covenant or condition of this Agreement and such default shall
not, within ten (10) days after Borrower has knowledge thereof, have
been cured; or
6.4 The filing by Borrower of any petition under the bankruptcy,
reorganization, arrangement, insolvency, or other debtor's relief laws,
or the filing against Borrower of any such petition or the appointment
of a receiver, trustee or liquidator of all or a substantial part of
Borrower's assets if the filing against Borrower is not dismissed within
thirty (30) days thereafter; or
6.5 The making by Borrower of an assignment for the benefit of creditors; or
6.6 The voluntary suspension of business by Borrower; or
6.7 Any guarantee or subordination agreement required hereunder is breached
or becomes ineffective, or any Guarantor or subordinating creditor
disavows or attempts to terminate such guarantee or subordination
agreement; or
6.8 If, in the opinion of Bank, there is a materially adverse change in the
financial condition of Borrower or any Guarantor, or for any reason Bank
believes that the prospect of payment or performance pursuant to the
Note, any other indebtedness of Borrower to Bank, this Agreement or any
other agreement or instrument required by Bank in connection with the
Loan has been impaired; or
6.9 Borrower shall commit or do, or fail to commit or do, any act or thing
which would constitute an event of default under any of the terms of any
other agreement, document, or instrument executed, or to be executed by
it and concerning the obligation to pay money. Notwithstanding the
foregoing, Bank shall have no duty to make any advance to Borrower
during any cure period provided for in Sections 6.1, 6.3 and/or 6.4.
7. MISCELLANEOUS
7.1 This Agreement shall bind and inure to the benefit of the parties hereto
and their respective successors and assigns, provided, however, that
Borrower shall not assign this Agreement or any of the rights, duties or
obligations of Borrower hereunder without the prior written consent of
Bank.
7.2 No consent or waiver under this Agreement shall be effective unless in
writing and signed by an officer of the Bank. No waiver of any breach
or default shall be deemed a waiver of any breach or default thereafter
occurring.
<PAGE>
7.3 This Agreement, and any instrument or agreement required under this
Agreement, shall be governed by and construed under the laws of the
State of California.
7.4 All documents executed in connection with this Agreement shall be Bank's
standard form or a form acceptable to Bank.
7.5 Litigation and Attorneys' Fees. Borrower will pay promptly to Bank,
without demand, reasonable attorneys' fees (including but not limited to
the reasonable estimate of the allocated costs and expenses of in-house
legal counsel and legal staff) and all costs and other expenses paid or
incurred by Bank in collecting or compromising the Loan or in enforcing
or exercising its rights or remedies created by, connected with or
provided in this Agreement or any other agreement or instrument required
by Bank in connection with the Loan, whether or not suit is filed. If
suit is filed, only the prevailing party shall be entitled to attorneys'
fees and court costs.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
BORROWER
UNION BANK, a California banking
corporation VDI
------------------------------------
By: /s/ Bonnie Rowan By: /s/ Sandra C. May
--------------------------------- ---------------------------------
Title VP Title Chief Financial Officer
------------------------------- -------------------------------
By: By:
--------------------------------- ---------------------------------
Title Title
------------------------------- -------------------------------
ADDRESS WHERE NOTICES TO BANK ADDRESS WHERE NOTICES TO BORROWER
ARE TO BE SENT ARE TO BE SENT
5200 West Century Blvd. 6920 Sunset Blvd.
- ------------------------------------ ------------------------------------
Los Angeles, CA 90045 Hollywood, CA 90028
- ------------------------------------ ------------------------------------
<PAGE>
EXHIBIT 10.7
[LETTERHEAD]
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(DO NOT USE THIS FORM FOR MULTI-TENANT PROPERTY)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, May
17 1994 is made by and between 6920 Sunset Boulevard Associates, A California
Partnership ("LESSOR") and VDI, Inc. A California Corporation
("LESSEE"), (collectively the "PARTIES" or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and
commonly known by the street address of 6930, 6920 and 6902 Sunset Boulevard
located in the County of Los Angeles, State of California and generally
described as(describe briefly the nature of the property) Two story office
building and parking lot of approximately 70 cars, as indicated in Exhibits
A, B, C, and D ("PREMISES"). (See Paragraph 2 for further provisions.)
1.3 TERM: Five (5) years and 0 months ("ORIGINAL TERM") commencing June 1,
1994 ("COMMENCEMENT DATE") and ending May 31, , 1999 ("EXPIRATION DATE"). (See
Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: __________________________("Early Possession Date").
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $32,000 per month ("BASE RENT"), payable on the First day
of each month commencing ___________________________________________
______________________________________________________________________________
(See Paragraph 4 for further provisions.)
/ x / If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $32,000 as Base Rent for the period
June 1994.
1.7 SECURITY DEPOSIT: $51,516.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: Video Tape Duplication, Shipping, Office use and
related legal use (See Paragraph 6 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ___________________________________________ ("GUARANTOR").
(See Paragraph 37 for further provisions.)
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 96 and Exhibits A-D all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within 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 to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security. environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date. Expiration Date and Original Term of this
Lease are as specified in Paragraph l.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Real Property Taxes and insurance premiums and to maintain the Premises)
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
NET PAGE 1
FORM 204N-3/90
<PAGE>
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this
Lease, or the obligations of Lessee hereunder, or extend the term hereof. but
in such case, Lessee shall not, except as otherwise provided herein, be
obligated to pay rent or perform any other obligation of Lessee under the
terms of this Lease until Lessor delivers possession of the Premises to
Lessee. If possession of the Premises is not delivered to Lessee within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease, in
which event the Parties shall be discharged from all obligations hereunder;
provided, however, that if such written notice by Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
shall terminate and be of no further force or effect. Except as may be
otherwise provided, and regardless of when the term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee
does not terminate this Lease, as aforesaid, the period free of the
obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed
shall run from the date of delivery of possession and continue for a period
equal to what Lessee would otherwise have enjoyed under the terms hereof, but
minus any davs of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by
Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved. Payment of Base Rent
and other charges shall be made to Lessor at its address stated herein or to
such other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. 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 therefor
deposit moneys 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 moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. 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
arvy, of Lessee's interest herein), that portion of the Security Deposit not
used or applied by Lessor. Unless otherwise expressly agreed in writing by
Lessor, no part of the Security Deposit shall be considered to be held in trust,
to bear interest or other increment for its use, or to be prepayment for any
moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in
Paragraph-6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition. Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving 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 therefrom or therefor, including, but
not limited, the installation (and 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, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs. claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage. spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in
the case of an emergency, and otherwise at reasonable times, for the purpose
of inspecting the condition of the Premises and for verifying compliance by
Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3),
and to employ experts and/or consultants in connection therewith and/or to
advise Lessor with respect to Lessee's activities, including but not limited
to the installation, operation, use, monitoring, maintenance, or removal of
any Hazardous Substance or storage tank on or from the Premises. The costs
and expenses of any such inspections shall be paid by the party requesting
same, unless a Default or Breach of this Lease, violation of Applicable Law,
or a contamination, caused or materially contributed to by Lessee is found to
exist or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition). 2.3 (Lessor's warranty as to compliance with covenants. etc).
7.2 (Lessor's obligations to repair). 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (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
NET PAGE 2
<PAGE>
as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Promises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems. including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering
and drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of Lessor
contained in Paragraphs 2.2 (relating to condition of the Premises),
2.3 (relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever. to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with proposed detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent.
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities, (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the"work thereon, and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with all Applicable Law.
Lessee shall promptly upon completion thereof furnish Lessor with as-built plans
and specifications therefor. Lessor may (but without obligation to do so)
condition its consent to any requested Alteration or Utility Installation that
costs $10,000 or more upon Lessee's providing Lessor with a lien and
completion bond in an amount equal to one and one-half times the estimated cost
of such Alteration or Utility Installation and/or upon Lessee's posting an
additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. 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 mechanics'
or materialmen's lien against the Premises or any interest therein. Lessee
shall give Lessor not less than ten (10) days'notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have
the right to post notices of non-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
attorney's fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations, and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, with all of
the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor. the Premises, as surrendered. shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well 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
Low 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 FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $1,000,000
per occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease 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. In the event Lessor is the Insuring Party, Lessor
shall also maintain liability insurance described in Paragraph 8.2(a), above,
in addition to, and not in lieu of, the insurance required to be maintained by
Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep
in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS"), insuring loss
NET PAGE 3
<PAGE>
or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason
of the unique nature or age of the improvements involved, such latter amount
is less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such 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), 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 Premises
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered cause of
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance 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. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the
event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or
if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the Lessor
shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about 1he Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall 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 having a lien on the Premises, as set forth in the most current issue
of "Best's Insurance Guide." Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be
delivered to Lessor certified copies of policies of such insurance or
certificates evidencing the existence and amounts of such insurance with the
insureds and loss payable clauses as required by this Lease. No such policy
shall be cancellable or subject to modification except after thirty (30) days
prior written notice to Lessor. Lessee shall at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to
procure and maintain the insurance required to be carried by the Insuring
Party under this Paragraph 8, the other Party may, but shall not be required
to, procure and maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in
contract or in tort) against the other, for loss of or damage to the Waiving
Party's property arising out of or incident to the perils required to be
insured against under Paragraph 8. The effect of such releases and waivers of
the right to recover damages shall not be limited by the amount of insurance
carried or required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, 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, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or
in dealing 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, and whether well
founded or not. In case any action or proceeding be brought against Lessor by
reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need
not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from
any other cause, whether the said injury or damage results from conditions
arising upon the Premises or upon other portions of the building of which the
Premises are a part, or from other sources or places, and regardless of
whether the cause of such damage or injury or the means of repairing the same
is accessible or not. Lessor shall not be liable for any damages arising from
any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Promises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the
Premises, other than Lessee Owned Alterations and Utility Installations, which
was caused by an event required to be covered by the insurance described in
Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, 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 PARTIAL DAMAGE--INSURED LOSS. If a Premises Partial Damage that is
an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's election, make the repair of any damage or destruction the total
cost to repair of which is $10,000 or less, and, in such event, Lessor shall
make the insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
(except as to the deductible which is Lessee's responsibility) as and when
required to complete said repairs. In the event, however, the shortage in
proceeds was due to the fact that, by reason of the unique nature of the
improvements, 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, the party
responsible for making the repairs 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 in such case Lessor does not so elect,
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.
NET PAGE 4
<PAGE>
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a 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, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease 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 giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. 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 (1) month's Base Rent, whether or not an Insured Loss, Lessor
may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date
of occurrence of such damage. Provided, however, 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, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in
such option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in
insurance proceeds (or adequate assurance thereof) needed to make the repairs.
If Lessee duly exercises such option during said Exercise 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 said Exercise Period, then Lessor may at Lessor's option
terminate this Lease as of the expiration of said sixty (60) day period
following the occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of the
Exercise Period, notwithstanding any term or provision in the grant of option
to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
Insured), whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage, its repair
or the restoration continues(not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b)), shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after receipt of such notice, this Lease shall continue in full
force and effect. "COMMENCE" as used in this Paragraph shall mean either the
unconditional authorization of the preparation of the required plans, or the
beginning of the actual work on the Promises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Law and this Lease shall continue in full force and effect, but subject to
Lessor's rights under Paragraph 13), Lessor may at Lessor's option either (i)
investigate and remediate such Hazardous Substance Condition, if required, 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 rernediate 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 giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the required funds or assurance thereof within the
times specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph
9.6(a) for a period of not to exceed twelve months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor, Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
NET PAGE 5
<PAGE>
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its 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 personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSORS CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "ASSIGNMENT") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring 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 the execution by Lessor of
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, at whichever time said 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 (c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to
treat such unconsented to assignment or subletting as a noncurable Breach,
Lessor shall have the right to either: (i) terminate this Lease, or (ii) upon
thirty (30) days written notice ("Lessor's Notice"), increase the monthly
Base Rent to fair market rental value or one hundred ten percent (110%) of
the Base Rent then in effect, whichever is greater. Pending determination of
the new fair market rental value, if disputed by Lessee, Lessee shall pay the
amount set forth in Lessor's Notice, with any overpayment credited against
the next installment(s) of Base Rent coming due, and any underpayment for the
period retroactively to the effective date of the adjustment being due and
payable immediately upon the determination thereof. Further, in the event of
such Breach and market value adjustment, (i) the purchase price of any option
to purchase the Premises held by Lessee shall be subject to similar
adjustment to the then fair market value (without the Lease being considered
an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition),
or one hundred ten percent (110%) of the price previously in effect,
whichever is greater, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the
market value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) 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, or (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 or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease, Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
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.
(1) 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 occurence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased to an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the amount required to
establish such Security Deposit 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 structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases
under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
in all rentals and income arising from any sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease;
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of this or any other
assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such
sublessee under such sublease. Lessee hereby irrevocably authorizes and directs
any such sublessee, upon receipt of a written notice from Lessor stating that a
Breach exists in the performance of Lessee's obligations under this Lease, to
pay to Lessor the rents and other charges due and to become due under the
sublease. Sublessee shall rely upon any such statement and request from Lessor
and shall pay such rents and other charges to Lessor without any obligation or
right to inquire as to whether such Breach exists and notwithstanding any notice
from or claim from Lessee to the contrary. Lessee shall have no right or claim
against said sublessee, or, until the Breach has been cured, against Lessor, for
any such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right 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" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in
Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or the
abandonment of the Premises.
NET PAGE 6
<PAGE>
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent or any other monetary payment required
to be made by Lessee hereunder, whether to Lessor or to a third party, as and
when due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1 (b), (iii) the recession of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease 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 (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.C. 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 (e)
is contrary to any applicable law, such provision shall be of no force or
effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to Lessor
by Lessee or any Guarantor of Lessee's obligations hereunder was materially
false.
(g) It 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 assurance or 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 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 aftorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. The worth at the time of award of the
amount referred to in provision (iii) of the prior sentence shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent. Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph. If termination
of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the
unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. He notice and grace period required under
subparagraphs 13.1 (b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee
under any statute authorizing the forfeiture of leases for unlawful detainer
shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1 (b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1 (b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice,
and the failure of Lessee to cure the Default within the greater of the two
such grace periods shall constitute both an unlawful detainer and a Breach of
this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver
to protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee from liability under
any indemnity provisions of this Lease as to matters occurring or accruing
during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
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 of this Lease by Lessee, as defined in Paragraph
13.1, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor as additional rent due
under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by
Lessor of the provisions of this Paragraph unless specifically so stated in
writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
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 the holders of any ground lease, mortgage or deed of trust
covering the Premises whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall
not be in breach of this Lease 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
land area not occupied by any building, is taken by condemnation, Lessee may,
at Lessee's option, to be exercised in writing 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
NET PAGE 7
<PAGE>
have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base Rent
shall be reduced in the same proportion as the rentable floor area of the
Premises taken bears to the total rentable floor area of the building located
on the Premises. No reduction of Base Rent shall occur if the only portion of
the Premises taken is land on which there is no building. Any award for the
taking of all or any part of the Premises under the power of eminent domain
or any payment made under threat of the exercise of such power shall be the
property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation, separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above the legal and other expenses
incurred by Lessor in the condemnation matter, repair any damage to the
Premises caused by such condemnation, except to the extent that Lessee has
been reimbursed therefor by the condemning authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKER'S FEE.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days after
written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender or
purchaser, including but not limited to Lessee's financial statements for the
past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for
the purposes herein set forth.
17. 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, or,
if this is a sublease, of the lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such
transfer or assignment. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid,
the prior Lessor shall be relieved of all liability with respect to the
obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in
this Lease to be performed by the Lessor shall be binding only upon the
Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service)
or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given 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 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 confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Sunday or legal holiday, it
shall be deemed received on the next business day.
24 WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or
conditions shall be of no force or effect whatsoever unless specifically
agreed to in writing by Lessor at or before the time of deposit of such
payment.
25. 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.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with a at law or in
equity.
NET PAGE 8
<PAGE>
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 detault
and allow such Lender thirty (30) days following receipt of such notice for
the cure of said default before invoking any remedies Lessee may have by
reason thereof. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
give written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of
the documentation or recordation thereof.
30.2 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 the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party
(as hereafter defined) or Broker in any such proceeding, action, or appeal
thereon, shall be entitled to reasonable attorney's fees. Such fees may be
awarded in the same suit or recovered in a separate suit, whether or not such
action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the other
Party or Broker of its claim or defense. The attorney's fee award shall not
be computed in accordance with any court fee schedule, but shall be such as
to fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation
and service of notices of Default and consultations in connection therewith,
whether or not a legal action is subsequently commenced in connection with
such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any
ordinary "For Sale" signs and Lessor may at any time during the last one
hundred twenty (120) days of the term hereof place on or about the Premises
any ordinary "For Lease" signs. All such activities of Lessor shall be
without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first
having obtained Lessor's prior written consent. Notwithstanding anything to
the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the
roof) such signs as are reasonably required to advertise Lessee's own
business. The installation of any sign on the Premises by or for Lessee shall
be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof and the
right to install, and all revenues from the installation of, such advertising
signs on the Premises, including the roof, as do not unreasonably interfere
with the conduct of Lessee's business.
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 architects, attorneys, engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of
a Hazardous Substance, practice or storage tank, shall be paid by Lessee to
Lessor upon receipt of an invoice and supporting documentation therefor.
Subject to Paragraph 12.2(e) (applicable to assignment or subletting), Lessor
may, as a condition to considering any such request by Lessee, require that
Lessee deposit with Lessor an amount of money (in addition to the Security
Deposit held under Paragraph 5) reasonably calculated by Lessor to represent
the cost Lessor will incur in considering and responding to Lessee's request.
Except as otherwise provided, any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment
of this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Deffault or
Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.2 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.
NET PAGE 9
<PAGE>
39.4 EFFECT OF DEFAULT ON OPTIONS. (a) Lessee shall have no right to
exercise an Option, notwithstanding any provision in the grant of Option to
the contrary (i) during the period commencing with the giving of any notice
of Default under Paragraph 13.1 and continuing until the noticed Default is
cured, or (ii) during the period of time any monetary obligation due Lessor
from Lessee is unpaid (without regard to whether notice thereof is given
Lessee), or (iii) during the time Lessee is in Breach of this Lease, or (iv)
in the event that Lessor has given to Lessee three (3) or more notices of
Default under Paragraph 13.1, whether or not the Defaults are cured, during
the twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option Shall
terminate and be of no further force or effect, notwithstanding Lessee's due
and timely exercise of the Option, if, after such exercise and during the
term of this Lease. (i) Lessee 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 or more notices of Default under Paragraph 13.1
during any twelve month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe
all reasonable rules and regulations which Lessor may make from time to time
for the management, safety, care, and cleanliness of the grounds, the parking
and unloading of vehicles and the preservation of good order, as well as for
the convenience of other occupants or tenants of such other buildings and
their invitees, and that Lessee will pay its fair share of common expenses
incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide
same. Lessee assumes all responsibility for the protection of the Premises,
Lessee, its agents and invitees and their property from the acts of third
parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of
parcel maps and restrictions, so long as such easements, rights, dedications,
maps and restrictions do not unreasonably interfere with the use of the
Premises by Lessee. Lessee agrees to sign any documents reasonably requested
by Lessor to effectuate any such easement rights, dedication, map or
restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such
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 Lessor or Lessor's agent and
submission of same to Lessee shall notbe deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall
amend this Lease from time to time to reflect any adjustments that are made to
the Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable nonmonetary 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.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUION 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
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER,
EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE
PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE
TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS
LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at Hollywood, California Executed at Hollywood, California
----------------------------- ------------------------
on May 1994 on May 1994
------------------------------------ ----------------------------------
by LESSOR: by LESSEE:
6290 Sunset Boulevard VDI, Inc.
- -------------------------------------- ------------------------------------
- -------------------------------------- ------------------------------------
By By
------------------------------------ ----------------------------------
Name Printed: Samson Marian Name Printed: Luke Stefanko
------------------------- -----------------------
Title: President Title: President:
-------------------------------- -----------------------------
By By
------------------------------------ ----------------------------------
Name Printed: Name Printed: Bob Bajorek
------------------------- -----------------------
Title: Title:
-------------------------------- -----------------------------
Address: Address:
------------------------------- ----------------------------
------------------------------- ----------------------------
Tel. No. (213)962-8200 Fax No. (213)466-3678 Tel. No. (213)957-5500 Fax
No. ( )
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071 (213) 687 6777. Fax No. (213) 687-8616.
COPYRIGHT 1990-BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION.
ALL RIGHTS RESERVED.
<PAGE>
AMENDMENT
49. RENTAL INCREASE
Commencing with the third year of this lease and each year thereafter, the
monthly rental rate shall be adjusted upward by 4% per annum.
50. PARKING
Included in the base rental is the parking area as indentified in Exhibit
D.
51. INSURANCE REIMBURSENMENT
Not with standing anything to contrary in Paragraph 8 herein, Lessee shall
be responsible to reimburse Lessor for Lessor's expense for liability and
property insurance on the premises. Lessee's reimbursement shall be based
upon the percentage of the total square feet occupied by the Lessee
divided by the total square feet of the entire building. Lessor agrees to
provide Lessee an a appraiser's certification of the net rentable square
footage of each building within 30 days of the commencement of this Lease.
52. REAL ESTATE TAXES
Lessor shall be the responsible party for paying the Real Estate Taxes.
54. ORPHAN EYES
Lessor hereby grants Lessee the option to occupy the premises currently
occupied by Ophans Eyes upon the termination of Orphan Eyes lease for the
monthly rental of $2,000.
55. SECURITY DEPOSITS
Lessor and Lessee agree that the Security Deposit indicated in paragraph
1.7 represents the Security Deposit currently in deposit with Lessor and
does not represent additional Security Deposit required upon execution of
this Lease.
56. EXHIBITS
Incorporated into this Lease are the following documents and Exhibits:
A. VDI Premises 6920 Sunset Boulevard
B. VDI Premises 6920 Sunset Boulevard
C. VDI Premises 6930 Sunset Boulevard
D. Parking
57. LEASE JUNE 20, 1990
The parties to this lease are also the parties to that Standard Industrial
Lease-Net dated June 20, 1990 and to that Lease Amendment date September 28,
1993 which hereby cancelled and supersede by this new Lease dated May 17,
1994.
Lessor Lessee
/s/ /s/
______________________ ________________________
6920 Sunset Boulevard VDI, Inc.
Samson Marian
/s/ Luke Stefanko
________________________
VDI, Inc.
<PAGE>
Exhibit A
VDI - Premises
6920 Sunset
Second Floor
[ARCHITECTURAL DRAWING OF FLOORPLAN]
Lessor Lessee
/s/ /s/
___________________________ ___________________________
/s/ Samson Marian /s/ Luke Stefanko
___________________________ ___________________________
<PAGE>
Exhibit B
VDI - Premises
6920 Sunset
First Floor
[ARCHITECTURAL DRAWING OF FLOORPLAN]
Lessor Lessee
/s/ /s/
___________________________ ___________________________
/s/ Samson Marian /s/ Luke Stefanko
___________________________ ___________________________
<PAGE>
Exhibit C
VDI - Premises
6920 Sunset
First Floor
[ARCHITECTURAL DRAWING OF FLOORPLAN]
Lessor Lessee
/s/ /s/
___________________________ ___________________________
/s/ Samson Marian /s/ Luke Stefanko
___________________________ ___________________________
<PAGE>
Exhibit D
Parking
[ARCHITECTURAL DRAWING OF FLOORPLAN]
Lessor Lessee
/s/ /s/
___________________________ ___________________________
/s/ Samson Marian /s/ Luke Stefanko
___________________________ ___________________________
<PAGE>
EXHIBIT 10.8
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE-MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This lease ("LEASE"), dated for reference purposes only,
April 25, 1996, is made by and between 3767 Overland Associates, LTD
("LESSOR") and VDI, a California corporation ("LESSEE"), (collectively the
"PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvement therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 3767 Overland Avenue, suite
106-110, located in the City of Los Angeles, County of Los Angeles, State of
California, with zip code 90034 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 6300 sq. ft. of space as a part of a larger building. In
addition to Lesser'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: 5 unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and 10 reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)
1.3 TERM: 1 years and 8 months ("ORIGINAL TERM") commencing May 1,
1996 ("COMMENCEMENT DATE") and ending December 31, 1997 ("EXPIRATION DATE").
(Also see Paragraph 3.)
1.4 EARLY POSSESSION: upon execution ("EARLY POSSESSION DATE"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $6615 per month ("BASE RENT"), payable on the first
day of each month commencing May 1, 1996. (Also see Paragraph 4.)
/X/ If this box is checked, this Lease provides for the Base Rent to be
adjusted per para. 49 attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $6615 as Base Rent for the period
May 1 thru 31, 1996
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: thirty-two and
three tenths (32.3%) ("LESSEE'S SHARE") as determined by
/X/ prorata square footage of the Premises as compared to the total square
footage of the Building or / / other criteria as described in Addendum ____.
1.7 SECURITY DEPOSIT: $8,000.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.) already delivered to Lessor.
1.8 PERMITTED USE: Post Production and other office uses ("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):
/ / represents Lessor exclusively ("LESSOR'S BROKER");
/ / N/A 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 $____) 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 ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs -- through --, and Exhibits A through B, 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 or 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 cost and expense,
correct any non-compliance of the Premises with said warranties.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-1-
<PAGE>
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
with 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.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified
in Paragraph 1.6(b) of all Common Area Operating Expenses, as hereinafter
defined, during each calendar year of the term of this Lease, in accordance
with the following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not
specifically attributable to the Building or to any other building or to the
operation, repair and maintenance thereof, shall be equitably allocated by
Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide
those services unless the Industrial Center already has the same, Lessor
already provides the services, or Lessor has agreed elsewhere in this Lease
to provide the same or same of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
of actual expenses is presented to Lessee by Lessor. At Lessor's option,
however, an amount may be estimated by Lessor from time to time at Lessee's
Share of annual Common Area Operating Expenses and the same shall be payable
monthly or quarterly, as Lessor shall designate, during each 12-month period
of the Lease term, on the same day as the Base Rent is due hereunder. Lessor
shall deliver to Lessee within sixty (60) days after the expiration of each
calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
exceed Lessee's Share as indicated on said statement, Lessor shall be
credited the amount of such over-
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-2-
<PAGE>
payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
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 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 or 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
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-3-
<PAGE>
detection 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 PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. 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 an 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 it, 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), 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.
(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 requirement 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
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-4-
<PAGE>
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 costs 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.
(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
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-5-
<PAGE>
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13). Lessor may at
Lessor' 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, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts 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 DEFINITION. 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 or 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. 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 such 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 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.
(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.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-6-
<PAGE>
(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 subleasee 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 rights 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 Leasee 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 Lessor'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 proceeding 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 statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two (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 of judicial decisions of the state wherein the Premises are
located.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-7-
<PAGE>
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for 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 Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other
charge, bonus, inducement or consideration theretofore abated, given or paid
by Lessor under such an Inducement Provision shall be immediately due and
payable by Lessee to Lessor, and recoverable by Lessor, as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph 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 five 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 in 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 (e) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said 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 dealers
or actions of the indemnifying Party, including any costs, expenses, and/or
attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND 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, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants
under this Lease thereafter to be performed by the Lessor. Subject to the
foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within 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.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance
of all obligations to be performed or observed by the Parties under this
Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
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 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 if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may
by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party
or parties at such addresses as Lessor may from time to time hereafter
designate by written notice to Lessee.
23.2 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
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-8-
<PAGE>
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 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 hereof. Any payment given
Lessor by Lessee may be accepted by Lessor on account of moneys or damages
due Lessor, notwithstanding any qualifying statements or conditions made by
Lessee in connection therewith, which such statements and/or conditions shall
be of no force or effect whatsoever unless specifically agreed to in writing
by Lessor at or before the time of deposit of such payment.
25. 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.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this
Paragraph 26 then the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to two
hundred percent (200%) of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by Lessee.
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 of 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, 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 architects', 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.
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 reasonable 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 of this Lease.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-9-
<PAGE>
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 of this Lease.
40. RULES AND 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, may 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. RENT ADJUSTMENTS
The base rent shall be adjusted on January 1, 1997 based upon the increase in
the Consumer Price Index for the U.S. City, all urban consumers plus Lessee's
share of the common area expenses per paragraph 4.2. In no event shall the
base rent be less than the previous month. Lessor's failure to request
payment of a rent adjustment shall not constitute a waiver to the right to
any adjustment due.
50. SUBLET
Lessor is aware that Lessee may sublease space to Shattuck Funding, Inc.
Notwithstanding anything in this Lease to the contrary, Lessor hereby
consents to said sublease to Shattuck Funding, Inc. subject to approval of
sublease documentation and so long as Lessee remains liable for any and all
obligations under this Lease.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-10-
<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 FILED 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, UNDEGROUND 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>
Executed at: Los Angeles, California Executed at: Los Angeles, Calfiornia
----------------------------------- --------------------------------------
on: May 7, 1996 On: April , 1996
-------------------------------------------- -----------------------------------------------
By LESSOR: By LESSEE:
3767 Overland Associates, LTD VDI, a California corporation
- ----------------------------------------------- --------------------------------------------------
- ----------------------------------------------- --------------------------------------------------
By: /s/ Neville Ostrick By: /s/ Donald Stine
-------------------------------------------- -----------------------------------------------
Name Printed: Neville Ostrick Name Printed: Donald Stine
---------------------------------- -------------------------------------
Title: General Partner Title: CFO
----------------------------------------- --------------------------------------------
By: By:
-------------------------------------------- -----------------------------------------------
Name Printed: Name Printed:
---------------------------------- -------------------------------------
Title: Title:
----------------------------------------- --------------------------------------------
Address: 10380 Almayo Avenue, #9 Address: 3767 Overland Avenue, #107
--------------------------------------- ------------------------------------------
Los Angeles, CA 90064 Los Angeles, CA 90034
- ----------------------------------------------- ------------------------------------------
Telephone: (310) 552-9811 Telephone: ( )
------------------------------- ----------------------------------
Facsimile: (310) 552-3237 Facsimile: ( )
------------------------------- ----------------------------------
BROKER BROKER
Executed at: Executed at:
----------------------------------- --------------------------------------
on: On:
-------------------------------------------- -----------------------------------------------
By: By:
-------------------------------------------- -----------------------------------------------
Name Printed: Name Printed:
---------------------------------- -------------------------------------
Title: Title:
----------------------------------------- --------------------------------------------
Address: Address:
--------------------------------------- ------------------------------------------
- ----------------------------------------------- ------------------------------------------
Telephone: ( ) Telephone: ( )
------------------------------- ----------------------------------
Facsimile: ( ) Facsimile: ( )
------------------------------- ----------------------------------
</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.
MULTI-TENANT -- MODIFIED NET INITIALS:______
- -C- American Industrial Real Estate Association 1993 ______
-11-
<PAGE>
- -C- 1993 by American Industrial Real Estate Association. All rights reserved.
No part of these words may be reproduced in any form without permission in
writing.
<PAGE>
EXHIBIT A
[FLOOR PLANS]
<PAGE>
EXHIBIT B
[SIGN PANELS]
<PAGE>
LEASE
THIS LEASE, made and entered into this 3rd day of June, 1994, between
The Bovaird Supply Company, a Delaware corporation, hereinafter referred to as
"Landlord," and VDI, a California corporation, hereinafter referred to as
"Tenant."
WITNESSETH: That,
For and in consideration of the rental to be paid and the mutual covenants
and agreements herein contained, Landlord and Tenant agree as follows:
1. LEASED PREMISES. Landlord hereby demises, leases and lets unto
Tenant, and Tenant hereby leases from Landlord, the Net Rentable Space (as
defined in Section 5 below) in the building (the "Building") located on real
estate situated in Tulsa County, State of Oklahoma, as more particularly
described in Exhibit "A" appended hereto and incorporated herein by reference,
together with the right of Tenant's employees and invitees to use twenty-five
exterior parking spaces to be designated by Landlord in Landlord's parking lot.
Such space is hereinafter referred to as the "Leased Premises." By occupying the
Leased Premises, Tenant shall be deemed to have accepted the same and to have
acknowledged that the same comply fully with Landlord's covenants and
obligations hereunder.
2. COMMON AREA. The term "Common Area" is defined for all purposes of
this Lease as that part of the Building intended for the common use of all
tenants, including, among other facilities, parking area, private streets and
alleys, landscaping, curbs, loading dock, sidewalks, lighting facilities, entry
foyer, elevators and the like, but excluding streets and alleys maintained by a
public authority. Landlord reserves the right to change from time to time the
dimensions and locations of the Common Area. Tenant, its employees and
customers shall have the non-exclusive right to use the Common Area as
constituted from time to time, such use to be in common with Landlord, other
tenants of the Building and other persons permitted by Landlord to use the same,
and subject to such reasonable rules and regulations governing use as Landlord
may from time to time prescribe. Tenant shall not take any action which would
interfere with the rights of other persons to use the Common Area. Landlord may
temporarily close any part of the Common Area for such periods of time as may be
necessary to make repairs or alterations. Landlord shall be responsible for the
operation, management and maintenance of the Common Area, the manner of
maintenance and the expenditures therefore to be in the sole discretion of
Landlord.
3. TERM. The term of this Lease shall be for five (5) years, beginning
on July 15, 1994, and ending on July 14, 1999.
4. RENTAL. The rent for each Lease Year for the Leased Premises shall
be seven dollars and fifty cents ($7.50) per square foot of Net Rentable Space
(as defined in Section 5 below), payable monthly in advance in equal
installments. The term "Lease Year"
<PAGE>
means each twelve-month period beginning on each July 15th during the primary
term and any renewal term hereof.
5. NET RENTABLE SPACE. At the commencement of this Lease, the Leased
Premises shall include all habitable space in the basement and on the and first
floor of the Building as outlined on building floor plan appended hereto as
Exhibit "B". The Net Rentable Space of such area for all purposes of this Lease
shall be deemed to be 22,497 square feet, whether or not the actual square
footage is more or less than such amount.
6. SECURITY DEPOSIT. Tenant has deposited with Landlord the sum of
$14,060.63 as security for the faithful performance by Tenant of all the terms,
covenants and conditions of this Lease to be performed by Tenant. If Tenant
fully and faithfully performs and complies with all terms, covenants and
conditions to be performed by it hereunder, such security deposit will be
refunded to Tenant upon expiration of this Lease or any renewal or extension
thereof.
7. OPTION TO RENEW. Tenant shall have the option to renew this Lease for
one additional five (5) year term by giving Landlord written notice of its
election to renew at least sixty (60) days prior to the expiration of the
primary term hereof. The terms and conditions of such renewal of this Lease
shall be the same as set forth herein, except that the annual rental shall be
increased proportionately to correspond with any percentage increase in the U.S.
Consumer Price Index which occurred between the first and last days of the
primary term hereof. This option to renew shall terminate in the event that
Tenant becomes in default of any term of this Lease.
8. USE OF PREMISES.
8.1 The Leased Premises shall be used by Tenant only for the
purpose of general corporate offices, video tape duplication and distribution,
and related services in connection with its business operations.
8.2 Tenant shall not, without Landlord's prior written consent, keep
anything within the premises or use the premises for any purpose which increases
the insurance premium cost or invalidates any insurance policy carried on the
Leased Premises or other parts of the Building. All property kept, stored or
maintained within the premises by Tenant shall be at Tenant's sole risk.
8.3 Tenant shall take good care of the Leased Premises and keep the same
free from waste at all times. Tenant shall keep the Leased Premises neat and
clean at all times. Tenant shall not operate an incinerator or burn trash or
garbage within the Building.
8.4 Tenant shall procure at its sole expense any permits and licenses
required for the transaction of business in the Leased
-2-
<PAGE>
Premises and otherwise comply with all applicable laws, ordinances and
governmental regulation.
9. LEASEHOLD IMPROVEMENTS.
9.1 In advance of the beginning of the primary term of this Lease,
Tenant may make improvements to the Leased Premises, subject to the prior
written approval by Landlord of all plans and specifications for such
improvements. Landlord will reimburse Tenant for the actual cost of such
improvements up to a maximum of $4.00 per square foot of Net Rentable Space.
Fifty percent (50%) of the estimated cost of such improvements will be paid
by Landlord to Tenant on July 1, 1994. The balance will be paid on July 15,
1994, provided that Landlord has been presented original invoices and written
lien releases from all contractors providing work and materials in connection
with the improvements, and has inspected and approved the improvements.
9.2 All repairs, alterations and improvements made to the Leased Premises
at any time by Tenant shall be performed in a good and workmanlike manner, in
compliance with all governmental requirements, and in such manner as to cause a
minimum of interference with the transaction of business in the Building. All
such alterations and improvements must be approved in advance in writing by
Landlord and shall become a part of the Leased Premises and revert to Landlord
upon the expiration of the term of this Lease. No unusually heavy equipment or
fixtures shall be installed by Tenant without the prior written consent and
approval of Landlord. Tenant shall not install any equipment or additions which
would violate any occupancy, health, fire or other code, affect the insurability
of the Building or the Leased Premises or its rating for fire insurance
purposes, or otherwise affect the safety or structure of the Leased Premises.
10. DAMAGE TO OR DESTRUCTION OF IMPROVEMENTS. The destruction of the
Leased Premises by fire or the elements or such material injury thereto as to
render the Leased Premises unfit for the purpose of operating general office
space for a period of thirty (30) consecutive days shall, at the option of
Tenant exercised in writing within sixty (60) days after the Leased Premises
become unfit, effect a termination of this Lease. During the period the Leased
Premises are unfit for occupancy, no rent shall be charged, if said period be
longer than five (5) consecutive days. THE RIGHT TO CANCEL THIS LEASE AND TO
RECEIVE AN ABATEMENT OF RENT ARE THE EXCLUSIVE REMEDIES AVAILABLE TO Tenant,
UNDER THIS LEASE OR BY STATUTORY OR COMMON LAW, FOR DAMAGE TO THE LEASED
PREMISES OR ANY EQUIPMENT OR FURNISHINGS THEREIN, ATTRIBUTABLE TO ANY CAUSE
(INCLUDING NEGLIGENCE) EXCEPT LANDLORD'S INTENTIONAL AND WILLFUL MISCONDUCT.
11. INSURANCE.
11.1 Tenant shall maintain general public liability insurance,
with the Landlord as named insured, in the amount of $1,000,000 for injury to
any one person, $1,000,000 for personal injuries arising
-3-
<PAGE>
out of any one occurrence, and $1,000,000 for property damage, ($1,000,000
aggregate, any one occurrence) in the Leased Premises.
11.2 Tenant shall maintain worker's compensation insurance in the amounts,
and covering the employees, required by Oklahoma law.
11.3 Tenant shall deliver to Landlord certificates for the insurance
described above.
11.4 Landlord shall not be required to carry any insurance
coverage in favor of, or for the benefit of, Tenant. Tenant acknowledges that
any insurance coverage for its benefit shall be at its sole expense, and
Landlord shall have no rights in any proceeds of any insurance maintained by
Landlord.
12. REAL ESTATE TAXES. Tenant acknowledges that the Premises comprise
approximately 40% of the building and which shall be defined as "Tenant's
share." In the event that real estate taxes due and owing by Landlord for the
building shall be increased above those charges during the base year (which is
defined as the tax or fiscal year used by governmental authority assessing such
taxes in effect on the commencement date of this Lease), Tenant agrees to pay
as additional rent within thirty (30) days of receipt of notice from Landlord,
an amount equal to such additional real estate taxes or Tenant's Share of
additional real estate taxes.
13. PERSONAL PROPERTY TAXES. Tenant shall be liable for all taxes levied
against personal property and trade fixtures placed by Tenant in the Leased
Premises. If any such taxes are levied against Landlord or Landlord's property
and if Landlord elects to pay the same or if the assessed value of Landlord's
property is increased by inclusion of personal property and trade fixtures
placed by Tenant in the Leased Premises and Landlord elects to pay the taxes
based on such increase, Tenant shall pay to Landlord upon demand that part of
such taxes for which Tenant is primarily liable hereunder.
14. OTHER TAXES. If at any time during the primary term of this Lease or
any renewal or extension thereof a tax or excise on rents, or other tax however
described (except any franchise, estate, inheritance, capital stock, income or
excess profits tax imposed upon Landlord) is levied or assessed against Landlord
by any lawful taxing authority on account of Landlord's interest in this Lease
or the rents or other charges reserved hereunder, Tenant agrees to pay to
Landlord upon demand, and in addition to the rentals and other charges
prescribed in this Lease, the amount of such tax or excise. In the event any
such tax or excise is levied or assessed directly against Tenant, then Tenant
shall be responsible for and shall pay the same at such times and in such manner
as the taxing authority shall require.
15. INSPECTION. Landlord shall have the right to enter upon the Leased
Premises for the purpose of inspecting the same, or of making repairs,
alterations or additions to adjacent premises, or of showing the Leased Premises
to prospective purchasers, lessees or lenders, without any liability to Tenant.
-4-
<PAGE>
16. SIGNS. Tenant may place two signs advertising its business, one of
which shall be located in the first floor reception area of the Building, and
the other of which shall be located on the exterior of the Building in the
proximity of the loading dock. The design of such signs and their exact
location shall be subject to the written approval of Landlord. Tenant shall not
place, erect or permit any other sign or other advertising media on the exterior
of the Leased Premises, or readily visible from the exterior of the Leased
Premises, without Landlord's prior written approval.
17. SERVICES PROVIDED BY LANDLORD. For so long as Tenant is not in default
of any of the terms and conditions of this Lease, Landlord agrees to provide the
following services:
(a) Heat/Air Conditioning/cooling/ventilation ("Air Conditioning")
from 12:01 a.m. Monday through 2:OO P.M. Saturday, except holidays. Should
Tenant require additional Air Conditioning service, Tenant shall notify Landlord
no later than 3:00 p.m. on the Friday preceding the day on which it requires
such service. Tenant shall pay Landlord ten dollars ($10.00) per hour for such
additional service upon receipt of a statement therefor.
(b) Elevator service via key card access;
(c) Water for ordinary lavatory purposes, except that if, in the sole
determination of Landlord, Tenant shall use or consume water for any other
purpose or in unusual quantities, Tenant shall pay to Landlord the rent or
charge which may, during the term of this Lease, be assessed or imposed for the
water used or consumed in or on the said Premises, whether determined by meter
or otherwise, as soon as and when the same may be assessed or imposed and will
also pay the expenses for the installation, setting and maintenance of a water
meter in the said Premises should a meter be required by Landlord. Tenant shall
pay Tenant's proportionate part of any increase in the sewer rent or charge
imposed upon the building. All such rents, charges or expenses shall be paid by
Tenant only to the extent that they cause Landlord's expense of operating the
Building to exceed $4.00 per square foot of habitable space.
(d) Cleaning services on business days provided that the Leased
Premises are kept in good order by Tenant. Landlord shall pay the cost of
removal of Tenant's ordinary rubbish or refuse. Window cleaning shall be at
Landlord's sole cost and expense and at such times as Landlord may determine,
it being understood and agreed that Tenant is strictly forbidden and
prohibited from cleaning any window from the outside;
(e) Landlord will arrange and pay for a separate electric meter to
measure electric service to the Leased Premises. Tenant shall arrange for
separate billing in Tenant's name and pay all charges for electric service to
the Leased Premises.
18. MAINTENANCE AND REPAIR BY LANDLORD. Landlord shall keep the
foundation, the exterior walls, windows, doors, door closure
-5-
<PAGE>
devices and other exterior openings; window and door frames, molding, locks and
hardware; lighting, heating, air conditioning, plumbing and other electrical,
mechanical and electromotive installation, equipment and fixtures; and the
roof of the Leased Premises in good repair, except that Landlord shall not be
required to make any repairs occasioned by the act or negligence of Tenant, its
employees or agents. In the event that the Leased Premises should become in
need of repairs required to be made by Landlord hereunder, Tenant shall give
immediate written notice thereof to Landlord, and Landlord shall not be
responsible in any way for failure to make any such repairs until a reasonable
time shall have elapsed after delivery of such written notice. For the purposes
of this Lease, a reasonable time shall be deemed to be two (2) business days in
the case of minor repairs and thirty (30) calendar days in the case of major
repairs.
19. EMINENT DOMAIN.
19.1 If more than thirty percent (30%) of the floor area of the Leased
Premises should be taken for any public or quasi-public use under any
governmental law, ordinance or regulation or by right of eminent domain or by
private purchase in lieu thereof, this Lease shall terminate and the rent shall
be abated during the unexpired portion of this Lease, effective on the date
physical possession is taken by the condemning authority.
19.2 If less than thirty percent (30%) of the floor area of the Leased
Premises should be taken as aforesaid, this Lease shall not terminate; however,
the rental payable hereunder during the unexpired portion of this Lease shall be
reduced in proportion to the area taken, effective on the date physical
possession is taken by the condemning authority. Following such partial taking,
Landlord shall make all necessary repairs or alterations to the remaining
premises necessary to make the remaining portions of the Leased Premises an
architectural whole. However, in the event that the portion of the Leased
Premises taken renders it untenable as a general corporate office, the Tenant
may terminate this Lease.
19.3 All compensation awarded for any taking (or the proceeds of private
sale in lieu thereof) of the Leased Premises shall be the property of Landlord,
and Tenant hereby assigns its interest in any such award to Landlord; provided,
however, Landlord shall have no interest in any award made to Tenant for loss of
business or for the taking of Tenant's fixtures and other property if a separate
award for such items is made to Tenant.
20. LIABILITY OF LANDLORD. Landlord and Landlord's agents and employees
shall not be liable to Tenant for any injury to person or damage to property
caused by the Leased Premises or other portions of the Building becoming out of
repair or by defect in or failure of equipment, pipes or wiring, or broken
glass, or by the backing up of drains, or by gas, water, steam, electricity or
oil leaking, escaping or flowing into the Leased Premises (except where due to
Landlord's willful failure to make repairs required to be made hereunder, after
the expiration of a reasonable time after written notice to Landlord of the need
for such repairs), nor shall
-6-
<PAGE>
Landlord be liable to Tenant for any loss or damage that may be occasioned by or
through the acts of omissions of any person whomsoever, excepting only duly
authorized employees and agents of Landlord. LANDLORD SHALL HAVE NO
RESPONSIBILITY OR LIABILITY FOR INTERRUPTED OR SUSPENDED SERVICES OR UTILITIES
THAT ARE BEYOND LANDLORDS'S CONTROL.
21. SUBLEASING AND ASSIGNMENTS. Tenant shall not assign or transfer this
Lease or sublet the whole or any part of the Leased Premises without the prior
written consent of Landlord; provided, however, notwithstanding the assignment
or subletting to another person, Tenant shall nevertheless remain liable to
Landlord for full payment of the rent according to the terms of this Lease, and
shall guarantee to Landlord that such assignee or subtenant will keep and
perform each and all of the covenants and agreements set forth in this Lease to
be kept and performed by Tenant hereunder.
22. DEFAULT.
22.1 The following events shall be deemed to be events of default by Tenant
under this Lease:
(a) Tenant shall fail to pay any installment of rent or any other
obligation hereunder involving the payment of money and such failure shall
continue for a period of ten (10) days;
(b) Tenant shall fail to comply with any term, provision or covenant
of this Lease, other than the payment of rent and shall not cure such failure
within twenty (20) days after written notice thereof to Landlord, or is not in
the process of taking reasonable action to cure;
(c) Landlord shall become insolvent, or shall make a transfer in
fraud of creditors, or shall make an assignment for the benefit of creditors;
(d) Landlord shall file a petition under any section or chapter of
the bankruptcy laws of the United States, as amended, or under any similar law
or statute of the United States or any state thereof; or Landlord shall be
adjudged bankrupt or insolvent in proceedings filed thereunder against Landlord;
(e) A receiver or trustee shall be appointed for the Leased Premises
or for all or substantially all of the assets of Landlord;
(f) Tenant shall desert or vacate or shall commence to desert or
vacate the Leased Premises or any substantial portion of the Leased Premises or
shall remove or attempt to remove, without the prior written consent of Tenant,
all or a substantial value of Tenant's goods, wares, equipment, fixtures,
furniture or other personal property;
(g) Tenant shall do or permit to be done anything which creates a
lien upon the premises.
-7-
<PAGE>
22.2 Upon the occurrence of an event of default, Tenant shall be provided
written notice of the default and shall have fifteen (15) days from the date of
mailing of such notice within which to cure the default. If Tenant should not
cure the default within such period, Landlord shall have the option to pursue
either of the following alternative remedies:
(a) Without any notice or demand whatsoever, take any one or more of
the actions permissible at law to insure performance by Tenant's covenant's and
obligations under this Lease. In this regard, it is agreed that if Tenant
deserts or vacates the Leased Premises, Landlord may enter upon and take
possession of such premises in order to protect them from deterioration and
continue to demand from Tenant the monthly rentals and other charges provided in
this Lease, without any obligation to relet; but that if Landlord does, at its
sole discretion elect to relet the Leased Premises, such action by Landlord
shall not be deemed as an acceptance of Tenant's surrender of the Leased
Premises. Tenant hereby acknowledges that Landlord shall be reletting as
Tenant's agent and Tenant furthermore hereby agrees to pay to Landlord on
demand any deficiency that may arise between the monthly rentals and other
charges provided in this Lease and that actually collected by Landlord. It is
further agreed in this regard that in the event of any such default, Landlord
shall have the right to enter upon the Leased Premises without being liable for
prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this Lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in this effecting
compliance with Tenant's obligations under this Lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to Tenant from such
action;
(b) Terminate this Lease by written notice to Tenant, in which event
Tenant shall immediately surrender the Leased Premises to Landlord, and if
Tenant fails to do so, Landlord may, without prejudice to any other remedy which
Landlord may have for possession or arrearage in rent, enter upon and take
possession of the Leased Premises and expel or remove Tenant and any other
person who may be occupying said premises or any part thereof, without being
liable for damages therefore; and Tenant agrees to pay to Landlord on demand the
amount of all loss and damage which Landlord may suffer by reason of such
termination, said loss and damage to be determined by either of the following
alternative measures of damages:
(i) Until Landlord is able, through reasonable efforts, the
nature of which efforts shall be at the sole discretion of Landlord, to relet
the Leased Premises, Tenant shall pay to Landlord on or before the first day of
each calendar month, the monthly rental provided in this Lease. After the Leased
Premises have been relet by Landlord, Tenant shall pay to Landlord on the 20th
day of each calendar month the difference between the monthly rental provided in
this Lease for the preceding calendar month and that actually collected by
Landlord for such month. If it is necessary for Landlord to bring suit in order
to collect any deficiency, Landlord shall have a right to allow such
deficiencies
-8-
<PAGE>
to accumulate and to bring an action on several or all of the accrued
deficiencies at one time. Any such suit shall not prejudice in any way the
right of Landlord to bring a similar action for any subsequent deficiency or
deficiencies. Any amount collected by Landlord from subsequent tenants for
any calendar month, in excess of the monthly rental provided in this Lease,
shall belong to Landlord and Tenant shall have no claim thereto;
(ii) When Landlord desires, Landlord may demand a final
settlement. Upon demand for a final settlement, Landlord shall have a right to,
and Tenant hereby agrees to pay, the difference between the total of all monthly
rentals provided in this Lease for the remainder of the term and the reasonable
rental value of the Leased Premises for such period, such difference to be
discounted to present value at an interest rate of six percent (6%) per annum.
22.3 If Landlord elects to exercise the remedy prescribed in subsection
22.2(a) above, this election shall in no way prejudice Landlord's right at any
time thereafter to cancel said election in favor of the remedy prescribed in
subsection 22.2(b) above, provided that at the time of such cancellation Tenant
is still in default. Similarly, if Landlord elects to compute damages in the
manner prescribed by subsection 22.2(b)(i) above, this election shall in no way
prejudice Landlord's right at any time thereafter to demand a final settlement
in accordance with subsection 22.2(b)(ii) above. Pursuit of any of the above
remedies shall not preclude pursuit of any other remedies prescribed in other
sections of this Lease and any other remedies provided by law. Forbearance by
Landlord to enforce one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of such default.
22.4 It is further agreed that, in addition to all other payments provided
for herein, Tenant shall compensate Landlord for all reasonable expenses
incurred by Landlord in repossession and all reasonable expenses incurred by
Landlord in reletting, including among other expenses, repairs, remodeling,
replacements, advertisements and brokerage fees.
22.5 If on account of any breach or default by Tenant in its obligations
hereunder, Landlord shall employ an attorney to enforce or defend any of
Landlord's rights or remedies hereunder, Tenant agrees to pay any reasonable
attorneys' fees incurred by Landlord in such connection.
22.6 Landlord acknowledges receipt from Tenant of the sum stated in Section
6 above to be held by Landlord without interest as security for the performance
by Tenant of Tenant's covenants and obligations under this Lease, it being
expressly understood that such deposit is not an advance payment of rental or a
measure of Landlord's damages in case of default by Tenant. Upon the occurrence
of any event of default by Tenant, Landlord may, from time to time, without
prejudice to any other remedy provided herein or provided by law, use such fund
to the extent necessary to make good any arrears of rent and any other damage,
injury, expense or
-9-
<PAGE>
liability caused to Landlord by such event or default, and Tenant shall pay to
Landlord on demand the amount so applied in order to restore the security
deposit to its original amount. If Tenant is not then in default hereunder, any
remaining balance of such deposit shall be returned by Landlord to Tenant upon
termination of this Lease.
23. REPOSSESSION OF LEASED PREMISES. At the termination of this Lease,
Tenant shall surrender the Leased Premises to Landlord in as good condition as
the same were at the time Tenant went into possession hereunder, ordinary wear
and tear excepted. A mere holding over beyond the term shall not renew or
extend the Lease but shall serve to make Tenant a tenant at will of Landlord at
the rental payable during the last month of the Lease term.
24. TENANT'S COVENANT AGAINST LIENS AND ENCUMBRANCES. Tenant agrees to
keep the Leased Premises free and clear of all liens and encumbrances of
whatsoever kind and character resulting from or arising out of their use,
enjoyment and occupancy of the Leased Premises and agrees to indemnify and hold
Landlord harmless from all claims, demands, losses, damage, and liability
arising out of or resulting from any such liens or encumbrances.
25. SUBORDINATION. Tenant accepts this Lease subject and subordinate to
any mortgage, deed of trust or other lien presently existing upon the Leased
Premises or the Building as a whole, and to any renewals and extensions thereof;
but Tenant agrees that any such mortgagee shall have the right at any time to
subordinate such mortgage, deed of trust or other lien to this Lease. Landlord
in hereby irrevocably vested with full power and authority to subordinate this
Lease to any mortgage, deed of trust or other lien hereafter placed upon the
Leased Premises or the Building as a whole, and Tenant agrees upon demand to
execute such further instruments subordinating this Lease as Landlord may
request.
26. RELATIONSHIP OF PARTIES. Nothing herein contained shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership or of joint venture
between the parties hereto, it being understood and agreed that neither the
method of computation of rent, nor any other provision contained herein, nor any
acts of the parties hereto, shall be deemed to create any relationship between
the parties hereto other than the relationship of landlord and tenant.
27. INDEMNITY. TENANT SHALL INDEMNIFY AND DEFEND LANDLORD AGAINST ALL
CLAIMS, LOSSES, COSTS OR EXPENSES, INCLUDING ATTORNEYS' FEES, SETTLEMENT
LIABILITIES, ARBITRATION AWARDS AND JUDGMENTS INCLUDING PUNITIVE DAMAGES,
ARISING OUT OF ANY CLAIM FOR PERSONAL INJURY OR DAMAGE TO PROPERTY OCCURRING
WITHIN THE LEASED PREMISES OR THE BUILDING OR CAUSED BY TENANT OR ITS AGENTS,
EMPLOYEES OR INVITEES. SUBJECT TO THE LIMITATIONS SET FORTH IN SECTIONS 10 AND
20 ABOVE, LANDLORD SHALL INDEMNIFY AND DEFEND TENANT AGAINST ALL CLAIMS, LOSSES,
COSTS OR EXPENSES, INCLUDING ATTORNEY'S FEES, SETTLEMENT LIABILITIES,
ARBITRATION AWARDS AND JUDGMENTS INCLUDING PUNITIVE DAMAGES, ARISING OUT OF ANY
CLAIM FOR PERSONAL INJURY OR
-10-
<PAGE>
DAMAGE TO PROPERTY CAUSED BY LANDLORD OR ITS AGENTS, EMPLOYEES OR
INVITEES.
28. FORCE MAJEURE. Whenever a period of time is herein prescribed for
action to be taken by Landlord, Landlord shall not be liable or responsible for,
and there shall be excluded from the computation of any such period of time, any
delays due to strikes, riots, acts of God, shortages of labor or materials, war,
governmental laws, regulations or restrictions or any other causes of any kind
whatsoever which are beyond the reasonable control of Landlord. At any time
when there is outstanding a mortgage, deed of trust or similar security
instrument covering the Building, Tenant may not exercise any remedies for
default by Landlord hereunder unless and until the holder of the indebtedness
secured by such mortgage, deed of trust or similar security instrument shall
have received written notice of such default and a reasonable time for curing
such default shall thereafter have elapsed.
29. SALE OF BUILDING. In the event Landlord sells its interest in the
Building and retains no interest therein other than a mortgage or similar lien,
the legal entity named in this Lease as Landlord shall be relieved from any
obligations of Landlord accruing under the provisions of the Lease subsequent to
the effective date of such sale, so long as the new landlord shall assume and
agree to all obligations of the Landlord in this agreement.
30. HAZARDOUS MATERIALS. To the best of Landlord's knowledge, information
and belief, the Building contains no hazardous materials to which Tenant or its
employees, agents or invitees could be exposed. If hazardous materials are
discovered in the Building, it shall be Landlord's responsibility to remove
such materials and to make the Building safe for occupancy. If Landlord should
elect not to remove such hazardous materials, then Tenant may terminate this
lease upon ten (10) days written notice to Landlord, which termination shall be
Tenant's sole and exclusive remedy. Tenant shall not introduce any hazardous
materials into the Leased Premises or the Building.
31. REGULATORY REQUIREMENTS. Landlord shall comply with all State and
Federal laws and regulations, including specifically, the Americans With
Disabilities Act, in connection with the operation and maintenance of the
Building.
32. AMENDMENTS TO LEASE. Neither this Lease nor any provision hereof
shall be changed, varied or extended except by instrument in writing signed by
Landlord and Tenant.
33. SUCCESSORS. All of the covenants, terms and obligations of this
Sublease shall extend to, and be binding upon, or inure to the benefit of, as
the case may be, Landlord and Tenant, and their respective heirs, successors,
personal representatives and assigns.
34. NOTICES AND PAYMENT OF RENTAL. Any notice required by any provision
hereof to be given by one party to the other party may be given by registered or
certified United States Mail
-11-
<PAGE>
addressed to the party entitled to such notice. A deposit of such written
notice in the United States Mails property addressed with postage prepaid shall
be a full discharge by the party required to give such notice upon return of
registration or certification receipt. All notices may be mailed to Landlord
addressed as follows:
The Bovaird Supply Company
623 South Detroit
Tulsa, Oklahoma 74102
Attention; Charles 0. Gibson
and all notices may be mailed to Tenant addressed as follows:
VDI
6920 Sunset Boulevard
Hollywood, California 90028
Rentals to be paid to Landlord by Tenant may be paid at the address set forth
above. The mailing address of Landlord and Tenant may be changed from time to
time by written notice to the other party setting forth the new address.
35. WARRANTIES. LANDLORD DISCLAIMS, AND TENANT WAIVES, ALL WARRANTIES,
INCLUDING WITHOUT LIMITATION THE IMPLIED WARRANTIES OF FITNESS FOR ANY PURPOSE
OR FOR A SPECIFIC PURPOSE, MERCHANTABILITY AND HABITABILITY.
"Landlord"
THE BOVAIRD SUPPLY COMPANY
By: /s/ Jeff A. Smyth
--------------------------------
Jeff A. Smyth
Vice President and
Chief Financial Officer
"Tenant"
VDI
By: /s/ Sandra C. Mays
---------------------------------
Sandra Mays
Title: Chief Financial Officer
-12-
<PAGE>
EXHIBIT "A"
The Southerly Fifty (50) feet of the Easterly One Hundred (100) feet of Lot
Three (3), all of Lot Four (4) and that Part of Lot Five (5) having a
frontage of Fifty (50) feet on South Detroit Avenue, a depth of One Hundred
Forty (140) feet to an alley, with a uniform width of Fifty (50) feet
adjoining Lot Four (4), all in Block One Hundred Eighty-four (184), Original
Town, Now City of Tulsa, Tulsa County, Oklahoma, according to the recorded
plat thereof;
<PAGE>
ACKNOWLEDGMENTS
---------------
STATE OF OKLAHOMA )
) ss.
COUNTY OF TULSA )
The foregoing instrument was acknowledged before me this 3rd day of June,
1994, by Jeff A. Smyth, Vice President and Chief Financial Officer of THE
BOVAIRD SUPPLY COMPANY, a Delaware corporation on behalf of the corporation.
/s/ Deborah K. Sheehan
------------------------------------
[SEAL] Notary Public
Deborah K. Sheehan
-------------------------------------
Typed or Printed Name of Notary
My Commission Expires:
3-16-97
- --------------------
STATE OF California )
)SS.
COUNTY OF Los Angeles )
The foregoing instrument was acknowledged before me this 3rd day of June,
1994, by Sandra Mays, Chief Financial Officer of VDI, a California corporation,
on behalf of the corporation
/s/ Morton M. Cohen
-------------------------------------
Notary Public
Morton M. Cohen
-------------------------------------
Typed or Printed Name of Notary
My Commission Expires:
12/8/95
- -------------------- [SEAL]
-13-
<PAGE>
[Letterhead VDI Inc.]
08 February 1991
Mr. Samson Maraan
6920 SUNSET BOULEVARD ASSOCIATES
6930 Sunset Boulevard
Hollywood, CA. 90028
RE: Security Guard Service
Dear Samson;
The following Letter of Understanding sets forth the agreement between VDI and
6920 Sunset Boulevard Associates ("Associates") regarding security guard
service at 6902 - 6930 Sunset Boulevard ("Premises"). All parties agree that
this document modifies and replaces Section 51 of the Lease dated June 20, 1990
between 6920 Sunset Boulevard Associates and VDI (formerly D2D, Inc.).
VDI shall, at its sole discretion, hire a security service to provide
appropriate protection for the Premises during the hours from 6:00 p.m. to 6:00
a.m., Monday through Friday. The service currently being used is Curtin
Security Service. The current cost of this protection is $15.00/hour
($750.00/week), invoiced weekly.
Associates agrees to reimburse VDI 40% of the cost of the coverage
outlined above, effective January 1, 1991. VDI will invoice Associates monthly
for it's 40% share, which shall be due within 5 days of receipt. Associates
further agrees to pay it's 40% share of any reasonable increase in the cost of
hiring this security protection for the Premises.
Please indicate your agreement with the above by signing the enclosed copy of
this Letter and returning it to my attention at your earliest convenience.
Sincerely,
/s/ R. Luke Stefanko
R. Luke Stefanko
Chairman of the Board
Accepted and agreed to this_______ day of February, 1991:
By: _____________________________________ Title: _________________________
for 6920 Sunset Boulevard Associates
<PAGE>
EXHIBIT 10.10
Entered into this 1st day of April, 1996.
Luke Stefanko and VDI hereby enter into an agreement whereby Luke Stefanko
will borrow $1,200,000 one million two hundred thousand dollars secured by this
note agreement and subject to the following terms:
<TABLE>
<C> <S> <C>
-- Amount $1,200,000
-- Term 5 years*
Interest 6%
-- Rate
</TABLE>
* Or, if earlier, the date (A) VDI enters into an agreement to offer securities
for sale to the public markets, or (B) the date VDI distributes previously
taxed and unpaid distributions to its shareholders, in which case this loan
shall become due and payable within 30 days thereafter.
Luke Stefanko agrees that this loan is subject to all terms, conditions and
covenants which have been previously imposed on VDI by its creditors.
<TABLE>
<S> <C>
/s/ R. LUKE STEFANKO
R. Luke Stefanko
</TABLE>
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 15, 1996 relating to
the financial statements of VDI Media, which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended December 31, 1995 listed under Item 16(b) of this
Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
May 16, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 415,000 246,000
<SECURITIES> 0 0
<RECEIVABLES> 4,682,000 4,915,000
<ALLOWANCES> (284,000) (357,000)
<INVENTORY> 178,000 117,000
<CURRENT-ASSETS> 52,000 17,000
<PP&E> 8,891,000 10,515,000
<DEPRECIATION> (4,899,000) (5,350,000)
<TOTAL-ASSETS> 9,340,000 9,153,000
<CURRENT-LIABILITIES> 4,171,000 3,493,000
<BONDS> 2,150,000 1,963,000
0 0
0 0
<COMMON> 500,000 500,000
<OTHER-SE> 2,519,000 3,197,000
<TOTAL-LIABILITY-AND-EQUITY> 9,340,000 3,697,000
<SALES> 18,538,000 5,837,000
<TOTAL-REVENUES> 18,538,000 5,837,000
<CGS> 11,256,000 3,688,000
<TOTAL-COSTS> 11,256,000 3,688,000
<OTHER-EXPENSES> 5,181,000 1,373,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 375,000 70,000
<INCOME-PRETAX> 1,768,000 706,000
<INCOME-TAX> 26,000 18,000
<INCOME-CONTINUING> 1,742,000 688,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,742,000 688,000
<EPS-PRIMARY> 0.16 0.06
<EPS-DILUTED> 0.16 0.06
</TABLE>
